<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7500 52-2096698
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
7 KRIPES ROAD
EAST GRANBY, CONNECTICUT 06026
(860) 653-0081
(Address, including zip code, and telephone number, including
area code, of registrant's principal execute offices)
------------------------------
MR. DAVID J. LANGEVIN
CHIEF FINANCIAL OFFICER
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
7 KRIPES ROAD
EAST GRANBY, CONNECTICUT 06026
(860) 653-0081
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
Frank L. Schiff, Esq.
Thomas W. Christopher, Esq.
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
(212) 819-8752
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If 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. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
AMOUNT TO BE PROPOSED OFFERING PROPOSED AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER NOTE(1) OFFERING PRICE(1)
<S> <C> <C> <C>
13% Senior Subordinated Notes due 2008 $100,000,000 100% $100,000,000
Subsidiary guarantees of each of the subsidiary
guarantors(2) (3) (3) (3)
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED FEE
<S> <C>
13% Senior Subordinated Notes due 2008 $27,800
Subsidiary guarantees of each of the subsidiary
guarantors(2) None(3)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) The 13% Senior Subordinated Notes Due 2008 of Environmental Systems Products
Holdings Inc. being registered will be guaranteed by Environmental Systems
Products, Inc., Envirotest Systems Corp. (DE), Envirotest Systems Corp.
(WA), Envirotest Holdings, Inc., Envirotest Technologies, Inc., Envirotest
Acquisitions Co., Envirotest Partners, Envirotest Illinois, Inc., Envirotest
Wisconsin, Inc., ES Funding Corporation, Remote Sensing Technologies, Inc.,
Newmall Limited, Wellman Overseas Limited and Wellman North America, Inc.
(3) No additional consideration will be paid by the recipients of the 13% Senior
Subordinated Notes Due 2008 for the subsidiary guarantees. Pursuant to Rule
437(n) under the Securities Act of 1933, no separate fee is payable for the
subsidiary guarantees.
------------------------------
THE REGISTRANTS HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PRIMARY STANDARD ADDRESS, INCLUDING ZIP CODE
JURISDICTION INDUSTRIAL IRS EMPLOYER AND TELEPHONE NUMBER,
OF CLASSIFICATION CODE IDENTIFICATION INCLUDING AREA CODE, OF
NAME OF CORPORATION INCORPORATION NUMBER NO. PRINCIPAL EXECUTIVE OFFICE
- ----------------------------- ------------- --------------------- ---------------- -----------------------------
<S> <C> <C> <C> <C>
Environmental Systems Delaware 7500 06-1285832 7 Kripes Road
Products, Inc. East Granby, Connecticut
06026
(860) 653-0081
Envirotest Systems Corp. Delaware 7500 06-0914220 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Envirotest Systems Corp. Washington 7500 36-3087021 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Envirotest Holdings, Inc. Delaware 7500 None(1) 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Envirotest Technologies, Inc. Delaware 7500 36-2680300 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Envirotest Acquisitions Co. Delaware 7500 52-1958199 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Envirotest Partners ) 7500 23-2736441 7 Kripes Road
Pennsylvania(2 East Granby, Connecticut
06026
(860) 653-0081
Envirotest Illinois, Inc. Delaware 7500 52-2026812 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Envirotest Wisconsin, Inc. Delaware 7500 39-1844542 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
ES Funding Corporation Delaware 7500 77-0474306 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
Remote Sensing Technologies, Delaware 7500 86-0766265 7 Kripes Road
Inc. East Granby, Connecticut
06026
(860) 653-0081
Newmall Ltd. Great 7500 98-0187866 7 Kripes Road
Britain East Granby, Connecticut
06026
(860) 653-0081
Wellman Overseas Ltd. Great 7500 None 7 Kripes Road
Britain East Granby, Connecticut
06026
(860) 653-0081
Wellman North America, Inc. Delaware 7500 06-1477873 7 Kripes Road
East Granby, Connecticut
06026
(860) 653-0081
</TABLE>
- ------------------------------
(1) Applied for.
(2) Partnership registered under the laws of Pennsylvania.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING NOTEHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITED.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS WILL BE AMENDED OR COMPLETED;
DATED DECEMBER 22, 1998
PROSPECTUS
, 1999
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
$100,000,000
13% SENIOR SUBORDINATED NOTES DUE 2008
SELLING NOTEHOLDERS, CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED, CERTAIN
AFFILIATES OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND CHASE
EQUITY ASSOCIATES L.P., MAY USE THIS PROSPECTUS TO OFFER UP TO $100,000,000 OF
13% SENIOR SUBORDINATED NOTES DUE 2008 IN ONE OR MORE OFFERINGS.
<TABLE>
<S> <C>
TERMS OF NOTES
- - MATURITY - GUARANTEES
October 31, 2008. If we cannot make payments on the notes when
due, our guarantor subsidiaries must make
- - REDEMPTION them instead. Not all of our subsidiaries
We may redeem the notes at any time after will be
October 31, 2003. guarantors.
Before October 31, 2001, we may redeem up - RANKING
to These notes and the subsidiary guarantees are
$35 million of the notes with the proceeds subordinated to all of our and our guarantor
of subsidiaries':
certain public offerings of our equity or
that of - current indebtedness (other than trade
our parent company. payables); and
- - MANDATORY OFFER TO REPURCHASE - future indebtedness (other than trade
If we sell certain assets or experience payables) unless the terms of that
specific indebtedness expressly provide otherwise.
kinds of changes in control, we must offer
to - INTEREST
repurchase the notes. Fixed annual rate of 13%.
Paid every six months on April 30 and
October 31.
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE THE RISK FACTORS SECTION BEGINNING ON PAGE
13.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
PROSPECTUS SUMMARY....................................................................................... 1
RISK FACTORS............................................................................................. 13
SOURCES AND USES OF FUNDS................................................................................ 20
CAPITALIZATION........................................................................................... 21
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC. UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... 22
SELECTED HISTORICAL FINANCIAL DATA....................................................................... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 38
INDUSTRY AND REGULATORY OVERVIEW......................................................................... 51
BUSINESS................................................................................................. 53
MANAGEMENT............................................................................................... 70
SECURITY OWNERSHIP....................................................................................... 73
CERTAIN TRANSACTIONS..................................................................................... 74
DESCRIPTION OF OTHER INDEBTEDNESS........................................................................ 76
DESCRIPTION OF THE NOTES................................................................................. 80
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS.................................................. 121
BOOK-ENTRY; DELIVERY AND FORM............................................................................ 125
SELLING NOTEHOLDERS...................................................................................... 128
PLAN OF DISTRIBUTION..................................................................................... 129
LEGAL MATTERS............................................................................................ 130
EXPERTS.................................................................................................. 130
INDEX TO FINANCIAL STATEMENTS............................................................................ F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD
ALSO READ THE MORE DETAILED INFORMATION AND FINANCIAL DATA INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
SEC using a "shelf" registration process. Under this shelf registration process,
the selling noteholders may sell the Notes described in this prospectus in one
or more offerings up to a total dollar amount of $100,000,000.
THE COMPANY
We are the leading worldwide provider of vehicle emissions testing equipment
and services. We manufacture equipment that tests vehicle emissions for
compliance with air pollution standards and operate testing programs on behalf
of states and other jurisdictions. We estimate that we have an approximate 35%
share of the domestic market for vehicle emissions testing equipment used by
independent service stations and other service providers in states that have
adopted a "decentralized" program (representing an approximate 30% share of the
domestic market for basic testing equipment and an approximate 48% share of the
domestic market for higher-margin enhanced testing equipment). We also operate,
or are under contract to operate, 14 of the 21 testing programs in the 16 states
that have adopted a centralized program and we operate the only such program in
Canada. In the twelve months ended September 30, 1998, we tested approximately
11.8 million motor vehicles, which represented approximately 70% of the total
North American centralized testing market revenues. As of September 30, 1998, we
had a contractual backlog to provide centralized emissions testing services of
approximately $873 million through 2008.
We sell emissions testing equipment to numerous private sector facilities,
such as service stations, automotive repair shops and dealerships that test
vehicles for compliance with emissions standards. In the emissions testing
industry, such facilities are called decentralized facilities. We manufacture
both "basic" testing systems, that test only a motor vehicle's emissions while
in neutral, and "enhanced" testing systems that test a vehicle's emissions under
simulated driving conditions.
In addition, we test vehicles in high volume, test-only facilities which we
operate on behalf of governmental authorities. Services provided at such
facilities are called centralized testing services. We are the leading provider
of these services in North America and have completed more than 150 million
vehicle tests since 1974. We conduct our centralized testing business under
exclusive, long-term contracts with state, local and other governmental
authorities that typically have an initial term of five to ten years. Pursuant
to these contracts, we generally:
- structure the testing program;
- design a testing facility network;
- select, design and construct individual inspection and test facilities
with multiple test lanes;
- design and install the required computer network; and
- operate the testing program.
Our unaudited pro forma revenues for the twelve months ended September 30,
1998 which include the results of Environmental Systems Products, Inc. and
Envirotest Systems Corp., are $335.1 million. Fifty percent of these revenues
are from ESP, our equipment business and fifty percent are from Envirotest, our
testing business. Our unaudited pro forma Adjusted EBITDA for the twelve months
ended September 30, 1998 is $114.5 million. Of this amount, $35.6 million is
from our equipment business and $78.9 million is from our testing business. Our
pro forma net income for the twelve months ended September 30, 1998 is $4.1
million. Our unaudited pro forma revenues, Adjusted EBITDA and net income for
the twelve months ended September 30, 1998 give effect to:
- our acquisition of Envirotest; and
- the refinancing related to the acquisition
as if these transactions occurred on October 1, 1997.
<PAGE>
PRO FORMA INFORMATION. Pro forma information does not indicate actual
results and may not indicate future results. Both historical and pro forma
information is included in this prospectus.
INDUSTRY AND REGULATORY OVERVIEW
Vehicle emissions produce approximately 50% of the ozone air pollution and
nearly all of the carbon monoxide air pollution in metropolitan areas. The EPA
estimates that enhanced emissions testing on motor vehicles is approximately 10
times more cost-effective in reducing air pollution than increasing controls on
stationary pollution sources such as factories and utilities. Consequently, the
EPA has made emissions testing an integral part of its overall effort to reduce
air pollution by ensuring that vehicles meet emissions standards throughout
their lives. Vehicle emissions control requirements began with the passage of
the Clean Air Act in 1970. Since that time, regulations have become
progressively more stringent. The 1990 Amendments, in particular, emphasized the
need for effective emissions control programs and, in 1992, the EPA adopted
regulations that required 181 geographic areas to implement certain types of
emissions control programs by certain dates, depending on the area's population
and its level of air pollution. Today, the EPA has the authority under the Clean
Air Act to withhold non-safety related federal highway funds from states that
fail to implement such mandated programs by prescribed deadlines.
On July 31, 1998, the EPA issued a final study which concluded that more
stringent air quality standards for motor vehicle emissions are needed,
technologically feasible, and cost-effective. We believe that the setting of
such standards will be the most important EPA regulatory initiative affecting
motor vehicles since the passage of the 1990 Amendments. We believe that the EPA
study is likely to result in more stringent standards that will have the effect
of increasing the number of areas which must implement emissions testing
programs and therefore potentially increase the market for our products and
services.
In general, emissions tests are performed either in a centralized program or
in a decentralized program. In a centralized program, vehicle owners take their
vehicles to one of a small number of special centralized facilities to be
tested. These facilities only perform tests; they do not repair vehicles.
Usually, a private contractor licensed by the government operates the
centralized facility. In a decentralized program, vehicle owners take their
vehicles to a service station, automotive repair shop or dealership to be
tested. These decentralized facilities both perform tests and repair vehicles.
The EPA has granted state and local governmental authorities the discretion to
determine how best to establish and operate a network of emissions testing
facilities, including the flexibility to choose either a centralized or a
decentralized program. In 1997, centralized programs in the U.S. and Canada
performed approximately 23.0 million paid tests (36% of the total tests) and
generated approximately $250 million in revenues, while facilities in
decentralized markets into which we sell the testing equipment in the United
States performed approximately 41.7 million tests (64% of the total tests) and
generated approximately $816 million in revenues.
A number of recent international initiatives evidence the increasing
recognition by foreign countries of the hazardous effects of air pollution on
human health and the environment. We believe that foreign countries will
continue to follow the lead of the United States in pollution control and, more
particularly, vehicle emissions testing, and will adopt or upgrade existing
emissions testing programs as an efficient and effective step towards reducing
air pollution. A number of foreign countries have implemented various forms of
mandatory testing programs, including the United Kingdom, Germany, Canada
(certain provinces), Mexico and Japan, and a number of others are considering
developing or expanding mandatory or voluntary testing programs, including
Poland, the Philippines, Brazil, Argentina, and Chile.
2
<PAGE>
BUSINESS STRENGTHS
We believe that we have the following competitive advantages:
INDUSTRY LEADER. We have leading market positions in both the production of
equipment used in the decentralized testing market and in the testing of vehicle
emissions in the centralized testing services market. In 1997, we performed over
three times the number of tests as our closest competitor in the United States
and Canada and received approximately 70% of the total revenues in the
centralized testing market.
STABLE REVENUE SOURCE. Our centralized vehicle emissions testing services
business provides a stable source of revenues as our testing services contracts
typically have terms ranging from five to ten years.
TECHNOLOGICAL LEADERSHIP AND SUPERIOR CUSTOMER SERVICE. We believe that we
are the technological leaders in the design and manufacture of vehicle emissions
testing equipment. We have developed proprietary software programs and hold more
than 70 patents on emissions testing and related products. Moreover, ESP
frequently conducts its technology research and product development efforts in
conjunction with governmental authorities. For example, in 1994, the California
BAR awarded ESP two pilot programs for the development of testing standards at a
test facility in Sacramento, California and, in 1995, New Jersey awarded ESP a
study contract to evaluate alternative emissions testing procedures and systems.
In addition, our staff of approximately 182 company-trained direct service
technicians who operate from a network of 10 service hubs throughout the United
States provides superior customer service with an industry leading average
response time for service calls of four to six hours.
EXPERIENCED MANAGEMENT TEAM. Our management team, which is comprised of
certain of the senior members of the former managements of ESP and Envirotest,
is one of the most experienced in the vehicle emissions testing industry. We
have a combined 40 years of experience in the industry and have demonstrated our
ability to succeed in both the emissions testing equipment business and the
emissions testing services business.
BUSINESS STRATEGY
Our objective is to maximize our long-term profitability by enhancing our
leading positions in the vehicle emissions testing equipment and testing
services businesses through the following strategies:
EXPAND DOMESTIC BUSINESS. We intend to expand our share of the existing
markets for emissions testing equipment and centralized testing services. In
addition, we intend to pursue new business as additional jurisdictions require
our equipment and services.
REALIZE BENEFITS FROM ACQUISITION OF ENVIROTEST. We will integrate the
equipment and testing businesses to take advantage of synergies and economies of
scale in, among other things, engineering, research and development, marketing
and government relations. As a result of the combination of the two businesses,
we expect to save approximately $8.0 to $10.0 million annually, including $4.2
million as a result of the elimination of duplicative management, staff and
facilities. In addition, we believe that the combination of the two businesses
will help us penetrate the developing international market for vehicle emissions
testing because our breadth of experience and expertise will allow us to offer a
broad range of vehicle emissions products and services.
EXTEND TECHNOLOGICAL LEADERSHIP. By integrating the research and
development groups of ESP and Envirotest, we expect to extend our technological
leadership. We also plan to continue to work with leading government policy
makers, including particularly the California BAR, in developing testing
programs.
EXPAND INTERNATIONAL PRESENCE. We intend to expand internationally by
offering a broad range of vehicle emissions testing equipment and services to
countries around the world that are likely to adopt emissions testing programs
similar to those adopted in the U.S. We plan to offer our advisory services to
these countries at the early stages of their program development,
3
<PAGE>
thereby positioning ourselves to become the provider of choice for both
centralized and decentralized testing programs.
BACKGROUND
In October 1998, our wholly-owned subsidiary, Environmental Systems
Products, Inc., the leader in the emissions testing equipment business, acquired
all of the outstanding capital stock of Envirotest Systems Corp., a
publicly-owned company and the leader in the emissions testing services
business, for approximately $266.2 million plus the assumption of all its
indebtedness. The combination of ESP and Envirotest has created an emissions
testing industry leader. To finance the acquisition, we undertook a financing
and refinancing of certain indebtedness of Envirotest, ESP and their
subsidiaries in which we:
- repaid $300.3 million of certain existing indebtedness of Envirotest
(including the repurchase and redemption of all $150.0 million of
Envirotest's outstanding 9 1/8% Senior Notes due 2001 and all $125.0
million of Envirotest's outstanding 9 5/8% Senior Subordinated Notes due
2003);
- paid $12.5 million in debt repurchase premiums;
- repaid all $125.0 million of loans outstanding under ESP's senior secured
credit facility;
- entered into a new $435.0 million senior secured credit facility;
- raised approximately $179.9 million of additional equity;
- issued $100 million aggregate principal amount of the Notes; and
- paid approximately $43.1 million fees and expenses related to the
foregoing and the acquisition.
After these transactions and a reorganization of our affiliated companies,
we became a direct, wholly-owned subsidiary of EnviroSystems Corp. and both
Envirotest and ESP became our wholly-owned subsidiaries. Operations are at the
ESP and Envirotest levels and include their direct subsidiaries. We have no
operations or employees at Environmental Systems Products Holdings Inc.
EnviroSystems Corp. has no operations or employees.
We were incorporated in March 1998 under the laws of the State of Delaware.
Our chief executive offices are located at 7 Kripes Road, East Granby,
Connecticut 06026 and our telephone number is (860) 653-0081.
4
<PAGE>
RISK FACTORS
For a discussion of certain factors that you should consider in connection
with your investment in the Notes, see "Risk Factors" immediately following this
prospectus summary.
THE NOTES
<TABLE>
<S> <C>
Total Amount of Notes Offered................ $100 million in principal amount of 13%
Senior Subordinated Notes due 2008.
Selling Noteholders.......................... Credit Suisse First Boston (Europe) Limited,
certain affiliates of Donaldson, Lufkin &
Jenrette Securities Corporation and Chase
Equity Associates, L.P.
Maturity..................................... October 31, 2008.
Interest..................................... Annual rate--13%.
Payment frequency--every six months on April
30 and October 31. First payment--April 30,
1999.
Original Issue Discount...................... The Notes should be considered to have been
issued with original issue discount for
United States federal income tax purposes. In
such case, besides including stated interest
in income in accordance with its usual method
of tax accounting, a holder subject to United
States federal income tax with respect to a
Note generally will be required to include
original issue discount in gross income for
United States federal income tax purposes as
it accrues, in advance of the receipt of cash
attributable to such income. See "Certain
United States Federal Tax Considerations."
Subsidiary Guarantors........................ Each guarantor is our wholly owned
subsidiary. However, not all of our wholly
owned subsidiaries are guarantors of these
Notes. If we cannot make payments on the
Notes when they are due, the guarantor
subsidiaries must make them instead. Several
of our wholly-owned foreign subsidiaries are
not guarantors of these Notes. Total assets
of these non guarantor subsidiaries are $8.6
million on a pro forma basis.
Ranking...................................... These Notes and the subsidiary guarantees are
senior subordinated debts.
They rank behind all of our and our guarantor
subsidiaries' current and future indebtedness
(other than trade payables), except
indebtedness that expressly provides that it
is not senior to these Notes and the
guarantees.
Optional Redemption.......................... On or after October 31, 2003, we may redeem
some or all of the notes at any time at the
redemption prices listed in the section
"Description of Notes" under the heading
"Optional Redemption."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Mandatory Offer to Repurchase................ If we sell certain assets or experience
specific kinds of changes of control, we must
offer to repurchase the Notes at the prices
listed in the section "Description of Notes."
Basic Covenants of Indenture................. The indenture will, among other things,
restrict our ability and the ability of our
subsidiaries to:
- borrow money;
- pay dividends on stock or purchase stock;
- make investments;
- use assets as security in other
transactions; and
- sell certain assets or merge with or into
other companies.
Use of Proceeds.............................. We used the net proceeds from the initial
offering of these Notes to fund a portion of
the acquisition of Envirotest and the related
transactions.
</TABLE>
6
<PAGE>
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE
COMPANY
(DOLLARS IN THOUSANDS)
The summary selected unaudited pro forma combined financial information
gives effect to the acquisition of Envirotest and related transactions. The
unaudited pro forma combined financial information is based on the respective
historical financial statements and the notes thereto, which are included
elsewhere in this Prospectus. The following table sets forth summary unaudited
pro forma combined financial data for the Company. The pro forma information is
derived from and should be read in conjunction with the "Environmental Systems
Products Holdings Inc. Unaudited Pro Forma Combined Financial Statements" that
give pro forma effect to the acquisition of Envirotest and related transactions
found elsewhere in this Prospectus. The pro forma combined statement of
operations and other financial data for the year ended December 31, 1997 give
effect to the acquisition of Envirotest and related transactions as if they were
consummated on January 1, 1997. The pro forma combined statement of operations
and other financial data for the twelve months ended September 30, 1998 give
effect to the acquisition of Envirotest and related transactions as if they were
consummated on October 1, 1997. The pro forma combined statement of operations
and other financial data for the nine months ended September 30, 1998 give
effect to the acquisition of Envirotest and related transactions as if they were
consummated on January 1, 1998. The pro forma combined balance sheet data give
effect to the acquisition of Envirotest and related transactions as if they were
consummated on September 30, 1998. The unaudited pro forma combined financial
data is presented for illustrative purposes only and is not necessarily
indicative of the combined financial position or results of operations of future
periods or the results that actually would have been realized had the entities
been a single entity during these periods. The unaudited pro forma combined
financial data is derived from the unaudited pro forma combined financial
statements appearing elsewhere herein and should be read in conjunction with
those statements and notes hereto. See "Unaudited Pro Forma Combined Financial
Statements." The pro forma information presented below is based on assumptions
which management believes are reasonable and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Systems Products, Inc.," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Envirotest Systems
Corp." and the consolidated financial statements and the notes thereto for each
of ESP and Envirotest included elsewhere in this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Testing equipment and related services(1).......... $ 102,526 $ 166,463 $ 110,714
Testing services(2)................................ 146,422 168,650 131,713
-------- -------- --------
Total revenues................................... 248,948 335,113 242,427
Cost of revenues..................................... 162,584 211,167 151,260
Cost of revenues--inventory step-up.................. -- 2,390 2,390
-------- -------- --------
Gross profit......................................... 86,364 121,556 88,777
Selling, general and administrative expenses......... 47,199 53,827 39,072
Other gains.......................................... (3,950) (2,555) (2,555)
-------- -------- --------
Income from operations............................... 43,115 70,284 52,260
Interest expense..................................... (55,572) (55,256) (41,643)
Other expense........................................ (191) (955) (866)
-------- -------- --------
Income (loss) before income taxes and extraordinary
item............................................... (12,648) 14,073 9,751
Provision for income taxes........................... 92 9,936 6,929
-------- -------- --------
Income (loss) before extraordinary item.............. $ (12,740) $ 4,137 $ 2,822
-------- -------- --------
OTHER FINANCIAL DATA:
Cash flows provided by operations.................... $ 8,088 $ 65,494 $ 46,471
EBITDA(3)............................................ 78,812 107,192 80,280
Adjusted EBITDA(4)................................... 81,493 114,466 85,850
Depreciation and amortization of intangible assets... 35,697 36,908 28,020
Ratio of total debt (at period end) to Adjusted
EBITDA............................................. N/A 4.6x N/A
Ratio of Adjusted EBITDA to total interest expense... 1.5x 2.1 2.1x
Ratio of earnings to fixed charges(5)................ --(5) 1.2 1.2
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 8,281
Total working capital................................ (58,639)
Total assets......................................... 761,680
Total debt........................................... 531,495
Total stockholder's equity........................... 120,301
SUPPLEMENTAL DATA:
Centralized emissions testing contract backlog(6).... $ 873,000
</TABLE>
- ------------------------
(1) Represents revenues from sales of emissions testing systems by ESP and
after-sales service provided on such equipment.
(2) Represents revenues from vehicle emissions testing services provided by
Envirotest.
(3) EBITDA is defined as income from operations plus depreciation and
amortization of intangible assets. We believe that EBITDA provides useful
information regarding our ability to service debt but should not be
considered in isolation or as a substitute for the combined statement of
operations or
8
<PAGE>
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of our operating performance, profitability or
liquidity.
(4) Adjusted EBITDA is defined as EBITDA, plus management bonuses and cost of
revenues--inventory step-up, calculated as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
EBITDA....................................... $ 78,812 $ 107,192 $ 80,280
Management bonuses paid prior to change in
bonus plan structure to a management option
plan........................................ 2,681 4,884 3,180
Cost of revenues--inventory step-up.......... -- 2,390 2,390
------- -------- -------
Adjusted EBITDA.............................. $ 81,493 $ 114,466 $ 85,850
------- -------- -------
------- -------- -------
</TABLE>
(5) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and that portion of operating lease rental
expense that is representative of the interest factor. Earnings were
inadequate to cover fixed charges for the year ended December 31, 1997 by
$12,648.
(6) Represents contractual backlog to provide services through 2008 under
Envirotest's 15 contracts to provide centralized testing services. Backlog,
per contract, is calculated by multiplying (i) the average annual test
volume, (ii) the fee per vehicle tested and (iii) the remaining number of
years in the contract term, excluding optional extension periods.
9
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
(DOLLARS IN THOUSANDS)
The following summary historical consolidated financial data of ESP as of
and for each of three fiscal years in the period ended December 31, 1997 have
been derived from ESP's audited consolidated financial statements and the notes
thereto. Summary historical financial data as of and for the nine months ended
September 30, 1997 and 1998 have been derived from ESP's unaudited condensed
consolidated financial statements and, in the opinion of management, include all
adjustments, consisting of only normal recurring accruals, necessary for the
fair presentation of the results of operations for such periods. These interim
operating results are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. This summary historical
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Environmental Systems
Products, Inc." and the consolidated financial statements of ESP and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
---------- --------- ---------- --------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 20,813 $ 32,212 $ 102,526 $ 46,777 $ 110,714
Cost of revenues..................................... 12,940 19,355 66,099 29,374 76,494
Cost of revenues--inventory step-up -- -- -- -- 2,390
---------- --------- ---------- --------- ----------
Gross profit......................................... 7,873 12,857 36,427 17,403 31,830
Selling, general and administrative expenses......... 6,414 9,129 17,864 9,822 16,367
---------- --------- ---------- --------- ----------
Income from operations............................... 1,459 3,728 18,563 7,581 15,463
Interest expense..................................... (166) (122) (441) (145) (5,247)
Other income (expense), net.......................... 189 (52) 23 81 (442)
---------- --------- ---------- --------- ----------
Income before income taxes........................... 1,482 3,554 18,145 7,517 9,774
Provision for income taxes........................... 871 1,904 7,580 2,961 5,541
---------- --------- ---------- --------- ----------
Net income........................................... $ 611 $ 1,650 $ 10,565 $ 4,556 $ 4,233
---------- --------- ---------- --------- ----------
---------- --------- ---------- --------- ----------
OTHER FINANCIAL DATA:
Cash flows provided by (used in) operations.......... $ 475 $ 3,651 $ (7,769) $ (8,322) $ 7,692
EBITDA(1)............................................ 2,134 4,558 18,980 7,921 17,242
Depreciation and amortization of intangible assets... 675 830 417 340 1,779
Capital expenditures................................. 164 58 557 517 166
Ratio of earnings to fixed charges (2)............... 3.4x 7.1x 21.6x 18.6x 2.6x
BALANCE SHEET DATA(3):
Cash and cash equivalents............................ $ 445 $ 3,592 $ 3,045 $ 1,038 $ 7,506
Total working capital................................ 4,337 6,936 16,263 10,384 (3,690)
Total assets......................................... 14,509 19,935 72,559 50,319 228,033
Total debt........................................... 1,614 1,181 9,976 8,476 127,533
Total stockholders' equity........................... 5,575 7,762 16,937 11,276 70,733
SUPPLEMENTAL DATA:
Number of basic systems sold......................... 323 870 920 781 178
Number of enhanced systems sold...................... 50 45 2,650 286 2,433
</TABLE>
- ------------------------
(1) EBITDA is defined as income from operations plus depreciation and
amortization of intangible assets. We believe that EBITDA provides useful
information regarding our ability to service debt but should not be
considered in isolation or as a substitute for the consolidated statement of
operations or
10
<PAGE>
cash flow data prepared in accordance with generally accepted accounting
principles and included elsewhere in this prospectus or as a measure of our
operating performance, profitability or liquidity.
(2) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
that portion of operating lease rental expense that is representative of the
interest factor.
(3) Balance Sheet Data at September 30, 1998 reflects pushdown accounting for
the acquisition of ESP by Alchemy.
11
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF ENVIROTEST SYSTEMS CORP.
(DOLLARS IN THOUSANDS)
The following is summary historical consolidated financial data of
Envirotest. The Statement of Operations data for each of the three years ending
September 30, 1998 and the Balance Sheet data at September 30, 1998 and 1997
have been derived from Envirotest's audited consolidated financial statements
and the notes thereto included elsewhere in this Prospectus. The Balance Sheet
data as of September 30, 1996 has been derived from Envirotest's audited
consolidated financial statements not included in this Prospectus. This summary
historical financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Envirotest Systems Corp." and the consolidated financial statements
of Envirotest and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................................................... $ 124,472 $ 140,664 $ 168,650
Cost of revenues.............................................................. 102,149 98,859 104,970
--------- --------- ---------
Gross profit.................................................................. 22,323 41,805 63,680
Selling, general and administrative expenses.................................. 25,209 21,478 21,826
Other (gains) and losses...................................................... (13,457) (3,950) 5,273
--------- --------- ---------
Income from operations........................................................ 10,571 24,277 36,581
Interest expense.............................................................. (38,940) (40,220) (33,774)
Interest and other income, net................................................ 8,943 8,642 5,071
--------- --------- ---------
Income (loss) before income taxes and extraordinary item...................... (19,426) (7,301) 7,878
Provision for income taxes.................................................... 5,638 -- 675
Extraordinary loss on debt repurchase......................................... -- (1,324) --
--------- --------- ---------
Net income (loss)............................................................. $ (25,064) $ (8,625) $ 7,203
--------- --------- ---------
OTHER FINANCIAL DATA:
Cash flows provided by (used in) operations................................... $ (12,426) $ 12,228 $ 64,013
EBITDA(1)..................................................................... 35,109 48,436 66,917
EBITDA before other (gains) and losses........................................ 21,652 44,486 72,190
Depreciation and amortization of intangible assets............................ 24,538 24,159 30,336
Capital expenditures.......................................................... 49,724 14,668 55,854
Ratio of earnings to fixed charges (2)........................................ --(2) --(2) 1.2x
BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 53,104 $ 18,685 $ 71,506
Total working capital......................................................... 116,608 39,546 21,682
Total assets.................................................................. 480,784 379,733 398,858
Total debt.................................................................... 429,096 370,985 352,755
Total stockholders' equity (deficit).......................................... 13,154 (24,376) (17,366)
SUPPLEMENTAL DATA:
Number of centralized testing facilities...................................... 169 176 176
Number of testing lanes....................................................... 667 689 689
Centralized emissions testing contract backlog................................ $ 660,000 $ 936,000 $ 873,000
</TABLE>
- --------------------------
(1) EBITDA is defined as income from operations plus depreciation and
amortization of intangible assets. We believe that EBITDA provides useful
information regarding our ability to service debt but should not be
considered in isolation or as a substitute for the consolidated statement of
operations or cash flow data prepared in accordance with generally accepted
accounting principles and included elsewhere in this prospectus or as a
measure of our operating performance, profitability or liquidity.
(2) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed charges
consist of interest expense, amortization of deferred financing costs and
that portion of operating lease rental expense that is representative of the
interest factor. Earnings were inadequate to cover fixed charges for the
year ended September 30, 1996 by $19,426 and for the year ended September
30, 1997 by $7,301.
12
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND OTHER
INFORMATION APPEARING IN THIS PROSPECTUS BEFORE BUYING THE NOTES.
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD-LOOKING
STATEMENTS INCLUDE, IN PARTICULAR, THE STATEMENTS ABOUT OUR PLANS, STRATEGIES,
AND PROSPECTS UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS."
ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR
SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE MAY NOT ACHIEVE
SUCH PLANS, INTENTIONS OR EXPECTATIONS. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD LOOKING STATEMENTS WE MAKE
IN THIS PROSPECTUS ARE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. ALL
FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO US OR PERSONS ACTING ON OUR BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE FOLLOWING CAUTIONARY
STATEMENTS. THESE FORWARD LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES,
AND THE CAUTIONARY STATEMENTS IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE PREDICTED IN ANY SUCH FORWARD LOOKING
STATEMENTS. SUCH FACTORS INCLUDE, BUT ARE NOT LIMITED TO, ADVERSE CHANGES IN
GENERAL ECONOMIC CONDITIONS, INCLUDING ADVERSE CHANGES IN THE SPECIFIC MARKETS
FOR THE COMPANY'S PRODUCTS, ADVERSE BUSINESS CONDITIONS, DECREASED OR LACK OF
GROWTH IN THE CAR INDUSTRY, INCREASED COMPETITION, PRICING PRESSURES, LACK OF
SUCCESS IN TECHNOLOGICAL ADVANCEMENT, RISKS ASSOCIATED WITH FOREIGN OPERATIONS,
RISKS ASSOCIATED WITH THE COMPANY'S EFFORTS TO COMPLY WITH YEAR 2000
REQUIREMENTS, AND OTHER FACTORS.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE
NOTES.
We have a significant level of indebtedness. As of September 30, 1998, after
giving pro forma effect to the acquisition of Envirotest and related financings,
we would have had $531.5 million of consolidated indebtedness outstanding and
unused revolving commitments of $50.0 million, less outstanding letters of
credit, under the senior secured credit facility. Although the indenture
governing the Notes and the senior secured credit facility limits our ability to
borrow additional money, under certain circumstances, we would be able to incur
a significant amount of additional indebtedness.
Our level of indebtedness could affect our operations in the following ways:
- we must dedicate a substantial portion of our cash flow from operations to
the payment of interest expense and principal and, consequently, this cash
will not be available for other purposes;
- our ability to obtain additional debt financing in the future for working
capital, capital expenditures, acquisitions, joint ventures or general
purposes may be limited;
- our level of indebtedness could limit our flexibility in reacting to
changes in the industry and economic conditions generally, making us more
vulnerable to a downturn in the industry or the economy in general;
- we may be substantially more leveraged than certain of our competitors,
placing us at a competitive disadvantage; and
- certain outstanding indebtedness, including outstanding indebtedness under
the senior secured credit facility, will mature prior to the Notes and is
secured by substantially all of our assets.
ABILITY TO SERVICE INDEBTEDNESS--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS
BEYOND OUR CONTROL.
Our ability to pay interest on the Notes and to satisfy other debt
obligations depends upon our future operating performance. Our future operating
performance will be affected by prevailing economic conditions, governmental
regulations (including, particularly, government regulations regarding vehicle
emissions), financial, business and other factors, including factors beyond our
control. We anticipate that
13
<PAGE>
our operating cash flow and amounts available under our senior secured credit
facility will cover our operating expenses and will be sufficient to service our
debt. However, we cannot guarantee that these amounts will be sufficient.
We anticipate that at or before maturity we will refinance the Notes if we
can obtain financing. If we are unable to service our indebtedness, we will be
forced to adopt an alternative strategy. Possible alternative strategies
include:
- reducing or delaying capital expenditures;
- selling assets;
- restructuring or refinancing our indebtedness; or
- seeking additional equity capital.
We cannot guarantee that we can effect any of these strategies on
satisfactory terms, if at all. For example, the senior secured credit facility
and the indenture pursuant to which the Notes were issued contain covenants that
restrict our ability to take certain of the foregoing actions, including selling
assets and using the proceeds therefrom.
SUBSTANTIAL RESTRICTIONS AND COVENANTS--RESTRICTIONS AND COVENANTS IN OUR DEBT
AGREEMENTS LIMIT OUR ABILITY TO TAKE CERTAIN ACTIONS.
The indenture governing the Notes contains a number of significant
restrictions and covenants. These covenants limit our ability, among other
things, to:
- borrow more money;
- incur liens;
- pay dividends or make certain other restricted payments;
- sell certain assets;
- enter into certain transactions with affiliates; and
- make certain acquisitions.
The indenture also imposes restrictions on the ability of any of our
subsidiaries to:
- pay dividends or make certain payments to us;
- merge or consolidate with any other person; or
- sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of their assets.
In addition, our senior secured credit facility contains other more
restrictive covenants, including covenants that require us to maintain certain
financial ratios. If we are unable to comply with these covenants, there would
be a default under our senior secured credit facility. Such a default would also
result in a default under the indenture governing these Notes. Such defaults, if
not waived, could result in acceleration of our indebtedness and, at worst, our
bankruptcy.
HOLDING COMPANY STRUCTURE--OUR STATUS AS A HOLDING COMPANY MAKES US DEPENDENT ON
THE CASH FLOWS OF OUR SUBSIDIARIES TO MEET OUR OBLIGATIONS.
We are a holding company and conduct almost all of our operations through
our subsidiaries. We do not have any significant assets other than the stock of
our subsidiaries. Accordingly, we depend on the cash flows of our subsidiaries
to meet our obligations, including the payment of the principal and interest on
the Notes. In addition our parent company, EnviroSystems is highly leveraged.
While we have not guaranteed
14
<PAGE>
EnviroSystems' debt there is an expectation that our operations and those of our
subsidiaries will be able to service the parent company debt.
RANKING OF THE NOTES--YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS
SUBORDINATE TO ALL SENIOR INDEBTEDNESS OF OUR COMPANY OR THE APPLICABLE
SUBSIDIARY GUARANTOR.
According to the indenture under which the Notes were issued, the payment of
the principal, any premium and interest on the Notes and each subsidiary
guaranty of the Notes is subordinate in right of payment to the prior payment in
full of all senior indebtedness of our company or the applicable subsidiary
guarantor. The senior indebtedness includes our obligations under, and the
subsidiary guarantors' guarantees of our obligations with respect to, our senior
secured credit agreement.
Assuming we had completed the acquisition of Envirotest and the related
transactions on September 30, 1998, our senior indebtedness outstanding would
have been approximately $438.1 million and each of the subsidiary guarantors
would have guaranteed substantially all of such senior indebtedness on a senior
basis. Although the indenture governing these Notes and the senior secured
credit facility limit the amount of money we and the subsidiary guarantors may
borrow, we and the subsidiary guarantors may borrow a significant amount of
additional money under certain circumstances. In addition, this money may be
senior indebtedness.
Holders of senior indebtedness will be able to prevent payment on the Notes
or the related subsidiary guarantee of the Notes:
- in the event of our bankruptcy, liquidation or reorganization or that of
any subsidiary guarantor;
- if there is a payment default under certain senior indebtedness; and
- if there are certain non-payment defaults under certain senior
indebtedness.
FRAUDULENT TRANSFER CONSIDERATIONS--A COURT MAY VOID THE GUARANTEES OF OUR
SUBSIDIARIES.
The indenture obligations of a subsidiary guarantor may be reviewed under
the appropriate fraudulent transfer or similar laws upon bankruptcy or other
financial difficulty. Under these laws a court may rule that the guarantee
obligations of the unpaid creditor, a representative of creditors of the
subsidiary guarantor or any debtor in possession are void, and the court may
direct the return of any amounts paid to holders of the Notes. A court may find
that at the time guarantee obligations were incurred or assets were pledged the
unpaid creditor or a representative of creditors of the subsidiary guarantor
(I.E., a trustee in bankruptcy):
- received less than fair consideration or reasonably equivalent value in
exchange or as consideration to enter into its subsidiary guarantee or to
pledge its assets to secure its obligations under its subsidiary
guarantee; and
- either:
-- was insolvent;
-- became insolvent;
-- engaged in or was about to engage in a business or transaction for
which its remaining unencumbered assets constituted unreasonably small
capital; or
-- intended to incur, or believed or reasonably should have believed, that
it would incur debts unable to be satisfied.
Such court could void such obligations under the subsidiary's guarantee and
direct the return of any amounts paid with respect thereto or take other action
detrimental to the holders of the Notes. Moreover, regardless of the factors
identified above, a court could take action if it found that the guarantee was
entered into with actual intent to hinder, delay, or defraud creditors.
15
<PAGE>
The measure of insolvency varies depending on the law of the jurisdiction
being applied. Generally, however, an entity is insolvent if the sum of its
debts (including contingent or unliquidated debts) is greater than the fair
value of all its property or if the present fair salable value of its assets is
less than the amounts owed on its existing debts as they become due. We cannot
guarantee which standard a court would apply to determine whether a subsidiary
guarantor was "insolvent" upon either consummation of the sale of the Notes or
upon the incurrence of the subsidiary guarantees. We also cannot guarantee that
a court will not decide that one or more subsidiary guarantors was insolvent as
a result of the foregoing.
DEPENDENCE ON GOVERNMENT REGULATION--OUR INDUSTRY IS HIGHLY REGULATED AND
CHANGES IN SUCH REGULATIONS MAY ADVERSELY AFFECT OUR BUSINESS.
Our business substantially depends upon Federal and state legislation and
regulations mandating air pollution controls. The vehicle emissions testing
industry in the U.S. has developed in response to the Clean Air Act and related
EPA regulations. The EPA is currently evaluating the need for more stringent
emissions standards for motor vehicles. We cannot assure you that additional
Federal or state legislation, or changes in regulatory requirements (including
the EPA's guidance on "clean screening" methods if finalized in its current
form) would not, directly or indirectly, have a material adverse effect on the
vehicle emissions testing industry.
Additionally, the growth of our international business, which we expect to
constitute a significant portion of our business in coming years, depends
largely upon the adoption of foreign air pollution control legislation and
related regulations requiring or encouraging vehicle emissions testing
development in those countries. Although a number of countries in Europe, Asia
and Latin America have passed or are considering such legislation, and a limited
number of countries, including the United Kingdom, Germany, Canada (certain
provinces), Mexico and Japan, have mandatory vehicle emissions testing, these
countries may not enact and enforce, or continue to enforce, as the case may be,
the necessary legislation and regulations. Any failure of these and other
foreign countries to implement air pollution control legislation that requires
or encourages vehicle emissions testing could limit our international expansion
plans, which could have a material adverse effect on our business, financial
condition and results of operations.
DEPENDENCE ON INTELLECTUAL PROPERTY--WE USE A SIGNIFICANT AMOUNT OF INTELLECTUAL
PROPERTY IN OUR BUSINESS. IF WE ARE UNABLE TO PROTECT THIS INTELLECTUAL
PROPERTY, OUR BUSINESS MAY BE ADVERSELY AFFECTED.
Our success is dependent on our ability to protect our proprietary rights.
We employ a combination of the following methods to protect these rights:
- patents;
- trade secrets;
- copyright and trademark laws;
- license agreements;
- non-compete agreements;
- nondisclosure agreements;
- assignment of invention and other contractual provisions; and
- various security measures.
We cannot guarantee that the legal protections afforded to, or the
precautions taken by, our company or our third-party licensors will be adequate
to prevent misappropriation of our respective proprietary rights. We generally
enter into confidentiality agreements with our employees, which typically
control access to, disclosure of and ownership of, intellectual property
developed during the term of employment with us. However, these contractual
protections do not preclude independent third-parties from developing
functionally equivalent or superior technologies, products, or professional
services. Any infringement
16
<PAGE>
or misappropriation of our proprietary rights, or those of our third-party
licensors, could have a material adverse effect on our business, financial
condition, and results of operations.
In the future, litigation may be necessary to enforce and protect our
patents, trade secrets, copyrights and other intellectual property or
proprietary rights. We may also be subject to litigation to defend against
claimed infringement of, or to determine the scope and validity of, the
intellectual property or proprietary rights of others. We are not currently
aware that our products, trademarks, or other proprietary rights infringe upon
the proprietary rights of any third parties. However, we cannot assure you that
third parties will not assert infringement claims against us which may result in
a material adverse effect on our business, financial condition, and results of
operations. Any litigation involving our use of technology may result in
substantial cost to us and may divert management's attention from operations.
Either could also have a material adverse effect on our business, financial
condition and results of operations. A negative outcome in litigation could:
- result in our loss of the rights to use the proprietary rights (or the
exclusivity of our rights therein);
- subject us to significant liabilities;
- require us to seek licenses from third parties; or
- prevent us from selling our products.
- any one of these outcomes could have a material adverse effect on our
business, financial condition and results of operations.
YEAR 2000 RISKS--ALTHOUGH WE EXPECT TO BE YEAR 2000 COMPLIANT, WE ARE NOT SO AT
THIS TIME. YEAR 2000 ISSUES MAY NEGATIVELY AFFECT US.
The Company has a Year 2000 project designed to identify and assess the
risks associated with its information systems, products, operations and
infrastructure, suppliers and customers that are not Year 2000 compliant and to
develop, implement and test remediation and contingency plans to mitigate these
risks.
As we continue our Year 2000 project, we may discover additional Year 2000
problems, we may not be able to develop, implement or test remediation or
contingency plans or we may find that the costs of these activities exceed
current expectations and become material. Even if we, in a timely manner,
complete all of our assessments, identify and test remediation plans believed to
be adequate, and develop contingency plans believed to be adequate, some
problems may not be identified or corrected in time to prevent material adverse
consequences to us.
MATURATION OF EMISSIONS TESTING PRODUCTS MARKET--WE EXPECT THE DOMESTIC MARKET
FOR EMISSIONS TESTING EQUIPMENT TO DECLINE SIGNIFICANTLY IN APPROXIMATELY THREE
YEARS.
In the twelve months ended September 30, 1998, assuming we completed the
acquisition of Envirotest and the related transactions on September 30, 1998, we
would have obtained approximately 50% of our revenues from sales of our
equipment to decentralized facilities and after-sales services in states with
decentralized programs. We expect the domestic market for equipment used in
states with decentralized programs to continue to expand for approximately the
next three years as additional states and municipalities are either required to
or elect to implement decentralized programs and/or convert basic idle testing
systems to enhanced programs which test emissions under simulated driving
conditions. Thereafter, however, we expect the size of the domestic market to
decline significantly as a result of most states with large vehicle populations
having already implemented programs. Although we expect revenues from sales of
our equipment in international markets and revenues from our domestic
centralized vehicle emissions testing business to continue to grow in the
future, we cannot assure you that growth in these markets will be sufficient to
offset any decline we are likely to suffer in our domestic emissions equipment
business.
17
<PAGE>
ABILITY TO MANAGE AND SUSTAIN GROWTH AND ASSOCIATED RISKS--MANAGING THE GROWTH
RESULTING FROM THE ACQUISITION OF ENVIROTEST COULD POSE DIFFICULTIES WHICH MAY
HAVE A MATERIAL ADVERSE EFFECT ON US.
Our growth has resulted in new and increased responsibilities for our
management. The process of integrating the businesses of Envirotest with that of
ESP may result in unforeseen operating difficulties and may require substantial
attention from members of our senior management. We cannot assure you that we
will be able to integrate successfully the operations of these businesses.
We intend to realize cost savings by rationalizing our operations. As a
result of our acquisition of Envirotest, we expect to reduce our operating
expenses by eliminating duplicative management, staff and facilities, and other
cost efficiencies. Although we believe that our strategies are reasonable, we
cannot assure you that we will be able to implement our plans on schedule. When
implementing these initiatives, we could encounter unanticipated problems, and
there is no guarantee that we will attain our goal of reducing our operating
expenses. Finally, we note that our plans will require substantial attention
from members of our management, which may limit the amount of time they can
devote to our day-to-day operations.
DEPENDENCE ON SIGNIFICANT CONTRACTS--OUR CENTRALIZED TESTING BUSINESS IS
DEPENDENT ON 14 CONTRACTS FOR ITS REVENUE.
In the twelve months ended September 30, 1998, assuming we completed the
acquisition of Envirotest and the related transactions on September 30, 1998, we
would have obtained approximately 50% of our revenues from Envirotest's
emissions testing business. For the twelve months ended September 30, 1998,
approximately 99% of Envirotest's contract revenues were derived from its 14
emissions testing contracts with governmental authorities. The termination, or
the Company's failure to obtain the renewal, of any of our significant emissions
testing contracts could have a material adverse effect on our business,
financial condition or results of operations.
COMPETITION--INCREASED COMPETITION IN THE FUTURE COULD HAVE A MATERIAL ADVERSE
EFFECT ON US.
The vehicle emissions testing industry is highly competitive and is
characterized by changing air pollution control standards, evolving customer
needs, and rapid technological changes. Our success depends upon our ability to
compete in the areas of quality, price, ease of use, safety and customer
service. We have less potential financial resources than our competitors. We
operate in a rapidly changing technological environment where quick response to
new technologies and other competitive forces is necessary to compete
successfully. Our success depends in part upon our ability:
- to enhance further the products and services we offer;
- to develop or acquire new products and technologies that incorporate
technological advances;
- to keep pace with evolving vehicle emissions industry standards (which
vary from jurisdiction to jurisdiction); and
- to respond to changing customer requirements.
If we are unable to develop and introduce new products, services or
enhancements in a timely manner in response to changing market conditions,
governmental regulation or customer requirements, our business, financial
condition, and results of operations are likely to be materially adversely
affected.
DEPENDENCE ON KEY PERSONNEL--OUR SUCCESS WILL CONTINUE TO DEPEND TO A
SIGNIFICANT EXTENT ON OUR EXECUTIVES AND OTHER KEY MANAGEMENT PERSONNEL.
Our success will continue to depend to a significant extent on our current
executive officers and key employees as well as our ability to attract and
retain highly qualified experienced electrical, software, mechanical and design
engineers, service technicians and marketing, sales personnel and key personnel
to expand our international operations. We may not be able to retain our
executive officers and key personnel
18
<PAGE>
or attract highly qualified management in the future. Our failure to retain the
services of key personnel could have a material adverse effect on us. Although
we have non-competition agreements with certain key personnel, courts are
sometimes reluctant to enforce these agreements.
CONTROL BY PRINCIPAL STOCKHOLDERS--ALCHEMY INVESTMENT PLAN WILL OWN ENOUGH OF
OUR PARENT COMPANY'S STOCK TO INDIRECTLY CONTROL OUR AFFAIRS AND THOSE OF OUR
SUBSIDIARIES.
Alchemy Investment Plan, an investment group managed by Alchemy Partners,
owns a substantial majority of the voting stock of EnviroSystems Corp., our sole
stockholder. Consequently, they will indirectly control all matters at our
Company and our subsidiaries requiring stockholder approval, including election
of the Board of Directors and approval of significant corporate transactions. We
cannot assure you that Alchemy Investment Plan will not exercise its control
over EnviroSystems Corp. in a manner detrimental to your interests.
INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL--WE MAY NOT HAVE THE
ABILITY TO RAISE THE NECESSARY FUNDS TO PAY FOR THE NOTES SHOULD WE BE REQUIRED
TO REPURCHASE.
Upon the occurrence of certain kinds of change of control events, as defined
in the indenture governing the Notes, we will be required to make an offer to
repurchase the Notes at 101% of their principal amount, plus accrued interest.
If a change of control were to occur, we may not have sufficient funds to pay
the purchase price for all the Notes that we might be required to repurchase.
Additionally, in the event of a change of control, we could be prohibited under
the terms of our senior secured credit facility or indenture from paying the
required purchase price for all the Notes.
ABSENCE OF PUBLIC MARKET FOR THE NOTES, RESTRICTIONS ON RESALES--YOU CANNOT BE
SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.
We do not intend to apply for listing or quotation of the Notes on any
exchange. The Notes are, however, eligible for trading in PORTAL. Credit Suisse
First Boston Corporation has advised us that they intend to make a market in the
Notes, subject to the limits imposed by the securities laws. However, they are
not obligated to do so, and they may discontinue any market making at any time
without notice. Therefore, we do not know the extent to which investor interest
will lead to the development of a trading market or how liquid that market might
be.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. The market for the Notes may be subjected to similar disruptions.
Any such disruptions may have an adverse effect on the Note holders.
ORIGINAL ISSUE DISCOUNT AND MARKET DISCOUNT
Although not free from doubt, the Notes should be considered to have been
issued with original issue discount when placed with the selling noteholders
pursuant to a private placement. In the case of a holder purchasing from a
selling noteholder, original issue discount will accrue from the purchase date
of the Notes. In such case, besides including stated interest in income in
accordance with its usual method of tax accounting, a holder subject to United
States federal income tax with respect to a Note generally will be required to
include original issue discount in gross income for United States federal income
tax purposes in advance of the cash payments to which the income is
attributable. For a more detailed discussion of the United States federal income
tax consequences to the holders of the purchase, ownership and disposition of
the Notes, see "Certain United States Federal Tax Consequences."
19
<PAGE>
SOURCES AND USES OF FUNDS
The gross proceeds of the private sale of the Notes were approximately
$100.0 million. Our company used the proceeds of the private sale of the Notes,
together with additional equity, $385.0 million of borrowings under the senior
secured credit facility and $84.4 million of available cash, to consummate the
acquisition of Envirotest and the related transactions.
The following table presents the sources and uses of funds for the
acquisition of Envirotest and the related transactions:
(IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES:
- --------------------------------------------------------------------
<S> <C>
Senior Secured Credit Facility(1)................................... $ 385.0
The Notes........................................................... 100.0
Available cash...................................................... 84.4
Additional equity (2)............................................... 179.9
---------
Total Sources................................................. $ 749.3
---------
---------
USES:
- --------------------------------------------------------------------
The acquisition of Envirotest(3).................................... $ 266.2
Repayment of Envirotest Senior Notes and Envirotest Senior
Subordinated Notes(4)............................................. 276.6
Debt repurchase premiums............................................ 12.5
Repayment of certain other Envirotest debt.......................... 25.3
Repayment of ESP debt(5)............................................ 125.6
Employee termination payments made at closing(6).................... 5.2
Financing fees and professional expenses (7)........................ 37.9
---------
Total Uses.................................................... $ 749.3
---------
---------
</TABLE>
- ------------------------
(1) On the date the Notes were originally issued, borrowings of up to an
additional $50.0 million were available to us under the Senior Secured
Credit Facility for general corporate purposes. However, such available
borrowings are limited to the extent the Company has outstanding letters of
credit and may be limited by the Company's ability to meet its financial
covenant ratios. For more information about these borrowings, see the
"Description of Other Indebtedness--Senior Secured Credit Facility" section
of this prospectus.
(2) Additional equity of approximately $180 million contributed by EnviroSystems
Corp. (consisting of $80 million of additional equity provided by
EnviroSystems Corp. and approximately $100 million of net proceeds from the
issuance by EnviroSystems Corp. of its 15% senior discount notes.)
(3) Includes option spread payments.
(4) Repayment of all such notes, through a debt tender offer or otherwise, and
includes accrued interest of $1.6 million.
(5) Repayment of debt and includes accrued interest of $0.6 million.
(6) Includes severance and change of control payments made under certain
employment agreements.
(7) Includes fees in connection with the acquisition of Envirotest and the
related transactions.
20
<PAGE>
CAPITALIZATION
The Company was incorporated in March 1998, and did not record any
transactions until October 1998, therefore the historical capital of the Company
is not presented. The following table sets forth, as of September 30, 1998, our
unaudited capitalization after giving pro forma effect to the acquisition of
Envirotest and the related transactions. You should read this table in
conjunction with the "Environmental Systems Products Holdings Inc. Unaudited Pro
Forma Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of ESP and Envirotest and the notes thereto included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1998
-------------------
<S> <C>
(IN MILLIONS)
Senior Secured Credit Facility(1)......................................... $ 385.0
The Notes(2).............................................................. 93.4
Ohio Notes................................................................ 53.1
------
Total debt.......................................................... 531.5
Stockholder's equity...................................................... 120.3
------
Total capitalization................................................ $ 651.8
------
------
</TABLE>
- ------------------------
(1) On the Issue Date, borrowings of up to an additional $50 million were
available under the senior secured credit facility for general corporate
purposes. However, such available borrowings are limited to the extent the
Company has outstanding letters of credit and may be limited by the
Company's ability to meet financial covenant ratios. See "Description of
Other Indebtedness--Senior Secured Credit Facility."
(2) The Notes are net of $6.6 million original issue discount attributed to
EnviroSystems common stock issued with the Notes.
21
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements (the "Pro Forma
Financial Statements") are based on the historical consolidated financial
statements of ESP and Envirotest included elsewhere in this prospectus or
derived from unaudited information not contained in this Prospectus, adjusted to
give effect to the acquisition of Envirotest and the related transactions.
The Unaudited Pro Forma Combined Statement of Operations and other financial
data for the year ended December 31, 1997 give effect to the acquisition of
Envirotest and the related transactions as if they occurred on January 1, 1997.
The Unaudited Pro Forma Combined Statement of Operations and other financial
data for the twelve months ended September 30, 1998 give effect to the
acquisition of Envirotest and the related transactions as if they occurred on
October 1, 1997. The Unaudited Pro Forma Combined Statement of Operations and
other financial data for the nine months ended September 30, 1998 give effect to
the acquisition of Envirotest and the related transactions as if they occurred
on January 1, 1998. The Unaudited Pro Forma Combined Balance Sheet gives effect
to the acquisition of Envirotest and the related transactions as if they had
occurred as of September 30, 1998.
The historical information of ESP for the year ended December 31, 1997 is
derived from the audited financial statements of ESP for the year ended December
31, 1997. The historical information of Envirotest for the year ended December
31, 1997 is based on unaudited quarterly information for the calendar quarters
in 1997. The historical information of ESP for the twelve months ended September
30, 1998 is based on unaudited quarterly information for the last calendar
quarter of 1997 and the first three calendar quarters of 1998. The historical
information of Envirotest for the twelve months ended September 30, 1998 is
derived from the audited financial statements of Envirotest for the year ended
September 30, 1998. The historical information of ESP for the nine months ended
September 30, 1998 is based on unaudited quarterly information for the calendar
quarters of 1998. The historical information of Envirotest for the nine months
ended September 30, 1998 is based on unaudited quarterly information for the
calendar quarters of 1998.
The acquisition of Envirotest and the related transactions adjustments are
described in the accompanying notes. These related adjustments are based upon
available information and certain assumptions that management believes are
reasonable. The Pro Forma Financial Statements do not indicate what our results
of operations or financial condition would have been had the acquisition of
Envirotest and the related transactions in fact occurred on such dates; nor do
they project our results of operations or financial condition for the future.
You should read the Pro Forma Financial Statements in conjunction with the
historical consolidated financial statements of ESP and Envirotest and the notes
thereto included elsewhere in this prospectus. You should also read the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of this prospectus.
We accounted for our acquisition of Envirotest using the purchase method of
accounting. We allocated the total purchase price for such acquisition to the
tangible and identifiable intangible assets and liabilities of the acquired
business based upon our preliminary estimates of their fair value with the
remainder of the purchase price allocated to goodwill. We engaged an independent
valuation firm to assist us allocate the purchase price. Our allocation of
purchase price for the Envirotest acquisition is based on the preliminary
findings of the valuation firm and subject to revision when we obtain additional
information concerning asset and liability valuations. Consequently, the amounts
reflected in the pro forma financial statements are subject to change, but we do
not believe the final amounts will differ substantially.
22
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMPANY
ESP ENVIROTEST ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues................................................ $ 166,463 $ 168,650 $ -- $ 335,113
Cost of revenues.............................................. 113,219 104,970 (7,022)(3) 211,167
Cost of revenues--inventory step-up........................... 2,390 -- -- 2,390
---------- ---------- ----------- -----------
Gross profit.............................................. 50,854 63,680 7,022 121,556
Selling, general and administrative expenses.................. 24,409 21,826 (220)(1) 53,827
12,015(2)
(49)(3)
(4,154)(4)
Other (gains) and losses...................................... -- 5,273 (7,828)(5) (2,555)
---------- ---------- ----------- -----------
Income from operations.................................... 26,445 36,581 7,258 70,284
Other income (expense):
Interest income........................................... 200 5,527 (5,527)(6) 200
Interest expense.......................................... (5,543) (33,774) (1,161)(1) (55,256)
(14,778)(7)
Other expense............................................. (699) (456) -- (1,155)
---------- ---------- ----------- -----------
Income before income taxes.............................. 20,403 7,878 (14,208) 14,073
Provision for income taxes................................ 10,160 675 (899)(8) 9,936
---------- ---------- ----------- -----------
Net income.............................................. $ 10,243 $ 7,203 $ (13,309) $ 4,137
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by operations...................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
$ 65,494
EBITDA..............................................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
107,192
Adjusted EBITDA.....................................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
114,466
Depreciation and amortization of intangible assets..................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
36,908
Ratio of total debt (at period end) to Adjusted EBITDA..............................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
4.6x
Ratio of Adjusted EBITDA to total interest expense..................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
2.1
Ratio of earnings to fixed charges..................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1.2
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
23
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(1) Represents the following adjustments to deferred financing fees amortization
expense:
Reversal of historical deferred financing fees amortization expense at ESP.... $ (220)
Reversal of historical deferred financing fees amortization expense at
Envirotest.................................................................... (2,090)
Amortization expense for the new deferred financing fees created as a result
of the refinancing of certain indebtedness in connection with the acquisition
of Envirotest................................................................. 3,251
---------
$ 941
---------
---------
Deferred financing fees are amortized ratably over the life of the related
debt issuance.
(2) Represents the following adjustments to intangible asset amortization expense:
Reversal of historical intangible asset amortization expense at Envirotest.... $ (2,374)
Amortization expense for the new intangible assets created as a result of the
acquisition of Envirotest..................................................... 14,389
---------
$ 12,015
---------
---------
The intangible assets are being amortized using estimated useful lives of five
to thirty years.
(3) Represents the following adjustments to depreciation expense:
Reversal of historical depreciation expense at Envirotest..................... $ (27,962)
Depreciation expense for the new fixed asset valuation as a result of the
acquisition of Envirotest..................................................... 20,891
---------
$ (7,071)
---------
---------
(4) Represents reductions in costs and expenses resulting from the following:
Elimination of Chairman's and CEO's offices................................... $ (1,746)
Engineering, financial and human resources redundancies....................... (1,608)
Closures of redundant facilities.............................................. (800)
---------
$ (4,154)
---------
---------
(5) Represents the elimination of merger and acquisition related costs............ $ (7,828)
---------
---------
(6) Represents the elimination of interest income on cash and cash equivalents and
restricted cash at Envirotest as such items were utilized as a source to
finance the acquisition of Envirotest and related transactions................ $ (5,527)
---------
---------
</TABLE>
24
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(7) Net adjustment to interest expense as a result of the issuance of debt to
complete the acquisition of Envirotest and related transactions, calculated as
follows:
Elimination of actual historical interest expense on refinanced debt:
ESP........................................................................... $ (5,543)
Envirotest.................................................................... (26,909)
---------
(32,452)
---------
Pro forma interest expense:
$175 million Term Loan A at an assumed annual interest rate of 8.56%.......... 14,086
$210 million Term Loan B at an assumed annual interest rate of 9.31%.......... 19,484
$100 million Notes at an annual interest rate of 13%.......................... 13,000
$6.6 million original issue discount on Notes attributed to common stock
issued with Notes, amortized on a straight line basis over life of debt....... 660
---------
47,230
---------
$ 14,778
---------
---------
The interest rate is LIBOR plus 3.25% on Term Loan A and LIBOR plus 4.00% on
Term Loan B through March 31, 1999, after which the interest rate could range
from LIBOR plus 2.25% to LIBOR plus 4.00% depending on the Company's financial
ratios. (The Senior Secured Credit Facility also permits the Company to choose
an interest rate based on the prime lending rate of Credit Suisse First Boston
plus a margin or the federal funds rate plus a margin). The pro forma interest
expense has been calculated based on the LIBOR rate at September 30, 1998 plus
3.25% on Term Loan A and 4.00% on Term Loan B.
The Company estimates that an increase or decrease in interest rates on the
Term Loan A and Term Loan B debt of 1/8% would increase or decrease annual
interest expense by approximately $480.
(8) Income tax expense adjustment related to the effects of the pro forma
adjustments based upon an assumed composite income tax rate of 41% applied to
pro forma income before income taxes adjusted for non-deductible intangible
asset amortization of $14,389 related to the acquisition of Envirotest........ $ (899)
---------
---------
</TABLE>
25
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMPANY
ESP ENVIROTEST ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues................................................ $ 102,526 $ 146,422 $ -- $ 248,948
Cost of revenues.............................................. 66,099 98,211 (1,726)(3) 162,584
---------- ---------- ----------- -----------
Gross profit.............................................. 36,427 48,211 1,726 86,364
Selling, general and administrative expenses.................. 17,864 21,217 12,030(2) 47,199
242(3)
(4,154)(4)
Other gains................................................... -- (3,950) -- (3,950)
---------- ---------- ----------- -----------
Income from operations.................................. 18,563 30,944 (6,392) 43,115
Other income (expense):
Interest income........................................... 103 8,254 (8,254)(5) 103
Interest expense.......................................... (441) (39,483) (1,027)(1) (55,572)
(14,621)(6)
Other income (expense), net............................... (79) (215) -- (294)
---------- ---------- ----------- -----------
Income (loss) before income taxes and extraordinary
item.................................................. 18,146 (500) (30,294) (12,648)
Provision for income taxes.................................... 7,581 -- (7,489)(7) 92
---------- ---------- ----------- -----------
Income (loss) before extraordinary item................. $ 10,565 $ (500) $ (22,805) $ (12,740)
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by operations...................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
$ 8,088
EBITDA..............................................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
78,812
Adjusted EBITDA.....................................................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
81,493
Depreciation and amortization of intangible assets..................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
35,697
Ratio of Adjusted EBITDA to total interest expense..................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1.5x
Deficiency of earnings to cover fixed charges.......................................
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
$ 12,648
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
26
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(1) Represents the following adjustments to deferred financing fees amortization
expense:
Reversal of historical deferred financing fees amortization expense at
Envirotest.................................................................... $ (2,224)
Amortization expense for the new deferred financing fees created as a result
of the refinancing related to the acquisition of Envirotest................... 3,251
---------
$ 1,027
---------
---------
Deferred financing fees are amortized ratably over the life of the related
debt issuance.
(2) Represents the following adjustments to intangible asset amortization expense:
Reversal of historical intangible asset amortization expense at Envirotest.... $ (2,359)
Amortization expense for the new intangible assets created as a result of the
acquisition of Envirotest and related transactions............................ 14,389
---------
$ 12,030
---------
---------
The intangible assets are being amortized using estimated useful lives of five
to thirty years.
(3) Represents the following adjustments to depreciation expense:
Reversal of historical depreciation expense at Envirotest..................... $ (22,375)
Depreciation expense for the new fixed asset valuation as a result of the
acquisition of Envirotest..................................................... 20,891
---------
$ (1,484)
---------
---------
(4) Represents reductions in costs and expenses resulting from the following:
Elimination of Chairman's and CEO's offices................................... $ (1,746)
Engineering, financial and human resources redundancies....................... (1,608)
Closures of redundant facilities.............................................. (800)
---------
$ (4,154)
---------
---------
(5) Represents the elimination of interest income on cash and cash equivalents and
restricted cash at Envirotest as such items were utilized as a source to
finance the acquisition of Envirotest and related transactions................ $ (8,254)
---------
---------
</TABLE>
27
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(6) Net adjustment to interest expense as a result of the issuance of debt to
complete the acquisition of Envirotest and related transactions, calculated as
follows:
Elimination of actual historical interest expense on refinanced debt:
ESP........................................................................... $ (441)
Envirotest.................................................................... (32,168)
---------
(32,609)
---------
Pro forma interest expense:
$175 million Term Loan A at an assumed annual interest rate of 8.56%.......... 14,086
$210 million Term Loan B at an assumed annual interest rate of 9.31%.......... 19,484
$100 Notes at an annual interest rate of 13%.................................. 13,000
$6.6 million original issue discount on Notes attributed to common stock
issued with Notes, amortized on a straight-line basis over life of debt....... 660
---------
47,230
---------
$ 14,621
---------
---------
The interest rate is LIBOR plus 3.25% on Term Loan A and LIBOR plus 4.00% on
Term Loan B through March 31, 1999, after which the interest rate could range
from LIBOR plus 2.25% to LIBOR plus 4.00% depending on the Company's financial
ratios. (The Senior Secured Credit Facility also permits the Company to choose
an interest rate based on the prime lending rate of Credit Suisse First Boston
plus a margin or the federal funds rate plus a margin). The pro forma interest
expense has been calculated based on the LIBOR rate at September 30, 1998 plus
3.25% on Term Loan A and 4.00% on Term Loan B.
The Company estimates that an increase or decrease in interest rates on the
Term Loan A and Term Loan B debt of 1/8% would increase or decrease annual
interest expense by approximately $480.
(7) Income tax expense adjustment related to the effects of the pro forma
adjustments based upon an assumed composite income tax rate of 41% applied to
pro forma income (loss) before income taxes and extraordinary item adjusted
for non-deductible intangible asset amortization of $14,389 related to the
acquisition of Envirotest..................................................... $ (7,489)
---------
---------
(8) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and that portion of operating lease rental
expense that is representative of the interest factor.
</TABLE>
28
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMPANY
ESP ENVIROTEST ADJUSTMENTS PRO FORMA
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues............................................... $ 110,714 $ 131,713 $ -- $ 242,427
Cost of revenues............................................. 76,494 81,014 (6,248)(3) 151,260
Cost of revenues--inventory step-up.......................... 2,390 -- -- 2,390
---------- ----------- ----------- -----------
Gross profit............................................. 31,830 50,699 6,248 88,777
Selling, general and administrative expenses................. 16,367 17,121 (220)(1) 39,072
9,014(2)
(94)(3)
(3,116)(4)
Other (gains) and losses..................................... -- 5,273 (7,828)(5) (2,555)
---------- ----------- ----------- -----------
Income from operations................................... 15,463 28,305 8,492 52,260
Other income (expense):
Interest income............................................ 149 4,333 (4,333)(6) 149
Interest expense........................................... (5,247) (24,963) (861)(1) (41,643)
(10,572)(7)
Other expense.............................................. (591) (424) -- (1,015)
---------- ----------- ----------- -----------
Income before income taxes............................... 9,774 7,251 (7,274) 9,751
Provision for income taxes................................... 5,541 675 713(8) 6,929
---------- ----------- ----------- -----------
Net income............................................... $ 4,233 $ 6,576 $ (7,987) $ 2,822
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
OTHER FINANCIAL DATA:
Cash flows provided by operations................................................................ $ 46,471
EBITDA........................................................................................... 80,280
Adjusted EBITDA.................................................................................. 85,850
Depreciation and amortization of intangible assets............................................... 28,020
Ratio of Adjusted EBITDA to total interest expense............................................... 2.1x
Ratio of earnings to fixed charges............................................................... 1.2
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
29
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(1) Represents the following adjustments to deferred financing fees amortization
expense:
Reversal of historical deferred financing fees amortization expense at ESP... $ (220)
Reversal of historical deferred financing fees amortization expense at
Envirotest................................................................... (1,577)
Amortization expense for the new deferred financing fees created as a result
of the refinancing related to the acquisition of Envirotest.................. 2,438
---------
$ 641
---------
---------
Deferred financing fees are amortized ratably over the life of the related
debt issuance.
(2) Represents the following adjustments to intangible assets amortization
expense:
Reversal of historical intangible asset amortization expense at Envirotest... $ (1,778)
Amortization expense for the new intangible assets created as a result of the
acquisition of Envirotest and related transactions........................... 10,792
---------
$ 9,014
---------
---------
The intangible assets are being amortized using estimated useful lives of
five to thirty years.
(3) Represents the following adjustments to depreciation expense:
Reversal of historical depreciation expense at Envirotest.................... $ (22,010)
Depreciation expense for the new fixed asset valuation as a result of the
acquisition of Envirotest.................................................... 15,668
---------
$ (6,342)
---------
---------
(4) Represents reductions in costs and expenses resulting from the following:
Elimination of Chairman's and CEO's offices.................................. $ (1,310)
Engineering, financial and human resources redundancies...................... (1,206)
Closures of redundant facilities............................................. (600)
---------
$ (3,116)
---------
---------
(5) Represents the elimination of merger and acquisition related costs........... $ (7,828)
---------
---------
(6) Represents the elimination of interest income on cash and cash equivalents
and restricted cash at Envirotest as such items were utilized as a source to
finance the acquisition of Envirotest and related transactions............... $ (4,333)
---------
---------
</TABLE>
30
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C> <C>
(7) Net adjustment to interest expense as a result of the issuance of debt to
complete the acquisition of Envirotest and related transactions, calculated
as follows:
Elimination of actual historical interest expense on refinanced debt:
ESP.......................................................................... $ (5,247)
Envirotest................................................................... (19,846)
---------
(25,093)
---------
Pro forma interest expense:
$175 million Term Loan A at an assumed annual interest rate of 8.56%......... 10,789
$210 million Term Loan B at an assumed annual interest rate of 9.31%......... 14,631
$100 million Notes at an annual interest rate of 13%......................... 9,750
$6.6 million original issue discount on Notes attributed to common stock
issued with Notes, amortized on a straight-line basis over life of debt...... 495
---------
35,665
---------
$ 10,572
---------
---------
The interest rate is LIBOR plus 3.25% on Term Loan A and LIBOR plus 4.00% on
Term Loan B through March 31, 1999, after which the interest rate could range
from LIBOR plus 2.25% to LIBOR plus 4.00% depending on the Company's
financial ratios. (The Senior Secured Credit Facility also permits the
Company to choose an interest rate based on the prime lending rate of Credit
Suisse First Boston plus a margin or the federal funds rate plus a margin).
The pro forma interest expense has been calculated based on the LIBOR rate at
September 30, 1998 plus 3.25% on Term Loan A and 4.00% on Term Loan B.
The Company estimates that an increase or decrease in interest rates on the
Term Loan A and Term Loan B debt of 1/8% would increase or decrease annual
interest expense by approximately $480.
(8) Income tax expense adjustment related to the effects of the pro forma
adjustments based upon an assumed composite income tax rate of 41% applied to
pro forma income before income taxes adjusted for non-deductible intangible
asset amortization of $10,792 related to the acquisition of Envirotest....... $ 713
---------
---------
</TABLE>
31
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA COMPANY
ESP/NEWMALL (1) ENVIROTEST ADJUSTMENTS PRO FORMA
---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 9,168 $ 71,506 $ 1(2) $ 8,281
(72,394)(3)
Accounts and contracts receivable, net.............................. 21,495 12,822 -- 34,317
Inventories......................................................... 24,069 -- -- 24,069
Prepaid expenses and other.......................................... 3,412 5,183 (120)(4) 6,192
(1,000)(5)
(1,283)(6)
-------- ----------- ----------- -----------
Total current assets.............................................. 58,144 89,511 (74,796) 72,859
Restricted cash..................................................... -- 18,890 (13,162)(3) 5,728
Property, plant and equipment and assets held under capital lease,
net............................................................... 753 262,129 (16,808)(4) 246,074
Assets held for sale, net........................................... -- 3,123 -- 3,123
Intangible assets, net.............................................. 47,519 15,560 343,317(4) 406,396
Deferred charges and debt acquisition costs, net.................... 3,259 8,880 11,077(5) 23,216
Other assets........................................................ 3,519 765 -- 4,284
-------- ----------- ----------- -----------
Total assets...................................................... $ 113,194 $ 398,858 $ 249,628 $ 761,680
-------- ----------- ----------- -----------
Current liabilities:
Revolving loan...................................................... $ 17,533 $ -- $ (17,533)(3) $ --
Current portion of long-term debt and capital lease obligations..... 14,775 8,990 11,855(3) 35,620
Accounts payable.................................................... 11,507 12,900 -- 24,407
Accrued expenses and other.......................................... 17,000 45,939 (759)(3) 71,471
9,291(4)
-------- ----------- ----------- -----------
Total current liabilities......................................... 60,815 67,829 2,854 131,498
Long-term debt and capital lease obligations, net................... 95,225 343,765 63,485(3) 495,875
(6,600)(7)
Other long-term liabilities......................................... 2,776 4,630 -- 7,406
Intercompany payables............................................... -- -- 6,600(7) 6,600
-------- ----------- ----------- -----------
Total liabilities................................................. 158,816 416,224 66,339 641,379
-------- ----------- ----------- -----------
Stockholders' equity (deficit):
Common stock........................................................ 357 165 1(2) 1
(522)(6)
Additional paid-in capital.......................................... 7,678 60,173 179,872(3) 178,589
(69,134)(6)
Treasury stock (at cost)............................................ -- (29,003) 29,003(6) --
Accumulated deficit................................................. (56,423) (48,510) (322,476)(3) (60,864)
317,098(4)
10,077(5)
39,370(6)
Cumulative translation adjustment (other accrued comprehensive
income)............................................................. 2,766 (191) -- 2,575
-------- ----------- ----------- -----------
Total stockholders' equity (deficit).................................. (45,622) (17,366) 183,289 120,301
-------- ----------- ----------- -----------
Total liabilities and stockholders' equity (deficit).................. $ 113,194 $ 398,858 $ 249,628 $ 761,680
-------- ----------- ----------- -----------
-------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
32
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(1) To record the consolidation of Newmall Limited and its direct and indirect
subsidiaries (including ESP) into the Company as follows:
<TABLE>
<CAPTION>
NEWMALL LIMITED/
WELLMAN OVERSEAS
ESP AND LIMITED/ ESP/
SUBSIDIARIES WELLMAN NORTH AMERICA ELIMINATIONS NEWMALL
----------- ---------------------- ------------ ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 7,506 $ 1,662 $ -- $ 9,168
Accounts and contracts receivable, net....... 21,495 -- -- 21,495
Intergroup receivable........................ 525 -- (525)(a) --
Inventories.................................. 24,069 -- -- 24,069
Prepaid expenses and other................... 3,412 -- -- 3,412
----------- -------- ------------ ----------
Total current assets....................... 57,007 1,662 (525) 58,144
Property, plant and equipment and assets held
under capital lease, net..................... 753 -- -- 753
Intercompany receivable, long-term............. 115,976 -- (115,976)(a) --
Intangible assets, net......................... 47,519 -- -- 47,519
Deferred charges and debt acquisition costs,
net.......................................... 3,259 -- -- 3,259
Other assets................................... 3,519 -- -- 3,519
Investment in subsidiary....................... -- 70,679 (70,679)(b) --
----------- -------- ------------ ----------
Total assets............................... $ 228,033 $ 72,341 $ (187,180) $ 113,194
----------- -------- ------------ ----------
Current liabilities:
Revolving loan............................... $ 17,533 $ -- $ -- $ 17,533
Current portion of long-term debt and capital
lease obligations.......................... 14,775 -- -- 14,775
Accounts payable............................. 11,389 118 -- 11,507
Accrued expenses and other................... 17,000 17,000
Intercompany payable......................... -- 116,501 (116,501)(a) --
----------- -------- ------------ ----------
Total current liabilities.................. 60,697 116,619 (116,501) 60,815
Long-term debt and capital lease obligations,
net.......................................... 95,225 -- -- 95,225
Other long-term liabilities.................... 1,378 1,398 -- 2,776
----------- -------- ------------ ----------
Total liabilities.......................... 157,300 118,017 (116,501) 158,816
----------- -------- ------------ ----------
Stockholders' equity (deficit):
Common stock................................. 1 357 (1)(b) 357
Additional paid-in capital................... 68,477 7,678 (68,477)(b) 7,678
Retained earnings (accumulated deficit)...... 2,201 (56,423) (2,201)(b) (56,423)
Cumulative translation adjustment (other
accrued comprehensive income).............. 54 2,712 -- 2,766
----------- -------- ------------ ----------
Total stockholders' equity (deficit)....... 70,733 (45,676) (70,679) (45,622)
----------- -------- ------------ ----------
Total liabilities and stockholders' equity
(deficit)................................ $ 228,033 $ 72,341 $ (187,180) $ 113,194
----------- -------- ------------ ----------
----------- -------- ------------ ----------
</TABLE>
- ------------------------
(a) To eliminate intercompany balances between ESP and Newmall.
(b) To eliminate Newmall's investment in ESP.
33
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(2) Adjustment to record the capitalization of the Company with a cash infusion
of $1.
(3) Adjustment to record the debt and equity required to finance the acquisition
of Envirotest and related transactions and use of related proceeds:
<TABLE>
<S> <C> <C>
Sources:
Senior Secured Credit Facility.................................. $ 385,000
The Notes....................................................... 100,000
---------
Total debt...................................................... 485,000
Equity contribution (Alchemy)................................... 80,000
Equity contribution (EnviroSystems)............................. 99,872
Cash and cash equivalents....................................... 72,394
Restricted cash................................................. 13,162
---------
Total Sources................................................... $ 750,428
---------
---------
Uses:
The acquisition of Envirotest................................... $ 266,223
Repayment of existing indebtedness--ESP......................... 127,533
Repayment of certain existing indebtedness--Envirotest.......... 300,295
Debt repurchase premiums........................................ 12,479
Accrued interest................................................ 759
Financing fees and professional expenses........................ 37,932
Employee termination payments made at closing................... 5,207
---------
Total Uses...................................................... $ 750,428
---------
---------
</TABLE>
34
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
(4) The aggregate purchase price assumed to be paid by ESP and the related
purchase accounting for the acquisition of Envirotest is as follows:
<TABLE>
<S> <C> <C>
Purchase price per agreement................................... $ 266,223
Estimated legal, accounting and other advisory fees............ 12,424
---------
Total cost..................................................... 278,647
Assets acquired................................................ $ 358,904
Less: liabilities assumed...................................... (439,134)
---------
Fair market value of liabilities assumed in excess of assets
acquired..................................................... (80,230)
---------
Cost over fair market value of liabilities assumed in excess of
assets acquired.............................................. 358,877
Less: Envirotest's existing intangible assets.................. (15,560)
---------
Net increase in intangible assets.............................. $ 343,317
---------
---------
Preliminary allocation of purchase price to intangible assets
(and respective estimated useful lives) consists of:
Contracts and relationships (25 years)......................... 159,000
Remote sensing technology (15 years)........................... 28,000
Core technology (30 years)..................................... 26,000
Assembled work force (15 years)................................ 3,000
Non-compete agreement (5 years)................................ 2,000
Goodwill (30 years)............................................ 140,877
---------
$ 358,877
---------
---------
</TABLE>
(5) Adjustment for fees and expenses attributable to the debt financing,
calculated as follows:
<TABLE>
<S> <C> <C>
Fees and expenses attributable to the debt financing............ $ 21,954
Write-off of existing net deferred charges and debt acquisition
costs......................................................... (10,877)
---------
Adjustment...................................................... $ 11,077
---------
---------
</TABLE>
(6) Adjustment to record the consolidation of ESP and Envirotest into the
Company.
<TABLE>
<S> <C> <C> <C>
(7) Adjustment to record the original issue discount ascribed to the
EnviroSystems common stock attached to the Notes................ $ 6,600
---------
---------
</TABLE>
35
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
(DOLLARS IN THOUSANDS)
The following selected historical financial data of ESP as of and for each
of five fiscal years in the period ended December 31, 1997 are derived from
ESP's audited consolidated financial statements and the notes thereto. The
Statement of Operations Data for the years ending December 31, 1995, 1996, and
1997 and the Balance Sheet data for the years ended December 31, 1996 and 1997
are derived from the audited financial statements of the Company included
elsewhere in this prospectus. Statement of Operations Data for the years ending
December 31, 1993 and 1994 and Balance Sheet data for the years ended December
31, 1993, 1994, and 1995 are derived from the audited financial statements of
the Company not included in this Prospectus. Summary historical financial data
as of and for the nine months ended September 30, 1997 and 1998 are derived from
ESP's unaudited condensed consolidated financial statements and, in management's
opinion, include all adjustments (consisting of only normal recurring
adjustments) that are necessary for a fair presentation of the operating results
for such periods. Results for the interim periods do not necessarily indicate
the results for the full fiscal year or for any future periods. You should read
this selected historical financial data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Environmental Systems Products, Inc." and the consolidated financial
statements of ESP and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
FISCAL YEAR ENDED DECEMBER 31, 30,
----------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 21,244 $ 20,240 $ 20,813 $ 32,212 $ 102,526 $ 46,777
Cost of revenues...................................... 12,493 12,009 12,940 19,355 66,099 29,374
Cost of revenues--inventory step-up................... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Gross profit.......................................... 8,751 8,231 7,873 12,857 36,427 17,403
Selling, general and administrative expenses.......... 8,966 7,167 6,414 9,129 17,864 9,822
--------- --------- --------- --------- --------- ---------
Income (loss) from operations......................... (215) 1,064 1,459 3,728 18,563 7,581
Interest expense...................................... (220) (325) (166) (122) (441) (145)
Other income (expense)................................ 26 633 189 (52) 23 81
--------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..................... (409) 1,372 1,482 3,554 18,145 7,517
Provision for (benefit from) income taxes............. (101) 606 871 1,904 7,580 2,961
--------- --------- --------- --------- --------- ---------
Net income (loss)..................................... $ (308) $ 766 $ 611 $ 1,650 $ 10,565 $ 4,556
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Cash flows provided by (used in) operations........... $ (1,157) $ 1,361 $ 475 $ 3,651 $ (7,769) $ (8,322)
EBITDA(1)............................................. 764 2,099 2,134 4,558 18,980 7,921
Depreciation and amortization of intangible assets.... 979 1,035 675 830 417 340
Capital expenditures.................................. 331 173 164 58 557 517
Ratio of earnings to fixed charges(2)................. --(2) 2.8x 3.4x 7.1x 21.6x 18.6x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................. $ 402 $ 797 $ 445 $ 3,592 $ 3,045 $ 1,038
Total working capital................................. 2,852 4,432 4,337 6,936 16,263 10,384
Total assets.......................................... 16,175 13,639 14,509 19,935 72,559 50,319
Total debt............................................ 3,242 2,231 1,614 1,181 9,976 8,476
Total stockholders' equity............................ 3,870 5,054 5,575 7,762 16,937 11,276
SUPPLEMENTAL DATA:
Number of basic systems sold.......................... 217 297 323 870 920 781
Number of enhanced systems sold....................... -- -- 50 45 2,650 286
<CAPTION>
<S> <C>
1998
---------
STATEMENT OF OPERATIONS DATA:
Revenues.............................................. $ 110,714
Cost of revenues...................................... 76,494
Cost of revenues--inventory step-up................... 2,390
---------
Gross profit.......................................... 31,830
Selling, general and administrative expenses.......... 16,367
---------
Income (loss) from operations......................... 15,463
Interest expense...................................... (5,247)
Other income (expense)................................ (442)
---------
Income (loss) before income taxes..................... 9,774
Provision for (benefit from) income taxes............. 5,541
---------
Net income (loss)..................................... $ 4,233
---------
---------
OTHER FINANCIAL DATA:
Cash flows provided by (used in) operations........... $ 7,692
EBITDA(1)............................................. 17,242
Depreciation and amortization of intangible assets.... 1,779
Capital expenditures.................................. 166
Ratio of earnings to fixed charges(2)................. 2.6x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................. $ 7,506
Total working capital................................. (3,690)
Total assets.......................................... 228,033
Total debt............................................ 127,533
Total stockholders' equity............................ 70,733
SUPPLEMENTAL DATA:
Number of basic systems sold.......................... 178
Number of enhanced systems sold....................... 2,433
</TABLE>
- ------------------------------
(1) EBITDA is defined as income from operations plus depreciation and
amortization of intangible assets. We believe that EBITDA provides useful
information regarding our ability to service debt. However, you should not
consider EBITDA in isolation; nor should you regard it as a substitute for
the combined statement of operations or cash flow data prepared in
accordance with generally accepted accounting principles and included
elsewhere in this prospectus or as a measure of our operating performance,
profitability or liquidity.
(2) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income (loss) before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and that portion of operating lease rental expense that is
representative of the interest factor. Earnings were inadequate to cover
fixed charges for the year ended December 31, 1993 by $409.
36
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
ENVIROTEST SYSTEMS CORP.
(DOLLARS IN THOUSANDS)
The following selected historical financial data of Envirotest as of and for
each of five fiscal years in the period ended September 30, 1998 are derived
from Envirotest audited consolidated financial statements and the notes thereto.
The Statement of Operations Data for the years ended September 30, 1996, 1997,
and 1998 and the Balance Sheet data for the years ended September 30, 1997 and
1998 are derived from the audited financial statements of Envirotest included
elsewhere in this Prospectus. Statements of Operations Data for the years ended
September 30, 1994 and 1995 and Balance Sheet Data for the years ended September
30, 1994, 1995, 1996 are derived from the audited financial statements of the
Company not included in this Prospectus. You should read this selected
historical financial data in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Envirotest Systems
Corp." and the consolidated financial statements of Envirotest and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 96,395 $ 104,757 $ 124,472 $ 140,664 $ 168,650
Cost of revenues........................................ 52,052 73,097 102,149 98,859 104,970
--------- --------- --------- --------- ---------
Gross profit............................................ 44,343 31,660 22,323 41,805 63,680
Selling, general and administrative expenses............ 23,494 28,928 25,209 21,478 21,826
Other (gains) and losses................................ -- 892 (13,457) (3,950) 5,273
--------- --------- --------- --------- ---------
Income from operations.................................. 20,849 1,840 10,571 24,277 36,581
Interest expense........................................ (23,567) (21,315) (38,940) (40,220) (33,774)
Interest and other income (expense)..................... 6,304 3,971 8,943 8,642 5,071
--------- --------- --------- --------- ---------
Income (loss) before income taxes....................... 3,586 (15,504) (19,426) (7,301) 7,878
Provision for (benefit from) income taxes............... 1,412 (643) 5,638 -- 675
Extraordinary loss...................................... -- -- -- (1,324) --
--------- --------- --------- --------- ---------
Net income (loss)....................................... $ 2,174 $ (14,861) $ (25,064) $ (8,625) $ 7,203
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OTHER FINANCIAL DATA:
Cash flows provided by (used in) operations............. $ 20,299 $ (5,521) $ (12,426) $ 12,228 $ 64,013
EBITDA(1)............................................... 31,461 18,640 35,109 48,436 66,917
Depreciation and amortization of intangible assets...... 10,612 16,800 24,538 24,159 30,336
Capital expenditures.................................... 69,350 118,895 49,724 14,668 55,854
Ratio of earnings to fixed charges(2)................... 1.1x -- (2) -- (2) -- (2) 1.2x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents............................... $ 180,215 $ 17,079 $ 53,104 $ 18,685 $ 71,506
Total working capital................................... 183,365 1,770 116,608 39,546 21,682
Total assets............................................ 418,205 457,273 480,784 379,733 398,858
Total debt.............................................. 328,581 388,391 429,096 370,985 352,755
Total stockholders' equity (deficit).................... 52,910 38,045 13,154 (24,376) (17,366)
SUPPLEMENTAL DATA (AT END OF PERIOD):
Number of centralized testing facilities................ 113 126 169 176 176
Number of testing lanes................................. 407 479 667 689 689
</TABLE>
- ------------------------------
(1) EBITDA is defined as income from operations plus depreciation and
amortization of intangible assets. We believe that EBITDA provides useful
information regarding our ability to service debt. However, you should not
consider EBITDA in isolation; nor should you regard it as a substitute for
the combined statement of operations or cash flow data prepared in
accordance with generally accepted accounting principles and included
elsewhere in this prospectus or as a measure of our operating performance,
profitability or liquidity.
(2) For purposes of calculating the ratio of earnings to fixed charges, earnings
are defined as income (loss) before income taxes plus fixed charges. Fixed
charges consist of interest expense, amortization of deferred financing
costs and that portion of operating lease rental expense that is
representative of the interest factor.
Earnings were inadequate to cover fixed charges for the years ended:
<TABLE>
<S> <C>
September 30, 1995....................................................................... $ 15,504
September 30, 1996....................................................................... 19,426
September 30, 1997....................................................................... 7,301
</TABLE>
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSIONS ALONG WITH THE CONSOLIDATED
FINANCIAL STATEMENTS OF ESP AND ENVIROTEST APPEARING ELSEWHERE IN THIS
PROSPECTUS. FOR INFORMATION REGARDING THE PRO FORMA FINANCIAL CONDITION OF THE
COMPANY, SEE "ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC. UNAUDITED PRO FORMA
FINANCIAL STATEMENTS" INCLUDED IN THIS PROSPECTUS.
OVERVIEW
Both ESP and Envirotest originated from United Technologies Corporation, an
innovator in emissions testing technology. ESP was formed in 1989 in connection
with a management buyout of the decentralized testing division of United
Technologies. In April 1996, a wholly-owned subsidiary of Wellman plc, a then
publicly incorporated United Kingdom company, acquired ESP. Newmall plc, an
entity controlled by Alchemy that is now the indirect parent of ESP and its
subsidiaries, recently acquired Wellman plc. Envirotest has operated in the
vehicle emissions testing business since 1974 through its predecessor company,
Hamilton Test Systems, Inc., which was acquired from United Technologies in a
management buyout in 1990. Hamilton Test Systems commenced operations in the
emissions testing business in 1974 with the award of the contract for the
Arizona emissions testing program, the first centralized, test-only program in
the United States. Subsequently, Envirotest acquired Envirotest Technologies,
Inc., in 1992 from Electronic Data Systems, adding an additional five emissions
testing programs shortly before adoption of the rules and regulations by the EPA
implementing the 1990 amendments to the Clean Air Act. In 1996, Envirotest
acquired two additional emissions testing programs from System Control, Inc., as
well as retaining the senior management team.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
ESP derives its revenues both in the domestic and international markets from
the sale of its emissions testing equipment and from servicing fees for repairs
and maintenance of those systems. ESP's emissions testing equipment business has
been characterized by long lead times for sales cycles and relatively
predictable sales, primarily because states and municipalities in the United
States that have implemented decentralized emissions testing programs have
generally each adopted a plan and target date for implementation which have
typically been publicly announced 12 to 24 months in advance. This causes surges
in demand from a state for emissions testing equipment generally four to six
months prior to the scheduled implementation date. ESP's rapid growth in the
last two quarters of 1997 and the first three quarters of 1998, for example, is
primarily the result of the implementation of enhanced emissions testing
programs in certain metropolitan areas with large vehicle populations (including
Los Angeles, Sacramento and San Diego, California) and a two-phase
basic/enhanced program in New York City and surrounding areas and due to the
implementation of an emissions testing program in Salt Lake City, Utah, with
respect to which ESP is the exclusive provider of testing systems. Following
implementation of a decentralized emissions testing program, ESP continues to
derive revenues in such jurisdiction from residual sales and, after a one-year
warranty period, from equipment servicing.
ESP conducts its current international operations directly and through its
principal wholly-owned subsidiaries, Environmental Systems Products de Mexico,
S.A. de C.V., which does business in Mexico, ESP Abgas- und Umwelt analysen
GmbH, which does business in Germany, and Environmental Systems Products,
Canada, Inc., which does business in Canada.
Technological advances in the emissions testing industry have led to the
development of enhanced emissions testing systems which have higher average
sales prices and gross margins. While basic emissions testing systems, which
only test an automobile's emissions while in neutral, sell for approximately
$12,000, enhanced emissions testing systems, which test an automobile's
emissions under simulated driving conditions, sell for approximately $35,000 to
$40,000. While five states currently require the use of the enhanced
38
<PAGE>
emissions testing systems, Massachusetts and New Jersey have also publicly
indicated their intention to require such systems in the future and we believe
that more and more states are likely to require the use of these systems. Demand
for enhanced systems, in particular, has contributed to ESP's increase in
revenues and profits.
ESP outsources the manufacture of substantially all of its subassemblies to
third party suppliers that produce the components pursuant to ESP's proprietary
specifications. The emissions testing systems are assembled, integrated, and
tested by ESP and then shipped to customers based on order commitments. This
outsourcing strategy enables ESP to focus its financial resources on product and
technology development and enhancement, by allowing ESP to maintain a low supply
of inventory and to minimize production cost. Therefore, cost of revenues
primarily consists of purchased components and subassemblies for use in ESP's
products, as well as costs associated with assembly, integration, and testing,
and associated overheads.
The following table sets forth certain income and expense items from ESP's
historical consolidated statements of operations expressed as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30,
ENDED DECEMBER 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues..................................................... 62.2 60.1 64.5 62.8 69.1
Cost of revenues--inventory step-up -- -- -- -- 2.2
--------- --------- --------- --------- ---------
Gross profit......................................................... 37.8 39.9 35.5 37.2 28.7
--------- --------- --------- --------- ---------
Selling, general and administrative expenses......................... 30.8 28.3 17.4 21.0 14.8
--------- --------- --------- --------- ---------
Income from operations............................................... 7.0 11.6 18.1 16.2 13.9
Interest expense..................................................... (0.8) (0.4) (0.4) (0.3) (4.7)
Other income (expense)............................................... 0.9 (0.2) (0.0) 0.2 (0.4)
--------- --------- --------- --------- ---------
Income before income taxes........................................... 7.1 11.0 17.7 16.1 8.8
Provision for income taxes........................................... 4.2 5.9 7.4 6.4 5.0
--------- --------- --------- --------- ---------
Net income........................................................... 2.9% 5.1% 10.3% 9.7% 3.8%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUES. Revenues for the nine months ended September 30, 1998 increased
by $63.9 million, or 136.5%, to $110.7 million from $46.8 million for the nine
months ended September 30, 1997. This increase was primarily attributable to
increased domestic sales of equipment as a result of the implementation of
enhanced testing programs in California and northern Virginia and implementation
of a unique two-phase basic/enhanced program in New York. In addition, ESP was
the sole equipment provider of approximately 300 testing systems for Salt Lake
City, Utah's testing program, the sales of which were recorded during the first
nine months of 1998. The increase in revenues also was due to the fact that
during the first nine months of 1998 ESP sold an increased number of enhanced
testing systems, which sell for approximately three times the price of basic
systems, as a result of the implementation of the enhanced testing programs in
California, New York, Utah and northern Virginia. While the implementation of
testing programs can vary significantly from quarter to quarter, the large
number of enhanced testing programs that were implemented during the first nine
months of 1998 is not indicative of the normal level of state testing program
implementation in any particular quarter. Accordingly, ESP does not expect its
revenues to increase at this rate in future periods.
39
<PAGE>
GROSS PROFIT. Gross profit for the nine months ended September 30, 1998
increased by $14.4 million, or 82.8%, to $31.8 million from $17.4 million for
the nine months ended September 30, 1997. This increase was primarily
attributable to increased revenues in the first nine months of 1998. As a
percentage of revenues, gross profit decreased to 28.7% for the nine months
ended September 30, 1998 from 37.2% for the nine months ended September 30,
1997. The decrease in gross profit as a percentage of revenues for the nine
months ended September 30, 1998 was attributable to a number of factors,
including a substantial decrease in service revenues. Service revenues declined
because of the implementation of the unusually large number of enhanced testing
programs which resulted in existing basic testing systems that were serviced
under ESP service contracts being replaced with new, enhanced testing systems
covered by one to two-year warranties. Service revenues as a percentage of total
revenues decreased from approximately 24.3% for the nine months ended September
30, 1997 to approximately 7.2% for the nine months ended September 30, 1998. As
a result of the limited service contract activity, gross margin percentage for
service revenues for the nine months ended September 30, 1997 was approximately
42.8% and was approximately 14.8% for the nine months ended September 30, 1998.
Other factors that contributed to the decrease in gross profit include
recognition of the $2.4 million inventory step-up resulting from the Alchemy
acquisition, an aggressive pricing strategy to obtain the exclusive right to
provide enhanced testing systems to emissions testing facilities located in Salt
Lake City, Utah and additional expenses, including overtime and temporary labor
costs and express freight charges, that ESP incurred in order to fulfill the
large volume of customer orders.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the nine months ended September 30, 1998 increased
by $6.6 million, or 67.3%, to $16.4 million from $9.8 million for the nine
months ended September 30, 1997. Selling expenses consist primarily of salaries,
commissions and benefits paid to direct and indirect sales and marketing
personnel, professional service fees, travel related to the sales process, trade
shows, advertising and promotional expenses and other selling and distribution
costs. Selling expenses for the nine months ended September 30, 1998 increased
by $3.3 million or 91.7% to $6.9 million from $3.6 million for the nine months
ended September 30, 1997. This increase was primarily attributable to increased
compensation and benefits paid to personnel and additions necessary to promote
sales efforts, particularly in California and New York. Administrative expenses
include compensation and benefits to administrative personnel, including
directors, officers, facilities, insurance and other general expenses.
Administrative expenses for the nine months ended September 30, 1998 increased
by $2.9 million or 63.0% to $7.5 million from $4.6 million for the nine months
ended September 30, 1997. This increase was primarily attributable to an
increase in performance bonuses payable to certain members of management and
amortization of intangibles resulting from the Alchemy acquisition. Engineering
expenses consist primarily of compensation, benefits and associated costs
relating to research and development personnel, occupancy costs and new product
and process development costs. Engineering expenses for the nine months ended
September 30, 1998 increased by $0.4 million or 25.0% to $2.0 million from $1.6
million for the nine months needed September 30, 1997. This increase was
primarily attributable to increased compensation and benefits paid to additional
personnel and independent contractors in connection with the development of, and
enhancements to, testing systems sold in states that implemented testing
programs during such period. As a percentage of revenues, selling, general and
administrative expenses decreased to 14.8% for the nine months ended September
30, 1998 from 21.0% for the nine months ended September 30, 1997.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations rose 103.9% from $7.6 million in the nine months ended September 30,
1997 to $15.5 million in the nine months ended September 30, 1998, which
constituted 16.2% and 13.9% of sales, respectively, for such years.
INTEREST EXPENSE. Interest expense consists of interest expense paid on
ESP's debt. Interest expense for the nine months ended September 30, 1998
increased by $5.1 million to $5.2 million from $0.1 million for the nine months
ended September 30, 1997. This increase was primarily attributable to increased
interest expense associated with outstanding debt obligations.
40
<PAGE>
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of
foreign exchange losses. Other expense for the nine months ended September 30,
1998 decreased by $0.5 million to ($0.4) million from $0.1 for the nine months
ended September 30, 1997. This decrease was primarily attributable to increased
foreign exchange losses due to the devaluation of the Mexican peso to the U.S.
dollar.
PROVISION FOR INCOME TAXES. Provision for income taxes for the nine months
ended September 30, 1998 increased by $2.5 million or 83.3%, to $5.5 million
from $3.0 million for the nine months ended September 30, 1997, resulting in an
effective tax rate of 56.7% and 39.4% for the nine months ended September 30,
1998 and September 30, 1997, respectively. The increase over the federal
statutory rate of 35% is a result of taxes on ESP's foreign operations,
inclusion of state income taxes and goodwill associated with the acquisition of
ESP by Newmall which is not tax deductible.
NET INCOME. As a result of the above factors, net income declined 8.7%,
from $4.6 million in the nine months ended September 30, 1997 to $4.2 million
for the nine months ended September 30, 1998, which constituted 9.7% and 3.8% of
sales, respectively, for such periods.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
REVENUES. Revenues for fiscal 1997 increased by $70.3 million, or 218.3%,
to $102.5 million from $32.2 million for fiscal 1996. Approximately $66.5
million of this increase was attributable to increased domestic sales of
equipment as a result of the implementation of enhanced emissions testing
programs in California, Pennsylvania (Philadelphia) and northern Virginia, phase
I of a two-phase, basic/enhanced emissions testing program in New York and a
basic emissions testing program in Pennsylvania (Pittsburgh), along with
residual sales in Texas and Georgia. The remaining $3.8 million increase was due
primarily to increased international sales.
GROSS PROFIT. Gross profit for fiscal 1997 increased by $23.5 million, or
182.2%, to $36.4 million from $12.9 million for fiscal 1996. This increase was
primarily attributable to increased domestic sales. As a percentage of revenues,
gross profit decreased to 35.5% for fiscal 1997 from 39.9% for fiscal 1996. The
decrease in gross profit as a percentage of revenues was primarily attributable
to a substantial decrease in service revenues and to high gross profit margins
on certain equipment upgrades that were sold in California during fiscal 1996.
Service revenues declined because of implementation during fiscal 1997 of the
unusually large number of enhanced emissions testing programs which resulted in
existing basic testing systems that were serviced under ESP service contracts
being replaced with new, enhanced testing systems that were covered by one to
two-year warranties.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1997 increased by $8.8 million, or 96.7%, to
$17.9 million from $9.1 million for fiscal 1996. Selling expenses for fiscal
1997 increased by $6.3 million or 370.6% to $8.0 million from $1.7 million for
fiscal 1996. This increase was primarily attributable to increased salaries,
commissions and benefits paid to new personnel added in order to promote sales
efforts in California, Pennsylvania, New York and Virginia. Administrative
expenses for fiscal 1997 increased by $1.9 million or 33.3% to $7.6 million from
$5.7 for fiscal 1996. This increase was primarily attributable to an increase in
performance bonuses payable to certain members of management, offset by a
decrease in legal, accounting and other professional fees and bad debt expense.
Engineering expenses for fiscal 1997 increased by $0.6 million or 35.3% to $2.3
million from $1.7 million for fiscal 1996. This increase was primarily
attributable to increased compensation and benefits paid to additional personnel
and independent contractors in connection with the development of, and
enhancements to, testing equipment sold in states that implemented emissions
testing programs during 1997. As a percentage of revenues, selling, general and
administrative expenses decreased to 17.4% for fiscal 1997 from 28.3% for fiscal
1996.
41
<PAGE>
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations rose 402.7%, from $3.7 million in fiscal 1996 to $18.6 million in
fiscal 1997, which constituted 11.6% and 18.1% of sales, respectively, for such
years.
INTEREST EXPENSE. Interest expense for fiscal 1997 increased by $0.3
million or 300.0%, to $0.4 million from $0.1 million for fiscal 1996. This
increase was attributed to an increase in interest expense on ESP's working
capital loan.
OTHER INCOME (EXPENSE). Other expense for fiscal 1997 decreased by $0.1
million or 100.0%, to $0.0 from $0.1 million for fiscal 1996. This decrease was
primarily attributable to a $0.1 million decrease in foreign exchange losses
associated with the Mexican peso.
PROVISION FOR INCOME TAXES. Provision for income taxes for fiscal 1997
increased by $5.7 million or 300.0%, to $7.6 million from $1.9 million for
fiscal 1996, resulting in effective tax rates of 41.8% and 53.6%, respectively.
The increase over the federal statutory rate of 35% and 34% in fiscal 1997 and
1996, respectively, is a result of taxes on ESP's foreign operations and
inclusion of state income taxes. The provision for income taxes for fiscal 1996
also includes an IRS assessment for state taxes.
NET INCOME. As a result of the above factors, net income rose 523.5%, from
$1.7 million in fiscal 1996 to $10.6 million in fiscal 1997, which constituted
5.1% and 10.3% of sales, respectively, for such years.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
REVENUES. Revenues for fiscal 1996 increased by $11.4 million, or 54.8%, to
$32.2 million from $20.8 million for fiscal 1995. $6.3 million of this increase
was attributable to the increase in domestic equipment sales as a result of the
implementation of basic emissions testing programs in Georgia and Texas, and
$3.6 million of the increase in revenue was attributable to the increase in
international sales of equipment as a result of the implementation of an
enhanced emissions testing program in Mexico City, Mexico. The remaining $1.5
million of the increase in revenues was attributable to increased revenues from
domestic service as a result of a large number of new service contracts in
California following the expiration of warranties on the related products.
GROSS PROFIT. Gross profit for fiscal 1996 increased by $5.0 million, or
63.3%, to $12.9 million from $7.9 million for fiscal 1995. This increase was
primarily attributable to an increase in revenues from domestic sales of
equipment. As a percentage of revenues, gross profit increased to 39.9% for
fiscal 1996 from 37.8% for fiscal 1995. The increase in gross profit as a
percentage of revenues was primarily a result of a higher average selling price
and profit margin for equipment sold to decentralized facilities in connection
with the implementation of basic emissions testing programs in Texas and Georgia
in fiscal 1996, compared to the average selling price and profit margin on
residual sales of equipment in fiscal 1995 when no states implemented either
basic or enhanced emissions testing programs. The increase also was attributable
to high gross profit margins on certain equipment upgrades that were sold in
California during fiscal 1996. Gross profit was reduced by a one-time inventory
reserve adjustment of $0.7 million in connection with the acquisition of ESP by
Wellman plc.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1996 increased by $2.7 million, or 42.2%, to
$9.1 million from $6.4 million for fiscal 1995. Selling expenses for fiscal 1996
increased by $0.5 million or 41.7% to $1.7 million from $1.2 million for fiscal
1995. This increase was primarily attributable to increased salaries,
commissions and benefits paid to new personnel added in order to promote sales
efforts in Georgia and Texas. Administrative expenses for fiscal 1996 increased
by $1.9 million or 50.0% to $5.7 million from $3.8 million for fiscal 1995. This
increase was primarily attributable to an increase in legal fees, charges and
expenses incurred in connection with the acquisition of ESP by Wellman plc and
an increase in performance bonuses payable to certain members of management.
Engineering expenses for fiscal 1996 increased by $0.3 million or 21.4% to $1.7
million from
42
<PAGE>
$1.4 million for fiscal 1995. This increase was primarily attributable to
increased compensation and benefits paid to additional personnel and independent
contractors in connection with the development of, and enhancements to, testing
equipment sold in states that implemented emissions testing programs during
1996. As a percentage of revenues, selling, general and administrative expenses
decreased to 28.3% for fiscal 1996 from 30.8% for fiscal 1995.
INCOME FROM OPERATIONS. As a result of the above factors, income from
operations rose 146.7%, from $1.5 million in fiscal 1995 to $3.7 million in
fiscal 1996, which constituted 7.0% and 11.6% of sales for such years,
respectively.
INTEREST EXPENSE. Interest expense for fiscal 1996 decreased by $0.1
million or 50%, to $0.1 million from $0.2 million for fiscal 1995. This decrease
was attributed to a decrease in interest expense associated with ESP's
outstanding debt.
OTHER INCOME (EXPENSE). Other income (expense) for fiscal 1996 decreased by
$0.3 million or 150.0%, to $(0.1) million from $0.2 million for fiscal 1995.
This decrease was primarily attributable to a $0.3 million increase in foreign
exchange losses.
PROVISION FOR INCOME TAXES. Provision for income taxes for fiscal 1996
increased by $1.0 million or 111.1%, to $1.9 million from $0.9 million for
fiscal 1995, resulting in effective tax rates of 53.6% and 58.8%, respectively.
The increase over the federal statutory rate of 34% is a result of taxes on
ESP's foreign operations and inclusion of state income taxes. Additionally,
included in fiscal 1996 and 1995 is an IRS assessment for state and federal
taxes, respectively.
NET INCOME. As a result of the above factors, net income rose 183.3% from
$0.6 million in fiscal 1995 to $1.7 million in fiscal 1996, or 2.9% and 5.1% of
sales, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by (used in) operating activities was $7.7 million, $(8.3)
million, $(7.8) million, $3.7 million and $0.5 million for the nine months ended
September 30, 1998 and 1997 and for the years ended December 31, 1997, 1996 and
1995, respectively. Cash used in operations in fiscal 1997 and for the nine
months ended September 30, 1997 resulted primarily from increases in accounts
receivable and inventories associated with the increase in sales from fiscal
1996, partially offset by an increase in accounts payable.
Cash used in investing activities of $0.2 million, $0.5 million, $0.6
million, $0.1 million and $0.2 million for the nine months ended September 30,
1998 and 1997 and for the years ended December 31, 1997, 1996 and 1995,
respectively, resulted from capital expenditures.
Cash provided by (used in) financing activities was $(3.1) million, $6.3
million, $7.8 million, $(0.4) million and $(0.6) million for the nine months
ended September 30, 1998 and 1997 and for the years ended December 31, 1997,
1996 and 1995, respectively. Cash provided by financing activities in fiscal
1997 and for the nine months ended September 30, 1997 resulted from borrowings
under ESP's revolving credit agreement. Cash used in financing activities during
the nine months ended September 30, 1998 resulted from net repayments and
borrowings under ESP's revolving credit agreements and payment of debt issuance
costs.
ENVIROTEST SYSTEMS CORP.
Envirotest is the most experienced operator of centralized vehicle emissions
testing programs in the approximately $250 million North American market, having
tested more than 150 million vehicles since its inception in 1974. Envirotest
operates or is under contract to operate 14 of the 21 vehicle emissions testing
programs in the 16 states that have adopted a centralized testing program and
operates the only such program in Canada. We tested approximately 11.8 million
motor vehicles in 1998, which represented approximately 70% of the total North
American centralized testing market revenues. Envirotest operates
43
<PAGE>
these programs under long-term exclusive contracts with state and local
governments. These contracts generally have terms ranging from five to ten
years. Envirotest estimates that as of September 30, 1998, it had a contractual
backlog to provide centralized emissions testing services of approximately $873
million through 2008. Envirotest revenues are predictable and stable due to the
long term nature of its exclusive contracts, which typically have initial terms
of seven to ten years, and predictable testing volumes. Such volumes could,
however, be reduced in future contracts if EPA's draft "clean screening"
guidance is finalized in its current form, potentially reducing the number of
vehicles subject to traditional emission testing and thus reducing Envirotest's
revenues and profits. Envirotest believes that as the incumbent operator in its
existing programs it generally has a competitive advantage when its programs are
rebid, primarily because Envirotest has already incurred the costs of
establishing the program network and has gained valuable experience in operating
the program. Since 1990, all of Envirotest's emissions testing contracts that
provided for renewal or extension have been renewed or extended beyond their
initial terms except one contract with Maryland that was not material.
Envirotest conducts its current operations directly and through its
principal wholly-owned subsidiaries, Envirotest Technologies, Inc., which does
business in Florida and Minnesota, and Envirotest Illinois, Inc., Envirotest
Wisconsin, Inc. and Envirotest Systems Corp. ("ESC--WA"), which do business in
Illinois, Wisconsin and Washington State, respectively. Envirotest's British
Columbia, Canada operations are conducted through a British Columbia
partnership, Envirotest Canada, which is wholly-owned by Envirotest (through its
subsidiaries).
The following table sets forth certain income and expense items from
Envirotest's consolidated statements of operations expressed as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED SEPTEMBER 30,
-------------------------------
<S> <C> <C> <C>
1996 1997 1998
--------- --------- ---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................................ 100.0% 100.0% 100.0%
Cost of revenues................................................ 82.1 70.3 62.2
--------- --------- ---------
Gross profit.................................................... 17.9 29.7 37.8
Operating expenses:
Selling, general and administrative expenses.................. 17.5 13.5 11.6
Amortization expense.......................................... 2.8 1.8 1.4
Other (gains) and losses...................................... (10.9) (2.9) 3.1
--------- --------- ---------
Total operating expenses.................................... 9.4 12.4 16.1
--------- --------- ---------
Income from operations.......................................... 8.5 17.3 21.7
Interest expense................................................ (31.3) (28.6) (20.0)
Interest and other income, net.................................. 7.2 6.2 3.0
--------- --------- ---------
Income (loss) before income taxes............................... (15.6) (5.1) 4.7
Provision (benefit) for income taxes............................ 4.5 0.0 0.4
Extraordinary loss.............................................. 0.0 (1.0) --
--------- --------- ---------
Net income (loss)............................................... (20.1)% (6.1)% 4.3%
--------- --------- ---------
--------- --------- ---------
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1997
REVENUES. Contract revenues increased to $168.7 million in fiscal 1998 from
$140.7 million in fiscal 1997, an increase of $28.0 million or 19.9%. The
increase is primarily attributable to additional revenues of $20.8 million
generated by new or extended emissions programs in Illinois and Connecticut and
other increases of $7.2 million from additional test volumes and contractual fee
increases.
44
<PAGE>
GROSS PROFIT. Gross profit increased to $63.7 million in fiscal 1998 from
$41.8 million in fiscal 1997, an increase of $21.9 million or 52.4%. As a
percentage of contract revenues, gross profit increased to 37.8% in fiscal 1998
from 29.7% in the corresponding period in fiscal 1997, an absolute increase of
8.1%. This increase was attributable to increased revenues and continued
improvements in operational efficiencies, partially offset by a $2.6 million
write-off of machinery and equipment that will not be utilized due to the
conversion of the Ohio and Connecticut programs to a new emissions test.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $19.5 million in fiscal 1998 from $19.0
million in fiscal 1997, an increase of $0.5 million or 2.6%. As a percentage of
contract revenues, selling, general and administrative expenses decreased to
11.6% in fiscal 1998 from 13.5% in fiscal 1997, an absolute decrease of 2.1%.
The increase in selling, general and administrative expenses is not specific to
any one event.
AMORTIZATION EXPENSE. Amortization expense remained constant at $2.4
million for fiscal 1998 and fiscal 1997.
OTHER (GAINS) AND LOSSES. Non-recurring acquisition costs associated with
Envirotest's sale to ESP on October 16, 1998 totaled $7.8 million for fiscal
1998 and represented attorney, investment banking and other consulting fees that
Envirotest was responsible for paying and was partially offset by the gain on
the Pennsylvania settlement of $2.6 million in fiscal 1998 represents
adjustments to provisions made earlier for claims resulting from the
Pennsylvania contract cancellation that have been settled or resolved and are
unlikely to present future liability. A gain on the Pennsylvania settlement of
$4.0 million was included in fiscal 1997.
INCOME FROM OPERATIONS. Income from operations increased to $36.6 million
in fiscal 1998 compared to $24.3 million in fiscal 1997. Income from operations
as a percentage of contract revenues increased to 21.7% in fiscal 1998 compared
to 17.3% in fiscal 1997, an absolute increase of 4.4%. The increase is primarily
attributable to increases in revenue and improvements in gross profit margins.
INTEREST EXPENSE. Interest expense decreased to $33.8 million in fiscal
1998 from $40.2 million in fiscal 1997, a decrease of $6.4 million. This
increase was primarily attributable to the redemption of $50 million of senior
debt in September of 1997 reducing interest expense in fiscal 1998 by $4.6
million. In addition, Envirotest capitalized $1.2 million of interest expense in
fiscal 1998 related to the upgrade of the Illinois program.
INTEREST AND OTHER INCOME. Interest and other income of $5.1 million in
fiscal 1998 decreased $3.5 million from $8.6 million in fiscal 1997. The
decrease is directly related to the use of cash, cash equivalents and
available-for-sale securities in the redemption of the $50 million of senior
debt and the $29 million repurchase of 4.4 million shares in the "Dutch" auction
tender offer in September 1997.
PROVISION FOR INCOME TAXES. Fiscal 1998 income tax expense of $0.7 million,
primarily represents the federal alternative minimum tax, after giving effect to
the use of $5.5 million of deferred tax assets. There was no income tax benefit
on the pretax loss of $7.3 million in fiscal 1997, as Envirotest increased a
valuation allowance by $3.6 million to fully reserve the net deferred tax asset.
In fiscal 1998 and 1997, the income tax expense (benefit) was lower than the
combined federal and state effective tax rate of approximately 39%, as a result
of adjusting the valuation allowance to restate the net deferred tax asset to an
amount estimated to be realizable in future years. The estimate on the amount of
deferred tax asset to be realized is reviewed quarterly and the valuation
allowance adjusted accordingly.
EXTRAORDINARY LOSS. During fiscal 1997, Envirotest recognized a
non-recurring charge, reflected as an extraordinary loss from the write-off of
capitalized debt acquisition costs and transaction costs of $1.3 million, in
connection with the repurchase of $50.0 million aggregate principal amount of
its 9 1/8% Senior Notes due 2001, completed September 17, 1997.
45
<PAGE>
NET INCOME. Net income was $7.2 million in fiscal 1998 compared to a net
loss of $8.6 million in fiscal 1997, an increase of $15.8 million.
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996
REVENUES. Revenues in fiscal 1997 increased by $16.2 million, or 13.0%, to
$140.7 million from $124.5 million in fiscal 1996. The increase is primarily
attributable to additional revenues of $13.5 million generated by new or
extended emissions programs in Indiana, Illinois and Ohio and a full year of
operations in the Washington State program, acquired on January 30, 1996;
additional revenues from the British Columbia program of $2.1 million,
operations of which were impacted by the employee strike during fiscal 1996; and
other increases of $3.2 million from additional test volumes and contractual fee
increases. These increases were partly offset by the loss in revenue of $2.4
million from the expiration of the California Quality Assurance contract in
September 1996.
GROSS PROFIT. Gross profit increased to $41.8 million in fiscal 1997 from
$22.3 million in fiscal 1996, an increase of $19.5 million or 87.3%. As a
percentage of contract revenues, gross profit increased to 29.7% in fiscal 1997
from 17.9% in the corresponding period in fiscal 1996, an absolute increase of
11.8%. This increase was attributable to several factors including contributions
of $9.0 million from new or extended contracts in Indiana, Illinois and Ohio;
$2.6 million in the British Columbia program, which benefited from an additional
volume increase and settlement of an employee strike that hampered results in
fiscal 1996; $4.1 million from improvements in operational efficiencies and test
volume increases in most other programs; and $3.3 million from the reduction in
the deferred charge amortization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $19.0 million in fiscal 1997 from $21.8
million in fiscal 1996, a decrease of $2.8 million or 12.6%. As a percentage of
contract revenues, selling, general and administrative expenses decreased to
13.5% in fiscal 1997 from 17.5% in fiscal 1996, an absolute decrease of 4.0%.
The decrease in selling, general and administrative expenses is primarily due to
absence of relocation costs of $1.5 million recorded in fiscal 1996 resulting
from the consolidation of the corporate headquarters to Sunnyvale, California,
and lower engineering support costs as new programs matured.
AMORTIZATION EXPENSE. Amortization expense decreased to $2.4 million in
fiscal 1997, a decrease of $1.0 million from $3.4 million in fiscal 1996. The
decrease was attributable to the expiration of the California Quality Assurance
contract as of September 30, 1996.
OTHER (GAINS) AND LOSSES. A corporate relocation expense of $1.9 million
for fiscal 1996 represents the costs associated with closing the Phoenix
corporate headquarters and other restructuring costs. Gain on the Pennsylvania
settlement of $3.9 million in fiscal 1997 represents adjustments to provisions
made earlier for claims resulting from the Pennsylvania contract cancellation
that have been settled or resolved and are unlikely to present future liability.
A gain on the Pennsylvania settlement of $15.3 million was included in fiscal
1996.
INCOME FROM OPERATIONS. Income from operations increased to $24.3 million
in fiscal 1997 compared to $10.6 million in fiscal 1996. Income from operations
as a percentage of contract revenues increased to 17.3% in fiscal 1997 compared
to 8.5% in fiscal 1996, an absolute increase of 8.8%. The increase is primarily
attributable to increases in revenue, improvements in gross profit margins,
reductions in selling, general and administrative expenses and amortization
expenses, and the absence of non-recurring relocation expenses, partially offset
by the gain recorded on the Pennsylvania settlement in fiscal 1996.
INTEREST EXPENSE. Interest expense increased to $40.2 million in fiscal
1997 from $38.9 million in fiscal 1996, an increase of $1.3 million. These
increases were primarily attributable to a full year of interest expense on debt
associated with the Wisconsin, Washington and Indiana programs.
46
<PAGE>
INTEREST AND OTHER INCOME. Interest and other income of $8.6 million in
fiscal 1997 represented a decrease of $0.3 million from $8.9 million in fiscal
1996.
PROVISION FOR INCOME TAXES. There was no income tax benefit on the pretax
loss of $7.3 million in fiscal 1997, as Envirotest increased a valuation
allowance by $3.6 million to fully reserve the net deferred tax asset. In fiscal
1996, income tax expense was $5.6 million on pre-tax loss of $19.4 million. In
both fiscal 1997 and 1996, the income tax benefit was lower than the combined
federal and state effective tax rate of approximately 39%, as a result of
increasing the valuation allowance to reduce the net deferred tax asset to an
amount estimated to be realizable in future years. The estimate on the amount of
net deferred tax asset to be realized is reviewed quarterly and the valuation
allowance adjusted accordingly.
EXTRAORDINARY LOSS. During fiscal 1997, Envirotest recognized a
non-recurring charge, reflected as an extraordinary loss from the write-off of
capitalized debt acquisition costs and transaction costs of $1.3 million, in
connection with the repurchase of $50.0 million aggregate principal amount of
the Envirotest Senior Notes, which was completed on September 17, 1997.
NET LOSS. The net loss was $8.6 million in fiscal 1997 compared to $25.1
million in fiscal 1996, a decrease of $16.5 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, available-for-sale securities, and restricted
cash increased to $90.4 million at September 30, 1998 from $79.2 million at
September 30, 1997. The increase of $11.2 million was primarily a result of cash
generated from operations of $64.0 million and proceeds from the sale of excess
properties of $21.8 million, offset by the purchase of property, plant and
equipment for $55.9 million; and debt and capital lease payments of $18.4
million.
Envirotest's primary uses of cash include funding capital expenditure
requirements, payments on capital and operating leases, principal and interest
payments, and other working capital needs. Envirotest's capital and operating
leases currently require minimum lease payments of approximately $14.9 million
in 1998, decreasing to approximately $10.3 million in 2003 and further
decreasing thereafter as certain leases are scheduled to expire.
Envirotest's capital expenditures include maintenance capital expenditures
for existing facilities and development and construction expenditures for new
emissions facilities. Envirotest's development and construction capital
expenditures are dependent on the number of contracts we are awarded and are
only incurred after the contract has been signed. After signing a contract,
Envirotest may incur significant development and construction expenditures,
which Envirotest expects to finance with existing cash resources, internally
generated funds, additional borrowings and alternative financing sources,
including leasing alternatives. It generally takes one to two years after a
contract has been signed for a program to begin operations and generate
revenues, depending on the size of the program.
Envirotest's principal commitments at September 30, 1998 consist of capital
expenditures for the implementation of the Illinois program, estimated at $1.2
million net of the $7.1 million payments from the state. In fiscal 1999,
Envirotest also intends to spend approximately $10.2 million on implementation
of the Kentucky program, enhancement and other maintenance capital expenditures.
Subsequent to September 30, 1998, the Company agreed to pay $1.5 million to
settle the Ganzcorp claim.
Envirotest believes that its existing cash, cash generated from operations
and alternative financing sources, including leasing alternatives, will be
sufficient to complete implementation of the Illinois program and to meet its
liquidity requirements for the foreseeable future.
Accrued expenses and other current liabilities increased to $45.4 million at
September 30, 1998 from $23.6 million at September 30, 1997. The increase is
primarily attributable to $18.9 million received from the State of Illinois in
conjunction with the implementation of the new testing procedure.
47
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY FOLLOWING THE ACQUISITION OF
ENVIROTEST AND RELATED TRANSACTIONS
Following the acquisition of Envirotest and the related transactions, our
debt capitalization consists of (i) $100 million aggregate principal amount of
Notes and (ii) a committed $435 million senior secured credit facility of which
$36.1 million will be available for liquidity requirements. As of December 15,
1998, availability under the senior secured credit facility was reduced by $8.9
million in outstanding letters of credit and by $13.0 million due to revolving
borrowings. The borrowings under the senior secured credit facility and the
Notes increase debt service costs. The Notes accrue interest at 13% per annum
and will be payable semi-annually commencing April 30, 1999. The Notes will
mature on October 31, 2008. The senior secured credit facility and the indenture
governing these Notes limit our ability to incur additional debt, to pay
dividends, to redeem capital stock and to sell certain assets. We may incur
additional indebtedness as long as our consolidated cash flow coverage ratio, as
defined in the indenture governing these Notes, is greater than certain minimum
levels or if such additional indebtedness fits within certain exceptions. The
Senior Secured Credit Facility bears interest at various interest rates ranging
from LIBOR plus 2.25% to LIBOR plus 4.00% depending on the Company's financial
ratios. (The Senior Secured Credit Facility also permits the Company to choose
an interest rate based on the prime lending rate of Credit Suisse First Boston
plus a margin or the federal funds rate plus a margin). Through March 31, 1999,
Term Loan A of the Senior Secured Credit Facility bears interest at LIBOR plus
3.25% and Term Loan B bears interest at LIBOR plus 4.00%.
Management believes that based on current financial performance and
anticipated growth, cash flow from operations, together with the available
sources of funds including borrowings under the senior secured credit facility,
will be adequate to make required payments of interest on our indebtedness, to
fund anticipated capital expenditures and working capital requirements and to
enable us to comply with the terms of our debt agreements. Actual capital
requirements may change, particularly as a result of acquisitions we may make,
although no acquisitions are currently contemplated. We expect that capital
expenditures (exclusive of acquisitions) will be approximately $5 to $15 million
annually from 1999 to 2003. We believe that these capital expenditures will be
sufficient to maintain high quality equipment and services. Our future
performance and ability to service or refinance the Notes and to extend or
refinance the senior secured credit facility will be subject to future economic
conditions and to financial, business and other factors, many of which are
beyond our control.
In connection with the acquisition of Envirotest, our sole stockholder,
EnviroSystems Corp., issued 15% senior discount notes due 2009 with a principal
amount at maturity of $207 million. Interest on these senior discount notes will
accrue from October 16, 1998 and be payable semiannually on April 30 and October
31 of each year, but will not be payable in cash prior to April 30, 2004. Since
EnviroSystems Corp. has no material business operations, sources of income or
assets of its own, other than its shares of the Company, it is dependent upon
the profitability and cash flows of the Company and the payment of funds by the
Company to it in the form of loans, dividends, fees and otherwise, as well as
its own credit arrangements.
INFLATION
Inflation was not a material factor in either the sales or the operating
expenses of the Company during the periods presented herein.
YEAR 2000 ISSUE
The Company has a Year 2000 project designed to identify and assess the
risks associated with its information systems, products, operations and
infrastructure, suppliers, and customers that are not Year 2000 compliant, and
to develop, implement, and test remediation and contingency plans to mitigate
these
48
<PAGE>
risks. The project comprises four phases: (1) identification of risks, (2)
assessment of risks, (3) development of remediation and contingency plans, and
(4) implementation and testing.
The Company's Year 2000 project is currently in the assessment phase and
with respect to certain information systems in the remediation phase. The
Company believes that its greatest potential risks are associated with its
information systems and systems embedded in its operations and infrastructure.
The Company is at the beginning stage of assessments for its operations and
infrastructure, and cannot predict whether significant problems will be
identified. The Company has not yet determined the extent of contingency
planning that may be required. Based on the status of the assessments made and
remediation plans developed to date, the Company is not in a position to state
the total cost of remediation of all Year 2000 issues. Though the Company does
not expect the total costs to be material, it expects to be able to fund the
total costs through operating cash flows. However, the Company has not yet
completed its assessments, developed remediation plans, or developed any
contingency plans.
As the Year 2000 project continues, the Company may discover additional Year
2000 problems, may not be able to develop, implement or test remediation or
contingency plans, or may find that the costs of these activities exceed current
expectations and become material. In many cases, the Company is relying on
assurances from suppliers that new and upgraded information systems and other
products will be Year 2000 compliant. The Company plans to test such third-party
products, but cannot be sure that its tests will be adequate or that, if
problems are identified, they will be addressed in a timely and satisfactory
way.
Because the Company uses a variety of information systems and has additional
systems embedded in its operations and infrastructure, the Company cannot be
sure that all of its systems will work together in a Year 2000 compliant
fashion. Furthermore, the Company cannot be sure that it will not suffer
business interruptions, either because of its own Year 2000 problems or those of
its customers or suppliers whose Year 2000 problems may make it difficult or
impossible for them to fulfill their commitments to the Company. If the Company
fails to satisfactorily resolve Year 2000 issues related to its products in a
timely manner, it could be exposed to liability to third parties.
The Company is continuing to evaluate Year 2000 related risks and corrective
actions. Risks associated with the Year 2000 problem are pervasive and complex,
can be difficult to identify and to address, and can result in material adverse
consequences to the Company. Even if the Company, in a timely manner, completes
all of its assessments, identifies and tests remediation plans believed to be
adequate, and develops contingency plans believed to be adequate, some problems
may not be identified or corrected in time to prevent material adverse
consequences to the Company.
RECENT DEVELOPMENTS
We recently acquired all of the outstanding capital stock of Transervice
Limited, a subsidiary of Wellman (Holdings) Limited for a purchase price of
$18.0 million ($9.25 million in cash, $4.25 in the form of a note periodically
due over the next six months and $4.5 million in the form of a note due in three
years). Transervice provides installation and warranty and other services in
respect of automobile lift and brake equipment manufactured by Wellman Bradbury
plc and warranty support services in respect of diagnostic and emissions testing
equipment manufactured by Crypton plc. In 1997, Transervice had revenues and
operating profits of approximately L7.2 million and L1.0 million, respectively.
The Company has entered into an agreement with Bank of America and BA Credit
Corporation, pursuant to which a Delaware limited liability company, ESP
Financial Services LLC, has been established to provide financing for vehicle
emissions testing equipment to be sold by ESP to decentralized facilities. ESP
Financial Services LLC is 90% owned by ESP and 10% owned by BA Credit
Corporation. After ESP has arranged a sale of vehicle emissions testing
equipment with a decentralized facility owner or operator, ESP Financial will
purchase the equipment from ESP and lease it to the facility. ESP will receive
payment in full for the sale from ESP Financial at the time of sale. ESP
Financial will securitize the lease payments from the decentralized facilities
and after repayment to BA Credit Corporation and its affiliates of the
49
<PAGE>
purchase price for the equipment, ESP and BA Credit Corporation will share in
the spread between the actual or implied interest rates on the lease payments
and on the instruments issued in connection with the securitization based on
their respective interests in ESP Financial. It is expected that ESP will at any
time provide up to a maximum of approximately $3,000,000 of equity capital to
ESP Financial, which may be partially or completely lost in the event that one
or more decentralized facilities defaults on their lease payments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 applies to all
companies and is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for the reporting and display of comprehensive
income in a set of financial statements. Comprehensive income is defined as the
change in net assets of a business enterprise during a period from transactions
generated from non-owner sources. It includes all changes in equity during a
period except those resulting from investment by owners and distributions to
owners. The Company has adopted SFAS 130 beginning January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 applies to all public companies and is effective for fiscal years
beginning after December 15, 1997. SFAS 131 requires that business segment
financial information be reported in the financial statements utilizing the
management approach. The management approach is defined as the manner in which
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The Company has adopted SFAS 131 beginning
January 1, 1998. The Company's operations prior to the acquisition of Envirotest
are managed all within one segment. The Company is presently reviewing its
reporting as required by SFAS 131.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS
133). The new standard requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives should be reported in
the statement of operations or as a deferred item, depending on the use of the
derivatives and whether they qualify for hedge accounting. The key criterion for
hedge accounting is that the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge. No material impact is expected with the adoption of FAS 133.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs, which should be expensed as incurred. This SOP is effective
for the Company's 2000 fiscal year. The Company has reviewed the provisions of
this SOP and does not believe that adoption of this standard will have a
material effect upon its results of operations, financial position, or cash
flows.
In March 1998, the Accounting Standards Executive Committee issued SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on when costs related to software
developed or obtained for internal use should be capitalized or expensed. This
SOP is effective for the Company's 1999 fiscal year. The Company has reviewed
the provisions of the SOP and does not believe adoption of this standard will
have a material effect upon its results of operations, financial position, or
cash flows.
50
<PAGE>
INDUSTRY AND REGULATORY OVERVIEW
Public awareness of air pollution and its hazardous effects on human health
and the environment has increased in recent years. The EPA estimates that in the
United States alone approximately 46 million persons live in areas where air
quality levels have failed to meet the EPA's national air quality standards.
Increased awareness of air pollution and its hazardous effects on human health
and the environment has led many governmental authorities to pass more stringent
pollution control measures. One especially effective measure which many
governmental authorities have adopted is vehicle emissions testing. Vehicle
emissions produce approximately 50% of the ozone air pollution and nearly all of
the carbon monoxide air pollution in metropolitan areas. The EPA estimates that
enhanced emissions testing on motor vehicles is approximately 10 times more
cost-effective in reducing air pollution than increasing controls on stationary
pollution sources such as factories and utilities. Consequently, the EPA has
made emissions testing an integral part of its overall effort to reduce air
pollution by ensuring that vehicles meet emissions standards throughout their
lives.
We estimate that the world market potential for vehicle emissions testing
services is currently in excess of 670 million vehicles. There are approximately
240 million vehicles, or 36% of the world total, in the U.S. and Canada. Over 90
million of these U.S. and Canadian vehicles are currently subject to annual or
biennial emissions testing and approximately 65 million paid tests and re-tests
are conducted annually in these markets. In general, these tests are performed
either in a centralized program or in a decentralized program. In a centralized
program, vehicle owners take their vehicles to one of a small number of special
centralized facilities to be tested. These facilities only perform tests; they
do not repair vehicles. Usually, a private contractor licensed by the government
operates the centralized facility. In a decentralized program, vehicle owners
take their vehicles to a service station, automotive repair shop or dealership
to be tested. These decentralized facilities both perform tests and repair
vehicles. The EPA has granted state and local governmental authorities the
discretion to determine how best to establish and operate a network of emissions
testing facilities, including the flexibility to choose either a centralized or
a decentralized program. In 1997, centralized programs in the U.S. and Canada
performed approximately 23.0 million paid tests (36% of the total tests) and
generated approximately $250 million in revenues, while facilities in
decentralized markets in the United States performed approximately 41.7 million
tests (64% of the total tests) and generated approximately $816 million in
revenues. The percentage of programs which are either centralized or
decentralized has remained relatively constant since 1991. We estimate that the
North American market for decentralized vehicle emissions testing equipment will
total approximately $1.0 billion through 2001 and that thereafter the North
American market will decline significantly, with future demand for these
products dependent on the growth of demand in international markets.
Vehicle emissions control requirements have become progressively more
stringent since the passage of the Clean Air Act in 1970. The 1990 Amendments,
in particular, emphasized the need for effective emissions control programs and
in 1992 the EPA adopted regulations that required 181 geographic areas to
implement certain types of emissions control programs by certain dates,
depending on the area's population and its level of air pollution. The EPA has
the authority under the Clean Air Act to withhold non-safety related federal
highway funds from states that fail to implement such mandated programs by
prescribed deadlines. To date, the EPA has been willing, in certain
circumstances, to grant extensions of these deadlines and it has yet to impose
any sanctions or penalties for non-compliance.
The EPA recently announced certain proposals that may impact emissions
testing programs. On May 7, 1998, the EPA issued a proposal on the potential use
of so-called "clean screening" methods in emissions testing programs. Under the
proposal, individual states would be able to modify existing or planned
emissions testing programs to reduce or eliminate vehicle emissions testing for
certain categories of low emission vehicles. If the EPA adopts guidelines
substantially along the lines of its May 7, 1998 proposal, the number of
vehicles subject to traditional emissions testing would decrease. We believe
that such a decrease would not significantly affect our revenues because our
current contracts with states that
51
<PAGE>
operate centralized programs guarantee specified numbers of tests, and in states
that operate decentralized programs we do not earn revenue from performing tests
but from selling testing equipment to private sector facilities. The clean
screening proposal would also permit states to consider the use of roadside
remote sensing devices to excuse certain categories of vehicles from regularly
scheduled testing. We believe it is premature to consider what effect, if any,
remote sensing might have on our business because such devices have not been
developed to the point where they are sufficiently accurate to be used as a
substitute for current emissions tests, and because we ourselves are engaged in
research and development of remote sensing devices and would expect to pursue
growth opportunities in this area. More recently, on July 31, 1998, the EPA
issued a final study which concluded that more stringent air quality standards
for motor vehicle emissions are needed, technologically feasible, and
cost-effective. We believe that the setting of such standards will be the most
important EPA regulatory initiative affecting motor vehicles since the passage
of the 1990 Amendments. We believe that the EPA study is likely to result in
more stringent standards that will have the effect of increasing the number of
areas which must implement emissions testing programs and therefore potentially
increase the market for our products and services.
Since 1977, when Federal legislation first required states to comply with
emissions standards through the use of testing programs, California has been a
leader in testing procedures and technical standards. California has
approximately 22 million vehicles subject to emissions testing, more than three
times that of any other state. California's testing program is overseen by the
California Bureau of Automotive Repair ("BAR"). The California BAR has revised
its emissions testing standards three times: in 1984, 1990 and, most recently,
in 1997. With each of these revisions, the California BAR has required the use
of new, more sophisticated and more accurate emissions testing and analysis
equipment, which must be certified by the California BAR. California's testing
standards have become the benchmark for emissions testing both in the United
States and in many foreign countries. All states with decentralized programs and
many states with centralized programs require emissions testing and analysis
equipment used in their programs to be either "BAR-84," "BAR-90," or "BAR-97"
certified, with all newly-implemented enhanced programs requiring BAR-97
certification.
As emissions testing equipment has become more technologically advanced,
government regulators have required that testing facilities use this more
advanced equipment. The most significant technological advance that has occurred
in the emissions testing industry over the past decade is the development of
"enhanced" testing systems. Prior to 1990, the EPA required government agencies
to test vehicles only for emissions of carbon monoxide and hydrocarbons (which
form ground-level ozone or "smog"). During this "basic" test, a technician
inserts a probe in the vehicle's tailpipe while the vehicle is idling and
emissions analyzers then measure pollution levels in the exhaust. These basic
tests worked well for pre-1981, non-computerized vehicles containing carburetors
because typical emission control problems involved incorrect air/fuel mixtures
and such problems increase pollution levels in the exhaust even when the vehicle
is idling. However, today's vehicles have different emissions problems. For
tests on modern vehicles to be effective, the equipment must measure nitrogen
oxide emissions (which also cause smog) and must test the vehicle under
simulated driving conditions. The EPA now requires these "enhanced" tests in
some areas. A technician conducts these enhanced tests on a dynamometer, a
treadmill-type device that simulates actual driving conditions, including
periods of acceleration, deceleration and cruising.
A number of recent international initiatives evidence the increasing
recognition by foreign countries of the hazardous effects of air pollution to
human health and the environment. We believe that foreign countries will
continue to follow the lead of the United States in pollution control and, more
particularly, vehicle emissions testing, and will adopt or upgrade existing
emissions testing programs as an efficient and effective step towards reducing
air pollution. A number of foreign countries have implemented various forms of
mandatory testing programs, including the United Kingdom, Germany, Canada
(certain provinces), Mexico and Japan, and a number of others are considering
developing or expanding mandatory or voluntary testing programs, including
Poland, the Philippines, Brazil, Argentina, and Chile.
52
<PAGE>
BUSINESS
OVERVIEW
GENERAL
We are the leading worldwide provider of vehicle emissions testing equipment
and services. We manufacture equipment that tests vehicle emissions for
compliance with air pollution standards and operate testing programs on behalf
of states and other jurisdictions. We estimate that we have an approximate 35%
share of the domestic market for vehicle emissions testing equipment used by
independent service stations and other service providers in states that have
adopted a "decentralized" program (representing an approximate 30% share of the
domestic market for basic testing equipment and an approximate 48% share of the
domestic market for higher-margin enhanced testing equipment). We also operate,
or are under contract to operate, 14 of the 21 testing programs in the 16 states
that have adopted a centralized program and we operate the only such program in
Canada. Envirotest tested approximately 11.8 million motor vehicles in fiscal
1998 which represented approximately 70% of the total North American centralized
testing market revenues. As of September 30, 1998, we had a contractual backlog
to provide centralized emissions testing services of approximately $873 million
through 2008.
HISTORY
Both ESP and Envirotest originated from United Technologies Corporation, an
innovator in emissions testing technology. ESP was formed in 1989 in connection
with a management buyout of the decentralized testing division of United
Technologies Corporation. In April 1996, Wellman plc, a then-publicly
incorporated United Kingdom company, bought ESP. Alchemy recently bought Wellman
plc and thus became the indirect parent of ESP and its subsidiaries. Envirotest
has operated in the vehicle emissions testing business since 1974 through its
predecessor company, Hamilton Testing Systems, which was acquired in a
management buyout from United Technologies Corporation in 1990. Hamilton Testing
Systems commenced operations in the emissions testing business in 1974 with the
award of the contract for the Arizona testing program, the first centralized,
test-only program in the United States. Subsequently, Envirotest acquired
Envirotest Technologies, Inc., from Electronic Data Systems, adding an
additional five testing programs shortly before adoption of the rules and
regulations by the EPA implementing the 1990 amendments to the Clean Air Act. In
1996, Envirotest acquired two additional testing programs from Systems Control,
Inc. and hired the senior management team of Systems Control. Envirotest became
a publicly owned company in 1993.
THE ACQUISITION OF ENVIROTEST AND RELATED TRANSACTIONS
The combination of ESP and Envirotest has created an emissions testing
industry leader. In the combination, ESP acquired all of the outstanding capital
stock of Envirotest through a tender offer and related merger transaction for
approximately $266.3 million. In connection with the acquisition, we made a
private offering of these Notes and redeemed or repaid certain indebtedness of
Envirotest, ESP and their subsidiaries.
After these transactions and a reorganization of our affiliated companies,
we became a direct wholly-owned subsidiary of EnviroSystems Corp. and ESP and
Envirotest became our direct, wholly-owned subsidiaries.
We believe our new position as the overall industry leader will allow us to
solidify our domestic position and expand internationally by offering a broad
range of vehicle emissions testing equipment and services. We also believe that
Envirotest's relatively consistent revenues will complement the revenues of ESP,
which historically have fluctuated significantly as states have periodically
implemented decentralized testing programs or modified existing programs. In
addition, the combination of ESP and Envirotest will
53
<PAGE>
allow us to eliminate duplicative management, staff and facilities. We estimate
this will save $9.4 million, of which $4.2 million has been realized to date.
BUSINESS STRENGTHS
We believe that we have the following competitive advantages:
INDUSTRY LEADER. We enjoy leading market positions in both our emissions
testing equipment business and our emissions testing services business. We have
an estimated 35% share of the domestic market for emissions testing equipment
systems used in decentralized programs. We also currently operate, or are under
contract to operate, 14 of the 21 programs in the 16 states that have adopted
centralized programs and the only such program in Canada. In 1998, we performed
over three times the number of tests as our closest competitor in the United
States and Canada and received approximately 70% of the total revenues in the
centralized testing market for such period.
STABLE REVENUE SOURCE. Our centralized vehicle emissions testing services
business provides a stable source of revenues. We generally provide services to
states, municipalities and other jurisdictions under long-term contracts of
between five and ten years that include agreed upon per test fees that we earn
over the life of the contracts. The demand for our testing services in these
jurisdictions presently is generally fixed because the tests are mandated by
current law. The actual number of tests may fluctuate. For the twelve months
ended September 30, 1998, our centralized vehicle emissions testing business
generated revenues of $168.7 million and EBITDA of $66.9 million. We estimate
that as of September 30, 1998, we had a contractual backlog to provide
centralized emissions testing services of approximately $873 million through
2008.
TECHNOLOGICAL LEADERSHIP AND SUPERIOR CUSTOMER SERVICE. We believe that we
are the technological leader in the design and manufacture of vehicle emissions
testing equipment. Our intellectual property includes proprietary software
programs and more than 70 patents on emissions testing and related products. Our
testing systems are among the most user-friendly, efficient products available.
This efficiency allows testing facilities to maximize the number of tests they
can perform in a set period of time and therefore their revenues. In addition,
our staff of approximately 182 company-trained direct service technicians who
operate from a network of 10 service hubs throughout the United States provides
the best customer service in the industry.
EXPERIENCED MANAGEMENT TEAM. Our management team is one of the most
experienced in the vehicle emissions testing industry. Our management team,
which is comprised of certain of the senior members of the former managements of
ESP and Envirotest, has a combined 40 years of experience in the industry and
has demonstrated its ability to succeed in both the emissions testing equipment
business and the emissions testing services business. We believe that the
combination of ESP and Envirotest creates the leading management team in the
vehicle emissions testing industry.
BUSINESS STRATEGY
Our objective is to maximize our long term profitability by enhancing our
leading positions in the vehicle emissions testing equipment and testing
services businesses through the following strategies:
EXPAND DOMESTIC BUSINESS. We intend to (i) expand our share of the market
for emissions testing equipment, particularly higher margin enhanced systems, in
states and other jurisdictions that have adopted decentralized testing programs,
(ii) capture as large a share as possible of new business if additional states
and municipalities implement laws and regulations that require use of these
products, (iii) extend or renew our existing contracts with states,
municipalities and other jurisdictions to which we provide centralized testing
services and (iv) bid successfully for any new mandates to provide these
services.
54
<PAGE>
REALIZE BENEFITS FROM ACQUISITION OF ENVIROTEST. We will integrate the
equipment and testing businesses to take advantage of synergies and economies of
scales in, among other things, research and development, marketing and
government relations. We believe that the combination of the two businesses will
help us penetrate the developing international market for vehicle emissions
testing because our breadth of experience and expertise will allow us to offer a
broad range of vehicle emissions products and services. As a result of the
combination of the two businesses, we also expect to save approximately $9.4
million as a result of the elimination of duplicative management, staff and
facilities. Finally, we believe that Envirotest's relatively consistent revenues
will complement the revenues of ESP, which historically have fluctuated
significantly as states have periodically implemented decentralized testing
programs or modified existing programs.
EXTEND TECHNOLOGICAL LEADERSHIP. By integrating the research and
development groups of ESP and Envirotest, we will be able to extend our
technological leadership. We intend to improve our emissions testing equipment
and expand our product offerings to provide the most accurate, reliable and
user-friendly emissions testing equipment available. In addition, we intend to
update our computer software to maximize the rate at which we can test vehicles
in our centralized testing operations. We also plan to continue to work with
leading government policy makers, including particularly the California BAR, in
developing state-of-the-art testing technologies.
EXPAND INTERNATIONAL PRESENCE. We intend to expand internationally by
offering a broad range of vehicle emissions testing equipment and services to
countries and other jurisdictions around the world that are likely to adopt
emissions testing programs similar to those adopted in the United States. We
plan to offer our advisory services to these countries at the early stages of
their program development, thereby positioning ourselves to become the provider
of choice for both centralized and decentralized testing programs. We intend to
expand our international marketing efforts and offices in the future and expect
to enter into strategic relationships with partners in selected locales.
EMISSIONS TESTING EQUIPMENT BUSINESS
OVERVIEW
Through ESP, we are the leading worldwide provider of vehicle emissions
testing and analysis equipment to the decentralized market. ESP designs,
manufactures, markets and services equipment that tests motor vehicle emissions
for compliance with air pollution standards imposed by various Federal, state,
and international regulations. Since 1990, ESP has sold over 10,000 testing
systems (including 5,683 systems in the twelve months ended June 30, 1998) in 11
states and 4 foreign countries. ESP sells its emissions testing equipment
primarily to private sector facilities such as service stations, automotive
repair shops, and dealerships that perform emissions testing in states which
have adopted a decentralized program. ESP, by focusing almost exclusively on
designing and developing emissions testing products for the decentralized
market, has developed significant expertise in producing emissions testing
equipment that meets the needs of the owners of emissions testing facilities.
Specifically, ESP has used its extensive technological capabilities to provide
its customers with technologically advanced, easy to use and more efficient
equipment with superior service for that equipment.
ESP's business has been characterized by long lead times for sales and
generally cyclical sales. This is primarily because the states and
municipalities in the United States that have implemented a decentralized
program have generally adopted a target date for implementation which they have
publicly announced 12 to 24 months in advance. This causes surges in demand for
emissions testing equipment from facility owners in a state generally four to
six months prior to the scheduled implementation date. The level of demand is
predictable to a certain extent based on the state's vehicle population.
Following implementation of a state's testing program, ESP continues to earn
revenues in that state from residual sales and, after a one-year warranty
period, from equipment servicing. This pattern of implementation permits ESP to
channel its engineering resources to develop equipment modifications required to
comply with a particular
55
<PAGE>
state's testing program and allows ESP to allocate and relocate marketing
personnel to that state prior to its scheduled implementation date in order to
capitalize on the expected customer demand.
In addition, ESP has also experienced surges in demand when states with
existing testing programs have introduced more stringent regulations requiring
the use of enhanced testing systems. Technological advances in the emissions
testing industry have led to the development of enhanced testing systems which
have higher average sales prices and gross margins. While basic testing systems,
which test an automobile's emissions only while the vehicle is in neutral, sell
for approximately $12,000, enhanced testing systems, which test an automobile's
emissions under simulated driving conditions, sell for approximately $35,000 to
$40,000. There are five states which currently require the use of the enhanced
testing systems, and Massachusetts and New Jersey have publicly indicated their
intention to require such systems in the future. The Company believes that more
and more states are likely to require the use of these systems, which ESP
expects will result in continued revenues to ESP at least through 2001. By 2001
substantially all of the states with large vehicle populations will have
completed implementation of their programs. As a result, ESP believes that its
revenues and profits generated by domestic sales of its testing systems will
decline significantly. ESP believes, however, that domestic demand for testing
systems will continue at a reduced level even after implementation of mandated
testing programs is completed for the following reasons: (i) states and
municipalities will adopt more stringent pollution control standards which may
require more technologically advanced testing systems, (ii) advances in
technology will produce emissions testing equipment that is superior to the
technology that is currently available, and (iii) facility owners will need to
replace testing systems after the end of their useful lives.
PRODUCTS
ESP currently designs, manufactures and sells three testing systems under
the tradename SystemOne:
- an idle testing system that complies with basic testing requirements;
- a loaded mode testing system that complies with enhanced testing
requirements; and
- a transient loaded mode testing system that complies with enhanced testing
requirements.
In an idle test, a technician inserts a probe which measures exhaust
emissions into the vehicle's tailpipe while the vehicle is idling. A loaded mode
emissions test involves the use of an instrument known as a dynamometer that
measures the vehicle's exhaust emissions under simulated driving conditions. A
transient loaded mode test also uses a dynamometer and in addition uses a system
which captures the entire exhaust stream during a test and measures the total
mass of emissions from a vehicle in grams of pollutant per mile driven.
An emissions testing system is comprised of an outer-frame cabinet, a
personal computer (including a keyboard, modem, monitor and printers) and
internal and external sampling devices for measuring and analyzing emissions.
The computer systems are pre-loaded with ESP's proprietary emissions testing
software. The testing systems have a modular design, which means that each
component is installed separately. This allows for the addition of optional
testing equipment and for upgrades and modifications. The emissions testing
systems also contain certain anti-tampering devices designed to assure the
integrity of emissions testing results. The central processing unit of the
personal computers contained in all testing systems is secured in a locked
compartment accessible only by ESP and its authorized service technicians. If
someone tampers with the lock on the compartment, the testing system
automatically shuts down and can only be turned on by typing in a computer
access code. This code changes daily and only ESP's authorized service
technicians can access it.
ESP's testing systems are designed to be more mobile than the systems sold
by its competitors. This mobility permits the test operators to move the
equipment to accommodate a variety of vehicles, and allows facility owners to
use the systems in decentralized facilities that have limited available space
for emissions testing. Certain components used in the emissions testing systems
also allow the test operators to
56
<PAGE>
perform required emissions tests with less need for direct contact with specific
engine components. These "non intrusive" devices reduce the time to perform
certain tests and the risk of injury to the test operator.
Vehicle emissions testing equipment must be certified for use in each state
prior to sale. All of ESP's testing systems are either BAR-84, BAR-90 or BAR-97
compliant and ESP's emissions testing and analysis equipment is currently
certified in 13 of the 16 states which have adopted decentralized programs and 4
foreign countries. ESP has elected not to apply for certification in Alaska, New
Mexico and Rhode Island because of the relatively small number of vehicles
subject to emissions testing in those states.
Due to the customized nature of the equipment used in the high volume,
test-only facilities that Envirotest designs, constructs and operates for states
that have adopted centralized testing programs, ESP does not manufacture or sell
a material amount of such equipment for the centralized testing market.
MANUFACTURING
ESP's manufacturing activities consist primarily of
- materials management, assembly and integration;
- testing and quality control of parts and component subassemblies; and
- final systems testing.
ESP performs these activities in its East Granby, Connecticut facility. ESP
has outsourced the manufacture of substantially all of its subassemblies to
companies who make the component parts pursuant to ESP's proprietary
specifications. This permits ESP's management to focus on ESP's core business.
ESP believes that its outsourcing strategy also enables ESP to concentrate its
financial resources on product development and enhancement by allowing ESP to
maintain a low supply of inventory and to minimize production cost. In addition,
ESP also believes that the outsourced content and modular design of its testing
systems allows for reduced manufacturing cycle times and increased testing
system production. In 1997, ESP's average monthly production was 298 systems,
with each system taking approximately four hours to assemble.
ESP's systems are assembled from components or subassemblies supplied solely
by suppliers who are selected only after ESP has performed significant testing
to ensure that any components or subassemblies used by ESP in its testing
systems can be effectively integrated with ESP's other hardware and software
components or subassemblies. By using quality components and performing such
testing, ESP is able to minimize the number of malfunctions in its systems.
Although many of the components of the testing systems, such as the dynamometer,
are readily available from a number of sources, ESP typically purchases such
components from single suppliers. To date, ESP has not experienced any material
difficulty or delay in obtaining any components or sub-assemblies.
SERVICES
ESP provides customers with a one year warranty for its emissions testing
systems. Approximately 85% of ESP's customers enter into a service contract with
ESP for the repair and maintenance of the emissions testing systems following
the warranty period. Service contracts typically have a one year term and the
annual servicing fee is approximately 10% of the purchase price of the related
emissions testing system. ESP's revenues for equipment servicing and maintenance
in 1997 were $14.6 million, or 14.3% of ESP's total revenue for the year.
ESP guarantees to its service program participants that any non-operational
emissions testing system will be fully operational within eight hours of the
time of the initial service call, with the typical time until a system is fully
operational ranging between four and six hours. ESP believes that no other
competitor offers a faster service response time guarantee. The modular design
of ESP's emissions testing equipment also helps to expedite the repair time
because it allows ESP's service technicians to remove and replace a
57
<PAGE>
defective part at the customer site. ESP can then repair the defective part at
ESP's facilities, while the customer has full use of an operational system. ESP
has established a customer service network of 149 company-trained direct service
technicians, who account for 54% of ESP's entire workforce. A majority of ESP's
service technicians have been employed with ESP since its formation in 1989.
SALES AND MARKETING
ESP markets and sells its emissions testing equipment through both a direct
marketing and sales staff and indirectly through a network of independent sales
representatives and distributors. ESP uses independent sales representatives and
distributors primarily in foreign countries and in connection with the marketing
of emissions testing equipment to states with limited market potential because
of low demand testing equipment. As of September 30, 1998, ESP has a direct
marketing and sales staff of 49 full-time employees and 3 independent sales
representatives and distributors.
Unlike its competitors, which sell a wide variety of tools and other
equipment in addition to emissions testing equipment, ESP focuses solely on
emissions testing equipment. ESP believes this enhances the capabilities and
effectiveness of its sales force. Each member of ESP's marketing and sales staff
receives intensive training in recent developments in Federal, state, and
international legislation and regulation related to air pollution controls, as
well as highly specialized training regarding the design, operation, and
maintenance of ESP's emissions testing equipment. In addition, because states
and municipalities in the United States generally announce their plans to
implement an emissions testing program 12 to 24 months in advance of the
program's implementation date, ESP is able to allocate and relocate necessary
marketing and sales personnel to those states and municipalities so that ESP can
undertake an effective marketing campaign in those locales in advance of the
implementation date.
ESP offers its customers flexible financing and leasing alternatives through
sale and leaseback arrangements. Through a joint venture with Bank of America,
ESP offers leases ranging from 12 to 84 months. Most customers select terms
ranging from 60 to 84 months. The leases offer various purchase options which
permit the customer to purchase the equipment upon expiration of the lease. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Recent Developments."
CUSTOMERS
Since 1990, ESP has sold over 10,000 emission testing systems to customers
in 11 states and 4 foreign countries. Substantially all of ESP's customers are
independently owned and operated service stations, automotive repair shops and
dealerships that purchase emissions testing equipment to generate testing
revenue and vehicle repair revenues. No single customer accounts for a material
portion of ESP's sales over the long term. The fees derived by decentralized
facilities from emissions testing generally are substantially in excess of the
cost of owning or leasing emission testing systems. Decentralized facilities
that offer emissions testing also have the opportunity to perform automotive
repairs that are related to emissions test failures as well as other vehicle
repairs and to service vehicles that might not otherwise be serviced at the
facility.
COMPETITION
ESP has two principal competitors in the decentralized emissions testing
market: Sun Electric, a division of Snap-on Incorporated, and Automotive
Diagnostics, a division of SPX Corporation. ESP believes that competition in the
decentralized market is based primarily on the following factors: product
performance, ease of use, functionality, reliability and quality; expertise and
customer satisfaction with service and rate of response time; certification by
governmental authorities (with early, and particularly first, certification
being a significant advantage); prior customer relationships; technological
capabilities of the product; and overall cost of the emissions testing
equipment. In the international emissions testing
58
<PAGE>
market, ESP typically competes with providers of vehicle emissions testing
equipment on a country-by-country basis. Three of ESP's primary competitors in
Europe are Sun Electric Europe, Robert Bosch GmbH, and Technotest. ESP believes
that the superior quality and innovative features of its emissions testing
systems and the responsive service it provides to its customers will enable it
to maintain its relationships with existing customers and to expand its customer
base both in domestic and international markets.
RESEARCH AND DEVELOPMENT
ESP conducts the majority of its research and development at its facility in
Tucson, Arizona. ESP's research and development program employs approximately 23
electrical, software, mechanical and design engineers, approximately 75% of whom
were former employees of United Technologies Corporation and have over 10 years
experience in the vehicle emissions testing industry. ESP's research and
development program is equipped with the latest development tools, including
software engineering tools, mechanical CAD systems, laboratories and a
state-of-the-art test facility. ESP considers research and development to be a
vital part of its operations and dedicates substantial resources to research and
development of product improvements, new products and product applications.
ESP's research and development expenses were approximately $1.4 million in 1995,
$1.7 million in 1996, and $2.3 million in 1997. See "Business-- Facilities."
ESP frequently conducts its technology research and product development
efforts in conjunction with governmental authorities. For example, in 1994, the
California BAR awarded ESP two pilot programs for the development of testing
standards at a test facility in Sacramento, California and, in 1995, New Jersey
awarded ESP a study contract to evaluate alternative emissions testing
procedures and systems.
The experience and expertise of ESP and its employees in the vehicle
emissions testing industry has enabled ESP to develop proprietary technology and
has permitted ESP to respond successfully to technological advances in the
vehicle emissions testing industry. ESP's products are protected by
approximately 20 United States and 25 foreign patents and trademarks. While ESP
believes that its proprietary technology rights are valuable, it also believes
that because of the technological advances in the vehicle emissions testing
industry, factors such as innovative skills, technical expertise and the ability
to adapt quickly to new technologies and government regulation are of greater
competitive significance.
EMISSIONS TESTING SERVICES BUSINESS
OVERVIEW
Through Envirotest, we are the leading operator of centralized emissions
testing programs in the growing North American vehicle emissions testing market.
Envirotest is the most experienced operator in the approximately $250 million
North American centralized testing market, having tested more than 150 million
vehicles since its inception in 1974. Envirotest currently operates, or is under
contract to operate, 14 of the 21 existing centralized emissions testing
programs in the 16 states that have adopted centralized programs and the only
such program in Canada. Envirotest tested approximately 11.8 million vehicles in
1998, which represented approximately 70% of the total North American
centralized testing market revenues.
EMISSIONS TESTING CONTRACTS
Envirotest conducts its centralized testing business under exclusive,
long-term contracts with state, local or other governmental authorities.
Pursuant to these contracts, Envirotest generally
- structures the testing program,
- designs a testing facility network,
59
<PAGE>
- selects, designs and constructs individual inspection and test facilities
with multiple test lanes,
- designs and installs the required computer network and
- operates the testing program.
Envirotest's emissions testing contracts have an initial term that generally
ranges from five to ten years and may contain options permitting the
governmental authority to extend the contract under similar terms and conditions
for one or more periods of up to two years. A governmental authority may
negotiate renewals or extensions on terms different from those in the initial
contract or expand the program to include additional counties or services.
Envirotest derives most of its contract revenues from its 14 operating
emissions testing contracts with governmental authorities in 10 states and one
Canadian province. Envirotest's five largest state and provincial program
contracts generated approximately 66.9% of its total contract revenues during
the twelve months ended September 30, 1998, with Illinois accounting for 18.0%,
Connecticut for 13.7%, Ohio for 13.0%, Colorado for 12.1%, and Florida for
10.1%. In addition, northern Kentucky recently awarded Envirotest a new
contract.
The table below describes certain contract terms and operating data for each
of Envirotest's existing emissions programs as of September 30, 1998.
<TABLE>
<CAPTION>
NUMBER COMMENCEMENT EXPIRATION NUMBER
COMMENCEMENT OF TIMES OF OF OF
OF INITIAL EXTENDED/ CURRENT CURRENT FACILITIES/
STATE/JURISDICTION CONTRACT RENEWED CONTRACT TERM LANES
- ---------------------------------------- ----------------- --------------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Colorado (Denver)....................... 1/1/95 -- 1/1/95 12/31/01 15/77
Connecticut............................. 1/1/83 3 1/1/95 6/30/02 25/87
Florida (Dade & Palm Beach Counties).... 4/1/91 1 4/1/91 3/31/00 12/55
Illinois................................ 5/1/86 2 7/1/97 11/30/06 22/92
Indiana................................. 1/1/97 -- 1/1/97 12/31/06 7/21
Kentucky(1)............................. 6/1/99 -- 6/1/99 6/30/08 --
Minnesota............................... 7/1/91 2 7/1/98 6/30/99 9/38
Ohio (Cuyahoga, Cleveland/Akron, &
Dayton/Springfield)................... 1/1/91 3 1/1/96 12/31/05 31/124
Tennessee (Nashville)................... 1/1/91 2 1/1/96 6/30/01 11/24
Washington.............................. 1/2/82 3 6/1/93 12/31/99 20/84
Wisconsin............................... 4/1/84 2 12/1/95 11/30/02 12/44
British Columbia (Vancouver)............ 9/1/92 -- 9/1/92 8/31/99 12/42
-----------
Total................................... 176/689
-----------
-----------
<CAPTION>
NUMBER
OF
PAID TESTS
IN
STATE/JURISDICTION FISCAL 1998
- ---------------------------------------- ------------
<S> <C>
Colorado (Denver)....................... 847,000
Connecticut............................. 1,159,000
Florida (Dade & Palm Beach Counties).... 2,035,000
Illinois................................ 1,641,000
Indiana................................. 284,000
Kentucky(1)............................. --
Minnesota............................... 1,002,000
Ohio (Cuyahoga, Cleveland/Akron, &
Dayton/Springfield)................... 1,230,000
Tennessee (Nashville)................... 754,000
Washington.............................. 1,133,000
Wisconsin............................... 728,000
British Columbia (Vancouver)............ 1,012,000
------------
Total................................... 11,825,000
------------
------------
</TABLE>
- ------------------------
(1) Northern Kentucky contract awarded in June 1998, expected to commence
operation in 1999.
60
<PAGE>
As of September 30, 1998, Envirotest estimates that it had a contractual
backlog to provide centralized emissions testing services of approximately $873
million through 2008, compared to approximately $936 million at September 30,
1997, approximately $660 million at September 30, 1996, and approximately $724
million at September 30, 1995. Envirotest realized approximately $165 million of
the backlog during the fiscal year ended September 30, 1998. Envirotest
calculates its revenue backlog per contract by multiplying (i) the average
annual test volume, (ii) the fee per vehicle tested, and (iii) the remaining
number of years in the contract term, excluding optional extension periods.
Envirotest believes that, as the incumbent operator in its existing
programs, it generally has a competitive advantage when the programs are rebid,
primarily because Envirotest has already incurred the costs of establishing the
program network and has gained valuable experience in operating the program.
Since 1990, all of Envirotest's emissions testing contracts that provided for
renewal or extension have been renewed or extended beyond their initial terms
except one contract with Maryland that was not material.
The fee which Envirotest receives for each vehicle it tests is based on
Envirotest's bid. Envirotest's bid, in turn, is based on a number of factors,
including the type of test performed under the program, the vehicle population
of a test area, the number of test lanes installed, any volume guarantee, the
cost of labor and real estate, and cost of living adjustment. The governmental
authority sets the frequency at which vehicles must be tested, typically
annually or biennially, and imposes penalties on motorists for noncompliance.
Penalties usually take the form of denial or suspension of vehicle registration.
A governmental entity may, during the term of a contract, request that
Envirotest change the scope of work specified in the contract. These changes may
include an expansion of the geographic area covered by the contract or program
enhancements. Generally the governmental entity pays an additional fee to
Envirotest based on the additional scope of work.
Under most of Envirotest's contracts, the governmental authority has the
right, and in some case may be obligated, to purchase Envirotest's program sites
and facilities upon termination of the contract. The contract usually specifies
that the price is based on either fair market value, book value or actual cost
of the program sites and facilities. We believe that these prices provide
Envirotest adequate compensation for the value of the assets purchased.
Most of these contracts also expressly provide for termination if the
relevant governmental authority repeals the legislation authorizing the
emissions testing program or does not appropriate sufficient funds for the
program. More than half of Envirotest's contracts also allow the governmental
authority to terminate the contract for convenience, upon giving advance written
notice of not less than 30 days. Envirotest believes that it is generally
entitled, either under the express terms of the contract or under applicable
law, to equitable or reasonable compensation for certain costs associated with
the termination of a contract for convenience. Envirotest's contracts also
permit the governmental authority to terminate the contract for cause, generally
after specified notice and cure periods. The repeal of a program or
non-appropriation of funds does not constitute "cause" under such contracts.
In addition, under most of Envirotest's centralized testing contracts,
Envirotest must pay liquidated damages as a penalty if it fails to meet
specified start-up dates or performance requirements, in many cases after a
specified notice and cure period. Liquidated damages provisions are customary in
emissions testing contracts. Some examples of such penalties are
- up to $10,000 a day for late system start-up,
- up to $5,000 per day for inaccurate reports submitted by Envirotest,
- up to ten percent of the fee due to Envirotest for the tests performed for
submitting incomplete, incorrect, or illegible reports, or
- up to $10,000 per day for failing to allow access to Envirotest's program
facility or emissions testing data.
61
<PAGE>
At least one contract requires Envirotest to pay liquidated damages if the
state terminates the contract for cause. In fiscal 1998, Envirotest incurred an
aggregate of approximately $0.5 million in liquidated damages under its
contracts with Colorado and Connecticut, compared with $0.7 million in the full
fiscal year 1997. Envirotest is also required to post performance bonds once the
contract is awarded. Those bonds, which range in amount from $100,000 to
$3,000,000, protect the governmental authority for the cost of replacing
Envirotest if the governmental authority terminates the contract for cause prior
to expiration.
RECENT DEVELOPMENTS IN CENTRALIZED PROGRAMS
In June 1998, after a competitive bidding process, Envirotest signed a
contract with Kentucky to conduct centralized emissions testing in three
northern counties. Envirotest expects to perform 140,000 tests per year and
generate $23 million over the competing term of the contract. The contract
begins in June 1999 and ends in June 2008.
In June 1997, the Company signed an agreement with Illinois to upgrade the
state's existing centralized vehicle emissions testing program to an enhanced
program. The agreement also extended the program term by nine years, to 2005.
Revenues for the nine-year term are expected to total approximately $385.0
million, including the sum of $48.0 million which the state will pay to
Envirotest during the course of the implementation period for performance of
basic tests and other services provided during this period. Envirotest will
spend approximately $75.0 million to implement the new program. This expenditure
will be partially offset by the $48.0 million to be received from the state.
Enhanced testing will commence in early 1999.
As of March 1997, California elected to terminate, for the convenience of
the state, Envirotest's contract to provide remote sensing services. The
contract was expected to extend through June 30, 1998. The termination was
related to the state's decision to reassess its future vehicle emissions testing
program. On August 15, 1997, Envirotest entered into a Settlement Agreement with
the state resolving the issues related to the termination. Under the terms of
the Settlement Agreement, Envirotest received $2.7 million, including
outstanding receivables.
In December 1995, Envirotest entered into a settlement agreement with
Pennsylvania which awarded Envirotest more than $105 million. This award was
compensation for damages Envirotest incurred when Pennsylvania cancelled a
contract under which Envirotest was supposed to provide centralized testing
services in Pennsylvania. Pennsylvania canceled the contract in reaction to a
change in EPA regulations which allowed Pennsylvania to retain its existing
decentralized program. Envirotest has now received all payments due under the
settlement agreement. Envirotest realized a gain of approximately $21.8 million
on the settlement.
CONTRACT AWARD AND PROGRAM IMPLEMENTATION PROCESS
A state or municipality planning to implement a centralized vehicle
emissions testing program generally solicits bids for the right to provide the
testing services. Set forth below is a summary of that competitive bidding
process and the marketing and government relations resources that Envirotest
generally devotes to the bidding process.
PRE-BID MARKETING. Envirotest considers its participation in the
legislative and regulatory authorization process for emission testing programs
to be an important initial step in marketing its services. Once a government
agency has authorized a centralized contractor-operated program, the government
agency often asks interested parties (including Envirotest and its competitors)
to help draft the technical aspects of a bid request. This effort often includes
reviewing bid criteria and recommending specified test programs. Once drafted,
the bid request is typically revised several times as a result of input provided
by potential bidders and other interested members of the public. Generally, the
bid request establishes several convenience factors such as the average waiting
time and driving distance to a testing station and specifies the technical
requirements of the program.
62
<PAGE>
BID REQUESTS. Typically, a government agency requests bids through either a
"request for proposal" or an "invitation to bid". In the more commonly used
"request for proposal" process, the government agency evaluates bids on the
following criteria:
- the operating experience, reputation, and financial capability of the
bidder;
- the bidder's ability to install and operate a technically sophisticated
testing system in terms of both hardware and software;
- the bidder's ability to integrate testing results with vehicle
registration information in state computer data systems;
- the bidder's ability to provide additional services (such as safety
inspections, enhanced diagnostic tests, and mobile testing);
- the bidder's ability to meet specified performance requirements; and
- price.
Because the government agency considers several factors in the "request for
proposal" process, the agency does not necessarily award the contract to the
lowest bidder. In the ITB process, the governmental authority generally conducts
a limited review of a bid to determine if it meets a minimally acceptable
technical standard and generally awards the contract to the lowest-priced
qualified bidder.
BID PREPARATION PROCESS. Envirotest has developed a sophisticated
optimization model that it uses to design the most efficient program network for
any given set of program requirements. The model assists Envirotest in designing
a network that provides the greatest convenience and fastest rate of testing
with the fewest number of testing locations. Envirotest has also developed a
sophisticated costing model, which assists Envirotest in predicting the
engineering, development, construction and operating costs of a proposed
program. In using the costing model, Envirotest takes into account the real
estate, construction, labor, equipment and other costs that may be unique to a
specific geographic region or program.
CONTRACTOR SELECTION AND NEGOTIATION. After the submission of bids by
competing bidders, the governmental authority selects one contractor and the two
parties begin negotiations regarding a contract. The "request for proposal" and
the bid submitted by the selected contractor contain the main terms of the
contract. The time period between bid submission and award is generally between
one to three months.
PROGRAM IMPLEMENTATION. Once Envirotest and the governmental authority
enter into a contract, Envirotest begins the process of purchasing or leasing
real estate, constructing the program facilities, and developing and installing
the necessary hardware and software. This process generally takes six months to
two years to complete, depending on the size of the network. A typical facility
consisting of an office and four test lanes costs an average of approximately
$1.5 million to $2.0 million to acquire, build and equip. Approximately six
months prior to the anticipated commencement of testing, Envirotest begins a
media campaign to educate the public about the new program. At the same time,
Envirotest also begins to hire and train its workers.
A start-up team implements each program. The team consists of a program
manager, who is responsible for communicating with the governmental authority
and for managing Envirotest's operations under the contract, station managers,
who are responsible for the individual operation of each station, and other
support staff. Once Envirotest implements the program, its senior management
monitors the operation of the program on an ongoing basis.
Prior to the expiration of a contract term, Envirotest and the government
agency generally discuss the possibility of an extension or renewal of the
contract and the principal terms of any such extension or renewal. Depending on
the program's enabling legislation, the governmental authority may either extend
the contract or begin a new competitive bidding process. Since 1990, all of
Envirotest's emissions testing
63
<PAGE>
contracts that provided for renewal or extension have been renewed or extended
beyond their initial terms except for the Maryland contract, which was not
material. In the cases in which a state has begun a new competitive bidding
process, Envirotest has either made the winning bid or has been the only company
to bid.
SOFTWARE AND RELATED TESTING EQUIPMENT
Envirotest has developed sophisticated proprietary computer software and
hardware that is essential to the efficient operation of its centralized testing
facilities. Central host computers and various peripheral devices located at
each program's headquarters monitor each of Envirotest's inspection lanes and
process and permanently store vehicle test histories.
SOFTWARE. Envirotest believes that its ability to develop program-specific
software is important to the efficient operation of its testing facilities.
Envirotest has devoted significant efforts to its development of software
systems which enable it to conduct highly automated and rapid tests.
Envirotest's software has allowed it to automate most of the important functions
of the testing process, including applying the appropriate emissions standards
against which vehicles are tested. These standards vary by manufacturer, model
and year. Envirotest's lane operators are prompted with step-by-step
instructions for performing the tests and processing the results. Envirotest is
using its expertise in this area to develop new software systems for its
enhanced programs.
TESTING EQUIPMENT. Envirotest's computer-managed inspection systems control
the automated inspection of a motor vehicle based on identifying characteristics
such as make, model, year and engine size. The inspection process usually
includes multiple tests at multiple testing stations that are designed for
specialized functions and are serviced by computers, specialized test equipment
and associated applications software. Envirotest also uses a variety of data
entry devices such as optical-code and bar-code readers, and various test
equipment such as dynamometers and emissions measurement systems. Envirotest
chooses from a number of equipment suppliers to meet the requirements of a
specific system design, depending on applicable specifications and pricing.
Specialized hardware, software and engineering are combined to provide a highly
automated inspection systems with an emphasis on test data integrity and a rapid
rate of operation. Envirotest acts as a systems integrator and does not
manufacture any hardware. However, Envirotest does design specialized hardware.
REMOTE SENSING DEVICES
Envirotest sees a potential growth opportunity in the development of remote
sensing technology. In 1991, Envirotest entered into a Development and Exclusive
Licensee Agreement with the University of Denver and two University of Denver
research scientists pursuant to which Envirotest acquired the exclusive right to
manufacture and market a remote sensing device system. The device is used to
monitor carbon monoxide, carbon dioxide, and hydrocarbons emitted from a moving
vehicle. The remote sensing technology measures vehicle emissions from as many
as 1,500 vehicles per hour and photographs the subject vehicle to record its
license plate number. The term of the license runs until the later of 2016 or
the expiration of the last patent included in the license. In exchange for these
rights, Envirotest must pay a 10% royalty on gross receipts from sales and
leases of devices which incorporate the licensed technology or software, and
$.25 on each vehicle Envirotest tests by means of such device.
Envirotest has conducted pilot demonstration programs or studies of remote
sensing technology for several governmental entities, including a pilot program
in May 1998 for the City of New York. Envirotest has also leased remote sensing
units to companies in Taiwan for use in a study there. On August 29, 1997,
Envirotest purchased a remote emissions sensing product line from Hughes
Aircraft Company and acquired or obtained a long term royalty-free license to
the related technologies for $3.7 million. In addition, Envirotest agreed to pay
a 3% royalty on future net revenues related to remote sensing sales and
64
<PAGE>
services over the next five years up to a cap of $10.0 million. Envirotest also
assumed Hughes' contract with Arizona to provide remote sensing services.
ADDITIONAL GROWTH OPPORTUNITIES
Envirotest offers a variety of program enhancements, including on-road
testing, safety inspection and vehicle registration services. These program
enhancements offer governmental authorities and motorists the convenience of
multiple vehicle certification services at a single location. Once its network
of emissions testing facilities are in place, Envirotest is able to offer these
services for an additional fee without incurring significant additional costs.
However, the market for these services is presently small.
SAFETY INSPECTION SERVICES. Envirotest designs and implements
highly-automated vehicle safety inspection systems that test the safety features
of vehicles such as brakes, headlight alignment and intensity, front and rear
chassis alignment, shock absorber performance, steering system integrity, noise
level, tire condition, safety belts, mirrors, and glass. Envirotest has provided
fully-automated safety inspection services at its testing facilities in
Connecticut and Florida. Envirotest has a contract with Connecticut to provide
safety inspection services in that state to an estimated 160,000 vehicles
annually. In addition, Envirotest has designed and currently maintains a
state-of-the-art facility for inspection of New York City taxicabs and
limousines. Envirotest also inspects the taxicab fleet in the City of Miami on
behalf of Dade County, Florida.
Envirotest's existing centralized testing infrastructure and its expertise
in safety inspection testing equipment and procedure put it in a favorable
competitive position if centralized safety inspections are mandated in the
future in states in which it conducts centralized emissions testing. The
National Highway Transportation Safety Administration has stated that it favors
the adoption of periodic safety inspection programs. The award by Connecticut of
a safety inspection contract to Envirotest demonstrates the states' potential
interest in providing their residents with the convenience of safety and
emissions testing services in one location.
VEHICLE REGISTRATION SERVICES. Envirotest has developed software which
allows it to access motor vehicle records, so that it can offer consumers the
convenience of vehicle registration as part of the emissions testing process.
Wisconsin and certain other states required bidders for their emissions testing
programs to include a proposal for conducting vehicle registration services in
the emissions inspection lanes. In 1997, Wisconsin asked Envirotest to
demonstrate a pilot registration program at one station. Based on the success of
this demonstration, the state has requested Envirotest to provide the service at
five additional stations. Although no assurance can be given as to whether other
states will include vehicle registration services in their programs, Envirotest
anticipates that there will be increasing state interest in the performance of
registration services in the test stations.
ANCILLARY SERVICES. Envirotest is investigating ancillary service
opportunities that complement its core business. The opportunities will use
Envirotest's existing infrastructure and operating assets. Envirotest executed a
contract with an agency to sell advertising space and design a direct marketing
campaign for its customers at certain of its existing emissions testing
programs. Envirotest also signed a contract to provide vehicle data from certain
of its existing emissions testing programs to a third party. The revenue from
these two contracts is not material to Envirotest at present.
COMPETITION
The market for contractor-operated emissions testing programs is highly
competitive. Envirotest typically competes against numerous bidders for new or
renewal contracts.
Envirotest's principal domestic competitors include Gordon-Darby, Inc. and
MARTA Technologies, Inc. Gordon-Darby operates four programs, testing
approximately 3.9 million vehicles per year. MARTA has contracts to operate
three programs, testing approximately 2.3 million vehicles annually.
65
<PAGE>
MARTA is wholly-owned by The Allen Group, which has recently announced its
intention to sell MARTA. Envirotest also competes with several other domestic
and foreign companies who choose to bid from time to time on select programs.
OPPORTUNITIES IN INTERNATIONAL MARKETS
We believe the international market represents a significant growth
opportunity, especially in light of our ability to offer products and services
for both the centralized and decentralized markets. We estimate that there are
629 million motor vehicles currently located in Europe, Asia and North, Central
and South America. This is over seven times the estimated 90 million vehicles in
the United States and Canada subject to emissions testing. We intend to expand
aggressively internationally by offering a broad range of vehicle emissions
testing equipment and services to countries and other jurisdictions around the
world that are, in our view, likely to adopt vehicle emissions testing programs
similar to those adopted in the United States. We plan to offer advisory
services to these countries at the early stages of their program development,
thereby positioning us to become the provider of choice for both centralized and
decentralized programs. We believe that the international community will
continue to look to the United States, and especially the California BAR, for
technical guidance on emissions testing programs. In recent years,
representatives from the following countries have toured ESP's emissions test
lane at the California BAR facility in Sacramento, California: Australia,
Canada, Germany, Japan, Mexico, New Zealand, Philippines and Taiwan. We believe
that there are significant market opportunities in the certain countries which
have implemented emissions testing programs or which have announced or are
considering the implementation of such programs, particularly Canada, Germany,
Mexico, Australia and the United Kingdom.
Envirotest currently operates Canada's only centralized emissions testing
program through its Canadian subsidiary, Envirotest Canada. We also see a
significant emerging market for emissions and safety testing in South and
Central America and the Asia-Pacific region, and we are currently evaluating bid
opportunities with local parties in several of these areas. In November 1997,
Envirotest's Argentine joint venture partner was awarded a 15-year contract for
the safety and emissions testing program in the Province of San Luis, Argentina.
The joint venture will compensate Envirotest for implementation services and
delivery of the testing system for the San Luis program and Envirotest will
receive a royalty per test. However, the total royalties will not be material to
Envirotest.
In 1997, Chemonics International, Inc. awarded Envirotest a four-year
subcontract valued at approximately $1.8 million to design the vehicle emissions
test program for the USAID Cairo Air Improvement Project. Envirotest has also
completed several other international projects in recent years. In 1995,
Envirotest installed a state-of-the-art demonstration lane in Mexico City,
Mexico. In 1996, Envirotest built four heavy duty vehicle emissions and safety
lanes for the Government of India. In 1986, Envirotest developed and installed a
safety and emissions testing system with 26 inspection lanes in Taiwan.
FACILITIES
ESP leases all its facilities. The remaining lease terms range from one
month to four years. ESP's executive offices and its manufacturing, warehouse
and principal marketing and sales facility are located in East Granby,
Connecticut, in two buildings occupying a total of approximately 35,600 square
feet. These two buildings are leased through March 31, 2002. ESP's primary
research and development and engineering facility is located in Tucson, Arizona,
in one building occupying approximately 9,760 square feet. It is leased through
July 2001. ESP also has 17 sales and service offices located in nine states and
in Canada, Germany and Mexico.
Envirotest designs, builds and equips its testing sites to meet each
program's specific requirements. Envirotest's testing sites typically range from
one to three acres, depending on the number of testing lanes, specific equipment
requirements and lot configuration. Envirotest currently owns 128 testing
stations and leases 48 testing stations totaling in excess of 1,200,000 square
feet. Envirotest also maintains a program
66
<PAGE>
headquarters in each of the states in which it operates. Envirotest's
engineering staff occupies 40,000 square feet of leased space in Tucson,
Arizona. Envirotest also has executive offices in Bethesda, Maryland.
In the near future, Envirotest plans to move its executive offices to the
East Granby facility and to close the Bethesda offices. In addition, ESP and
Envirotest will integrate their research and development groups into one of the
two Tucson facilities, and will close the other.
We believe our current facilities are in good condition and adequate to
support our current operations, but we plan to open additional sales and service
offices to support continued growth and expansion both domestically and
internationally. We currently anticipate that we will be able to renew the
leases that are scheduled to expire in the next few years on terms substantially
similar to those currently in effect.
EMPLOYEES
We believe that the knowledge, skills and experience of our employees are
key components of our success. As of September 30, 1998, ESP had 275 employees,
of which 149 were in its service organization, 49 were in marketing and sales,
32 were in production and manufacturing, and 23 were in research and development
and engineering. 75% of ESP's employees have more than eight years of experience
in the emissions testing market and 40% have college and/or advanced degrees.
None of ESP's employees is represented by a labor union and ESP has not
experienced any work stoppages. ESP believes that its employee relations are
good.
As of September 30, 1998, Envirotest had 3,374 employees, of which 1,411 are
full-time and 1,936 are part-time employees. None of Envirotest's domestic
employees is represented by a labor union. Of the 206 employees employed
(through Envirotest Canada) in the British Columbia program, 191 are represented
by a labor union under the terms of a collective bargaining agreement that
expires on August 31, 1999 (the termination date of Envirotest's contract in
British Columbia). Although there were strikes at the British Columbia program
in 1992 and 1996, Envirotest believes that its employee relations are currently
good.
LEGAL PROCEEDINGS
On September 26, 1995 Ganzcorp Investments, Inc. d/b/a/ Mustang Dynamometer
filed suit against Envirotest Systems Corp. in U.S. District Court for the
Northern District of Ohio. The suit alleged breach of contract and asked for
damages in excess of $10.0 million. The suit was voluntarily dismissed by the
parties on December 22, 1995 so that the parties could focus on settlement
negotiations. On October 8, 1997, the case was re-filed by Ganzcorp when
settlement negotiations broke down between the parties. In 1993, the parties
signed an agreement for the supply of chassis dynamometers by Ganzcorp to the
Company for its emission testing programs in Ohio, Connecticut, and
Pennsylvania. When the Company's testing program with the State of Pennsylvania
was canceled, the Company canceled its contract with Ganzcorp per a "termination
for convenience" clause. Under such clause Ganzcorp would be allowed to make a
claim for certain costs incurred but such a claim would be substantially below
its stated claim of more than $10,000. Additionally, the Company has
counterclaims against Ganzcorp for breach of contract and warranty obligations
which it believes to be in excess of $7,900. Subsequent to September 30, 1998,
the Company has agreed in principal to pay Ganzorp up to $1.5 million in
settlement of all of the above claims. The settlement amount has been included
in the accompanying financial statements within the balance sheet caption
"accrued expenses and other current liabilities."
R.W. Granger & Sons filed a Demand for Arbitration in the East Hartford,
Connecticut, office of the American Arbitration Association in September 1996.
The demand alleged that Envirotest breached a contract with Granger and failed
to pay amounts due Granger in connection with the construction of certain of
Envirotest's testing facilities in the State of Connecticut. On December 29,
1997, Granger filed a complaint in State Superior Court in the Judicial District
of Hartford/New Britain at New Britain alleging
67
<PAGE>
that Envirotest's failure to pay amounts due to Granger is an unfair trade
practice under the Connecticut Unfair Trade Practices Act. The arbitrators
awarded Granger approximately $495,000, including the costs of the arbitration,
in a decision rendered on August 12, 1998. Granger had claimed damages of
approximately $2.0 million in its Demand for Arbitration. Envirotest intends to
defend vigorously against Granger's remaining claim in State Superior Court. We
believe that any judgment against Envirotest with respect to the remaining claim
will not have a material adverse effect on our business, financial condition and
results of operations.
On November 22, 1997, the Denver District Court granted Envirotest's motion
to dismiss a class action complaint filed by Timothy Dore on behalf of all
persons who paid to have a vehicle tested in Envirotest's metro Denver
facilities from January 2, 1995 to present. The complaint alleged breach of
contractual obligation to the class and the negligent performance of emissions
testing under Envirotest's contract with the State of Colorado. On January 6,
1998, Dore filed an appeal in the Colorado Court of Appeals from the trial
court's order of dismissal. On June 1, 1998 Dore filed a motion to dismiss the
appeal and on June 15, 1998 the Colorado Court of Appeals granted the motion to
dismiss the appeal with prejudice. On June 1, 1998, the attorneys for Dore filed
a new class action complaint in the Boulder District Court. The new complaint
has replaced Timothy Dore with two new representative plaintiffs, Jay Sherrit
and Arthur D. Gonzales, and the new complaint is brought on behalf of virtually
the identical class. Although the new complaint purports to state a new cause of
action, it alleges claims for breach of contract and negligence which are
similar to Dore's class action complaint. On June 23, 1998 Envirotest filed a
motion to change venue to the Denver District Court. Envirotest intends to
defend vigorously against the plaintiff's claims. We believe that any judgment
obtained against Envirotest will not have a material adverse effect on our
business, financial condition and results of operations.
On November 18, 1998, Timothy J. Grendell, on behalf of himself and all
others similarly situated, filed a class action lawsuit in the Court of Common
Pleas, Summit County, Akron, Ohio. The defendants include the Ohio Environmental
Protection Agency and the Company. Grendell filed a virtually identical suit in
1996 and it was dismissed without prejudice exactly one year before the
above-noted class action lawsuit was filed. Like the 1996 lawsuit, the
above-noted class action lawsuit asserts that the statute and contract that
created E-Check are unconstitutional under Ohio law, and requests declaratory
and injunctive relief, attorney fees and costs. We believe that we have valid
defenses to the claims contained in the complaint and we intend to defend the
matter vigorously.
In addition to the above, we are a party to various other legal proceedings
and claims in the ordinary course of business. Although the claims cannot be
estimated, in our opinion the resolution of these matters will not have a
material adverse effect on our business, financial condition and results of
operations.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local environmental laws
and regulations relating to the protection of human health and the environment
and the handling and management of hazardous materials. We believe that we are
in substantial compliance with all applicable environmental laws and regulations
and that the costs of compliance are not material to us.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and similar state superfund statutes generally impose joint
and several liability on present and former owners and operators for remediation
of contaminated properties regardless of fault. At a number of the properties
that we own, former owners and operators may have released hazardous materials
on or under such properties in connection with their operations. We do not have
sufficient information to estimate its potential liability, if any, in
connection with any potential contamination from historical operations at such
properties.
68
<PAGE>
INTELLECTUAL PROPERTY
We regard our patents, copyrights, trade secrets, trademarks and similar
intellectual property as important to our success. We depend upon a combination
of patents, trade secrets, copyright and trademark laws, license agreements,
nondisclosure and confidentiality agreements with our employees, customers and
others and various security measures to protect our proprietary rights. Although
our success and competitive position in the market depends to a great extent on
our ability to exploit and protect our proprietary intellectual property rights,
apart from the "ENVIROTEST" and "ESP" trade names, we do not believe that any
single patent, copyright, trade secret, or trademark is material to our
business.
We believe we own or license from third parties the intellectual property
rights in substantially all of our material products and services. We have not
received notice of any claim, which we believe is valid, that our products or
services infringe upon another party's intellectual property. Given the
technological complexity of our products and services, however, there can be no
assurance that claims of infringement will not be asserted against us or against
our customers in connection with their use of our systems or products, nor can
there be any assurance as to the outcome of any such claims.
We own, either individually or jointly with a third party, approximately 35
U.S. and foreign patents and are actively prosecuting approximately 25 patent
applications in the U.S. and abroad covering a variety of inventions in the
vehicle emissions testing equipment and services field. Our patents have
expiration dates ranging from 1998 through 2017. Patents cannot be renewed or
extended. We also pursue the registration of our trademarks in the United States
and internationally, and have applied for or obtained registrations for certain
products and services, including ENVIROTEST, SMOG DOG, AUTOSENSE, and SYSTEM
ONE. Trademarks can have a perpetual existence so long as they continue to be
used on substantially the same products and services and the appropriate steps
are taken with respect to maintaining the registrations in effect.
Envirotest claims copyright protection in its proprietary software programs.
Such protection extends to the source code and can also protect certain visual
aspects of the programs from copying. However, such protection does not preclude
others from creating programs which perform the same function.
We are party to a number of technology and software licenses pursuant to
which we have obtained the rights to use third party technology in our business.
Our most material licenses include those with the University of Denver and
Hughes Aircraft relating to the remote emissions sensing technology.
69
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our shareholder elects directors annually to serve during the ensuing year
or until the shareholder elects a successor. The Board of Directors elects
executive officers to serve until the board elects their successors. The table
below sets forth certain information with respect to our directors and executive
officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ ----------- -------------------------------------------------------------
<S> <C> <C>
Eric Walters.............................. 54 Chairman of the Board of Directors
Terrence P. McKenna....................... 48 President and Chief Executive Officer; Director
Rinaldo R. Tedeschi....................... 48 Executive Vice President, Engineering/Technical Development;
Director
David J. Langevin......................... 47 Executive Vice President, Chief Financial Officer; Director
Richard Webb.............................. 57 Executive Vice President, Chief Operating Officer
</TABLE>
ERIC WALTERS is a partner in Alchemy Partners and chair of the German
operations of Alchemy. Until 1997 he was a partner in Schroder Ventures where
for over 10 years he played an instrumental role in a wide variety of LBO
transactions including Century Inns, The Tetley Group, Ushers of Trowbridge,
Paramount Hotels, Sytner Group, Precision Instruments, Burlington International
and Glass Glover. At Alchemy, Mr. Walters played a key role in the acquisition
of Wellman plc, the owner of ESP. Previously he worked for Lex Service and was
Chief Executive of Grand Metropolitan's Retailing Division.
TERRENCE P. MCKENNA served as President and Chief Executive Officer and as a
Director of ESP since its formation in 1989. Mr. McKenna, one of the founding
members of ESP, was instrumental in formulating a management buyout of ESP from
United Technologies Corporation. From 1983 to 1989, Mr. McKenna held various
positions with United Technologies Corporation, including Vice President of
Finance and General Manager of United Technologies Corporation's Automotive
Systems Division, which position he held until the formation of ESP.
RINALDO R. TEDESCHI served as Executive Vice President and as a Director of
ESP since its formation in 1989, and is one of its founding members. From 1973
to 1989, Mr. Tedeschi held various positions with United Technologies
Corporation, including Engineering Manager of the Automotive Systems Group at
UTC Control Systems, which position he held until the formation of ESP.
DAVID J. LANGEVIN joined ESP in April 1998 as Executive Vice President and
Chief Financial Officer and was appointed to the Board of Directors of ESP in
May 1998. From 1994 to 1998, Mr. Langevin served as Executive Vice President of
Terex Corporation, a global manufacturer of construction and mining related
capital equipment, and from March 1993 to December 1993, he served as its Acting
Chief Financial Officer. From 1988 to 1993, he held the position of Vice
President of KCS Industries, Inc., an affiliate of Terex Corporation. From 1977
to 1988, Mr. Langevin was employed by Ernst & Young, where he was a partner
specializing in acquisitions and business development.
RICHARD P. WEBB served as Chief Operating Officer of Envirotest for two
years. As Executive Vice President, Centralized Programs, he is responsible for
general management and control of all operations relating to centralized
test-only programs. Before joining Envirotest, he led efforts resulting in
substantial operational improvements at Shared Technologies Cellular, Inc., an
early-stage, high-growth company and at various manufacturing companies acquired
from United Technologies Corporation. Previously, he worked for six years at
United Technologies Corporation, including positions as president of United
Technologies Finance Corporation, United Technologies Communications Company,
and Headquarters Company and as Chairman and Chief Executive Officer of Building
Systems Company. Mr. Webb holds a
70
<PAGE>
Masters in Business Administration from the Columbia Graduate School of Business
and a Bachelor of Arts in Liberal Arts from Colgate University.
EXECUTIVE COMPENSATION
In October 1998, we entered into employment agreements with Messrs. McKenna,
Tedeschi, Webb and Langevin. The employment agreements replace previous
employment agreements between such individuals and ESP. The employment
agreements provide for an initial term of three years and for payment of a base
salary and incentive compensation. All such agreements provide for the grant to
such individuals of nonqualified stock options in EnviroSystems Corp. with an
exercise price equal to the fair market value of common stock in EnviroSystems
Corp. Such agreements also provide for severance payments in the event that we
terminate the executive's employment for reasons other than for cause or
incapacity and in the event that the executive elects to terminate his
employment upon a change in control of the company. In the event that we
terminate the executive's employment for reasons other than for cause or
incapacity (or in the event the executive elects to terminate his employment
upon a change of control of the company), the executive shall be entitled to
receive from us his salary, incentive compensation payments, and benefits in
accordance with his employment agreement through the last date of his employment
and a lump sum severance payment in an amount equal to the greater of (a) one
year's base salary or (b) the base salary payable during the unexpired term of
the agreement. Each executive agrees that he will not compete with us for a
period of six months following his termination of employment if such termination
is for any reason other than termination by the executive following a change in
control of the company or termination of the executive by us without cause. If
the executive terminates his own employment following a change of control or if
we terminate him without cause, the executive agrees that he will not compete
with us during the period for which he receives severance payments. The
agreements also include confidentiality commitments.
The following table summarizes the compensation paid by ESP and Envirotest
to each of their Chief Executive Officers and to each of the other three most
highly compensated executive officers of ESP and Envirotest. Information with
respect to ESP executive officers is given for the year ended December 31, 1997.
Information with respect to Envirotest executive Officers is given for the
fiscal year ended September 30, 1998. ESP did not have any pension plan or a
long-term incentive plan, did not issue any restricted stock awards and did not
grant any stock options during 1997.
71
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- AWARDS
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL ------------- ALL OTHER
POSITION $ $ COMPENSATION OPTIONS COMPENSATION TOTAL
- -------------------------- --------- ----------- --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Terrence P. McKenna....... $ 204,887(1) $ 1,519,000(3) -- -- $ 5,000(4) $ 1,728,887
President and Chief
Executive Officer (ESP)
Rinaldo R. Tedeschi....... 200,942(2) 1,519,000(3) -- -- 5,000(4) 1,724,942
Executive Vice President
(ESP)
F. Robert Miller.......... 315,478 -- 1,209(5) 687,500(6) 5,000(9) 1,009,187
President and Chief
Executive Officer
(Envirotest)
Mark Thomas............... 145,833 -- -- 706,250(7) -- 852,083
Executive Vice
President, Chief
Development Officer
(Envirotest)
Raj Modi.................. 231,525 -- 1,209(5) 309,375(6) 274,842(8) 819,038
Vice President, Chief
Financial Officer and
Assistant Secretary
(Envirotest)
</TABLE>
- ------------------------
(1) Includes a matching contribution in the amount of $1,387 that ESP made on
Mr. McKenna's behalf to ESP's 401(k) Plan.
(2) Includes a matching contribution in the amount of $1,142 that ESP made on
Mr. Tedeschi's behalf to ESP's 401(k) Plan.
(3) Messrs. McKenna and Tedeschi are entitled to the above referenced amount
pursuant to a bonus agreement entered into with ESP. See "--Employment and
Bonus Agreements." The agreement provides that Messrs. McKenna and Tedeschi,
in their sole and absolute discretion, may distribute any bonuses paid by
ESP to any persons. In the past, Messrs. McKenna and Tedeschi have elected
to distribute a portion of the bonuses to other employees of ESP. Of the
total bonus amount payable to each of Messrs. McKenna and Tedeschi for
fiscal year 1997, $1,412,500 has been paid to each of them in the form of
cash. Messrs. McKenna and Tedeschi have elected to share $213,000 of their
bonus with other employees of ESP.
(4) Represents annual premiums of $4,000 and $1,000 paid by ESP on an individual
disability income insurance policy and a term life insurance policy,
respectively, for each of Messrs. McKenna and Tedeschi.
(5) Represents reimbursement made under Envirotest's medical reimbursement
program.
(6) Represents options to purchase Envirotest Class A common stock at an
exercise price of $6.875 per share under Envirotest's Stock Option Plan.
(7) Represents options to purchase Envirotest Class A common stock at an
exercise price of $7.0625 per share under Envirotest's Stock Option Plan.
(8) Represents relocation expense payment of $272,648 and contributions matching
employee's deferred compensation of $2,194.
(9) Represents contributions matching employee's deferred compensation.
72
<PAGE>
SECURITY OWNERSHIP
EnviroSystems owns all of the issued and outstanding capital stock of the
Company. The authorized capital stock of EnviroSystems consists of 70,000 shares
of Series A common stock, par value $.00001 and 70,000 shares of non-voting
Series B common stock, par value $0.0001 per share, of which 41,352.545 shares
of common stock and 4,473.177 shares of Series B common stock are issued and
outstanding. 1,780,488 shares of Series B common stock are owned by nominees of
Alchemy Partners. 2,692,689 shares of Series B common stock are owned by Chase
Equity Associates L.P. The following table sets forth certain information known
to EnviroSystems regarding the beneficial ownership of shares of Series A common
stock by:
- all persons who beneficially own 5% or more of the outstanding shares of
Series A common stock;
- each of EnviroSystems' officers and directors; and
- all directors and executive officers of EnviroSystems as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SERIES A
COMMON STOCK
BENEFICIALLY OWNED (1)
-------------------------
<S> <C> <C>
NAME OF
BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------------------- ------------ -----------
Alchemy Partners (Guernsey) Limited(2).............................. 24,815.174 54.2%
Alan J. Baxter...................................................... 3,013.332 6.6
DLJMB Funds(3)...................................................... 6,071.908 13.3
Terrence P. McKenna................................................. 840.000 1.8
Rinaldo R. Tedeschi................................................. 840.000 1.8
David J. Langevin................................................... 210.000 0.5
Richard Gallant(4).................................................. -- --
Susan G. Schnabel(5)................................................ -- --
All executive officers and directors as a group..................... 1,890.000 4.1
</TABLE>
- ------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. As of the date of this prospectus, there
are no outstanding options to purchase common shares. To the Company's
knowledge, except as set forth in the footnotes to this table and subject to
applicable community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth opposite
such person's name.
(2) Alchemy Partners (Guernsey) Limited is the manager of Alchemy and has sole
power to vote and dispose of the Shares held by Alchemy. Such shares are
held of record by Alchemy Partners Nominees Ltd., as nominee for Alchemy.
Alchemy consists of a number of general partnerships organized under the
laws of Guernsey that invest in parallel in private and public companies.
(3) Consists of Series A common stock held directly by (i) DLJ Merchant Banking
Partners II, L.P. ("DLJMB") and the following related investors: DLJ
Merchant Banking Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ
Diversified Partners, L.P., DLJ Diversified Partners-A, L.P., DLJMB Funding
II, Inc., DLJ Millenium Partners, L.P., DLJ Millenium Partners-A, L.P., DLJ
EAB Partners, L.P., UK Investment Plan 1997 Partners, DLJ ESC II, L.P. and
DLJ First ESC, L.P. and (ii) DLJ Investment Partners, L.P. and the following
related investors: DLJ Investment Funding, Inc. and DLJ ESC II, L.P.
(4) Mr. Gallant is an officer of Credit Suisse First Boston Corporation.
(5) Ms. Schnabel is an officer of DLJMB Inc., an affiliate of DLJMB and DLJSC.
Share data shown for Ms. Schnabel excludes Series A common stock shown as
held by the DLJMB Funds, as to which Ms. Schnabel disclaims beneficial
ownership.
73
<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION
We were incorporated in Delaware on March 12, 1998. Prior to the
consummation of the acquisition of Envirotest and the related transactions, we
had no outstanding shares of capital stock and ESP was an indirect wholly owned
subsidiary of Newmall. In April 1996, ESP was acquired by a wholly owned
subsidiary of Wellman plc, a then-publicly incorporated United Kingdom company.
In January 1998, Wellman plc was acquired by Newmall plc, a United Kingdom
public limited company that was controlled by Alchemy. Alchemy Investment Plan
is an investment consortium principally composed of United States institutional
investors that is advised by Alchemy Partners. In contemplation of the
acquisition of Envirotest and the related transactions, in May 1998, Newmall plc
divested itself of all of its holdings except for Wellman North America, Inc.
and its subsidiaries, which included ESP. Newmall plc reorganized as Newmall
Limited, a United Kingdom private limited company whose controlling shareholder
remains Alchemy.
As part of the acquisition of Envirotest and the related transactions,
EnviroSystems and our company reorganized in a manner to:
- cause the shareholders of Newmall to acquire 82.5% of the shares of
EnviroSystems; and
- cause us to become a wholly owned subsidiary of EnviroSystems.
This reorganization took place in several steps. First, the Newmall
shareholders capitalized us with cash (pro rata to their Newmall shareholdings),
receiving in exchange 95% of the shares that we ultimately issued as part of the
reorganization. Next, the Newmall shareholders transferred their Newmall shares
to us and, in exchange, were issued the remaining 5% of the shares issued as
part of the reorganization. At this stage, the former shareholders of Newmall
owned 100% of our shares (and in the same proportion as their Newmall
shareholdings) and we owned 100% of the shares of Newmall. Each of the former
Newmall shareholders then transferred its shares of our company to EnviroSystems
in exchange for shares in our company (at which point, the former Newmall
shareholders owned 100% of the EnviroSystems shares and EnviroSystems held 100%
of our shares). Immediately thereafter, we issued additional shares to the
Noteholders so as to cause them, in the aggregate, to hold 17.5% of the
EnviroSystems shares and the former Newmall shareholders to hold 82.5% of the
EnviroSystems shares.
Further, as part of the acquisition of Envirotest and the related
transactions, we acquired 76.5% of the shares of Envirotest. The remaining 23.5%
was held by ESP. Subsequent to the consummation of the acquisition of
Envirotest, we acquired from ESP the Envirotest shares it held so that
Envirotest became our direct, wholly owned subsidiary. ESP remained an indirect
wholly owned subsidiary of our company.
SUBSCRIPTION AGREEMENTS
Prior to the acquisition of Envirotest and the related transactions, Messrs.
McKenna and Tedeschi entered into an agreement with Newmall and ESP under which
Newmall granted to each of such individuals 840,000 of its ordinary shares in
consideration of such individual's agreement to terminate a previously existing
management bonus agreement between ESP and such individual. Subject to certain
exceptions, including transfers among themselves and any exchange of the
ordinary shares for shares of our common stock, Messrs. McKenna and Tedeschi
have agreed, for a period of one year from the effective date of the agreement,
not to sell, assign, exchange, transfer, distribute or otherwise dispose of any
of the ordinary shares they receive. Under the terms of the agreement, prior to
any initial public offering of Newmall's ordinary shares or our common stock, or
any "change of control" of Newmall or our company, such individuals also granted
to each other a right of first refusal such that if one individual wishes to
sell his shares, the other individual shall have the right to acquire these
shares at fair market price.
74
<PAGE>
In addition, in October 1998, Mr. Langevin entered into an agreement with
Newmall and ESP under which Newmall granted to Mr. Langevin 210,000 of its
ordinary shares in consideration of his services as an employee of ESP. Subject
to certain exceptions, including transfers to Messrs. McKenna and Tedeschi, and
any exchange of the ordinary shares for shares of our common stock, Mr. Langevin
agreed not to sell, assign, exchange, transfer, distribute or otherwise dispose
of the shares he receives for one year from the effective date of the agreement.
Under the terms of the agreement, prior to any initial public offering of
Newmall's ordinary shares or our common stock, or any "change of control" of
Newmall or our company, Mr. Langevin also granted to Messrs. McKenna and
Tedeschi a right of first refusal such that if Mr. Langevin wishes to sell his
shares, Messrs. McKenna and Tedeschi shall have the right to acquire such shares
at fair market price.
In addition, under the agreements, each of Messrs. McKenna, Tedeschi and
Langevin agrees that in the event Newmall or our company enters into an
underwriting agreement in connection with an initial public offering of the
ordinary shares or our common stock pursuant to a registration statement under
the Securities Act, each of such individuals will execute an agreement that for
a period of up to 180 days following the effective date of such registration
statement, each of such individuals will not, without the prior written consent
of the lead underwriter of the initial public offering, offer, pledge, sell,
contract to sell, grant any option for the sale of, or otherwise dispose,
directly or indirectly;
- any of the ordinary shares they receive;
- any shares of our common stock they receive upon an exchange of such
ordinary shares; or
- any other securities of Newmall or our Company convertible into,
exercisable for, or exchangeable for common stock or other shares of
Newmall or our Company.
OTHER TRANSACTIONS
The issuances of shares of Newmall and our Company to Messrs. McKenna,
Tedeschi and Langevin under the agreements described above occurred prior to the
reorganization. Therefore, in connection with the reorganization, Messrs.
McKenna, Tedeschi and Langevin became shareholders of EnviroSystems. For more
information see the "Security Ownership" section of this prospectus.
ESP had revenues of approximately $368,000 and $1,152,000 from other Wellman
owned entities for the years ended December 31, 1997 and 1996, respectively, and
approximately $49,000 and $361,000 for the nine month periods ended September
30, 1998 and 1997, respectively. ESP accrued approximately $260,000 for
management charges payable to Wellman as of December 31, 1996. There were no
management charges in 1997.
Included in income taxes payable for ESP are additional taxes payable to
Wellman North America, Inc. of $297,900 as of December 31, 1997.
ESP had notes receivable from former stockholders and current officers
totaling approximately $69,000 as of December 31, 1996. The notes were repaid in
1997.
In 1995, ESP purchased $207,000 of consulting services from a company owned
by one of ESP's former stockholders.
75
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
SENIOR SECURED CREDIT FACILITY
The following description briefly outlines the provisions of our senior
secured credit facility. We have filed a copy of the senior secured credit
agreement as an exhibit to the registration statement which includes this
prospectus.
The description set forth below is not complete and is qualified in its
entirety by reference to certain agreements setting forth the principal terms
and conditions of our senior secured credit facility.
On October 16, 1998, we entered into a credit agreement among our company,
EnviroSystems Corp., the lenders party thereto, Credit Suisse First Boston as
Administrative and Collateral Agent, DLJ Capital Funding, Inc. as Syndication
Agent and Credit Suisse First Boston and Donaldson, Lufkin & Jenrette Securities
Corporation, as Arrangers.
The Company's senior secured credit facility consists of:
- term loan facilities of $385 million, consisting of a Term Loan A facility
of $175 million, maturing approximately five and a half years after
funding; and a Term Loan B facility of $210 million, maturing
approximately seven years after funding; and
- a revolving loan facility for revolving borrowings of up to $50 million
and maturing approximately five and one half years after funding of the
Term Loan Facility.
Loans under the senior secured credit facility bear interest at a floating
rate equal, at our option, to either:
- the base rate (as defined below) plus a certain additional percentage per
year; or
- LIBOR (as defined below) plus a certain additional percentage per year.
The term "base rate" means the higher of:
- the prime lending rate of Credit Suisse First Boston in effect from time
to time; or
- the federal funds effective rate plus 0.5%.
For base rate loans, the additional percentage is as follows:
- for Term Loan A and the revolving loan facility, the additional percentage
varies between 1.25% and 2.50% depending on the leverage ratio of our
company and its subsidiaries; and
- for Term Loan B, the additional percentage is 3.00%.
The term "LIBOR" has a market-standard definition reflecting the rate
established daily in the London interbank market for Eurodollar funds adjusted
for required reserves.
For LIBOR loans, the additional percentage is as follows:
- for Term Loan A and the revolving loan facility, the additional percentage
varies between 2.25% and 3.50% depending on the leverage ratio of our
company and its subsidiaries; and
- for Term Loan B, the additional percentage is 4.00%.
Interest on base rate borrowings is payable quarterly in arrears and
interest on LIBOR borrowings is payable at the end of the relevant interest
period (but at least quarterly).
Amounts owed under the senior secured credit facility will be our direct
obligations. They will be unconditionally guaranteed by EnviroSystems, each of
our existing and subsequently acquired or organized domestic subsidiaries
(including ESP and Envirotest) and certain of our foreign subsidiaries.
76
<PAGE>
Our obligations under the senior secured credit facility are secured by a
first priority, perfected security interest in:
- substantially all of our tangible and intangible assets (other than the
assets of Envirotest in Ohio); substantially all of the assets of each of
our existing and subsequently acquired or organized domestic subsidiaries
and certain foreign subsidiaries of the Company; and
- all of EnviroSystems' equity interest in our Company.
The term loan facility provides for mandatory prepayments, in amounts not
less than:
- 75% (or if our leverage ratio is less than or equal to 3:1, then 50%) of
consolidated excess cash flow, as such term is defined in the senior
secured credit facility;
- 100% of the net cash proceeds of all non-ordinary course of business asset
sales by EnviroSystems or the Company and its subsidiaries (including
insurance and condemnation proceeds), subject to certain exceptions for
reinvestment in certain assets within 270 days;
- 100% of the net cash proceeds of issuances of debt obligations of
EnviroSystems or the Company and its subsidiaries other than issuances of
debt expressly permitted by the senior secured credit facility (including
the Notes and the senior discount notes of EnviroSystems); and
- 100% of the net cash proceeds of issuances of equity securities of
EnviroSystems or the Company and its subsidiaries, subject to certain
exceptions.
Mandatory prepayments shall be made without premium or penalty, except in the
case of Term Loan B. Term Loan B shall be prepayable during the first and second
year following the Issue Date at a premium equal to 101% of the aggregate
principal amount to be prepaid and thereafter, without premium or penalty.
However, mandatory prepayments are subject to breakage costs and actual
reemployment costs. Mandatory prepayments will be applied to Term Loans A and B,
in each case PRO RATA to the remaining amortization payments of such loans.
However, holders of Term Loan B may elect to have their portion of any mandatory
prepayment applied to any outstanding portion of Term Loan A.
The senior secured credit facility contains customary representations and
covenants for facilities of this type, as well as others agreed upon by our
company, DLJ and CSFB. These covenants include (but are not limited to)
financial maintenance covenants and limitations on:
- additional debt;
- liens;
- investments;
- sale and leaseback transactions;
- sales of assets;
- mergers and acquisitions;
- dividend payments and stock repurchases;
- capital expenditures;
- prepayments of senior debt and subordinated debt;
- changes in business conduct; and
- capital expenditures.
The senior secured credit facility contains typical events of default,
including, without limitation:
- the failure to pay principal when due;
77
<PAGE>
- the failure to pay any interest when due (including the applicable cure
period);
- failure to perform, or breach of, any covenant;
- the occurrence of any cross-default and cross-acceleration;
- the imposition of any material judgments
- the occurrence of changes of control;
- the occurrence of certain events involving bankruptcy or insolvency; and
- the invalidity of any guarantees or security agreements.
OHIO NOTES
In April 1995, Envirotest issued to the Ohio Air Quality Development
Authority $64.38 million original principal amount of its senior secured notes
(the "Ohio Notes"), $53.1 million of which were outstanding as of September 30,
1998. Envirotest used the proceeds of the Ohio Notes to finance the development
of the vehicle emission test stations it operates in Ohio. The Ohio Notes are
secured by Envirotest's interest in such stations and the assets related to such
stations. These Ohio assets include, without limitation, the land, buildings and
equipment used at such stations; and the gross revenues of such stations.
The Ohio Notes are currently supported by a letter of credit issued under
the Company's senior secured credit facility. The Ohio Notes (and the collateral
for those notes) in turn secure the Ohio Air Authority's Air Quality Revenue
Bonds, Series 1995 which were sold to investors in a private placement. Such
bonds have the same economic terms as the Ohio Notes.
The final maturity date of the Ohio Notes is December 31, 2005. Principal of
the Ohio Notes is repayable in sinking-fund installments on the first day of
each month. The monthly installment is $440,000 for September 1998 and is
scheduled to increase to $800,000 by the final maturity date. In addition,
principal on the Ohio Notes is subject to mandatory prepayment in the event the
relevant Ohio vehicle emissions testing program is terminated by law or
discontinued and Envirotest (or the developer of the stations) receives
compensation from the State of Ohio for such termination or discontinuation.
Voluntary repayments of the Ohio Notes are permitted subject to the payment of a
yield maintenance premium.
Interest on the Ohio Notes accrues at a per annum rate of 8.10%, and is
payable on each monthly principal repayment installment date.
The Ohio Notes contain covenants and events of default that are customary
for transactions of this type, including limitations on consolidations, mergers
and other fundamental changes involving Envirotest and limitations on further
liens on the collateral securing the Ohio Notes.
ENVIROSYSTEMS SENIOR DISCOUNT NOTES
On October 16, 1998, EnviroSystems issued $207.0 million aggregate principal
amount of its 15% Senior Discount Notes due 2009. These senior discount notes
are unsecured senior obligations of EnviroSystems and will mature on October 31,
2009. These senior discount notes bear interest at a rate of 15% per year.
Interest on these senior discount notes will accrue and be payable semiannually
on April 30 and October 31 of each year beginning on the date of issuance, but
will not be payable in cash prior to April 30, 2004. Interest on these senior
discount notes will accrue from the most recent date on which interest has been
paid or, if no interest has been paid, from the date of issuance.
EnviroSystems may redeem these senior discount notes, in whole or in part,
at any time or on various occasions upon not less than thirty nor more than 60
days' notice to holders of these senior discount notes. The redemption price of
these senior discount notes is equal to the percentages of the principal amount
of
78
<PAGE>
these senior discount notes set forth below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12-month period beginning October 31
of the years indicated below (or, in the case of 1998, commencing on the date of
issuance).
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1998........................................................................ 115.000%
1999........................................................................ 113.500%
2000........................................................................ 112.000%
2001........................................................................ 110.500%
2002........................................................................ 109.000%
2003........................................................................ 107.500%
2004........................................................................ 106.000%
2005........................................................................ 104.500%
2006........................................................................ 103.000%
2007........................................................................ 101.500%
2008 and thereafter......................................................... 100.000%
</TABLE>
Upon the occurrence of certain change of control situations, EnviroSystems
is required to repurchase all or any part of such holder's senior discount notes
at a purchase price in cash equal to 101% of the principal amount of the senior
discount notes plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
The indenture governing EnviroSystems senior discount notes imposes certain
affirmative covenants and other requirements on EnviroSystems and us and also
contains certain negative covenants that include, among other things,
limitations on:
- the amount of indebtedness EnviroSystems and its restricted subsidiaries
may incur;
- certain payments EnviroSystems and its restricted subsidiaries may make;
- restrictions on distributions from restricted subsidiaries;
- sales of assets by EnviroSystems and its restricted subsidiaries;
- affiliate transactions;
- investments;
- EnviroSystems' ability to merge or consolidate or transfer all or
substantially all of its assets; and
- certain acquisitions by EnviroSystems and its restricted subsidiaries.
This indenture also contains customary events of defaults, including default
in any payment of principal and interest on any senior discount notes when due.
If an event of default occurs and is continuing, the holders of a majority in
principal amount of the outstanding senior discount notes by notice to
EnviroSystems may declare the principal and accrued and unpaid interest on all
of the then outstanding senior discount notes to be due and payable. Upon such a
declaration, such principal and accrued and unpaid interest shall be due and
payable immediately.
79
<PAGE>
DESCRIPTION OF THE NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, the word "Company"
refers only to Environmental Systems Products Holdings Inc. and not to any of
its subsidiaries.
The Company issued the Notes under an indenture, dated as of October 16,
1998 (the "Indenture"), between the Company, the Subsidiary Guarantors and
United States Trust Company of Texas, N.A., as Trustee (the "Trustee").
The following is a summary of certain provisions of the Indenture and the
Notes; a copy of such Indenture and the form of Notes is available upon request
to the Company. The following summary of certain provisions of the Indenture and
the Notes does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture and the Notes,
including the definitions of certain terms therein and those terms made a part
thereof by the Trust Indenture Act.
Principal of, premium, if any, and interest on the Notes is payable, and the
Notes may be exchanged or transferred, at the office or agency of the Company in
the Borough of Manhattan, The City of New York (which initially shall be the
corporate trust office of the Trustee, at 114 West 47(th) Street, New York, New
York 10036), except that, at the option of the Company, payment of interest may
be made by check mailed to the address of the Holders as such address appears in
the Note register.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. See "Book-Entry;
Delivery and Form". No service charge shall be made for any registration or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES:
- are unsecured senior subordinated obligations of the Company;
- are subordinated in right of payment to all Senior Indebtedness of the
Company;
- rank PARI PASSU with all other Senior Subordinated Indebtedness of the
Company;
- are senior in right of payment to any future Subordinated Obligations of
the Company; and
- are unconditionally guaranteed by the Subsidiary Guarantors.
THE GUARANTEES:
- are issued by the following Subsidiary Guarantors:
<TABLE>
<S> <C>
Environmental Systems Products, Inc. Envirotest Illinois, Inc.
Envirotest Systems Corp. (DE) Envirotest Wisconsin, Inc.
Envirotest Systems Corp. (WA) ES Funding Corporation
Envirotest Holdings, Inc. Remote Sensing Technologies, Inc.
Envirotest Technologies, Inc. Newmall Limited
Envirotest Acquisitions Co. Wellman Overseas Limited
Envirotest Partners Wellman North America, Inc.
</TABLE>
- are senior subordinated obligations of each Subsidiary Guarantor;
- are subordinated in right of payment to all Senior Indebtedness of each
Subsidiary Guarantor;
- rank PARI PASSU with all other Senior Subordinated Indebtedness of each
Subsidiary Guarantor; and
- are senior in right of payment to all other Subordinated Obligations of
each Subsidiary Guarantor.
80
<PAGE>
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $100 million aggregate principal amount, and mature on October 31,
2008. The Notes are subordinate in right of payment to certain other debt
obligations of the Company. The Notes bear interest at the rate per annum shown
on the cover page hereof from October 16, 1998, or from the most recent date to
which interest has been paid or provided for, payable semiannually to Holders of
record at the close of business on April 15 and October 15 immediately preceding
the interest payment date on April 30 and October 31 of each year, commencing
April 30, 1999. For U.S. federal income tax purposes, however, the "issue price"
of the Notes is less than the aggregate principal amount to the extent of the
fair market value of the Shares acquired in connection with the purchase of the
Notes. To the extent of such difference, "original issue discount" ("OID") will
be recognized by a Holder during such Holder's ownership of the Notes. See
"Certain United States Federal Income Tax Considerations" for a discussion
regarding the taxation of such OID. The Company will pay interest on overdue
principal at 1% per annum in excess of such rate, and it will pay interest on
overdue installments of interest at such higher rate to the extent lawful.
Interest on the Notes is computed on the basis of a 360-day year of twelve
30-day months.
OPTIONAL REDEMPTION
At any time prior to October 31, 2001, the Company may redeem in the
aggregate up to 35% of the original principal amount of the Notes with the Net
Cash Proceeds of one or more Public Equity Offerings, at a redemption price of
113% of the principal amount thereof plus accrued interest to the redemption
date; PROVIDED, HOWEVER, that at least 65% of the aggregate principal amount of
the Notes originally outstanding must remain outstanding after each such
redemption.
Except as set forth in the preceding paragraph, the Notes are not redeemable
at the option of the Company prior to October 31, 2003. After October 31, 2003,
the Company may redeem all or a part of the Notes upon not less than 30 nor more
than 60 days' notice, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest to the
redemption date, if redeemed during the 12-month period commencing on October 31
of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2003............................................................................. 106.500%
2004............................................................................. 104.333%
2005............................................................................. 102.167%
2006 and thereafter.............................................................. 100.000%
</TABLE>
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed on a securities exchange, by the Trustee on a pro rata
basis, by lot or by such other method as the Trustee in its sole discretion
shall deem to be fair and appropriate, although no Note of $1,000 in original
principal amount or less shall be redeemed in part. If any Note is to be
redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
The Notes do not have the benefit of a sinking fund.
SUBSIDIARY GUARANTEES
The Subsidiary Guarantors unconditionally guarantee, jointly and severally,
on a senior subordinated basis, the obligations of the Company pursuant to the
Notes, including the repurchase obligation resulting
81
<PAGE>
from a Change of Control. The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee is limited as necessary to that Subsidiary Guaranty from
constituting a fraudulent conveyance under applicable law. See "Risk
Factors--Fraudulent Transfer Considerations".
A Subsidiary Guarantor may consolidate with, merge with or into, or transfer
all or substantially all its assets to any other Person to the extent described
below under "--Certain Covenants--Merger and Consolidation"; PROVIDED, HOWEVER,
that if such other Person is not the Company or another Subsidiary Guarantor,
such Subsidiary Guarantor's obligations under its Subsidiary Guarantee must be
expressly assumed by such other Person. However, upon the sale or other
disposition (including by way of consolidation or merger) of a Subsidiary
Guarantor or the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor (in each case other than to the Company or an Affiliate of
the Company) permitted by the Indenture (including pursuant to the exercise of
remedies in respect of any Lien on the capital stock of a Subsidiary Guarantor,
which Lien secures outstanding Bank Indebtedness), such Subsidiary Guarantor
will be released and relieved from all its obligations under its Subsidiary
Guarantee.
SUBORDINATION
The payment of principal, premium and interest, if any, on the Notes is
contractually subordinated to the prior payment in full of all Senior
Indebtedness of the Company.
The obligations of a Subsidiary Guarantor under its Subsidiary Guarantee is
a senior subordinated obligation of such Subsidiary Guarantor. As such, the
rights of Holders of the Notes to receive payment by a Subsidiary Guarantor
pursuant to its Subsidiary Guarantee is contractually subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Subsidiary
Guarantor. The terms of the subordination provisions described herein with
respect to the Company's obligations under the Notes apply equally to a
Subsidiary Guarantor and the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee.
Indebtedness of the Company and the Subsidiary Guarantors that constitutes
Senior Indebtedness ranks senior to the Notes and the relevant Subsidiary
Guarantee in accordance with the provisions of the Indenture. The Notes and the
Subsidiary Guarantees in all respects rank PARI PASSU with all other Senior
Subordinated Indebtedness of the Company and the Subsidiary Guarantors,
respectively, and rank senior to all other Subordinated Obligations of the
Company and the Subsidiary Guarantors, respectively. See "--Subsidiary
Guarantees", "Risk Factors--Subordinated Ranking of Notes" and "Risk
Factors--Fraudulent Transfer Considerations".
As of September 30, 1998, after giving pro forma effect to the acquisition
of Envirotest and the related transactions:
(1) the Senior Indebtedness of the Company and the Subsidiary Guarantors, to
which the Notes and the Subsidiary Guarantees are subordinated, would have
been approximately $438.1 million, consisting principally of approximately
$385.0 million of Indebtedness Incurred under the Senior Secured Credit
Facility and $53.1 million of Indebtedness Incurred under the Ohio Notes;
and
(2) there would have been no Senior Subordinated Indebtedness of the Company or
the Subsidiary Guarantors ranking PARI PASSU with the Notes or the
Subsidiary Guarantees, or any Subordinated Obligations ranking junior to the
Notes or the Subsidiary Guarantees.
In addition, claims of creditors of the Company's Subsidiaries, including
trade creditors, secured creditors and creditors holding indebtedness and
guarantees issued by such Subsidiaries, and claims of preferred stockholders, if
any, of such Subsidiaries, generally have priority with respect to the assets
and earnings of such Subsidiaries over the claims of the creditors of the
Company, including the Holders of the Notes, even if such obligations do not
constitute Senior Indebtedness. The Notes therefore are effectively subordinated
to existing and future liabilities of Subsidiaries of the Company, except to the
extent that the Subsidiary Guarantees may be enforceable by Holders of the Notes
against the Subsidiary Guarantors.
82
<PAGE>
Each of the Company and the Subsidiary Guarantors will not Incur, directly
or indirectly, any Indebtedness that is subordinate or junior in ranking in
right of payment to its Senior Indebtedness unless such Indebtedness is, among
other things, Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is
not deemed to be subordinated or junior to Secured Indebtedness merely because
it is unsecured.
The Company may not make any payment in respect of the Notes if:
(1) a payment default on Senior Indebtedness occurs and is continuing beyond any
applicable grace period; or
(2) any other default on any Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived and any such acceleration
has been rescinded or such Senior Indebtedness has been paid in full in
cash. However, the Company may pay the Notes without regard to the foregoing
if the Company and the Trustee receive written notice approving such payment
from the Representative of such Senior Indebtedness.
During the continuance of any default with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated either
immediately without further notice (except such notice as may be required to
effect such acceleration) or upon notice or the expiration of any applicable
grace periods, the Company may not pay the Notes for a period (a "Payment
Blockage Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness specifying
an election to effect a Payment Blockage Period and ending 179 days thereafter.
Payments on the Notes may and shall be resumed if such Payment Blockage Period
is terminated:
(1) by written notice to the Trustee and the Company from the Person or Persons
who gave such Blockage Notice;
(2) because the default giving rise to such Blockage Notice is no longer
continuing (solely as evidenced by written notice to the Trustee by the
Representative of such Designated Senior Indebtedness which notice shall be
promptly delivered); or
(3) because such Designated Senior Indebtedness has been repaid in full in cash.
Unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period.
No more than one Payment Blockage Period may be commenced in any consecutive
360-day period, irrespective of the number of defaults with respect to
Designated Senior Indebtedness during such period.
During the continuance of, or upon any payment or distribution of the assets
of either the Company or any Subsidiary Guarantor upon, a total or partial
liquidation or dissolution or reorganization of or similar proceeding, or any
bankruptcy, insolvency, receivership or similar proceedings, relating to either
the Company or any Subsidiary Guarantor or its property or an assignment for the
benefit of creditors or marshalling of assets and liabilities of the Company or
any Subsidiary Guarantor, the holders of Senior Indebtedness will be entitled to
receive payment in full of such Senior Indebtedness before the Holders of the
Notes are entitled to receive any payment, and until the Senior Indebtedness is
paid in full in cash, any payment or distribution to which Holders of the Notes
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
payment or distribution is made to Holders of the Notes that, due to the
subordination provisions, should not have been made to them, such Holders of the
Notes are required to hold it in trust for the holders of Senior Indebtedness
and pay it over to them as their interests may appear.
83
<PAGE>
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company or a Subsidiary Guarantor who are
holders of Senior Indebtedness of the Company or such Subsidiary Guarantor, as
the case may be, may recover more, ratably, than the Holders of the Notes, and
creditors of the Company or such Subsidiary Guarantor who are not holders of
Senior Indebtedness may recover less, ratably, than holders of Senior
Indebtedness and may recover more, ratably, than the Holders of the Notes.
The terms of the subordination provisions described above do apply to
payments from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance".
No provision contained in the Indenture, the Notes or the Subsidiary
Guarantees affects the obligation of the Company and the Subsidiary Guarantors,
which is absolute and unconditional, to pay, when due, principal of, premium, if
any, and interest on the Notes. The subordination provisions of the Indenture
the Notes and the Subsidiary Guarantees does not prevent the occurrence of any
Default or Event of Default under the Indenture or limit the rights of the
Trustee or any Holder to pursue any other rights or remedies with respect to the
Notes or the Subsidiary Guarantees.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require that the Company repurchase all or, at each Holder's option, any part
of such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. Within 20 days following any Change of Control, the Company shall
mail a notice to the Trustee and to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the Change of Control payment date specified in such notice, pursuant
to the procedures required by the Indenture and described in such notice. The
Company shall comply with the requirements of Section 14(e) of the Exchange Act
and any other securities laws or regulations in connection with the repurchase
of Notes pursuant to the covenant described hereunder. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the covenant described hereunder, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the covenant described hereunder by virtue thereof.
The Change of Control repurchase feature is a result of negotiations between
the Company and the purchasers of the Notes. Management has no present intention
to engage in a transaction involving a Change of Control, although it is
possible that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit ratings.
Restrictions on the ability of the Company to Incur additional Indebtedness are
contained in the covenant described under "--Certain Covenants--Limitation on
Indebtedness". Such restrictions can be waived only with the consent of the
Holders of a majority in principal amount of the Notes then outstanding. Except
for the limitations contained in such covenant, however, the Indenture does not
contain any covenants or provisions that may afford Holders protection in the
event of a highly leveraged transaction.
If a Change of Control offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes that might be delivered by Holders seeking to accept the Change of
Control offer. The failure of the Company to make or consummate the Change of
84
<PAGE>
Control offer or pay the purchase price when due will give the Trustee and the
Holders the rights described under "--Events of Default".
The existence of a Holder's right to require the Company to offer to
repurchase such Holder's Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction which constitutes a Change of
Control.
The Senior Secured Credit Facility prohibits the Company from purchasing any
Notes prior to its expiration, and also provides that the occurrence of certain
change of control events with respect to the Company would constitute a default
thereunder. In the event a Change of Control occurs at a time when the Company
is prohibited by the terms of any Indebtedness from purchasing Notes, the
Company may seek the consent of its lenders thereunder to the purchase of Notes
or may attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain contractually prohibited from purchasing Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture which would, in turn, constitute a default under the
Senior Secured Credit Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payment to the Holders of
Notes.
Future Indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such Indebtedness to be repaid or repurchased upon a Change of Control.
Moreover, the exercise by the Holders of their right to require the Company to
repurchase the Notes could cause a default under such Indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
Holders following the occurrence of a Change of Control may be limited by the
Company's then existing financial resources. There can be no assurance that
sufficient funds will be available when necessary to make any required
repurchases of Notes. The provisions under the Indenture relating to the
Company's obligation to make an offer to repurchase the Notes as a result of a
Change of Control may be waived or modified with the written consent of each
Holder of Notes at the time outstanding.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
LIMITATION ON INDEBTEDNESS.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, Incur, directly or indirectly, any Indebtedness (including Acquired
Indebtedness); PROVIDED, HOWEVER, that the Company or any Subsidiary Guarantor
shall be permitted to Incur such Indebtedness if, on the date of such
Incurrence, and after giving pro forma effect thereto, no Default or Event of
Default shall have occurred and be continuing or would occur and the
Consolidated Cash Flow Coverage Ratio at the date of such Incurrence exceeds
2.10 to 1.0 if such Indebtedness is Incurred prior to October 31, 1999, and 2.35
to 1 if such Indebtedness is Incurred thereafter.
(b) So long as no Default shall have occurred and be continuing or would be
caused thereby, paragraph (a) of this covenant will not prohibit the incurrence
of any of the following items of Indebtedness:
(1) Indebtedness Incurred pursuant to the Senior Secured Credit Facility not to
exceed $435 million in aggregate principal amount outstanding at any time,
less the aggregate amount of all mandatory payments applied to permanently
reduce the commitments with respect to such Indebtedness, including but not
limited to reductions pursuant to the first paragraph of the covenant
described under the caption "--Limitation on Sale of Assets and Subsidiary
Stock";
85
<PAGE>
(2) Indebtedness of the Company to a Restricted Subsidiary; PROVIDED that any
such Indebtedness is subordinated in right of payment to the Notes;
PROVIDED, FURTHER, that any subsequent issuance, sale, transfer or other
disposition of any Capital Stock (including by consolidation or merger) or
other event (including the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary under the covenant described under the caption
"--Limitation on Designations of Unrestricted Subsidiaries") which results
in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer or other disposition of any such Indebtedness (except to
the Company or another Restricted Subsidiary) shall be deemed, in each case,
to be an Incurrence of such Indebtedness by the issuer thereof at the time
of any such issuance, sale, transfer or other disposition, as the case may
be;
(3) Indebtedness of a Restricted Subsidiary to the Company or another Restricted
Subsidiary; PROVIDED that (x) if a Subsidiary Guarantor Incurs such
Indebtedness to a Restricted Subsidiary that is not a Subsidiary Guarantor,
such Indebtedness is subordinated in right of payment to the Subsidiary
Guarantee of such Subsidiary Guarantor; and (y) if a Restricted Subsidiary
that is not a Subsidiary Guarantor Incurs such Indebtedness to the Company
or a Restricted Subsidiary that is a Subsidiary Guarantor, the Incurrence of
such Indebtedness constitutes a Restricted Investment for the purposes of
the covenant described under the caption "--Limitation on Restricted
Payments"; PROVIDED, FURTHER, that any subsequent issuance, sale, transfer
or other disposition of any Capital Stock (including by consolidation or
merger) of any Restricted Subsidiary to which such Indebtedness is owed or
any other event (including the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary under the covenant described under the caption
"--Limitation on Designations of Unrestricted Subsidiaries") which results
in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer or other disposition of any such Indebtedness (except to
the Company or another Restricted Subsidiary that is a Subsidiary Guarantor)
shall be deemed, in each case, to be an Incurrence of such Indebtedness by
the issuer thereof at the time of any such issuance, sale, transfer or other
disposition, as the case may be;
(4) the Notes and the Subsidiary Guarantees;
(5) Indebtedness (other than Indebtedness described in clause (1), (2), (3) or
(4) above) outstanding on the Issue Date;
(6) any Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to
paragraph (a) of this covenant or pursuant to clause (4) or (5) of this
paragraph (b) or this clause (6);
(7) obligations of the Company or any Restricted Subsidiary pursuant to (A)
Interest Rate Protection Agreements designed to protect the Company or such
Restricted Subsidiary against fluctuations in interest rates in respect of
Indebtedness of the Company or such Restricted Subsidiary that is permitted
by the terms of the Indenture to be outstanding to the extent the notional
principal amount of such obligation does not exceed the aggregate principal
amount of the Indebtedness to which such Interest Rate Protection Agreements
relate, (B) Currency Agreement Obligations in respect of foreign exchange
exposures Incurred by the Company or any Restricted Subsidiary in the
ordinary course of its business and (C) commodity agreements of the Company
or any Restricted Subsidiary to the extent entered into in the ordinary
course of business to protect the Company or such Restricted Subsidiary from
fluctuations in the prices of raw materials used in its business;
86
<PAGE>
(8) Indebtedness of the Company or any Restricted Subsidiary consisting of
obligations in respect of purchase price adjustments in connection with the
acquisition or disposition of assets by the Company or such Restricted
Subsidiary permitted under the Indenture;
(9) Capital Lease Obligations, Purchase Money Indebtedness and Acquired
Indebtedness (to the extent not Incurred in connection with, or in
anticipation or contemplation of, the relevant transaction), in each case
Incurred in connection with a Related Business, and any Refinancing
Indebtedness in respect thereof in an aggregate principal amount not
exceeding $10.0 million at any time outstanding;
(10) Attributable Debt in connection with Sale/Leaseback Transactions in an
aggregate principal amount not exceeding $10.0 million at any time
outstanding;
(11) PROVIDED, that the Company would be able to Incur $1.00 of Indebtedness
pursuant to paragraph (a) of this covenant, Indebtedness Incurred by one or
more SPCs in an aggregate principal amount not exceeding $30.0 million at
any one time outstanding;
(12) Indebtedness in an amount not to exceed $4.5 million issued in connection
with the Investment permitted pursuant to clause (12) of the definition of
"Permitted Investment"; and
(13) Indebtedness in an aggregate principal amount which, together with all
other Indebtedness of the Company and its Restricted Subsidiaries then
outstanding (other than Indebtedness Incurred pursuant to clauses (1)
through (12) of this Section or paragraph (a)), does not exceed $10.0
million.
(c) Notwithstanding that such Indebtedness is permitted to be incurred
pursuant to paragraphs (a) and (b) above, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness if the proceeds
thereof are used, directly or indirectly, to repay, prepay, redeem, defease,
retire, refund or refinance any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes or the relevant Subsidiary
Guarantee, as applicable, to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with the covenant entitled
"--Limitation on Indebtedness" in the event that an item of Indebtedness meets
the criteria of more than one of the types of Indebtedness described in
paragraphs (a) or (b) above, the Company, in its sole discretion at the time of
the Incurrence of such Indebtedness, will classify such item of Indebtedness,
and, except as specifically stated otherwise, will only be required to include
the amount of such Indebtedness, in one of the above clauses, and such item of
Indebtedness may be divided and classified among more than one of such types.
(e) For purposes of determining amounts of Indebtedness outstanding under
the covenant entitled "--Limitation on Indebtedness" and for the purpose of
avoiding duplication only, Indebtedness resulting from security interests
granted with respect to Indebtedness otherwise included in the determination of
Indebtedness, and Guarantees (and security interests with respect thereof) of,
or obligations with respect to letters of credit supporting, Indebtedness
otherwise included in the determination of Indebtedness shall not be included in
the determination of Indebtedness.
(f) Indebtedness of any Person which is outstanding at the time such Person
becomes a Restricted Subsidiary of the Company (including upon designation of
any subsidiary or other person as a Restricted Subsidiary) or is merged with or
into or consolidated with the Company or a Restricted Subsidiary of the Company
shall be deemed to have been Incurred at the time such Person becomes a
Restricted Subsidiary of the Company or merged with or into or consolidated with
the Company or a Restricted Subsidiary of the Company, as applicable.
LIMITATION ON LIENS SECURING SUBORDINATED INDEBTEDNESS. The Company will
not, and will not permit any Restricted Subsidiary to, directly or indirectly,
create, Incur, assume or suffer to exist any Liens of any kind (other than
Permitted Liens) upon any of their respective assets or properties now owned or
acquired after the date of the Indenture or any income or profits therefrom
securing:
87
<PAGE>
(1) any Indebtedness of the Company or a Restricted Subsidiary which is
expressly by its terms subordinate or junior in right of payment to any
other Indebtedness of the Company or such Restricted Subsidiary, as the case
may be, unless the Notes or the relevant Subsidiary Guarantee, as the case
may be, are equally and ratably secured for so long as such Indebtedness is
so secured; PROVIDED that, if such Indebtedness which is expressly by its
terms subordinate or junior in right of payment to any other Indebtedness of
the Company or a Restricted Subsidiary is expressly subordinate or junior to
the Notes or the relevant Subsidiary Guarantee, as the case may be, then the
Lien securing such subordinated or junior Indebtedness shall be subordinate
and junior to the Lien securing the Notes or the relevant Subsidiary
Guarantee, as the case may be, with the same relative priority as such
subordinated or junior Indebtedness shall have with respect to the Notes or
the relevant Subsidiary Guarantee, as the case may be; or
(2) any assumption, Guarantee or other liability of the Company or such
Restricted Subsidiary in respect of any Indebtedness of the Company or a
Restricted Subsidiary which is expressly by its terms subordinate or junior
in right of payment to any other Indebtedness of the Company or such
Restricted Subsidiary, unless the Notes or the relevant Subsidiary
Guarantee, as the case may be, are equally and ratably secured for so long
as such assumption, guaranty or other liability is so secured; PROVIDED
that, if such subordinated Indebtedness which is expressly by its terms
subordinate or junior in right of payment to any other Indebtedness of the
Company or a Restricted Subsidiary is expressly by its terms subordinate or
junior to the Notes or the relevant Subsidiary Guarantee, as the case may
be, then the Lien securing the assumption, Guarantee or other liability of
such Subsidiary shall be subordinate and junior to the Lien securing the
Notes or the relevant Subsidiary Guarantee, as the case may be, with the
same relative priority as such subordinated or junior Indebtedness shall
have with respect to the Notes or the relevant Subsidiary Guarantee, as the
case may be.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Company will not,
and will not permit any Restricted Subsidiary to, create, Incur, assume,
guarantee or in any other manner become liable with respect to any Indebtedness
that is subordinate in right of payment to any other Indebtedness of the Company
or any such Restricted Subsidiary, unless such Indebtedness is also PARI PASSU
with, or subordinate in right of payment to, the Notes, or the relevant
Subsidiary Guarantee, as the case may be.
LIMITATION ON RESTRICTED PAYMENTS.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly:
(A) declare or pay any dividend or make any distribution on or in respect
of, or to the direct or indirect holders of, the Capital Stock of
EnviroSystems, the Company, any Restricted Subsidiary or any other
Affiliate of the Company in their capacities as such except dividends or
distributions payable solely in its respective Capital Stock (other than
Disqualified Stock or, except in the case of the Company, Preferred
Stock) or in options, warrants or other rights to purchase its respective
Capital Stock (other than Disqualified Stock or, except in the case of
the Company, Preferred Stock) and except dividends or distributions
payable to the Company or a Restricted Subsidiary;
(B) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of EnviroSystems, the Company, any Restricted Subsidiary or any
other Affiliate of the Company to the extent such Capital Stock is held
by Persons other than the Company or any Wholly Owned Subsidiary that is
a Subsidiary Guarantor,
(C) purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Subordinated Obligations or;
88
<PAGE>
(D) make any Restricted Investment (any such dividend, distribution,
purchase, redemption, repurchase, defeasance, other acquisition,
retirement or Investment being herein referred to as a "Restricted
Payment").
if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result therefrom);
or
(2) the Company would not be permitted to Incur an additional $1.00 of
Indebtedness pursuant to clause (a) of the covenant described under the
caption "--Limitation on Indebtedness" after giving pro forma effect to such
Restricted Payment; or
(3) the aggregate amount of such Restricted Payment (other than Restricted
Payments made on or about the Issue Date in connection with the acquisition
by the Company of Envirotest Systems Corp. and the transactions related
thereto) and all other Restricted Payments since the beginning of the fiscal
quarter during which the Notes were originally issued would exceed the sum
of:
(A) 50% of the Consolidated Net Income accrued during the period (treated as
one accounting period) from the beginning of the fiscal quarter during
which the Notes were originally issued to the end of the most recent
fiscal quarter for which financial statements are available (or, in case
such Consolidated Net Income shall be a deficit, minus 100% of such
deficit); and
(B) the aggregate Net Cash Proceeds received by the Company from the issue
or sale of its Capital Stock (other than Disqualified Stock) or from
Capital Contributions subsequent to the Issue Date (other than an
issuance or sale (q) to a Restricted Subsidiary, an employee stock
ownership plan or similar trust for the benefit of employees or (r) with
respect to which the purchase price thereof is financed directly or
indirectly using funds (x) borrowed from the Company or a Restricted
Subsidiary unless and until such borrowing is repaid in full or (y)
contributed, extended, Guaranteed or advanced by the Company or a
Restricted Subsidiary) to the extent such proceeds or Capital
Contributions are not used to redeem, repurchase, retire, defease or
otherwise acquire Capital Stock or any Indebtedness of the Company or
such Restricted Subsidiary.
(b) The provisions of clauses (2) and (3) of paragraph (a) of this covenant
shall not prohibit the following Restricted Payments:
(1) any purchase or redemption of Capital Stock of the Company or any Restricted
Subsidiary or Subordinated Obligations of the Company or any Subsidiary
Guarantor made by exchange for, or out of the proceeds of the substantially
concurrent sale or issuance of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a
Subsidiary or an employee stock ownership plan or similar trust for the
benefit of employees); PROVIDED, HOWEVER, that the Net Cash Proceeds from
such sale and such purchases shall be excluded from the calculation in
clause (3) of paragraph (a) of this covenant;
(2) dividends paid within 60 days after the date of declaration if at such date
of declaration such dividend would have complied with the provisions of the
Indenture; PROVIDED, HOWEVER, that, such dividend shall be deducted in the
calculation of the amount of Restricted Payments available to be made
referred to in clause (3) of paragraph (a) of this covenant;
(3) dividends and distributions made by a Restricted Subsidiary to stockholders
other than the Company or another Restricted Subsidiary on no more than a
PRO RATA basis, measured by value;
(4) any purchase or redemption of Subordinated Obligations of the Company or any
Subsidiary Guarantor made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Refinancing Indebtedness of the Company or
any Subsidiary Guarantor that is permitted to be incurred pursuant to
paragraph (b) of the covenant described under the caption "--Limitation on
Indebtedness";
89
<PAGE>
(5) the repurchase of shares of, or options to purchase shares of, Capital Stock
of EnviroSystems or the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of EnviroSystems or the
Company or any of their respective Subsidiaries (or permitted transferees of
such employees, former employees, directors or former directors), pursuant
to the terms of the agreements (including employment agreements) or plans
(or amendments thereto) approved by the board of directors of EnviroSystems
or Board of Directors, as the case may be, under which such individuals
purchase or sell or are granted the option to purchase or sell, shares of
such Capital Stock; PROVIDED, HOWEVER, that the aggregate amount of such
repurchases shall not exceed $1.5 million per year or $5.0 million in the
aggregate on or after the Issue Date; PROVIDED, FURTHER, that such
repurchases shall be deducted in the calculation of the amount of Restricted
Payments available to be made referred to in clause (3) of paragraph (a) of
this covenant;
(6) payments to EnviroSystems (x) in an amount sufficient to enable
EnviroSystems to pay necessary operating expenses and other reasonable
administrative expenses and (y) to enable EnviroSystems to pay foreign,
federal, state or local tax liabilities, not to exceed the amount of any tax
liabilities that would otherwise be payable by the Company and its
Subsidiaries to the appropriate taxing authorities if they filed separate
tax returns to the extent that EnviroSystems has an obligation to pay such
tax liabilities relating to the operations, assets or capital of the Company
and its Subsidiaries; PROVIDED that any such payment shall either be used by
EnviroSystems to pay such tax liabilities within 30 days of receipt of such
payment or refunded to the payee; PROVIDED, FURTHER, that such payments
shall be excluded from the calculation of the amount of Restricted Payments
available to be made referred to in clause (3) of paragraph (a) of this
covenant; and
(7) payments to EnviroSystems (i) to enable EnviroSystems to make purchases of
Senior Discount Notes with the Net Cash Proceeds of an Asset Disposition
required to be made pursuant to the indenture governing the Senior Discount
Notes and permitted under the covenant described under the caption
"--Limitation on Sales of Assets and Subsidiary Stock" or (ii) from and
after April 30, 2004, to enable EnviroSystems to make required interest
payments on the Senior Discount Notes; PROVIDED, in each case, that at the
time and immediately following such payment, no Default or Event of Default
shall have occurred and be continuing; PROVIDED FURTHER, that such payments
shall be deducted in the calculation of the amount of Restricted Payments
available to be made referred to in clause (3) of paragraph (a) of this
covenant.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM RESTRICTED
SUBSIDIARIES. The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock or with
respect to any other interest or participation in, or measured by, its
profits to the Company or a Restricted Subsidiary or pay any Indebtedness or
other obligation owed to the Company or a Restricted Subsidiary;
(2) make any loans or advances to the Company or any other Restricted
Subsidiary; or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the Indenture, the Senior Secured Credit Facility, or the indenture
governing the Senior Discount Notes, in each case as in effect on the Issue
Date, and any amendments, restatements, renewals, replacements or
refinancings thereof; PROVIDED, HOWEVER, that any such amendments,
restatements, renewals, replacements or refinancings to or under the Senior
Secured Credit Facility or the indenture governing the Senior Discount Notes
are not materially more restrictive, when taken as a whole, with respect to
such dividend and other payment restrictions, to the Company or any
Restricted Subsidiary than those contained in the Senior Secured Credit
Facility or such indenture, as the case may be, (or,
90
<PAGE>
if more restrictive, than those contained in the Indenture) immediately
prior to any such amendment, restatement, renewal, replacement or
refinancing;
(2) the indenture relating to any Public Debt issued after the date hereof,
which encumbrances or restrictions are not materially more restrictive, when
taken as a whole, with respect to such dividend and other payment
restrictions, to the Company or any Restricted Subsidiary than those
contained in the Indenture;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of an Acquired Person
acquired by the Company or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition or in
violation of the covenants described above under the caption "--Limitation
on Indebtedness"); PROVIDED, HOWEVER, that (A) such restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Acquired Person, and (B) the consolidated net income of such
Acquired Person for any period prior to such acquisition shall not be taken
into account in determining whether such acquisition was permitted by the
terms of the Indenture;
(5) customary non-assignment provisions in leases or other agreements entered
into the ordinary course of business;
(6) Purchase Money Indebtedness for property acquired in the ordinary course of
business that only impose restrictions on the property so acquired;
(7) an agreement for the sale or disposition of the Capital Stock or assets of
such Restricted Subsidiary; PROVIDED, HOWEVER, that such restriction is only
applicable to such Restricted Subsidiary or assets, as applicable, and such
sale or disposition otherwise is permitted pursuant to the covenant
described under the caption "--Limitation on Sales of Assets and Subsidiary
Stock"; PROVIDED, FURTHER, HOWEVER, that such restriction or encumbrance
shall be effective only for a period from the execution and delivery of such
agreement through a termination date not later than 180 days after such
execution and delivery;
(8) Refinancing Indebtedness permitted under the Indenture; PROVIDED, HOWEVER,
that the restrictions contained in the agreements governing such Refinancing
Indebtedness are no more restrictive in the aggregate than those contained
in the agreements governing the Indebtedness being refinanced immediately
prior to such refinancing;
(9) customary provisions restricting subletting or assignment of any lease
entered into in the ordinary course of business; or
(10) Liens permitted under the Indenture.
91
<PAGE>
LIMITATION ON SALES OF ASSETS AND SUBSIDIARY STOCK.
(a) The Company shall not, and shall not permit any Restricted Subsidiary
to, make any Asset Disposition unless:
(1) (x) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value, as
determined in good faith by the Board of Directors (including as to the
value of all non-cash consideration), of the shares and assets subject to
such Asset Disposition and (y) at least 80% of the consideration thereof
received by the Company or such Restricted Subsidiary, as the case may be,
is in the form of cash or Cash Equivalents, PROVIDED, HOWEVER, that the
requirement set forth in (x) above shall not apply to any Asset Disposition
to any governmental authority as may be required, from time to time, by such
governmental authority; and
(2) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as the
case may be):
(A) first, to the extent the Company elects (or is required by the terms of
any Senior Indebtedness), to prepay, repay or purchase Senior
Indebtedness of the Company or any Subsidiary Guarantor or any
Indebtedness or other Obligations under the Senior Secured Credit
Facility or, if the Asset Disposition was made by a Restricted Subsidiary
that is not a Subsidiary Guarantor, of any Restricted Subsidiary within
360 days of the Company's or such Restricted Subsidiary's receipt of Net
Available Cash from such Asset Disposition;
(B) second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), at the Company's election, to
the investment by the Company or any Subsidiary Guarantor or, if the
Asset Disposition was made by a Restricted Subsidiary that is not a
Subsidiary Guarantor, any Restricted Subsidiary, in (1) assets of the
Company, such Subsidiary Guarantor or, if the Asset Disposition was made
by a Restricted Subsidiary that is not a Subsidiary Guarantor, such
Restricted Subsidiary (other than Indebtedness or Capital Stock) to
replace the assets that were the subject of such Asset Disposition or (2)
assets (other than inventory or other current assets or Indebtedness or
Capital Stock) of the Company, any Subsidiary Guarantor or, if the Asset
Disposition was made by a Restricted Subsidiary that is not a Subsidiary
Guarantor, any Restricted Subsidiary that (as determined in good faith by
the Board of Directors) are related to the business of the Company and
the Wholly Owned Subsidiaries existing on the Issue Date or which are
used in a Related Business, in each case within 360 days from the date of
the Company's or such Restricted Subsidiary's receipt of Net Available
Cash from such Asset Disposition;
(C) third, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A) and (B), to make a PRO RATA
offer to purchase Notes at par (and, to the extent required by the
instrument governing such Indebtedness, any other Senior Subordinated
Indebtedness designated by the Company, at a price no greater than par or
accreted value, whichever is less) plus accrued and unpaid interest; and
(D) fourth, to the extent of the balance of such Net Available Cash after
application in accordance with clauses (A), (B) and (C), in any manner
that does not violate the Indenture; PROVIDED, HOWEVER, that in
connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A) or (C) above, the Company or such Subsidiary shall
permanently retire such Indebtedness and cause the related loan
commitment, if any, to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this clause (a), the Company and
its Restricted Subsidiaries shall not be required to apply any Net Available
Cash in accordance with clause (a)(2)(C) above except to the extent that the
aggregate Net Available Cash from all Asset Dispositions which are not applied
in
92
<PAGE>
accordance with clauses (a)(2)(A) and (B) above exceeds $10.0 million. Pending
application of Net Available Cash pursuant to this clause (a), such Net
Available Cash shall be used to temporarily reduce Senior Indebtedness or
invested in Cash Equivalents.
For the purposes of this covenant, the following is deemed to be cash or
Cash Equivalents: the express assumption of Indebtedness (other than any
Indebtedness that is by its terms subordinated to the Notes) of the Company or
any Restricted Subsidiary, but only to the extent that such assumption is
effected on a basis under which there is no further recourse to the Company or
any of the Restricted Subsidiaries with respect to such liabilities.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(2)(C)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and, to the extent required, other Senior
Subordinated Indebtedness) at a purchase price of 100% of their principal amount
or the accreted value thereof, whichever is less, (without premium) plus accrued
but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness such lesser price, if any, as may be provided for by the terms of
such other Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture which shall include, among other things, that the offer shall remain
open for 20 Business Days following commencement. If the aggregate purchase
price of Notes (and, to the extent required, any other Senior Subordinated
Indebtedness) tendered pursuant to such offer is less than the Net Available
Cash allotted to the purchase thereof, the Company will be required to apply the
remaining Net Available Cash in accordance with clause (a)(2)(D) above.
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
(d) The Senior Secured Credit Facility requires the Company to repay all of
its obligations under the Senior Secured Credit Facility prior to repurchasing
Notes as a result of an Asset Disposition. In order to repurchase Notes pursuant
to clauses (a) and (b) above prior to repaying its obligations under the Senior
Secured Credit Facility, the Company would have to obtain the consent of the
lenders under the Senior Secured Credit Facility. If the Company does not obtain
such a consent or repay its obligations under the Senior Secured Credit
Facility, the Company will be contractually prohibited from repurchasing the
Notes. In such case, the Company's failure to repurchase the Notes would
constitute an Event of Default under the Indenture which would, in turn,
constitute a default under the Senior Secured Credit Facility.
LIMITATION ON AFFILIATE TRANSACTIONS.
The Company shall not, and shall not permit any Restricted Subsidiary to,
directly or indirectly, conduct any business or enter into any transaction or
series of similar transactions (including the purchase, sale, lease, transfer or
other disposition or exchange of any asset or property or the rendering of any
service) with any Affiliate of the Company (other than the Company or any Wholly
Owned Subsidiary of the Company or any employee stock ownership plan or similar
trust for the benefit of the Company's or a Restricted Subsidiary's employees)
unless:
(1) the terms of such business, transaction or series of transactions are no
less favorable to the Company or such Restricted Subsidiary as terms that
would be obtainable at the time for a comparable transaction or series of
similar transactions in arms' length dealings with an unrelated third
Person; and
93
<PAGE>
(2) the Company delivers to the Trustee:
(A) with respect to any transaction involving an aggregate amount in excess
of $5.0 million, a resolution of the Board of Directors certifying that a
majority of the disinterested members of such Board have determined in
good faith that such business or transaction or series of transactions
meets the criteria set forth in (1) above and have approved the
transaction; and
(B) with respect to any transaction involving an amount in excess of $10.0
million, the Board resolution set forth in (2)(A) above, as well as an
opinion as to the fairness from a financial point of view to the Company
or its Restricted Subsidiary, as the case may be, issued by a nationally
recognized independent investment banking firm, accounting firm or
appraisal firm with experience in evaluating the terms and conditions of
the type of business or transaction.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any Restricted Payment permitted to be made pursuant to the covenant
described under the caption "--Limitation on Restricted Payments", or any
payment or transaction specifically excepted from the definition of
Restricted Payment;
(2) any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans entered into in the
ordinary course of business and approved by a majority of the entire Board
of Directors or by a majority of the disinterested members of the Board of
Directors or a majority of the entire board of directors or by a majority of
the disinterested members of the board of directors of the relevant
Restricted Subsidiary;
(3) the grant of stock options or similar rights to employees and directors
pursuant to plans approved by a majority of the entire Board of Directors or
by a majority of the disinterested members of the Board of Directors or a
majority of the entire board of directors or by a majority of the
disinterested members of the board of directors of the relevant Restricted
Subsidiary;
(4) loans or advances to officers, directors or employees in the ordinary course
of business which, except with respect to ordinary travel expenses and
advances, have been approved by the Board of Directors;
(5) the payment of reasonable fees to directors of EnviroSystems, the Company
and the Subsidiaries who are not employees of EnviroSystems, the Company or
the Subsidiaries for rendering of services (including attending meetings of
the board of directors) as a director;
(6) any Affiliate transaction between the Company and a Subsidiary Guarantor,
between Subsidiary Guarantors, or between Restricted Subsidiaries which are
each not Subsidiary Guarantors;
(7) indemnification or insurance provided to officers or directors of
EnviroSystems, the Company or any Subsidiary of the Company approved in good
faith by the Board of Directors;
(8) payment of compensation and benefits to directors, officers and employees of
the Company and Subsidiaries of the Company approved in good faith by the
Board of Directors;
(9) payment of a management or similar fee by EnviroSystems, the Company or any
Restricted Subsidiary to Alchemy Partners (or a Person designated by Alchemy
Partners) in an amount, together with all other such payments made by the
Company and Restricted Subsidiaries, not to exceed $1.0 million per year (or
the equivalent thereof in another currency) plus reasonable out of pocket
expenses;
(10) loans made to officers of the Company or its Subsidiaries in an aggregate
amount not to exceed $4.5 million outstanding at any time solely for the
purpose of reimbursing such officers for the amount of income taxes payable
by such officers in connection with shares of Capital Stock of EnviroSystems
94
<PAGE>
issued to such officers, which shares are pledged to the Company or the
Subsidiary making such loans; and
(11) the Permitted Investment contemplated by clause (12) of the definition of
"Permitted Investment".
MERGER AND CONSOLIDATION. The Company shall not, in a single transaction or
a series of related transactions, consolidate with or merge with or into, or
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all its assets (computed on a consolidated basis) to, any Person
or group of affiliated Persons, unless:
(1) the resulting, surviving or transferee Person shall be the Company or, if
not the Company, shall be a corporation organized and existing under the
laws of the United States of America, any State thereof or the District of
Columbia (the "Successor Company"), and such Successor Company shall
expressly assume, by an indenture supplemental to the Indenture in form
reasonably satisfactory to the Trustee, executed and delivered to the
Trustee, all the obligations of the Company under the Notes and the
Indenture (and the Subsidiary Guarantees shall be confirmed as applying to
such Person's obligations);
(2) at the time of and immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person or
any Subsidiary as a result of such transaction as having been Incurred by
such Person or such Subsidiary at the time of such transaction), no Default
or Event of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person or any Subsidiary as a result of such transaction as
having been Incurred by such Person or such Subsidiary at the time of such
transaction) the resulting, surviving or transferee Person would be able to
Incur at least $1.00 of Indebtedness pursuant to the first paragraph of the
covenant described under the caption "--Limitation on Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers' Certificate and
if a supplemental indenture is required, an Opinion of Counsel, each stating
that such consolidation, merger or transfer and such supplemental indenture
(if any) comply with the Indenture.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, and the predecessor company, in the case of a
sale, assignment conveyance, transfer or other disposition (but not in the case
of a lease), shall be released from the obligation to pay the principal of and
interest on the Notes.
Notwithstanding the foregoing, the consolidation or merger of the Company
with, or the sale, assignment, conveyance, transfer, lease or other disposition
by the Company of all or substantially all of its property or assets to, one or
more Subsidiaries of the Company shall not relieve the Company from its
obligations under the Notes and the Indenture.
For purposes of the foregoing, the transfer (by sale, assignment,
conveyance, transfer, lease or otherwise) of all or substantially all of the
properties and assets of one or more Subsidiaries, the Company's interest in
which constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or sell, assign, convey, transfer, lease or otherwise
dispose of, in one transaction or a series of transactions, all or substantially
all of its assets to, any Person unless:
(1) the resulting, surviving or transferee Person shall be the Company or a
Subsidiary Guarantor or, if not the Company or such a Subsidiary Guarantor,
shall be a corporation organized and existing under the
95
<PAGE>
laws of the jurisdiction under which such Subsidiary was organized or under
the laws of the United States of America, or any State thereof or the
District of Columbia, and such Person shall expressly assume, by executing a
Subsidiary Guarantee, all the obligations of such Subsidiary, if any, under
its Subsidiary Guarantee;
(2) immediately after giving effect to such transaction or transactions on a pro
forma basis (and treating any Indebtedness which becomes an obligation of
the resulting, surviving or transferee Person as a result of such
transaction as having been issued by such Person at the time of such
transaction), no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction, the Company would be
able to Incur at least $1.00 of Indebtedness pursuant to the first paragraph
of the covenant described under the caption "--Limitation on Indebtedness";
and (iv) the Company delivers to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such Subsidiary Guarantee, if any, complies with the Indenture. The
provisions of clauses (1), (2) and (3) above shall not apply to any one or
more transactions which constitute an (a) Asset Disposition if the Company
has complied with the applicable provisions of the covenant described under
the caption "--Limitation on Sales of Assets and Subsidiary Stock" above or
(b) the grant of any Lien on the assets of a Restricted Subsidiary to secure
outstanding Indebtedness under the Senior Secured Credit Facility, which
Lien is permitted by the terms of the Indenture, or any conveyance or
transfer of such assets resulting from an exercise of remedies in respect of
any such Lien.
Notwithstanding the foregoing but subject to the terms of the first and
fifth paragraphs of this "Merger and Consolidation" section, as applicable, the
Company may merge with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its assets to, any Subsidiary
Guarantor, and a Subsidiary Guarantor may merge with or into, or convey,
transfer or lease all or substantially all of its assets to, any other
Subsidiary Guarantor.
The phrase "all or substantially all" of the assets of the Company or a
Subsidiary Guarantor will likely be interpreted under applicable state law and
will be dependent upon particular facts and circumstances. As a result, there
may be a degree of uncertainty in ascertaining whether a sale or transfer of
"all or substantially all" of the assets of the Company or a Subsidiary
Guarantor has occurred.
FUTURE SUBSIDIARY GUARANTORS. If the Company or any of the Subsidiary
Guarantors (other than SPCs) acquires or creates another Restricted Subsidiary
after the date of the Indenture:
(1) that is organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(2) more than 65% of the Capital Stock of which is pledged to a United States
lender; or
(3) that Guarantees any Indebtedness owed to a United States lender, on and
after the date of the Indenture (if not then a Subsidiary Guarantor),
then that newly acquired or created Restricted Subsidiary must execute and
deliver an indenture supplemental to the Indenture and thereby become a
Subsidiary Guarantor which shall be bound by the Subsidiary Guarantee of the
Notes in the form set forth in the Indenture (without such future Subsidiary
Guarantor being required to execute and deliver the Subsidiary Guarantee
endorsed on the Notes).
In addition, the Company will not permit any Restricted Subsidiary that is
not a Subsidiary Guarantor to either:
(1) Guarantee any other Indebtedness of the Company or any Subsidiary Guarantor;
or
(2) otherwise become obligated with respect to Indebtedness of the Company or
any Subsidiary Guarantor, including but not limited to, Indebtedness
Incurred by the Company or a Subsidiary Guarantor
96
<PAGE>
under the Senior Secured Credit Facility, unless such Restricted Subsidiary
simultaneously executes a supplemental indenture to the Indenture providing
for the Guarantee of the payment of the Notes by such Restricted Subsidiary,
which Guarantee of the payment of the Notes shall be subordinated to the
Guarantee of such other Indebtedness to the same extent as the Notes or the
Subsidiary Guarantees, as applicable, are subordinated to such other
Indebtedness; PROVIDED, HOWEVER, that such Restricted Subsidiary shall not
be required to so Guarantee the payment of the Notes to the extent that such
other Indebtedness does not exceed $1 million individually or, together with
any other Indebtedness of the Company or any Subsidiary Guarantor Guaranteed
by such Restricted Subsidiary, $3 million in the aggregate. Such Restricted
Subsidiary shall be deemed released from its obligations under the Guarantee
of the payment of the Notes at any such time that such Restricted Subsidiary
is released from all of its obligations under its Guarantee of such other
Indebtedness unless such release results from the payment under such
Guarantee of other Indebtedness.
LIMITATION ON ENVIROSYSTEMS AND THE HOLDING COMPANIES. EnviroSystems and
the Holding Companies shall not, and the Company shall not permit the Holding
Companies to, engage in any business other than holding the securities of their
respective direct subsidiaries.
LIMITATION ON LINES OF BUSINESS. Neither the Company nor any of its
Subsidiaries shall directly or indirectly engage to any substantial extent in
any line or lines of business activity other than that which, in the reasonable
good faith judgment of the Board of Directors, is a Related Business.
LIMITATION ON DESIGNATIONS OF UNRESTRICTED SUBSIDIARIES. The Company may
designate any Subsidiary of the Company (other than a Subsidiary Guarantor) as
an "Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(1) no Default shall have occurred and be continuing at the time of or after
giving effect to such Designation; and
(2) either (x) the assets of such Subsidiary do not exceed $1,000 or (y) the
Company would be permitted under the Indenture to make an Investment at the
time of Designation (assuming the effectiveness of such Designation) in an
amount (the "Designation Amount") equal to the fair market value of the
Company's Investment in such Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under the caption "--Limitation on Restricted Payments" for all
purposes of the Indenture in the Designation Amount. The Company shall not, and
shall not permit any Restricted Subsidiary to, at any time (a) provide credit
support for, or a guarantee of, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) or (b) be directly or indirectly liable for any Indebtedness of
any Unrestricted Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(1) no Default shall have occurred and be continuing at the time of and after
giving effect to such Revocation; and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if Incurred at such time, have
been permitted to be Incurred for all purposes of the Indenture and for all
purposes of the Indenture shall be deemed to have been Incurred at such
time.
All Designations and Revocations must be evidenced by resolutions of the
Board of Directors delivered to the Trustee certifying compliance with the
foregoing provisions.
Notwithstanding the foregoing, no Subsidiary that is a Subsidiary Guarantor
as of the Issue Date shall be permitted to become an Unrestricted Subsidiary.
97
<PAGE>
SEC REPORTS. Whether or not required by the rules and regulations of the
SEC, so long as any Notes are outstanding beginning with the year ended December
31, 1998, the Company will furnish to the Trustee and all Holders of Notes:
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K, as applicable, if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report thereon by the
Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on Form
8-K if the Company were required to file such reports, in each case within
the time periods specified in the SEC's rules and regulations; PROVIDED that
the foregoing shall not require the Company to furnish separate financial
results of its Subsidiaries. In addition, the Company will make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Trustee, Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest on the Notes when due, continued for 30
days (whether or not prohibited by the subordination provisions of the
Indenture);
(2) a default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not prohibited by the subordination
provisions of the Indenture);
(3) the failure by the Company to comply with its obligations in the covenants
described above under the captions "--Change of Control", "--Certain
Covenants"--Limitations on Sales of Assets and Subsidiary Stock" or
"--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with any of
its obligations in the covenants described above under the captions
"--Limitation on Indebtedness", "--Limitation on Liens Securing Subordinated
Indebtedness", "--Limitation on Other Senior Subordinated Indebtedness",
"--Limitation on Restricted Payments", "--Limitation on Restrictions on
Distributions from Restricted Subsidiaries", "--Limitation on Affiliate
Transactions", "--Future Subsidiary Guarantors", "--Limitation on
EnviroSystems and the Holding Companies", "--Limitation on Lines of
Business", "--Limitation on Designations of Unrestricted Subsidiaries", or
"--SEC Reports";
(5) the failure by the Company to comply for 60 days after notice with its other
covenants, obligations, warranties or agreements contained in the Indenture;
(6) Indebtedness of EnviroSystems, the Company or any Subsidiary which is not
paid within any applicable grace period after final maturity or which is
accelerated by the Holders thereof because of a default and the total amount
of such Indebtedness unpaid or accelerated exceeds $10.0 million and such
default shall not have been cured or such acceleration rescinded (the "cross
acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the Company or
any Significant Subsidiary (the "bankruptcy provisions");
(8) any judgment or decree for the payment of money in excess of $10.0 million
is rendered against the Company or any Subsidiary and is not discharged and
either (A) an enforcement proceeding has been
98
<PAGE>
commenced by any creditor upon such judgment or decree or (B) there is a
period of 60 days following such judgment during which such judgment or
decree is not discharged, waived or the execution thereof stayed; or
(9) any Subsidiary Guarantee of a Significant Subsidiary ceases to be in full
force and effect or becomes unenforceable or invalid or is declared null and
void (other than in accordance with the terms of the Subsidiary Guarantee)
or any Subsidiary Guarantor that is a Significant Subsidiary denies or
disaffirms its obligations under its Subsidiary Guarantee.
However, a default under clause (4) or (5) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default (other than the bankruptcy provisions relating to the
Company or any Significant Subsidiary) occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes to be
due and payable. Upon such a declaration, such principal and interest shall be
due and payable immediately; PROVIDED, HOWEVER, that for so long as the Senior
Secured Credit Facility remains in effect, such declaration shall not become
effective until the earlier of five Business Days following delivery of notice
to the Representative of such creditors of the intention to accelerate the Notes
or the acceleration of any Indebtedness under the Senior Secured Credit
Facility. If an Event of Default relating to the bankruptcy provisions relating
to the Company or any Significant Subsidiary occurs and is continuing, the
principal of and interest on all the Notes will IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders. Under certain circumstances, the Holders of a
majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest when due, no Holder of a Note may pursue
any remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default
is continuing;
(2) Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy;
(3) such Holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) the Holders of a majority in principal amount of the outstanding Notes have
not given the Trustee a direction inconsistent with such request within such
60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee reasonably determines is unduly prejudicial to the
rights of any other Holder or that would involve the Trustee in personal
liability.
99
<PAGE>
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the Default
within 90 days after it occurs. Except in the case of a Default in the payment
of principal of or interest on any Note, the Notes Trustee may withhold notice
if and so long as the board of directors, the executive committee or a committee
of its trust officers reasonably determines that withholding notice is in the
best interest of the Holders. In addition, the Company is required to deliver to
the Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. The Company also is required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Defaults, their status and what action the Company is
taking or proposes to take in respect thereof.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended or supplemented
with the consent of the Holders of a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange for the Notes) and, subject to certain exceptions, any past default
or compliance with any provisions may also be waived with the consent of the
Holders of a majority in principal amount of the Notes then outstanding.
Without the consent of each Holder of an outstanding Note affected thereby,
no amendment or supplement may:
(1) reduce the amount of Notes whose Holders must consent to an amendment,
supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest on any Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) alter the provisions with respect to the mandatory redemption of the Notes
or the redemption of the Notes at the option of the Company in a manner
adverse to the Holders;
(5) waive a Default or Event of Default in the payment of principal of, premium,
if any, or interest on, the Notes;
(6) waive a mandatory redemption payment with respect to any Note;
(7) make any Note payable in money or payable in a place other than that stated
in the Note;
(8) impair the right of any Holder to receive payment of principal of and
interest on such Holder's Notes on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes;
(9) make any change in the amendment provisions which require each Holder's
consent or in the waiver provisions;
(10) make any change to the subordination provisions (including definitions) of
the Indenture that would adversely affect the Holders; or
(11) make any change in any Subsidiary Guarantee that would adversely affect the
Holders.
Without the consent of any Holder, the Company and the Trustee may amend or
supplement the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (PROVIDED that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the Holders or to surrender any right or power conferred upon the
Company, to make any change that does not adversely affect the
100
<PAGE>
rights of any Holder or to comply with any requirement of the SEC in connection
with the qualification of the Indenture under the Trust Indenture Act. However,
no amendment may be made to the subordination provisions of the Indenture that
adversely affects the rights of any Holder of Senior Indebtedness of the Company
or any Restricted Subsidiary then outstanding unless the Holders of such Senior
Indebtedness (or their Representative) consent to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment or supplement. It is sufficient if
such consent approves the substance of the proposed amendment or supplement.
After an amendment or supplement under the Indenture becomes effective, the
Company is required to mail to Holders a notice briefly describing such
amendment or supplement. However, the failure to give such notice to all
Holders, or any defect therein, will not impair or affect the validity of the
amendment or supplement.
TRANSFER
The registered holder of a Note is treated as the owner of it for all
purposes. The Notes are issued in registered form and are transferable only upon
the surrender of the Notes being transferred for registration of transfer. The
Company may require payment of a sum sufficient to cover any tax, assessment or
other governmental charge payable in connection with certain transfers and
exchanges.
DEFEASANCE
The Company at its option at any time may terminate all of its obligations
under the Notes and the Indenture ("legal defeasance"). In addition, the Company
at its option at any time may terminate its obligations under "Change of
Control" and under the covenants described under the caption "--Certain
Covenants" (other than the covenant described under "--Merger and
Consolidation") (and any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes), and the
limitations contained in clause (3) of the first paragraph of the covenant
described under the caption "--Certain Covenants--Merger and Consolidation"
above ("covenant defeasance"). Despite either a legal or covenant defeasance
certain obligations, including, but not limited to, those respecting the
defeasance trust and obligations to register the transfer or exchange of the
Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a
registrar and paying agent in respect of the Notes shall remain in effect. In
the event that a covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "--Defaults" will
no longer constitute Events of Default with respect to the Notes.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises either its
legal defeasance option or its covenant defeasance option, each Subsidiary
Guarantor will be released from all of its obligations with respect to its
Subsidiary Guarantee.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants or a nationally
recognized investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes to redemption or
maturity, as the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
Holders will not recognize income, gain or loss for Federal income tax purposes
as a result of such deposit and defeasance and will be subject to Federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred (and, in the
case of
101
<PAGE>
legal defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
If the funds deposited with the Trustee to effect legal defeasance or
covenant defeasance are insufficient to pay the principal of, premium, if any,
and interest on the Notes when due, then the obligations of the Company and the
Subsidiary Guarantors under the Indenture will be revived and no such defeasance
will be deemed to have occurred.
CONCERNING THE TRUSTEE
United States Trust Company of Texas, N.A. is the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes. Such bank may also act as a depositary of funds for,
or make loans to and perform other services for, the Company or its Affiliates
in the ordinary course of business in the future.
The Holders of a majority in principal amount of the outstanding Notes are
given 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 if 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 man 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
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture. The Trustee may
resign at any time or may be removed by the Company. If the Trustee resigns, is
removed or becomes incapable of acting as Trustee or if a vacancy occurs in the
office of the Trustee for any cause, a successor Trustee shall be appointed in
accordance with the provisions of the Indenture.
If the Trustee has or shall acquire a conflicting interest within the
meaning of the Trust Indenture Act, the Trustee shall either eliminate such
interest or resign, to the extent and in the manner provided by, and subject to
the provisions of, the Trust Indenture Act and the Indenture. The Indenture also
contains certain limitations on the right of the Trustee, as a creditor of the
Company, to obtain payment of claims in certain cases, or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
GOVERNING LAW
The Indenture, the Guarantees and the Notes are governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (the "Acquired Person"):
(1) existing at the time such Person becomes a Restricted Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of
its Restricted Subsidiaries, including, without limitation, Indebtedness
Incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Restricted Subsidiary of such specified
Person; or
(2) assumed in connection with the acquisition of assets from such Person.
102
<PAGE>
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, control of
a Person means the power, direct or indirect, to direct or cause the direction
of the management and policies of such Person whether through the ownership of
voting securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing. For purposes of the
provisions described in "--Limitation on Restricted Payments" and "--Limitation
on Affiliate Transactions" only, "Affiliate" shall also mean any beneficial
owner of Capital Stock representing 5% or more of the total voting power of the
Voting Stock (on a fully diluted basis) of the Company or of rights or warrants
to purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Alchemy" means Alchemy Investment Plan, a group of funds advised by Alchemy
Partners, and its Affiliates.
"Alchemy Partners" means Alchemy Partners, an English partnership.
"Asset Disposition" means any sale, lease, transfer, conveyance, issuance or
other disposition (or series of related sales, leases, transfers, conveyances,
issuances or dispositions) by the Company or any Restricted Subsidiary,
including any disposition by means of a merger or consolidation (each referred
to for the purposes of this definition as a "disposition") (including by way of
a sale-and-leaseback), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be held
by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business of
the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside of the
ordinary course of business of the Company or such Restricted Subsidiary
(including as a result of a termination of an Emissions Contract).
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Dispositions:
(1) a disposition by (a) the Company to a Wholly Owned Subsidiary that is a
Subsidiary Guarantor, (b) a Restricted Subsidiary that is a Subsidiary
Guarantor to the Company or a Wholly Owned Subsidiary that is a Subsidiary
Guarantor or (c) a Restricted Subsidiary that is not a Subsidiary Guarantor
to the Company or any Restricted Subsidiary;
(2) a disposition of obsolete equipment or equipment that is no longer useful in
the conduct of the business of the Company and any Restricted Subsidiary and
that is disposed of in each case in the ordinary course of business;
(3) the sale of other assets so long as the fair market value of the assets
disposed of pursuant to this clause (c) does not exceed $3.0 million in the
aggregate in any fiscal year;
(4) for the purposes of the covenant described under "--Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock" only, a
disposition subject to the covenant described under "--Limitation on
Restricted Payments"; and
(5) the disposition of all or substantially all of the assets of the Company in
the manner permitted pursuant to the provisions described under "--Certain
Covenants-Merger and Consolidation".
The term "Asset Disposition" shall include the receipt by the Company or any
Restricted Subsidiary of any termination payments, settlement or judgment awards
or similar payments in connection with, or as a result of, the termination or
cancellation of any Emissions Contract.
103
<PAGE>
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination:
(1) if such Sale/Leaseback Transaction is a Capital Lease Obligation, the amount
of Indebtedness represented thereby according to the definition of "Capital
Lease Obligations"; and
(2) in other instances, the present value (discounted at the interest rate borne
by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has
been renewed or extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such Indebtedness or redemption or similar payment with respect to such
Preferred Stock multiplied by the amount of such payment by;
(2) the sum of all such payments.
"Bank Indebtedness" means:
(1) the Indebtedness outstanding or arising under the Senior Secured Credit
Facility;
(2) all obligations incurred by or owing to the holders of such Indebtedness or
any agent or representative thereof outstanding or arising under the Senior
Secured Credit Facility (including, but not limited to, all interest
(including, but not limited to, interest accruing pursuant to the terms of
the Senior Secured Credit Facility on or after the filing of any petition in
any bankruptcy, reorganization or similar proceeding relating to the Company
or any Restricted Subsidiary, whether or not a claim for such is allowed in
such proceeding), all fees and expenses of counsel, reimbursement
obligations, indemnities and all other charges, fees, expenses and other
claims); and
(3) all interest rate agreement obligations arising in connection thereafter
with any party to the Senior Secured Credit Facility.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Contribution" means a contribution to capital received by the
Company from any holder of the Company's Capital Stock whereby the Company
receives cash solely in exchange for either no consideration or Capital Stock of
the Company other than Disqualified Stock.
"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interests
in (however designated) equity of such person, including any Preferred Stock,
but excluding any debt securities convertible into or exchangeable for such
equity.
104
<PAGE>
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally guaranteed by,
the United States Government or issued by any agency thereof and backed by
the full faith and credit of the United States, in each case maturing within
one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Rating Services or
Moody's Investors Service, Inc.;
(3) commercial paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having a rating of at least A-1
from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.;
(4) certificates of deposit or bankers' acceptances maturing within one year
from the date of acquisition thereof issued by (x) any (A) bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or (B) commercial banking institution organized and
located in a country recognized by the United States of America, in each
case having at the date of acquisition thereof combined capital and surplus
of not less than $200 million (or the foreign currency equivalent thereof)
or (y) any lender under the Senior Secured Credit Facility;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
(6) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (1) through (5)
above; and
(7) other short-term investments utilized by foreign Restricted Subsidiaries in
accordance with normal investment practices for cash management not
exceeding $1.0 million in aggregate principal amount outstanding at any
time.
"Cash Flow" for any period means the Consolidated Net Income for such
period, plus the following (but without duplication) to the extent deducted in
calculating such Consolidated Net Income for such period:
(1) income tax expense;
(2) Consolidated Interest Expense;
(3) depreciation expense and amortization expense, provided that consolidated
depreciation and amortization expense of a Subsidiary that is not a Wholly
Owned Subsidiary shall only be added to the extent of the equity interest of
the Company in such Subsidiary; and
(4) all other non-cash charges (other than any non-cash charges to the extent
such charges represent an accrual of or reserve for cash expenditures in any
future period). Notwithstanding clause (4) above, there shall be deducted
from Cash Flow in any period any cash expended in such period that funds a
non-recurring, non-cash charge accrued or reserved in a prior period which
was added back to Cash Flow pursuant to clause (4) in such prior period.
"Change of Control" means the occurrence of any of the following events:
(1) Prior to the consummation of an Initial Equity Offering, Alchemy ceases to
be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of at least 40% in the aggregate of
the total voting power of the Voting Stock of the Company or EnviroSystems,
in each case whether as a result of issuance of securities of the Company or
EnviroSystems, any merger, consolidation, liquidation or dissolution of the
Company or EnviroSystems, any direct or indirect
105
<PAGE>
transfer of securities by the Company or otherwise (for purposes of this
clause (1) and clause (2) below, Alchemy shall be deemed to beneficially own
any Voting Stock of a corporation (the "specified corporation") held by any
other corporation (the "parent corporation") so long as Alchemy beneficially
own (as so defined), directly or indirectly, in the aggregate a majority of
the voting power of the Voting Stock of the parent corporation);
(2) Following the first Initial Equity Offering, any "person" (as such term is
used in Sections 13(d) and 14(d) of the Exchange Act), other than Alchemy,
is or becomes the beneficial owner (as defined in clause (1) above, except
that for purposes of this clause (2) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 35% of the total
voting power of the Voting Stock of the Company or EnviroSystems (whichever
entity has consummated such public offering); PROVIDED, HOWEVER, that
Alchemy beneficially owns (as defined in clause (1) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company or EnviroSystems than such other person
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors (for
the purposes of this clause (2), such other person shall be deemed to
beneficially own any Voting Stock of a specified corporation held by a
parent corporation, if such other person is the beneficial owner (as defined
in this clause (2)), directly or indirectly, of more than 35% of the voting
power of the Voting Stock of such parent corporation and Alchemy
beneficially owns (as defined in clause (1) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting Stock
of such parent corporation and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election a majority
of the board of directors of such parent corporation);
(3) during any period of two consecutive years, individuals who at the beginning
of such period constituted the Board of Directors or the board of directors
of EnviroSystems, as the case may be, (together with any new directors whose
election or appointment by the Board of Directors or the board of directors
of EnviroSystems, as the case may be, or whose nomination for election by
the shareholders of the Company or EnviroSystems, as the case may be, was
approved by a vote of 60% of the directors of the Company or EnviroSystems,
as the case may be, then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors or the board of directors of EnviroSystems, as the case
may be, then in office; or
(4) the merger or consolidation of the Company or EnviroSystems with or into
another Person or the merger of another Person with or into the Company or
EnviroSystems, or the sale of all or substantially all the assets of the
Company or EnviroSystems to another Person (other than a Person that is
controlled by Alchemy), and, in the case of any such merger or
consolidation, the securities of the Company or EnviroSystems that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or
EnviroSystems are changed into or exchanged for cash, securities or
property, unless pursuant to such transaction such securities are changed
into or exchanged for, in addition to any other consideration, securities of
the surviving corporation that represent immediately after such transaction,
at least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
The phrase "all or substantially all" of the assets of the Company or
EnviroSystems will likely be interpreted under applicable state law and will be
dependent upon particular facts and circumstances. As a result, there may be a
degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company or EnviroSystems has occurred.
"Code" means the Internal Revenue Code of 1986, as amended.
106
<PAGE>
"Consolidated Cash Flow Coverage Ratio" as of any date of determination
means the ratio of (x) the aggregate amount of Cash Flow for the period of the
most recent four consecutive fiscal quarters to (y) Consolidated Interest
Expense for such four fiscal quarters; PROVIDED, HOWEVER, to the extent relevant
to the calculation for any period, Cash Flow and Consolidated Interest Expense
shall be calculated using the pro forma consolidated statements of operations of
the Company included in the prospectus, which pro forma statements of operations
shall give effect to the acquisition of Envirotest and related transactions as
if they occurred at the beginning of the relevant period; PROVIDED, FURTHER,
HOWEVER, that:
(1) if the Company or any Restricted Subsidiary has issued any Indebtedness
since the beginning of such period and on or prior to the relevant date of
determination that remains outstanding or if the transaction giving rise to
the need to calculate the Consolidated Cash Flow Coverage Ratio is an
issuance of Indebtedness, or both, Cash Flow and Consolidated Interest
Expense for such period shall be calculated after giving effect on a pro
forma basis to such Indebtedness as if such Indebtedness had been issued on
the first day of such period and the discharge of any other Indebtedness
repaid, repurchased, defeased or otherwise discharged with the proceeds of
such new Indebtedness as if such discharge had occurred on the first day of
such period;
(2) if since the beginning of such period and on or prior to the relevant date
of determination, the Company or any Restricted Subsidiary shall have made
any Asset Disposition, the Cash Flow for such period shall be reduced by an
amount equal to the Cash Flow (if positive) directly attributable to the
assets which are the subject of such Asset Disposition for such period, or
increased by an amount equal to the Cash Flow (if negative), directly
attributable thereto for such period, and Consolidated Interest Expense for
such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Restricted Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after
such sale);
(3) to the extent not duplicative with (2) above, if since the beginning of such
period and on or prior to the relevant date of determination, any Emissions
Contract ceased or ceases to be in effect, the Cash Flow for such period
shall be reduced by an amount equal to the Cash Flow (if positive) directly
attributable to such Emissions Contract for such period, or increased by an
amount equal to the Cash Flow (if negative), directly attributable thereto
for such period, and Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness of the Company or any Restricted Subsidiary
repaid, repurchased, defeased or otherwise discharged with respect to the
Company and its Restricted Subsidiaries with the proceeds of any termination
fee or similar payment received by the Company or a Restricted Subsidiary as
a result of the cessation of such Emissions Contract;
(4) if since the beginning of such period and on or prior to the relevant date
of determination, the Company or any Restricted Subsidiary (by merger or
otherwise) shall have made an Investment in any Restricted Subsidiary (or
any Person which becomes a Restricted Subsidiary) or an acquisition of
assets (including Capital Stock of a Subsidiary), including any acquisition
of assets occurring in connection with a transaction causing a calculation
to be made hereunder, Cash Flow and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto (including
the issuance of any Indebtedness and including pro forma cost reductions, in
each case as calculated in accordance with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Securities Act or any
successor provision relating to the preparation of pro forma financial
statements (it being understood that all cost reductions set forth in Note
(3) to the unaudited pro forma consolidated statements included in the
prospectus shall be deemed to be calculated on a basis
107
<PAGE>
consistent with such requirements)) as if such Investment or acquisition
occurred on the first day of such period; and
(5) if since the beginning of such period and on or prior to the relevant date
of determination, any Person (that subsequently became a Restricted
Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition or any Investment, or any Emissions Contract entered into by
such Person shall cease to be in effect, that would have required an
adjustment pursuant to clause (2), (3) or (4) above if made by, or if in
respect of, the Company or a Restricted Subsidiary during such period, Cash
Flow and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including pro forma cost reductions,
in each case as calculated in accordance with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Securities Act or any
successor provision relating to the preparation of pro forma financial
statements (it being understood that all cost reductions set forth in Note
(3) to the unaudited pro forma consolidated statements included in the
prospectus shall be deemed to be calculated on a basis consistent with such
requirements)) as if such Asset Disposition, Investment or cessation of such
Emissions Contract occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, and
the amount of Consolidated Interest Expense associated with any Indebtedness
issued in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest of such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months). For purposes of this definition,
whenever pro forma effect is to be given to any Indebtedness Incurred pursuant
to a revolving credit facility the amount outstanding under such Indebtedness
shall be equal to the average of the amount outstanding during the period
commencing on the first day of the first of the four most recent fiscal quarters
for which financial statements are available and ending on the date of
determination.
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries determined
in accordance with GAAP, plus, to the extent not included in such interest
expense but Incurred by the Company or its Restricted Subsidiaries:
(1) interest expense attributable to capital leases;
(2) amortization of debt discount and debt issuance cost (other than those debt
discounts and debt issuance costs incurred on the Issue Date);
(3) capitalized interest;
(4) original issue discount and non-cash interest payments or accruals;
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net costs under Hedging Obligations (including amortization of fees);
(7) dividends in respect of all Disqualified Stock or Preferred Stock held by
Persons other than the Company, a Subsidiary Guarantor or a Wholly Owned
Subsidiary;
(8) interest Incurred in connection with investments in discontinued operations;
(9) the interest portion of any deferred payment obligations;
108
<PAGE>
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to pay
interest or fees to any Person (other than the Company) in connection with
Indebtedness Incurred by such plan or trust; and
(11) imputed interest expense associated with any Attributable Debt. For
purposes of this definition, interest expense attributable to any
Indebtedness represented by the Guarantee by such person or a Subsidiary of
such person of an obligation of another person shall be deemed to be the
interest expense attributable to the Indebtedness Guaranteed.
"Consolidated Net Income" means, for any period, the net income or loss of
the Company and its consolidated Subsidiaries determined in accordance with
GAAP; PROVIDED, HOWEVER, that there shall not be included in such Consolidated
Net Income:
(1) any net income of any Person if such Person is not a Restricted Subsidiary
or that is accounted for by the equity method of accounting, except that (A)
the Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate amount
of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Restricted
Subsidiary, to the limitations contained in clause (3) below) and (B) the
Company's equity in a net loss of any such Person for such period shall be
included in determining such Consolidated Net Income;
(2) any net income of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition;
(3) any net income of any Restricted Subsidiary (other than Envirotest Systems
Corp. and Environmental Systems Products, Inc., in each case, solely for the
period prior to the Issue Date) if such Restricted Subsidiary is subject to
restrictions (other than restrictions under the Senior Secured Credit
Facility, the Indenture or the indenture governing the Senior Discount
Notes), directly or indirectly, on the payment of dividends or the making of
distributions by such Subsidiary, directly or indirectly, to the Company,
except that (A) the Company's equity in the net income of any such
Restricted Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Restricted Subsidiary during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to another Restricted Subsidiary,
to the limitation contained in this clause) and (B) the Company's equity in
a net loss of any such Restricted Subsidiary for such period shall be
included in determining such Consolidated Net Income;
(4) any gain (but not loss) realized upon the sale or other disposition of any
property, plant or equipment of the Company or its consolidated subsidiaries
(including pursuant to any sale and leaseback arrangement) which is not sold
or otherwise disposed of in the ordinary course of business and any gain
(but not loss) realized upon the sale or other disposition of any Capital
Stock of any Person;
(5) all extraordinary, unusual or non-recurring gains but not losses; and
(6) the cumulative effect of a change in accounting principles.
"Currency Agreement Obligations" means the obligations of any person under a
foreign exchange contract, currency swap agreement or other similar agreement or
arrangement to protect such person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means:
(1) so long as any Bank Indebtedness is outstanding, such Bank Indebtedness; and
109
<PAGE>
(2) provided no Bank Indebtedness is outstanding, any other Senior Indebtedness
of the Company permitted to be incurred under the Indenture which, at the
date of determination, has an aggregate principal amount outstanding of, or
under which, at the date of determination, the holders thereof are committed
to lend up to, at least $25.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event
(1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock; or
(3) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to 123 days after the Stated Maturity of the Notes;
PROVIDED, HOWEVER, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the
right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to
123 days after the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of
such Capital Stock than the provisions described under "--Change of Control"
and "--Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock".
"Emissions Contract" means a contract with a governmental authority to
provide motor vehicle emissions testing, motor vehicle emissions testing
equipment testing, or calibration, data collection and reporting (auditing
emissions testing equipment and data) relating to motor vehicle emissions
testing; PROVIDED, HOWEVER, that such contract may also relate to the provision
of motor vehicle safety inspection or motor vehicle registration but only if it
primarily relates to the provisions of the services enumerated above.
"EnviroSystems" means EnviroSystems Corp., a Delaware corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute thereto.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing in any manner any Indebtedness or other
obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such Person
(1) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well,
to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise); or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part);
PROVIDED, HOWEVER, that the term "Guarantee" shall not include endorsements
of negotiable instruments for collection or deposit in the ordinary course
of business.
110
<PAGE>
The term "Guarantee" used as a verb has a corresponding meaning.
"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 designed to protect such Person against changes
in interest rates or foreign exchange rates.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Holding Company" means each of Newmall Ltd., a private limited company
incorporated in England and Wales, Wellman Overseas Ltd., a private limited
company incorporated in England and Wales, and Wellman North America, Inc., a
private limited company incorporated in England and Wales, and each of their
successors and assigns, if any.
"Incur" means create, issue, assume, Guarantee, incur or otherwise become
liable for, directly or indirectly, or otherwise become responsible for,
contingently or otherwise, Indebtedness, Disqualified Stock or Preferred Stock;
PROVIDED, HOWEVER, that any Indebtedness, Disqualified Stock or Preferred Stock
of a Person existing at the time such Person merges with the Company or becomes
a Subsidiary (whether by merger, consolidation, acquisition or otherwise),
including, without limitation, Indebtedness Incurred and Disqualified Stock and
Preferred Stock issued in connection with, or in contemplation of, such other
Person merging with or into the Company or a Subsidiary or becoming a
Subsidiary, shall be deemed to be Incurred by the Company or such Subsidiary at
the time it merges with the Company or becomes a Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" of any Person means, without duplication, and whether or not
contingent:
(1) the principal of and premium, if any, in respect of (A) indebtedness of such
Person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds (other than performance bonds) or other similar
instruments for the payment of which such Person is responsible or liable,
if and to the extent any of the foregoing indebtedness would appear as a
liability upon a balance sheet of such Person prepared in accordance with
GAAP;
(2) all Capital Lease Obligations of such Person and all Attributable Debt in
respect of Sale/Leaseback Transactions to which such Person is a party;
(3) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such Person for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction;
(5) Disqualified Stock (measured by the amount of all obligations of such Person
with respect to the redemption, repayment or other repurchase of such
Disqualified Stock of such Person and measured at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and
unpaid dividends) or, with respect to any Subsidiary of such Person, any
Preferred Stock (measured by its liquidation preference);
(6) all Hedging Obligations;
(7) all obligations of the type referred to in clauses (1) through (6) of other
Persons and all dividends of other Persons for the payment of which, in
either case, such Person is responsible or liable, directly or indirectly,
as obligor, guarantor or otherwise, including by means of any Guarantee
(other than in each case by reason of activities described in the proviso to
the definition of "Guarantee"); and
111
<PAGE>
(8) all obligations of the type referred to in clauses (1) through (7) of other
Persons secured by any Lien on any property or asset of such Person (whether
or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such property or
assets or the amount of the obligation so secured.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock was purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value to be determined in good faith by the Board of Directors. For
purposes hereof, the amount of any Indebtedness issued with original issue
discount shall be the original purchase price plus accrued interest, PROVIDED,
HOWEVER, that such accretion shall not be deemed an incurrence of Indebtedness.
"Initial Equity Offering" means an underwritten primary or combined primary
and secondary public offering of common stock of the Company or EnviroSystems,
pursuant to an effective registration statement under the Securities Act.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement designed
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of the Person making the advance or
loan, in each case in accordance with GAAP) or other extensions of credit
(including by way of Guarantee or similar arrangement) or capital contribution
to (by means of any transfer of cash or other property to others or any payment
for property or services for the account or use of others), or any purchase or
acquisition of Capital Stock, Indebtedness or other similar instruments issued
by such Person and shall include the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary.
For purposes of the definition of "Unrestricted Subsidiary", the definition
of "Restricted Payment" and the covenant described under "--Certain
Covenants--Limitation on Restricted Payments"
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent investment in an
Unrestricted Subsidiary in an amount, if positive, equal to (x) the
Company's "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at
the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case
as determined in good faith by the Board of Directors.
The Company and any Restricted Subsidiary shall be deemed to have made an
Investment in a Person that is or was required to be a Subsidiary Guarantor if,
upon the issuance, sale or other disposition of any portion of the Company's or
such Restricted Subsidiary's ownership in the Capital Stock of such Person, such
Person ceases to be a Subsidiary Guarantor. For purposes of the immediately
preceding sentence, the amount of the Investment by the Company or such
Restricted Subsidiary shall be the portion (proportionate to the Company's or
such Restricted Subsidiary's equity interest in such Person after the issuance,
sale or disposition) of the fair market value of such Person at the time of the
issuance, sale or disposition, as determined by the issue, sale or other
disposition price of the Capital Stock with respect to which the measurement of
the Investment is required.
112
<PAGE>
"issue" means issue, assume, Guarantee, Incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Indebtedness or Capital Stock of a Person
existing at the time such Person merges with the Company becomes a Subsidiary
(whether by merger, consolidation, acquisition or otherwise) shall be deemed to
be issued by the Company or such Subsidiary at the time mergers with the Company
or becomes a Subsidiary; and the term "issuance" has a corresponding meaning.
"Issue Date" means the date of original issuance of the Notes.
"Joint Ventures" means joint ventures entered into by the Company or any of
its Subsidiaries for the primary purpose of operating a Related Business where
such joint venture is not a Subsidiary.
"Lien" means any mortgage, pledge, security interest, privilege, conditional
sale or other title retention agreement or other similar lien (statutory or
otherwise), or encumbrance upon or with respect to any property of any kind,
real or personal, moveable or immovable, now owned or hereafter acquired.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, but only as and when
received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other non-cash form) therefrom,
in each case net of:
(1) all legal, title and recording tax expenses, commissions and other fees and
expenses Incurred, and all Federal, state, provincial, foreign and local
taxes required to be paid or accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) all payments made on any Indebtedness which (A) is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any lien
upon or other security agreement of any kind with respect to such assets, or
(B) must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such Asset
Disposition; and
(4) reasonable amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post -employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Disposition. Further,
with respect to an Asset Disposition by a Subsidiary which is not a Wholly
Owned Subsidiary, Net Available Cash shall be reduced pro rata for the
portion of the equity of such Subsidiary which is not owned by the Company.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock
or any Capital Contribution, means the cash proceeds of such issuance, sale or
Capital Contribution plus, in the case of an issuance of Capital Stock upon any
exercise, exchange or conversion of securities (including options, warrants,
rights and convertible or exchangeable debt) of the Company that were issued for
cash on or after the Issue Date, the amount of cash originally received by the
Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt), net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
Incurred in connection with such issuance, sale or Capital Contribution and net
of taxes paid or payable as a result thereof.
"Obligations" means with respect to any Indebtedness all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such
Indebtedness.
113
<PAGE>
"Opinion of Counsel" means a written opinion from legal counsel, who may be
counsel for the Company, and who is reasonably acceptable to the Trustee, but
who is not an employee of the Company or any of its Affiliates or Subsidiaries.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in
(1) the Company, a Subsidiary Guarantor or a Person that will, upon the making
of such Investment, become a Subsidiary Guarantor; PROVIDED, HOWEVER, that
the primary business of such Restricted Subsidiary is a Related Business;
(2) another Person if as a result of such Investment such other Person is merged
or consolidated with or into, or transfers or conveys all or substantially
all its assets to, the Company or a Subsidiary Guarantor; PROVIDED, HOWEVER,
that such Person's primary business is a Related Business;
(3) Investments in Cash Equivalents;
(4) receivables owing to the Company or any Restricted Subsidiary if created or
acquired in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms;
(5) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(6) stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments;
(7) Investments in connection with pledges, deposits, payments or performance
bonds made or given in the ordinary course of business in connection with or
to secure statutory, regulatory or similar obligations, including
obligations under health, safety or environmental obligations;
(8) any Person to the extent such Investment represents the non-cash portion of
the consideration received for an Asset Disposition as permitted pursuant to
the covenant described under "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock";
(9) Joint Ventures and other Persons that are not Subsidiary Guarantors that do
not exceed an aggregate of $20.0 million at any time outstanding under and
pursuant to this clause (9) without giving effect to changes in the value of
such Investment occurring after the date of such Investment, but giving
effect (by increasing such amount) to all liquidation distributions or other
returns of capital received in respect of such Investment in cash or Cash
Equivalents;
(10) ESP Financing LLC or such other Joint Venture, in each case which entity is
primarily engaged in the financing of purchases of the Company's or its
Subsidiaries' equipment by independent third parties, that do not exceed
$3.0 million at any time outstanding under and pursuant to this clause (10)
without giving effect to changes in the value of such Investment occurring
after the date of such Investment, but giving effect (by increasing such
amount) to all liquidation distributions or other returns of capital
received in respect of such Investment in cash or Cash Equivalents;
(11) loans permitted by the provisions of clause (b)(10) of the covenant
described under "--Certain Covenants--Limitation on Affiliate Transactions";
and
(12) 100% of the issued and outstanding Capital Stock of Transervice; provided,
that (a) the aggregate purchase price of such Capital Stock shall not exceed
$18.0 million and (b) no Indebtedness shall be assumed by the Company or any
of its Subsidiaries in connection therewith and any Indebtedness of
Transervice, if not paid in full, shall be non-recourse to the Company, any
Subsidiary of the Company other than Transervice or any of their respective
assets.
114
<PAGE>
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under workmen's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits
in connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to
secure public or statutory obligations of such Person or deposits or cash or
United States government bonds to secure surety or appeal bonds to which
such Person is a party, or deposits as security for contested taxes or
import duties or for the payment of rent, in each case Incurred in the
ordinary course of business;
(2) Liens imposed by law, including carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith by
appropriate proceedings; or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review;
(3) Liens for taxes, assessments or other governmental charges not yet subject
to penalties for non-payment or which are being contested in good faith by
appropriate proceedings provided appropriate reserves have been taken on the
books of the Company;
(4) Liens to secure the performance of statutory obligations or in favor of
issuers of surety bonds, performance bonds, appeal bonds or letters of
credit or other obligations of a like nature issued pursuant to the request
of and for the account of such Person in the ordinary course of its
business; PROVIDED, HOWEVER, that such letters of credit do not constitute
Indebtedness;
(5) Liens securing a Hedging Obligation so long as the related Indebtedness is,
and is permitted to be under the Indenture, secured by a Lien on the same
property securing the Hedging Obligation;
(6) Liens for the purpose of securing the payment (or the refinancing of the
payment) of all or a part of any Purchase Money Indebtedness or Capital
Lease Obligations relating to assets or property acquired, constructed or
leased in the ordinary course of business PROVIDED that (x) the aggregate
principal amount of Indebtedness secured by such Liens shall not exceed the
cost of the assets or property so acquired or constructed and (y) such Liens
shall not encumber any other assets or property of the Company or any
Restricted Subsidiary other than such Assets or property and assets affixed
or appurtenant thereto;
(7) Liens arising from precautionary Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Company and its
Subsidiaries in the ordinary course of business;
(8) Liens in favor of the Company and/or any of its Restricted Subsidiaries,
other than such a Lien with respect to intercompany indebtedness if the
Company or a Subsidiary Guarantor is not the beneficiary of such a Lien;
(9) Liens existing on the date of the Indenture;
(10) encumbrances consisting of zoning restrictions, surety exceptions, utility
easements, licenses, rights of way, easements of ingress or egress over
property of the Company or any Restricted Subsidiary, rights or restrictions
of record on the use of real property, minor defects in title, landlords'
and lessors' liens under leases on property located on the rented premises,
in each case not interfering in any material respect with the ordinary
conduct of the business of the Company and the Restricted Subsidiaries; and
(11) any extension, renewal, refinancing, refunding or replacement of any
Permitted Lien, provided that such new Lien is limited to the property or
assets that secured (or under the arrangement under which the original
Permitted Lien, could secure) the obligations to which such Liens relate.
"Permitted Testing Center Assets" means vehicles emission test site
equipment and the related test site or sites located in the United States of
America (or, solely with respect to Restricted Subsidiaries domiciled outside of
the United States, in any foreign jurisdiction) used or to be used by the
Company or any of its Subsidiaries in connection with a centralized emission
testing program pursuant to a contract with a governmental authority.
115
<PAGE>
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over shares
of Capital Stock of any other class of such Person.
"Prospectus" means the prospectus dated October 16, 1998, pursuant to which
the Notes were offered, and any supplement thereto.
"Public Debt" means any Indebtedness represented by debt securities issued
by the Company or any Restricted Subsidiary in connection with a public offering
or a sale exempt from registration under the Securities Act (provided such debt
securities are intended to be distributed by a resale pursuant to Rule 144A,
Regulation S or otherwise under the Securities Act or sold on an agency basis by
a broker-dealer or one of its affiliates); it being understood that the term
"Public Debt" shall not include any commercial bank borrowings or similar
borrowings, any receivables financing, recourse transfers of financial assets,
capital leases or other types of borrowings Incurred in a manner not customarily
viewed as a "securities offering".
"Public Equity Offering" means an underwritten primary or combined primary
and secondary public offering of Capital Stock (other than Disqualified Stock)
of the Company or EnviroSystems, all of the net proceeds of which, if issued by
EnviroSystems, are contributed to the Company as a Capital Contribution,
pursuant to an effective registration statement under the Securities Act.
"Purchase Money Indebtedness" means any Indebtedness of a Person to any
seller or other Person incurred to finance the acquisition (including in the
case of a Capitalized Lease Obligation, the lease) of any after acquired real or
personal tangible property which, in the reasonable good faith judgment of the
Board of Directors, is directly related to a Related Business of the Company and
which is incurred substantially concurrently with such acquisition and is
secured only by the assets so financed.
"Refinance" means, in respect of any Indebtedness, to extend, refinance,
renew, replace, defease or refund, or to issue other Indebtedness in exchange or
replacement for, such indebtedness. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Indebtedness of the Company or any of
its Subsidiaries issued in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund other Indebtedness of
the Company or any of its Subsidiaries; PROVIDED that:
(1) the principal amount of such Refinancing Indebtedness does not exceed (after
deduction of reasonable and customary fees and expenses incurred in
connection with such refinancing and the amount of any premium or prepayment
penalty paid in connection with such Refinancing to the extent in accordance
with the terms of the document governing such Indebtedness (except for any
modification to any such document made in connection with or in
contemplation of such refinancing)) the lesser of (x) the principal amount
of the Indebtedness so extended, refinanced renewed, replaced, defeased or
refunded; and (y) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in
accordance with GAAP) at the time of such Refinancing, plus, in each case
accrued interest on such Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has a Weighted Average Life to Maturity equal
to or greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; and
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Notes or the
Subsidiary Guarantees, as the case may be, such
116
<PAGE>
Refinancing Indebtedness has a final maturity date later than the final
maturity date of the Notes and is subordinated in right of payment to the
Notes or the relevant Subsidiary Guarantee on terms at least as favorable to
the Holders of Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
Notwithstanding the foregoing, Refinancing Indebtedness shall not include:
(1) Indebtedness of a Subsidiary that is not a Subsidiary Guarantor that
Refinances Indebtedness of the Company;
(2) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary; or
(3) Indebtedness of the Company or a Subsidiary Guarantor that Refinances
Indebtedness of a Restricted Subsidiary which is not a Subsidiary Guarantor.
"Related Business" means any business reasonably related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; PROVIDED that
if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times be the holders of a majority in outstanding principal amount
of such Designated Senior Indebtedness in respect of any Designated Senior
Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an agreement relating to property now
owned or hereafter acquired whereby the Company or any Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases required to be classified as
capitalized leases for financial reporting purposes in accordance with GAAP.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of any Person secured by a
Lien.
"Senior Discount Notes" means the 15% Senior Discount Notes due 2009 of
EnviroSystems issued pursuant to an Indenture, dated as of October 16, 1998,
between EnviroSystems and United States Trust Company of New York, as Trustee.
"Senior Indebtedness" means with respect to the Company or any Subsidiary
Guarantor Bank Indebtedness and all other Indebtedness (and interest thereon
(including, but not limited to, interest accruing pursuant to the terms of such
Indebtedness on or after the filing of any petition in any bankruptcy,
reorganization or similar proceeding relating to the Company or such Subsidiary
Guarantor, whether or not a claim for such is allowed in such proceeding)),
whether outstanding on the Issue Date or thereafter, unless, by the terms of the
instrument creating or evidencing such Indebtedness, such Indebtedness is made
not senior in right of payment to the Notes or the applicable Subsidiary
Guarantee, other than:
(1) any obligation of such Person to any subsidiary of such Person or to any
officer, director or employee of such Person or any such subsidiary;
(2) any liability of such Person for federal, state, local or other taxes owed
or owing by such Person;
(3) any accounts payable or other liability of such Person to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
117
<PAGE>
(4) any Indebtedness, Guarantee or obligation of such Person which is, expressly
by its terms, subordinate or junior in any respect to any other
Indebtedness, Guarantee or obligation of such Person;
(5) that portion of any Indebtedness of such Person which at the time of
issuance is issued in violation of the Indenture;
(6) Indebtedness of such Person represented by Disqualified Stock or Preferred
Stock; or
(7) Capitalized Lease Obligations.
"Senior Secured Credit Facility" means the credit agreement dated as of
October 16, 1998, by and among the Company, EnviroSystems, certain banks,
financial institutions and other entities, Credit Suisse First Boston, as
Administrative Agent, Collateral Agent and Arranger, and DLJ Capital Funding,
Inc., as Syndication Agent, and Donaldson, Lufkin and Jenrette Securities
Corporation, as an Arranger, initially providing for an aggregate $435 million
of term loan and revolving credit facilities, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit facilities and/or related documents may be
further amended, restated, supplemented, renewed, refinanced, replaced or
otherwise modified from time to time whether or not with the same agent,
trustee, representative lenders or holders, and irrespective of any changes in
the terms and conditions thereof. Without limiting the generality of the
foregoing, the term "Senior Secured Credit Facility" shall include agreements in
respect of reimbursement of letters of credit issued pursuant to the Senior
Secured Credit Facility and agreements in respect of Hedging Obligations with
lenders party to the Senior Secured Credit Facility and their affiliates and
shall also include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any Senior Secured Credit Facility
and all refunding, refinancings (in whole or in part) and replacements of any
Senior Secured Credit Facility, including any agreement extending the maturity
of, or increasing the amount of, any Indebtedness incurred thereunder or
contemplated thereby, or adding or deleting borrowers or guarantors thereunder,
so long as borrowers and issuers include one or more of the Company and its
Restricted Subsidiaries and their respective successors and assigns.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company which ranks PARI PASSU with the Notes in right of
payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meanings of Rule 1-02 under Regulation S-X
promulgated by the SEC.
"SPC" means any special purpose Restricted Subsidiary of the Company
(1) created for the purpose of incurring, directly or indirectly, Indebtedness
permitted under paragraph (b)(6) of the covenant described under "Limitation
on Indebtedness";
(2) whose Indebtedness and other obligations are without recourse to the Company
or any of its other Subsidiaries or any of their respective assets; and
(3) that does not and shall not at any time,
(A) engage in any business or activity other than operating, owning and/or
financing the acquisition or build-out of Permitted Testing Center Assets
and any activities incidental thereto; or
(B) Incur any Indebtedness other than the Indebtedness described in clause
(1) above.
"Stated Maturity" means, with respect to any security, the final date
specified in such security as the fixed date on which all outstanding principal
of such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
118
<PAGE>
"Subordinated Obligation" means any Indebtedness of the Company or any
Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the Notes or the
relevant Subsidiary Guarantee, as applicable, pursuant to the terms thereof or
any written agreement to that effect.
"Subsidiary" means:
(1) any corporation, association, partnership, limited liability company or
other business entity of which more than 50% of the total voting power of
shares of Capital Stock or other interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned
or controlled, directly or indirectly, by the Company and/or one or more
Subsidiaries;
(2) any limited partnership of which the Company or any Subsidiary is a general
partner; or
(3) any other Person (other than a corporation or limited partnership) in which
the Company, or one or more other Subsidiaries or the Company and one or
more other Subsidiaries, directly or indirectly, has more than 50% of the
outstanding partnership or similar interests or has the power, by contract
or otherwise, to direct or cause the direction of the policies, management
and affairs thereof.
Unless the context otherwise requires, Subsidiary means each direct and indirect
Subsidiary of the Company. Unrestricted Subsidiaries shall not be included in
the definition of Subsidiary for any purposes of the Indenture, except, as the
context may otherwise require, for purposes of the definitions of "Significant
Subsidiary" and "Unrestricted Subsidiary" and the covenant described above under
"--Limitation on Designations of Unrestricted Subsidiaries".
"Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor of the
Company's Obligations with respect to the Notes.
"Subsidiary Guarantor" means any Subsidiary of the Company that Guarantees
the Company's Obligations with respect to the Notes.
"Transervice" means Transervice Limited, all of the Capital Stock of which
will be owned by the Company or a Restricted Subsidiary, conducting emissions
testing activities in the United Kingdom.
"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 U.S.C.
SectionSection 77aaa-77bbbb) as in effect on the date of the Indenture.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company (other than a
Subsidiary Guarantor) designated as such pursuant to and in compliance with the
covenant described under "Limitation on Designations of Unrestricted
Subsidiaries". Any such designation may be revoked by a resolution of the Board
of Directors of the Company delivered to the Trustee, subject to the provisions
of such covenant.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
119
<PAGE>
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying:
(A) the amount of each of the remaining installment, sinking fund, serial
maturity or other required payments of principal, including payment at
final maturity, in respect thereof, by
(B) the number of years (calculated to the nearest one-twentieth) that will
elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary, which shares in each
such case shall not exceed more than 5% of the Capital Stock of such Restricted
Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries.
120
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of White & Case LLP, special tax counsel to the Company, the
following is a description of the principal United States federal income tax
consequences that may be relevant to the registration of the notes and the
purchase, ownership and sale of the notes. This description is based on (1) the
Internal Revenue Code of 1986, as amended (the "Code"), (2) income tax
regulations (proposed and final) issued under the Code, and (3) administrative
and judicial interpretations of the Code and regulations, each as in effect and
available as of the date of this prospectus. These income tax laws, regulations,
and interpretations, however, may change at any time. Any change could be
retroactive and could affect the tax consequences described below. These income
tax laws and regulations are also subject to various interpretations, and the
Internal Revenue Service (the "IRS") or the courts could later disagree with the
explanations or conclusions contained in this summary. The IRS has not formally
ruled (and we do not intend to seek a ruling) on the tax consequences of
purchasing, holding or selling the notes. Accordingly, the IRS could challenge
the opinions expressed in this prospectus concerning such consequences, and a
court could agree with the IRS.
A "U.S. Holder" is a Note holder who or which for United States federal
income tax purposes is:
- a United States citizen or resident individual;
- a corporation or partnership created or organized in or under the laws of
the United States;
- an estate if its income is subject to United States federal income
taxation regardless of its source; or
- a trust if such trust has validly elected to be treated as a United States
person for United States federal income tax purposes or if (1) a United
States court can exercise primary supervision over its administration and
(2) one or more United States persons have the authority to control all of
its substantial decisions.
We do not address all of the tax consequences that may be relevant to a
holder. We also do not address, except as stated below, any of the tax
consequences to (1) holders that do not hold notes as capital assets (as defined
in the Code), (2) holders that may be subject to special tax treatment such as
financial institutions, thrift institutions, real estate investment trusts,
tax-exempt organizations, regulated investment companies, insurance companies
and brokers and dealers or traders in securities or currencies, (3) holders
whose functional currency is not the United States dollar and (4) holders that
hold notes as part of a position in a straddle or as part of a hedging,
conversion or other integrated investment transaction. Further, except as stated
below, we do not address:
- the United States federal estate and gift or alternative minimum tax
consequences of the ownership or sale of notes or
- any state, local or foreign tax consequences of the ownership and sale of
notes.
INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN LIGHT OF
THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF HOLDING AND DISPOSING OF NOTES, AS WELL AS THE EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS.
ISSUANCE OF THE NOTES
The Notes were originally sold to the selling noteholders pursuant to a
private placement as part of an investment unit. Each investment unit was
comprised of an unregistered note and common stock of Envirosystems. Although
not free from doubt, the Notes should be considered to have been issued with
original issue discount at such time. This discussion assumes that the notes
will be considered to have been issued with original issue discount at such time
for United States federal income tax purposes.
121
<PAGE>
REGISTRATION OF THE NOTES
The registration of the notes will not constitute a material modification of
the Notes and thus, will not constitute a taxable exchange for United States
federal income tax purposes. A U.S. Holder will not recognize gain or loss upon
the receipt of a registered Note pursuant to this registration and will be
required to continue to include interest on the notes in gross income for United
States federal income tax purposes in the same manner as such interest was
included in income under the unregistered notes.
THE NOTES
U.S. HOLDERS
STATED INTEREST. Stated interest paid on a Note will be includible in a
U.S. Holder's gross income as ordinary interest income in accordance with the
U.S. Holder's usual method of tax accounting.
ORIGINAL ISSUE DISCOUNT. The Notes should be considered to have been issued
with original issue discount ("OID"), as such term is defined in the Code and
the income tax regulations. As a result, a U.S. Holder generally is required to
include OID in gross income (as interest) for United States federal income tax
purposes as it economically accrues, in advance of the receipt of the cash
attributable to such income. The amount included in gross income will be the sum
of the daily portions of OID on a Note calculated under a constant yield method
for all days during a taxable year in which a U.S. Holder owns such Note.
The amount of OID on a Note allocable to an accrual period generally is
determined by multiplying its "adjusted issue price" (as defined below) at the
beginning of the accrual period by the Note's yield to maturity (adjusting the
yield to take into account the length of the particular accrual period).
Generally, an accrual period is any period elected by a U.S. Holder, provided
that each accrual period is no longer than one year and that each interest
payment date is the first or last day of the accrual period.
The "adjusted issue price" of a Note at the beginning of any accrual period
will be the sum of its issue price and the amount of OID allocable to all prior
accrual periods, reduced by the amount of all payments other than qualified
stated interest payments made with respect to such Note in all prior accrual
periods. The Notes were initially issued to the selling noteholders as part of
an investment unit consisting of a Note and EnviroSystems Corp. common stock.
The issue price of such investment unit for United States federal income tax
purposes was $1,000 which was allocated between the Note and the EnviroSystems
Corp. common stock based on their respective fair market values at the time of
issuance and a holder's initial tax basis in each is equal to the amount so
allocated. Based upon the estimate of the fair market value of the common stock,
the Company is treating $66 of the issue price of the investment unit as
allocable to the common stock and $934 as allocable to the Note (which amount
the Company will therefore treat as its issue price for United States federal
income tax purposes). The Company intends to file information returns with the
Internal Revenue Service (the "IRS") based on such allocation.
"Qualified stated interest" generally is stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate during the entire term of the
debt instrument. All of the stated interest on a Note should be treated as
qualified stated interest. Accordingly, since all of the stated interest on a
Note is qualified stated interest, the total amount of OID on a Note at issuance
should be $66 (representing the difference between a Note's principal amount and
issue price).
A U.S. Holder will be required to include in gross income (as interest), in
the manner set forth above, (i) stated interest payments on a Note and (ii) OID
accruing on such Note.
PREMIUM AND MARKET DISCOUNT. A U.S. Holder that purchases a Note at a cost
greater than its adjusted issue price will be considered to have purchased the
Note at a premium and may make an election an election, applicable to all debt
securities purchased at a premium and held by such holder, to amortize such
premium, using a constant yield method, over the remaining term of the Note.
122
<PAGE>
A U.S. Holder that purchases a Note at a price that produces a yield to
maturity higher than the yield to maturity at which the note was first issued
will be considered to have purchased a note having market discount. Generally,
market discount is the amount by which the stated redemption price at maturity
of a note exceeds its purchase price. Gain realized by such U.S. Holder on the
sale (including a redemption for cash) of a Note having market discount
generally will be treated as ordinary income to the extent of the market
discount that accrued on the Note while held by such holder. In general, market
discount will be treated as accruing ratably over the term of the Note, or, at
the election of the holder, under a constant yield method. Moreover, a holder of
a note having market discount could be required to defer the deduction of a
portion of the interest paid on any indebtedness incurred or continued to
purchase or hold a note (unless the holder elects to include such market
discount in income as its accrues).
SALE, EXCHANGE OR RETIREMENT. Subject to the discussion of market discount,
upon the sale (including a redemption for cash) of a Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference, if any, between the
amount realized on the sale (other than, accrued but unpaid interest which will
be taxable as ordinary income) and the U.S. Holder's adjusted tax basis in such
Note. A U.S. Holder's adjusted tax basis generally will equal the cost of such
Note increased by any amounts includible in income by the holder as original
issue discount or market discount (if the U.S. Holder elects to include such
market discount in income on a current basis) and decreased by any amortized
premium, if any. Except as discussed above under "PREMIUM AND MARKET DISCOUNT",
the gain or loss recognized by a U.S. Holder will be capital gain or loss.
Moreover, in the case of a U.S. Holder that is not a corporation, the maximum
marginal United States federal income tax rate applicable to such capital gain
will be lower than the maximum marginal United States federal income tax rate
applicable to ordinary income if such U.S. Holder's holding period for such Note
exceeds one year.
NON-U.S. HOLDERS
INTEREST ON NOTES. Subject to the discussion under "United States Backup
Withholding Tax and Information Reporting" below, interest paid on a note to a
Non-U.S. Holder (other than, (a) a controlled foreign corporation related to the
Company by stock ownership, (b) a shareholder owning actually or constructively
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote or (c) a bank which acquired such Notes in
consideration of an extension of credit made pursuant to a loan agreement
entered into in the ordinary course of business) will not be subject to United
States federal income or withholding tax provided that (i) such interest is not
effectively connected with the conduct of a trade or business within the United
States by such Non-U.S. Holder and (ii) valid certifications of non-United
States status are received or an exemption is otherwise established.
If a Non-U.S. Holder is engaged in a trade or business in the United States
and interest on the Note is effectively connected with the conduct of such trade
or business, the Non-U.S. Holder will be subject to United States federal income
tax on such interest on a net income basis in the same manner as if it were a
U.S. Holder. In addition, if such holder is a foreign corporation, it may be
subject to a branch profits tax equal to 30% (or lower applicable treaty rate)
of its effectively connected earnings and profits, including interest on a note,
for the taxable year, subject to adjustments.
SALE, EXCHANGE OR RETIREMENT. A Non-U.S. Holder generally will not be
subject to United States federal income tax on gain recognized on a sale
(including a redemption for cash) of a Note unless (i) such gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder or (ii) in the case of an individual Non-U.S. Holder, such
holder is present in the United States for 183 or more days in the taxable year
of disposition and certain other requirements are met.
FEDERAL ESTATE TAXES. A Note that is held by an individual who at the time
of death is not a citizen or resident of the United States will not be subject
to United States federal estate tax as a result of such individual's death,
provided that such individual is not a shareholder owning actually or
constructively 10% (or more) of the total combined voting power of all classes
of stock of the Company entitled to vote and, at
123
<PAGE>
the time of such individual's death, payments of interest with respect to such
Notes would not have been effectively connected with the conduct by such
individual of a trade or business in the United States.
UNITED STATES BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Certain noncorporate holders of Notes may be subject to backup withholding
at a rate of 31% on payments made on a Note. Backup withholding will apply to
you only if you are a United States person (as defined in the Code) and you (i)
fail to furnish your Taxpayer Identification Number ("TIN") which, in the case
of an individual, would be your Social Security number, (ii) furnish an
incorrect TIN, (iii) are notified by the IRS that you have failed to properly
report payments of interest or dividends or (iv) under certain circumstances,
fail to certify, under penalty of perjury, that you furnished a correct TIN and
have not been notified by the IRS that it is subject to backup withholding. The
amounts withheld under the backup withholding rules are not an additional tax
and may be refunded, or credited against your United States federal income tax
liability provided that the required information is furnished to the IRS.
Further, information reporting will apply to such payments.
THE ABOVE DESCRIPTION IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL TAX CONSEQUENCES RELATING TO THE REGISTRATION OF THE NOTES AND TO THE
ACQUISITION, OWNERSHIP AND SALE OF NOTES. ACCORDINGLY, YOU ARE URGED TO CONSULT
YOUR OWN TAX ADVISORS TO DETERMINE THE UNITED STATES FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES RELATING TO THE REGISTRATION OF THE NOTES AND THE
ACQUISITION, OWNERSHIP AND SALE OF NOTES IN LIGHT OF YOUR PARTICULAR SITUATIONS.
124
<PAGE>
BOOK-ENTRY; DELIVERY AND FORM
GENERAL
Except as set forth below, the Notes will be represented by one permanent
global registered note in global form, without interest coupons. The global note
will be deposited with, or on behalf of, The Depository Trust Company and
registered in the name of Cede & Co., as nominee of The Depository Trust
Company, or will remain in the custody of the Trustee according to the FAST
Balance Certificate Agreement between The Depository Trust Company and the
Trustee.
We are providing the following descriptions of the operations and procedures
of The Depository Trust Company, Euroclear [and Cedel] solely as a matter of
convenience. These operations and procedures are solely within the control of
the respective settlement systems and are subject to change by them from time to
time. Neither we nor Credit Suisse First Boston Corporation take any
responsibility for these operations or procedures. If you wish to discuss these
matters, we urge you to contact the relevant system or its participants
directly.
The Depository Trust Company has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
The Depository Trust Company was created to hold securities for its
participants and facilitates the clearance and settlement of securities
transactions between participants through electronic book-entry changes to the
accounts of its participants. This system eliminates the need for physical
transfer and delivery of certificates. The Depository Trust Company's
participants include:
- securities brokers and dealers (including Credit Suisse First Boston
Corporation);
- banks and trust companies;
- clearing corporations; and
- certain other organizations.
Indirect access to The Depository Trust Company's system is also available
to other entities. These indirect participants include banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of The Depository Trust
Company only through participants or indirect participants.
We expect that under the procedures established by The Depository Trust
Company:
- upon deposit of the global note, The Depository Trust Company will credit
the accounts of participants designated by Credit Suisse First Boston
Corporation with an interest in the global note; and
- ownership of the Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by The
Depository Trust Company (with respect to the interests of participants)
and the records of participants and the indirect participants (with
respect to the interests of persons other than participants).
125
<PAGE>
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by the
global note to such persons may be limited. In addition, The Depository Trust
Company can act only on behalf of its participants, who in turn act on behalf of
persons who hold interests through participants. Consequently, the ability of a
person having an interest in Notes represented by the global note to pledge or
transfer such interest to persons or entities that do not participate in The
Depository Trust Company's system, or to otherwise take actions in respect of
such interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as The Depository Trust Company or its nominee is the registered
owner of the global note, The Depository Trust Company or such nominee, as the
case may be, will be considered the sole owner or holder of the Notes
represented by the global note for all purposes under the Indenture. Except as
provided below, owners of beneficial interests in the global note:
- will not be entitled to have Notes represented by the global note
registered in their names;
- will not receive or be entitled to receive physical delivery of
certificated Notes; and
- will not be considered the owners or holders thereof under the indenture
for any purpose, including with respect to the giving of any direction,
instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in the global note
must rely on the procedures of The Depository Trust Company. If such holder is
not a participant or an indirect participant, then it must rely on the
procedures of the participant through which such holder owns its interest to
exercise any rights of a Note holder under the indenture or the global note. We
understand that under existing industry practice, in the event that we request
any action of Note holders, or a holder that is an owner of a beneficial
interest in the global note desires to take any action that The Depository Trust
Company, as the holder of the global note, is entitled to take, The Depository
Trust Company would authorize the participants to take such action and the
participants would authorize holders owning through such participants to take
such action or would otherwise act upon the instruction of such holders. Neither
our Company nor the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of Notes by The
Depository Trust Company, or for maintaining, supervising or reviewing any
records of The Depository Trust Company relating to such Notes.
Payments with respect to the principal of, and premium, if any, and interest
on, any Notes represented by the global note registered in the name of The
Depository Trust Company or its nominee on the applicable record date will be
payable by the Trustee to or at the direction of The Depository Trust Company or
its nominee in its capacity as the registered holder of the global note
representing such Notes under the indenture. Under the terms of the indenture,
we and the Trustee may treat the persons in whose names the Notes, including the
global note, are registered as the owners of the Notes for the purpose of
receiving payment on the Notes and for any and all other purposes whatsoever.
Accordingly, neither our Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to owners of
beneficial interests in a global note (including principal, premium, if any, and
interest). Payments by the participants and the indirect participants to the
owners of beneficial interests in a global note will be governed by standing
instructions and customary industry practice and will be the responsibility of
the participants or the indirect participants and The Depository Trust Company.
Transfers between participants in The Depository Trust Company will be
effected in accordance with The Depository Trust Company's procedures, and will
be settled in same-day funds. Transfers between participants in Euroclear or
Cedel will be effected in the ordinary way in accordance with their respective
rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the participants in The Depository Trust
Company and Euroclear or Cedel participants will be effected through The
Depository Trust Company in accordance with its rules on behalf of Euroclear or
126
<PAGE>
Cedel by its respective depositary. However, such cross-market transactions will
require delivery of instructions to Euroclear or Cedel by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Cedel will,
if the transaction meets its settlement requirements, deliver instructions to
its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant global notes in The
Depository Trust Company, and making or receiving payment in accordance with
normal procedures for same-day funds settlement applicable to The Depository
Trust Company. Euroclear participants and Cedel participants may not deliver
instructions directly to the depositaries for Euroclear or Cedel.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in the global note from a participant
in The Depository Trust Company will be credited, and any such crediting will be
reported to the relevant Euroclear or Cedel participant, during the securities
settlement processing day (which must be a business day for Euroclear and Cedel)
immediately following the settlement date of The Depository Trust Company. Cash
received in Euroclear or Cedel as a result of sales of interest in the global
note by or through a Euroclear or Cedel participant to a participant in The
Depository Trust Company will be received with value on the settlement date of
The Depository Trust Company but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel following
The Depository Trust Company's settlement date.
Although The Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the global note
among participants in The Depository Trust Company, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. Neither our company nor the
Trustee will have any responsibility for the performance by The Depository Trust
Company, Euroclear or Cedel or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NOTES
Certificated Notes will be issued to each person that The Depository Trust
Company identifies as the beneficial owner of the Notes represented by the
global Note if the following events occur:
- The Depository Trust Company notifies us that it is no longer willing or
able to act as a depositary or The Depository Trust Company ceases to be
registered as a clearing agency under the Securities Exchange Act of 1934
and a successor depositary is not appointed within 90 days of such notice
or cessation;
- we, at our option, notify the Trustee in writing that we elect to cause
the issuance of certificated Notes under the indenture; or
- upon the occurrence of an event of default as provided in the indenture
occurs and is continuing in the indenture, then, upon surrender by The
Depository Trust Company of the global note.
Upon any such issuance, the Trustee shall register such certificated Notes
in the name of such person or persons (or any nominee) and deliver the
certificated Notes as instructed.
Neither we nor the Trustee shall be liable for any delay by The Depository
Trust Company or any participant or indirect participant in identifying the
beneficial owners of the related Notes. Each person may conclusively rely on,
and shall be protected in relying on, instructions from The Depository Trust
Company for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
127
<PAGE>
SELLING NOTEHOLDERS
The following table sets forth certain information with respect to the Notes
held by each Selling Noteholder at the date hereof. The Notes offered by this
Prospectus may be offered from time to time by the Selling Noteholders.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PERCENTAGE OF
NAME OF SELLING NOTEHOLDER NOTES CLASS
- -------------------------------------------------------------------- ------------------------ ------------------
<S> <C> <C>
DLJ Investment Partners, L.P........................................ $ 32,323,000 32.323%
DLJ ESC II, L.P..................................................... $ 3,071,000 3.071%
DLJ Investment Funding, Inc......................................... $ 4,606,000 4.606%
Credit Suisse First Boston (Europe) Limited......................... $ 40,000,000 40.000%
Chase Equity Associates L.P......................................... $ 20,000,000 20.000%
------------- ----------
Total............................................................... $ 100,000,000 100.000%
------------- ----------
------------- ----------
</TABLE>
Because each Selling Noteholder may offer some or all of its Notes pursuant
to the offerings contemplated by this Prospectus, because the offerings of the
Notes are not necessarily being made on a firm commitment basis and because one
or more Selling Noteholder could purchase additional Notes from time to time, no
estimate can be given as to the amount of Notes that will be held by the Selling
Noteholders after completion of this offering. See "Plan of Distribution".
128
<PAGE>
PLAN OF DISTRIBUTION
We are registering the Notes on behalf of the Selling Noteholders. All
costs, expenses and fees in connection with the registration of the Notes
offered hereby will be borne by us. Any or all of the Notes may be sold from
time to time to purchasers directly by the Selling Noteholders. Alternatively,
the Noteholders may, from time to time, offer the Notes through underwriters,
dealers or agents, which may include Credit Suisse First Boston or Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJSC"), who may receive compensation
in the form of discounts, concessions or commissions from the Selling
Noteholders and/or the purchasers of Notes for whom they may act. The Selling
Noteholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their Notes, nor is there an underwriter or coordinating broker
acting in connection with the proposed sale of the Notes by the Noteholders. All
of the Selling Noteholders are affiliates of broker-dealers. We will not receive
any proceeds from the sale of any of the Notes by any Selling Noteholder.
The Notes were originally issued to the Selling Noteholders in a private
transaction on October 16, 1998. We are registering the Notes to allow the
resale of the Notes, if any, by the Selling Noteholders. We retained Credit
Suisse First Boston to act as our advisor in connection with the private
placement of the Notes, for which Credit Suisse First Boston received $2 million
as compensation. In addition, DLJSC received a $2 million placement fee in
connection with the private placement of the Notes.
There is currently no trading market for the Notes. Furthermore, there can
be no assurance that any trading market will develop, or that, if such market
does develop, it will be sustained.
The Selling Noteholders and any such underwriters, dealers or agents that
participate in the distribution of the Notes might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by such broker-dealers and any profit on the resale of
the Notes sold by them while acting as principals might be deemed to be
underwriting discounts or commissions under the Securities Act.
Pursuant to a Registration Rights Agreement dated October 16, 1998 among us
and the Selling Noteholders on such date, we agreed to file the Registration
Statement, of which this Prospectus forms a part, with the SEC, and agreed to
use our best efforts to keep the Registration Statement continuously effective
for 180 days from its effective date or until such earlier time as all of the
Notes which may be offered hereby have been publicly sold. Pursuant to the
Registration Rights Agreement, we agreed to indemnify the Selling Noteholders,
any underwriters of an offering made hereby and certain other persons against
certain liabilities, including liabilities under the Securities Act.
Because Selling Noteholders may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, the Selling Noteholders will be
subject to the prospectus delivery requirements of the Securities Act. We have
informed the Selling Noteholders that the anti-manipulative provisions of
Regulation M promulgated under the Exchange Act may apply to their sales in the
market.
Selling Noteholders also may resell all or a portion of the Notes in open
market transactions in reliance upon Rule 144 under the Securities Act, provided
they meet the criteria and conform to the requirements of such Rule.
When we are notified by a Selling Noteholder that a particular offer of
Notes is made, to the extent required, we will file a supplement to this
prospectus, pursuant to Rule 424(b) under the Act, disclosing (i) the name of
each such selling Selling Noteholder and of the participating broker-dealer(s),
(ii) the aggregate principal amount of Notes involved, (iii) the price at which
such Notes were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and (vi) other facts
material to the transaction.
129
<PAGE>
LEGAL MATTERS
The validity of the issuance of securities offered hereby and certain tax
matters will be passed upon for the Company and the subsidiary guarantors by
White & Case LLP, New York, New York.
EXPERTS
The consolidated financial statements of ESP as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of Envirotest as of September 30, 1998
and 1997 and for each of the three years in the period ended September 30, 1998
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
130
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and September 30, 1998 (unaudited)............ F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1996 and 1997 for the nine months
ended September 30, 1997 and 1998 (unaudited) and for the period from January 23, 1998 through September
30, 1998 (unaudited)..................................................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997 and for the nine
months ended September 30, 1997 and 1998 (unaudited)..................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1995, 1996 and
1997 and for the nine months ended September 30, 1998 (unaudited)........................................ F-6
Notes to Consolidated Financial Statements................................................................. F-7
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
Report of Independent Accountants.......................................................................... F-19
Consolidated Balance Sheets as of September 30, 1998 and 1997.............................................. F-20
Consolidated Statements of Operations for the years ended September 30, 1998, 1997 and 1996................ F-21
Consolidated Statements of Cash Flows for the years ended September 30, 1998, 1997 and 1996................ F-22
Consolidated Statements of changes in Stockholders' Deficit for the years ended September 30, 1998, 1997
and 1996................................................................................................. F-23
Notes to Consolidated Financial Statements................................................................. F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Environmental Systems Products, Inc. and its subsidiaries (the "Company") at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
July 13, 1998
F-2
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997 AND SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
SEPTEMBER
30,
-----------
1998
-----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................................... $3,592,497 $3,044,994 $ 7,506,035
Accounts receivable, net of an allowance for doubtful accounts of
$1,153,083, $1,551,086 and $1,329,057 respectively.................... 3,635,959 38,067,874 21,495,279
Intergroup receivable................................................... 2,087,410 -- 524,708
Notes receivable........................................................ 391,318 322,036 322,036
Inventories............................................................. 7,488,127 26,846,480 24,068,774
Prepaid expenses and other.............................................. 319,454 1,261,403 1,197,979
Deferred taxes.......................................................... 1,523,607 1,167,276 1,892,619
---------- ---------- -----------
Total current assets................................................ 19,038,372 70,710,063 57,007,430
Property and equipment, net of accumulated depreciation................... 847,582 833,807 753,475
Intergroup receivable..................................................... -- -- 115,976,000
Deferred taxes............................................................ 49,193 975,609 924,598
Intangible assets, net of accumulated amortization of $1,312,266.......... -- -- 47,518,986
Other assets.............................................................. -- 39,415 2,592,725
Deferred charges, net of accumulated amortization of $219,871............. -- -- 3,259,402
---------- ---------- -----------
Total assets........................................................ $19,935,147 $72,558,894 $228,032,616
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable........................................................... $ 780,849 $9,975,649 $ --
Revolving loan.......................................................... -- -- 17,532,610
Current portion of long-term debt....................................... 399,984 -- 14,775,000
Accounts payable........................................................ 3,396,674 17,340,236 11,389,405
Intergroup payable...................................................... -- 1,670,076 --
Deferred revenue........................................................ 4,301,610 10,044,030 12,254,506
Liability for estimated product warranties.............................. 382,835 2,508,067 2,677,899
Income taxes payable.................................................... 1,050,552 4,889,929 41,327
Accrued expenses........................................................ 1,789,395 8,019,124 2,025,931
---------- ---------- -----------
Total current liabilities........................................... 12,101,899 54,447,111 60,696,678
Long-term debt............................................................ -- -- 95,225,000
Liability for estimated product warranties................................ 71,396 841,956 1,377,759
---------- ---------- -----------
Total liabilities................................................... 12,173,295 55,289,067 157,299,437
---------- ---------- -----------
Commitments and contingencies
Mandatorily redeemable preferred stock, Class B, $100 par value, 5,000
shares authorized, 3,332 issued and outstanding at December 31, 1997 and
0 issued and outstanding at September 30, 1998.......................... -- 333,200 --
STOCKHOLDERS' EQUITY:
Common Stock, Class A, $1 par value, 19,000 shares authorized, 450
shares issued and outstanding......................................... 450 450 450
15% Convertible Preferred Stock, $1 par value, 550 shares authorized,
issued and outstanding................................................ 550 550 550
Preferred Stock, Class B, $100 par value, 5,000 shares authorized,
issued and outstanding at December 31, 1996........................... 500,000 -- --
Additional paid-in capital.............................................. 2,221,222 2,221,222 68,476,738
Retained earnings....................................................... 5,159,891 14,858,594 2,201,406
Cumulative translation adjustment (other accumulated comprehensive
income)............................................................... (120,261) (144,189) 54,035
---------- ---------- -----------
Total stockholders' equity.......................................... 7,761,852 16,936,627 70,733,179
---------- ---------- -----------
Total liabilities, mandatorily redeemable preferred stock and
stockholders' equity.............................................. $19,935,147 $72,558,894 $228,032,616
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997,
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
AND FOR THE PERIOD FROM JANUARY 23, 1998 THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 23,
NINE MONTHS ENDED 1998
SEPTEMBER 30, THROUGH
----------------------- SEPTEMBER 30,
1995 1996 1997 1997 1998 1998
---------- ---------- ----------- ---------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues........ $20,813,007 $32,212,227 $102,526,360 $46,777,283 $110,713,834 $ 94,636,834
Cost of revenues.... 12,939,804 19,354,579 66,098,761 29,373,711 76,493,470 65,531,470
Cost of revenues--
inventory
step-up........... -- -- -- -- 2,390,000 2,390,000
---------- ---------- ----------- ---------- ----------- --------------
Gross
profit...... 7,873,203 12,857,648 36,427,599 17,403,572 31,830,364 26,715,364
---------- ---------- ----------- ---------- ----------- --------------
Selling expenses.... 1,187,776 1,751,335 7,993,351 3,616,273 6,931,267 5,530,267
Engineering
expenses.......... 1,418,230 1,667,004 2,254,425 1,569,280 1,964,141 1,815,141
Administrative
expenses.......... 3,808,264 5,711,186 7,616,648 4,637,167 7,471,717 6,140,717
---------- ---------- ----------- ---------- ----------- --------------
6,414,270 9,129,525 17,864,424 9,822,720 16,367,125 13,486,125
---------- ---------- ----------- ---------- ----------- --------------
Income from
operations... 1,458,933 3,728,123 18,563,175 7,580,852 15,463,239 13,229,239
---------- ---------- ----------- ---------- ----------- --------------
Other income
(expense):
Interest income... 95,097 116,984 102,566 51,782 149,187 137,187
Interest
expense......... (166,071) (122,434) (440,964) (144,784) (5,247,259) (5,173,259)
Other............. 94,268 (168,393) (79,035) 29,054 (591,211) (509,211)
---------- ---------- ----------- ---------- ----------- --------------
23,294 (173,843) (417,433) (63,948) (5,689,283) (5,545,283)
---------- ---------- ----------- ---------- ----------- --------------
Income before
provision
for income
taxes....... 1,482,227 3,554,280 18,145,742 7,516,904 9,773,956 7,683,956
Provision for income
taxes............. 871,341 1,903,883 7,580,379 2,961,045 5,540,550 4,657,550
---------- ---------- ----------- ---------- ----------- --------------
Net income.... $ 610,886 $1,650,397 $10,565,363 $4,555,859 $ 4,233,406 $ 3,026,406
---------- ---------- ----------- ---------- ----------- --------------
---------- ---------- ----------- ---------- ----------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
----------- ------------ ------------- ------------- --------------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 610,886 $ 1,650,397 $ 10,565,363 $ 4,555,859 $ 4,233,406
----------- ------------ ------------- ------------- --------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation...................................... 431,803 368,042 416,929 340,469 246,768
Amortization...................................... 243,011 461,533 -- -- 1,532,137
Purchased assets step-up.......................... -- -- -- -- 1,516,901
Provision for losses on receivables............... 201,396 626,877 398,003 (131,578) (222,029)
Deferred taxes.................................... 151,204 (804,055) (570,085) (5,788) (674,332)
Translation adjustment............................ (39,630) 37,359 332 (7,004) 48,294
Change in assets and liabilities:
Accounts receivable............................. (245,210) (1,092,400) (34,829,918) (19,734,445) 16,794,624
Intergroup receivable/payable................... -- (1,504,629) 3,757,486 1,591,275 (2,194,784)
Notes receivable................................ -- (1,546) 69,282 69,282 --
Inventories..................................... (1,684,045) (79,573) (19,204,599) (13,529,970) 2,777,706
Prepaid expenses and other...................... (137,545) 316,029 (941,949) (987,081) 63,424
Other assets.................................... 1,942 -- (39,415) (33,515) (2,553,310)
Accounts payable................................ 1,175,177 559,703 13,943,562 13,476,309 (5,950,831)
Deferred revenue................................ 215,782 1,318,666 5,742,420 (11,870) 2,210,476
Liability for estimated product warranties...... (401,383) 224,715 2,895,792 2,309,103 705,635
Income taxes payable............................ 194,680 534,400 3,839,377 1,404,487 (4,848,602)
Accrued expenses................................ (243,460) 1,035,221 6,188,069 2,372,000 (5,993,193)
----------- ------------ ------------- ------------- --------------
Total adjustments............................... (136,278) 2,000,342 (18,334,714) (12,878,326) 3,458,884
----------- ------------ ------------- ------------- --------------
Net cash provided by (used in) operating
activities.................................... 474,608 3,650,739 (7,769,351) (8,322,467) 7,692,290
----------- ------------ ------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (164,212) (58,407) (556,908) (517,203) (166,436)
----------- ------------ ------------- ------------- --------------
Net cash used in investing activities........... (164,212) (58,407) (556,908) (517,203) (166,436)
----------- ------------ ------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver.............................. -- -- -- -- 20,000,000
Repayments on revolver.............................. -- -- -- -- (2,467,390)
Proceeds from (repayments of) notes payable......... (250,000) -- 9,194,800 7,594,800 (9,975,649)
Principal proceeds from (payments on) long-term
debt.............................................. (366,674) (433,342) (399,984) (300,006) 110,000,000
Loan to parent...................................... (115,976,000)
Dividends paid...................................... -- -- (825,000) (825,000) (825,000)
Redemption of mandatorily redeemable Class B
preferred stock................................... -- -- (166,800) (166,800) (333,200)
Debt issuance costs................................. (20,466) -- -- -- (3,479,273)
----------- ------------ ------------- ------------- --------------
Net cash provided by (used in) financing
activities.................................... (637,140) (433,342) 7,803,016 6,302,994 (3,056,512)
----------- ------------ ------------- ------------- --------------
Net increase in cash and cash equivalents............. (326,744) 3,158,990 (523,243) (2,536,676) 4,469,342
Cash and cash equivalents at beginning of period...... 796,948 444,960 3,592,497 3,592,497 3,044,994
Effect of exchange rate changes on cash............... (25,244) (11,453) (24,260) (17,544) (8,301)
----------- ------------ ------------- ------------- --------------
Cash and cash equivalents at end of period........ $ 444,960 $ 3,592,497 $ 3,044,994 $ 1,038,277 $ 7,506,035
----------- ------------ ------------- ------------- --------------
----------- ------------ ------------- ------------- --------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Intergroup transfer of subsidiary................... $ -- $ 510,690 $ -- $ -- $ --
Intergroup transfer of property and equipment....... -- 72,091 -- -- --
Accrual of dividends on Class B preferred stock..... 25,000 -- 41,660 25,000 --
Property and equipment transfers from (to)
inventories....................................... 718,246 -- (153,754) (153,754) --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A 15% CONVERTIBLE CLASS B ADDITIONAL
COMMON PREFERRED PREFERRED PAID-IN RETAINED
STOCK STOCK STOCK CAPITAL EARNINGS
----------- ----------------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995................... $ 450 $ 550 $ 500,000 $ 2,221,222 $ 2,412,918
Net income................................... -- -- -- -- 610,886
Class B preferred stock dividends declared
($5 per share)............................. -- -- -- -- (25,000)
Translation adjustment....................... -- -- -- -- --
----- ----- ---------- ------------ -------------
Balance at December 31, 1995................. 450 550 500,000 2,221,222 2,998,804
Net income................................... -- -- -- -- 1,650,397
Transfer of Autosense Systems Ltd. to Wellman
plc........................................ -- -- -- -- 510,690
Translation adjustment....................... -- -- -- -- --
----- ----- ---------- ------------ -------------
Balance at December 31, 1996................. 450 550 500,000 2,221,222 5,159,891
Net income................................... -- -- -- -- 10,565,363
Dividends.................................... -- -- -- -- (866,660)
Conversion of Class B Preferred Stock to
mandatorily redeemable preferred stock..... -- -- (500,000) -- --
Translation adjustment....................... -- -- -- -- --
----- ----- ---------- ------------ -------------
Balance at December 31, 1997................. 450 550 -- 2,221,222 14,858,594
Net income (unaudited)....................... -- -- -- -- 1,207,000
Translation adjustment (unaudited)........... -- -- -- -- --
Purchase of ESP by Alchemy (unaudited)....... -- -- -- 66,255,516 (16,065,594)
----- ----- ---------- ------------ -------------
Balance at January 23, 1998 (unaudited)...... 450 550 -- 68,476,738 --
----- ----- ---------- ------------ -------------
Net income (unaudited)....................... -- -- -- -- 3,026,406
Dividends (unaudited)........................ -- -- -- -- (825,000)
Translation adjustment (unaudited)........... -- -- -- -- --
----- ----- ---------- ------------ -------------
Balance at September 30, 1998
(unaudited)................................ $ 450 $ 550 $ -- $ 68,476,738 $ 2,201,406
----- ----- ---------- ------------ -------------
----- ----- ---------- ------------ -------------
<CAPTION>
CUMULATIVE
TRANSLATION
ADJUSTMENT TOTAL
(OTHER ACCUMULATED STOCKHOLDERS'
COMPREHENSIVE INCOME) EQUITY
--------------------- ------------
<S> <C> <C>
Balance at January 1, 1995................... $ (81,293) $5,053,847
Net income................................... -- 610,886
Class B preferred stock dividends declared
($5 per share)............................. -- (25,000)
Translation adjustment....................... (64,874) (64,874)
---------- ------------
Balance at December 31, 1995................. (146,167) 5,574,859
Net income................................... -- 1,650,397
Transfer of Autosense Systems Ltd. to Wellman
plc........................................ -- 510,690
Translation adjustment....................... 25,906 25,906
---------- ------------
Balance at December 31, 1996................. (120,261) 7,761,852
Net income................................... -- 10,565,363
Dividends.................................... -- (866,660)
Conversion of Class B Preferred Stock to
mandatorily redeemable preferred stock..... -- (500,000)
Translation adjustment....................... (23,928) (23,928)
---------- ------------
Balance at December 31, 1997................. (144,189) 16,936,627
Net income (unaudited)....................... -- 1,207,000
Translation adjustment (unaudited)........... (14,042) (14,042)
Purchase of ESP by Alchemy (unaudited)....... 158,231 50,348,153
---------- ------------
Balance at January 23, 1998 (unaudited)...... -- 68,477,738
---------- ------------
Net income (unaudited)....................... -- 3,026,406
Dividends (unaudited)........................ -- (825,000)
Translation adjustment (unaudited)........... 54,035 54,035
---------- ------------
Balance at September 30, 1998
(unaudited)................................ $ 54,035 $70,733,179
---------- ------------
---------- ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Environmental Systems Products, Inc. (the "Company") designs, sells,
services and leases engine diagnostic and automotive emissions test equipment.
For the years ended December 31, 1997, 1996 and 1995, approximately 91%, 83% and
92%, respectively, and for the nine month periods ended September 30, 1998 and
1997, approximately 98% (unaudited) and 82% (unaudited), respectively, of
consolidated sales were in the United States, with the balance being
international, primarily in Mexico and Germany.
ORGANIZATION
The Company was incorporated on November 13, 1989 and effective December 29,
1989, acquired substantially all of the assets and assumed certain liabilities
of Automotive Systems, a business unit of Hamilton Test Systems, Inc., a
wholly-owned subsidiary of United Technologies Corporation. The acquisition was
accounted for as a purchase transaction.
On April 19, 1996, for approximately $16.3 million, all the outstanding
shares of Class A common stock and the 15% convertible preferred stock of the
Company were acquired by Wellman North America, Inc., a wholly-owned subsidiary
of Wellman Overseas Limited, a wholly-owned subsidiary of Wellman plc
(collectively, "Wellman").
In January 1998 Wellman was acquired by unrelated investors, the Alchemy
Plan ("Alchemy"). All of the outstanding common stock of Wellman was acquired
for $127 million. As a result of the purchase, a new basis of accounting was
established. Of the total purchase price of $127 million, $64 million
(unaudited) plus transaction related costs for a total of $69 million
(unaudited) was attributable to the Company. Preliminarily, the purchase price
has been allocated to net tangible assets in the amount of $20 million
(unaudited) and intangible assets in the amount of $49 million (unaudited), with
a resulting adjustment to additional paid-in capital of $50 million (unaudited).
The unaudited balance sheet as of September 30, 1998 includes the aforementioned
adjustments.
SUBSIDIARIES
On March 23, 1992, Environmental Systems Products International was formed
as the Company's foreign sales corporation. On August 4, 1992, E.S.P. de Mexico,
S.A. de C.V. was incorporated to provide service for emissions units sold in
Mexico. On November 16, 1993, ESP-GmbH was incorporated to provide service for
emissions units sold in Germany. On June 23, 1995, Autosense Systems, Ltd. was
formed to provide service for emissions units sold in the United Kingdom. On
April 19, 1996, operating control of this subsidiary was transferred from the
Company to Wellman plc, at book value, which resulted in an increase in the
Company's retained earnings of approximately $511,000.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
F-7
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FOREIGN CURRENCY MEASUREMENT
The Company translates the assets and liabilities of its foreign
subsidiaries at rates of exchange in effect at the end of the year. Revenues and
expenses are translated at average rates in effect during the year.
In accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation", the Company has included the losses resulting
from the intercompany foreign currency transactions in net income. However, the
losses from the translation of the foreign currency financial statements have
been reported as a separate component of stockholders' equity.
REVENUE RECOGNITION
Revenues are derived primarily from companies in the automotive aftermarket.
Amounts billed for service contracts are deferred and recognized as revenue over
the term of the service contract on a straight-line basis. Cash received from
customers in advance of shipment is included in deferred revenue.
CASH AND CASH EQUIVALENTS
Cash equivalents include short-term investments maturing within three
months. As of December 31, 1997 and 1996 and September 30, 1998, cash
equivalents were comprised primarily of repurchase agreements, collateralized by
government securities.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost at the time of acquisition.
Depreciation is computed using the straight-line method over the estimated
useful lives of the respective assets as follows:
<TABLE>
<CAPTION>
ASSET CATEGORY LIFE IN YEARS
- -------------------------------------------------------------------------------- ---------------
<S> <C>
Machinery....................................................................... 3-10
Computer equipment.............................................................. 3
Demonstration and service equipment............................................. 3-5
Office equipment................................................................ 5
Leasehold improvements.......................................................... 2-5
Transportation equipment........................................................ 5
</TABLE>
At January 23, 1998 the property and equipment acquired by Alchemy was
restated to fair value. The property and equipment acquired are now being
depreciated over their remaining estimated useful lives which are estimated to
be 2-3 years.
Maintenance and repairs are charged to expense as incurred. For assets sold
or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recorded in income
for the year. The cost of major improvements is capitalized.
F-8
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE ASSETS
The purchase price paid by Alchemy for the Company in excess of the market
value of net assets acquired has been pushed down to the Company and is included
in the September 30, 1998 consolidated balance sheet as intangible assets.
Intangible assets are being amortized over their estimated useful lives, which
management estimates to be twenty-five years, using the straight-line method. It
is the Company's policy to re-evaluate the estimated useful lives of intangible
assets on an annual basis and may adjust the estimated useful lives accordingly.
It is possible, given the political, legislative and competitive environment in
which the Company operates, that the estimate could change and may result in
accelerated amortization charges.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, trade accounts
receivable, notes receivable, trade accounts payable, notes payable and accrued
liabilities are a reasonable estimate of their fair value due to their
short-term nature. The estimated values of the Company's long-term debt are
based on interest rates at December 31, for issues with similar remaining
maturities.
The estimated fair value amounts of the Company's financial instruments have
been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, therefore the estimates provided here are not
necessarily indicative of the amounts that could be realized in a current market
exchange.
LIABILITY FOR ESTIMATED PRODUCT WARRANTIES
The Company provides warranties for its equipment which range from one to
five years. Costs associated with these programs are provided at the time of
sale of the warranted product and are included in cost of sales. For the years
ended December 31, 1997, 1996 and 1995, approximately $2,406,000, $535,000 and
$291,000, respectively; and for the nine month periods ended September 30, 1998
and 1997, approximately $2,896,000 (unaudited) and $913,000 (unaudited)
respectively, was charged to warranty expense.
INCOME TAXES
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Statements No. 109, "Accounting for
Income Taxes". Under this method, deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences
between the financial statement carrying amounts and the tax basis of the assets
and liabilities using presently enacted tax rates. The Company files its Federal
income tax return as a member of a consolidated group through its parent. The
tax liability of the group is allocated among its members according to their
respective tax liabilities, computed as though separate returns had been filed,
increased for the additional tax savings resulting from the absorption by one
member of another member's tax attributes.
F-9
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Estimates are primarily used in determining valuation allowances for
accounts receivable, inventories, warranty and deferred tax assets. Accrued
expenses for the self funded health insurance benefits include estimates for
claims reported as well as claims incurred but not reported.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130 applies to all
companies and is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for the reporting and display of comprehensive
income in a set of financial statements. Comprehensive income is defined as the
change in net assets of a business enterprise during a period from transactions
generated from non-owner sources. It includes all changes in equity during a
period except those resulting from investment by owners and distributions to
owners. The Company has adopted SFAS 130 beginning January 1, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 131 applies to all public companies and is effective for fiscal years
beginning after December 15, 1997. SFAS 131 requires that business segment
financial information be reported in the financial statements utilizing the
management approach. The management approach is defined as the manner in which
management organizes the segments within the enterprise for making operating
decisions and assessing performance. The Company has adopted SFAS 131 beginning
January 1, 1998. The Company's operations are currently managed all within one
segment.
INTERIM FINANCIAL STATEMENTS
The consolidated financial statements of the Company as of September 30,
1998 and for the nine months ended September 30, 1998 and 1997 are unaudited.
All adjustments, consisting only of normal recurring adjustments, have been made
which, in the opinion of management, are necessary for a fair presentation of
the interim financial information. Results of operations for the nine months
ended September 30, 1998 are not necessarily indicative of the results that may
be expected for any future period. The unaudited consolidated financial
statements for the nine months ended September 30, 1998 include the results of
operations from January 1, 1998 through January 23, 1998, predecessor ownership,
and from January 24, 1998 through September 30, 1998, new ownership, for
comparative purposes with the same period in 1997. The unaudited balance sheet
at September 30, 1998 reflects the new basis of accounting from January 24, 1998
through September 30, 1998.
F-10
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Component parts.................................. $ 4,649,891 $ 12,586,351 $ 14,439,328
Finished goods................................... 2,838,236 14,260,129 9,629,446
------------ ------------- -------------
$ 7,488,127 $ 26,846,480 $ 24,068,774
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Machinery.......................................... $ 1,827,896 $ 1,857,355 $ 455,135
Computer equipment................................. 509,908 563,284 159,660
Demonstration and service equipment................ 562,595 562,595 150,827
Office equipment................................... 240,808 347,000 111,901
Leasehold improvements............................. 111,033 171,820 51,667
Transportation equipment........................... 88,578 105,138 27,903
------------ ------------ -------------
3,340,818 3,607,192 957,093
Less: accumulated depreciation and amortization.... (2,493,236) (2,773,385) (226,204)
------------ ------------ -------------
847,582 833,807 730,889
Construction in progress........................... -- -- 22,586
------------ ------------ -------------
$ 847,582 $ 833,807 $ 753,475
------------ ------------ -------------
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
(UNAUDITED)
Accrued commissions................................ $ 301,291 $ 3,648,248 $ 845,181
Accrued compensation............................... 1,051,500 2,934,071 1,032,586
Other.............................................. 436,604 1,436,805 148,164
------------ ------------ -------------
$ 1,789,395 $ 8,019,124 $ 2,025,931
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
F-11
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LOAN AND SECURITY AGREEMENT:
The Company has a loan and security agreement including a $10,000,000
revolving credit agreement with Bank One Corporation, formerly known as Banc One
Corporation (the "Bank"). Interest is assessed on borrowings at an annual rate
equal to the Bank's prime rate (8.25% and 8.5% as of December 31, 1997 and 1996,
respectively), plus 0.6 percent. As of December 31, 1997 and 1996, the Company
had borrowings of $9,975,649 and $780,849, respectively, outstanding under this
agreement. The revolving credit agreement provides for borrowings based on 80%
of eligible accounts receivable, plus the lesser of 40% of eligible inventory,
$4,000,000, or 50% of the Revolving Credit Loan.
In October 1997, the Company and the Bank modified the revolving credit
agreement. Maximum borrowings under the revolving credit agreement increased to
$10,000,000 and the agreement was extended to August 31, 1998. The Company has
the option to fix the annual interest rate of certain borrowings for up to 90
days at the LIBOR rate plus 2.55%, if certain conditions are met. The non-LIBOR
borrowings have interest assessed at an annual rate equal to the Bank's prime
rate plus or minus the prime rate margin. The prime rate margin varies from 0.3%
to (0.3%), depending on the Company's leverage ratio. The prime rate margin was
9.4% as of December 31, 1997.
The Company also had a term loan under the loan and security agreement, due
in monthly principal installments of $33,334, plus interest for three years, and
a final principal payment made in 1997. Interest was assessed at an annual rate
equal to the Bank's prime rate plus 0.9 percent. The term loan was
collateralized by all of the Company's assets except those supporting the
revolving credit agreement.
The loan and security agreement requires the Company to maintain a current
ratio of at least 1.2 to 1, keep their leverage ratio below 3.75 to 1, and to
have tangible net worth of not less than $7,000,000.
Cash paid for interest for the years ended December 31, 1997, 1996 and 1995
was $440,964, $122,434 and $188,909, respectively and for the nine month periods
ended September 30, 1998 and 1997, $4,362,678 (unaudited) and $144,784
(unaudited), respectively.
The outstanding balance of the revolving credit agreement was fully repaid
in March 1998. See Note 15 for a discussion of the subsequent refinancing of the
loan and security agreement.
6. LEASES:
The Company has several operating leases, primarily for office and warehouse
space and office equipment.
The following is a schedule of future minimum lease payments for operating
leases (with initial or remaining terms in excess of one year) as of December
31, 1997:
<TABLE>
<S> <C>
1998............................................................ $ 706,164
1999............................................................ 550,338
2000............................................................ 398,996
2001............................................................ 343,448
2002............................................................ 270,529
---------
$2,269,475
---------
---------
</TABLE>
Rent expense for all operating leases was approximately $1,102,000, $582,000
and $619,000 for the years ended December 31, 1997, 1996 and 1995, respectively;
and for the nine month periods ended September 30, 1998 and 1997 was $1,395,000
(unaudited) and $659,000 (unaudited), respectively.
F-12
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES:
The components of the net deferred tax asset recognized in the accompanying
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- --------------------
1996 1997 1998
---------------------- ---------------------- --------------------
(UNAUDITED)
CURRENT NONCURRENT CURRENT NONCURRENT CURRENT NONCURRENT
--------- ----------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets...... $1,541,909 $ 49,193 $2,056,156 $ 975,609 $2,314,024 $1,616,434
Deferred tax
liabilities............ (18,302) -- (888,880) -- (421,405) (691,836)
--------- ----------- --------- ----------- --------- ---------
$1,523,607 $ 49,193 $1,167,276 $ 975,609 $1,892,619 $ 924,598
--------- ----------- --------- ----------- --------- ---------
--------- ----------- --------- ----------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- --------------------
1996 1997 1998
---------------------- -------------------- --------------------
(UNAUDITED)
DEFERRED DEFERRED DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES
--------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable........ $ 455,740 $ -- $ 381,085 $ 816,724 $ 562,548 $ 773,769
Inventories reserve........ 594,152 -- 554,846 -- 723,565 --
Prepaid insurance.......... -- 18,302 -- 72,156 -- 39,000
Liability for estimated
product warranties....... 182,045 -- 1,331,016 -- 1,831,107 --
Accrued expenses........... 268,017 -- 735,146 -- 668,301 --
Other...................... 91,148 -- 29,672 -- 144,937 300,472
--------- ----------- --------- --------- --------- ---------
$1,591,102 $ 18,302 $3,031,765 $ 888,880 $3,930,458 $1,113,241
--------- ----------- --------- --------- --------- ---------
--------- ----------- --------- --------- --------- ---------
</TABLE>
The provision for income taxes comprised the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Currently payable:
Federal.................................... $ 645,137 $ 2,186,127 $ 6,255,852 $ 2,545,849 $ 5,453,253
Foreign.................................... -- 77,053 70,440 51,830 --
State...................................... 75,000 444,758 1,824,172 790,930 1,372,306
---------- ------------ ------------ ------------ ------------
720,137 2,707,938 8,150,464 3,388,609 5,759,481
---------- ------------ ------------ ------------ ------------
Deferred:
Federal.................................... 131,234 (741,544) (465,054) (348,791) (169,098)
State...................................... 19,970 (62,511) (105,031) (78,773) (49,833)
---------- ------------ ------------ ------------ ------------
151,204 (804,055) (570,085) (427,564) (218,931)
---------- ------------ ------------ ------------ ------------
$ 871,341 $ 1,903,883 $ 7,580,379 $ 2,961,045 $ 5,540,550
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
F-13
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES: (CONTINUED)
The Company's effective tax rate differs from the statutory federal tax rate
for the following reasons:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Provision for income taxes at statutory
federal income tax rate.................... $ 503,957 $ 1,208,455 $ 6,351,010 $ 2,630,916 $ 3,420,885
Increase (decrease) resulting from:
State income taxes, net of federal
benefit.................................. 62,680 252,283 1,108,074 459,022 748,209
Foreign income taxes....................... 202,502 233,965 295,954 75,616 294,120
Goodwill amortization...................... -- -- -- -- 455,758
Penalties and assessments.................. 75,000 -- -- -- 211,750
Other...................................... 27,202 209,180 (174,659) (204,509) 409,828
---------- ------------ ------------ ------------ ------------
$ 871,341 $ 1,903,883 $ 7,580,379 $ 2,961,045 $ 5,540,550
---------- ------------ ------------ ------------ ------------
---------- ------------ ------------ ------------ ------------
</TABLE>
Cash paid for income taxes for the years ended December 31, 1997, 1996 and
1995 approximated $4,311,000, $2,174,000 and $525,000, respectively.
8. EMPLOYEE BENEFITS PLANS:
The Company provides health insurance benefits to its employees through a
self-funded employees' benefit trust. Under the Plan, employees' contributions
are charged based upon variable fees depending upon their coverage selection.
The Company pays actual employee health benefits claims as incurred and other
associated Plan costs from the benefit trust. A $50,000 deposit balance is
maintained in the Trust account at all times.
The Trust has a year-end of October 31. For the years ended December 31,
1997, 1996 and 1995, the Company costs associated with the Plan were
approximately $561,000, $458,000 and $516,000, respectively; and for the nine
month periods ended September 30, 1998 and 1997, $458,000 (unaudited) and
$321,000 (unaudited), respectively.
The Company has a Plan under Section 401(k) of the Internal Revenue Code
covering all eligible employees. Under the Plan, the Company will match a
certain percentage of an employee's contribution up to a maximum amount. The
Company's matching contribution under the Plan for the years ended December 31,
1997, 1996 and 1995 was approximately $58,000, $51,000 and $49,000,
respectively; and for the nine month periods ended September 30, 1998 and 1997,
$58,000 (unaudited) and $40,000 (unaudited), respectively.
9. RELATED PARTY TRANSACTIONS:
The Company had revenues of approximately $368,000 and $1,152,000 from other
Wellman-owned entities for the years ended December 31, 1997 and 1996,
respectively; and for the nine month periods ended September 30, 1998 and 1997,
$49,000 (unaudited) and $361,000 (unaudited), respectively. The
F-14
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS: (CONTINUED)
Company accrued approximately $260,000 for management charges payable to Wellman
plc as of December 31, 1996. There were no management charges in 1997. Included
in income taxes payable are taxes payable to Wellman, North America of $297,900
as of December 31, 1997.
The Company had notes receivable from former stockholders and current
officers totaling approximately $69,000 as of December 31, 1996. The notes were
repaid in 1997. In 1995, the Company purchased $207,000 of consulting services
from a company owned by one of the Company's former stockholders.
10. MANDATORILY REDEEMABLE PREFERRED STOCK
During 1994, the Company issued 5,000 shares of Class B non-voting $100 par
value Preferred Stock to the Connecticut Development Authority for $500,000. In
April 1997 the Class B Preferred Stock converted to mandatorily redeemable
preferred stock and 1,668 shares were redeemed and retired in 1997 for $166,800
and the remaining 3,332 shares are redeemable in 1998 at $335,699. The Class B
Preferred Stock pays an annual dividend when and if declared, on a
non-cumulative basis, equal to 5% of the par value per share. The distribution
rights of this preferred stock were subordinate to those of the 15% convertible
preferred stock, but superior to those of the Class A Common Stock.
In April 1996, the Company amended its certificate of incorporation, whereby
the certificate allows for the payment of dividends to the Class B non-voting
preferred stockholders or the redemption, purchase or acquisition of the Class B
non-voting Preferred Stock without requiring declaration or payment of dividends
to any other capital stock of the Company. The amendment was retroactive to
1994.
11. PREFERRED STOCK:
The Company has 550 shares of 15% Convertible Preferred Stock authorized,
issued and outstanding. The Preferred Stock is convertible to shares of Class A
Common Stock at a conversion rate of 1:1. The shares earn dividends at the rate
of $200.55 per share on July 15 and on January 15 of each year. These dividends
are cumulative with effect from July 15, 1990 and interest will be payable at
15% per annum on any unpaid dividends. The Convertible Preferred Stock is senior
to all other classes of capital stock with regards to capital and dividend
distributions. In the event of liquidation, dissolution or winding up of the
Company, each holder of the 15% Convertible Preferred Stock shall be entitled to
receive $2,674 per share plus all accrued and unpaid dividends and accrued
interest thereon to the date fixed for distribution out of the assets available
for distribution.
In addition, the Company has authorized 9,450 shares of PIK redeemable
Preferred Stock and 1,000 shares of Class B non-voting Common Stock of which
none are outstanding as of December 31, 1997 and 1996 and September 30, 1998.
12. COMMITMENTS AND CONTINGENCIES:
The Company and its subsidiaries are parties to lawsuits or may in the
future become parties to lawsuits involving various types of commercial claims.
Legal proceedings tend to be unpredictable and costly and may be affected by
events outside the control of the Company. The Company maintains various levels
of insurance to apply to product liability and certain other claims in excess of
deductibles. There is no assurance that litigation will not have an adverse
effect on the Company's financial position, results of operations or cash flows.
F-15
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FOREIGN SALES:
For the years ended December 31, 1997, 1996 and 1995, the Company and its
subsidiaries had sales to foreign countries totaling approximately $9,161,000,
$5,422,000 and $1,600,000, which represents about 9%, 17% and 8% of sales for
each year, respectively. Foreign sales for the nine month periods ended
September 30, 1998 and 1997 approximated $2,428,000 (unaudited), $8,400,000
(unaudited) representing about 2% and 18% of sales, respectively.
Outstanding receivables from foreign customers approximated $3,980,000 and
$2,868,000 as of December 31, 1997 and 1996, respectively; and $2,371,000
(unaudited) as of September 30, 1998.
14. FOREIGN EXCHANGE LOSSES:
As a result of the devaluation of the Mexican peso, the Company experienced
the following exchange losses:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
1995 1996 1997 1997 1998
----------- ----------- ---------- --------- -----------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Foreign currency transaction gain
(loss).......................... $ (174,546) $ (120,261) $ (79,035) $ 506 $ (567,028)
Foreign currency translation
adjustment...................... 142,110 168,388 30,980 679 66,043
</TABLE>
15. SUBSEQUENT EVENTS (UNAUDITED):
On April 29, 1998, the Company entered into a $150,000,000 senior secured
revolving credit and term loan agreement (the "Credit Agreement") with Bank of
America National Trust and Savings Association. The Credit Agreement consists of
a $70,000,000 five-year term loan ("Term Loan A"), a $40,000,000 six and
one-half year term loan ("Term Loan B") and a five-year revolving credit
facility in the amount of $40,000,000 ("Revolving Loan"). Borrowings under the
Credit Agreement are secured by liens on substantially all of the assets of the
Company. The Company is also required to comply with certain customary
covenants, including certain financial ratios.
As of September 30, 1998, the Company had borrowings of $17,532,610
outstanding under the Revolving Loan. The Revolving Loan provides for borrowings
based on 80% of eligible accounts receivable, plus 50% of eligible inventory and
is in effect until the earliest of (a) April 30, 2003, (b) the date on which all
outstanding term loans are repaid or prepaid in full or (c) the date in which it
shall otherwise terminate in accordance with the Credit Agreement.
F-16
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
Long-term debt consists of the following at September 30, 1998:
<TABLE>
<S> <C>
Term Loan A, principal installments of $2,500,000 due on
September 30 and December 31, 1998; $3,125,000 due quarterly
in 1999; $3,750,000 due quarterly beginning March 31, 2000
through December 31, 2002, with a final principal payment of
$7,500,000 due April 30, 2003................................. $ 70,000,000
Term Loan B, annual principal installments of $400,000
beginning June 30, 1999 through June 30, 2004, with a final
principal payment of $37,600,000 due on October 31, 2004...... 40,000,000
------------
110,000,000
Less current portion.......................................... (14,775,000)
------------
Long-term debt................................................ $ 95,225,000
------------
------------
Maturities of long-term debt are as follows:
1999.......................................................... $ 14,775,000
2000.......................................................... 14,775,000
2001.......................................................... 15,400,000
2002.......................................................... 15,400,000
2003.......................................................... 11,650,000
Thereafter.................................................... 38,000,000
------------
$110,000,000
------------
------------
</TABLE>
In the third quarter of 1998, pursuant to a board resolution and subsequent
separate management stock award agreements, several senior executives of the
Company were awarded Common Stock of the Company's parent holding company and
cash in lieu of individual income taxes. The stock awards vest immediately and
the stock and cash were estimated by the Company to have a fair value of
approximately $1,091,000. Accordingly, such amount has been recorded as
compensation expense for the nine months ended September 30, 1998.
The Company, through a wholly-owned subsidiary, entered into a merger
agreement, dated as of August 12, 1998, with Envirotest Systems Corp. (ESC), a
Delaware corporation, pursuant to which the Company commenced a tender offer for
all of the issued and outstanding shares of ESC's Class A Common Stock for
$266.3 million in cash, or $17.25 per share, plus the assumption of
approximately $275 million in net debt. The Class B and Class C shares of ESC's
Common Stock are convertible by the holders thereof into shares of Class A
Common Stock on a one-for-one basis and thus may be tendered as well. At
September 30, 1998, the Company has incurred approximately $2.5 million in
acquisition related costs which are deferred in the accompanying balance sheet.
F-17
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
On October 8, 1998, the Company entered into an agreement with Bank of
America and BA Credit Corporation, pursuant to which a Delaware limited
liability company, ESP Financial Services LLC, ("ESP Financial") has been
established to provide financing for vehicle emissions testing equipment to be
sold by ESP to decentralized facilities. ESP Financial Services LLC is 90% owned
by ESP and 10% owned by BA Credit Corporation. After ESP has arranged a sale of
vehicle emissions testing equipment with a decentralized facility owner
operator, ESP Financial will purchase the equipment from ESP and lease it to the
facility. ESP will receive payment in full for the sale from ESP Financial at
the time of sale, ESP Financial will securitize the lease payments from the
decentralized facilities and after repayment to BA Credit Corporation and its
affiliates of the purchase price for the equipment, ESP and BA Credit
Corporation will share in the spread between the actual or implied interest
rates on the lease payments and on the instruments issued in connection with the
securitization based on their respective interests in ESP Financial.
Effective October 15, 1998 the Company completed its tender offer and merger
with ESC. This business combination will be accounted for by the Company by the
purchase method. ESC had revenue of approximately $168 million for the year
ended September 30, 1998. In connection with the merger and related financing
the Company paid, among other professional fees, $5 million to Alchemy for
arranging the merger and financing.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in stockholders' deficit and
of cash flows present fairly, in all material respects, the financial position
of Envirotest Systems Corp. and its subsidiaries (the "Company") at September
30, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
December 7, 1998
F-19
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................................ $ 71,506 $ 18,685
Available-for-sale securities............................................................................ -- 40,955
Contract receivables, net of allowance for doubtful accounts of $1,026 and $1,299, respectively.......... 12,822 11,789
Prepaid and other current assets......................................................................... 5,183 5,911
--------- ---------
Total current assets................................................................................. 89,511 77,340
Restricted cash............................................................................................ 18,890 19,567
Property, plant, and equipment, net........................................................................ 218,889 188,342
Assets held under capital lease, net....................................................................... 43,240 44,564
Assets held for sale, net.................................................................................. 3,123 21,482
Intangible assets, net..................................................................................... 15,560 16,479
Deferred charges and debt acquisition costs, net........................................................... 8,880 11,249
Other assets............................................................................................... 765 710
--------- ---------
Total assets......................................................................................... $ 398,858 $ 379,733
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable......................................................................................... $ 12,900 $ 3,697
Current portion of long-term debt and capital lease obligations.......................................... 8,990 10,184
Accrued expenses and other current liabilities........................................................... 45,441 23,575
Income taxes payable..................................................................................... 498 338
--------- ---------
Total current liabilities............................................................................ 67,829 37,794
Senior subordinated debt................................................................................... 125,000 125,000
Senior debt, net........................................................................................... 149,365 149,531
Long-term debt, net........................................................................................ 21,825 33,175
Long-term capital lease obligation, net.................................................................... 47,575 53,095
Other long-term liabilities................................................................................ 4,630 5,514
--------- ---------
Total liabilities.................................................................................... 416,224 404,109
--------- ---------
Commitments and contingencies (Notes 18 and 20)
Stockholders' deficit:
Common stock, $0.01 per share par value; Class A Common Stock, 40,000 shares authorized, 8,843 and 8,833
shares issued and outstanding at September 30, 1998 and 1997, respectively; Class B Common Stock, 5,000
shares authorized, 1,250 shares issued and outstanding at September 30, 1998 and 1997, respectively;
Class C Common Stock, 5,000 shares authorized, 2,026 shares issued and outstanding at September 30,
1998 and 1997.......................................................................................... 165 165
Additional paid-in capital............................................................................... 60,173 60,140
Treasury stock, at cost.................................................................................. (29,003) (29,003)
Cumulative currency translation adjustment............................................................... (191) 43
Unrealized loss on available-for-sale securities......................................................... -- (8)
Accumulated deficit...................................................................................... (48,510) (55,713)
--------- ---------
Total stockholders' deficit.......................................................................... (17,366) (24,376)
--------- ---------
Total liabilities and stockholders' deficit.......................................................... $ 398,858 $ 379,733
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Contract revenues............................................................ $ 168,650 $ 140,664 $ 124,472
Cost of revenues............................................................. 104,970 98,859 102,149
---------- ---------- ----------
Gross profit................................................................. 63,680 41,805 22,323
Operating costs, expenses and gain:
Selling, general and administrative........................................ 19,453 19,046 21,782
Corporate relocation....................................................... -- -- 1,850
Amortization............................................................... 2,373 2,432 3,427
Merger and acquisition..................................................... 7,828 -- --
Gain on Pennsylvania settlement............................................ (2,555) (3,950) (15,307)
---------- ---------- ----------
Income from operations....................................................... 36,581 24,277 10,571
Other expense (income):
Interest expense........................................................... 33,774 40,220 38,940
Interest income............................................................ (4,540) (7,636) (3,259)
Interest income from Pennsylvania settlement............................... (987) (1,109) (5,684)
Other...................................................................... 456 103 --
---------- ---------- ----------
Income (loss) per share before income taxes and extraordinary item........... 7,878 (7,301) (19,426)
Income tax expense......................................................... 675 -- 5,638
---------- ---------- ----------
Income (loss) before extraordinary item...................................... 7,203 (7,301) (25,064)
Extraordinary loss on debt repurchase...................................... -- 1,324 --
---------- ---------- ----------
Net income (loss)............................................................ $ 7,203 $ (8,625) $ (25,064)
---------- ---------- ----------
---------- ---------- ----------
Net income (loss) per common share:
Income (loss) per share before extraordinary item............................ $ 0.59 $ (0.44) $ (1.51)
Extraordinary loss per share................................................. -- $ (0.08) --
Net income (loss) per share, basic........................................... $ 0.59 $ (0.52) $ (1.51)
Net income (loss) per share, diluted......................................... $ 0.49 $ (0.52) $ (1.51)
Weighted average common shares outstanding................................... 12,114 16,439 16,552
---------- ---------- ----------
---------- ---------- ----------
Weighted average common shares outstanding and common equivalent shares
outstanding................................................................ 14,836 16,439 16,552
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-21
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ 7,203 $ (8,625) $ (25,064)
Adjustment to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................. 30,336 24,159 24,538
Allowance for doubtful accounts................................................ (273) 850 74
Amortization of loan discount and deferred debt issuance costs................. 2,375 1,277 2,516
Gain on Pennsylvania settlement................................................ (2,555) (3,950) (15,307)
Gain on sale of property, plant and equipment and assets held for sale......... (447) -- --
Extraordinary loss on debt repurchase.......................................... -- 1,324 --
Deferred taxes................................................................. -- -- 5,476
Other.......................................................................... (117) 738 (96)
Changes in assets and liabilities:
Contract receivables........................................................... (760) (1,670) (2,585)
Prepaid and other current assets............................................... 728 (514) (1,793)
Deferred charges............................................................... (448) (341) (2,200)
Accounts payable............................................................... 9,203 (128) 470
Accrued interest............................................................... (40) (519) 190
Accrued expenses and other current liabilities................................. 659 (725) 1,358
Advances from customer......................................................... 18,928 -- --
Income taxes payable........................................................... 160 (336) 79
Other.......................................................................... (939) 688 (82)
--------- --------- ---------
Net cash provided by (used in) operating activities.............................. 64,013 12,228 (12,426)
--------- --------- ---------
Cash flows from investing activities:
Purchases of available-for-sale securities....................................... -- (127,597) (6,644)
Maturities of available-for-sale securities...................................... 40,963 94,625 --
Purchases of property, plant and equipment....................................... (55,854) (14,668) (49,724)
Proceeds from sales of property, plant and equipment............................. 1,126 1,434 3,835
Proceeds from Pennsylvania settlement............................................ -- 79,405 65,000
Proceeds from sale of Pennsylvania assets........................................ 21,797 9,077 2,362
Other............................................................................ (1,453) (2,948) (2,560)
--------- --------- ---------
Net cash provided by investing activities.......................................... 6,579 39,328 12,269
--------- --------- ---------
Cash flows from financing activities:
Senior debt repurchase........................................................... (300) (50,000) --
Stock repurchase and transaction costs........................................... -- (29,040) --
Repayment of capital lease obligation............................................ (5,090) (4,710) (1,485)
Repayment of long term debt...................................................... (12,974) (3,739) (2,457)
Capitalization of loan fees...................................................... -- (24) (1,765)
Proceeds from capital lease and long term debt................................... -- -- 31,345
Proceeds from issuance of common stock........................................... 33 4 148
Decrease in restricted cash...................................................... 677 1,541 10,389
--------- --------- ---------
Net cash provided by (used in) financing activities................................ (17,654) (85,968) 36,175
--------- --------- ---------
Effect of exchange rate on cash and cash equivalents............................... (117) (7) 7
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents............................... 52,821 (34,419) 36,025
Cash and cash equivalents, beginning of year....................................... 18,685 53,104 17,079
--------- --------- ---------
Cash and cash equivalents, end of year............................................. $ 71,506 $ 18,685 $ 53,104
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Cash paid for interest and income taxes for the years ended September 30, 1998,
1997 and 1996 was as follows:
Interest, net of capitalized interest............................................ $ 32,614 $ 38,744 $ 38,751
Income taxes..................................................................... 448 40 245
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK TREASURY STOCK CURRENCY
-------------------------- ADDITIONAL ------------------------ TRANSLATION
SHARES AMOUNT PAID IN CAPITAL SHARES AMOUNT ADJUSTMENT
----------- ------------- ----------------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1,
1995................... 16,158 $ 162 $ 60,028 -- -- $ (121)
Exercise of Options...... 462 4 144
Foreign Currency
Translation
Adjustment............. 25
Net Loss.................
----------- ----- ------- ----- ----------- -----
Balance at September 30,
1996................... 16,620 166 60,172 -- -- (96)
Exercise of Options...... 17 4
Other Adjustments........ (140) (1) (36)
Stock repurchases........ (4,388) 4,388 $ (29,003)
Foreign Currency
Translation
Adjustment............. 139
Unrealized loss on
available-for-sale
securities.............
Net loss.................
----------- ----- ------- ----- ----------- -----
Balance at September 30,
1997................... 12,109 165 60,140 4,388 (29,003) 43
Exercise of Options...... 9 -- 33
Foreign Currency
Translation
Adjustment............. (234)
Unrealized loss on
available for-sale
securities...........
Net Income...............
----------- ----- ------- ----- ----------- -----
Balance at September 30,
1998................... 12,118 $ 165 $ 60,173 4,388 $ (29,003) $ (191)
----------- ----- ------- ----- ----------- -----
----------- ----- ------- ----- ----------- -----
<CAPTION>
UNREALIZED
LOSS ON
AVAILABLE-
FOR-SALE ACCUMULATED
SECURITIES (DEFICIT) TOTAL
----------------- ---------------- ---------
<S> <C> <C> <C>
Balance at October 1,
1995................... -- $ (22,024) $ 38,045
Exercise of Options...... 148
Foreign Currency
Translation
Adjustment............. 25
Net Loss................. (25,064) (25,064)
--- -------- ---------
Balance at September 30,
1996................... -- (47,088) 13,154
Exercise of Options...... 4
Other Adjustments........ (37)
Stock repurchases........ (29,003)
Foreign Currency
Translation
Adjustment............. 139
Unrealized loss on
available-for-sale
securities............. $ (8) (8)
Net loss................. (8,625) (8,625)
--- -------- ---------
Balance at September 30,
1997................... (8) (55,713) (24,376)
Exercise of Options...... 33
Foreign Currency
Translation
Adjustment............. (234)
Unrealized loss on
available for-sale
securities........... 8 8
Net Income............... 7,203 7,203
--- -------- ---------
Balance at September 30,
1998................... $ -- $ (48,510) $ (17,366)
--- -------- ---------
--- -------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION:
Envirotest Systems Corp. ("Envirotest" or the "Company") markets, installs
and operates centralized vehicle emissions testing programs under contracts
entered into with state and municipal governments within the United States and a
program in British Columbia, Canada. The Company also offers states and
municipalities services in a variety of sophisticated data management and
vehicle identification capabilities.
Envirotest provides governmental authorities an all-inclusive service
whereby it designs, constructs, and operates centralized vehicle emissions
programs. The Company's services include: designing a network that provides
convenience to motorists; identifying and procuring adequate inspection sites;
constructing emissions facilities with multiple test lanes; designing and
installing a proprietary vehicle emissions inspection system and computer
network to collect and process emissions testing data; and managing and
operating the inspection program using sophisticated software and equipment
developed by the Company.
On August 12, 1998, Envirotest, entered into a merger agreement with Stone
Rivet, Inc. ("Purchaser"), a Delaware corporation and wholly owned subsidiary of
Environmental Systems Products, Inc. ("Parent"), a Delaware corporation, for the
acquisition of the Company's outstanding shares of Class A Common Stock by
Purchaser at a price of $17.25 per share in cash. Under the terms of the Merger
Agreement, upon consummation of the Merger, each outstanding share of Class B
Common Stock, $.01 par value per share, and Class C Common Stock, $.01 par value
per share, of the Company will be converted into the right to receive an amount
in cash equal to the price per Share paid pursuant to the Class A Common Stock
Offer.
Under the terms of the transaction, the Purchaser commenced a cash tender
offer for all outstanding shares of the Company common stock at $17.25 per
share. Effective October 15, 1998, approximately 11,963,529 shares were tendered
and were accepted by the Purchaser for payment. The acquisition was completed by
a merger of Envirotest with the Purchaser, in which the remaining Envirotest
shares were canceled and converted into the right to receive $17.25 per share in
cash. Subsequently, Envirotest became a 100% owned subsidiary of the purchaser.
In connection with the closing of the tender offer, among other actions, the
Purchaser repaid senior subordinated debt (Note 9), senior debt (Note 10), and
long term debt (Note 11), plus any accrued interest. In connection with the
merger agreement, Envirotest incurred costs of approximately $7,828 million in
connection with the merger transaction and the amount is included in the
consolidated statement of operations as of September 30, 1998 within the caption
"Merger and acquisition costs."
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Envirotest and
its domestic and foreign subsidiary companies. All inter-company balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-24
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH, CASH EQUIVALENTS AND AVAILABLE-FOR-SALE SECURITIES
The Company considers all highly liquid investments with an original
maturity of three months or less from the date of purchase to be cash
equivalents. Cash and cash equivalents are stated at cost, which approximates
market value. Included in the Company's cash and cash equivalents are
approximately $67,686 and $8,369 of commercial paper invested through registered
broker/dealers at September 30, 1998 and 1997, respectively. The Company intends
to hold these investments until maturity.
Investments are classified as "available-for-sale" and have maturities
greater than three months from the date of acquisition. Investments classified
as "available-for-sale" are reported at fair value with gains and losses net of
related tax, if any, reported as a separate component of shareholders' equity.
Available-for-sale securities of $40,955 as of September 30, 1997 primarily
consisted of certificates-of-deposit and high-grade commercial paper, with
maturity dates ranging from December 1997 through May 1998.
CONTRACTS AND CONTRACT RECEIVABLES
The Company's contract receivables primarily consist of uncollateralized
amounts due from state, municipal and foreign governments.
Under most of the Company's contracts, the governmental authority has the
right, and in some cases may be obligated, to purchase the Company's program
facilities on termination of the contract, at a price generally determined by
applying specified criteria set forth in the contract. Most contracts expressly
provide for termination if the legislation authorizing the (I/M) program is
repealed or if sufficient funds for the program are not appropriated by the
relevant governmental authority. More than half of the Company's contracts also
allow the governmental authority to terminate the contract without cause, upon
giving advance written notice of not less than 30 days. The Company is also
required to post performance bonds once the contract is awarded.
Under most of the Company's I/M contracts, the Company is required to pay
liquidated damages as a penalty for failure to meet specified start-up dates or
performance requirements, in many cases after a specified notice and cure
period.
RESTRICTED CASH
Restricted cash of $18,890 and $19,567 at September 30, 1998 and 1997
respectively, primarily consisted of certificates of deposit for the Company's
financing and performance bonds related to the emissions testing contracts with
state and municipal governments. Included in restricted cash as of September 30,
1998, are $6,579, $2,369 and $1,700 required under credit agreements for the
financing of Ohio, Indiana and Wisconsin programs, respectively. Also, $2,515 in
proceeds from bonds issued by the Indiana Development Finance Authority for the
Indiana program are being held in trust pending use of the funds and $5,727 as
collateral for performance bonds and worker's compensation insurance. The
Washington debt was paid in full in December 1997, thus releasing the $600
Washington restricted cash. Included in restricted cash as of September 30, 1997
are $6,519, $2,253, $1,700 and $600 required under credit agreements for the
financing of Ohio, Indiana, Wisconsin and Washington programs, respectively.
Also, $4,253 in proceeds from bonds issued by the Indiana Development Finance
Authority for the Indiana program are being held in trust pending use of the
funds and $4,242 as collateral for performance bonds and worker's compensation
insurance.
F-25
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY, PLANT, EQUIPMENT AND CAPITAL LEASE
Property, plant and equipment are recorded at cost. The capital lease is
recorded at the present value of the future lease principal payments.
Depreciation and amortization are provided on the straight-line method over the
estimated useful lives of the assets or lease term as follows:
<TABLE>
<S> <C>
Buildings and site improvements............................ 30 years
Machinery and equipment.................................... 2-10 years
Leasehold improvements..................................... Lease term
</TABLE>
Buildings and site improvements are depreciated on a straight-line basis
over the estimated useful life, generally 30 years. Periodically the Company
prepares an analysis to compare the estimated net book value of the buildings,
site improvements and land at the estimated completion date of individual
contracts (assuming certain renewals, if any) to the estimated residual value.
Adjustments to depreciable lives are made accordingly.
It is possible, given the political, legislative and competitive environment
in which the Company operates, that the estimates discussed above could change
and may result in accelerated depreciation charges. Also, the actual values
realized on disposal could differ from the amounts used in estimating the
residual values of these properties.
Interest costs relating to the acquisition and construction of major
projects are capitalized and depreciated over the estimated useful lives of the
related assets. Interest expense capitalized for the years ended September 30,
1998, 1997 and 1996 was $1,218, $103 and $981, respectively.
The cost of maintenance and repairs is charged to expense in the year
incurred. Expenditures that increase the useful lives of property and equipment
are capitalized.
When items are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts and any gain or loss is included in income.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
The Company assesses the recoverability of its long-lived assets by
determining whether the depreciation and amortization of the asset's net book
value over its remaining life can be recovered through projected undiscounted
future cash flows.
INTANGIBLE ASSETS
Intangible assets are stated as cost and are amortized on a straight-line
basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Goodwill................................................... 12 years
Government contracts....................................... 12 years
10-17
License agreement.......................................... years
15-17
Patents.................................................... years
Covenants not-to-compete................................... 12 years
Copyrights................................................. 12 years
</TABLE>
It is the Company's policy to re-evaluate the estimated useful life of each
of its intangible assets on a quarterly basis and may adjust the estimated
useful life accordingly. It is possible, given the political, legislative and
competitive environment in which the Company operates, that the estimates
discussed above could change and may result in accelerated amortization charges.
F-26
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
DEFERRED DEBT ACQUISITION COSTS
Costs associated with obtaining long-term debt financing have been
capitalized and are amortized over the repayment term of the related debt.
Accumulated amortization is $8,541 and $6,817 for fiscal 1998 and 1997,
respectively.
DEFERRED CHARGES
Significant expenses incurred in bringing new emissions testing programs
into operation including staff recruitment, staff training, public information
and similar pre-operating costs are deferred and amortized over a twelve-month
period commencing with the start of program operations. Deferred charge
amortization expenses were $609, $1,124 and $4,419 for fiscal 1998, 1997 and
1996 respectively. Accumulated amortization is $7,465 and $6,457 for fiscal 1998
and 1997, respectively.
CONTRACT REVENUES
Generally, for vehicle emissions inspection contracts, revenue is based on
the fees that are collectible for the tests performed. Where contracts provide
for up-front payments in addition to test fees per contract, the payments are
recognized as revenue over the contract term.
The Company's contract revenues from major customers, which individually
account for in excess of 10% of the Company's total contract revenue, were
$30,315; $23,225; $21,945; $20,445; and $16,981 for the year ended September 30,
1998; $20,900; $20,400; $17,300; $16,800; and $14,100 for the year ended
September 30, 1997; $20,300; $18,700; $17,000; and $16,500 for the year ended
September 30, 1996. For the fiscal year ended September 30, 1998, significantly
all of the Company's contract revenues were derived from its 14 emission testing
contracts. Contracts for the Company's existing emissions contracts expire
between the years 1999 and 2008.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
Research and development expenses for the periods ended September 30, 1998, 1997
and 1996 were approximately $36, $97 and $44, respectively and are included in
general and administrative expenses.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the functional currency of its international
subsidiary is the local currency. In accordance with Statement of Financial
Accounting Standard No. 52, "Foreign Currency Translation," the assets and
liabilities denominated in foreign currency are translated into U.S. dollars at
the current rate of exchange existing at period-end, and revenues and expenses
are translated at average monthly exchange rates. Related translation
adjustments are reported as a separate component of stockholders' equity,
whereas gains or losses resulting from foreign currency transactions are
included in results of operations.
F-27
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
EARNINGS (LOSS) PER SHARE
Basic EPS is computed as net income (loss) divided by the weighted average
number of common shares outstanding for the year. Diluted EPS reflects the
potential dilution that could occur from common shares issuable through stock
options, warrants and other convertible securities. Common equivalent shares are
excluded from the computation of net loss per share if their effect is
anti-dilutive.
The following is a reconcilliation of the numerator - net income/(loss) and
the denominator - number of shares, used in the basic and diluted EPS
calculation (amounts in thousands except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Basic:
Net income (loss)........................................... $ 7,203 $ (8,625) $ (25,064)
--------- --------- ----------
--------- --------- ----------
Weighted average common shares outstanding.................. 12,114 16,439 16,552
Basic EPS................................................... $ 0.59 $ (0.52) $ (1.51)
--------- --------- ----------
--------- --------- ----------
Diluted:
Weighted average common shares outstanding.................. 12,114 16,439 16,552
--------- --------- ----------
Stock option common equivalents............................. 2,722 -- --
Weighted average common shares outstanding and common
equivalent shares outstanding............................. 14,836 16,439 16,552
--------- --------- ----------
--------- --------- ----------
$
Diluted EPS................................................. 0.49 $(0.52) $(1.51)
--------- --------- ----------
--------- --------- ----------
</TABLE>
There were 813 and 805 shares excluded from the calculation of diluted EPS
as their effect was anti-dilutive for the years ended September 30, 1997 and
1996, respectively.
RELATED PARTY TRANSACTIONS
The Company does not enter into any transaction with a related person unless
such transaction is made in good faith and is on terms, which are (i) fair and
reasonable to the Company and (ii) on an arms-length basis. Any transaction or
series of transactions with a related person with an aggregate value in excess
of a certain amount first must be approved by a special committee of the Board
as fair and reasonable and on an arms length basis; and further, for any
transaction or series of transactions with an aggregate value in excess of a
certain amount, the Company obtains a favorable opinion as to fairness from a
financial point of view from an independent financial advisor of national
reputation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, other receivables and
accrued liabilities are a reasonable estimate of their fair value due to their
short-term nature. The estimated values of the Company's long-term debt are
based on interest rates at September 30, for issues with similar remaining
maturities.
The estimated fair value amounts of the Company's financial instruments have
been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, therefore the estimates provided here are not
necessarily indicative of the amounts that could be realized in a current market
exchange.
F-28
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company calculates the fair value of financial instruments and includes
this additional information in the notes to financial statements when the fair
value is different from the book value of those financial instruments. When the
fair value is equal to the book value, no additional disclosure is made. The
Company uses quoted market prices whenever available to calculate these fair
values. When quoted market prices are not available, the Company uses standard
pricing models for various types of financial instruments, which take into
account the present value of estimated future cash flows. The effect of using
different market assumptions and/or estimation methodologies may be material to
the estimated fair value amounts.
RISKS AND UNCERTAINTIES
The market for the Company's services is substantially dependent on state
and federal legislation and regulations mandating air pollution controls and
vehicle emissions testing. The availability of new emissions testing contracts
depends largely on the manner by which governmental authorities choose to
implement emissions testing programs to comply with governmental negotiations.
Specifically, governmental authorities may, with certain limitations, implement
decentralized or state-run programs, as opposed to centralized
contractor-operated programs. In order to build or retain its market share the
Company must continue to successfully compete for new government contracts.
CONCENTRATIONS OF CREDIT RISK
As of September 30, 1998 and 1997, the Company's cash and cash equivalents
and short-term investments, which consist principally of demand deposits,
commercial paper and certificates of deposit, were on deposit with several
commercial banks and an investment house. Deposits in these banks may exceed the
amount of insurance, if any, provided on such deposits. The Company has not
experienced any losses on its cash or cash equivalents.
The Company maintains allowances for potential credit losses and such losses
have been within management's expectations. Financial instruments that
potentially subject the Company to concentrations of credit risk principally
comprise cash and cash equivalents, available-for-sale securities, accounts
receivable and long-term debt.
RECLASSIFICATIONS
Certain amounts in the consolidated financial statements have been
reclassified to conform with the current year's presentation. The
reclassification had no impact on previously reported net loss or stockholders'
equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial
statements. It does not, however, require a specific format for the statement,
but requires the Company to display an amount representing total comprehensive
income for the period in that financial statement. This Statement is effective
for the Company's 1999 fiscal year.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Statement establishes standards for
how public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises
F-29
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
to report selected information about operating segments in interim financial
reports issued to shareholders. This Statement is effective for the Company's
1998 fiscal year. The Company does not believe it currently has any separately
reportable segments.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs, which should be expensed as incurred. This SOP is effective
for the Company's 2000 fiscal year. The Company has reviewed the provisions of
this SOP and does not believe that adoption of this standard will have a
material effect upon its results of operations, financial position, or cash
flows.
In March 1998, the Accounting Standards Executive Committee issued SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance on when costs related to software
developed or obtained for internal use should be capitalized or expensed. This
SOP is effective for the Company's 1999 fiscal year. The Company has reviewed
the provisions of the SOP and does not believe adoption of this standard will
have a material effect upon its results of operations, financial position, or
cash flows.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at September 30,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Property, plant and equipment:
Land.............................................................. $ 36,431 $ 31,798
Buildings and site improvements................................... 112,170 110,953
Machinery and equipment........................................... 103,749 98,496
Leasehold improvements............................................ 5,524 3,457
---------- ----------
257,874 244,704
Construction in progress............................................ 36,171 3,285
---------- ----------
294,045 247,989
Less accumulated depreciation....................................... (75,156) (59,647)
---------- ----------
$ 218,889 $ 188,342
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the years ended September 30, 1998, 1997 and 1996
was $26,639, $20,341 and $20,061, respectively.
4. ASSETS HELD UNDER CAPITAL LEASES:
Assets held under capital leases consisted of the following at September 30,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land................................................................ $ 5,455 $ 5,455
Buildings and site improvements..................................... 41,599 41,599
---------- ----------
47,054 47,054
Less accumulated amortization....................................... (3,814) (2,490)
---------- ----------
$ 43,240 $ 44,564
---------- ----------
---------- ----------
</TABLE>
Amortization expense for the years ended September 30, 1998, 1997 and 1996
was $1,324, $1,386 and $1,050, respectively.
F-30
<PAGE>
5. ASSETS HELD FOR SALE:
Assets held for sale primarily includes property, plant and equipment at
testing sites formerly operated under the Pennsylvania program. These properties
are currently being marketed for sale.
At September 30, 1998, the Company believes it has sufficient reserves for
potential losses on the sale of properties held for sale. At September 30, 1996
the estimated loss on sale of properties of $109,402, has been recognized in the
accompanying financial statements. Losses are based on management's estimates of
the amounts expected to be realized on the sale of these assets, net of disposal
costs. The amounts the Company will ultimately realize may differ materially
from the amounts assumed in arriving at the estimated loss.
Assets held for sale consisted of the following at September 30, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land, buildings and site improvements.................................... $ 4,317 $ 21,548
Machinery and equipment.................................................. 378 378
--------- ---------
4,695 21,926
Less accumulated depreciation............................................ (1,572) (444)
--------- ---------
$ 3,123 $ 21,482
--------- ---------
--------- ---------
</TABLE>
F-31
<PAGE>
6. GAIN ON PENNSYLVANIA SETTLEMENT:
Legislation adopted by the Commonwealth of Pennsylvania General Assembly
directed the Pennsylvania Department of Transportation ("PennDOT") to delay
implementation of the Pennsylvania emissions testing program until March 31,
1995. On February 28, 1995, the Governor announced an indefinite suspension of
the implementation of any program until the Commonwealth receives clarification
regarding the elements of a testing program that the federal EPA would find
acceptable.
On December 15, 1995, the Company entered into a General Release and
Settlement Agreement ("Agreement") with the Commonwealth of Pennsylvania that
resolves the issues related to the Company's contract with PennDOT. Under the
terms of the Agreement, the Company was paid $25,000 on December 29, 1995 and
$40,000 on July 31, 1996 and was to be paid $40,000 on each of July 1997, and
1998 plus interest at 6% from December 15, 1995. On December 11, 1996, the
Company sold its right to receive the two remaining installment payments
totaling $80,000 in principal amount under the Agreement. The Company retained
the right to receive accrued interest of approximately $1,749, which was paid in
August 1997.
The transaction was effected through a sale of the Receivables Assets from
Envirotest Partners, a Pennsylvania general partnership owned by Envirotest and
ETI, to a newly formed wholly owned subsidiary of the Company, ES Funding Corp.
("Funding"). Funding, in turn, transferred the Receivables Assets to an
affiliate of a Pennsylvania bank. Funding and Envirotest Partners provided
certain representations in connection with the transaction, including
representations as to enforceability of the Agreement against the Commonwealth,
and agreed to repurchase the Receivables Assets if Envirotest Partners fails to
comply with its obligations under the Agreement.
In addition, the Company will sell the assets and retain the proceeds and
the Commonwealth will pay the Company 50% of the amount by which the net
proceeds from the sale of the assets (as defined by the Agreement as amended
December 1996) are less than $55,000 up to a maximum of $11,000 plus interest at
6% from December 15, 1995. Should the net proceeds from the sale of the assets
exceed $55,000, the Company will pay the Commonwealth 75% of the amount by which
the net proceeds exceed $55,000. The Commonwealth paid the Company $11,000, plus
accrued interest of $1,734 on July 31, 1998.
The Company is of the opinion that sufficient reserves have been recognized
and that, upon final disposition of properties, no additional loss will be
recognized.
During fiscal 1998 and 1997, management adjusted its estimated loss expected
to be realized for claims resulting as a consequence of the Pennsylvania
contract cancellation that have been settled, resolved or are unlikely to
present future liability. The adjustment resulted in a $2,555 and $3,950 gain on
the Pennsylvania settlement in fiscal 1998 and 1997, respectively.
The gain on the Pennsylvania settlement in fiscal 1996 was calculated as
follows:
<TABLE>
<S> <C>
Proceeds (excluding contingent payment)........................... $ 145,000
Property, plant and equipment write down.......................... (109,402)
Other assets write down........................................... (7,732)
Additional reserves............................................... (12,559)
---------
$ 15,307
---------
---------
</TABLE>
F-32
<PAGE>
7. INTANGIBLE ASSETS:
Intangible assets consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Government contracts.................................................... $ 21,923 $ 21,921
Covenants not-to-compete................................................ 830 --
Goodwill................................................................ 5,058 4,435
License agreement....................................................... 1,903 1,903
Copyrights.............................................................. 1,000 1,000
Patents................................................................. 1,962 1,962
--------- ---------
32,676 31,221
Less accumulated amortization........................................... (17,116) (14,742)
--------- ---------
$ 15,560 $ 16,479
--------- ---------
--------- ---------
</TABLE>
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consisted of the following at
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Accrued employee-related expenses....................................... $ 8,027 $ 6,237
Accrued real and personal property taxes................................ 1,955 2,217
Pennsylvania settlement reserves........................................ 1,970 4,098
Accrued interest........................................................ 1,130 1,170
Professional services................................................... 1,238 2,874
Deferred Revenue........................................................ 20,783 --
Construction Retainage Payable.......................................... 2,393 --
Other................................................................... 7,945 6,979
--------- ---------
$ 45,441 $ 23,575
--------- ---------
--------- ---------
</TABLE>
9. SENIOR SUBORDINATED DEBT:
Senior subordinated debt consisted of the following at September 30, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Senior Subordinated Notes, due April 1, 2003; interest at 9 5/8%,
payable semi-annually................................................ $ 125,000 $ 125,000
---------- ----------
---------- ----------
</TABLE>
The Senior Subordinated Notes ("Notes") are redeemable by the Company after
April 1998. The Notes will be redeemable at any time at the option of the
Company, in whole or in part, at the redemption prices beginning at 103.609% of
the principal amount for the period beginning April 1, 1998 and declining
ratably to 100% of the principal amount on or after April 1, 2001 plus accrued
or unpaid interest to the date of redemption.
The Notes are uncollateralized obligations of the Company, subordinated in
right of payment to all Senior Debt (as defined). The Notes carry various
covenants, including a limitation on payment of dividends, incurrence of
additional indebtedness and issuance of disqualified stock (as defined).
As of September 30, 1998 and 1997, the fair value of the Notes, which is
determined based on quoted market price, was $129,824 and $117,500,
respectively.
F-33
<PAGE>
10. SENIOR DEBT:
Senior debt consisted of the following at September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Senior Notes, due March 15, 2001; interest at 9 1/8% (net of discount
of $335 and $469 respectively)...................................... $ 149,365 $ 149,531
---------- ----------
---------- ----------
</TABLE>
The Senior Notes are redeemable by the Company after March 15, 1998. The
Senior Notes will be redeemable at any time at the option of the Company, in
whole or in part, at redemption prices beginning at 103.083% of the principal
amount for the period beginning March 15, 1998 and declining ratably to 100% of
the principal amount on or after March 15, 2000 plus accrued or unpaid interest
to the date of redemption.
The Senior Notes are senior unsecured obligations of the Company, senior in
right of payment to the 9 5/8% Senior Subordinated Notes of the Company. The
Senior Notes carry various covenants, including a limitation on payment of
dividends, incurrence of additional indebtedness and issuance of disqualified
stock (as defined).
In August 1997, the Company received permission from the Senior debt holders
to redeem up to $50,000 of the Senior Notes. In September 1997, $50,000
aggregate principal amount of Senior Notes were purchased by the Company. The
Company recognized a non-recurring charge, reflected as an extraordinary loss
from the write-off of amortization of deferred issuance costs, original issue
discounts and tender offer fees of $1.3 million in connection with this
repurchase.
As of September 30, 1998 and 1997, the fair value of the Senior Notes, which
is determined based on quoted market price, was $154,690 and $148,000,
respectively.
11. OTHER LONG TERM DEBT:
On December 29, 1995, the Company's wholly owned subsidiary, Envirotest
Wisconsin, Inc., issued $17,000 principal amount of notes (the "Notes"). The
Notes bear interest at the rate of 7.53% per annum with monthly payments,
including interest, beginning at approximately $230 and increasing to
approximately $340 with maturity on November 30, 2002. The Notes are
collateralized by all assets used in the Wisconsin program. At September 30,
1998, the unpaid principal balance is $12,645.
In January 1996, the Company acquired Systems Control, Inc., a Washington
corporation (SC-WA), the operator of the centralized emissions testing program
in the State of Washington. At the time of the acquisition, SC-WA had debt
outstanding under a credit agreement. During December 1997, the Company
restructured this loan as a revolving facility and paid off the outstanding
principal balance.
In June 1996, the Company issued $14,345 principal amount of notes for the
Indiana program. The notes bear interest at the rate of 7.82% per annum with
quarterly payments, including interest of approximately $540, and mature in
2006. Principal payments began June 1997. The notes are collateralized by all
assets used in the Indiana program. At September 30, 1998, the unpaid principal
is $12,650.
F-34
<PAGE>
11. OTHER LONG TERM DEBT: (CONTINUED)
The other long-term debt matures as follows:
<TABLE>
<S> <C>
1999 $ 3,470
2000 4,075
2001 4,495
2002 5,230
2003 2,650
Thereafter......................................................... 5,375
---------
Total principal payments........................................... 25,295
Less current portion............................................... (3,470)
---------
$ 21,825
---------
---------
</TABLE>
12. STOCK OPTIONS:
The Company has adopted a Stock Option Plan (the "Plan") providing for the
grant of options to purchase shares of Class A Common Stock to certain employees
of the Company and its subsidiaries and to Outside Directors (as defined) on an
annual, nondiscretionary basis. The Plan provides for the grant of options
intended to qualify as Incentive Stock Options ("ISOs") as defined by Section
422 of the Internal Revenue Code and options that do not qualify as ISOs
("NQSOs"). The exercise price per share for all ISOs generally may not be less
than 100% of the fair market value on the date of grant. The exercise price per
share for NQSOs may be less than, equal to or greater than the fair market value
on the date of grant, but not less than par value, except that the exercise
price for NQSOs granted to Outside Directors shall be the fair market value on
the date of grant. Under the Plan, such options are exercisable according to a
vesting schedule pursuant to the terms of each Option Agreement. Unless earlier
terminated by the Board of Directors, the Plan will terminate in January 2003,
10 years after its effective date.
In 1993, pursuant to an agreement for consulting services, a director and
principal stockholder of the Company was granted options to purchase 50,000
shares of Class A Common Stock at an exercise price of $9.75 per share and
50,000 shares at an exercise price of $14.00 per share. Options to purchase
25,000 shares of each of the foregoing options (an aggregate of 50,000) vested
upon grant, with the remaining options vesting in September 1994. The
unexercised options expire August 31, 1998. In 1997 the Company granted new
options in exchange for the surrender and cancellation of certain of its
existing Options with this director; such new Options to have a purchase price
equal to $6.125 with the other terms of such new Options to be identical to the
terms of the surrendered and cancelled Options, including the vesting schedule.
In the first quarter of 1997, the Company granted non-qualified options to
purchase shares of the Class A Common Stock to certain Non-Executive Directors
of the Company at an exercise price equal to the fair market value of the
Company's Class A Common Stock on the date of grant. The options vest ratably
over three years and terminate after ten years.
In the first and second quarter of fiscal year 1998, the Company granted
non-qualified options to purchase shares of the Class A Common Stock to certain
Non-Executive Directors of the Company at an exercise price equal to the fair
market value of the Company's Class A Common Stock on the date of grant. The
options vest ratably over three years and terminate after ten years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
1993 Plan. Had compensation cost for the 1993 Plan been determined based on the
fair value at the grant date for options granted in fiscal 1998 and 1997
consistent
F-35
<PAGE>
12. STOCK OPTIONS: (CONTINUED)
with the provisions of SFAS 123, the Company's net income (loss) and net income
(loss) per share for fiscal 1998 and 1997 would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)--as reported.............................. $ 7,203 $ (8,625) $ (25,064)
Net income (loss)--pro forma................................ $ 4,675 $ (10,911) $ (25,422)
Net income (loss) per share--as reported.................... $ 0.59 $ (0.52) $ (0.52)
Net income (loss)--pro forma................................ $ 0.39 $ (0.66) $ (0.66)
</TABLE>
The fair value of each option that was granted after October 1, 1995 is
estimated on the date of the grant using the Black-Scholes multiple option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Risk free interest............ 4.87%--5.82% 5.0%--5.938% 5.0%--5.938%
Expected life................. 6.92 years 4.56 years 4.56 years
Expected volatility........... 81.1% 82.1% 82.1%
Expected dividend............. -- -- --
</TABLE>
The weighted average expected life was calculated based on the vesting
period and the exercise behavior of the employees.
The weighted average fair value of options granted in 1998, 1997 and 1996
was $3.50, $2.09 and $1.38, respectively.
The following table summarizes the stock options outstanding at September
30, 1998:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE NUMBER EXERCISABLE
EXERCISE OUTSTANDING AS OF REMAINING WEIGHTED AVERAGE AS OF SEPTEMBER 30,
PRICES SEPTEMBER 30, 1998 CONTRACTUAL LIFE EXERCISE PRICE 1998
- -------------- ------------------- ------------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
$ 0.2700 493 2.22 $ 0.27 493
$ 0.4800 383 3.53 $ 0.48 383
$ 2.0000 200 8.53 $ 2.00 100
$ 2.2500 3 8.25 $ 2.25 2
$ 2.7500 200 7.32 $ 2.75 200
$ 2.8375 200 7.32 $ 2.84 66
$ 3.2500 100 8.12 $ 3.25 33
$ 3.3750 752 8.07 $ 3.38 271
$ 4.7500 15 9.09 $ 4.75 0
$ 5.2500 200 9.04 $ 5.25 0
$ 6.1250 1,126 7.03 $ 6.13 1,127
$ 6.7500 40 9.36 $ 6.75 0
$ 6.8750 485 9.33 $ 6.88 0
$ 7.0625 100 9.42 $ 7.06 0
$ 10.8750 15 9.56 $ 10.88 0
----- -----
4,312 2,675
</TABLE>
F-36
<PAGE>
12. STOCK OPTIONS: (CONTINUED)
The following table summarizes the status of, and changes in, options
granted during the years ended September 30, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES OPTION PRICE PER
UNDER OPTION SHARE
--------------- ---------------------
<S> <C> <C>
Outstanding at September 30, 1995....................... 2,660 $ 5.39
Granted................................................. 400 $ 2.78
Exercised............................................... (462) $ 0.34
Canceled................................................ (185) $ 11.10
-----
Outstanding at September 30, 1996....................... 2,413 $ 5.35
Granted................................................. 1,262 $ 3.95
Reissued and repurchased................................ 590 $ 4.65
Exercised............................................... (16) $ 0.27
Canceled and expired.................................... (618) $ 13.25
-----
Outstanding at September 30, 1997....................... 3,631 $ 3.38
Granted................................................. 1,008 $ 6.52
Exercised............................................... (10) $ 3.38
Canceled................................................ (317) $ 4.47
-----
Outstanding at September 30, 1998....................... 4,312 $ 3.99
-----
-----
<CAPTION>
OPTIONS AVAILABLE
EXERCISABLE FOR GRANT
--------------- ---------------------
<S> <C> <C>
September 30, 1996...................................... 1,506 816
September 30, 1997...................................... 1,470 33
September 30, 1998...................................... 2,675 --
</TABLE>
The Company has granted certain employees and Directors non-qualified stock
options outside the Plan, which have been included in the above table.
Non-qualified stock options granted in 1998, 1997 and 1996 were 981,667, 35,000,
and zero, respectively.
13. STOCKHOLDERS' EQUITY:
Envirotest Systems Corp. was incorporated on August 20, 1990 for the purpose
of purchasing Hamilton Test Systems, Inc. ("HTS"), a wholly owned subsidiary of
United Technologies Corporation (the "Prior Parent"). At the time of the HTS
acquisition, a subsidiary of the Prior Parent had an equity interest in
Envirotest of approximately 23.6% of the outstanding stock. Generally Accepted
Accounting Principles require that a portion of the equity participation in
Envirotest by the Prior Parent be valued using the carry-over basis of its
equity interest in HTS. Accordingly, a portion of HTS' assets were recorded at
the book value of the Prior Parent. The effect of the predecessor carry-over
basis of $5,578 is reflected as a component of stockholders' equity.
In September, 1997, the Company purchased 4,388 shares of its Class A Common
Stock, par value $0.01 per share (the "Common Stock"), at a price of $4.50 per
share pursuant to its "Dutch" auction tender offer. All such shares were
purchased by the Company for approximately $29,003, including associated
repurchase costs. The repurchased shares are accounted for at cost, including
associated repurchase costs, and recorded as treasury stock in the accompanying
balance sheet at September 30, 1997. Cost directly related to the repurchase of
shares were $9,257 and are included as part of the cost of the shares acquired.
Payment of cash dividends is restricted by the terms of the Indenture
covering the Senior and Senior Subordinated Notes (under a formula based on the
consolidated net income of the Company plus proceeds of equity offerings) and
subject to the maintenance of a certain consolidated fixed charge coverage
ratio.
F-37
<PAGE>
14. INCOME TAXES:
Income (loss) before income taxes and income tax expense for the years ended
September 30, 1998, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Income (loss) before income taxes:
Domestic operations........................................................ $ 5,928 $ (10,519) $ (18,938)
Foreign operations......................................................... 1,950 1,894 (488)
--------- ---------- ----------
Total................................................................ $ 7,878 (8,625) (19,426)
--------- ---------- ----------
Income tax:
Domestic operations:
Current.................................................................... 675 -- 162
Deferred................................................................... -- -- 5,161
--------- ---------- ----------
Total domestic....................................................... 675 5,323
--------- ---------- ----------
Foreign operations:
Current.................................................................... -- --
Deferred................................................................... -- -- 315
--------- ---------- ----------
Total foreign........................................................ -- -- 315
--------- ---------- ----------
Total................................................................ $ 675 $ -- $ 5,638
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The Company's tax expense differs from the expense calculated using the
statutory federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax benefit at statutory federal income tax rate.............................. $ 2,679 $ (2,933) $ (6,605)
Increase (decrease) resulting from:
Goodwill amortization..................................................... -- 66 66
Nondeductible expenses.................................................... 2,111 64 179
Adjustments of the valuation allowance.................................... (5,546) 3,553 13,044
State income taxes, net of federal tax benefit............................ 203 (603) (837)
Federal alternative minimum tax........................................... 687 -- --
Foreign taxes, net of federal tax benefit................................. 234 227 (52)
Other..................................................................... 307 (374) (157)
--------- --------- ---------
Total income tax expense...................................................... $ 675 $ -- $ 5,638
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-38
<PAGE>
14. INCOME TAXES: (CONTINUED)
The components of deferred tax balances as of September 30, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred taxes:
Contract revenue................................................................ $ 7,514 $ --
Accrued vacation pay............................................................ 682 537
Charitable contributions........................................................ -- 377
Other liabilities............................................................... 4,589 4,559
Pennsylvania settlement reserves................................................ 425 1,628
Net operating loss carryforwards................................................ 16,292 30,123
Capital loss carry forward...................................................... 202 --
Alternative minimum tax credit carryforward..................................... 687 --
Difference between financial reporting and tax bases of fixed and intangible
assets........................................................................ (10,296) (11,583)
Valuation allowance............................................................. (20,095) (25,641)
--------- ---------
Net deferred taxes.............................................................. $ -- $ --
--------- ---------
--------- ---------
</TABLE>
The valuation allowance at September 30, 1998 is included in the
accompanying analysis due to the change in ownership of the Company effective
October 16, 1998.
The net change in the valuation allowance for the deferred tax assets of the
Company is as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Beginning balance................................................................... $ 25,641 $ 19,452
Adjustment of valuation allowance due to a reassessment of the realizability of
deferred tax assets (1997 includes $3,553 adjustment to the Income Statement and
$2,636 adjustment to equity) (5,546) 6,189
--------- ---------
Ending balance...................................................................... $ 20,095 $ 25,641
--------- ---------
--------- ---------
</TABLE>
At September 30, 1998, the Company had federal net operating loss
carryforwards for federal tax purposes of approximately $37,547. The amounts
expire between 2010 and 2012. The state loss carryforwards vary in amount and
expiration date depending on the jurisdiction.
15. DEFINED CONTRIBUTION PLAN AND SUPPLEMENTAL RETIREMENT PLAN:
The Company has adopted a defined contribution 401(k) plan (the "Plan")
covering substantially all its employees. Eligible employees may contribute up
to 16% of base compensation to the Plan. The Company has an optional matching
program where the Company can match 50% of the employee's first 6% of
contribution. Company-matched contributions vest in full after three years of an
employee's credited service to the Company. The Company also has an option to
make additional profit-sharing contributions equal to 2% of the base salary of
each Plan participant. Defined contribution expense for the Company was
approximately $304, $457 and $696 for the years ended September 30, 1998, 1997
and 1996, respectively.
The Company has supplemental employee retirement plans covering six of its
key employees or former employees. The plan benefits for each employee range
from $13 to $100 per year commencing at age 65 for a period of ten years payable
in equal monthly installments. The plans also provide death and disability
benefits in the event of the death or total disability of an employee while
employed by the Company. The Company's policy is to fund the plan through
certain life insurance policies or through the
F-39
<PAGE>
15. DEFINED CONTRIBUTION PLAN AND SUPPLEMENTAL RETIREMENT PLAN: (CONTINUED)
general unrestricted assets of the Company. Supplemental retirement expense for
the Company was approximately $43, $105, and $119, for the years ended September
30, 1998, 1997 and 1996, respectively.
16. RELATED PARTY TRANSACTIONS:
In 1993, the Company entered into a three-year agreement for consulting
services with a director and principal stockholder of the Company. The agreement
provides for a base-consulting fee of $240 plus expenses annually for the first
year and $120 annually thereafter, as well as the grant of options. For the
years ended September 30, 1998, 1997 and 1996, the Company expensed $0, $0 and
$120, respectively under this agreement.
The Company retained a director of the Company to render consulting
services. The agreement originally provided for a base-consulting fee of $10 per
month plus expenses which decreased to $5 per month plus expenses in August
1997. For the year ended September 30, 1998 and 1997 the Company expensed $0 and
101, respectively, under this agreement. This agreement expired in 1998.
The Company has employee agreements with five executive employees whereby
the Company is obligated to pay the employee's salary, including benefits, from
one to three years. In addition, the Company is required to pay bonuses to two
employees upon change of ownership (as defined by the agreements). Total salary
and bonuses payable to the five employees is $3.5 million. These amounts were
either paid to the employees as of the effective date of the merger or will be
paid in the form of a monthly annuity over a one to three year period.
As the Company has previously disclosed in its periodic reports filed with
the Securities and Exchange Commission under the Securities and Exchange Act of
1934, the facilities and assets used by the Company in the Cuyahoga County, Ohio
I/M testing program (the "Ohio Assets") and the Tennessee I/M testing program
(the "Tennessee Assets") were leased to the Company pursuant to separate Sale
and Leaseback Agreements with Kane Partners, L.P. ("Kane Partners"). Richard
Gelfond, a director of the Company, is Vice President of the General Partners of
Kane Partners and holds a 25% limited partnership interest in Kane Partners.
Chester C. Davenport, Chairman of the Company, holds a 25% limited partnership
interest in Kane Partners. In November 1992, Kane Partners acquired the
underlying leasehold property and the related rights and obligations from the
original lessors of the Ohio and Tennessee Assets.
The statute and regulations governing Ohio's new I/M240 test program require
that the land and buildings be owned by a third party having no affiliation with
the operator of the program. The Ohio program is divided into four separate
zones, three of which were subject to competitive bid and, when awarded,
complied with this requirement. The fourth zone, Cuyahoga County, was subject to
an existing contract held by Envirotest at the time contracts for the other
zones were awarded by the State (two of which were awarded to the Company). As a
condition to entering into a new 10 year contract with Envirotest to conduct
I/M240 vehicle inspections in Cuyahoga County, Ohio (and not submitting this
zone to a competitive bid), the State of Ohio required Envirotest to comply with
its new I/M legislation and caused Kane Partners to divest its ownership
interest in the Ohio Assets. Accordingly, the third party developer utilized
approximately $10,000 of the net proceeds of the Authority offering described in
Note 17 to acquire ownership of the Ohio Assets that will be used in the new
Cuyahoga County, Ohio program to be operated by the Company. As a result, the
land and buildings used by the Company under its three Ohio I/M240 program
contracts will be owned by the developer and leased to the Company.
In connection with the negotiations related to the Ohio Assets, the Company
agreed to purchase from Kane Partners the Tennessee Assets for $1,800 and one
Ohio test site that will not be used in the new test program for $300, for an
aggregate purchase price of $2,100. Although Tennessee Assets and Ohio Assets
F-40
<PAGE>
16. RELATED PARTY TRANSACTIONS: (CONTINUED)
have been subject to separate sale and leaseback agreements, the assets have
served as functional security for a financing provided to the Company in 1990
and were held by Kane Partners since 1992 for the same purpose. Kane Partners
utilized a portion of the aggregate proceeds received by it from the sale of the
Ohio Assets and Tennessee Assets to retire certain debt obligations held by
Chemical Venture Partners and Apollo Advisors, L.P., affiliates of which are
directors of the Company and beneficially own approximately 14% and 17%,
respectively, of the Company's outstanding Class A Common Stock. These debt
obligations were incurred by Kane Partners in connection with its initial
acquisition of the Ohio Assets and Tennessee Assets.
In connection with the evaluation and approval of the acquisition of the
Ohio Assets and the Tennessee Assets, and as required by the Senior Notes debt
covenants, a committee of disinterested directors of the Company retained an
independent financial advisor which rendered an opinion stating that (i) the
purchase price paid for the Ohio Assets and Tennessee Assets (collectively, the
"Purchase Price") was fair to the public shareholders of the Company from a
financial point of view, and (ii) the Purchase Price was fair and reasonable to
the Company from a financial point of view and was on financial terms at least
as favorable as financial terms that could be obtained by the Company in a
comparable transaction made on an arm's length basis with persons who are not
related persons.
17. CAPITAL LEASE AND LONG-TERM DEBT OBLIGATION:
On June 30, 1995, the Ohio Air Quality Development Authority (Authority)
issued $64,380 of bonds with an 8.1% interest rate to finance the costs of the
acquisition, construction, renovation and equipping of the Company's emissions
testing network in Ohio. The bonds are subject to mandatory sinking fund
redemption and are due December 31, 2005. The land and buildings are owned by a
developer (the "Developer") and leased to the Company pursuant to a capital
lease. The equipment is owned by the Company. The Developer and the Company
separately have entered into loan agreements with the Authority under which the
payments will provide for timely payment of principal and interest on the bonds.
The Developer and the Company have entered into a master lease agreement
pursuant to which the developer will lease the land and buildings to the
Company. The proceeds are held in trust pending use of the funds and the
unexpended proceeds are reflected on the Company's balance sheet as restricted
cash.
Pursuant to the master lease and loan agreements, all revenues from the
operation of the Ohio emissions testing network are paid into certain accounts
held by the Trustee pursuant to a cash management services agreement. The excess
of revenues from operations over the amount required to be paid monthly to the
Authority under the loan agreements and to the Ohio Environmental Protection
Agency per the contracts will be available to the Company. The bonds are
collateralized by all Ohio program assets.
F-41
<PAGE>
17. CAPITAL LEASE AND LONG-TERM DEBT OBLIGATION: (CONTINUED)
The future minimum annual payments under the master lease and Company loan
agreement for fiscal years ending September 30 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 9,619
2000.............................................................. 9,629
2001.............................................................. 9,639
2002.............................................................. 9,623
2003.............................................................. 9,626
Thereafter........................................................ 22,451
---------
Total minimum payments............................................ 70,587
Amount representing interest...................................... (17,492)
---------
Present value of minimum payments................................. 53,095
Less current portion.............................................. (5,520)
---------
$ 47,575
---------
---------
</TABLE>
18. OPERATING LEASES:
The Company is obligated under noncancelable operating leases for the
building sites in Vancouver, British Columbia. The Vancouver lease runs for
seven years ending August 31, 1999, with monthly payments averaging
approximately $300. The Company has the option to renew this lease for an
additional seven-year period.
As of September 30, 1998, approximate future minimum lease commitments under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 5,343
2000............................................................... 1,824
2001............................................................... 1,425
2002............................................................... 1,101
2003............................................................... 681
Thereafter......................................................... 2,970
---------
$ 13,343
---------
---------
</TABLE>
Rental expense for the years ended September 30, 1998, 1997 and 1996 was
approximately $5,760, $6,043 and $4,112 respectively, net of sublease income of
approximately $185, $429 and $289 for 1998, 1997 and 1996 respectively.
19. EXTRAORDINARY LOSS:
During fiscal 1997, the Company recognized an extraordinary loss from the
write-off of amortization of deferred issuance costs, original issue discounts
and tender offer fees of $1,324, in connection with the repurchase of $50,000
aggregate principal amount of its 9 1/8% Senior Notes due 2001, completed
September 17, 1997.
20. COMMITMENTS AND CONTINGENCIES:
The Company has several performance bonds on its long-term contracts. These
bonds are required by the contracts and vendor agreements in the event the
Company cannot perform and complete the
F-42
<PAGE>
20. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
contracts and agreements. In addition, a bank holds a letter of credit in the
amount of $2,400 guaranteed by the Company in connection with its performance
obligations in respect to the Washington State contract. In the opinion of
management, the Company will be able to fulfill the requirements of the
long-term contracts and leases. In June 1997, the Company signed an agreement
with the State of Illinois to upgrade the State's existing centralized auto
emissions testing program to an enhanced program. The agreement also extends the
program term to 2006. Capital expenditures required to implement the new program
are expected to total approximately $75,000. Enhanced testing will commence in
early 1999.
On August 29, 1997, the Company purchased from Hughes Aircraft Company
("Hughes") the assets comprising Hughes' remote emissions sensing product line
and related technologies for $3,700. In addition, the Company agreed to pay a 3%
royalty on future net revenues related to remote sensing sales and services over
the next five years up to a cap of $10.0 million. The royalty payments are
contingent on future revenues from remote sensing sales and services and totaled
$55 as of September 30, 1998. The Company also assumed Hughes' contract with the
State of Arizona to provide remote sensing services. The acquisition has been
accounted for as a purchase. The impact on the 1997 financial statements was not
material.
The Company and its subsidiaries are parties to lawsuits or may in the
future become parties to lawsuits involving various types of commercial claims,
including, but not limited to, breach of contract and intellectual property
matters. Legal proceedings tend to be unpredictable and costly and may be
affected by events outside the control of the Company. There is no assurance
that litigation will not have an adverse effect on the Company's financial
position, results of operations, or cash flows.
State of Connecticut v. Envirotest Systems Corp. Under the new contract
entered into with the Company in April 1994, the State unilaterally decided to
continue the old testing procedure and phase in the enhanced testing required by
the new contract. Additionally, the Company was unable to build two test
facilities, one due to the State's inability to provide the land the contract
required and the other due to the inability to obtain zoning. As a result, the
Company and the State of Connecticut were in dispute concerning various
financial issues related to the performance by each of their respective
obligations under the Contract. On May 8, 1998, the Company and the State of
Connecticut entered into an agreement (the "Agreement") settling the State's
claims against the Company, except for certain penalties unrelated to the
settled claims which the parties are to negotiate, and the Company's claims
against the State. The Agreement modifies the terms of the Company's existing
vehicle inspection and safety inspection contracts with the State to provide
among other things, for the Company to add five emissions inspection lanes to
its existing network in lieu of constructing an additional station as required
under the existing contracts.
Ganzcorp Investments, Inc. v. Envirotest Systems Corp. On September 26, 1995
Ganzcorp Investments, Inc. d/b/a/ Mustang Dynamometer filed suit against
Envirotest Systems Corp. in U.S. District Court for the Northern District of
Ohio. The suit alleged breach of contract and asked for damages in excess of
$10.0 million. The suit was voluntarily dismissed by the parties on December 22,
1995 so that the parties could focus on settlement negotiations. On October 8,
1997, the case was re-filed by Ganzcorp when settlement negotiations broke down
between the parties. In 1993, the parties signed an agreement for the supply of
chassis dynamometers by Ganzcorp to the Company for its emission testing
programs in Ohio, Connecticut, and Pennsylvania. When the Company's testing
program with the State of Pennsylvania was canceled, the Company canceled its
contract with Ganzcorp per a "termination for convenience" clause. Under such
clause Ganzcorp would be allowed to make a claim for certain costs incurred but
such a claim would be substantially below its stated claim of more than $10,000.
Additionally, the Company has counterclaims against Ganzcorp for breach of
contract and warranty obligations which it believes to be in excess of $7,900.
Subsequent to September 30, 1998, the Company has agreed in principal to pay
Ganzorp up to $1.5 million in settlement of all of the above claims. The
settlement amount has been included in the
F-43
<PAGE>
20. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
accompanying financial statements within the balance sheet caption "accrued
expenses and other current liabilities."
R.W. Granger & Sons filed a Demand for Arbitration in the East Hartford,
Connecticut, office of the American Arbitration Association in September 1996
alleging breach of contract and failure to pay amounts due Granger in connection
with the construction of certain of the Company's testing facilities in the
State of Connecticut. On December 29, 1997, Granger filed a complaint in State
Superior Court in the Judicial District of Hartford/New Britain at New Britain
alleging that the Company's failure to pay amounts due to Granger is an unfair
trade practice under the Connecticut Unfair Trade Practices Act. The Arbitrators
awarded Granger approximately $495, including the costs of the Arbitration, in a
decision rendered on August 12, 1998. Granger was claiming damages of
approximately $2.0 million in its Demand for Arbitration. Granger has moved to
modify the arbitration award seeking additional alleged damages of approximately
$200,000, which motion is pending. The Company intends to vigorously defend
against Granger's remaining claim in State Superior Court and the Company
believes that any judgment against the Company with respect to the remaining
claim will not have a material adverse effect on its financial position and
results of operations.
Timothy J. Grendell, et al v. Ohio Environmental Protection Agency, et al.
On November 18, 1998, Timothy J. Grendell, on behalf of himself and all others
similarly situated, filed a class action lawsuit in the Court of Common Pleas,
Summit County, Akron, Ohio. The defendants include the Ohio Environmental
Protection Agency and the Company. Grendell filed a virtually identical suit in
1996 and it was dismissed without prejudice exactly one year before the
above-noted class action lawsuit was filed. Like the 1996 lawsuit, the
above-noted class action lawsuit asserts that the statute and contract that
created E-Check are unconstitutional under Ohio law, and requests declaratory
and injunctive relief, attorney fees and costs. The Company believes that it has
valid defenses to the claims contained in the complaint and intends to defend
the matter vigorously.
In addition to the above, the Company is a party to various other legal
proceedings and claims in the ordinary course of business. Although the claims
cannot be estimated, in the opinion of management the resolution of these
matters will not have a material adverse effect on the Company's consolidated
financial position and results of operations.
21. FOREIGN OPERATIONS:
The Company's contract revenues from its foreign subsidiary, located in
Vancouver, British Columbia, Canada, were approximately $13,475, $14,062 and
$10,147 for the years ended September 30, 1998, 1997 and 1996, respectively, and
were earned from a single customer. Identifiable assets of the foreign
subsidiary totaled approximately $5,019, $4,786, and $6,913 at September 30,
1998, 1997 and 1996, respectively. The foreign subsidiary had a gross profit
before selling, general and administrative expenses of approximately $3,715,
$3,173 and $572 for the years ended September 30, 1998, 1997 and 1996,
respectively.
F-44
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY........................................................ 1
RISK FACTORS.............................................................. 13
SOURCES AND USES OF FUNDS................................................. 20
CAPITALIZATION............................................................ 21
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS....................... 22
SELECTED HISTORICAL FINANCIAL DATA........................................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 38
INDUSTRY AND REGULATORY OVERVIEW.......................................... 51
BUSINESS.................................................................. 53
MANAGEMENT................................................................ 70
SECURITY OWNERSHIP........................................................ 73
CERTAIN TRANSACTIONS...................................................... 74
DESCRIPTION OF OTHER INDEBTEDNESS......................................... 76
DESCRIPTION OF THE NOTES.................................................. 80
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS................... 121
BOOK-ENTRY; DELIVERY AND FORM............................................. 125
SELLING NOTEHOLDERS....................................................... 128
PLAN OF DISTRIBUTION...................................................... 129
LEGAL MATTERS............................................................. 130
EXPERTS................................................................... 130
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
ENVIRONMENTAL
SYSTEMS PRODUCTS
HOLDINGS INC.
$100,000,000
13% SENIOR SUBORDINATED
NOTES DUE 2008,
WHICH ARE UNCONDITIONALLY
GUARANTEED ON A SENIOR
SUBORDINATED BASIS BY THE
DOMESTIC AND CERTAIN
FOREIGN SUBSIDIARIES OF THE
COMPANY
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable in connection with the issuance and distribution of the
Notes being registered (other than underwriting discount)(*) are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 27,800
Printing and engraving expenses...................................
Accounting fees and expenses......................................
Legal fees and expenses...........................................
Trustees' fees and expenses.......................................
Miscellaneous expenses............................................
---------
Total......................................................... $
---------
</TABLE>
- ------------------------
* Each of the expenses listed above is estimated except for the SEC
registration fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The information below briefly outlines the provisions of Section 102(b)(7)
of the General Corporation Law of the State of Delaware, Article X of our
Certificate of Incorporation and Article VIII of our By-Laws. For more
information, you may review the provisions of our Certificate of Incorporation
and By-Laws that we filed with the SEC.
ELIMINATION OF LIABILITY
Section 102(b)(7) of Delaware's corporation law gives each Delaware
corporation the power to eliminate or limit its directors' personal liability to
the corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director, except:
- for any breach of the director's duty of loyalty to the corporation or its
stockholders;
- for acts or omissions in bad faith, or involving intentional misconduct or
a knowing violation of the law;
- under Section 174 of Delaware's corporation law (providing for liability
of directors for the unlawful payment of dividends or unlawful stock
purchases or redemptions); or
- for any transaction from which a director derived an improper personal
benefit.
You should know that our Certificate of Incorporation eliminates the
personal liability of our directors to the fullest extent permitted by Section
102(b)(7) of Delaware's corporation law.
INDEMNIFICATION
Section 145 of Delaware's corporation law grants each Delaware corporation
the power to indemnify its directors and officers against liability for certain
of their acts.
Our By-Laws provide, among other things, that under certain circumstances we
are required or permitted to indemnify any officer or director of our company
(or such person's estate):
- who was or is a party (or is threatened to be made a party) to a
threatened, pending or completed action, suit or other proceeding;
- whether or not the action, suit or other proceeding was or is in the right
of our company;
II-1
<PAGE>
- regardless of whether the suit or other proceeding was or is civil,
criminal, administrative or investigative in nature; and
- by reason of the fact that he or she is or was one of our directors or
officers, or is or was serving at our request as a director or officer of
another corporation, partnership or other enterprise.
Unless otherwise permitted by applicable laws, our By-Laws require us to
make a case-specific determination, in accordance with applicable laws, that
indemnification is proper in the circumstances. Our by-laws only require us to
indemnify an officer or director if he or she acted in good faith and in a
manner he or she reasonably believed to be consistent with our best interests.
Moreover, with respect to any criminal action or proceeding, one of our officers
or directors is only entitled to indemnification if he or she had no reasonable
cause to believe his or her conduct was unlawful. We are not required to
indemnify, or advance expenses to any person in connection with any action, suit
or other proceeding (including any counterclaim) initiated by or on his or her
behalf.
You should know, however, that in the event that an officer or director of
our company is entitled to indemnification under our By-Laws, we may be required
to indemnify him or her against expenses (including, for example, attorneys'
fees, judgments, penalties, fines and settlement amounts actually and reasonably
incurred and not recovered related to such officer or director's investigation,
preparation to defend or defense of such action, suit, or other proceeding). You
should also know that, to the extent permitted by our By-Laws, our By-Laws
authorize us to pay any such expenses in advance of the final disposition of the
action, suit or other proceeding in question. Our By-Laws also authorize us to
make, to the extent permitted by law, such advance payments even if the officer
or director in question is alleged to have failed to meet the "good faith"
standard of conduct discussed above, or is alleged to have committed conduct
which, if true, would avail us from indemnifying such officer or director.
Before making any advance payment, our By-Laws require us to receive an
undertaking by or on behalf of the director or officer in question to repay the
advance if it is ultimately determined that he or she is not entitled to
indemnification.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Subscription Agreement, dated as of October 15, 1998, between Environmental Systems Products Holdings
Inc., EnviroSystems Corp., the Subsidiary Guarantors named therein and the Initial Purchasers named
therein.
2.1 Agreement and Plan of Merger among Environmental Systems Products, Inc., Stone Rivet, Inc. and
Envirotest Systems Corp., dated as of August 12, 1998.
3.1 Certificate of Incorporation of Environmental Systems Products Holdings Inc., as amended, filed with the
Secretary of State of the State of Delaware.
3.2 By-Laws of Environmental Systems Products Holdings Inc.
4.1 Indenture, dated as of October 16, 1998, by and among Environmental Systems Products Holdings Inc., as
Issuer, the Subsidiary Guarantors and United States Trust Company of Texas, N.A., as Trustee.
4.2 Specimen Certificate of the 13% Senior Subordinated Note due 2008 (included in Exhibit 4.1 hereto).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.3 Registration Rights Agreement, dated as of October 16, 1998, by and among Environmental Systems Products
Holdings Inc., EnviroSystems Corporation, the Subsidiary Guarantors, DLJ Investment Partners, L.P., DLJ
ESC II, L.P., DLJ Investment Funding, Inc., Credit Suisse First Boston (Europe) Limited and Chase Equity
Associates, L.P.
4.4 Placement Agreement, dated as of October 15, 1998, by and among Environmental Systems Products Holdings
Inc., EnviroSystems Corporation, the Subsidiary Guarantors named therein, and Credit Suisse First Boston
Corporation.
5.1 Opinion of White & Case LLP regarding the legality of the Notes.*
8.1 Opinion of White & Case LLP regarding certain tax matters.*
10.1 Motor Vehicle Emissions Inspection and Maintenance Program Agreement, as amended, dated for reference
April 15, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., and Guaranteed by Hamilton Test Systems, Inc. (incorporated herein by
reference to Exhibit 10.35 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No.
33-57386), filed on January 25, 1993).
10.2 Amendment No. 1 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated April
15, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.40
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.3 Amendment No. 2 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated May
31, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.41
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.4 Amendment No. 3 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated
December 13, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.42
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.5 Amendment No. 4 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated April
1, 1992, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.43
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.6 Amendment No. 5 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated
August 14, 1992, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners.
</TABLE>
amendment
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.7 Amendment No. 6 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated July
15, 1994, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners.*
10.8 Contract between the Colorado Department of Health, the Colorado Department of Revenue and Envirotest
Systems Corporation, dated February 22, 1994 (incorporated herein by reference to Exhibit 10.90 to
Envirotest Systems Corporation's Registration Statement on Form S-1/A (No. 033-75406), filed on March 8,
1994).
10.9 Contract between the State of Connecticut and Envirotest Systems Corporation for the Establishment and
Operation of the Motor Vehicle Inspection Program Facilities for the State of Connecticut dated April
15, 1994 (incorporated herein by reference to Exhibit 10.91 to Envirotest Systems Corporation's
Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended March 31, 1994).
10.10 Amendment No. 1 to the Contract between the State of Connecticut and Envirotest Systems Corporation for
the Establishment and Operation of the Motor Vehicle Inspection Program Facilities for the State of
Connecticut dated October 20, 1997 (incorporated herein by reference to Exhibit 10.134 to Envirotest
Systems Corporation's Quarterly Report on Form 10Q (No. 001-13241) for the quarterly period ended June
30, 1998).
10.11 Amendment No. 2 to the Contract between the State of Connecticut and Envirotest Systems Corporation for
the Establishment and Operation of the Motor Vehicle Inspection Program Facilities for the State of
Connecticut dated May 8, 1998 (incorporated herein by reference to Exhibit 10.134 to Envirotest Systems
Corporation's Quarterly Report on Form 10Q (No. 001-13241) for the quarterly period ended June 30,
1998).
10.12 Agreement by and between Envirotest Systems Corp. and the Department of Motor Vehicles of the State of
Connecticut, dated May 8, 1998 (incorporated herein by reference to Exhibit 10.135 to Envirotest Systems
Corporation's Quarterly Report on Form 10Q (No. 001-13241) for the quarterly period ended June 30,
1998).
10.13 Contract for Motor Vehicle Inspection Program (for Zone 3--Palm Beach County), dated as of January 31,
1990, by and between the State of Florida, the Department of Highway Safety and Motor Vehicles, and
Systems Control, Inc. (incorporated herein by reference to Exhibit 10.47 to Envirotest Systems
Corporation's Registration Statement on Form S-1 (No. 033-57386), dated January 25, 1993).
10.14 Amendment No. 1 to the Motor Vehicle Inspection Program (for Zone 3--Palm Beach County), dated as of
January 31, 1990, by and between the State of Florida, the Department of Highway Safety and Motor
Vehicles, and Systems Control, Inc., dated February 1, 1990 (incorporated herein by reference to Exhibit
10.50 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386), dated
January 25, 1993).
10.15 Agreement for Renewal of Contract for Motor Vehicle Inspection Program between Envirotest Technologies
and the Florida Department of Highway Safety and Motor Vehicles, dated February, 1997 (incorporated
herein by reference to Exhibit 10.117 to Envirotest Systems Corporation's Quarterly report on Form 10-Q
(No. 000-21454) for the quarterly period ended March 31, 1997).
</TABLE>
amendment
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Agreement for Renewal of Contract for Motor Vehicle Inspection Program (for Zone 3--Palm Beach County)
between Envirotest Technologies and the Florida Department of Highway Safety and Motor Vehicles.
10.17 Contract for Motor Vehicle Inspection Program (for Zone 5--Dade County), dated January 31, 1990, by and
between the State of Florida, the Department of Highway Safety and Motor Vehicles, and Systems Control,
Inc. (incorporated herein by reference to Exhibit 10.47 to Envirotest Systems Corporation's Registration
Statement on Form S-1 (No. 033-57386), dated January 25, 1993).
10.18 Amendment No. 1 to the Motor Vehicle Inspection Program (for Zone 5--Dade County), dated as of January
31, 1990, by and between the State of Florida, the Department of Highway Safety and Motor Vehicles, and
Systems Control, Inc., dated February 1, 1990 (incorporated herein by reference to Exhibit 10.52 to
Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386), dated January 25,
1993).
10.19 Agreement for Renewal of Contract for Motor Vehicle Inspection Program (for Zone 5--Dade County) between
Envirotest Technologies and the Florida Department of Highway Safety and Motor Vehicles.
10.20 State of Illinois Environmental Protection Agency Service Agreement with Envirotest Illinois, Inc. dated
May 19, 1997 (incorporated herein by reference to Exhibit 10.118 to Envirotest Systems Corporation's
Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended June 30, 1997).
10.21 Amendment No. 1 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated October 22, 1997.
10.22 Amendment No. 2 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated October 22, 1997.
10.23 Amendment No. 3 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated November 19, 1997.
10.24 Amendment No. 4 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated February 19, 1998.
10.25 Amendment No. 5 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc.*
10.26 Amendment No. 6 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated May 1, 1998.
10.27 Agreement between Indiana Department of Environmental Management and Envirotest Systems Corp. dated June
26, 1996 (incorporated herein by reference to Exhibit 10.106 to Envirotest Systems Corporation's
Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended June 30, 1996).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.28 Contract for the Provision and Operation of an Improved Basis Vehicle Inspection Maintenance Program in
Boone, Campbell, and Kenton Counties in Kentucky, effective as of July 1, 1998 by and between Envirotest
Systems Corp. and the Commonwealth of Kentucky, and Addenda 1-3 thereto (incorporated herein by
reference to Exhibit 10.136 to Envirotest Systems Corp.'s Quarterly Report on Form 10-Q (No. 001-13241)
for the quarterly period ended June 30, 1998).
10.29 General Conditions of the Contract for the Establishment and Operation of Motor Vehicle
Inspection/Maintenance Program for the State of Minnesota, dated July 18, 1990, by and between the State
of Minnesota, acting through the Pollution Control Agency, and Systems Control, Inc., doing business in
Minnesota as Systems Control Vehicle Testing, Inc. (incorporated herein by reference to Exhibit 10.73 to
Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386) dated January 25,
1993).
10.30 Amendment No. 1 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota, dated as of June 17, 1991, by and
between the State of Minnesota, acting through the Pollution Control Agency, and Systems Control, Inc.,
doing business in Minnesota as Systems Control Vehicle Testing, Inc. (incorporated herein by reference
to Exhibit 10.68 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386),
filed on January 25, 1993).
10.31 Amendment No. 2 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota, dated as of May 15, 1992, by and
between the State of Minnesota, acting through the Pollution Control Agency, and Systems Control, Inc.,
doing business in Minnesota as Systems Control Vehicle Testing, Inc. (incorporated herein by reference
to Exhibit 10.69 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386),
filed on January 25, 1993).
10.32 Amendment No. 3 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
September 30, 1993, by and between the State of Minnesota, acting through the Pollution Control Agency,
and Envirotest Technologies, Inc.
10.33 Amendment No. 4 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
September 6, 1995, by and between the State of Minnesota, acting through the Pollution Control Agency,
and Envirotest Technologies, Inc.
10.34 Amendment No. 5 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
October 31, 1995, by and between the State of Minnesota, acting through the Pollution Control Agency,
and Envirotest Technologies, Inc.
10.35 Amendment No. 6 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
April 22, 1998, by and between the State of Minnesota, acting through the Pollution Control Agency, and
Envirotest Technologies, Inc. (incorporated herein by reference to Exhibit 10.123 to Envirotest Systems
Corporation's Quarterly Report on Form 10Q (No. 001- 13241) for the quarterly period ended March 31,
1998).
10.36 Change Order for Services issued by the Ohio Environmental Protection Agency to Envirotest Systems Corp.
(incorporated herein by reference to Exhibit 10.113 to Envirotest Systems Corporation's Quarterly Report
on Form 10Q (No. 001- 13241) for the quarterly period ended June 30, 1998).
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.37 Contract, as amended, for Operation of Vehicle Inspection and Maintenance Program, dated July 1990, by
and between the Metropolitan Government of Nashville and Davidson County and Hamilton Test Systems, Inc.
(original contract incorporated herein by reference to Exhibit 10.73 to Envirotest Systems Corporation's
Registration Statement on Form S-1 (No. 033-57386) filed on January 25, 1993).
10.38 Amendment No. 1 to Contract by and between the Metropolitan Government of Nashville and Davidson County
and Hamilton Test Systems, Inc. for Operation of Vehicle Inspection and Maintenance Program.*
10.39 Amendment No. 2 to Contract by and between the Metropolitan Government of Nashville and Davidson County
and Envirotest Systems Corp. for Operation of Vehicle Inspection and Maintenance Program, dated February
15, 1994.*
10.40 Amendment No. 3 to Contract by and between the Metropolitan Government of Nashville and Davidson County
and Envirotest Systems Corp. for Operation of Vehicle Inspection and Maintenance Program, dated December
19, 1995.
10.41 Contract, as amended, between the Department of Environment and Conservation State of Tennessee and
Envirotest Systems Corporation, dated May 12, 1994 (original contract incorporated herein by reference
to Exhibit 10.92 to Envirotest Systems Corporation's Quarterly Report on Form 10-Q (No. 000-21454) for
the quarterly period ended June 30, 1994).
10.42 Amendment 1 to Contract, as amended, between the Department of Environment and Conservation State of
Tennessee and Envirotest Systems Corporation, dated May 12, 1994.
10.43 Amendment 2 to Contract, as amended, between the Department of Environment and Conservation State of
Tennessee and Envirotest Systems Corporation, dated May 12, 1994.*
10.44 Amendment 3 to Contract, as amended, between the Department of Environment and Conservation State of
Tennessee and Envirotest Systems Corporation, dated May 12, 1994.*
10.45 Amendment 4 to Contract No. RV-5-000575-5-00 between the State of Tennessee, Department of Environment
and Conservation and Envirotest Systems Corp. dated as of May 5, 1998 (incorporated by reference herein
to Exhibit 10.126 to Envirotest Systems Corporation's Quarterly Report on Form 10Q (No. 001- 13241) for
the quarterly period ended March 31, 1998).
10.46 Contract between State of Washington and Envirotest Systems Corp. (incorporated by reference herein to
Exhibit 10.111 to the Envirotest Systems Corporation's Annual Report on Form 10-K (No. 000-21452) for
the fiscal year ended September 30, 1996, filed on December 30, 1996).
10.47 Agreement between the Wisconsin Department of Transportation and Envirotest Systems Corp. for the
Establishment and Operation of Motor Vehicle, Emissions Inspection Facilities for the State of
Wisconsin, dated January 25, 1995 (incorporated herein by reference to Exhibit 10.15 to Envirotest
Systems Corporation's Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended
December 31, 1994).
10.48 Employment Agreement, dated October 16, 1998, between Terrence P. McKenna and Environmental Systems
Products Holdings, Inc.
10.49 Employment Agreement, dated October 16, 1998, between Rinaldo R. Tedeschi and Environmental Systems
Products Holdings, Inc.
10.50 Employment Agreement, dated October 16, 1998, between David J. Langevin and Environmental Systems
Products Holdings, Inc.
</TABLE>
amendment
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.51 Credit Agreement, dated as of October 15, 1998, by and among Environmental Systems Products Holdings
Inc., EnviroSystems Corporation, the banks, financial institutions and other entities listed therein, as
Lenders, Credit Suisse First Boston Corporation, as Administrative Agent and Collateral Agent, DLJ
Capital Funding, Inc., as Syndication Agent and Credit Suisse First Boston Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation as Arrangers.
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of Environmental Systems Products Holdings Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.7 Consent of White & Case LLP (included in exhibit 5.1 hereto).
23.8 Consent of White & Case LLP (included in Exhibit 6.1 hereto).
24.1 Power of Attorney (see pages II-10 and II-24).
25.1 Statement of eligibility of trustee.
</TABLE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrants hereby undertake:
(1) to file, during any period in which offers or 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 end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) that, for the purpose 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;
(3) to remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
II-8
<PAGE>
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants 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 Registrants will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Director, President and
/s/ TERRENCE P. MCKENNA Chief Executive Officer
- ------------------------------ (Principal Executive
Terrence P. McKenna Officer)
Director and Executive
Vice President, Finance
/s/ DAVID J. LANGEVIN and Administration
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
Director and Executive
/s/ RINALDO R. TEDESCHI Vice President,
- ------------------------------ Engineering and Technical
Rinaldo R. Tedeschi Development
/s/ ERIC WALTERS
- ------------------------------ Director
Eric Walters
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
Director, President and
/s/ TERRENCE P. MCKENNA Chief Executive Officer
- ------------------------------ (Principal Executive
Terrence P. McKenna Officer)
Director and Executive
Vice President, Finance
/s/ DAVID J. LANGEVIN and Administration
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
Director and Executive
/s/ RINALDO R. TEDESCHI Vice President,
- ------------------------------ Engineering and
Rinaldo R. Tedeschi Technical Development
/s/ ERIC WALTERS
- ------------------------------ Director
Eric Walters
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST SYSTEMS CORP. (DE)
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies has duly caused this Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in East Granby, Connecticut, on
December 21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST SYSTEMS CORP. (WA)
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST HOLDINGS, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA Director and President
- ------------------------------ (Principal Executive
Terrence P. Mckenna Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
/s/ RINALDO R. TEDESCHI
- ------------------------------ Director
Rinaldo R. Tedeschi
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST TECHNOLOGIES, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST ACQUISITIONS CO.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST PARTNERS
By: Envirotest Systems Corp. (DE)
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST ILLINOIS, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ENVIROTEST WISCONSIN, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
/s/ RINALDO R. TEDESCHI
- ------------------------------ Director
Rinaldo R. Tedeschi
- ------------------------------ Director
Douglas K. Johnson
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
ES FUNDING CORPORATION
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
/s/ RINALDO R. TEDESCHI
- ------------------------------ Director
Rinaldo R. Tedeschi
- ------------------------------ Director
Alicia Burke
- ------------------------------ Director
Bradley Woodhill
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
REMOTE SENSING TECHNOLOGIES, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
NEWMALL LIMITED
By: /s/ ERIC WALTERS
-----------------------------------------
Eric Walters
DIRECTOR
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ ERIC WALTERS
- ------------------------------ Director
Eric Walters
- ------------------------------ Director
Amanda Shipman
/s/ ALAN BAXTER
- ------------------------------ Director (Principal
Alan Baxter executive officer)
Director(Principal
/s/ TERRENCE SMITH financial officer and
- ------------------------------ principal accounting
Terrence Smith officer)
/s/ KEVIN MURPHY
- ------------------------------ Director
Kevin Murphy
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in East Granby, Connecticut, on December
21, 1998.
<TABLE>
<S> <C> <C>
WELLMAN OVERSEAS LIMITED
By: /s/ ALAN BAXTER
-----------------------------------------
Alan Baxter
DIRECTOR
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ ALAN BAXTER
- ------------------------------ Director (Principal
Alan Baxter executive officer)
/s/ JONATHAN SMITH
- ------------------------------ Director
Jonathan Smith
Director(Principal
/s/ TERRENCE SMITH financial officer and
- ------------------------------ principal accounting
Terrence Smith officer)
/s/ DAVID J. LANGEVIN
- ------------------------------ Director
David J. Langevin
/s/ TERRENCE P. MCKENNA
- ------------------------------ Director
Terrence P. McKenna
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in East Granby, Connecticut, on December 21, 1998.
<TABLE>
<S> <C> <C>
WELLMAN NORTH AMERICA, INC.
By: /s/ TERRENCE P. MCKENNA
-----------------------------------------
Terrence P. McKenna
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints and
hereby authorizes Terrence P. McKenna, David J. Langevin and Rinaldo R. Tedeschi
and each of them, as attorney-in-fact, to sign on such person's behalf,
individually and in each capacity stated below, and to file any amendments,
including post effective amendments to the registration statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 21, 1998:
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ TERRENCE P. MCKENNA
- ------------------------------ President (Principal
Terrence P. McKenna Executive Officer)
Director, Executive Vice
/s/ DAVID J. LANGEVIN President and Secretary
- ------------------------------ (Principal Financial
David J. Langevin Officer and Principal
Accounting Officer)
</TABLE>
II-24
<PAGE>
SCHEDULE II -
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
<S> <C> <C> <C> <C> <C>
CHARGE TO
BALANCE AT CHARGE TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE NET OF WRITE-OFFS END OF PERIOD
- ------------------------------------------ ------------- --------------- ----------- ----------------- -------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Years ended
December 31, 1995....................... $ 325 $ 219 $ -- $ 18 $ 526
December 31, 1996....................... 526 685 -- 58 1,153
December 31, 1997....................... 1,153 842 -- 444 1,551
Nine months ended September 30, 1998
(unaudited)............................. 1,551 -- -- 222 1,329
</TABLE>
S-1
<PAGE>
SCHEDULE II - (CONTINUED)
ENVIROTEST SYSTEMS CORP.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
<S> <C> <C> <C> <C> <C>
CHARGE TO
BALANCE AT CHARGE TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
DESCRIPTION PERIOD EXPENSES DESCRIBE NET OF WRITE-OFFS END OF PERIOD
- ------------------------------------------ ------------- ------------- ----------- ----------------- -------------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Years ended
September 30, 1996...................... $ 375 $ 74 $ -- $ -- $ 449
September 30, 1997...................... 449 850 -- -- 1,299
September 30, 1998...................... 1,299 (273) -- -- 1,026
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Subscription Agreement, dated as of October 15, 1998, between Environmental Systems Products Holdings
Inc., EnviroSystems Corp., the Subsidiary Guarantors named therein and the Initial Purchasers named
therein.
2.1 Agreement and Plan of Merger among Environmental Systems Products, Inc., Stone Rivet, Inc. and
Envirotest Systems Corp., dated as of August 12, 1998.
3.1 Certificate of Incorporation of Environmental Systems Products Holdings Inc., as amended, filed with the
Secretary of State of the State of Delaware.
3.2 By-Laws of Environmental Systems Products Holdings Inc.
4.1 Indenture, dated as of October 16, 1998, by and among Environmental Systems Products Holdings Inc., as
Issuer, the Subsidiary Guarantors and United States Trust Company of Texas, N.A., as Trustee.
4.2 Specimen Certificate of the 13% Senior Subordinated Note due 2008 (included in Exhibit 4.1 hereto).
4.3 Registration Rights Agreement, dated as of October 16, 1998, by and among Environmental Systems Products
Holdings Inc., EnviroSystems Corporation, the Subsidiary Guarantors, DLJ Investment Partners, L.P., DLJ
ESC II, L.P., DLJ Investment Funding, Inc., Credit Suisse First Boston (Europe) Limited and Chase Equity
Associates, L.P.
4.4 Placement Agreement, dated as of October 15, 1998, by and among Environmental Systems Products Holdings
Inc., EnviroSystems Corporation, the Subsidiary Guarantors named therein, and Credit Suisse First Boston
Corporation.
5.1 Opinion of White & Case LLP regarding the legality of the Notes.*
8.1 Opinion of White & Case LLP regarding certain tax matters.*
10.1 Motor Vehicle Emissions Inspection and Maintenance Program Agreement, as amended, dated for reference
April 15, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., and Guaranteed by Hamilton Test Systems, Inc. (incorporated herein by
reference to Exhibit 10.35 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No.
33-57386), filed on January 25, 1993).
10.2 Amendment No. 1 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated April
15, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.40
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.3 Amendment No. 2 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated May
31, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.41
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
</TABLE>
* To be filed by amendment
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.4 Amendment No. 3 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated
December 13, 1991, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.42
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.5 Amendment No. 4 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated April
1, 1992, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners (incorporated herein by reference to Exhibit 10.43
to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 33-57386), filed on January
25, 1993).
10.6 Amendment No. 5 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated
August 14, 1992, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners.
10.7 Amendment No. 6 to the Motor Vehicle Emissions Inspection and Maintenance Program Agreement, dated July
15, 1994, by and between Her Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.)
Ltd., carrying on business as Ebco-Hamilton Partners.*
10.8 Contract between the Colorado Department of Health, the Colorado Department of Revenue and Envirotest
Systems Corporation, dated February 22, 1994 (incorporated herein by reference to Exhibit 10.90 to
Envirotest Systems Corporation's Registration Statement on Form S-1/A (No. 033-75406), filed on March 8,
1994).
10.9 Contract between the State of Connecticut and Envirotest Systems Corporation for the Establishment and
Operation of the Motor Vehicle Inspection Program Facilities for the State of Connecticut dated April
15, 1994 (incorporated herein by reference to Exhibit 10.91 to Envirotest Systems Corporation's
Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended March 31, 1994).
10.10 Amendment No. 1 to the Contract between the State of Connecticut and Envirotest Systems Corporation for
the Establishment and Operation of the Motor Vehicle Inspection Program Facilities for the State of
Connecticut dated October 20, 1997 (incorporated herein by reference to Exhibit 10.134 to Envirotest
Systems Corporation's Quarterly Report on Form 10Q (No. 001-13241) for the quarterly period ended June
30, 1998).
10.11 Amendment No. 2 to the Contract between the State of Connecticut and Envirotest Systems Corporation for
the Establishment and Operation of the Motor Vehicle Inspection Program Facilities for the State of
Connecticut dated May 8, 1998 (incorporated herein by reference to Exhibit 10.134 to Envirotest Systems
Corporation's Quarterly Report on Form 10Q (No. 001-13241) for the quarterly period ended June 30,
1998).
10.12 Agreement by and between Envirotest Systems Corp. and the Department of Motor Vehicles of the State of
Connecticut, dated May 8, 1998 (incorporated herein by reference to Exhibit 10.135 to Envirotest Systems
Corporation's Quarterly Report on Form 10Q (No. 001-13241) for the quarterly period ended June 30,
1998).
</TABLE>
* To be filed by amendment
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.13 Contract for Motor Vehicle Inspection Program (for Zone 3--Palm Beach County), dated as of January 31,
1990, by and between the State of Florida, the Department of Highway Safety and Motor Vehicles, and
Systems Control, Inc. (incorporated herein by reference to Exhibit 10.47 to Envirotest Systems
Corporation's Registration Statement on Form S-1 (No. 033-57386), dated January 25, 1993).
10.14 Amendment No. 1 to the Motor Vehicle Inspection Program (for Zone 3--Palm Beach County), dated as of
January 31, 1990, by and between the State of Florida, the Department of Highway Safety and Motor
Vehicles, and Systems Control, Inc., dated February 1, 1990 (incorporated herein by reference to Exhibit
10.50 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386), dated
January 25, 1993).
10.15 Agreement for Renewal of Contract for Motor Vehicle Inspection Program between Envirotest Technologies
and the Florida Department of Highway Safety and Motor Vehicles, dated February, 1997 (incorporated
herein by reference to Exhibit 10.117 to Envirotest Systems Corporation's Quarterly report on Form 10-Q
(No. 000-21454) for the quarterly period ended March 31, 1997).
10.16 Agreement for Renewal of Contract for Motor Vehicle Inspection Program (for Zone 3--Palm Beach County)
between Envirotest Technologies and the Florida Department of Highway Safety and Motor Vehicles.
10.17 Contract for Motor Vehicle Inspection Program (for Zone 5--Dade County), dated January 31, 1990, by and
between the State of Florida, the Department of Highway Safety and Motor Vehicles, and Systems Control,
Inc. (incorporated herein by reference to Exhibit 10.47 to Envirotest Systems Corporation's Registration
Statement on Form S-1 (No. 033-57386), dated January 25, 1993).
10.18 Amendment No. 1 to the Motor Vehicle Inspection Program (for Zone 5--Dade County), dated as of January
31, 1990, by and between the State of Florida, the Department of Highway Safety and Motor Vehicles, and
Systems Control, Inc., dated February 1, 1990 (incorporated herein by reference to Exhibit 10.52 to
Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386), dated January 25,
1993).
10.19 Agreement for Renewal of Contract for Motor Vehicle Inspection Program (for Zone 5--Dade County) between
Envirotest Technologies and the Florida Department of Highway Safety and Motor Vehicles.
10.20 State of Illinois Environmental Protection Agency Service Agreement with Envirotest Illinois, Inc. dated
May 19, 1997 (incorporated herein by reference to Exhibit 10.118 to Envirotest Systems Corporation's
Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended June 30, 1997).
10.21 Amendment No. 1 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated October 22, 1997.
10.22 Amendment No. 2 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated October 22, 1997.
10.23 Amendment No. 3 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated November 19, 1997.
10.24 Amendment No. 4 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated February 19, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.25 Amendment No. 5 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc.*
10.26 Amendment No. 6 to the State of Illinois Agency Service Agreement dated May 19, 1997, between the State
of Illinois Environmental Protection Agency and Envirotest Illinois, Inc., dated May 1, 1998.
10.27 Agreement between Indiana Department of Environmental Management and Envirotest Systems Corp. dated June
26, 1996 (incorporated herein by reference to Exhibit 10.106 to Envirotest Systems Corporation's
Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended June 30, 1996).
10.28 Contract for the Provision and Operation of an Improved Basis Vehicle Inspection Maintenance Program in
Boone, Campbell, and Kenton Counties in Kentucky, effective as of July 1, 1998 by and between Envirotest
Systems Corp. and the Commonwealth of Kentucky, and Addenda 1-3 thereto (incorporated herein by
reference to Exhibit 10.136 to Envirotest Systems Corp.'s Quarterly Report on Form 10-Q (No. 001-13241)
for the quarterly period ended June 30, 1998).
10.29 General Conditions of the Contract for the Establishment and Operation of Motor Vehicle
Inspection/Maintenance Program for the State of Minnesota, dated July 18, 1990, by and between the State
of Minnesota, acting through the Pollution Control Agency, and Systems Control, Inc., doing business in
Minnesota as Systems Control Vehicle Testing, Inc. (incorporated herein by reference to Exhibit 10.73 to
Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386) dated January 25,
1993).
10.30 Amendment No. 1 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota, dated as of June 17, 1991, by and
between the State of Minnesota, acting through the Pollution Control Agency, and Systems Control, Inc.,
doing business in Minnesota as Systems Control Vehicle Testing, Inc. (incorporated herein by reference
to Exhibit 10.68 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386),
filed on January 25, 1993).
10.31 Amendment No. 2 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota, dated as of May 15, 1992, by and
between the State of Minnesota, acting through the Pollution Control Agency, and Systems Control, Inc.,
doing business in Minnesota as Systems Control Vehicle Testing, Inc. (incorporated herein by reference
to Exhibit 10.69 to Envirotest Systems Corporation's Registration Statement on Form S-1 (No. 033-57386),
filed on January 25, 1993).
10.32 Amendment No. 3 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
September 30, 1993, by and between the State of Minnesota, acting through the Pollution Control Agency,
and Envirotest Technologies, Inc.*
10.33 Amendment No. 4 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
September 6, 1995, by and between the State of Minnesota, acting through the Pollution Control Agency,
and Envirotest Technologies, Inc.
10.34 Amendment No. 5 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
October 31, 1995, by and between the State of Minnesota, acting through the Pollution Control Agency,
and Envirotest Technologies, Inc.
</TABLE>
* To be filed by amendment
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.35 Amendment No. 6 to the General Conditions of the Contract for the Establishment and Operation of Motor
Vehicle Inspection/Maintenance Program for the State of Minnesota Pollution Control Agency, dated as of
April 22, 1998, by and between the State of Minnesota, acting through the Pollution Control Agency, and
Envirotest Technologies, Inc. (incorporated herein by reference to Exhibit 10.123 to Envirotest Systems
Corporation's Quarterly Report on Form 10Q (No. 001- 13241) for the quarterly period ended March 31,
1998).
10.36 Change Order for Services issued by the Ohio Environmental Protection Agency to Envirotest Systems Corp.
(incorporated herein by reference to Exhibit 10.113 to Envirotest Systems Corporation's Quarterly Report
on Form 10Q (No. 001- 13241) for the quarterly period ended June 30, 1998).
10.37 Contract, as amended, for Operation of Vehicle Inspection and Maintenance Program, dated July 1990, by
and between the Metropolitan Government of Nashville and Davidson County and Hamilton Test Systems, Inc.
(original contract incorporated herein by reference to Exhibit 10.73 to Envirotest Systems Corporation's
Registration Statement on Form S-1 (No. 033-57386) filed on January 25, 1993).
10.38 Amendment No. 1 to Contract by and between the Metropolitan Government of Nashville and Davidson County
and Hamilton Test Systems, Inc. for Operation of Vehicle Inspection and Maintenance Program.*
10.39 Amendment No. 2 to Contract by and between the Metropolitan Government of Nashville and Davidson County
and Envirotest Systems Corp. for Operation of Vehicle Inspection and Maintenance Program, dated February
15, 1994.*
10.40 Amendment No. 3 to Contract by and between the Metropolitan Government of Nashville and Davidson County
and Envirotest Systems Corp. for Operation of Vehicle Inspection and Maintenance Program, dated December
19, 1995.
10.41 Contract, as amended, between the Department of Environment and Conservation State of Tennessee and
Envirotest Systems Corporation, dated May 12, 1994 (original contract incorporated herein by reference
to Exhibit 10.92 to Envirotest Systems Corporation's Quarterly Report on Form 10-Q (No. 000-21454) for
the quarterly period ended June 30, 1994).
10.42 Amendment 1 to Contract, as amended, between the Department of Environment and Conservation State of
Tennessee and Envirotest Systems Corporation, dated May 12, 1994.
10.43 Amendment 2 to Contract, as amended, between the Department of Environment and Conservation State of
Tennessee and Envirotest Systems Corporation, dated May 12, 1994.*
10.44 Amendment 3 to Contract, as amended, between the Department of Environment and Conservation State of
Tennessee and Envirotest Systems Corporation, dated May 12, 1994.*
10.45 Amendment 4 to Contract No. RV-5-000575-5-00 between the State of Tennessee, Department of Environment
and Conservation and Envirotest Systems Corp. dated as of May 5, 1998 (incorporated by reference herein
to Exhibit 10.126 to Envirotest Systems Corporation's Quarterly Report on Form 10Q (No. 001- 13241) for
the quarterly period ended March 31, 1998).
10.46 Contract between State of Washington and Envirotest Systems Corp. (incorporated by reference herein to
Exhibit 10.111 to the Envirotest Systems Corporation's Annual Report on Form 10-K (No. 000-21452) for
the fiscal year ended September 30, 1996, filed on December 30, 1996).
</TABLE>
* To be filed by amendment
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.47 Agreement between the Wisconsin Department of Transportation and Envirotest Systems Corp. for the
Establishment and Operation of Motor Vehicle, Emissions Inspection Facilities for the State of
Wisconsin, dated January 25, 1995 (incorporated herein by reference to Exhibit 10.15 to Envirotest
Systems Corporation's Quarterly Report on Form 10-Q (No. 000-21454) for the quarterly period ended
December 31, 1994).
10.48 Employment Agreement, dated October 16, 1998, between Terrence P. McKenna and Environmental Systems
Products Holdings, Inc.
10.49 Employment Agreement, dated October 16, 1998, between Rinaldo R. Tedeschi and Environmental Systems
Products Holdings, Inc.
10.50 Employment Agreement, dated October 16, 1998, between David J. Langevin and Environmental Systems
Products Holdings, Inc.
10.51 Credit Agreement, dated as of October 15, 1998, by and among Environmental Systems Products Holdings
Inc., EnviroSystems Corporation, the banks, financial institutions and other entities listed therein, as
Lenders, Credit Suisse First Boston Corporation, as Administrative Agent and Collateral Agent, DLJ
Capital Funding, Inc., as Syndication Agent and Credit Suisse First Boston Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation as Arrangers.
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of Environmental Systems Products Holdings Inc.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.7 Consent of White & Case LLP (included in exhibit 5.1 hereto).
23.8 Consent of White & Case LLP (included in Exhibit 6.1 hereto).
24.1 Power of Attorney (see pages II-10 and II-24).
25.1 Statement of eligibility of trustee.
</TABLE>
<PAGE>
Exhibit 1.1
- --------------------------------------------------------------------------------
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
and
ENVIROSYSTEMS CORP.
--------------------------------
SUBSCRIPTION AGREEMENT
Dated as of October 15, 1998
--------------------------------
$100,000,000 Aggregate Principal Amount of
13% Senior Subordinated Notes due 2008
of Environmental Systems Products Holdings Inc.
and 2,291.268 Shares of Series A Common Stock,
Par Value $0.0001 Per Share,
of
ENVIROSYSTEMS CORP.
- --------------------------------------------------------------------------------
THE SECURITIES OFFERED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION THEREFOR OR AN
APPLICABLE EXEMPTION FROM REGISTRATION. THE SALE, TRANSFER OR OTHER DISPOSITION
OF SUCH SECURITIES IS ALSO SUBJECT TO COMPLIANCE WITH THE CONDITIONS SPECIFIED
IN THIS SUBSCRIPTION AGREEMENT, AND NO SALE, TRANSFER OR OTHER DISPOSITION OF
SUCH SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED.
<PAGE>
TABLE OF CONTENTS
PAGE
1. Issuance of Notes and Series A Shares . . . . . . . . . . . . . . . . . .1
1.1 The Notes and Shares . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 The Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 Sale and Purchase of the Notes and Shares. . . . . . . . . . . . . .2
2.2 Nature of Obligations. . . . . . . . . . . . . . . . . . . . . . . .3
2.3 Failure to Close . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.4 Purchasers' Special Rights . . . . . . . . . . . . . . . . . . . . .3
(a) Delivery Expenses . . . . . . . . . . . . . . . . . . . . . . .3
(b) Issue Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .4
(c) Public Disclosures. . . . . . . . . . . . . . . . . . . . . . .4
3. Representations and Warranties of the Issuers . . . . . . . . . . . . . .5
4. Representations of the Purchasers . . . . . . . . . . . . . . . . . . . .5
4.1 Investment Representations . . . . . . . . . . . . . . . . . . . . .5
4.2 Purchase Permitted by Applicable Laws; Legal Investment. . . . . . .6
4.3 Investment by ERISA Plans. . . . . . . . . . . . . . . . . . . . . .7
5. Conditions of Purchasers' Obligations . . . . . . . . . . . . . . . . . .8
6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
7. Restrictions on Transfer; the Securities Act of 1933. . . . . . . . . . 10
7.1 Restrictive Legends. . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Non-Applicability of Transfer Restrictions; Removal of Legends . . 11
8. Expenses, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. Indemnification of Purchasers . . . . . . . . . . . . . . . . . . . . . 13
10. Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12. Survival of Covenants, etc.; Successors and Assigns . . . . . . . . . . 14
13. Communications and Notices. . . . . . . . . . . . . . . . . . . . . . . 15
14. Law Governing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i
<PAGE>
SUBSCRIPTION AGREEMENT
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
and
ENVIROSYSTEMS CORP.
Dated as of October 15, 1998
To Each of the Purchasers Named on the Signature Pages Hereof:
Ladies and Gentlemen:
Environmental Systems Products Holdings Inc., a Delaware corporation
(the "Company"), and EnviroSystems Corp., a Delaware corporation and sole
shareholder of the Company (the "Parent"), each hereby agrees with each
Purchaser named on the signature pages hereof (such purchasers being referred to
individually as a "Purchaser" and collectively as the "Purchasers") as follows
with respect to the purchase of its securities described in Section 1.1 below:
1. ISSUANCE OF NOTES AND SERIES A SHARES.
1.1 THE NOTES AND SHARES. The Company has authorized the issuance
pursuant to this Agreement of $100,000,000 aggregate principal amount of the
Company's 13% Senior Subordinated Notes due 2008 (the "Notes") to be issued
under and entitled to the benefits of an Indenture to be substantially in the
form of Exhibit A hereto (the "Indenture") and the Parent has authorized the
issuance of 2,291.268 shares (the "Series A Shares") of Series A Common Stock,
par value $0.0001 per share (the "Series A Common Stock"), of the Parent. The
Notes will be unconditionally guaranteed on a senior subordinated basis by the
guarantors listed on Schedule A hereto (collectively, the "Guarantors" and,
together with the Company and the Parent, the "Issuers"). The Notes and the
Series A Shares will be issued on the Closing Date (as defined in Article 2
hereof). For purposes of this Agreement, (i) the term "Securities" means the
Notes, together with the guarantees thereof by the Guarantors, and the Series A
Shares and (ii) references to "Subsidiaries" or "subsidiaries" of the Parent or
the Company shall mean all subsidiaries of the Parent or the Company, including
Envirotest Systems Corp., a Delaware corporation ("Envirotest"), and the direct
and indirect subsidiaries of Envirotest and Environmen-
<PAGE>
tal Systems Products, Inc., a Delaware Corporation ("ESP"), and the direct and
indirect subsidiaries of ESP.
1.2 THE PURCHASERS. The purchase of all of the Notes and Series A
Shares is as provided for in this Agreement.
Each of the Purchasers agrees to purchase, separately and severally,
the principal amount of Notes and the number of Series A Shares set forth below
its name on the signature pages hereto. The Purchasers shall not be obligated to
buy any of the Notes or the Series A Shares unless the Parent and the Company
shall have observed, performed, or otherwise complied with the conditions set
forth in Article 5 hereof.
2. CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place as follows:
2.1 SALE AND PURCHASE OF THE NOTES AND SHARES. On the basis of the
representations and warranties contained or incorporated by reference herein,
(i) the Company will sell to the Purchasers, and the Purchasers will purchase
from the Company, at the Closing on October 16, 1998, or such later date as may
be agreed upon in writing by the Company, the Parent and the Purchasers (the
"Closing Date"), the aggregate principal amount of Notes set forth below the
respective names of the Purchasers on the signature pages hereto and (ii) the
Parent will sell to the Purchasers, and the Purchasers will purchase from the
Parent, on the Closing Date, the number of Series A Shares set forth below the
respective names of the Purchasers on the signature pages hereto. The purchase
price for the Notes and the number of Series A Shares set forth below the name
of each Purchaser on the signature pages hereto is the aggregate purchase price
for the Notes and the number of Series A Shares to be purchased by each
respective Purchaser.
At the Closing, the Company will deliver, against payment of the
purchase price therefor, the Notes, in the form of one or more permanent global
securities in definitive form (the "Global Securities") deposited with the
Trustee as custodian for The Depository Trust Company ("DTC") and registered in
the name of Cede & Co., as nominee for DTC. Interests in any permanent Global
Securities will be held only in book-entry form through DTC, except in the
limited circumstances described in the Offering Memorandum (as defined). The
Notes shall be dated the Closing Date, and shall be in the aggregate principal
amount to be purchased by the Purchasers. On the Closing Date, the Parent will
deliver stock certificates representing the Series A Shares to be purchased by
each Purchaser to such Purchaser or to
2
<PAGE>
such Purchaser's nominee or other designee (designated in writing to the Company
or the Parent, as applicable, at least one day prior to the Closing if different
from any such nominee or designee specified on the signature pages hereto, and
each hereinafter referred to as a "Designee"), against payment of the purchase
price therefor in immediately available funds. The Parent and the Company agree
that Credit Suisse First Boston Corporation, which is acting as placement agent
in connection with the placement of the Notes and the Series A Shares (in such
capacity, the "Placement Agent"), may, in its discretion, deduct from the
purchase price of the Notes and the Series A Shares to be remitted to the
Company or the Parent at the Closing the amount of its agreed fees as Placement
Agent. The Closing will take place at the office of Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, at 9:00 a.m.,
New York time, on the Closing Date.
On the Closing Date, the Company, the Parent and the Purchasers shall
enter into a Registration Rights Agreement to be substantially in the form of
Exhibit B hereto with respect to the Notes (the "Registration Rights Agreement")
and the Parent, Alchemy Partners (Guernsey) Limited, the Purchasers and the
other securityholders therein shall enter into an Investors Agreement to be
substantially in the form of Exhibit C hereto with respect to the Series A
Shares (the "Investors Agreement") providing for the registration of the
Securities under the Securities Act of 1933, as amended (the "Securities Act").
2.2 NATURE OF OBLIGATIONS. The obligations of each Purchaser
hereunder are several and not joint and it is explicitly acknowledged by each
party hereto that no Purchaser is entering into any transaction for the purchase
of the Notes or the Series A Shares or any other securities of the Issuers
jointly with any other person, firm or corporation.
2.3 FAILURE TO CLOSE. Notwithstanding anything to the contrary in
this Agreement, if the Closing fails to occur on or before October 27, 1998 each
party hereto shall, at its election, be relieved of all further obligations
under this Agreement (unless the Closing failed to occur due to a default by
such party in its obligations hereunder) without thereby waiving any rights it
may have by reason of such nonfulfillment or failure.
2.4 PURCHASERS' SPECIAL RIGHTS.
(a) DELIVERY EXPENSES. If, for any reason, a holder of (i) any
Note or Series A Share surrenders such Note or Series A Share to the Company or
the Parent, as applicable, (ii) any Note surrenders such Note to the trustee
under
3
<PAGE>
the Indenture in accordance with the terms of the Indenture or (iii) any Series
A Share surrenders such Series A Share to the transfer agent of the Series A
Common Stock, the Company or the Parent will pay the cost (exclusive of
applicable transfer or similar taxes) of delivering to such holder or its
Designee, at the office of such holder or Designee notified to the Company at
the time of surrender of such Note or Series A Share to the Company, the Parent
or to the trustee or transfer agent referred to above, insured to such holder's
reasonable satisfaction, each Note or Series A Share issued in substitution,
replacement or exchange for the surrendered Note or Series A Share.
(b) ISSUE TAXES. The Company or the Parent will pay all
documentary, stamp and similar taxes (other than income taxes) in connection
with (i) the issuance, sale, delivery or transfer by the Company and the Parent
to the Purchasers of the Notes and Series A Shares, respectively, and (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement, the
Investors Agreement and any other agreements and instruments contemplated
hereby, if any, and will hold each Purchaser and any other holder of Notes and
Series A Shares harmless against any and all liabilities with respect to all
such taxes. Neither the Company nor the Parent will be responsible for any
transfer taxes in connection with transfers of the Notes or Series A Shares by
the Purchasers and any other holder of Notes or Series A Shares. The
obligations of the Company and the Parent under this paragraph (b) shall survive
the payment, prepayment, redemption or repurchase of all such Notes and Series A
Shares and the termination of this Agreement.
(c) PUBLIC DISCLOSURES. The Parent and the Company will take
all reasonable actions necessary to keep each Purchaser's identity confidential
and will not disclose each Purchaser's identity as an investor in the Parent or
the Company in any public announcement, governmental filing or otherwise without
each such Purchaser's prior written consent unless such disclosure is required
by law, rule, regulation or by order of a court of competent jurisdiction or by
any governmental agency. If such disclosure is so required, the Parent or the
Company will give written notice to each such Purchaser describing in reasonable
detail the proposed content of such disclosure and will afford each such
Purchaser an opportunity to suggest modifications in the form and substance of
such proposed disclosure prior to making such disclosure. Notwithstanding the
foregoing, if the Parent or the Company files a registration statement pursuant
to the Registration Rights Agreement, the Parent or the Company, as the case may
be, may make all required disclosures under the Securities Act, including but
not limited to, the disclosure of the names of the beneficial owners of the
Notes or Series A Shares and the number of Notes or Series A Shares held by
such owner.
4
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE ISSUERS. Each of the
Issuers, jointly and severally, hereby makes each of the representations and
warranties to, and agreements with, each Purchaser that are set forth in Section
2 of the Placement Agreement, dated as of October 15, 1998 (the "Placement
Agreement"), among each of the Issuers and the Placement Agent relating to the
Notes and the Series A Shares and such representations and warranties as well as
the related defined terms are hereby incorporated by reference herein with the
same effect as if each such representation and warranty was set forth herein in
its entirety. No amendment to or waiver of any such representation and warranty
shall be effective for purposes of this Agreement to amend or waive such
representation or warranty as incorporated by reference herein without the prior
written consent of the Purchasers.
4. REPRESENTATIONS OF THE PURCHASERS.
4.1 INVESTMENT REPRESENTATIONS. Each of the Purchasers hereby
represents and warrants to the Issuers that:
(a) it is acquiring all of the Notes and the Series A Shares to
be acquired by it hereunder for its own account or for the account of its
Designee;
(b) it has authority to make the representations contained in
this Article 4;
(c) such Purchaser is authorized to enter into this Agreement,
the Investors Agreement and the Registration Rights Agreement and to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby;
(d) it and each Designee has received a copy of the Offering
Memorandum of the Parent and the Company dated October 15, 1998 (the "Offering
Memorandum");
(e) such Purchaser and each Designee is an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act;
(f) it is acquiring all of the Notes and Series A Shares to be
acquired by it or any Designee hereunder with no view or intention to offer for
sale any of such securities in a manner which would violate any federal or state
securities
5
<PAGE>
laws; subject, however, to any requirement of law that the disposition of such
Purchaser's property shall at all times be and remain within such Purchaser's
control;
(g) such Purchaser has received all information it has requested
in connection with its entry into this Agreement and its purchase of the Notes
and Series A Shares, and has been given the opportunity and right to meet
representatives of the Parent and the Company and their respective subsidiaries
and to investigate and inquire into all aspects of the Parent and the Company
and the terms and conditions of the purchase of the Notes and the Series A
Shares;
(h) Each Purchaser severally represents and agrees that it will
offer and sell the Notes only in accordance with Rule 144A ("Rule 144A") or Rule
903 under the Securities Act. Accordingly, neither such Purchaser nor its
affiliates, nor any persons acting on its behalf, have engaged or will engage in
any directed selling efforts with respect to the Notes, and such Purchaser, its
affiliates and all persons acting on its behalf have complied and will comply
with the offering restrictions requirement of Regulation S; and
(i) Each Purchaser severally agrees that it and each of its
affiliates will not offer or sell the Notes by means of any form of general
solicitation or general advertising, within the meaning of Rule 502(c) under the
Securities Act, including, but not limited to (i) any advertisement, article,
notice or other communication published in any newspaper, magazine or similar
media or broadcast over television or radio, or (ii) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising. Each Purchaser also severally agrees, with respect to resales made
in reliance on Rule 144A of any of the Notes, to deliver either with the
confirmation of such resale or otherwise prior to settlement of such resale a
notice to the effect that the resale of such Notes has been made in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Rule 144A.
Each of the Purchasers acknowledges that the opinions to be delivered
at the Closing pursuant to Article 5 will be made, in part, in reliance upon the
representations of such Purchaser made in this Article 4.
The Notes and the Series A Shares being delivered pursuant to this
Agreement shall not be transferable by the Purchasers or their Designees except
upon the conditions specified in Article 7.
4.2 PURCHASE PERMITTED BY APPLICABLE LAWS; LEGAL INVESTMENT.
6
<PAGE>
The purchase of and any payment for the Notes and the Series A Shares to be
purchased by such Purchaser hereunder is not prohibited by any law or
governmental regulation applicable to such Purchaser, shall not subject such
Purchaser to any penalty or, in the reasonable judgment of such Purchaser, other
onerous condition under or pursuant to any applicable law or governmental
regulation, and is permitted by the laws and regulations of the jurisdictions to
which such Purchaser is subject.
4.3 INVESTMENT BY ERISA PLANS. (a) Each of the Purchasers represent
that at least one of the following is accurate as to each source of funds to be
used by it to purchase the Securities:
(i) it is not acquiring the Securities with the assets of any
employee benefit plan which is subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or any "plan"
which is subject to Section 4975 of the Internal Revenue Code of 1986, as
amended (the "Code") (each such employee benefit plan and plan being
referred to herein as a "Benefit Plan");
(ii) the source of funds being used to acquire the Securities is
either (A) an insurance company pooled separate account, within the meaning
of Department of Labor Prohibited Transaction Class Exemption ("PTCE") 90-1
(issued January 29, 1990), or (B) a bank collective investment fund, within
the meaning of PTCE 91-38 (issued July 12, 1991) and the purchase and
holding of such Securities is exempt under either PTCE 90-1 or PTCE 91-38;
(iii) the Purchaser is an insurance company and the source of
funds being used by such Purchaser to acquire the Securities is an
"insurance company general account," as such term is defined in PTCE 95-60
(issued July 12, 1995), and such acquisition and holding of the Securities
is exempt under PTCE 95-60;
(iv) the source of funds being used by such Purchaser to acquire
the Securities constitute plan assets that are included in an "investment
fund" (within the meaning of Part V of PTCE 84-14 (issued March 13, 1994)
(the "QPAM Exemption") managed by a "qualified professional asset manager"
or "QPAM" (within the meaning of Part V of the QPAM Exemption)), which
assets when combined with the assets of all other employee benefit plans
established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such
7
<PAGE>
employer or by the same employee organization and managed by such QPAM, do
not exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and the acquisition
and holding of such Securities is exempt under PTCE 84-14; or
(v) another exemption from the prohibited transaction rules
applies such that the use of funds to acquire the Securities does not
constitute a non-exempt prohibited transaction in violation of Section 406
of ERISA or Section 4975 of the Code, which could be subject to a civil
penalty assessed pursuant to Section 502 of ERISA or a tax imposed under
Section 4975 of the Code.
(b) Each Purchaser, and each subsequent holder of the
Securities, covenants that it will not dispose of the Securities to be acquired
by it or any interest therein (including, without limitation, any transfer by a
change in the capacity in which such Purchaser holds its investment in such
Securities) to any person unless such person shall (i) make all warranties and
representations of such Purchaser contained in Section 4.3(a) and (ii) assume
all covenants of such Purchaser contained in this Section 4.3(b).
5. CONDITIONS OF PURCHASERS' OBLIGATIONS. The Purchasers' several
obligations to purchase and pay for the Notes and the Series A Shares to be
purchased by them hereunder are subject to the accuracy of the representations
and warranties on the part of the Issuers contained or incorporated by reference
herein, to the accuracy of the officers' certificates of the Issuers made
pursuant to the provisions hereof and the Placement Agreement, to the
performance by the Issuers on or prior to the Closing Date of their respective
obligations hereunder or incorporated by reference herein and to the
satisfaction on or prior to the Closing Date of the conditions set forth in
Section 6 of the Placement Agreement, and each Purchaser shall be entitled to
receive all letters, opinions, and certificates that the Placement Agent is
entitled to receive pursuant to Section 6 of the Placement Agreement. To the
extent that any such representations, warranties, officers' certificates or
conditions permit any person or persons to waive compliance with such
representations, warranties, officers' certificates or conditions, or require
that a document, opinion or other instrument or any event or condition be
acceptable or satisfactory to any person or persons, for purposes of this
Agreement, such representations, warranties, officers' certificates or
conditions shall be complied with only if waived by the Purchasers and
8
<PAGE>
such document, opinion or other instrument and such events or conditions shall
be acceptable or satisfactory for purposes of this Agreement only if acceptable
or satisfactory to the Purchasers. No amendment to or waiver of such
representations, warranties, officers' certificates or conditions made pursuant
to the Placement Agreement shall be effective for purposes of this Agreement to
amend or waive such representations, warranties, officers' certificates or
conditions as incorporated by reference herein without the consent of the
Purchasers. Notwithstanding the foregoing, no Purchaser shall be obligated to
purchase and pay for the Notes and the Series A Shares unless all the Notes and
Series A Shares are sold hereunder.
6. COVENANTS.
(a) Each of the Issuers covenants and agrees with each of the
Purchasers and to their benefit to comply with all agreements set forth in
Section 5 of the Placement Agreement, which agreements as well as the related
defined terms are hereby incorporated by reference herein with the same effect
as if each such agreement was set forth herein in its entirety. To the extent
that any such agreement permits any person or persons to waive compliance with
such agreement or requires that a document, opinion or other instrument or any
event or condition be acceptable or satisfactory to any person or persons, for
purposes of this Agreement, such agreement shall be complied with only if it is
waived by the Purchasers and such document, opinion or other instrument and such
event or condition shall be acceptable or satisfactory for purposes of this
Agreement only if it is acceptable or satisfactory to the Purchasers. No
amendment to or waiver of such agreements or defined terms made pursuant to the
Placement Agreement shall be effective for purposes of this Agreement to amend
or waive such agreements and defined terms as incorporated by reference herein
without the consent of the Purchasers.
(b) From the date hereof until the Closing Date, each of the
Issuers covenants and agrees that it shall not enter into (or commit to enter
into) any amendment, modification or waiver of any provision of any of the
Transaction Documents without the prior written consent of the Purchasers;
PROVIDED that, in the case of any amendment, modification or waiver of the
Merger Agreement, such consent shall not be unreasonably withheld.
(c) From the date hereof until the Closing Date, each of the
Issuers (i) will give the Purchasers and their representatives full access to
its offices, properties, books and records, (ii) will furnish to the Purchasers
and their representatives such financial, operating and other information as
such Persons may reasonably request and (iii) will instruct its officers,
employees, counsel and auditors
9
<PAGE>
to cooperate with the Purchasers in their investigation of the Issuers.
7. RESTRICTIONS ON TRANSFER; THE SECURITIES ACT OF 1933.
7.1 RESTRICTIVE LEGENDS. The Securities shall not be transferable
except upon the conditions specified in this Article 7 and, with respect to the
Notes, the restrictions contained in Section 4.1 and the Indenture, which
conditions are intended to insure compliance with the provisions of the
Securities Act in respect of the transfer of any such Securities and, with
respect to the Series A Shares, upon the conditions specified in Article 3 of
the Investors Agreement and in the Share Price Adjustment Agreement.
Each Purchaser and each Designee hereby acknowledges and agrees that
it is acquiring the Securities in a transaction exempt from registration under
the Securities Act and that no Security may be offered, sold, pledged or
otherwise transferred in the absence of registration under the Securities Act or
an applicable exemption therefrom. Each of the Securities shall (unless
otherwise permitted by the provisions of this Article 7) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR
SOLD IN THE ABSENCE OF REGISTRATION THEREUNDER OR AN APPLICABLE EXEMPTION
THEREFROM."
In addition to any other legend that may be required, each certificate
for the Notes shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) THIS
NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i) INSIDE
THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(ii) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904
UNDER THE SECURITIES ACT, (iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT
10
<PAGE>
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES
(i) THROUGH (iv) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE
RESALE RESTRICTIONS REFERRED TO IN (A) ABOVE."
In addition to any other legend that may be required, each certificate
for Series A Shares shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THIS SECURITY IS ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER
AS SET FORTH IN THE INVESTORS AGREEMENT DATED AS OF OCTOBER 16, 1998, AS
AMENDED FROM TIME TO TIME, COPIES OF WHICH MAY BE OBTAINED UPON REQUEST
FROM ENVIROSYSTEMS CORP. AND ANY SUCCESSOR THERETO."
7.2 NON-APPLICABILITY OF TRANSFER RESTRICTIONS; REMOVAL OF LEGENDS.
The restrictions imposed by Section 7.1 above upon the transferability of any
Series A Share represented by a certificate bearing the restrictive legends set
forth in such Section 7.1 (a "Restricted Security") shall cease and terminate
when such Restricted Security has been sold pursuant to an effective
registration statement under the Securities Act or transferred pursuant to Rule
144 (or any similar or successor rule thereto) promulgated under the Securities
Act unless the holder thereof is an affiliate of the Parent. The holder of any
Restricted Security as to which such restrictions shall have terminated shall be
entitled to receive from the Parent, without expense, a new security of the same
type but not bearing the restrictive legend set forth above and not containing
any other reference to the restrictions imposed by Section 7.1 above, PROVIDED
that a holder's right to receive, and the Parent's obligation to issue, a new
Security not bearing such restrictive legends and not containing any other
reference to the restrictions imposed by Section 7.1 above shall be subject, in
the Parent's discretion, to the delivery to the Parent of an opinion of counsel
of the transferor (which may include in-house counsel to any Purchaser) that
subsequent transfers of such Restricted Security by the proposed transferee will
not require registration under the Securities Act. As used in this Section 7.2,
the term "transfer" encompasses any sale, transfer, pledge or other disposition
of any Securities referred to herein.
11
<PAGE>
8. EXPENSES, ETC.
(a) The Company or the Parent agrees to reimburse the Purchasers
for all reasonable out-of-pocket expenses (including without limitation the
reasonable fees and expenses of one counsel for each Purchaser) of the
Purchasers incurred in connection with the Transactions, unless this Agreement
is terminated prior to the consummation of the Transactions as a result of a
breach of this Agreement by the Purchasers.
(b) Subject to the provisions of the next sentence of this
Article 8, each of the Company and the Parent agrees to pay, and hold the
Purchasers harmless against liability for the payment of, all stamp and other
similar taxes (together in each case with interest and penalties, if any) which
may be payable in respect of the execution and delivery of this Agreement, the
Indenture, the Investors Agreement and the Registration Rights Agreement, if
any, or the issuance, delivery or acquisition by the Purchasers of any Notes or
Series A Shares pursuant to this Agreement and the Indenture, other than any
transfer taxes applicable to any transfer between a Purchaser and a subsequent
holder of the Notes or Series A Shares (other than the Company or the Parent),
and reasonable fees and expenses incurred by each Purchaser in connection with
any filing by the Company or the Parent with any governmental agency with
respect to the Company or the Parent that mentions such Purchaser. Each of the
Company and the Parent additionally agrees to pay, and hold each Purchaser
harmless against liability for the payment of, all out-of-pocket expenses with
respect to the enforcement by such Purchaser of any provision of any agreement
or instrument referred to in this Article 8 plus the Registration Rights
Agreement and the Investors Agreement and any proposed amendments or waivers
(whether or not the same shall be signed or become effective) under or in
respect of any such agreement or instrument, PROVIDED that in each case the
Company or the Parent has been or, without such amendment or waiver, would be in
default in respect of its obligations thereunder.
(c) The obligations of the Company and the Parent in this
Article 8 shall be of full force and effect whether or not any Notes or Series A
Shares are sold hereunder (unless the failure of any Notes or Series A to be
sold hereunder is due to a breach of, or default under, this Agreement by a
Purchaser or Designee) or the Closing ever takes place and such obligations
shall also survive the payment for or transfer of any of the Notes or Series A
Shares, the enforcement of any provisions of any agreement or instrument
referred to in this Article 8 and any amendments or waivers with respect
thereto.
12
<PAGE>
9. INDEMNIFICATION OF PURCHASERS. In addition to all other sums due
hereunder or provided for in this Agreement, each of the Issuers, jointly and
severally, will indemnify and hold harmless each Purchaser (which term for
purposes of this Article 9 includes any agent of or any person controlling each
such Purchaser) from and against any losses, claims, damages, liabilities, costs
and expenses (including reasonable attorneys' fees) incurred by it pursuant to
any investigation or proceeding instigated or brought by any governmental or
administrative entity or other person against the Parent, the Company or such
Purchaser arising out of or in connection with this Agreement (including the
Offering Memorandum or any other document or instrument delivered in connection
herewith), except to the extent that such losses, claims, damages, liabilities,
costs and expenses resulted primarily from any wrongful action on such
Purchaser's part which was not taken by such Purchaser in reliance upon any of
the warranties, covenants or promises of any of the Issuers herein or the
documents contemplated hereby or the certificates delivered by any of the
Issuers pursuant hereto or thereto, whether or not the transactions contemplated
by this Agreement are consummated, which investigation or proceeding requires
such Purchaser's participation or is commenced or filed against such Purchaser
because of this Agreement or the transactions contemplated hereby. The
obligations of the Issuers under this Article 9 shall survive the payment or
prepayment of the Notes and the Series A Shares, at maturity, upon redemption or
otherwise.
Promptly after receipt by an indemnified party under this Article 9 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Article 9, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Article 9. In case any such action is brought against any indemnified party and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party (who shall not, except with the consent of the indemnified party (which
consent shall not be unreasonably withheld), be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party under this Article 9 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of
13
<PAGE>
any pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action. No indemnified party may effect any settlement or
compromise of any pending or threatened action in respect of which such
indemnified party has sought or may seek indemnification hereunder without the
prior written consent of each indemnifying party.
10. CONTRIBUTION. If the indemnification provided for in Article 9 is
unavailable or insufficient to hold harmless an indemnified party under Article
9, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of the losses, claims, damages,
liabilities, costs and expenses referred to in Article 9 in such proportion as
is appropriate to reflect the relative fault of the Issuers on the one hand and
the Purchaser on the other in connection with the actions which resulted in such
claim as well as any other relevant equitable considerations. The amount paid
by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in this paragraph shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any action or claim.
The obligations of the Issuers under Articles 9 and 10 shall be in
addition to any liability which the Issuers may otherwise have and shall extend,
upon the same terms and conditions, to each Purchaser, its representatives,
officers and directors and each person, if any, who controls such Purchaser
within the meaning of the Securities Act or the Exchange Act.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, but all such counterparts shall constitute one and the same
instrument.
12. SURVIVAL OF COVENANTS, ETC.; SUCCESSORS AND ASSIGNS. All
covenants, agreements, representations and warranties made by the parties in
this Agreement or incorporated by reference herein and in certificates or other
documents delivered pursuant to it shall remain in full force and effect,
regardless of any investigation or statement as to the results thereof, made by
or on behalf of the Issuers, the Purchasers or any person controlling any of
them and will survive the execution and delivery of the Notes and Series A
Shares to the Purchasers and payment by the Purchasers therefor. All such
covenants, agreements, representations and warranties shall be binding upon any
successors and assigns of the Issuers. In
14
<PAGE>
addition, whether or not any express assignment has been made except as
otherwise provided in Article 7 hereof, all holders of the Notes and Series A
Shares who hold such Notes or Series A Shares as transferees from the Purchasers
hereunder shall be entitled to the benefit of all covenants and agreements of
the Issuers made or to be performed or observed by the Issuers (but not the
representations and warranties made by the Issuers herein or in any document or
agreement which is incorporated by reference herein).
13. COMMUNICATIONS AND NOTICES. Except as otherwise provided in this
Agreement, all communications and notices provided for in this Agreement shall
be in writing and (i) if to any of the Issuers mailed by first class mail or
overnight courier to them at EnviroSystems Corp. c/o Environmental Systems
Products Holdings Inc., 7 Kripes Road, East Granby, Connecticut 06026,
Attention: David J. Langevin or any other office that such Issuer may hereafter
designate by written notice to the Purchasers and (ii) if to the Purchasers,
mailed by first class mail or overnight courier to the respective addresses of
the Purchasers specified in the signature pages hereto, or to such other address
and for such attention as any Purchaser may from time to time designate to the
Parent or the Company in writing.
14. LAW GOVERNING. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without regard to the principles of conflicts of laws thereof.
15. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement or in any instrument contemplated hereby, or any
application thereof, shall be invalid, illegal or unenforceable in any respect,
under the laws of any jurisdiction, the validity, legality and enforceability of
the remaining provisions contained herein and therein, and any other application
thereof, shall not in any way be affected or impaired thereby or under the laws
of any other jurisdiction.
16. HEADINGS. The headings of the articles, sections and subsections
of this Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
15
<PAGE>
If the foregoing is in accordance with your understanding, please sign
and complete the enclosed copy of this letter on the signature page provided and
return it to the Parent and the Company, whereupon this letter shall then become
a binding agreement in accordance with its terms.
Very truly yours,
ENVIROSYSTEMS CORP.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIRONMENTAL SYSTEMS
PRODUCTS HOLDINGS INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST SYSTEMS CORP. (Delaware)
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST HOLDINGS, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
16
<PAGE>
ENVIROTEST TECHNOLOGIES, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST PARTNERS
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
REMOTE SENSING TECHNOLOGIES, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST WISCONSIN, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ES FUNDING CORPORATION
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST ACQUISITIONS CO.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
17
<PAGE>
ENVIROTEST SYSTEMS CORP.
(Washington)
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST ILLINOIS, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
WELLMAN NORTH AMERICA, INC.
By: /s/ David J. Langevin
-------------------------
Name: David Langevin
Title: EVP CFO
WELLMAN OVERSEAS LIMITED
By: [ILLEGIBLE]
-------------------------
Name:
Title:
NEWMALL LIMITED
By: [ILLEGIBLE]
-------------------------
Name:
Title:
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby agrees to purchase the Notes and the Series A
Shares as set forth below and agrees to the manner of payment specified below:
PURCHASER: DESIGNEE (name in which Notes and Series A Shares are
to be registered, if different than name of Purchaser):
18
<PAGE>
DLJ INVESTMENT PARTNERS, L.P.
By: DLJ INVESTMENT PARTNERS, INC.
Managing General Partner
By: /s/ Ivy Dodes
-------------------------------
Name: Ivy Dodes
Title: Vice President
Address:
PRINCIPAL AMOUNT
OF NOTES: $32,323,000.00
NUMBER OF SHARES
OF SERIES A COMMON STOCK: 740.612
TOTAL PURCHASE PRICE
FOR NOTES AND SERIES A SHARES: $32,323,000.00
MANNER OF PAYMENT:
Designated Bank:________________________________________________________________
Address:________________________________________________________________________
ABA Number:_____________________________________________________________________
Account Number:_________________________________________________________________
Attention:______________________________________________________________________
Tax I.D. No.____________________________________________________________________
(if registered in the name of a nominee, the Taxpayer I.D. Number of such
nominee)
Notices for payment to be sent to:______________________________________________
Address:___________________________________________________________________
Attention:_________________________________________________________________
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby agrees to purchase the Notes and the Series A
Shares as set forth below and agrees to the manner of payment specified below:
PURCHASER: DESIGNEE (name in which Notes and Series A Shares are
to be registered, if different than name of Purchaser):
DLJ ESC II, L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Ivy Dodes
--------------------------
Name: Ivy Dodes
Title: Vice President
Address:
PRINCIPAL AMOUNT
OF NOTES: $3,071,000.00
NUMBER OF SHARES
OF SERIES A COMMON STOCK: 70.365
TOTAL PURCHASE PRICE
FOR NOTES AND SERIES A SHARES: $3,071,000.00
MANNER OF PAYMENT:
Designated Bank:________________________________________________________________
Address:________________________________________________________________________
ABA Number:_____________________________________________________________________
Account Number:_________________________________________________________________
Attention:______________________________________________________________________
Tax I.D. No.____________________________________________________________________
(if registered in the name of a nominee, the Taxpayer I.D. Number of such
nominee)
Notices for payment to be sent to:______________________________________________
Address:___________________________________________________________________
Attention:_________________________________________________________________
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby agrees to purchase the Notes and the Series A
Shares as set forth below and agrees to the manner of payment specified below:
PURCHASER: DESIGNEE (name in which Notes and Series A Shares are
to be registered, if different than name of Purchaser):
DLJ INVESTMENT FUNDING, INC.
By: /s/ Ivy Dodes
-------------------------
Name: Ivy Dodes
Title: Vice President
Address:
PRINCIPAL AMOUNT
OF NOTES: $4,606,000.00
NUMBER OF SHARES
OF SERIES A COMMON STOCK: 105.537
TOTAL PURCHASE PRICE
FOR NOTES AND SERIES A SHARES: $4,606,000.00
MANNER OF PAYMENT:
Designated Bank:________________________________________________________________
Address:________________________________________________________________________
ABA Number:_____________________________________________________________________
Account Number:_________________________________________________________________
Attention:______________________________________________________________________
Tax I.D. No.____________________________________________________________________
(if registered in the name of a nominee, the Taxpayer I.D. Number of such
nominee)
Notices for payment to be sent to:______________________________________________
Address:___________________________________________________________________
Attention:_________________________________________________________________
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby agrees to purchase the Notes and the Series A
Shares as set forth below and agrees to the manner of payment specified below:
PURCHASER: DESIGNEE (name in which Notes and Series A Shares are
to be registered, if different than name of Purchaser):
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
By: [ILLEGIBLE] By: [ILLEGIBLE]
---------------------------- -----------------------
Name: Name:
Title: Title:
Address:
PRINCIPAL AMOUNT
OF NOTES: $40,000,000.00
NUMBER OF SHARES
OF SERIES A COMMON STOCK: 916.514
TOTAL PURCHASE PRICE
FOR NOTES AND SERIES A SHARES: $40,000,000
MANNER OF PAYMENT:
Designated Bank:________________________________________________________________
Address:________________________________________________________________________
ABA Number:_____________________________________________________________________
Account Number:_________________________________________________________________
Attention:______________________________________________________________________
Tax I.D. No.____________________________________________________________________
(if registered in the name of a nominee, the Taxpayer I.D. Number of such
nominee)
Notices for payment to be sent to:______________________________________________
Address:___________________________________________________________________
Attention:_________________________________________________________________
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
The undersigned hereby agrees to purchase the Notes and the Series A
Shares as set forth below and agrees to the manner of payment specified below:
PURCHASER: DESIGNEE (name in which Notes and Series A Shares are
to be registered, if different than name of Purchaser):
CHASE EQUITY ASSOCIATES L.P.
By: CHASE CAPITAL PARTNERS,
General Partner
By: /s/ NAL Stuart
------------------------------
Name: N.A.L. Stuart
Title: Partner
Address:
PRINCIPAL AMOUNT
OF NOTES: $20,000,000
NUMBER OF SHARES
OF SERIES A COMMON STOCK: 458.258
TOTAL PURCHASE PRICE
FOR NOTES AND SERIES A SHARES: $20,000,000
MANNER OF PAYMENT:
Designated Bank:________________________________________________________________
Address:________________________________________________________________________
ABA Number:_____________________________________________________________________
Account Number:_________________________________________________________________
Attention:______________________________________________________________________
Tax I.D. No.____________________________________________________________________
(if registered in the name of a nominee, the Taxpayer I.D. Number of such
nominee)
Notices for payment to be sent to: CHASE CAPITAL PARTNERS
---------------------------------------------
Address: 380 MADISON AVENUE, 12TH FLOOR, NEW YORK, NY 10017
-------------------------------------------------------------------
Attention: GEORGE KELTS
-----------------------------------------------------------------
<PAGE>
SCHEDULE A
LIST OF GUARANTORS
Environmental Systems Products, Inc.
Envirotest Systems Corp. (Washington)
Envirotest Holdings, Inc.
Envirotest Technologies, Inc.
Envirotest Partners
Remote Sensing Technologies, Inc.
Envirotest Wisconsin, Inc.
ES Funding Corporation
Envirotest Acquisitions Co.
Envirotest Systems Corp. (Delaware)
Envirotest Illinois, Inc.
Wellman North America, Inc.
Wellman Overseas Ltd.
Newmall Ltd.
<PAGE>
EXHIBIT A
[Indenture]
<PAGE>
EXHIBIT B
[Investor Agreement]
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
STONE RIVET, INC.
and
ENVIROTEST SYSTEMS CORP.
Dated as of August 12, 1998
<PAGE>
Page 1
- --------------------------------------------------------------------------------
Glossary of Defined Terms
(Not Part of this Agreement)
<TABLE>
<CAPTION>
Defined Term Location of Definition
- ------------ ----------------------
<S> <C>
Affiliate -section- 9.03(a)
Agreement Preamble
Acquisition Proposal -section- 6.05(a)
Beneficial Owner -section- 9.03(b)
Blue Sky Laws -section- 3.05(b)
Board Recitals
Business Day -section- 9.03(c)
CCA -section- 3.05(b)
Certificate of Merger -section- 2.02
Certificates -section- 2.09(b)
Class A Common Stock Recitals
Class B Common Stock Recitals
Class C Common Stock Recitals
Company Preamble
Company Benefit Plans -section- 3.10(a)
Company Common Stock Recitals
Company Stock Option -section- 1.03
Company Stock Option Plans -section- 1.03
Confidentiality Agreement -section- 6.04(b)
Control -section- 9.03(d)
CSFB -section- 1.02(a)
Debt Tenders -section- 6.08(c)
Delaware Law Recitals
Dissenting Shares -section- 2.08
Effective Time -section- 2.02
Environmental Laws -section- 9.03(e)
Environmental Permits -section- 3.16(b)
ERISA -section- 3.10(a)
Exchange Act -section- 1.02(b)
Financing Commitments -section- 4.04
Governmental Antitrust Authority -section- 6.08(b)
Governmental Order -section- 7.01(b)
Guarantor Subsidiary -section- 9.03(f)
Hazardous Substances -section- 9.03(g)
Holdings -section- 4.01
HSR Act -section- 3.05(b)
Indemnification Provisions -section- 6.07(a)
Intellectual Property -section- 9.03(h)
IRS -section- 3.10(a)
knowledge -section- 9.03(i)
known -section- 9.03(i)
Liens -section- 3.14(b)
Material Adverse Effect -section- 9.03(j)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page 2
- --------------------------------------------------------------------------------
<S> <C>
Merger Recitals
Merger Consideration -section- 2.06(a)
Minimum Condition -section- 1.01(a)
Notes -section- 6.08(c)
Offer Recitals
Offer Documents -section- 1.01(b)
Offer to Purchase -section- 1.01(b)
Option Spread -section- 1.03
Parent Preamble
Parent Audited Statements -section- 4.07
Parent Unaudited Statements -section- 4.07
Paying Agent -section- 2.09(a)
Payment Fund -section- 2.09(a)
Permitted Liens -section- 3.14(b)
Per Share Amount Recitals
Person -section- 9.03(k)
Plans -section- 3.10(a)
Proxy Statement -section- 3.12
Purchaser Preamble
Schedule 14D-9 -section- 1.02(b)
Schedule 14D-1 -section- 1.01(b)
SEC -section- 9.03(l)
SEC Rules -section- 9.03(m)
SEC Reports -section- 3.07(a)
Securities Act -section- 3.07(a)
Shares Recitals
Stockholders' Meeting -section- 6.01(a)
Subsidiary -section- 9.03(n)
Surviving Corporation -section- 2.01
Termination Fee -section- 8.03(a)
Transactions -section- 3.04
</TABLE>
<PAGE>
Page i
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
THE OFFER
<S> <C>
SECTION 1.01. The Offer .............................................. 2
SECTION 1.02. Company Action ......................................... 3
SECTION 1.03. Employee Stock Options ................................. 5
</TABLE>
<TABLE>
<CAPTION>
ARTICLE II
THE MERGER
<S> <C>
SECTION 2.01. The Merger ............................................. 5
SECTION 2.02. Effective Time; Closing ................................ 6
SECTION 2.03. Effect of the Merger ................................... 6
SECTION 2.04. Certificate of Incorporation; By-laws .................. 6
SECTION 2.05. Directors and Officers ................................. 6
SECTION 2.06. Conversion of Securities ............................... 6
SECTION 2.07. Employee Stock Options ................................. 7
SECTION 2.08. Dissenting Shares ...................................... 7
SECTION 2.09. Surrender of Shares; Stock Transfer Books .............. 8
</TABLE>
<TABLE>
<CAPTION>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<S> <C>
SECTION 3.01. Organization and Qualification; Subsidiaries ........... 10
SECTION 3.02. Certificate of Incorporation and By-laws ............... 10
SECTION 3.03. Capitalization ......................................... 10
SECTION 3.04. Authority Relative to this Agreement ................... 11
SECTION 3.05. No Conflict; Required Filings and Consents ............. 11
SECTION 3.06. Compliance ............................................. 12
SECTION 3.07. SEC Filings; Financial Statements ...................... 13
SECTION 3.08. Absence of Certain Changes or Events ................... 14
SECTION 3.09. Absence of Litigation .................................. 14
SECTION 3.10. Employee Benefit Plans ................................. 14
SECTION 3.11. Labor Matters .......................................... 16
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement ....... 16
SECTION 3.13. Taxes .................................................. 17
SECTION 3.14. Property and Leases .................................... 17
SECTION 3.15. Intellectual Property .................................. 18
SECTION 3.16. Environmental Matters .................................. 18
SECTION 3.17. Brokers ................................................ 19
SECTION 3.18. Assets ................................................. 19
SECTION 3.19. Insurance .............................................. 19
SECTION 3.20. Takeover Statutes ...................................... 19
SECTION 3.21. Expenses ............................................... 19
</TABLE>
<TABLE>
<CAPTION>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
<S> <C>
SECTION 4.01. Corporate Organization ................................. 20
SECTION 4.02. Authority Relative to this Agreement ................... 20
SECTION 4.03. No Conflict; Required Filings and Consents ............. 21
SECTION 4.04. Financing .............................................. 21
SECTION 4.05. Offer Documents; Proxy Statement ....................... 21
</TABLE>
<PAGE>
ii
<TABLE>
<CAPTION>
Page 5
- --------------------------------------------------------------------------------
<S> <C>
SECTION 4.06. Brokers ................................................ 22
SECTION 4.07. Financial Statements ................................... 22
SECTION 4.08. Absence of Certain Changes or Events ................... 23
</TABLE>
<TABLE>
<CAPTION>
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
<S> <C>
SECTION 5.01. Conduct of Business by the Company Pending the Merger .. 23
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VI
ADDITIONAL AGREEMENTS
<S> <C>
SECTION 6.01. Stockholders' Meeting .................................. 25
SECTION 6.02. Proxy Statement ........................................ 25
SECTION 6.03. Company Board Representation; Section 14(f) ............ 26
SECTION 6.04. Access to Information; Confidentiality ................. 27
SECTION 6.05. No Solicitation of Transactions ........................ 27
SECTION 6.06. Employee Benefits Matters .............................. 29
SECTION 6.07. Directors' and Officers' Indemnification and Insurance.. 29
SECTION 6.08. Further Action; Reasonable Best Efforts ................ 29
SECTION 6.09. Public Announcements ................................... 30
SECTION 6.10. Confidentiality Agreement .............................. 30
SECTION 6.11 Expenses ............................................... 30
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VII
CONDITIONS TO THE MERGER
<S> <C>
SECTION 7.01. Conditions to the Merger ............................... 31
</TABLE>
<TABLE>
<CAPTION>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
<S> <C>
SECTION 8.01. Termination ............................................ 31
SECTION 8.02. Effect of Termination .................................. 33
SECTION 8.03. Fees and Expenses ...................................... 33
SECTION 8.04. Amendment .............................................. 33
SECTION 8.05. Waiver ................................................. 34
</TABLE>
<TABLE>
<CAPTION>
ARTICLE IX
GENERAL PROVISIONS
<S> <C>
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements.............................................. 34
SECTION 9.02. Notices ................................................ 34
SECTION 9.03. Certain Definitions .................................... 35
SECTION 9.04. Severability ........................................... 37
SECTION 9.05. Entire Agreement; Assignment ........................... 38
SECTION 9.06. Parties in Interest .................................... 38
SECTION 9.07. Governing Law .......................................... 38
SECTION 9.08. Headings ............................................... 38
SECTION 9.09. Counterparts ........................................... 38
</TABLE>
ANNEX A
Conditions to the Offer
ANNEX B
Employee Benefit Matters
<PAGE>
Page iii
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
3.01 Subsidiaries
3.03 Capitalization
3.05(a) Conflicts
3.05(b) Required Filings, Consents
3.06 Compliance
3.07(c) Financial Statements
3.08 Absence of Certain Changes or Events
3.09 Litigation
3.10 Employee Benefits
3.11 Labor Matters
3.13 Taxes
3.14(b) Property Matters
3.15 Intellectual Property Matters
3.16 Environmental Matters
3.19 Insurance
5.01(b) Conduct of Business Pending the Merger
5.01(e) Conduct of Business Pending the Merger
6.06 Employee Benefits Matters
</TABLE>
<PAGE>
Page 1
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER dated as of August 12, 1998 (this
"Agreement") among ENVIRONMENTAL SYSTEMS PRODUCTS, INC., a Delaware corporation
("Parent"), STONE RIVET, INC., a Delaware corporation and a wholly owned
subsidiary of Parent ("Purchaser"), and ENVIROTEST SYSTEMS CORP., a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Purchaser and the Company have
each determined that it is in the best interests of their respective
stockholders for Parent to acquire the Company upon the terms and subject to the
conditions set forth herein; and
WHEREAS, the Company's common stock consists of three classes as follows:
Class A Common Stock, par value $.01 per share ("Class A Common Stock"), Class B
Common Stock, par value $.01 per share ("Class B Common Stock") and Class C
Common Stock, par value $.01 per share ("Class C Common Stock"; together with
Class A Common Stock and Class B Common Stock, being hereinafter collectively
referred to as "Company Common Stock"); and
WHEREAS, in furtherance of such acquisition, it is proposed that Purchaser
shall make a cash tender offer (the "Offer") to acquire all the issued and
outstanding shares of the Company's Class A Common Stock (shares of Class A
Common Stock, being hereinafter collectively referred to as "Shares") for $17.25
per Share (such amount, or any greater amount per Share paid pursuant to the
Offer, being hereinafter referred to as the "Per Share Amount") net to the
seller in cash, upon the terms and subject to the conditions of this Agreement
and the Offer; and
WHEREAS, the Board of Directors of the Company (the "Board") has
unanimously approved the making of the Offer and resolved and agreed to
recommend that holders of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards of Directors
of Parent, Purchaser and the Company have each approved the merger (the
"Merger") of Purchaser with and into the Company in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law") upon the terms and
subject to the conditions set forth herein; and
WHEREAS, Parent and Purchaser are unwilling to enter into this Agreement
unless, contemporaneously with the execution and delivery hereof, certain
stockholders of the Company each enter into an agreement providing for certain
matters with respect to certain shares of the Company Common Stock beneficially
owned by them as set forth therein and such stockholders have each agreed to
execute and deliver such agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Upon the terms and subject to the conditions
of this Agreement, Purchaser shall commence the Offer as promptly as reasonably
practicable after the date hereof, but in no event later than five Business Days
after the initial public announcement of Purchaser's intention to
<PAGE>
Page 2
- --------------------------------------------------------------------------------
commence the Offer. The obligation of Purchaser to accept for payment and pay
for Shares tendered pursuant to the Offer shall be subject to the condition (the
"Minimum Condition") that (i) at least the number of Shares, assuming conversion
of all shares of Class B Common Stock and Class C Common Stock into Shares, that
when added to any Shares already owned by Parent shall constitute 90 percent of
the then outstanding Shares on a primary basis, and (ii) 100 percent of the
Shares that are issuable upon conversion (and assuming conversion thereof) of
all of the then outstanding shares of Class B Common Stock and Class C Common
Stock, shall have been validly tendered and not withdrawn prior to the
expiration of the Offer and also shall be subject to the satisfaction of the
other conditions set forth in Annex A hereto. Purchaser expressly reserves the
right to waive any such condition, to increase the price per Share payable in
the Offer, and to make any other changes in the terms and conditions of the
Offer; provided, however, that the Minimum Condition may not be waived without
the prior approval of the Company (except that the Minimum Condition may be
waived without such prior approval if at least the number of Shares, assuming
conversion of all shares of Class B Common Stock and Class C Common Stock into
Shares, that when added to any Shares already owned by Parent shall constitute a
majority of the then outstanding Shares on a primary basis, shall have been
validly tendered and not withdrawn prior to the expiration of the Offer) and
that no change may be made which decreases the price per Share payable in the
Offer, reduces the maximum number of Shares to be purchased in the Offer,
imposes conditions to the Offer in addition to those set forth in Annex A hereto
or otherwise is materially adverse to the Company or the holders of Shares.
Notwithstanding the foregoing, Purchaser may, without the consent of the
Company, (i) extend the Offer for up to 30 Business Days beyond the scheduled
expiration date (the initial scheduled expiration date being September 30, 1998)
if, at the scheduled expiration date of the Offer, any of the conditions (other
than the Minimum Condition or the condition specified in paragraph (g) of Annex
A) to Purchaser's obligation to accept for payment, and to pay for, the Shares
shall not be satisfied or waived, (ii) extend the Offer for any period required
by the SEC Rules applicable to the Offer, (iii) extend the Offer for an
aggregate period of not more than ten Business Days beyond the latest applicable
date that would otherwise be permitted under clause (i) or (ii) of this
sentence, if as of such date, the Minimum Condition shall not be satisfied or
waived or (iv) extend the Offer for so long as this Agreement shall remain in
effect if the condition specified in paragraph (g) of Annex A shall not be
satisfied or waived; provided, however, that (A) if the waiting period under the
HSR Act shall not have expired or been terminated on the scheduled expiration
date of the Offer or a temporary restraining order prohibiting the purchase of
the Shares shall have been issued by a court of competent jurisdiction, the
Purchaser shall extend the Offer from time to time until five Business Days
after the expiration or termination of the waiting period under the HSR Act or
the lifting of such temporary restraining order and (B) if the condition set
forth in paragraph (c) or (d) of Annex A shall not have been satisfied, the
Purchaser shall, so long as the breach can be cured and the Company is
vigorously attempting to cure such breach, extend the Offer from time to time
until five Business Days after such breach is cured. The Per Share Amount shall
be net to the seller in cash, upon the terms and subject to the conditions of
the Offer. Subject to the terms and conditions of the Offer, Purchaser shall
pay, as promptly as practicable after expiration of the Offer, for all Shares
validly tendered and not withdrawn.
(b) As soon as reasonably practicable on the date of commencement of the
Offer, Purchaser shall file with the SEC (i) a Tender Offer Statement on
Schedule 14D-1 (together with all amendments and supplements thereto, the
"Schedule 14D-1") with respect to the Offer. The Schedule 14D-1 shall contain or
shall incorporate by reference an offer to purchase (the "Offer to Purchase")
and forms of the related letter of transmittal and any related summary
advertisement (the Schedule 14D-1, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "Offer Documents"). Parent, Purchaser and the
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
(c) In the event that, upon the expiration of the Offer (including any
extension thereof made in accordance with Section 1.01(a)), the Minimum
Condition shall not have been satisfied or waived, the Company shall file, and
Parent and Purchaser shall use all reasonable efforts to assist the Company in
filing, as promptly as practicable, but
<PAGE>
Page 3
- --------------------------------------------------------------------------------
in no event later than five Business Days following such expiration date, the
Proxy Statement with the SEC under the Exchange Act pursuant to Section 6.02 for
the purpose of considering and taking action on this Agreement and the Merger.
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on August 12, 1998, has unanimously (A) determined that this
Agreement and the Transactions, including the Offer and the Merger, are fair to
and in the best interests of the holders of Shares, (B) approved and adopted
this Agreement and the Transactions (such approval and adoption having been made
in accordance with the provisions of -Section- 203 of Delaware Law) and (C)
recommended that the stockholders of the Company accept the Offer and approve
and adopt this Agreement and the Transactions, and (ii) Credit Suisse First
Boston ("CSFB") has delivered to the Board an opinion that the consideration to
be received by the holders of Shares pursuant to the Offer and the Merger is
fair from a financial point of view to the holders of Shares, a copy of the
written opinion of which shall be delivered to Purchaser promptly after the date
hereof. CSFB has agreed to permit the inclusion of its fairness opinion or
references thereto in the Offer Documents (subject to CSFB's review and
reasonable approval of the description of such fairness opinion). Subject to the
fiduciary duties of the Board under applicable law as determined by the Board in
good faith after receiving advice from independent counsel, the Company hereby
consents to the inclusion in the Offer Documents of the recommendation of the
Board described in the immediately preceding sentence. The Company has been
advised by each of its directors and executive officers that they intend either
to tender all Shares beneficially owned by them to Purchaser pursuant to the
Offer or to vote such Shares in favor of the approval and adoption by the
stockholders of the Company of this Agreement and the Transactions.
(b) As soon as reasonably practicable on the date of commencement of the
Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing, subject to the fiduciary duties of
the Board under applicable law as determined by the Board in good faith after
receiving advice from independent counsel, the recommendation of the Board
described in Section 1.02(a) and shall disseminate the Schedule 14D-9 to the
extent required by Rule 14d-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any other applicable federal
securities laws. The Company, Parent and Purchaser agree to correct promptly any
information provided by any of them for use in the Schedule 14D-9 which shall
have become false or misleading, and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
SEC and disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws.
(c) The Company shall promptly furnish to Purchaser mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of a
recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company shall furnish to Purchaser such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Parent, Purchaser or their agents may reasonably
request. Subject to the requirements of applicable law, and except for such
steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer or the Merger, Parent and Purchaser
shall hold in confidence the information contained in such labels, listings and
files, shall use such information only in connection with the Offer and the
Merger, and, if this Agreement shall be terminated in accordance with Section
8.01, shall deliver to the Company all copies of such information then in their
possession.
SECTION 1.03. Employee Stock Options. (a) Each stock option (a "Company
Stock Option") outstanding at the time of the purchase of Shares pursuant to the
Offer in accordance with Section 1.01,
<PAGE>
Page 4
- --------------------------------------------------------------------------------
whether or not exercisable and whether or not vested, under any stock option
plan of the Company, or any of its Affiliates or any agreement to which the
Company or any of its Affiliates is a party (the "Company Stock Option Plans"),
shall be canceled by the Company immediately following the purchase of Shares
pursuant to the Offer in accordance with Section 1.01 and each holder of a
canceled Company Stock Option shall be entitled to receive immediately
thereafter from the Company in consideration for the cancellation of such
Company Stock Option an amount (the "Option Spread") equal to the product of (i)
the number of Shares previously subject to such Company Stock Option and (ii)
the excess, if any, of the Per Share Amount over the exercise price per share of
Company Common Stock previously subject to such Company Stock Option. The Option
Spread, after reduction for applicable tax withholding, if any, shall be paid in
cash. No interest shall accrue or be paid on the Option Spread for the benefit
of the holder of such canceled Company Stock Option.
(b) On the day immediately following the purchase of Shares pursuant to
the Offer in accordance with Section 1.01, Purchaser shall cause to be wired to
an account designated by the Company not less than three days prior to the
expiration of the Offer an amount sufficient to enable the Company to make the
payments required pursuant to Sections 1.03(a) and 6.06, but in no event shall
such amount to be wired exceed $10,500,000.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in Article VII, and in accordance with Delaware Law, at the Effective Time
(as hereinafter defined) Purchaser shall be merged with and into the Company. As
a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation").
SECTION 2.02. Effective Time; Closing. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing this Agreement or a certificate of merger or certificate of ownership and
merger (in either case, the "Certificate of Merger") with the Secretary of State
of the State of Delaware, in such form as is required by, and executed in
accordance with, the relevant provisions of Delaware Law (the date and time of
such filing being the "Effective Time").
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of the
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Certificate of Incorporation; By-laws. (a) At the Effective
Time, the Certificate of Incorporation of the Company shall be restated in a
form acceptable to Purchaser and shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation; provided, however, that such restated Certificate
of Incorporation shall be in accordance with the provisions of Section 6.07
hereof.
<PAGE>
Page 5
- --------------------------------------------------------------------------------
(b) The By-laws of Purchaser, as in effect immediately prior to the
Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such By-laws.
SECTION 2.05. Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of Purchaser, the Company or
the holders of any of the following securities:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Common Stock to be canceled pursuant to Section 2.06(b) and any Dissenting
Shares (as hereinafter defined)) shall be canceled and shall be converted
automatically into the right to receive an amount equal to the Per Share
Amount in cash (the "Merger Consideration") payable, without interest, to
the holder of such share of Company Common Stock, upon surrender, in the
manner provided in Section 2.09, of the certificate that formerly
evidenced such share of Company Common Stock;
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Purchaser, Parent
or any direct or indirect wholly owned Subsidiary of Parent or of the
Company immediately prior to the Effective Time shall be canceled without
any conversion thereof and no payment or distribution shall be made with
respect thereto; and
(c) Each share of Common Stock, par value $.01 per share, of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into, and exchanged for, one validly issued, fully paid
and nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 2.07. Employee Stock Options. In the event that the Company Stock
Options are not canceled pursuant to Section 1.03, each Company Stock Option
outstanding at the Effective Time, whether or not exercisable and whether or not
vested, under any Company Stock Option Plan, shall be canceled by the Company at
the Effective Time and each holder of a canceled Company Stock Option shall be
entitled to receive immediately thereafter from the Company in consideration for
the cancellation of such Company Stock Option the Option Spread. The Option
Spread, after reduction for applicable tax withholding, if any, shall be paid in
cash. No interest shall accrue or be paid on the Option Spread for the benefit
of the holder of such canceled Company Stock Option.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing an appraisal for such shares of
Company Common Stock in accordance with Section 262 of Delaware Law
(collectively, the "Dissenting Shares") shall not be converted into or represent
the right to receive the Merger Consideration. Such stockholders shall be
entitled to receive payment of the appraised value of such shares of Company
Common Stock held by them in accordance with the provisions of such Section 262,
except that all Dissenting Shares held by stockholders who shall have failed to
perfect or who effectively shall have withdrawn or lost their rights to
appraisal of
<PAGE>
Page 6
- --------------------------------------------------------------------------------
such shares of Company Common Stock under such Section 262 shall thereupon be
deemed to have been converted into and to have become exchangeable for, as of
the Effective Time, the right to receive the Merger Consideration, without any
interest thereon, upon surrender, in the manner provided in Section 2.09 of the
certificate or certificates that formerly evidenced such shares of Company
Common Stock.
(b) The Company shall give Purchaser (i) prompt notice of any written
demands for fair value, withdrawals of demands for fair value and any other
instruments served pursuant to applicable law received by the Company relating
to stockholders' rights of appraisal and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraised value under
Section 262 of Delaware Law. The Company shall not, except with the prior
written consent of Purchaser, voluntarily make any payment with respect to any
demands for appraised value of Dissenting Shares or offer to settle or settle
any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a) As of the
Effective Time, Purchaser shall deposit, or shall cause to be deposited, with a
bank or trust company designated by Parent or Purchaser to act as its paying
agent (the "Paying Agent"), for the benefit of the holders of shares of Company
Common Stock, for payment in accordance with this Article II, through the Paying
Agent, cash in an amount equal to the Per Share Amount multiplied by the number
of Shares (assuming the conversion of all issued and outstanding shares of Class
B Common Stock and Class C Common Stock into shares of Class A Common Stock
prior to the Effective Time) outstanding immediately prior to the Effective Time
(such cash being hereinafter referred to as the "Payment Fund"). The Paying
Agent shall, pursuant to irrevocable instructions, deliver the cash contemplated
to be paid pursuant to Sections 2.06(a) and 2.08 out of the Payment Fund. The
Payment Fund shall not be used for any other purpose. The Payment Fund shall be
invested by the Paying Agent as directed by the Surviving Corporation, provided
that such investments shall be in obligations of or guaranteed by the United
States of America or of any agency thereof and backed by the full faith and
credit of the United States of America, in commercial paper obligations rated
A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's
Rating Services, respectively, or in deposit accounts, certificates of deposit
or banker's acceptances of, repurchase or reverse repurchase agreements with, or
Eurodollar time deposits purchased from, commercial banks with capital, surplus
and undivided profits aggregating in excess of $500 million (based on the most
recent financial statements of such bank which are then publicly available at
the SEC or otherwise).
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each person who was, at the Effective Time, a holder of
record of shares of Company Common Stock entitled to receive the Merger
Consideration pursuant to Section 2.06(a) a form of letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
certificates evidencing such shares of Company Common Stock (the "Certificates")
shall pass, only upon proper delivery of the Certificates to the Paying Agent)
and instructions for use in effecting the surrender of the Certificates pursuant
to such letter of transmittal. Upon surrender to the Paying Agent of a
Certificate, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration for each share of Company Common Stock formerly evidenced by such
Certificate, and such Certificate shall then be canceled. No interest shall
accrue or be paid on the Merger Consideration payable upon the surrender of any
Certificate for the benefit of the holder of such Certificate. If payment of the
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate is registered on the stock transfer books of
the Company, it shall be a condition of payment that the Certificate so
surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such
<PAGE>
Page 7
- --------------------------------------------------------------------------------
taxes either have been paid or are not applicable.
(c) At any time following the sixth month after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of shares of Company Common Stock (including, without
limitation, all interest and other income received by the Paying Agent in
respect of all funds made available to it), and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat and other similar laws) only as general creditors thereof with respect
to any Merger Consideration that may be payable. Notwithstanding the foregoing,
neither the Surviving Corporation nor the Paying Agent shall be liable to any
holder of a Share for any Merger Consideration delivered in respect of such
Share to a public official pursuant to any abandoned property, escheat or other
similar law.
(d) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and thereafter there shall be no
further registration of transfers of shares of Company Common Stock on the
records of the Company. From and after the Effective Time, the holders of shares
of Company Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such shares of Company Common
Stock except as otherwise provided herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of the
Company and each Subsidiary of the Company is duly organized, validly existing
and in good standing under the laws of its jurisdiction of organization and has
the requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is now
being conducted, except where the failure to be so organized, existing or in
good standing or to have such power, authority and governmental approvals does
not, individually or in the aggregate, have a Material Adverse Effect. Each of
the Company and each Subsidiary is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that do not,
individually or in the aggregate, have a Material Adverse Effect. A true and
complete list of all the Subsidiaries, together with the jurisdiction of
organization of each Subsidiary and the percentage of the outstanding capital
stock of each Subsidiary owned by the Company and each other Subsidiary, is set
forth in Schedule 3.01. Except as disclosed in Schedule 3.01, the Company does
not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
SECTION 3.02. Certificate of Incorporation and By-laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Certificate of
Incorporation and the By-laws or equivalent organizational documents, each as
amended to date, of the Company and each Subsidiary. Such Certificates of
Incorporation and By-Laws or equivalent organizational documents are in full
force and effect, and neither the Company nor any Subsidiary is in violation of
any provision thereof.
<PAGE>
Page 8
- --------------------------------------------------------------------------------
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 40,000,000 Shares, 5,000,000 shares of Class B Common Stock and
5,000,000 shares of Class C Common Stock. As of the date hereof, (i) 8,842,248
Shares, 1,249,749 shares of Class B Common Stock and 2,026,111 shares of Class C
Common Stock are issued and outstanding, all of which are validly issued, fully
paid and nonassessable, (ii) 4,388,091 Shares, no shares of Class B Common Stock
and no shares of Class C Common Stock are held in the treasury of the Company,
(iii) no Shares, no shares of Class B Common Stock and no shares of Class C
Common Stock are held by the Subsidiaries, (iv) 2,830,285 Shares, no shares of
Class B Common Stock and no shares of Class C Common Stock are reserved for
issuance pursuant to currently outstanding stock options granted pursuant to the
Company's Stock Option Plans and (v) 589,660 Shares, no shares of Class B Common
Stock and no shares of Class C Common Stock are reserved for issuance pursuant
to stock options to be granted pursuant to the Company's Stock Option Plans.
Each of the outstanding shares of capital stock or other securities of each
Subsidiary is duly authorized, validly issued, fully paid and nonassessable and
owned by a direct or indirect wholly-owned subsidiary of the Company, free and
clear of any lien, pledge, security interest, claim or other encumbrance. Except
as set forth in this Section 3.03 or in the Certificate of Incorporation of the
Company, neither the Company nor any Subsidiary has granted any options,
warrants or other rights, or entered into any agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or any Subsidiary or obligating the Company or any Subsidiary to
issue or sell any shares of capital stock of, or other equity interests in, the
Company or any Subsidiary. All Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Schedule 3.03 contains a correct and complete list of all options
to purchase capital stock of the Company or any Subsidiary. Except as set forth
on Schedule 3.03, there are no outstanding contractual obligations of the
Company or any Subsidiary to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, or to repurchase, redeem
or otherwise acquire any shares of capital stock of the Company or any
Subsidiary or any other person other than to Subsidiaries in the ordinary course
of business consistent with past practice.
SECTION 3.04. Authority Relative to this Agreement. The Company has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated hereby
(the "Transactions"). The execution and delivery of this Agreement by the
Company and the consummation by the Company of the Transactions have been duly
and validly authorized by all necessary corporate action, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the Transactions (other than, with respect to the Merger, the
approval and adoption of this Agreement by the holders of a majority of the then
outstanding Shares if and to the extent required by applicable law, and the
filing and recordation of appropriate merger documents as required by Delaware
Law). This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and Purchaser, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or By-laws or equivalent organizational
documents of the Company or any Subsidiary, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to the Company or
any Subsidiary or by which any property or asset of the Company or any
Subsidiary is bound or affected other than conflicts or violations that do not,
individually or in the aggregate, have a Material Adverse Effect, or (iii)
except as set forth on Schedule 3.05(a), result in any
<PAGE>
Page 9
- --------------------------------------------------------------------------------
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, require any third-party consents,
approvals, or authorizations, give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of the Company or any Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, other than
breaches, defaults or other occurrences that do not, individually or in the
aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any United States or Canadian federal, state or provincial governmental or
regulatory authority except (i) for applicable requirements, if any, of the
Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws") and state
takeover laws, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), and filing and recordation of appropriate merger
documents as required by Delaware Law and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Offer or the
Merger, or otherwise prevent the Company from performing its obligations under
this Agreement, and do not, individually or in the aggregate, have a Material
Adverse Effect.
SECTION 3.06. Compliance. (a) The business and operations of the Company
have been conducted in compliance with all applicable federal, state and local
statutes and regulations, except where the failure to so conduct such business
and operations would not, individually or in the aggregate, have a Material
Adverse Effect. Except for statutory or regulatory restrictions of the business
of the Company, no governmental authority has imposed any restrictions on the
Company's business, which restrictions either, individually or in the aggregate,
do not and, so far as the Company can reasonably foresee, will not have a
Material Adverse Effect.
(b) Except as would not, individually or in the aggregate, have a Material
Adverse Effect, (i) the Company has all approvals, permits and licenses from
federal, state and local government agencies and government-sponsored
enterprises which are required to conduct its business and (ii) all such
approvals, permits and licenses are in full force and effect and are being
complied with in all material respects.
(c) Neither the Company nor any Subsidiary is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or affected, or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any property
or asset of the Company or any Subsidiary is bound or affected, except for any
such conflicts, defaults or violations that do not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) Each of the Company
and Envirotest Technologies, Inc., a Subsidiary of the Company, has filed all
forms, reports and documents required to be filed by it with the SEC since
September 30, 1996 and has heretofore made available to Parent, in the form
filed with the SEC, (i) the Company's Annual Reports on Form 10-K for the fiscal
years ended September 30, 1996 and 1997, (ii) all proxy statements relating to
the Company's meetings of stockholders (whether annual or special) held since
September 30, 1996, and (iii) all other forms, reports and other registration
statements filed by the Company with the SEC since September 30, 1996 (the
forms, reports and other documents referred to in clauses (i), (ii) and (iii)
above being referred to herein, collectively, as the "SEC
<PAGE>
Page 10
- --------------------------------------------------------------------------------
Reports"). The SEC Reports (i) were prepared in accordance with the requirements
of the Securities Act of 1933, as amended (the "Securities Act"), and the
Exchange Act, as the case may be, and the rules and regulations thereunder and
(ii) did not at the time they were filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. Except for Envirotest
Technologies, Inc., no Subsidiary is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the SEC Reports was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and each fairly presented the consolidated
financial position, results of operations and cash flow of the Company and the
Subsidiaries or the Guarantor Subsidiaries as at the respective dates thereof
and for the respective periods indicated therein (except as otherwise noted
therein and subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which are not expected to have either
individually or in the aggregate a Material Adverse Effect).
(c) Except as and to the extent set forth on the consolidated balance
sheet of the Company and the Subsidiaries as at September 30, 1997, including
the notes thereto, neither the Company nor any Subsidiary has any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles, except for liabilities
and obligations (i) that do not, individually or in the aggregate, have a
Material Adverse Effect or (ii) as set forth on Schedule 3.07(c).
SECTION 3.08. Absence of Certain Changes or Events. From September 30,
1997 through the date hereof, except as set forth on Schedule 3.08 or disclosed
in any SEC Report, there has not been (i) a Material Adverse Effect, (ii) any
material change by the Company in its accounting methods, principles or
practices, (iii) any entry by the Company or any Subsidiary into any contract
material to the Company and the Subsidiaries, taken as a whole, (iv) any
declaration, setting aside or payment of any dividend or distribution in respect
of any capital stock of the Company or any redemption, purchase or other
acquisition of any of its securities, (v) other than pursuant to the contractual
arrangements referred to in Section 3.10 and Annex B, any increase in or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company or any
Subsidiary, except in the ordinary course of business consistent with past
practice or (vi) any damage, destruction or other casualty loss with respect to
any material asset or property owned, leased or otherwise used by the Company or
any of its Subsidiaries, whether or not covered by insurance, which is
reasonably likely to have a Material Adverse Effect.
SECTION 3.09. Absence of Litigation. Except as set forth on Schedule 3.09
or disclosed in the SEC Reports, there is no claim, action, proceeding or
investigation pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary or any Company Benefit Plan, or any property or
asset of the Company or any Subsidiary or any Company Benefit Plan, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that, individually or in the aggregate, has a
Material Adverse Effect. Neither the Company nor any Subsidiary nor any property
or asset of the Company or any Subsidiary is subject to any order, writ,
judgment, injunction, decree, determination or award having, individually or in
the aggregate, a Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. (a) With respect to each employee
benefit plan, program,
<PAGE>
Page 11
- --------------------------------------------------------------------------------
arrangement and contract (x) covering one or more current or former officers or
employees of the Company or any of its Subsidiaries (including, without
limitation, any "employee benefit plan", as defined in Section 3(3) or the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")), whether
written or oral, or maintained or contributed to by the Company or any of its
Subsidiaries or (y) with respect to which the Company or any of its Subsidiaries
is a party or could incur liability under Section 4069, 4201 or 4212(c) of ERISA
or any material liability under any other applicable law (collectively, the
"Company Benefit Plans"), the Company has made available to Parent a true and
correct copy of (i) the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), (ii) such Company Benefit Plan (or a
description thereof, if such Company Benefit Plan is not in writing), and any
amendments thereto, (iii) each related trust agreement, annuity contract or
other funding instrument, (iv) the most recent summary plan description (and
summary of material modifications), if a summary plan description (or summary of
material modifications) is required, (v) the most recent actuarial report or
valuation, if any, and (vi) the most recent determination letter or prototype
opinion letter, if any, issued by the IRS with respect to any Company Benefit
Plan qualified under Section 401(a) of the Code.
(b) Except as set forth on Schedule 3.10 or as would not have a Material
Adverse Effect, individually or in the aggregate, each Company Benefit Plan that
is intended to be "qualified" within the meaning of Section 401(a) of the Code
is so qualified.
(c) Except as set forth on Schedule 3.10 or as would not have a Material
Adverse Effect, individually or in the aggregate, each Company Benefit Plan
presently complies and has been maintained in compliance with its terms and,
both as to form and operation, with the requirements prescribed by any statutes,
orders, rules and regulations that apply to such Company Benefit Plan,
including, without limitation, ERISA and the Code. Except as set forth on
Schedule 3.10 or as would not have a Material Adverse Effect, individually or in
the aggregate, no Company Benefit Plan or related trust or other funding vehicle
is liable for any tax under Section 511 of the Code. Except as set forth on
Schedule 3.10, with respect to the Company Benefit Plans, no event has occurred
and, to the knowledge of the Company, there exists no condition or set of
circumstances in connection with which the Company or any of its Subsidiaries
could be subject to any liability under the terms of such Company Benefit Plans,
ERISA, the Code or any other applicable law which would have a Material Adverse
Effect, individually or in the aggregate.
(d) The Company has made available to Parent (i) copies of all employment
agreements with officers of the Company and its Subsidiaries; (ii) copies of all
severance agreements, programs and policies of the Company and its Subsidiaries
with or relating to its employees; and (iii) copies of all plans, programs,
agreements and other arrangements of the Company and its Subsidiaries with or
relating to its employees which contain change in control provisions. Schedule
3.10 contains a complete list of such agreements, programs and policies.
Schedule 6.06 contains a complete and accurate list of the names of all
individuals who are entitled to payments upon a change of control of the Company
and the respective amounts to which they are so entitled.
(e) Except as set forth on Schedule 3.10 or as otherwise required by law,
neither the Company, its Subsidiaries nor any Company Benefit Plan is obligated
to provide or provides medical or life insurance benefits to any person who is
or becomes a retiree or otherwise is or becomes a former employee of the Company
or any of its Subsidiaries.
(f) No Company Benefit Plan is a Multiemployer Plan (within the meaning of
Section 4001(a)(3) or 3(37) of ERISA), and neither the Company nor any of its
Subsidiaries has ever maintained, contributed to or been required to contribute
to or participated in any Multiemployer Plan.
SECTION 3.11. Labor Matters. Except as set forth in Schedule 3.11, (i)
there are no controversies
<PAGE>
Page 12
- --------------------------------------------------------------------------------
pending, or, to the knowledge of the Company, threatened between the Company or
any Subsidiary and any of their respective employees, other than controversies
which, individually or in the aggregate, do not have a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary is a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by the Company or any Subsidiary or, to the knowledge of the Company,
are there any activities or proceedings of any labor union to organize any such
employees; and (iii) to the knowledge of the Company, there are no strikes,
slowdown, works stoppages or lockouts or, to the knowledge of the Company,
threats of any of the foregoing by, or with respect to, any employees of the
Company that would have a Material Adverse Effect.
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement. Neither
the Schedule 14D-9 nor any information supplied by the Company for inclusion in
the Offer Documents shall, at the respective times set out in the Schedule
14D-9, the Offer Documents or any amendments or supplements thereto that are
filed with the SEC or are first published, sent or given to stockholders of the
Company, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they are
made, not misleading. Neither the proxy statement to be sent to the stockholders
of the Company in connection with the Stockholders' Meeting (as hereinafter
defined) nor the information statement to be sent to such stockholders, as
appropriate (such proxy statement or information statement, as amended or
supplemented, being referred to herein as the "Proxy Statement"), shall, at the
date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to stockholders of the Company, at the time of the Stockholders' Meeting
and at the Effective Time, be false or misleading with respect to any material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. The Schedule 14D-9 and the Proxy Statement shall comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 3.13. Taxes. The Company and the Subsidiaries have properly filed
on a timely basis all federal, state, local and foreign tax returns and reports
required to be filed and have paid and discharged all taxes shown as due
thereon, including, without limitation, the collection and remittance of all
amounts required to be withheld by the Company and its Subsidiaries, and have
paid all applicable ad valorem taxes as are due, other than (i) such payments as
are being contested in good faith by appropriate proceedings as set forth in
Schedule 3.13 and (ii) such filings, payments or other occurrences that,
individually or in the aggregate, would not have a Material Adverse Effect.
Except as set forth in Schedule 3.13, there are no outstanding agreements or
waivers extending the applicable statutory periods of limitation for the payment
of taxes. Except as set forth on Schedule 3.13, neither the IRS nor any other
taxing authority or agency, domestic or foreign, is now asserting or, to the
best knowledge of the Company, threatening to assert against the Company or any
Subsidiary any deficiency or claim for additional taxes or interest thereon or
penalties in connection therewith that individually or in the aggregate, would
have a Material Adverse Effect. Neither the Company nor any Subsidiary has made
an election under Section 341(f) of the Code. The Company shall deliver all
necessary certificates and documents confirming that no withholding under
Section 1445 of the Code is required in connection with the payment for shares
of Company Common Stock in the Offer or the Merger. Neither the Company nor any
of its Subsidiaries is a party to any tax-sharing or tax-allocation agreement
with any third party.
SECTION 3.14. Property and Leases. (a) The Company and the Subsidiaries
have sufficient title to all their properties and assets to conduct their
respective businesses as currently conducted with only such exceptions as,
individually or in the aggregate, do not have a Material Adverse Effect.
<PAGE>
Page 13
- --------------------------------------------------------------------------------
(b) Each parcel of real property owned or leased by the Company or any
Subsidiary (i) is owned or leased free and clear of all mortgages, pledges,
liens, security interests, conditional and installment sale agreements,
encumbrances, charges or other claims of third parties of any kind
(collectively, "Liens"), other than (A) Liens for current taxes and assessments
not yet past due, (B) inchoate mechanics' and materialmen's Liens for
construction in progress, (C) workmen's, repairmen's, warehousemen's and
carriers' Liens arising in the ordinary course of business of the Company or
such Subsidiary consistent with past practice, and (D) all matters of record,
Liens and other imperfections of title and encumbrances which, individually or
in the aggregate, do not have a Material Adverse Effect or as set forth in
Schedule 3.14(b) (collectively, "Permitted Liens"), and (ii) is neither subject
to any governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the best knowledge of the Company, has any
such condemnation, expropriation or taking been proposed. With respect to each
parcel of real property owned by the Company or any of its Subsidiaries, except
as would not, individually or in the aggregate, have a Material Adverse Effect,
(x) there are no leases, subleases, licenses, concessions or other agreements,
written or oral, granting to any party or parties the right of use or occupancy
of any material portion of such parcel and (y) there are no outstanding options
or rights of first refusal to purchase such parcel or any material portion
thereof or interest therein.
(c) All leases of real property leased for the use or benefit of the
Company or any Subsidiary to which the Company or any Subsidiary is a party
requiring rental payments in excess of $100,000 during the period of the lease,
and all amendments and modifications thereto are in full force and effect and
have not been modified or amended, and there exists no default under any such
lease by the Company or any Subsidiary, nor any event which with notice or lapse
of time or both would constitute a default thereunder by the Company or any
Subsidiary, except as, individually or in the aggregate, does not have a
Material Adverse Effect.
SECTION 3.15. Intellectual Property. (a) The Company and the Subsidiaries
own, or possess licenses or other valid rights to use, all Intellectual Property
that is material to the business of the Company and the Subsidiaries as
currently conducted, and the Company is unaware of any assertion or claim
challenging the validity of any of the foregoing, other than any assertion or
claim which, individually or in the aggregate, does not have a Material Adverse
Effect. The conduct of the business of the Company and the Subsidiaries as
currently conducted does not interfere with, misappropriate, violate or
otherwise conflict with any material Intellectual Property rights of third
parties, other than conflicts that, individually or in the aggregate, do not
have a Material Adverse Effect. Except as set forth in Schedule 3.15, to the
knowledge of the Company, neither it nor any Subsidiary has licensed or
otherwise permitted the use by any third party of any Intellectual Property on
terms or in a manner which, individually or in the aggregate, has a Material
Adverse Effect.
(b) Schedule 3.15 identifies (i) each unexpired patent or registration
which has been issued to the Company or any of its Subsidiaries with respect to
any of its Intellectual Property, (ii) each pending patent application or
application for registration which the Company or any of the Subsidiaries has
made with respect to any of its Intellectual Property, and (iii) each material
license, agreement, or other permission which the Company or any of its
Subsidiaries has granted to any third party with respect to any of its
Intellectual Property (together with any exceptions).
SECTION 3.16. Environmental Matters. Except as disclosed in Schedule 3.16
and except as would not, individually or in the aggregate, have a Material
Adverse Effect, (a) to the Company's knowledge, the Company and the Subsidiaries
are in compliance with all applicable Environmental Laws and
<PAGE>
Page 14
- --------------------------------------------------------------------------------
have obtained and are in compliance with all governmental permits, licenses and
other authorizations required under any Environmental Law, (b) there are no
written claims pursuant to any Environmental Law pending or, to the Company's
knowledge, threatened, against the Company, (c) the Company has provided
Purchaser with copies of any and all environmental assessment or audit reports
or other similar studies or analyses generated within the last three years and
in the Company's possession, that relate to the Company, and (d) to the
Company's knowledge, no real property currently owned or operated by the Company
or any of its Subsidiaries is contaminated with any Hazardous Substance.
SECTION 3.17. Brokers. No broker, finder or investment banker (other than
CSFB) is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and CSFB pursuant to which
such firm would be entitled to any payment relating to the Transactions.
SECTION 3.18. Assets. Except for Permitted Liens and except as would not,
individually or in the aggregate, have a Material Adverse Effect, the Company
has good and valid title to or a valid leasehold interest in all of its personal
property and all equipment, fixtures, furnishings and other material items of
tangible personal property owned or used by the Company are in good operating
condition and repair, subject to normal wear and maintenance, and are usable in
the regular and ordinary course of the Company's business.
SECTION 3.19. Insurance. All material risks of the Company in respect of
its business are covered by valid and currently effective insurance policies or
binders of insurance or programs of self-insurance in such types and amounts as
are reasonable in the context of the businesses and operations engaged by the
Company. The Company has paid all premiums due under such policies and is not in
default with respect to its obligations under any such policies other than any
default that does not, individually or in the aggregate, have a Material Adverse
Effect. All programs of self-insurance are listed and described in Schedule
3.19.
SECTION 3.20. Takeover Statutes. To the knowledge of the Company, no "fair
price," "control share acquisition" or other similar anti-takeover statute or
regulation or any applicable anti-takeover provision in the Company's
Certificate of Incorporation or ByLaws is, or at the Effective Time will be,
applicable to the Company, the Shares, the Merger or the other Transactions.
SECTION 3.21. Expenses. Except for (i) fees and expenses payable to
attorneys and accountants, investment banks and financial advisors, (ii) costs
and expenses in connection with the printing and mailing of the Offer Documents,
the Schedule 14D-9 and the Proxy Statement, as well as any filing fees relating
thereto, and (iii) the payment to holders of Company Stock Options provided in
Section 2.07 and the change of control payments set forth on Schedule 6.06, the
Company will not incur any material costs and expenses in connection with the
Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and warrant
to the Company that:
<PAGE>
Page 15
- --------------------------------------------------------------------------------
SECTION 4.01. Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power, authority
and governmental approvals would not, individually or in the aggregate, have an
adverse effect on the ability of Parent or Purchaser to perform their
obligations hereunder, or prevent or materially delay the consummation of the
Transactions. Parent owns all of the issued and outstanding shares of Purchaser.
On or prior to earlier of the purchase of Shares pursuant to the Offer and the
Effective Time, Parent shall be an indirect, wholly owned Subsidiary of
Environmental Systems Products Holdings, Inc. a Delaware corporation
("Holdings"), Holdings has conducted no business and has incurred no
liabilities, other than, in each case, in connection with the Transactions.
SECTION 4.02. Authority Relative to this Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes legal, valid
and binding obligations of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Certificate of Incorporation or By-laws of either Parent or
Purchaser, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to Parent or Purchaser or by which any property or
asset of either of them is bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, require any third-party consents, approvals or
authorizations, give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Parent or Purchaser pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or Purchaser is a
party or by which Parent or Purchaser or any property or asset of either of them
is bound or affected, except for any such violations, breaches, defaults or
other occurrences which would not, individually or in the aggregate, have an
adverse effect on the ability of Parent or Purchaser to perform their
obligations hereunder, or prevent or materially delay the consummation of the
Transactions.
(b) The execution and delivery of this Agreement by Parent and Purchaser
do not, and the performance of this Agreement by Parent and Purchaser will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any United States or Canadian federal, state or provincial
governmental or regulatory authority except (i) for applicable requirements, if
any, of the Exchange Act, Blue Sky Laws and state takeover laws, the HSR Act,
and filing and recordation of appropriate merger documents as required by
Delaware Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, have an adverse effect on the ability of
Parent or Purchaser to perform their obligations hereunder, or prevent or
materially delay the consummation of the Transactions.
<PAGE>
Page 16
- --------------------------------------------------------------------------------
SECTION 4.04. Financing. The Company has received a true and complete copy
of (i) a letter of commitment obtained by Parent from CSFB to provide debt
financing for the Transactions pursuant to senior secured credit facilities and
bridge loans and (ii) a letter of commitment obtained by Parent from Newmall
Limited to provide certain equity financing (collectively, the "Financing
Commitments"). Assuming that the financing contemplated by the Financing
Commitments is consummated in accordance with the terms thereof, the funds to be
borrowed and/or provided thereunder will provide sufficient funds to permit
Purchaser to acquire all the outstanding shares of Company Common Stock in the
Offer and the Merger.
SECTION 4.05. Offer Documents; Proxy Statement. The Offer Documents will
not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to stockholders of the Company, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading. The
information supplied by Parent for inclusion in the Proxy Statement will not, on
the date the Proxy Statement (or any amendment or supplement thereto) is first
mailed to stockholders of the Company, at the time of the Stockholders' Meeting
and at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it is made, is false or misleading with
respect to any material fact, or omits to state any material fact required to be
stated therein or necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders' Meeting which
shall have become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents or the Offer Documents. The Offer Documents shall
comply in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder.
SECTION 4.06. Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of Parent or
Purchaser.
SECTION 4.07. Financial Statements. (a) Parent has furnished the Company
with audited balance sheets for the calendar year ended December 31, 1997,
together with the related consolidated statements of operations, stockholders'
equity and cash flows for the calendar year then ended, together with a report
of such entity's accountants with respect thereto (collectively, the "Parent
Audited Statements"). Parent has furnished the Company with unaudited interim
financial statements for the period ended June 30, 1998 (collectively, the
"Parent Unaudited Statements").
(b) Each of the Parent Audited Statements and the Parent Unaudited
Statements (including any notes thereto) was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and each fairly presented the consolidated
financial position, results of operations and cash flow of Parent and its
consolidated subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (except as otherwise noted therein and
subject, in the case of the Parent Unaudited Statements, to normal and recurring
year-end adjustments which are not expected to have either, individually or in
the aggregate, a material adverse effect on the business, financial condition,
results of operations or prospects of Parent and its Subsidiaries, taken as a
whole).
(c) Except as and to the extent set forth on the consolidated balance
sheet of Parent as at December 31, 1997, including the notes thereto, neither
Parent nor any of its Subsidiaries has any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be
<PAGE>
Page 17
- --------------------------------------------------------------------------------
reflected on a balance sheet prepared in accordance with generally accepted
accounting principles, except for liabilities and obligations that do not,
individually or in the aggregate, have a material adverse effect on the
business, financial condition, results of operations or prospects of Parent.
SECTION 4.08. Absence of Certain Changes or Events. From December 31, 1997
through the date hereof, there has not been a material adverse effect on the
business, financial condition, results of operations or prospects of Parent and
its Subsidiaries, taken as a whole, and, to the knowledge of Parent, there is no
event or prospective event that reasonably would be expected to cause such an
effect.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger.
Except as set forth in Schedule 5.01, the Company agrees that, between the date
of this Agreement and the Effective Time, the Company shall use its reasonable
best efforts to preserve substantially intact the business organization of the
Company and the Subsidiaries and to preserve the current relationships of the
Company and the Subsidiaries with customers, suppliers, regulators, creditors,
lessors, employees, agents and other persons with which the Company or any
Subsidiary has significant business relations. Except as contemplated by this
Agreement, neither the Company nor any Subsidiary shall, between the date of
this Agreement and the Effective Time, directly or indirectly do, or propose to
do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or
By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any
shares of capital stock of any class of the Company or any Subsidiary, or
any options, warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or any Subsidiary (except for the issuance of Shares issuable
pursuant to stock options outstanding on the date hereof) or (ii) any
assets of the Company or any Subsidiary for consideration in excess of
$1,000,000 in the aggregate except in the ordinary course of business
consistent with past practice or as set forth on Schedule 5.01(b);
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof; (ii)
except for borrowings under existing credit facilities not to exceed
$100,000 in the aggregate and excepting transactions between the Company
and any Subsidiary, incur any indebtedness for borrowed money or issue any
debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person; (iii)
except for transactions between the Company and any Subsidiary, make any
loans or advances, for an amount in excess of
<PAGE>
Page 18
- --------------------------------------------------------------------------------
$250,000 in the aggregate; (iv) except as set forth on Schedule 5.01(e),
authorize capital expenditures which are, in the aggregate, in excess of
$250,000 for the Company and the Subsidiaries; (v) except as set forth on
Schedule 5.01(e), acquire any assets for consideration in excess of
$250,000 in the aggregate except in the ordinary course of business
consistent with past practice; or (vi) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth
in this Section 5.01(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any
Subsidiary who are not officers of the Company, or, other than in
accordance with existing policies and arrangements, grant any severance or
termination pay to, or enter into any employment or severance agreement
with any director, officer or other employee of the Company or any
Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee;
(g) other than as required by generally accepted accounting
principles, make any change to its accounting policies or procedures;
(h) except as provided in Schedule 5.01, settle or compromise any
material claims or litigation or, except in the ordinary and usual course
of business, modify, amend or terminate any of its material contracts or
waive, release or assign any material rights or claims; or
(i) willfully take any action or omit to take any action that would
cause any representation or warranty of the Company herein to become
untrue in any material respect.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting. (a) If required by applicable law in
order to consummate the Merger, the Company, acting through the Board, shall, in
accordance with applicable law and the Company's Certificate of Incorporation
and By-laws, (i) duly call, give notice of, convene and hold an annual or
special meeting of its stockholders as soon as practicable following the
consummation or the termination of the Offer, as applicable, for the purpose of
considering and taking action on this Agreement and the transactions
contemplated hereby (the "Stockholders' Meeting") and (ii) subject to the
fiduciary duties of the Board under applicable law as determined by the Board in
good faith after receiving the advice of independent counsel, (A) include in the
Proxy Statement the recommendation of the Board that the stockholders of the
Company approve and adopt this Agreement and the Transactions and (B) use its
reasonable best efforts to obtain such approval and adoption. At the
Stockholders' Meeting, Parent and Purchaser shall cause all Shares then owned by
them and their Subsidiaries to be voted in favor of the approval and adoption of
this Agreement and the Transactions.
(b) Notwithstanding the foregoing, in the event that Purchaser shall
acquire at least 90 percent of the then outstanding Shares, the parties hereto
agree, at the request of Purchaser, subject to Article VII, to take all
necessary and appropriate action to cause the Merger to become effective, in
accordance with Section 253 of Delaware Law, as soon as reasonably practicable
after such acquisition,
<PAGE>
Page 19
- --------------------------------------------------------------------------------
without a meeting of the stockholders of the Company.
SECTION 6.02. Proxy Statement. If required by applicable law, the Company
shall, within the time period provided in Section 1.01(c) or as soon as
practicable following the consummation of the Offer, as applicable, file the
Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC. Parent,
Purchaser and the Company shall cooperate with each other in the preparation of
the Proxy Statement, and the Company shall notify Parent of the receipt of any
comments of the SEC with respect to the Proxy Statement and of any requests by
the SEC for any amendment or supplement thereto or for additional information
and shall provide to Parent promptly copies of all correspondence between the
Company or any representative of the Company and the SEC. The Company shall give
Parent and its counsel the opportunity to review the Proxy Statement prior to
its being filed with the SEC and shall give Parent and its counsel the
opportunity to review all amendments and supplements to the Proxy Statement and
all responses to requests for additional information and replies to comments
prior to their being filed with, or sent to, the SEC. Each of the Company,
Parent and Purchaser agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC and to cause the Proxy Statement and all
required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders' Meeting at the earliest practicable
time.
SECTION 6.03. Company Board Representation; Section 14(f). (a) Promptly
upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board as shall give
Purchaser representation on the Board equal to the product of the total number
of directors on the Board (giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any Affiliate of Purchaser following such
purchase bears to the total number of Shares then outstanding, and the Company
shall, at such time, promptly take all actions necessary to cause Purchaser's
designees to be elected as directors of the Company, including increasing the
size of the Board or securing the resignations of incumbent directors or both.
At such times, the Company shall use its reasonable best efforts to cause
persons designated by Purchaser to constitute the same percentage of each
committee of the Board as persons designated by Purchaser to constitute the
Board to the extent permitted by applicable law.
(b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 6.03 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1.
(c) Following the election of designees of Purchaser pursuant to this
Section 6.03, prior to the Effective Time, any amendment of this Agreement or
the Certificate of Incorporation or By-laws of the Company, any termination of
this Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or Purchaser or
waiver of any of the Company's rights hereunder shall require the concurrence of
a majority of the directors of the Company then in office who neither were
designated by Purchaser nor are employees of the Company.
SECTION 6.04. Access to Information; Confidentiality. (a) In connection
with their investigation of the business of the Company, Parent and Purchaser
have received from the Company certain estimates, projections and other
forecasts for the business of the Company, and certain plan and budget
<PAGE>
Page 20
- --------------------------------------------------------------------------------
information, including, without limitation, estimates, projections, forecasts,
plans or budgets relating to the Company's Remote Sensing Technology. Each of
Parent and Purchaser acknowledges (i) that there are uncertainties inherent in
attempting to make such estimates, projections, forecasts, plans and budgets,
that it is familiar with such uncertainties, (ii) that it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
estimates, projections, forecasts, plans and budgets so furnished to it, and
(iii) that it will not assert any claim against the Company or any of its
Affiliates or any of their respective directors, officers, employees, agents,
stockholders, consultants, investment bankers, accountants or representatives,
or hold the Company or any such persons liable with respect thereto, except for
claims based on fraud or intentional misrepresentation as to which the foregoing
clause (iii) is not applicable. Accordingly, the Company makes no representation
or warranty with respect to any estimates, projections, forecasts, plans or
budgets referred to in this Section 6.04(a).
(b) From the date hereof to the Effective Time, the Company shall, and
shall cause the Subsidiaries and the officers, directors, employees, auditors
and agents of the Company and the Subsidiaries to, afford the officers,
employees and agents of Parent and Purchaser and persons providing or committing
to provide Parent or Purchaser with financing for the Transactions reasonable
access at all reasonable times to the officers, employees, agents, properties,
offices and other facilities, books and records of the Company and each
Subsidiary, and shall promptly furnish Parent and Purchaser and persons
providing or committing to provide Parent or Purchaser with financing for the
Transactions with (i) a copy of each report, statement, schedule and other
document filed or received by the Company or any of its Subsidiaries pursuant to
the requirements of federal or state securities laws or filed with any other
governmental or regulatory authority and (ii) all financial, operating and other
data and information as Parent or Purchaser, through its officers, employees or
agents, may reasonably request.
(c) Purchaser agrees to be bound by the terms of the confidentiality
agreement, dated May 8, 1998 (the "Confidentiality Agreement"), between Parent
and the Company as if Purchaser was a party thereto. All information obtained by
Parent or Purchaser pursuant to this Section 6.04 shall be kept confidential in
accordance with the Confidentiality Agreement.
SECTION 6.05. No Solicitation of Transactions. (a) The Company agrees that
neither it nor any of its Subsidiaries nor any of their officers, directors or
agents shall, directly or indirectly, engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with
any Person relating to an Acquisition Proposal; provided, however, that nothing
contained herein shall prevent the Company or the Board from engaging in any
negotiations or discussions with any Person who has made an unsolicited bona
fide written Acquisition Proposal or recommending such an Acquisition Proposal
to the stockholders of the Company (or withdrawing or modifying, in any manner
adverse to Parent and Purchaser, its approval or recommendation of the Offer,
the Agreement, the Merger or any other Transaction), if and only to the extent
that (i) the Board determines in good faith, after consultation with outside
legal counsel that such action is necessary in order for its directors to comply
with their fiduciary duties under applicable law and (ii) the Board determines
in good faith (after consultation with its financial advisor) that such
Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the proposal
and the financial capacity and any other relevant characteristics of the Person
making the proposal and would, if consummated, result in a transaction more
favorable to the Company's stockholders from a financial point of view than the
Transactions. The Company agrees that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing. The Company also
agrees that it will promptly request each Person that has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring it
or any of its Subsidiaries to return or destroy all confidential information
heretofore furnished to such Person by or on behalf of the Company or any of its
Subsidiaries. The
<PAGE>
Page 21
- --------------------------------------------------------------------------------
Company agrees that it will notify Parent and Purchaser immediately if any
inquiries, proposals or offers are received by, any such information is
requested from, or any such discussion or negotiations are sought to be
initiated or continued with any of its officers, director or agents, indicating,
in connection with such notice, the name of such Person and the material terms
and conditions of any proposals or offers and thereafter shall keep Parent and
Purchaser informed, on a current basis, on the status and material terms of any
such proposals or offers and the status of any such negotiations or discussions.
"Acquisition Proposal" shall mean (i) any proposal or offer from any person
relating to any direct or indirect acquisition or purchase of (A) all or a
substantial part of the assets of the Company, or (B) over 15% of the voting
securities of the Company; (ii) any tender offer or exchange offer as defined
pursuant to the Exchange Act that if consummated would result in any person
beneficially owning 15% or more of the voting securities of the Company; or
(iii) any merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving the Company other than
the Transactions.
(b) Nothing contained in this Section 6.05 shall prohibit the Company or
Parent from taking and disclosing to their respective shareholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act or issuing a
communication that meets the requirements of Rule 14d-9(e) promulgated under the
Exchange Act.
SECTION 6.06. Employee Benefits Matters. Annex B hereto sets forth certain
agreements among the parties hereto with respect to the Plans and other employee
benefits matters.
SECTION 6.07. Directors' and Officers' Indemnification and Insurance. (a)
The Certificate of Incorporation of the Surviving Corporation shall contain
provisions (collectively, "Indemnification Provisions") no less favorable with
respect to indemnification than are set forth in Article 8 of the Certificate of
Incorporation of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would affect adversely the rights thereunder of individuals who at
the Effective Time were directors, officers, employees, fiduciaries or agents of
the Company, unless such modification shall be required by law. Parent hereby
agrees that, for a period of six years from the Effective Time, it shall
absolutely and unconditionally guarantee the prompt performance and satisfaction
of all obligations of the Surviving Corporation under the Indemnification
Provisions.
(b) Parent and the Surviving Corporation each shall use its best efforts
to maintain in effect for six years from the Effective Time, if available, the
current directors' and officers' liability insurance policies maintained by the
Company (provided that Parent and the Surviving Corporation may substitute
therefor policies of at least the same coverage containing terms and conditions
which are not materially less favorable) with respect to matters occurring prior
to the Effective Time; provided, however, that if the existing policies expire,
are terminated or canceled during such period Parent or the Surviving
Corporation will obtain substantially similar policies. Notwithstanding the
foregoing, in no event shall Parent or the Surviving Corporation be required to
expend pursuant to this Section 6.07(b) more than an amount per year equal to
200% of current annual premiums paid by the Company for such insurance (which
premiums the Company represents and warrants to be $232,000 in the aggregate);
provided, however, that, in the event of an expiration, termination or
cancellation of such current policies, Parent or the Surviving Corporation shall
be required to obtain as much coverage as is possible under substantially
similar policies for $464,000 in aggregate annual premiums.
SECTION 6.08. Further Action; Reasonable Best Efforts. (a) Upon the terms
and subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions and (ii) use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all
<PAGE>
Page 22
- --------------------------------------------------------------------------------
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Transactions, including, without limitation,
using all reasonable efforts to obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and the Subsidiaries as are necessary
for the consummation of the Transactions and to fulfill the conditions to the
Offer and the Merger. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
their reasonable best efforts to take all such action.
(b) If any "fair price," "control share acquisition" or other similar
anti-takeover statute or regulation or any applicable anti-takeover provision in
the Company's Certificate of Incorporation or By-Laws is or may become
applicable to the Company or the Transactions, each of Parent and the Company
and its Board shall grant such approvals and take such actions as are necessary
so that the Transactions may be consummated as promptly as practicable on the
terms contemplated by this Agreement and otherwise act to eliminate or minimize
the effects of such statute or regulation on the Transactions.
(c) The Company hereby consents to the making by Parent or an Affiliate of
Parent of tender offers (the "Debt Tenders") for the Company's outstanding
9-1/8% Senior Notes due 2001 and its 9-5/8% Senior Subordinated Notes due 2003
(the "Notes"). The Company agrees to reasonably assist Parent or such Affiliate
in the timely completion of the Debt Tenders and, without limiting the
generality of the foregoing, to promptly provide Parent or such Affiliate with
all information and documentation concerning the Company and the Notes as Parent
or such Affiliate may reasonably request in connection with the making of the
Debt Tenders.
SECTION 6.09. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any Transaction and shall not issue
any such press release or make any such public statement without the prior
consent of the other parties, except as may be required by law or any listing
agreement with a national securities exchange to which Parent or the Company is
a party.
SECTION 6.10. Confidentiality Agreement. The Company hereby waives the
provisions of the Confidentiality Agreement as and to the extent necessary to
permit the consummation of each Transaction. Upon the acceptance for payment of
Shares pursuant to the Offer, the Confidentiality Agreement shall be deemed to
have terminated without further action by the parties thereto.
SECTION 6.11 Expenses. (a) Except as set forth in Section 8.03 and in
Section 6.11(b), whether or not the Offer or Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the Transactions
shall be paid by the party incurring such cost or expense, except that the
expenses incurred in connection with printing and mailing the Offer Documents,
the Schedule 14D-9 and the Proxy Statement, as well as any filing fees relating
thereto, shall be shared equally by Parent and the Company.
(b) The Company has estimated that it will incur approximately $8,500,000
of costs and expenses in connection with the Transactions (including fees and
expenses payable to attorneys and accountants, investment banks and financial
advisors in connection therewith). The Company agrees that is shall not incur
costs and expenses in excess of such amount without obtaining the prior approval
of Parent.
ARTICLE VII
CONDITIONS TO THE MERGER
<PAGE>
Page 23
- --------------------------------------------------------------------------------
SECTION 7.01. Conditions to the Merger. The respective obligations of each
party to effect the Merger shall be subject to the satisfaction at or prior to
the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the
affirmative vote of the stockholders of the Company to the extent required
by Delaware Law;
(b) No Order. No United States or Canadian federal, state or
provincial governmental authority or other agency or commission or United
States or Canadian federal, state or provincial court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) (a "Governmental
Order") which is then in effect and has the effect of prohibiting
consummation of the Merger; and
(c) Offer. Either (i) Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the
Offer; provided, however, that this condition shall not be applicable to
the obligations of Parent or Purchaser if, in breach of this Agreement or
the terms of the Offer, Purchaser fails to purchase any Shares validly
tendered and not withdrawn pursuant to the Offer or (ii) the conditions to
the Offer (other than the Minimum Condition) shall have been satisfied.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
and the other Transactions may be abandoned at any time prior to the Effective
Time, notwithstanding any requisite approval and adoption of this Agreement and
the transactions contemplated hereby by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company;
(b) By either Parent, Purchaser or the Company if (i) the Effective
Time shall not have occurred on or before December 31, 1998; provided,
however, that the right to terminate this Agreement under this clause (i)
shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; or (ii) any
United States or Canadian federal, state or provincial court of competent
jurisdiction or other United States or Canadian federal, state or
provincial governmental authority shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action
shall have become final and non-appealable;
(c) By Parent if (i) due to an occurrence or circumstance that would
result in a failure to satisfy any condition (other than the Minimum
Condition or the condition specified in paragraph (g) of Annex A) set
forth in Annex A hereto, Purchaser shall have (A) terminated the Offer
without having accepted any Shares for payment thereunder or (B) failed to
pay for Shares pursuant to the
<PAGE>
Page 24
- --------------------------------------------------------------------------------
Offer within 75 calendar days following the commencement of the Offer,
unless such failure to pay for Shares shall have been caused by or
resulted from the failure of Parent or Purchaser to perform in any
material respect any material covenant or agreement of either of them
contained in this Agreement or the material breach by Parent or Purchaser
of any material representation or warranty of either of them contained in
this Agreement; or (ii) prior to the purchase of Shares pursuant to the
Offer, the Board or any committee thereof shall have withdrawn or modified
in a manner adverse to Purchaser or Parent its approval or recommendation
of the Offer, this Agreement, the Merger or any other Transaction in order
to approve or recommend any other Acquisition Proposal, or shall have
resolved to do any of the foregoing;
(d) By the Company, upon approval of the Board, if (i) Purchaser
shall have (A) failed to commence the Offer within 5 Business Days after
the initial public announcement of Purchaser's intention to commence the
Offer, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer
within 75 calendar days following the commencement of the Offer, unless
such failure to pay for Shares shall have been caused by or resulted from
the failure of the Company to perform in any material respect any material
covenant or agreement of it contained in this Agreement or the material
breach by the Company of any material representation or warranty of it
contained in this Agreement; or (ii) prior to the purchase of Shares
pursuant to the Offer, the Board shall have withdrawn or modified in a
manner adverse to Purchaser or Parent its approval or recommendation of
the Offer, this Agreement, the Merger or any other Transaction in order to
approve or recommend any other Acquisition Proposal; or
(e) If the vote of the stockholders of the Company is required by
applicable law, by either Parent, Purchaser or the Company if this
Agreement and the Merger shall not have been approved by the required vote
of the Company's stockholders at the Stockholders' Meeting, or any
adjournment thereof.
SECTION 8.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.01, this Agreement shall have no further
effect, and there shall be no further liability on the part of any party hereto,
except (i) as set forth in Sections 6.04, 8.03 and 9.01 and (ii) nothing herein
shall relieve any party from liability for any breach hereof.
SECTION 8.03. Fees and Expenses. (a) In the event that (x) this Agreement
is terminated pursuant to Section 8.01(c)(ii) or 8.01(d)(ii) and (y) at the time
of such termination a third party shall have made an Acquisition Proposal and
such Acquisition Proposal shall not have been rejected by the Company and
withdrawn by such third party then, the Company shall pay Parent promptly (but
in no event later than three Business Days after receipt of a request from
Parent), in cash a fee (the "Termination Fee") in the amount of $12,500,000.
(b) In the event that the Company shall fail to pay the Termination Fee
when due, the Company shall reimburse Parent and the Purchaser for the costs and
expenses actually incurred or accrued by Parent and Purchaser (including,
without limitation, fees and expenses of counsel) in connection with the
collection under and enforcement of this Section 8.03, together with interest on
such unpaid Termination Fee, commencing on the date that the Termination Fee
became due, at a rate equal to the rate of interest publicly announced by
Citibank, N.A., from time to time, in the City of New York, as such bank's Base
Rate.
SECTION 8.04. Amendment. Subject to Section 6.03, this Agreement may be
amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to
<PAGE>
Page 25
- --------------------------------------------------------------------------------
the Effective Time; provided, however, that, after the approval and adoption of
this Agreement and the transactions contemplated hereby by the stockholders of
the Company, no amendment may be made which would reduce the amount or change
the type of consideration into which each Share shall be converted upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.05. Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any obligation or other
act of any other party hereto, (ii) waive any inaccuracy in the representations
and warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any agreement or condition contained herein. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 8.01, as the case may be, except that the agreements set forth in
Article II and Sections 6.06 and 6.07 shall survive the Effective Time
indefinitely and those set forth in Sections 6.04(b) and 8.03 shall survive
termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified in a notice given in
accordance with this Section 9.02):
if to Parent or Purchaser:
Environmental Systems Products, Inc.
7 Kripes Road
East Granby, Connecticut 06026
Fax: (860) 653-4731
Attention: Mr. Terrence P. McKenna,
President and Chief Executive Officer
with a copy to:
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Fax: (202) 663-8007
Attention: Richard I. Ansbacher, Esq.
Elisabeth J. Harper, Esq.
<PAGE>
Page 26
- --------------------------------------------------------------------------------
if to the Company:
Envirotest Systems Corp.
6903 Rockledge Drive
Bethesda, Maryland 20817
Fax: (301) 530-9538
Attention: Mr. Mark Thomas,
Executive Vice President and Chief Development
Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Fax: (212) 848-7179
Attention: Peter D. Lyons, Esq.
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "Affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "Beneficial Owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its Affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) which such person or any of its Affiliates or
associates has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of consideration rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement
or understanding or (iii) which are beneficially owned, directly or
indirectly, by any other persons with whom such person or any of its
Affiliates or associates or person with whom such person or any of its
Affiliates or associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any Shares;
(c) "Business Day" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise;
(e) "Environmental Laws" means any federal, state or local law
relating to (A) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (B) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (C) otherwise relating to
pollution of the environment or the protection of human health;
<PAGE>
Page 27
- --------------------------------------------------------------------------------
(f) "Guarantor Subsidiaries" means the following Subsidiaries of the
Company: Envirotest Technologies, Inc., Envirotest Illinois, Inc., Remote
Sensing Technology, Inc., Envirotest Systems Corp. (a corporation
incorporated in the State of Washington), Envirotest Acquisition Corp. and
Envirotest Partners.
(g) "Hazardous Substances" means (A) those substances defined in or
regulated under the following federal statutes and their state
counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Clean Water Act, the Safe
Drinking Water Act, the Atomic Energy Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Clean Air Act; (B) petroleum and
petroleum products including crude oil and any fractions thereof; (C)
natural gas, synthetic gas, and any mixtures thereof; (D) radon; (E) any
other contaminant; and (F) any substance with respect to which a federal,
state or local agency requires environmental investigation, monitoring,
reporting or remediation;
(h) "Intellectual Property" shall mean (a) inventions, whether or
not reduced to practice and whether or not yet made the subject of a
pending patent application or applications, (b) statutory invention
registrations, patents, patent registrations and patent applications and
all improvements to the inventions covered in each such registration,
patent or application, (c) trademarks, service marks, trade dress, logos,
trade names and corporate names (in each case, registered or otherwise),
including all associated goodwill, and registrations and applications for
registration thereof, (d) copyrights (registered or otherwise) and
registrations and applications for registration thereof, (e) moral rights
(including, without limitation, rights of paternity and integrity), and
waivers of such rights by others, (f) trade secrets and confidential
business information (including, without limitation, ideas, formulas and
composition, technology (including, without limitation, know-how),
manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing plans
and customer and supplier lists and information, (g) computer software
programs and hardware, and (h) all rights to sue for present and past
infringement of any of the Intellectual Property Rights hereinabove set
out.
(i) "knowledge" or "known" means, as for the Company with respect to
any matter in question, the best knowledge (after reasonable inquiry of
persons who, by virtue of their positions, could reasonably be expected to
have such knowledge of the subject matter) of the directors and executive
officers of the Company and the Subsidiaries;
(j) "Material Adverse Effect" means the result of one or more
events, changes or effects which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the business,
the financial condition, results of operations or prospects of the Company
and its Subsidiaries and Holdings, Parent, Purchaser and their
Subsidiaries, taken as a whole;
(k) "Person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person"
as defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of
a government;
(l) "SEC" means the U.S. Securities and Exchange Commission;
<PAGE>
Page 28
- --------------------------------------------------------------------------------
(m) "SEC Rules" means any rule, regulation or interpretation of the
SEC or the staff thereof; and
(n) "Subsidiary" or "Subsidiaries" of the Company, the Surviving
Corporation, Parent, Holdings, Purchaser or any other person means an
Affiliate controlled by such person, directly or indirectly, through one
or more intermediaries.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.
SECTION 9.05. Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes, except as set forth in Sections 6.04(c) and 6.10, all prior
statements, agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Purchaser may assign all or any of their rights and obligations
hereunder to any wholly owned subsidiary of Parent provided that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Sections 1.03, 2.07, 6.06 and 6.07 (which is
intended to be for the benefit of each of the persons covered thereby and may be
enforced by such persons).
SECTION 9.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any Delaware state court.
SECTION 9.08. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE>
Page 29
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By /s/ David J. Langevin
-----------------------------------------
Name: David J. Langevin
Title: Executive Vice President and
Chief Financial Officer
STONE RIVET, INC.
By /s/ David J. Langevin
-----------------------------------------
Name: David J. Langevin
Title: Executive Vice President and
Financial Officer
ENVIROTEST SYSTEMS CORP.
By /s/ Chester C. Davenport
-----------------------------------------
Name: Chester C. Davenport
Title: Chairman of the Board
<PAGE>
Page 30
- --------------------------------------------------------------------------------
ANNEX A
Conditions to the Offer
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (x) the Minimum Condition shall
not have been satisfied, (y) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer,
or (z) at any time on or after the date of this Agreement, and prior to the
acceptance for payment of Shares, any of the following conditions shall exist:
(a) there shall have been any judgment, order or injunction entered
or issued by any United States or Canadian federal, state or provincial
court or governmental, administrative or regulatory authority or agency of
competent jurisdiction that (i) materially prohibits or limits the
ownership or operation by Parent or Purchaser, of all or a material
portion of the business or assets of the Company and the Subsidiaries,
taken as a whole, or compels Parent, Purchaser the Company or the
Subsidiaries, to dispose of or hold separate all or a material portion of
the business or assets of the Company and the Subsidiaries, taken as a
whole, or Parent and its Subsidiaries, taken as a whole, in each case as a
result of the Transactions; (ii) prohibits or makes illegal the acceptance
for payment, payment for or purchase of some or all of the Shares pursuant
to the Offer or the consummation of the Offer or the Merger; (iii) results
in a material delay in, or prevents, the acceptance of Shares for payment,
payment for purchase of some or all the Shares tendered pursuant to the
Offer; or (iv) imposes limitations on the ability of Parent or Purchaser
to exercise effectively full rights of ownership of any Shares, including
the right to vote any Shares acquired by Purchaser pursuant to the Offer
on all matters properly presented to the Company's stockholders,
including, without limitation, the approval and adoption of this Agreement
and the Transactions;
(b) a Material Adverse Effect shall have occurred and be continuing;
(c) any representation or warranty of the Company in this Agreement
that is qualified by reference to a Material Adverse Effect shall not be
true and correct or any representation or warranty of the Company in this
Agreement that is not so qualified shall not be true and correct so as to
have a Material Adverse Effect, in each case as if such representation or
warranty was made as of such time on or after the date of this Agreement
(except for representations and warranties made as of a specific date
which shall be true and correct as of such date);
(d) the Company shall have failed to perform, or comply with, any
agreement or covenant of the Company to be performed or complied with by
it under this Agreement, which failure has a Material Adverse Effect;
(e) this Agreement shall have been terminated in accordance with its
terms;
(f) Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment
for Shares thereunder; or
(g) there shall have occurred and be continuing (a) any general
suspension of trading in
<PAGE>
Page 31
- --------------------------------------------------------------------------------
securities on the New York or American Stock exchanges or in the NASDAQ
National Market System (other than circuit breakers), (b) the declaration
of a banking moratorium or any suspension of payments in respect of banks
in the United States, (c) the commencement of a war or other similar
international or national calamity or emergency, directly or indirectly
involving the United States, (d) any limitations (whether or not
mandatory) imposed by any governmental authority on the nature or
extension of credit or further extension of credit by banks or other
lending institutions, (e) in the case of the foregoing clauses (c) and
(d), a material escalation or worsening thereof, or (f) any other material
adverse change in banking or capital market conditions that has had a
material adverse effect on the syndication of leveraged bank credit
facilities or the consummation of high yield offerings, as the case may
be.
The foregoing conditions are for the sole benefit of Parent and Purchaser,
may be asserted by Parent or Purchaser regardless of the circumstances giving
rise to such condition and, subject to the terms and conditions of the
Agreement, may be waived by Parent and Purchaser, in whole or in part at any
time and from time to time in the sole discretion of Parent and Purchaser. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time.
<PAGE>
Page 32
- --------------------------------------------------------------------------------
ANNEX B
Employee Benefits Matters
1. In General
Parent hereby agrees that, for a period of one year immediately following
the Effective Time, it shall, or shall cause the Surviving Corporation and its
Subsidiaries to, maintain employee benefit plans, programs, contracts and
arrangements for the benefit of active and retired employees of the Company and
its Subsidiaries immediately prior to the Effective Time (including those on
leave of absence or disability immediately prior to the Effective Time) which in
the aggregate will provide compensation and benefits that are at least
substantially equivalent to the compensation and benefits provided to such
active and retired employees under the employee benefit plans, programs,
contracts and arrangements of the Company and its Subsidiaries as in effect
immediately prior to the Effective Time and that have been disclosed or made
available to Parent, other than employee benefit plans, programs, contracts or
arrangements providing for stock options, stock purchase rights, restricted
stock or other stock-based compensation. From and after the Effective Time,
Parent shall honor, and shall cause the Surviving Corporation and its
Subsidiaries to honor all contracts, agreements, arrangements, policies, plans
and commitments of the Company and its Subsidiaries in accordance with their
terms and as in effect immediately prior to the Effective Time which are
applicable to any current or former employees or directors of the Company or any
of its Subsidiaries and that have been disclosed or made available to Parent,
other than contracts, agreements, arrangements, policies, plans or commitments
providing for stock options which shall be treated in the manner set forth in
Section 1.03 or 2.07, as applicable.
2. Service Recognition
Employees of the Company and its Subsidiaries immediately prior to the
Effective Time (including those on leave of absence or disability immediately
prior to the Effective Time) shall receive credit for purposes of eligibility to
participate, vesting, benefit accrual and eligibility to receive benefits under
any employee benefit plan, program or arrangement established or maintained by
Parent, the Surviving Corporation or any of their respective subsidiaries for
service accrued or deemed accrued prior to the Effective Time with the Company
or any of its Subsidiaries; provided, however, that such crediting of service
shall not operate to duplicate any benefit or the funding of any such benefit or
to prevent a plan that is intended to be "qualified" within the meaning of
Section 401(a) of the Code from being so qualified.
<PAGE>
Page 33
- --------------------------------------------------------------------------------
3. Certain Payments
Immediately following the purchase of Shares pursuant to the Offer in
accordance with Section 1.01, Parent or the Surviving Corporation shall make
payments as set forth in Schedule 6.06 to the employees listed therein.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
FIRST. The name of the corporation is Environmental Systems Products
Holdings Inc.:
SECOND. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is Corporation Service Company.
THIRD. The nature of the business, or objects or purposes to be
transacted, promoted or carried on are to engage in any lawful activity for
which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH. The total number of shares of stock which the corporation shall
have authority to issue and the par value per share and class are as follows:
<TABLE>
<CAPTION>
CLASS NUMBER OF SHARES PAR VALUE PER SHARE
----- ---------------- -------------------
<S> <C> <C>
Common 10,000 $.01
</TABLE>
FIFTH. The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Donna Guihon 2300 N Street, N.W.
Washington, D.C. 20037
</TABLE>
<PAGE>
The powers of the incorporator are to terminate upon the filing of the
Certificate of Incorporation.
SIXTH. The name and mailing address of each person who is to serve as an
initial director until the first annual meeting of stockholders or until his
successor is elected and qualified are as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Terry Smith 7 Kirpes Road
East Gramby, Connecticut 06026
Alan J. Baxter 7 Kirpes Road
East Gramby, Connecticut 06026
</TABLE>
SEVENTH. The business of the corporation shall be managed by a board of
directors. The board of directors shall have the power, unless and to the extent
that the board may from time to time by resolution relinquish or modify the
power, without the assent or vote of the stockholders, to make, alter, amend,
change, add to, or repeal the bylaws of the corporation. The number of directors
which shall constitute the whole board of directors shall be fixed in the manner
provided in the bylaws.
EIGHTH. The corporation is to have perpetual existence.
<PAGE>
NINTH. Elections of directors need not be by ballot unless the bylaws of
the corporation shall so provide.
TENTH. The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute.
ELEVENTH. No director of the corporation shall be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this Article ELEVENTH shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of Title 8 of the Delaware Code (the Delaware
General Corporation Law); or (iv) for any transaction from which the director
derived an improper personal benefit. In the event that the Delaware General
Corporation Law or any successor thereto is amended with respect to the
permissible limits of directors' liability, this Article ELEVENTH shall be
deemed to provide the fullest limitation on liability permitted under such
amended statute. Any repeal or modification of this Article ELEVENTH by the
stockholders of the corporation only shall be applied prospectively, to the
extent that such repeal or modification would, if applied retrospectively,
adversely
<PAGE>
affect any limitation on the personal liability of a director of the corporation
existing immediately prior to such repeal or modification.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that the facts herein stated are true, and accordingly has hereunto set her hand
this 12th day of March, 1998.
/s/ Donna Guihon
--------------------------
Donna Guihon, Incorporator
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
Environmental Systems Products Holdings Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies that:
1. The Corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on March 12, 1998.
2. This Amended and Restated Certificate of Incorporation amends and
restates the original Certificate of Incorporation.
3. This Amended and Restated Certificate of Incorporation and the
amendments to the Certificate of Incorporation contained herein were declared
advisable and adopted by the Board of Directors on May 18, 1998 and have been
duly adopted in accordance with the provisions of Section 241 and 245 of the
General Corporation Law of the State of Delaware, as the Corporation has not yet
received any payment for its capital stock.
4. The test of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is: Environmental Systems Products Holdings
Inc. (the "Corporation").
<PAGE>
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
PURPOSE
The purpose or purposes for which the Corporation is organized are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware as from time to time
amended.
ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 125,000,000
shares of capital stock, each with a par value of $ 0.01, consisting of
120,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.
ARTICLE V
COMMON STOCK
Except as required by law, all shares of Common Stock shall be identical
in all respects and shall entitle the holders thereof to the same rights and
privileges, subject to the same qualifications, limitations and restrictions.
Except as required by law, the holders of shares of Common Stock shall be
entitled to one vote per share of Common Stock on all matters on which
stockholders of the Corporation have the right to vote.
<PAGE>
ARTICLE VI
PREFERRED STOCK
Section A. Preferred Stock. The Corporation is authorized to
issue shares of Preferred Stock from time to time in one or more series as may
from time to time be determined by the Board of Directors of the Corporation
(the "Board"), each of such series to be distinctly designated. The voting
powers, preferences and relative, participating, optional and other special
rights, and the qualifications, limitations or restrictions thereof, if any, of
each such series may differ from those of any and all other series of Preferred
Stock at any time outstanding, and the Board is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions, of
each such series, including, but without limiting the generality of the
foregoing, the following:
1. The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except where
otherwise provided by the Board in the resolution establishing such series) may
be increased (but not above the total number of shares of Preferred Stock) or
decreased (but not below the number of shares of such series then outstanding)
from time to time by like action of the Board.
2. The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any other
series of the same or other class or classes of capital stock of the
Corporation, and whether such dividends shall be cumulative or noncumulative.
3. The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any other
class or classes or of any
<PAGE>
other series of the same or any other class or classes of capital stock of the
Corporation, and the terms and conditions of such conversion or exchange.
4. Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the times at
which, and the terms and conditions on which, shares of such series of Preferred
Stock may be redeemed.
5. The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation or in the event of any merger or consolidation of or sale of
assets by the Corporation.
6. The terms of any sinking fund or redemption or purchase account,
if any, to be provided for shares of such series of the Preferred Stock.
7. The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which may be
less than, equal to or greater than one vote per share, and which may, without
limiting the generality of the foregoing, include the right, voting as a series
by itself or together with the holders of any other series of Preferred Stock or
all series of Preferred Stock as a class, to elect one or more directors of the
Corporation generally or under such specific circumstances and on such
conditions as shall be provided in the resolution or resolutions of the Board
adopted pursuant hereto, including, without limitation, in the event there shall
have been a default in the payment of dividends on or redemption of any one or
more series of Preferred Stock.
Section B. Rights of Preferred Stock.
1. After the provisions with respect to preferential dividends on
any series of Preferred Stock (fixed in accordance with the provisions of
Section (A) of this Article VI),
<PAGE>
if any, shall have been satisfied and after the Corporation shall have complied
with all the requirements, if any, with respect to redemption of, or the setting
aside of sums as sinking funds or redemption or purchase accounts with respect
to, any series of Preferred Stock (fixed in accordance with the provisions of
Section (A) of this Article VI), and subject further to any other conditions
that may be fixed in accordance with the provisions of Section (A) of this
Article VI, then and not otherwise the holders of Common Stock shall be entitled
to receive such dividends as may be declared from time to time by the Board.
2. In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any (fixed in accordance with the provisions of Section
(A) of this Article VI), to be distributed to the holders of Preferred Stock by
reason thereof, the holders of Common Stock shall, subject to the additional
rights, if any (fixed in accordance with the provisions of Section (A) of this
Article VI), of the holders of any outstanding shares of Preferred Stock, be
entitled to receive all of the remaining assets of the Corporation, tangible or
intangible, of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law, and subject to the
provisions of such resolution or resolutions as may be adopted by the Board
pursuant to Section (A) of this Article VI granting the holders of one or more
series of Preferred Stock exclusive voting powers with respect to any matter,
each holder of Common Stock may have one vote in respect to each share of Common
Stock held on all matters voted upon by the stockholders.
4. The number of authorized shares of Preferred Stock and each class
of Common Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of shares having a
majority of the total
<PAGE>
number of votes which may be cast in the election of directors of the
Corporation by all stockholders entitled to vote in such an election, voting
together as a single class.
ARTICLE VII
BOARD OF DIRECTORS
Section A. Powers of the Board of Directors. The business of
the Corporation shall be managed by a board of directors. The board of directors
shall have the power, unless and to the extent that the board may from time to
time by resolution relinquish or modify the power, without the assent or vote of
the stockholders, to make, alter, amend, change, add to, or repeal the Bylaws of
the Corporation.
Section B. Vacancies. Except as otherwise provided for or
fixed pursuant to the provisions of Article VI hereof relating to the rights of
the holders of any series of Preferred Stock to elect additional directors,
newly created directorships resulting from any increase in the authorized number
of directors and any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause shall be filled as set forth in the
Bylaws of the Corporation.
Section C. Directors Elected by Holders of Preferred Stock.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article VI hereof, then upon commencement and for the duration of
the period during which such right continues (i) the then otherwise total
authorized number of directors of the Corporation shall automatically be
increased by such specified number of directors, and the holders of such
Preferred Stock shall be entitled to elect the additional directors so provided
for or fixed pursuant to such provisions, and (ii) each such additional director
shall serve until such director's successor shall have been duly elected and
qualified, or until such director's right to hold such office terminates
pursuant to such provisions,
<PAGE>
whichever occurs earlier. Except as otherwise provided by the Board in the
resolution or resolutions establishing such series, whenever the holders of any
series of Preferred Stock having such right to elect additional directors are
divested of such right pursuant to the provisions of such stock, the terms of
office of all such additional directors elected by the holders of such stock, or
elected to fill any vacancies resulting from death, resignation,
disqualification or removal of such additional directors, shall forthwith
terminate and the total and authorized number of directors of the Corporation
shall be reduced accordingly. Notwithstanding the foregoing, whenever, pursuant
to the provisions of Article VI hereof, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or together
with holders of other such series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of the
Certificate of Incorporation.
Section D. Number of Directors Constituting the Board. The
number of directors that shall constitute the full Board, other than any
directors elected by the holders of any series of Preferred Stock as provided
for or fixed pursuant to the provisions of Article VI hereof, shall be fixed by
the Bylaws of the Corporation.
Section E. Election of Directors. The directors of the
Corporation shall not be required to be elected by written ballots unless the
Bylaws of the Corporation so provide.
ARTICLE VIII
[RESTRICTION ON BUSINESS COMBINATIONS
The Corporation will be governed by Del. Code Ann. tit. 8, Section 203
(1991).]
<PAGE>
ARTICLE IX
DURATION OF CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE X
DIRECTOR LIABILITY
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this Article X shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the Corporation
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of Title 8 of the Delaware Code (the Delaware General Corporation
Law); or (iv) for any transaction from which the director derived an improper
personal benefit. In the event that the Delaware General Corporation Law or any
successor thereto is amended with respect to the permissible limits of
directors' liability, this Article X shall be deemed to provide the fullest
limitation on liability permitted under such amended statute. Any repeal or
modification of this Article X by the stockholders of the Corporation only shall
be applied prospectively, to the extent that such repeal or modification would,
if applied retrospectively, adversely affect any limitation on the personal
liability of a director of the Corporation existing immediately prior to such
repeal or modification.
ARTICLE XI
RESERVATION OF RIGHTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation, which amends and restates the provisions of the Certificate of
Incorporation of the Corporation and which has been duly adopted in accordance
with Section 241 and 245 of the General Corporation Law of the State of
Delaware, as the Corporation has not yet received payment for its capital stock,
has been executed by its directors this 18th day of May, 1998.
/s/ Terrence P. McKenna
-------------------------------
Terrence P. McKenna, Director
/s/ Rinaldo R. Tedeschi
-------------------------------
Rinaldo R. Tedeschi, Director
/s/ David J. Langevin
-------------------------------
David J. Langevin, Director
<PAGE>
FIRST AMENDMENT TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
Environmental Systems Products Holdings Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies that:
1. The Corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on March 12, 1998.
2. The Corporation's Amended and Restated Certificate of Incorporation,
which amended and restated the original Certificate of Incorporation, was filed
on May 19, 1998.
3. This First Amendment to the Amended and Restated Certificate of
Incorporation contained herein was declared advisable and adopted by the Board
of Directors on June 9, 1998 and has been duly adopted in accordance with the
provisions of Section 241 of the General Corporation Law of the State of
Delaware, as the Corporation has not yet received any payment for its capital
stock.
4. The text of Article IV of the Amended and Restated Certificate of
Incorporation is hereby amended and restated to read in its entirety as follows:
<PAGE>
ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 125,000,000
shares of capital stock, consisting of 120,000,000 shares of Common Stock with a
par value of $.0001 and 5,000,000 shares of Preferred Stock with a par value of
$.01.
IN WITNESS WHEREOF, this First Amendment to the Amended and Restated
Certificate of Incorporation, has been duly adopted in accordance with Section
241 of the General Corporation Law of the State of Delaware and has been
executed by all of its directors on this 9th day of June, 1998.
/s/ Terrence P. McKenna
------------------------------
Terrence P. McKenna, Director
/s/ Rinaldo R. Tedeschi
------------------------------
Rinaldo R. Tedeschi, Director
/s/ David J. Langevin
------------------------------
David J. Langevin, Director
/s/ Amanda Shipman
------------------------------
Amanda Shipman, Director
<PAGE>
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
Environmental Systems Products Holdings Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies that:
1. The Corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on March 12, 1998.
2. The Certificate of Incorporation was amended and restated by the
Amended and Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on May 19, 1998.
3. This Second Amended and Restated Certificate of Incorporation amends
and restates the original Certificate of Incorporation as amended and restated
by the Amended and Restated Certificate of Incorporation.
4. This Second Amended and Restated Certificate of Incorporation and the
amendments to the Certificate of Incorporation contained herein were declared
advisable and adopted by the Board of Directors on October 13, 1998 and have
been duly adopted in accordance with the provisions of Section 241 and 245 of
the General Corporation Law of the State of Delaware, as the Corporation has not
yet received any payment for its capital stock.
5. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
<PAGE>
ARTICLE I
NAME
The name of the corporation is: Environmental Systems Products Holdings
Inc. (the "Corporation").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the State of
Delaware is 1013 Centre Road, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is Corporation Service Company.
ARTICLE III
PURPOSE
The purpose or purposes for which the Corporation is organized are to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware as from time to time
amended.
ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 125,000,000
shares of capital stock, each with a par value of $ 0.0001, consisting of
120,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.
ARTICLE V
COMMON STOCK
The Common Stock shall be divided into two series, of which 110,000,000
shares shall be designated "Voting Common Stock" and 10,000,000 shares shall be
designated "Nonvoting Common Stock." All shares of the Voting Common Stock and
the Nonvoting
<PAGE>
Common Stock shall be identical in all respects and shall entitle the holders
thereof to the same rights and privileges, subject to the same qualifications,
limitations and restrictions, except that the Nonvoting Common Stock shall be
denied all voting rights except as otherwise required by the General Corporation
Law of the State of Delaware. Except as required by law, the holders of shares
of Voting Common Stock shall be entitled to one vote per share of Voting Common
Stock on all matters on which stockholders of the Corporation have the right to
vote.
ARTICLE VI
PREFERRED STOCK
Section A. Preferred Stock. The Corporation is authorized to
issue shares of Preferred Stock from time to time in one or more series as may
from time to time be determined by the Board of Directors of the Corporation
(the "Board"), each of such series to be distinctly designated. The voting
powers, preferences and relative, participating, optional and other special
rights, and the qualifications, limitations or restrictions thereof, if any, of
each such series may differ from those of any and all other series of Preferred
Stock at any time outstanding, and the Board is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions, of
each such series, including, but without limiting the generality of the
foregoing, the following:
1. The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except where
otherwise provided by the Board in the resolution establishing such series) may
be increased (but not above the total number of shares of Preferred Stock) or
decreased (but not below the number of shares of such series then outstanding)
from time to time by like action of the Board.
<PAGE>
2. The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any other
series of the same or other class or classes of capital stock of the
Corporation, and whether such dividends shall be cumulative or noncumulative.
3. The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any other
class or classes or of any other series of the same or any other class or
classes of capital stock of the Corporation, and the terms and conditions of
such conversion or exchange.
4. Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the times at
which, and the terms and conditions on which, shares of such series of Preferred
Stock may be redeemed.
5. The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation or in the event of any merger or consolidation of or sale of
assets by the Corporation.
6. The terms of any sinking fund or redemption or purchase account,
if any, to be provided for shares of such series of the Preferred Stock.
7. The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which may be
less than, equal to or greater than one vote per share, and which may, without
limiting the generality of the foregoing, include the right, voting as a series
by itself or together with the holders of any other series of Preferred Stock or
all series of Preferred Stock as a class, to elect one or more directors of the
Corporation generally or under such specific circumstances and on such
conditions as shall be provided in the resolution or resolutions of the Board
adopted
<PAGE>
pursuant hereto, including, without limitation, in the event there shall have
been a default in the payment of dividends on or redemption of any one or more
series of Preferred Stock.
Section B. Rights of Preferred Stock.
1. After the provisions with respect to preferential dividends on
any series of Preferred Stock (fixed in accordance with the provisions of
Section (A) of this Article VI), if any, shall have been satisfied and after the
Corporation shall have complied with all the requirements, if any, with respect
to redemption of, or the setting aside of sums as sinking funds or redemption or
purchase accounts with respect to, any series of Preferred Stock (fixed in
accordance with the provisions of Section (A) of this Article VI), and subject
further to any other conditions that may be fixed in accordance with the
provisions of Section (A) of this Article VI, then and not otherwise the holders
of Common Stock shall be entitled to receive such dividends as may be declared
from time to time by the Board.
2. In the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any (fixed in accordance with the provisions of Section
(A) of this Article VI), to be distributed to the holders of Preferred Stock by
reason thereof, the holders of Common Stock shall, subject to the additional
rights, if any (fixed in accordance with the provisions of Section (A) of this
Article VI), of the holders of any outstanding shares of Preferred Stock, be
entitled to receive all of the remaining assets of the Corporation, tangible or
intangible, of whatever kind available for distribution to stockholders ratably
in proportion to the number of shares of Common Stock held by them respectively.
3. Except as may otherwise be required by law, and subject to the
provisions of such resolution or resolutions as may be adopted by the Board
pursuant to Section (A)
<PAGE>
of this Article VI granting the holders of one or more series of Preferred Stock
exclusive voting powers with respect to any matter, each holder of Common Stock
may have one vote in respect of each share of Common Stock held on all matters
voted upon by the stockholders.
4. The number of authorized shares of Preferred Stock and each class
of Common Stock may, without a class or series vote, be increased or decreased
from time to time by the affirmative vote of the holders of shares having a
majority of the total number of votes which may be cast in the election of
directors of the Corporation by all stockholders entitled to vote in such an
election, voting together as a single class.
ARTICLE VII
BOARD OF DIRECTORS
Section A. Powers of the Board of Directors. The business of
the Corporation shall be managed by a board of directors. The board of directors
shall have the power, unless and to the extent that the board may from time to
time by resolution relinquish or modify the power, without the assent or vote of
the stockholders, to make, alter, amend, change, add to, or repeal the Bylaws of
the Corporation.
Section B. Vacancies. Except as otherwise provided for or
fixed pursuant to the provisions of Article VI hereof relating to the rights of
the holders of any series of Preferred Stock to elect additional directors,
newly created directorships resulting from any increase in the authorized number
of directors and any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause shall be filled as set forth in the
Bylaws of the Corporation.
<PAGE>
Section C. Directors Elected by Holders of Preferred Stock.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article VI hereof, then upon commencement and for the duration of
the period during which such right continues (i) the then otherwise total
authorized number of directors of the Corporation shall automatically be
increased by such specified number of directors, and the holders of such
Preferred Stock shall be entitled to elect the additional directors so provided
for or fixed pursuant to such provisions, and (ii) each such additional director
shall serve until such director's successor shall have been duly elected and
qualified, or until such director's right to hold such office terminates
pursuant to such provisions, whichever occurs earlier. Except as otherwise
provided by the Board in the resolution or resolutions establishing such series,
whenever the holders of any series of Preferred Stock having such right to elect
additional directors are divested of such right pursuant to the provisions of
such stock, the terms of office of all such additional directors elected by the
holders of such stock, or elected to fill any vacancies resulting from death,
resignation, disqualification or removal of such additional directors, shall
forthwith terminate and the total and authorized number of directors of the
Corporation shall be reduced accordingly. Notwithstanding the foregoing,
whenever, pursuant to the provisions of Article VI hereof, the holders of any
one or more series of Preferred Stock shall have the right, voting separately as
a series or together with holders of other such series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed by the
terms of the Certificate of Incorporation.
Section D. Number of Directors Constituting the Board. The
number of directors that shall constitute the full Board, other than any
directors elected by the
<PAGE>
holders of any series of Preferred Stock as provided for or fixed pursuant to
the provisions of Article VI hereof, shall be fixed by the Bylaws of the
Corporation.
Section E. Election of Directors. The directors of the
Corporation shall not be required to be elected by written ballots unless the
Bylaws of the Corporation so provide.
ARTICLE VIII
RESTRICTION ON BUSINESS COMBINATIONS
The Corporation will be governed by Del. Code Ann. tit. 8, Sections 203
(1991).
ARTICLE IX
DURATION OF CORPORATE EXISTENCE
The Corporation is to have perpetual existence.
ARTICLE X
DIRECTOR LIABILITY
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this Article X shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under section 174 of Title 8 of the Delaware Code (the General Corporation Law
of the State of Delaware); or (iv) for any transaction from which the director
derived an improper personal benefit. In the event that the Delaware General
Corporation Law or any successor thereto is amended with respect to the
permissible limits of directors' liability, this Article X shall be deemed to
provide the fullest limitation on liability permitted under such amended
statute. Any repeal or modification of
<PAGE>
this Article X by the stockholders of the Corporation only shall be applied
prospectively, to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the personal liability of a
director of the Corporation existing immediately prior to such repeal or
modification.
ARTICLE XI
RESERVATION OF RIGHTS
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
<PAGE>
IN WITNESS WHEREOF, this Second Amended and Restated Certificate of
Incorporation, which amends and restates the provisions of the Certificate of
Incorporation of the Corporation and which has been duly adopted in accordance
with Section 241 and 245 of the General Corporation Law of the State of
Delaware, as the Corporation has not yet received payment for its capital stock,
has been executed by its directors this 8th day of October, 1998.
/s/ Terrence P. McKenna
-----------------------------
Terrence P. McKenna, Director
/s/ Rinaldo R. Tedeschi
-----------------------------
Rinaldo R. Tedeschi, Director
/s/ David J. Langevin
-----------------------------
David J. Langevin, Director
/s/ Eric Walters
-----------------------------
Eric Walters, Director
<PAGE>
CERTIFICATE OF CORRECTION OF SECOND AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
A Delaware Corporation
Environmental Systems Products Holdings Inc., a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies to the following:
1. The Corporation's original Certificate of Incorporation was filed
with the Secretary of State of the State of Delaware on March 12,
1998;
2. The Corporation's original Certificate of Incorporation was amended
and restated pursuant to the Amended and Restated Certificate of
Incorporation filed with the Secretary of State of the State of
Delaware on May 19, 1998;
3. The Corporation's Amended and Restated Certificate of Incorporation
was further amended pursuant to the First Amendment to Amended and
Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on June 17, 1998:
4. The Corporation filed the Second Amended and Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware
on October 9, 1998;
5. The Second Amended and Restated Certificate of Incorporation
contained an error in paragraph number 4 in which the Corporation
certified that the Second Amended and Restated Certificate of
Incorporation was declared advisable and adopted by the Board of
Directors of the Corporation on August 5, 1998.
6. Pursuant to Section 103(f) of the General Corporation Law of the
State of Delaware, the Second Amended and Restated Certificate of
Incorporation is hereby corrected to state accurately the date on
which the Second Amended and Restated Certificate of Incorporation
was declared advisable and adopted by the Board of Directors of the
Corporation.
Paragraph 4 of the Second Amended and Restated Certificate of
Incorporation shall read as follows:
"4. This Second Amended and Restated Certificate of Incorporation and the
amendments to the Certificate of Incorporation contained herein were
declared advisable and adopted by the Board of Directors on October 7,
1998 and have been duly adopted in accordance with the provisions of
Section 241 and 245 of the General Corporation Law of the State of
Delaware, as the Corporation has not yet received any payments for its
capital stock."
<PAGE>
The undersigned, Terrence P. McKenna, Chairman of the Board, President and
Chief Executive Officer of the Corporation, hereby declares and certifies that
the foregoing is the act of the Corporation and that the facts stated herein are
true and accordingly, has set his hand this 12th day of October, 1998.
/s/ Terrence P. McKenna
------------------------------------
Terrence P. McKenna
Chairman of the Board, President and
Chief Executive Officer
<PAGE>
FIRST CERTIFICATE OF AMENDMENT
OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AFTER THE PAYMENT OF ANY PART OF THE CAPITAL
OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
It is hereby certificated that:
1. The name of the corporation (hereinafter called the "Corporation") is
Environmental Systems Products Holdings Inc.
2. The Corporation's original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on March 12, 1998.
3. The Corporation's Certificate of Incorporation was amended and restated by
the Amended and Restated Certificate of Incorporation filed with the Secretary
of State of the State of Delaware on May 19,1998.
4. The Corporation's Amended and Restated Certificate of Incorporation was
amended by the First Amendment to the Amended and Restated Certificate of
Incorporation of the Corporation, filed with the Secretary of State of the State
of Delaware on June 17, 1998.
5. The Corporation's Amended and Restated Certificate of Incorporation was
amended and restated by the Second Amended and Restated Certificate of
Incorporation filed with the Secretary of State of the State of Delaware on
October 9, 1998.
6. The Corporation's Second Amended and Restated Certificate of Incorporation
was corrected by the Certificate of Correction filed with the Secretary of State
of the State of Delaware on October 13, 1998.
7. The Second Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by striking out Article IV thereof and
substituting in lieu of said Article the following new Article IV as follows:
ARTICLE IV
CAPITAL STOCK
The Corporation shall have the authority to issue a total of 3,000 shares of
capital stock, each with a par value of $.0001, consisting of 2,500 shares of
Common Stock and 500 shares of Preferred Stock.
<PAGE>
The Second Amended and Restated Certificate of Incorporation of the Corporation
is hereby amended by striking out Article V thereof and substituting in lieu of
said Article the following new Article V as follows:
<PAGE>
ARTICLE V
COMMON STOCK
The Common Stock shall be divided into two series, of which 2,000 shares
shall be designated "Voting Common Stock" and 500 shares shall be designated
"Nonvoting Common Stock." All shares of the Voting Common Stock and the
Nonvoting Common Stock shall be identical in all respects and entitle the
holders thereof to the same rights and privileges, subject to the same
qualifications, limitations and restrictions, except that the Nonvoting Common
Stock shall be denied all voting rights except as otherwise required by the
General Corporation Law of the State of Delaware. Except as required by law, the
holders of shares of Voting Common Stock shall be entitled to one vote per share
of Voting Common Stock on all matters in which stockholders of the Corporation
have the right to vote.
IN WITNESS WHEREOF, this First Amendment to the Second Amended and
Restated Articles of Incorporation has been duly adopted by the Sole Stockholder
of the Corporation in accordance with Sections 228 and 241 of the General
Corporation Law of the State of Delaware on this 22nd day of October, 1998.
/s/ Terrence P. McKenna
-------------------------------------
Terrence P. McKenna, President and
Chief Executive Officer
<PAGE>
Exhibit 3.2
B Y L A W S
OF
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be at 1013 Centre Road, in the City of Wilmington, County of
New Castle, State of Delaware. The registered agent of the corporation at such
address is Corporation Service Company.
Section 2. Other Offices. The Corporation may also have
offices, including its principal office, at such other places both within and
without the State of Delaware as the board of directors may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 3. Place of Meetings. All meetings of the stockholders
shall be held at such places either within or without the State of Delaware as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice thereof.
Section 4. Annual Meetings. The annual meeting of stockholders
for the election of directors and the transaction of other business as may
properly come before the meeting shall be held in each year at such date and
time as shall be designated from time to time by the board of directors and
stated in the notice of the meeting.
Section 5. Notice of Annual Meetings. Written notice of the
annual meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote at such meeting, not less than ten nor more
than sixty days before the date of the meeting. If mailed, such notice shall be
deemed to have been given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation.
Section 6. List of Stockholders. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. The list shall be arranged by voting group and within each
voting group by class or series of shares. Such
1
<PAGE>
list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the meeting during the whole time
thereof, and may be inspected by any stockholder who is present at such meeting.
Section 7. Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by statute
or by the certificate of incorporation, may be called by the president or by the
board of directors and shall also be called by the secretary at the request in
writing of the holders of, in the aggregate, not less than 25% of the
outstanding shares of the Corporation entitled to vote at such meeting, or of
the board of directors. Such request shall state the purpose or purposes of the
proposed meeting.
Section 8. Notice of Special Meetings. Written notice of a
special meeting stating the place, date and hour of the meeting, and the purpose
or purposes for which the meeting is called, shall be given not less than ten
nor more than sixty days before the date of the meeting, to each stockholder
entitled to vote at such meeting.
Section 9. Business of Special Meetings. Business transacted
at any special meeting of stockholders shall be limited to the purposes stated
in the notice.
Section 10. Quorum. The holders of at least a majority of the
stock issued and outstanding and entitled to vote at any meeting of the
stockholders, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have the power to adjourn the meeting from time
to time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present or represented.
At such adjourned meeting, at which a quorum shall be present or represented,
any business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 11. Vote Required for Action. When a quorum is present
at any meeting, the affirmative vote of the majority of shares present in person
or represented by proxy at the meeting and entitled to vote on the subject
matter shall be the act of the stockholders.
Section 12. Voting Rights. Except as otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
stock having voting power
2
<PAGE>
held by such stockholder, but no proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period.
3
<PAGE>
ARTICLE III
DIRECTORS
Section 13. Number Constituting Entire Board; Election. The
number of directors which shall constitute the whole board shall be not less
than one (1) nor more than nine (9). Within such limits the actual number of
directors which shall constitute the whole board shall be as fixed from time to
time by the board of directors. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 3 of this Article and
except that the initial directors of the Corporation were appointed by the
incorporator of the Corporation, and each director elected shall hold office
until his successor is elected and qualified or until his earlier resignation or
removal. Directors need not be stockholders.
Section 14. Resignation and Removal. Any director may resign
at any time upon written notice to the Corporation. Any director may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
Section 15. Filling of Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
and any vacancies on the Board resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, though less than a
quorum, or by a sole remaining director, and the directors so chosen shall hold
office until the next annual election and until their successors are duly
elected and shall qualify, or until their earlier resignation or removal. If
there are no directors in office, then an election of directors may be held in
the manner provided by statute. No decrease in the number of directors
constituting the Board shall shorten the term of any incumbent director.
Section 16. Management by Directors. The business and affairs
of the Corporation shall be managed by its board of directors, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
bylaws directed or required to be exercised or done by the stockholders.
Section 17. Place of Meetings. The board of directors of the
Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware.
Section 18. Annual Meeting. The annual meeting of the board of
directors shall be held immediately after the annual meeting of stockholders and
at the same place, and no notice of such meeting shall be necessary in order
legally to constitute the meeting, provided a quorum shall be present. In the
event such meeting is not held at that time and place, the meeting may be held
at such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
4
<PAGE>
Section 19. Regular Meetings. Regular meetings of the board of
directors may be held without other notice at such time and at such place as
shall from time to time be determined by the board.
Section 20. Special Meetings. Special meetings of the board
may be called by the president on one day's notice to each director, either
personally or by mail, facsimile, telegram or express courier; special meetings
shall be called by the president or secretary in like manner and on like notice
on the written request of a majority of the directors.
Section 21. Quorum; Vote Required for Action. At all meetings
of the board or any committee, a majority of the total number of directors of
the board or such committee shall constitute a quorum for the transaction of
business and the act of a majority of the directors of the board or committee
present at any meeting at which there is a quorum shall be the act of the board
of directors or the applicable committee, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors or any
committee, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 22. Participation By Conference Telephone. Members of
the board of directors, or any committee thereof, may participate in a meeting
of the board or any committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
subsection shall constitute presence in person at such meeting.
Section 23. Action Without Meeting. Unless otherwise
restricted by the certificate of incorporation or these bylaws, any action
required or permitted to be taken at any meeting of the board of directors or of
any committee thereof may be taken without a meeting, if all members of the
board or such committee consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the board or such committee.
Section 24. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the board of directors and
may be paid a fixed sum for attendance at each meeting of the board of directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of standing or special committees may be allowed like
compensation for attending committee meetings.
Section 25. Committees. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution, and subject to any restrictions imposed by statute,
5
<PAGE>
shall have and may exercise the powers of the board of directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed to all papers which may require it;
provided, however, that in the absence or disqualification of any member of such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he, she or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors.
Section 26. Minutes of Committee Meetings. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
ARTICLE IV
NOTICES
Section 27. Manner of Giving Notice. Whenever, under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, notice is required to be given to any director or stockholder, it shall
not be construed to require personal notice, but such notice may be given in
writing, by mail, addressed to such director or stockholder, at his address as
it appears on the records of the Corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Notice may also be given by telegram,
express courier, or facsimile.
Section 28. Waiver of Notice. Whenever any notice is required
to be given under the provisions of the statutes or of the certificate of
incorporation or of these bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice. Attendance of a person at
a meeting of stockholders, directors, or members of a committee of directors,
shall constitute a waiver of notice of such meeting, except when the
stockholder, director or committee member attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the certificate
of incorporation or these bylaws.
ARTICLE V
OFFICERS
6
<PAGE>
Section 29. Required Officers. The officers of the Corporation
shall be chosen by the board of directors and shall include a president, a
treasurer, and a secretary. Any number of offices may be held by the same person
unless the certificate of incorporation or these bylaws otherwise provide.
Section 30. Additional Officers. The board of directors may
appoint one or more vice presidents and such other officers and agents as it
shall deem necessary, including but not limited to a chief executive officer,
chief operating officer and a chief financial officer, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the board.
Section 31. Election of Officers. The board of directors at
its first meeting after each annual meeting of stockholders shall choose the
officers of the Corporation, except that the first officers of the Corporation
shall be chosen by the initial directors at the organizational meeting of the
board of directors following incorporation.
Section 32. Compensation. The salaries of all officers and
agents of the Corporation shall be fixed by or in the manner prescribed by the
board of directors.
Section 33. Tenure. Each officer of the Corporation shall hold
office until his successor is elected and qualified or until his earlier
resignation or removal. Any officer elected or appointed by the board of
directors may be removed at any time by the affirmative vote of a majority of
the total number of directors. Any officer may resign at any time upon written
notice to the Corporation. Any vacancy occurring in any office of the
Corporation shall be filled by or in the manner prescribed by the board of
directors.
Section 34. Chief Executive Officer. The chief executive
officer shall be the chief executive officer of the Corporation and shall have
general and active supervision and management of the business of the
Corporation. The chief executive officer may sign, on behalf of the Corporation,
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts or other instruments which the board of directors has authorized to be
executed, except in cases where the signing and execution thereof shall be
expressly delegated by the board of directors or by these bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed, and, in general, shall perform all duties incident to the
office of chief executive officer and such other duties as may be prescribed by
the board of directors from time to time.
Section 35. Chief Operating Officer. In the absence of the
chief executive officer, if any, or as may be agreed between the chief executive
officer and the chief operating officer, the chief operating officer shall
perform the duties of the chief executive officer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chief
executive officer. The chief operating officer shall generally assist the chief
executive officer and shall perform such other duties and have such other powers
as the board of directors may from time to time prescribe.
Section 36. President. The president shall have those duties
as the board of directors may from time to time establish.
7
<PAGE>
Section 37. Chief Financial Officer. The Chief Financial
Officer shall have those duties as the board of directors may from time to time
establish.
Section 38. Vice President. In the absence of the chief
executive officer, if any, the chief operating officer, the president, the vice
president, if any, or in the event there be more than one vice president, the
vice presidents in the order designated, or in the absence of any designation,
then in the order of their election, shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice president shall generally assist the
president and shall perform such other duties and have such other powers as the
board of directors may from time to time prescribe.
Section 39. Secretary. The secretary shall attend all meetings
of the board of directors and all meetings of the stockholders and shall record
all the proceedings of the meetings of the stockholders and of the board of
directors in a book to be kept for that purpose, and shall perform like duties
for the standing committees when requested by such committees. The secretary
shall give, or cause to be given, required notice of all meetings of the
stockholders and the board of directors, and shall perform such other duties as
may be prescribed by the board of directors. The secretary shall have custody of
the stock certificate books and stockholder records and such other books and
records as the board of directors may direct. The secretary shall have custody
of the corporate seal of the Corporation and shall have authority to affix the
same to any instrument requiring it and when so affixed, it may be attested by
the secretary's signature. The board of directors may give general authority to
any other officer to affix the seal of the Corporation and to attest the
affixing thereof by his signature.
Section 40. Treasurer. The treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the board of
directors and shall disburse the funds of the Corporation as may be ordered by
the board of directors, taking proper vouchers for such disbursements, and shall
render to the president and the board of directors, at its regular meetings, or
when the board of directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation and shall perform
such other duties and have such other powers as the board of directors or
president may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK; STOCK TRANSFERS; RECORD DATE
Section 41. Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by the chairman of the board of directors or the president
or any vice president designated by the board of directors, and by the treasurer
or the secretary certifying the number of shares owned by him in the
Corporation. If the Corporation is authorized to issue different
8
<PAGE>
classes of shares or different series within a class, the designations, relative
rights, preferences, and limitations applicable to each class and the variations
in rights, preferences, and limitations determined for each series (and by the
authority of the board of directors to determine variations for future series)
shall be summarized on the front or back of each certificate of shares of such
class or series. Alternatively, each certificate may state conspicuously on its
front or back that the Corporation will furnish the stockholder this information
on request in writing and without charge. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation as if he were such officer, transfer agent or
registrar at the date of issue.
Section 42. Lost Certificates. The board of directors may
direct a new stock certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the owner claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
Section 43. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for shares
accompanied by proper evidence of authority to transfer, the Corporation shall
issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
Section 44. Fixing Record Date.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record is fixed by the board of directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the next day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
9
<PAGE>
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, and which date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
board of directors. If no record date has been fixed by the board of directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by the General Corporation Law of Delaware, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation by delivery to its
registered office in Delaware, its principal place of business or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the board of directors
and prior action by the board of directors is required by the General
Corporation Law of Delaware, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts the
resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
Section 45. Registered Stockholders. The Corporation shall be
entitled to treat the record holder of any shares of stock of the Corporation as
the owner thereof for all purposes, including all rights deriving from such
shares, and except as required by law shall not be bound to recognize any
equitable or other claim to, or interest in, such shares or rights deriving from
such shares, on the part of any other person, including, but without limiting
the generality thereof, a purchaser, assignee or transferee of such shares or
rights deriving from such shares, unless and until such purchaser, assignee,
transferee or other person becomes the record holder of such shares, whether or
not the Corporation shall have either actual or constructive notice of the
interest of such purchaser, assignee, transferee or other person. Any such
purchaser, assignee, transferee or other person shall not be entitled to receive
notice of the meetings of stockholders, to vote at such meetings, to examine a
complete list of the stockholders entitled to vote at meetings, or to own,
enjoy, and exercise any other property or rights deriving from such
10
<PAGE>
shares against the Corporation, until such purchaser, assignee, transferee or
other person has become the record holder of such shares.
ARTICLE VII
GENERAL PROVISIONS
Section 46. Fiscal Year. The fiscal year of the Corporation
shall commence or end at such time as the board of directors may designate.
Section 47. Execution of Instruments. Contracts, deeds,
documents and instruments shall be executed by the chief executive officer, if
any, the president or the chief operating officer unless the board of directors
shall, in a particular situation or as a general direction, designate another
procedure for their execution.
Section 48. Checks and Drafts. The Corporation shall establish
a bank account for deposit of the funds of the Corporation and the drawing of
checks or drafts thereon. All checks or drafts drawn on such account shall
require the signature of one of the president, the chief executive officer or
the chief operating officer of the Corporation. The appointment of additional
signatories of the bank account and the opening of additional bank accounts
shall require the approval of the board of directors.
Section 49. Corporate Seal. The corporate seal, if the
directors shall adopt one, shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed, affixed, or reproduced in any other manner.
Section 50. Voting Shares in Other Corporations. In the
absence of other arrangements by the board of directors, shares of stock issued
by any other corporation and owned or controlled by this Corporation may be
voted at any stockholders' meeting of the other corporation by the chief
executive officer of this Corporation, if any, the president of this Corporation
or, if he or she is not present at the meeting, by the chief operating officer
of this Corporation, if any, or if so determined by the board of directors, by a
vice president of the Corporation designated by the board, and in the event that
none of the chief executive officer, the president, the chief operating officer
or such vice president are present at a meeting, the shares may be voted by such
person as the president and secretary of this Corporation shall by duly executed
proxy designate to represent this Corporation.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 51. Definitions. As used in this article, the term
"person" means any past, present or future director or officer of the
Corporation or any subsidiary or operating division thereof.
Section 52. Indemnification Granted. The Corporation shall
indemnify, to the full extent and under the circumstances permitted by the
General
11
<PAGE>
Corporation Law of the State of Delaware in effect from time to time, any person
as defined above, made or threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director or officer of the Corporation or a subsidiary or operating
division thereof, or is or was an employee or agent of the Corporation, or is or
was serving at the specific request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person or on such person's behalf in connection with such
action, suit or proceeding and any appeal therefrom, if such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his or her conduct
was unlawful. The termination of any action, suit, or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that such
conduct was unlawful.
Section 53. Requirements for Indemnification. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation,
or a subsidiary thereof or a designated officer of an operating division of the
Corporation, or is or was serving at the specific request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged to
have been taken or omitted in such capacity, against costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by such person or
on such person's behalf in connection with the defense or settlement of such
action or suit and any appeal therefrom, if such person acted in good faith and
in a manner that such person reasonably believed to be in or not opposed to the
best interests of the Corporation except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
Section 54. Success on Merits of any Action. Notwithstanding
any other provision of this Article, to the extent that a director, officer,
employee or agent of the corporation or any subsidiary or operating division
thereof has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without
12
<PAGE>
prejudice, in defense of any action, suit or proceeding referred to in this
Article, or in defense of any claim, issue or matter therein, such person shall
be indemnified against all costs, charges and expenses (including attorneys'
fees) actually and reasonably incurred by such person or on such person's behalf
in connection therewith.
Section 55. Determination of Standard of Conduct. Any
indemnification under Sections 2 and 3 of this Article (unless ordered by a
court) shall be paid by the Corporation only after a determination has been made
(1) by the board of directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding, or (2) if
such quorum is not obtainable, or even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or (3)
by the stockholders, that indemnification of the director, officer, employee or
agent is proper in the circumstances of the specific case because such person
has met the applicable standard of conduct set forth in Sections 2 and 3 of this
Article.
Section 56. Advance Payment; Representation by Corporation.
Costs, charges and expenses (including attorneys' fees) incurred by a
person referred to in Sections 2 and 3 of this Article in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in advance
of the final disposition of such action, suit or proceeding; provided, however,
that the payment of such costs, charges and expenses incurred by a director or
officer in such capacity as officer or director (and not in any other capacity
and which service was or is rendered by such person while a director or officer)
in advance of the final disposition of such action, suit or proceeding shall be
made only upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article. Such costs, charges and expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate. The Corporation
may, in the manner set forth above, and upon approval of such director, officer,
employee or agent, authorize the Corporation's counsel to represent such person,
in any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 57. Procedure for Obtaining Indemnity. Any
indemnification under Sections 2, 3 and 4, or advance of costs, charges and
expenses under Section 6 of this Article, shall be made promptly, and in any
event within sixty (60) days, of the written notice of the director, officer,
employee or agent. The right to indemnification or advances as granted by this
Article shall be enforceable by the director, officer, employee or agent in any
court of competent jurisdiction if the Corporation denies such request, in whole
or in part, or if no disposition thereof is made within sixty (60) days. Such
person's costs and expenses incurred in connection with successfully
establishing a right to indemnification, in whole or in part, in any such action
shall also be indemnified by the Corporation. It shall be a defense to any such
action (other than an action brought to enforce a claim for the advance of
costs, charges and expenses under Section 6 of this Article where the required
undertaking, if any, has been received by the Corporation) that the claimant has
not met the standard of conduct set forth in Section 2 or 3 of this Article,
13
<PAGE>
but the burden of proving such defense shall be on the Corporation. Neither
failure of the Corporation (including its board of directors, its independent
legal counsel, and its stockholders) to have made a determination that
indemnification of the claimant is proper in the circumstances because such
person has met the applicable standard of conduct set forth in Section 2 or 3 of
this Article, nor the fact that there has been an actual determination by the
Corporation (including its board of directors, its independent legal counsel,
and its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 58. Indemnification Not Exclusive. This right of
indemnification shall not be deemed exclusive of any other rights to which a
person indemnified herein may be entitled by law, agreement, vote of
stockholders or disinterested directors or otherwise, and shall continue as to a
person who has ceased to be a director, officer, designated officer, employee or
agent and shall inure to the benefit of the heirs, executors, administrators and
other legal representatives of such person. It is not intended that the
provisions of this article be applicable to, and they are not to be construed as
granting indemnity with respect to, matters as to which indemnification would be
in contravention of the laws of Delaware or of the United States of America,
whether as a matter of public policy or pursuant to statutory provision.
Section 59. Invalidity of Certain Provisions. If this Article
or any portion hereof shall be invalidated on any ground by any court of
competent jurisdiction, then the Corporation shall nevertheless indemnify each
director, officer, employee and agent of the Corporation or any subsidiary or
operating division thereof as to costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including any action by or in the right of the Corporation, to
the full extent permitted by any applicable portion of this Article that shall
not have been invalidated and to the full extent permitted by applicable law.
Section 60. Miscellaneous. The board of directors may also on
behalf of the Corporation grant indemnification to any individual other than a
person defined herein to such extent and in such manner as the board in its sole
discretion may from time to time and at any time determine.
ARTICLE IX
AMENDMENT
These bylaws may be amended or repealed by the affirmative vote of a
majority of the directors then in office.
14
<PAGE>
Exhibit 4.1
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
as Issuer
THE GUARANTORS NAMED HEREIN,
as Subsidiary Guarantors
ENVIROSYSTEMS CORP.
as Holdco
and
UNITED STATES TRUST COMPANY OF TEXAS, N.A.
as Trustee
---------
INDENTURE
Dated as of October 16, 1998
---------
13% Senior Subordinated Notes due 2008
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE.........................1
SECTION 1.1. Definitions.....................................................1
SECTION 1.2. Incorporation by Reference of TIA..............................25
SECTION 1.3. Rules of Construction..........................................25
SECTION 1.4. One Class of Securities........................................26
ARTICLE TWO THE NOTES.........................................................26
SECTION 2.1. Form and Dating................................................26
SECTION 2.2. Execution and Authentication; Aggregate Principal Amount.......26
SECTION 2.3. Registrar and Paying Agent.....................................27
SECTION 2.4. Paying Agent To Hold Assets in Trust...........................28
SECTION 2.5. Noteholder Lists...............................................28
SECTION 2.6. [Intentionally Omitted]........................................28
SECTION 2.7. Replacement Notes..............................................28
SECTION 2.8. Outstanding Notes..............................................29
SECTION 2.9. Treasury Notes.................................................29
SECTION 2.10. Temporary Notes...............................................29
SECTION 2.11. Cancellation..................................................30
SECTION 2.12. Defaulted Interest............................................30
SECTION 2.13. CUSIP Number..................................................30
SECTION 2.14. Deposit of Moneys.............................................30
ARTICLE THREE REDEMPTION......................................................31
SECTION 3.1. Notices to Trustee.............................................31
SECTION 3.2. Selection of Notes To Be Redeemed..............................31
SECTION 3.3. Notice of Redemption...........................................31
SECTION 3.4. Effect of Notice of Redemption.................................32
SECTION 3.5. Deposit of Redemption Price....................................33
SECTION 3.6. Notes Redeemed in Part.........................................33
SECTION 3.7. Optional Redemption............................................33
ARTICLE FOUR COVENANTS........................................................34
SECTION 4.1. Payment of Notes...............................................34
SECTION 4.2. Maintenance of Office or Agency................................34
SECTION 4.3. Corporate Existence............................................35
SECTION 4.4. Payment of Taxes and Other Claims..............................35
SECTION 4.5. Maintenance of Properties and Insurance........................36
SECTION 4.6. Compliance Certificate; Notice of Default......................36
SECTION 4.7. Compliance with Laws...........................................37
SECTION 4.8. SEC Reports....................................................37
SECTION 4.9. Waiver of Stay, Extension or Usury Laws........................38
SECTION 4.10. Limitation on Restricted Payments.............................38
SECTION 4.11. Limitation on Restrictions on Distributions from Restricted
Subsidiaries..................................................40
SECTION 4.12. Limitation on Affiliate Transactions..........................41
SECTION 4.13. Limitation on Indebtedness....................................42
SECTION 4.14. [INTENTIONALLY OMITTED].......................................45
SECTION 4.15. Limitation on Other Senior Subordinated Indebtedness..........45
SECTION 4.16. Change of Control.............................................45
SECTION 4.17. Limitation on Sales of Assets and Subsidiary Stock............46
SECTION 4.18. Limitation on Liens Securing Subordinated Indebtedness........49
SECTION 4.19. Future Subsidiary Guarantors..................................50
SECTION 4.20. Limitation on Designations of Unrestricted Subsidiaries.......50
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.21. Limitation on Lines of Business...............................51
SECTION 4.22. Limitation on Holdco and the Holding Companies................51
ARTICLE FIVE SUCCESSOR CORPORATION ...........................................52
SECTION 5.1. Merger, Consolidation and Sale of Assets of the Company........52
SECTION 5.2. Successor Corporation Substituted for the Company..............53
SECTION 5.3. Merger, Consolidation and Sale of Assets of Any Subsidiary
Guarantor......................................................53
SECTION 5.4. Successor Corporation Substituted for Subsidiary Guarantor.....54
ARTICLE SIX DEFAULT AND REMEDIES .............................................54
SECTION 6.1. Events of Default..............................................54
SECTION 6.2. Acceleration...................................................56
SECTION 6.3. Other Remedies.................................................56
SECTION 6.4. Waiver of Past Defaults........................................57
SECTION 6.5. Control by Majority............................................57
SECTION 6.6. Limitation on Suits............................................57
SECTION 6.7. Rights of Holders To Receive Payment...........................58
SECTION 6.8. Collection Suit by Trustee.....................................58
SECTION 6.9. Trustee May File Proofs of Claim...............................58
SECTION 6.10. Priorities....................................................58
SECTION 6.11. Undertaking for Costs.........................................59
ARTICLE SEVEN TRUSTEE ........................................................59
SECTION 7.1. Duties of Trustee..............................................59
SECTION 7.2. Rights of Trustee..............................................60
SECTION 7.3. Individual Rights of Trustee...................................62
SECTION 7.4. Trustee's Disclaimer...........................................62
SECTION 7.5. Notice of Default..............................................62
SECTION 7.6. Reports by Trustee to Holders..................................62
SECTION 7.7. Compensation and Indemnity.....................................63
SECTION 7.8. Replacement of Trustee.........................................64
SECTION 7.9. Successor Trustee by Merger, Etc...............................65
SECTION 7.10. Eligibility; Disqualification.................................65
SECTION 7.11. Preferential Collection of Claims Against Company.............65
ARTICLE EIGHT DISCHARGE OF INDENTURE; DEFEASANCE .............................66
SECTION 8.1. Discharge of Liability on Notes; Defeasance....................66
SECTION 8.2. Conditions to Defeasance.......................................67
SECTION 8.3. Application of Trust Money.....................................68
SECTION 8.4. Repayment to Company...........................................68
SECTION 8.5. Indemnity for Government Obligations...........................69
SECTION 8.6. Reinstatement..................................................69
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS .............................69
SECTION 9.1. Without Consent of Holders.....................................69
SECTION 9.2. With Consent of Holders........................................70
SECTION 9.3. Effect on Senior Indebtedness..................................71
SECTION 9.4. Compliance with TIA........................................,...72
SECTION 9.5. Revocation and Effect of Consents..............................72
SECTION 9.6. Notation on or Exchange of Notes...............................72
SECTION 9.7. Trustee To Sign Amendments, Etc................................73
SECTION 9.8. Payment for Consent............................................73
ARTICLE TEN SUBORDINATION ....................................................73
SECTION 10.1. Notes Subordinated to Senior Indebtedness.....................73
SECTION 10.2. No Payment on Notes in Certain Circumstances..................74
SECTION 10.3. Payment Over of Proceeds upon Dissolution, Etc................75
SECTION 10.4. Payments May Be Paid Prior to Dissolution.....................76
SECTION 10.5. Subrogation...................................................77
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 10.6. Obligations of the Company Unconditional......................77
SECTION 10.7. Notice to Trustee.............................................78
SECTION 10.8. Reliance on Judicial Order or Certificate of Liquidating
Agent.........................................................78
SECTION 10.9. Trustee's Relation to Senior Indebtedness.....................79
SECTION 10.10. Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness................79
SECTION 10.11. Noteholders Authorize Trustee To Effectuate Subordination
of Notes.....................................................80
SECTION 10.12. This Article Ten Not To Prevent Events of Default............80
SECTION 10.13. Trustee's Compensation Not Prejudiced........................80
SECTION 10.14. Acceleration of Payment of Notes.............................81
ARTICLE ELEVEN SUBSIDIARY GUARANTEES .........................................81
SECTION 11.1. Unconditional Subsidiary Guarantee............................81
SECTION 11.2. Subordination of Subsidiary Guarantee.........................82
SECTION 11.3. Severability..................................................82
SECTION 11.4. Release of Subsidiary Guarantor from the Subsidiary
Guarantee.....................................................82
SECTION 11.5. Limitation on Amount Guaranteed; Contribution by Subsidiary
Guarantors....................................................83
SECTION 11.6. Waiver of Subrogation.........................................84
SECTION 11.7. Execution of Subsidiary Guarantee.............................85
SECTION 11.8. Waiver of Stay, Extension or Usury Laws.......................85
SECTION 11.9. Effectiveness of Subsidiary Guarantee.........................85
ARTICLE TWELVE SUBORDINATION OF GUARANTEE OBLIGATIONS ........................86
SECTION 12.1. Guarantee Obligations Subordinated to Senior Indebtedness
of Subsidiary Guarantors.....................................86
SECTION 12.2. No Payment on Notes in Certain Circumstances.................86
SECTION 12.3. Payment Over of Proceeds upon Dissolution, Etc...............88
SECTION 12.4. Payments May Be Paid Prior to Dissolution.....................90
SECTION 12.5. Subrogation...................................................90
SECTION 12.6. Obligations of Subsidiary Guarantor Unconditional.............91
SECTION 12.7. Notice to Trustee.............................................91
SECTION 12.8. Reliance on Judicial Order or Certificate of Liquidating
Agent ........................................................91
SECTION 12.9. Trustee's Relation to Subsidiary Guarantor's Senior
Indebtedness.................................................92
SECTION 12.10. Subordination Rights Not Impaired by Acts or Omissions of
Subsidiary Guarantors or Holders of Subsidiary Guarantors'
Senior Indebtedness..........................................92
SECTION 12.11. Noteholders Authorize Trustee To Effectuate Subordination
of Notes.....................................................93
SECTION 12.12. This Article Twelve Not To Prevent Events of Default.........94
ARTICLE THIRTEEN MISCELLANEOUS ...............................................94
SECTION 13.1. TIA Controls..................................................94
SECTION 13.2. Notices.......................................................94
SECTION 13.3. Communications by Holders with Other Holders..................95
SECTION 13.4. Certificate and Opinion as to Conditions Precedent............96
SECTION 13.5. Statements Required in Certificate or Opinion.................96
SECTION 13.6. Rules by Trustee, Paying Agent, Registrar.....................96
SECTION 13.7. Legal Holidays................................................97
SECTION 13.8. Governing Law.................................................97
SECTION 13.9. No Adverse Interpretation of Other Agreements.................97
SECTION 13.10. No Recourse Against Others...................................97
SECTION 13.11. Successors...................................................97
SECTION 13.12. Duplicate Originals..........................................97
SECTION 13.13. Severability.................................................98
Appendix .................................................................... I
Exhibit A - Form of Initial Note and Subsidiary Guarantee....................A-1
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Exhibit B - Form of Exchange Note and Private Exchange Note and Subsidiary
Guarantee........................................................B-1
Exhibit C - Subsidiary Guarantors ...........................................C-1
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
this Indenture.
iv
<PAGE>
INDENTURE, dated as of October 16, 1998, among ENVIRONMENTAL SYSTEMS
PRODUCTS HOLDINGS INC., a Delaware corporation (the "Company"), the guarantors
named on Exhibit C hereto (the "Subsidiary Guarantors"), EnviroSystems Corp., a
Delaware corporation ("Holdco") and United States Trust Company of Texas, N.A.,
as Trustee (the "Trustee").
The Company has duly authorized the creation of an issue of 13%
Senior Subordinated Notes due 2008 (the "Initial Notes") and, if and when issued
pursuant to a registered exchange for the Initial Notes, 13% Senior Subordinated
Exchange Notes due 2008 (the "Exchange Notes") and, if and when issued pursuant
to a private exchange for the Initial Notes, 13% Senior Subordinated Private
Exchange Notes due 2008 (the "Private Exchange Notes," and together with the
Initial Notes and the Exchange Notes, the "Notes") to provide therefor, the
Company and each of the Subsidiary Guarantors has duly authorized the execution
and delivery of this Indenture. The Subsidiary Guarantors have agreed to
Guarantee the Notes on a senior subordinated basis.
All things necessary to make the Notes, when duly issued and
executed by the Company, and authenticated and delivered hereunder, the valid
obligations of the Company, and to make this Indenture a valid and binding
agreement of the Company, have been done. All things necessary to make the
Subsidiary Guarantees (as defined herein), when duly issued and executed by each
Guarantor and endorsed on the Notes, and authenticated and delivered hereunder,
the valid obligations of the Subsidiary Guarantors have been done.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Notes.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries (the "Acquired Person") (i) existing at the time such Person
becomes a Restricted Subsidiary of the Company or at the time it merges or
consolidates with the Company or any of its Restricted Subsidiaries, including,
without limitation, Indebtedness Incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person or (ii) assumed in connection
with the acquisition of assets from such Person.
"Adjusted Maximum Amount" has the meaning provided in Section 11.05.
"Affiliate" of any specified Person means (i) any other Person
which, directly or indirectly, is in control of, is controlled by or is under
common control with such specified
<PAGE>
Person or (ii) any other Person who is a director or officer (A) of such
specified Person, (B) of any subsidiary of such specified Person or (C) any
Person described in clause (i) above. For purposes of this definition, control
of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether through the
ownership of voting securities by contract or otherwise and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described in Sections 4.10 and 4.12 only, "Affiliate"
shall also mean any beneficial owner of Capital Stock representing 5% or more of
the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Aggregate Payments" has the meaning provided in Section 11.05.
"Alchemy" means Alchemy Investment Plan, a group of funds advised by
Alchemy Partners, or its Affiliates.
"Alchemy Partners" means Alchemy Partners, an English partnership.
"Asset Disposition" means any sale, lease, transfer, conveyance,
issuance or other disposition (or series of related sales, leases, transfers,
conveyances, issuances or dispositions) by the Company or any Restricted
Subsidiary, including any disposition by means of a merger or consolidation
(each referred to for the purposes of this definition as a "disposition")
(including by way of a sale-and-leaseback), of (i) any shares of Capital Stock
of a Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary (including as a
result of a termination of an Emissions Contract), other than, in the case of
(i), (ii) and (iii) above, (a) a disposition by (1) the Company to a Wholly
Owned Subsidiary that is a Subsidiary Guarantor, (2) a Restricted Subsidiary
that is a Subsidiary Guarantor to the Company or a Wholly Owned Subsidiary that
is a Subsidiary Guarantor or (3) a Restricted Subsidiary that is not a
Subsidiary Guarantor to (x) the Company or (y) any Restricted Subsidiary, (b) a
disposition of obsolete equipment or equipment that is no longer useful in the
conduct of the business of the Company and any Restricted Subsidiary and that is
disposed of in each case in the ordinary course of business, (c) the sale of
other assets so long as the fair market value of the assets disposed of pursuant
to this clause (c) does not exceed $3.0 million in the aggregate in any fiscal
year, (d) for the purposes of Section 4.17 only, a disposition subject to
Section 4.10 and (e) the disposition of all or substantially all of the assets
of the Company in the manner permitted pursuant to the provisions described in
Section 5.01 where such disposition constitutes a Change of Control under
Section 4.16. For the purposes of this Indenture, the term "Asset Disposition"
shall include the receipt by the Company or any Restricted Subsidiary of any
termination payments, settlement or judgment awards or similar
2
<PAGE>
payments in connection with, or as a result of, the termination or cancellation
of any Emissions Contract.
"Attributable Debt" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, (a) if such Sale/Leaseback transaction
in a Capital Lease Obligation, the amount of Indebtedness represented thereby
according to the definition of "Capital Lease Obligations" and (b) in other
instances, the present value (discounted at the interest rate borne by the
Notes, compounded annually) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale/Leaseback
Transaction (including any period for which such lease has been renewed or
extended).
"Authenticating Agent" has the meaning provided in Section 2.02.
"Average Life" means, as of the date of determination, with respect
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Indebtedness" means (i) the Indebtedness outstanding or
arising under the Credit Facility, (ii) all obligations incurred by or owing to
the holders of such Indebtedness or any agent or representative thereof
outstanding or arising under the Credit Facility (including, but not limited to,
all interest (including, but not limited to, interest accruing pursuant to the
terms of the Credit Facility on or after the filing of any petition in any
bankruptcy, reorganization or similar proceeding relating to the Company or any
Restricted Subsidiary, whether or not a claim for such is allowed in such
proceeding), all fees and expenses of counsel, reimbursement obligations,
indemnities and all other charges, fees, expenses and other claims), and (iii)
all interest rate agreement obligations arising in connection thereafter with
any party to the Credit Facility.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar Federal,
state or foreign law for the relief of debtors.
"Blockage Notice" has the meaning provided in Section 10.02.
"Board of Directors" means the Board of Directors of the Company or
any committee thereof duly authorized to act on behalf of such Board.
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each day which is not a Legal Holiday.
"Capital Contribution" means the contribution to capital received by
the
3
<PAGE>
Company from any holder of the Company's Capital Stock whereby the Company
receives cash solely in exchange for either no consideration or Capital Stock of
the Company other than Disqualified Stock.
"Capital Lease Obligations" of a Person means any obligation which
is required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such person, including any Preferred
Stock, but excluding any debt securities convertible into or exchangeable for
such equity.
"Cash Equivalents" means (i) marketable direct obligations issued
by, or unconditionally Guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Rating Services or Moody's Investors
Service, Inc.; (iii) commercial paper maturing no more than one year from the
date of creation thereof and, at the time of acquisition, having a rating of at
least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's
Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances
maturing within one year from the date of acquisition thereof issued by (x) any
(A) bank organized under the laws of the United States of America or any state
thereof or the District of Columbia or (B) commercial banking institution
organized and located in a country recognized by the United States of America,
in each case having at the date of acquisition thereof combined capital and
surplus of not less than $200 million (or the foreign currency equivalent
thereof) or (y) any lender under the Credit Facility; (v) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; (vi) investments in money market
funds which invest substantially all their assets in securities of the types
described in clauses (i) through (v) above; and (vii) other short-term
investments utilized by foreign Restricted Subsidiaries in accordance with
normal investment practices for cash management not exceeding $1.0 million in
aggregate principal amount outstanding at any time.
"Cash Flow" for any period means the Consolidated Net Income for
such period, plus the following (but without duplication) to the extent deducted
in calculating such Consolidated Net Income for such period: (i) income tax
expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and
amortization expense, provided that consolidated depreciation and amortization
expense of a Subsidiary that is not a Wholly Owned Subsidiary
4
<PAGE>
shall only be added to the extent of the equity interest of the Company in such
Subsidiary and (iv) all other non-cash charges (other than any non-cash charges
to the extent such charges represent an accrual of or reserve for cash
expenditures in any future period). Notwithstanding clause (iv) above, there
shall be deducted from Cash Flow in any period any cash expended in such period
that funds a non-recurring, non-cash charge accrued or reserved in a prior
period which was added back to Cash Flow pursuant to clause (iv) in such prior
period.
"Change of Control" means the occurrence of any of the following
events:
(i) Prior to the consummation of an Initial Equity Offering, Alchemy
ceases to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act), directly or indirectly, of at least 40% in the
aggregate of the total voting power of the Voting Stock of the Company or
Holdco, in each case whether as a result of issuance of securities of the
Company or Holdco, any merger, consolidation, liquidation or dissolution
of the Company or Holdco, any direct or indirect transfer of securities by
the Company or otherwise (for purposes of this clause (i) and clause (ii)
below, Alchemy shall be deemed to beneficially own any Voting Stock of a
corporation (the "specified corporation") held by any other corporation
(the "parent corporation") so long as Alchemy beneficially owns (as so
defined), directly or indirectly, in the aggregate a majority of the
voting power of the Voting Stock of the parent corporation);
(ii) Following the first Initial Equity Offering, any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), other
than Alchemy, is or becomes the beneficial owner (as defined in clause (i)
above, except that for purposes of this clause (ii) such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 35%
of the total voting power of the Voting Stock of the Company or Holdco
(whichever entity has consummated such public offering); provided,
however, that Alchemy beneficially owns (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company or Holdco than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors (for the purposes of this clause (ii), such other person shall
be deemed to beneficially own any Voting Stock of a specified corporation
held by a parent corporation, if such other person is the beneficial owner
(as defined in this clause (ii)), directly or indirectly, of more than 35%
of the voting power of the Voting Stock of such parent corporation and
Alchemy beneficially owns (as defined in clause (i) above), directly or
indirectly, in the aggregate a lesser percentage of the voting power of
the Voting Stock of such parent corporation and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the board of directors of such parent corporation);
(iii) during any period of two consecutive years, individuals who at
the
5
<PAGE>
beginning of such period constituted the Board of Directors or the board
of directors of Holdco, as the case may be, (together with any new
directors whose election or appointment by the Board of Directors or the
board of directors of Holdco, as the case may be, or whose nomination for
election by the shareholders of the Company or Holdco, as the case may be,
was approved by a vote of 60% of the directors of the Company or ESPH, as
the case may be, then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors or the board of directors of Holdco, as the case
may be, then in office; or
(iv) the merger or consolidation of the Company or Holdco, with or
into another Person or the merger of another Person with or into the
Company or Holdco or the sale of all or substantially all the assets of
the Company or Holdco to another Person (other than a Person that is
controlled by Alchemy), and, in the case of any such merger or
consolidation, the securities of the Company or Holdco that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or Holdco
are changed into or exchanged for cash, securities or property, unless
pursuant to such transaction such securities are changed into or exchanged
for, in addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Consolidated Cash Flow Coverage Ratio" as of any date of
determination means the ratio of (i) the aggregate amount of Cash Flow for the
period of the most recent four consecutive fiscal quarters to (ii) Consolidated
Interest Expense for such four fiscal quarters; provided, however, to the extent
relevant to the calculation for any period, Cash Flow and Consolidated Interest
Expense shall be calculated using the pro forma consolidated statements of
operations of the Company included in the Offering Circular, which pro forma
statements of operations shall give effect to the Transactions (as defined
therein) as if they occurred at the beginning of the relevant period; provided,
further, however, that (1) if the Company or any Restricted Subsidiary has
issued any Indebtedness since the beginning of such period and on or prior to
the relevant date of determination that remains outstanding or if the
transaction giving rise to the need to calculate the Consolidated Cash Flow
Coverage Ratio is an issuance of Indebtedness, or both, Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
effect on a pro forma basis to such Indebtedness as if such Indebtedness had
been issued on the first day of such period and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the first
day of such period, (2) if since the beginning of such period and on or prior to
the relevant date of determination the Company or any Restricted Subsidiary
shall have made any Asset Disposition, the Cash Flow
6
<PAGE>
for such period shall be reduced by an amount equal to the Cash Flow (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the Cash
Flow (if negative), directly attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Dispositions for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) to the extent not duplicative with (2) above, if since the
beginning of such period and on or prior to the relevant date of determination
any Emissions Contract ceased or ceases to be in effect, the Cash Flow for such
period shall be reduced by an amount equal to the cash Flow (if positive)
directly attributable thereto for such period, or increased by an amount equal
to the Cash Flow (if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its Restricted
Subsidiaries with the proceeds of any termination fee or similar payment
received by the Company or a Restricted Subsidiary as a result of the cessation
of such Emissions Contract, (4) if since the beginning of such period and on or
prior to the relevant date of determination the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets (including Capital Stock of a Subsidiary), including
any acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, Cash Flow and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect thereto
(including the issuance of any Indebtedness and including pro forma cost
reductions, in each case as calculated in accordance with the applicable
accounting requirements of Rule 11-02 of Regulation S-X under the Securities Act
or any successor provision relating to the preparation of pro forma financial
statements (it being understood that all cost reductions set forth in Note (3)
to the unaudited pro forma consolidated statements included in the Offering
Circular shall be deemed to be calculated on a basis consistent with such
requirements)) as if such Investment or acquisition occurred on the first day of
such period, and (5) if since the beginning of such period and on or prior to
the relevant date of determination any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) shall have made any Asset
Disposition or any Investment, or any Emissions Contract entered into by such
Person shall cease to be in effect, that would have required an adjustment
pursuant to clause (2), (3) or (4) above if made by, or if in respect of, the
Company or a Restricted Subsidiary during such period, Cash Flow and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto (including pro forma cost reductions, in each case as
calculated in accordance with the applicable accounting requirements of Rule
11-02 of Regulation S-X under the Securities Act or any successor provision
relating to the preparation of pro forma financial statements (it being
understood that all cost reductions set forth in Note (3) to the unaudited pro
forma consolidated statements
7
<PAGE>
included in the Offering Circular shall be deemed to be calculated on a basis
consistent with such requirements)) as if such Asset Disposition, Investment or
cessation of such Emissions Contract occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings relating thereto, and
the amount of Consolidated Interest Expense associated with any Indebtedness
issued in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest of such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Protection Agreement
applicable to such Indebtedness if such Interest Rate Protection Agreement has a
remaining term in excess of 12 months). For purposes of this definition,
whenever pro forma effect is to be given to any Indebtedness Incurred pursuant
to a revolving credit facility the amount outstanding under such Indebtedness
shall be equal to the average of the amount outstanding during the period
commencing on the first day of the first of the four most recent fiscal quarters
for which financial statements are available and ending on the date of
determination.
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries
determined in accordance with GAAP, plus, to the extent not included in such
interest expense but Incurred by the Company or its Restricted Subsidiaries, (i)
interest expense attributable to capital leases, (ii) amortization of debt
discount and debt issuance cost (other than those debt discounts and debt
issuance costs incurred on the Issue Date), (iii) capitalized interest, (iv)
original issue discount and non-cash interest payments or accruals, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs under Hedging
Obligations (including amortization of fees), (vii) dividends in respect of all
Disqualified Stock or Preferred Stock held by Persons other than the Company, a
Subsidiary Guarantor or a Wholly Owned Subsidiary, (viii) interest Incurred in
connection with investments in discontinued operations, (ix) the interest
portion of any deferred payment obligations, (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust and
(xi) imputed interest expense associated with any Attributable Debt. For
purposes of this definition, interest expense attributable to any Indebtedness
represented by the Guarantee by such Person or a Subsidiary of such Person of an
obligation of another Person shall be deemed to be the interest expense
attributable to the Indebtedness Guaranteed.
"Consolidated Net Income" means, for any period, the net income or
loss of the Company and its consolidated Subsidiaries determined in accordance
with GAAP; provided, however, that there shall not be included in such
Consolidated Net Income:
(i) any net income of any Person if such Person is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting,
except that (A) the Company's equity in the net income of any such Person
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually
8
<PAGE>
distributed by such Person during such period to the Company or a
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution to a Restricted Subsidiary, to
the limitations contained in clause (iii) below) and (B) the Company's
equity in a net loss of any such Person for such period shall be included
in determining such Consolidated Net Income;
(ii) any net income of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition;
(iii) any net income of any Restricted Subsidiary (other than
Envirotest Systems Corp. and Environmental Systems Products, Inc., in each
case, solely for the period prior to the Issue Date) if such Restricted
Subsidiary is subject to restrictions (other than restrictions under the
Credit Facility, this Indenture or the indenture governing the Senior
Discount Notes), directly or indirectly, on the payment of dividends or
the making of distributions by such Subsidiary, directly or indirectly, to
the Company, except that (A) the Company's equity in the net income of any
such Restricted Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution to
another Restricted Subsidiary, to the limitation contained in this clause)
and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(iv) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated subsidiaries (including pursuant to any sale and leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary
course of business and any gain (but not loss) realized upon the sale or
other disposition of any Capital Stock of any Person;
(v) all extraordinary, unusual or non-recurring gains but not
losses; and
(vi) the cumulative effect of a change in accounting principles.
"covenant defeasance option" has the meaning provided in Section
8.01.
"Credit Facility" means the credit agreement dated as of October 16,
1998, by and among the Company, certain banks, financial institutions and other
entities, and Credit Suisse First Boston, as Administrative Agent, Collateral
Agent and Arranger, and DLJ Capital Funding, Inc., as Syndication Agent and
Donaldson Lufkin and Jenrette Securities Corporation, as an Arranger, initially
providing for an aggregate $435 million of term loan and revolving credit
facilities, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, as such credit
facilities and/or related documents may be further amended, restated,
supplemented, renewed, refinanced, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and irrespective of any changes in the terms and conditions
9
<PAGE>
thereof. Without limiting the generality of the foregoing, the term "Credit
Facility" shall include agreements in respect of reimbursement of letters of
credit issued pursuant to the Credit Facility and agreements in respect of
Hedging Obligations with lenders party to the Credit Facility and their
affiliates and shall also include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any Credit
Facility and all refunding, refinancings (in whole or in part) and replacements
of any Credit Facility, including any agreement (i) extending the maturity of,
or increasing the amount of, any Indebtedness incurred thereunder or
contemplated thereby, or (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include one or more of the Company
and its Restricted Subsidiaries and their respective successors and assigns.
"Currency Agreement Obligations" means the obligations of any person
under a foreign exchange contract, currency swap agreement or other similar
agreement or arrangement to protect such person against fluctuations in currency
values.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Designated Senior Indebtedness" means (i) so long as any Bank
Indebtedness is outstanding, such Bank Indebtedness and (ii) provided no Bank
Indebtedness is outstanding, any other Senior Indebtedness of the Company
permitted to be incurred under the Indenture which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $25.0 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to 123 days after the Stated
Maturity of the Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to repurchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to 123
days after the Stated Maturity of the Notes shall not constitute Disqualified
Stock if the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock than
the provisions described in Sections 4.16 and 4.17.
10
<PAGE>
"Emissions Contract" means a contract with a governmental authority
to provide motor vehicle emissions testing, motor vehicle emissions testing
equipment testing, or calibration, data collection and reporting (auditing
emissions testing equipment and data) relating to motor vehicle emissions
testing, provided, however, that such contract may also relate to the provision
of motor vehicle safety inspection or motor vehicle registration but only if it
primarily relates to the provisions of the services enumerated above.
"ESPH" means Environmental Systems Holdings Inc., a Delaware
corporation.
"Event of Default" has the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute or statutes thereto.
"Exchange Notes" has the meaning provided in the preamble to this
Indenture.
"Fair Share" has the meaning provided in Section 11.05.
"Fair Share Shortfall" has the meaning provided in Section 11.05.
"Fraudulent Transfer Laws" has the meaning provided in Section
11.05.
"Funding Guarantor" has the meaning provided in Section 11.05.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the date of this Indenture, including those
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing in any manner any Indebtedness or
other obligation of any other Person and any obligation, direct or indirect,
contingent or otherwise, of such other Person (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements of negotiable instruments for collection or deposit in the ordinary
course of business. The term "Guarantee" used as a verb has a corresponding
meaning.
"Guarantee Obligations" has the meaning provided in Section 12.01.
11
<PAGE>
"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 designed to protect such Person against changes
in interest rates or foreign exchange rates.
"Holdco" means EnviroSystems Corp., a Delaware corporation.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Holding Company" means each of Newmall Ltd., a private limited
company incorporated in England and Wales, Wellman Overseas Ltd., a private
limited company incorporated in England and Wales, and Wellman North America,
Inc., a private limited company incorporated in England and Wales, and each of
their successors and assigns, if any.
"Incur" means create, issue, assume, Guarantee, incur or otherwise
become liable for, directly or indirectly, or otherwise become responsible for,
contingently or otherwise, Indebtedness, Disqualified Stock or Preferred Stock;
provided, however, that any Indebtedness, Disqualified Stock or Preferred Stock
of a Person existing at the time such Person merges with the Company or becomes
a Subsidiary (whether by merger, consolidation, acquisition or otherwise),
including, without limitation, Indebtedness Incurred and Disqualified Stock and
Preferred Stock issued in connection with, or in contemplation of, such other
Person merging with or into the Company or a Subsidiary or becoming a Subsidiary
shall be deemed to be Incurred by the Company or such Subsidiary at the time it
merges with the Company or becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.
"Indebtedness" of any Person means, without duplication, and whether
or not contingent,
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds (other than performance bonds) or
other similar instruments for the payment of which such Person is
responsible or liable, if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP;
(ii) all Capital Lease Obligations of such Person and all
Attributable Debt in respect of Sale/Leaseback Transactions to which such
Person is a party;
(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);
(iv) all obligations of such Person for the reimbursement of any
obligor on
12
<PAGE>
any letter of credit, banker's acceptance or similar credit transaction;
(v) Disqualified Stock (measured by the amount of all obligations of
such Person with respect to the redemption, repayment or other repurchase
of such Disqualified Stock of such Person and measured at the greater of
its voluntary or involuntary maximum fixed repurchase price plus accrued
and unpaid dividends) or, with respect to any Subsidiary of such Person,
any Preferred Stock (measured by its liquidation preference);
(vi) all Hedging Obligations;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly
or indirectly, as obligor, guarantor or otherwise, including by means of
any Guarantee (other than in each case by reason of activities described
in the proviso to the definition of "Guarantee"); and
(viii) all obligations of the type referred to in clauses (i)
through (vii) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such
Person), the amount of such obligation being deemed to be the lesser of
the value of such property or assets or the amount of the obligation so
secured.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Stock as if such
Disqualified Stock was purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is based
upon, or measured by, the fair market value of such Disqualified Stock, such
fair market value to be determined in good faith by the Board of Directors. For
purposes hereof, the amount of any Indebtedness issued with original issue
discount shall be the original purchase price plus accrued interest, provided,
however, that such accretion shall not be deemed an incurrence of Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Initial Notes" has the meaning provided in the preamble to this
Indenture.
"Initial Public Offering" means an underwritten primary or combined
primary and secondary public offering of common stock of the Company or Holdco,
pursuant to an effective registration statement under the Securities Act.
"Initial Purchasers" means Credit Suisse First Boston (Europe)
Limited and one or more of its affiliates (the "CSFBC Buyers"), DLJ Merchant
Banking Partners II, L.P. and one or more of its affiliates (the "DLJMB Buyers")
and Chase Equity Associates L.P. and one or more of its affiliates or other
third parties that the CSFBC Buyers and the DLJMB Buyers
13
<PAGE>
consent to.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Notes.
"Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.
"Investment" in any Person means any direct or indirect advance,
loan (other than advances to customers in the ordinary course of business that
are recorded as accounts receivable on the balance sheet of the Person making
the advance or loan, in each case in accordance with GAAP) or other extensions
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person and shall include the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary. For purposes of the
definition of "Unrestricted Subsidiary," the definition of "Restricted Payment"
and Section 4.10, (i) "Investment" shall include the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such Subsidiary
is designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent investment in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in
such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation, and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.
The Company and any Restricted Subsidiary shall be deemed to have made an
Investment in a Person that is or was required to be a Subsidiary Guarantor if,
upon the issuance, sale or other disposition of any portion of the Company's or
such Restricted Subsidiary's ownership in the Capital Stock of such Person, such
Person ceases to be a Subsidiary Guarantor. For purposes of the immediately
preceding sentence, the amount of the Investment by the Company or such
Restricted Subsidiary shall be the portion (proportionate to the Company's or
such Restricted Subsidiary's equity interest in such Person after the issuance,
sale or disposition) of the fair market value of such Person at the time of the
issuance, sale or disposition, as determined by the issue, sale or other
disposition price of the Capital Stock with respect to which the measurement of
the Investment is required.
"issue" means issue, assume, Guarantee, Incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person merges with the Company or becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be issued by the Company such Subsidiary at the time it merges with
the Company or becomes a Subsidiary; and the term "issuance" has a corresponding
meaning.
14
<PAGE>
"Issue Date" means the date of original issuance of the Notes.
"Joint Ventures" means joint ventures entered into by the Company or
any of its Subsidiaries for the primary purpose of operating a Related Business
where such joint venture is not a Subsidiary.
"Legal Defeasance Option" has the meaning provided in Section 8.01.
"Legal Holiday" has the meaning provided in Section 13.07.
"Lien" means any mortgage, pledge, security interest, privilege,
conditional sale or other title retention agreement or other similar lien
(statutory or otherwise), or encumbrance upon or with respect to any property of
any kind, real or personal, moveable or immovable, now owned or hereafter
acquired.
"Maturity Date" means October 31, 2008.
"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received, but excluding any other consideration received in the form of
assumption by the acquiring Person of Indebtedness or other obligations relating
to such properties or assets or received in any other non-cash form) therefrom,
in each case net of (i) all legal, title and recording tax expenses, commissions
and other fees and expenses Incurred, and all Federal, state, provincial,
foreign and local taxes required to be paid or accrued as a liability under
GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any
Indebtedness which (A) is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any lien upon or other security
agreement of any kind with respect to such assets, or (B) must by its terms, or
in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) reasonable amounts provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the property or other assets
disposed of in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Disposition. Further, with respect to an
Asset Disposition by a Subsidiary which is not a Wholly Owned Subsidiary, Net
Available Cash shall be reduced pro rata for the portion of the equity of such
Subsidiary which is not owned by the Company.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
Stock or any Capital Contribution, means the cash proceeds of such issuance,
sale or Capital Contribution plus, in the case of an issuance of Capital Stock
upon any exercise, exchange or conversion of securities (including options,
warrants, rights and convertible or exchangeable
15
<PAGE>
debt), of the Company that were issued for cash on or after the Issue Date, the
amount of cash originally received by the Company upon the issuance of such
securities (including options, warrants, rights and convertible or exchangeable
debt), net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred or required to be Incurred in connection with
such issuance, sale or Capital Contribution and also net of taxes paid or
payable as a result thereof.
"Notes" means the Initial Notes, the Private Exchange Notes and the
Exchange Notes treated as a single class of securities, as amended or
supplemented from time to time in accordance with the terms hereof, that are
issued pursuant to this Indenture.
"Obligations" means with respect to any Indebtedness, all
obligations for principal, premium, interest (including, without limitation,
interest after the commencement of any bankruptcy, reorganization, insolvency or
similar proceeding against the Company or any of its Subsidiaries, whether or
not allowed in any such proceeding), penalties, fees, indemnifications,
reimbursements, and other amounts payable pursuant to the documentation
governing such Indebtedness.
"Offer" has the meaning provided in Section 4.17.
"Offer Amount" has the meaning provided in Section 4.17.
"Offer Period" has the meaning provided in Section 4.17.
"Offering Circular" means the Offering Circular dated October 15,
1998, pursuant to which the Notes were offered, and any supplement thereto.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, the Treasurer, or the Secretary of such
Person, or any other officer designated by the Board of Directors serving in a
similar capacity.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and an Assistant Treasurer
or an Assistant Secretary of such Person and otherwise complying with the
requirements of Sections 13.04 and 13.05, to the extent they relate to the
making of an Officers' Certificate.
"Opinion of Counsel" means a written opinion from legal counsel, who
may be counsel for the Company, and who is reasonably acceptable to the Trustee,
but who is not an employee of the Company or any of its Affiliates or
Subsidiaries, complying with the requirements of Sections 13.04 and 13.05, as
they relate to the giving of an Opinion of Counsel.
"Paying Agent" has the meaning provided in Section 2.03.
16
<PAGE>
"Payment Blockage Period" has the meanings provided in Sections
10.02 and 12.02.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, a Subsidiary Guarantor or a Person
that shall, upon the making of such Investment, become a Subsidiary Guarantor;
provided, however, that the primary business of such Restricted Subsidiary is a
Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Subsidiary Guarantor;
provided, however, that such Person's primary business is a Related Business;
(iii) Investments in Cash Equivalents; (iv) receivables owing to the Company or
any Restricted Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(v) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vi) stock, obligations or securities received in settlement of debts created in
the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (vii) Investments in connection with
pledges, deposits, payments or performance bonds made or given in the ordinary
course of business in connection with or to secure statutory, regulatory or
similar obligations, including obligations under health, safety or environmental
obligations; (vii) any Person to the extent such Investment represents the
non-cash portion of the consideration received for an Asset Disposition as
permitted in Section 4.17; (ix) Joint Ventures and other Persons that are not
Subsidiary Guarantors that do not exceed an aggregate of $20.0 million at any
time outstanding under and pursuant to this clause (x) without giving effect to
changes in the value of such Investment occurring after the date of such
Investment, but giving effect (by increasing such amount) to all liquidation
distributions or other returns of capital received in respect of such Investment
in cash or Cash Equivalents; and (xi) ESP Financing LLC or such other Joint
Venture, in each case which entity is primarily engaged in the financing of
purchases of the Company's or its Subsidiaries' equipment by independent third
parties, that do not exceed $3.0 million at any time outstanding under and
pursuant to this clause (xi) without giving effect to changes in the value of
such Investment occurring after the date of such Investment, but giving effect
(by increasing such amount) to all liquidation distributions or other returns of
capital received in respect of such Investment in cash or Cash Equivalents; (xi)
loans permitted by the provisions of clause (b)(x) of Section 4.12; and (xii)
100% of the issued and outstanding Capital stock of Transervice; provided, that
(a) the aggregate purchase price of such Capital Stock shall not exceed $18.0
million and (b) no Indebtedness shall be assumed by the Company or any of its
Subsidiaries in connection therewith and any Indebtedness of Transervice, if not
paid in full, shall be non-recourse to the Company and any Subsidiary of the
Company other than Transervice or any of their respective assets.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security
17
<PAGE>
for contested taxes or import duties or for the payment of rent, in each case
Incurred in the ordinary course of business; (b) Liens imposed by law, including
carriers', warehousemen's and mechanics' Liens, in each case for sums not yet
due or being contested in good faith by appropriate proceedings; or other Liens
arising out of judgments or awards against such Person with respect to which
such Person shall then be proceeding with an appeal or other proceedings for
review; (c) Liens for taxes, assessments or other governmental charges not yet
subject to penalties for non-payment or which are being contested in good faith
by appropriate proceedings provided appropriate reserves have been taken on the
books of the Company; (d) Liens to secure the performance of statutory
obligations or in favor of issuers of surety bonds, performance bonds, appeal
bonds or letters of credit or other obligations of a like nature issued pursuant
to the request of and for the account of such Person in the ordinary course of
its business; provided, however, that such letters of credit do not constitute
Indebtedness; (e) Liens securing a Hedging Obligation so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing the Hedging Obligation; (f) Liens for the purpose
of securing the payment (or the refinancing of the payment) of all or a part of
any Purchase Money Indebtedness or Capital Lease Obligations relating to assets
or property acquired, constructed or leased in the ordinary course of business
provided that (x) the aggregate principal amount of Indebtedness secured by such
Liens shall not exceed the cost of the assets or property so acquired or
constructed and (y) such Liens shall not encumber any other assets or property
of the Company or any Restricted Subsidiary other than such Assets or property
and assets affixed or appurtenant thereto; (g) Liens arising from precautionary
Uniform Commercial Code financing statement filings regarding operating leases
entered into by the Company and its Subsidiaries in the ordinary course of
business; (h) Liens in favor of the Company and/or any of its Restricted
Subsidiaries, other than such a Lien with respect to intercompany indebtedness
if the Company or a Subsidiary Guarantor is not the beneficiary of such a Lien;
(i) Liens existing on the date of the Indenture; (j) encumbrances consisting of
zoning restrictions, surety exceptions, utility easements, licenses, rights of
way, easements of ingress or egress over property of the Company or any
Restricted Subsidiary, rights or restrictions of record on the use of real
property, minor defects in title, landlords' and lessors' liens under leases on
property located on the rented premises, in each case not interfering in any
material respect with the ordinary conduct of the business of the Company and
the Restricted Subsidiaries; and (k) any extension, renewal, refinancing,
refunding or replacement of any Permitted Lien, provided that such new Lien is
limited to the property or assets that secured (or under the arrangement under
which the original Permitted Lien, could secure) the obligations to which such
Liens relate.
"Permitted Testing Center Assets" means vehicles emission test site
equipment and the related test site or sites located in the United States of
America (or, solely with respect to Restricted Subsidiaries domiciled outside of
the United States, in any foreign jurisdiction) used or to be used by the
Company or any of its Subsidiaries in connection with a centralized emission
testing program pursuant to a contract with a governmental authority.
"Person" means any individual, corporation, limited liability
company, limited or general partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
18
<PAGE>
"Preferred Stock", as applied to the Capital Stock of any Person,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such Person,
over shares of Capital Stock of any other class of such Person.
"Principal" of any Indebtedness (including the Notes) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Exchange Notes" has the meaning provided in the preamble to
this Indenture.
"Pro Forma" means, with respect to any calculation made or required
to be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act, as determined by the
Board of Directors of the Company.
"Public Debt" means any Indebtedness represented by debt securities
issued by the Company or any Restricted Subsidiary in connection with a public
offering or a sale exempt from registration under the Securities Act (provided
such debt securities are intended to be distributed by a resale pursuant to Rule
144A, Regulation S or otherwise under the Securities Act or sold on an agency
basis by a broker-dealer or one of its affiliates); it being understood that the
term "Public Debt" shall not include any commercial bank borrowings or similar
borrowings, any receivables financing, recourse transfers of financial assets,
capital leases or other types of borrowings Incurred in a manner not customarily
viewed as a "securities offering".
"Public Equity Offering" means an underwritten primary or combined
primary and secondary public offering of Capital Stock (other than Disqualified
Stock) of the Company or Holdco, all or a portion of the net proceeds of which,
if issued by Holdco, are contributed to the Company as a Capital Contribution,
pursuant to an effective registration statement under the Securities Act.
"Purchase Date" has the meaning provided in Section 4.17.
"Purchase Money Indebtedness" means any Indebtedness of a Person to
any seller or other Person incurred to finance the acquisition (including in the
case of a Capital Lease Obligation, the lease) of any after acquired real or
personal tangible property which, in the reasonable good faith judgment of the
Board of Directors, is directly related to the Related Business of the Company
and which is incurred substantially concurrently with such acquisition and is
secured only by the assets so financed.
"Record Date" means each Record Date specified in the Notes, whether
or not a Legal Holiday.
"Redemption Date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Notes.
19
<PAGE>
"Redemption Price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Notes.
"Refinance" means, in respect of any Indebtedness, to extend,
refinance, renew, replace, defease or refund, or to issue other Indebtedness in
exchange or replacement for, such indebtedness. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Indebtedness of the Company or
any of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries; provided that: (a) the principal
amount of such Refinancing Indebtedness does not exceed (after deduction of
reasonable and customary fees and expenses incurred in connection with such
refinancing and the amount of any premium or prepayment penalty paid in
connection with such Refinancing to the extent in accordance with the terms of
the document governing such Indebtedness (except for any modification to any
such document made in connection with or in contemplation of such refinancing))
the lesser of (i) the principal amount of the Indebtedness so extended,
refinanced renewed, replaced, defeased or refunded; and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing, plus, in each case accrued interest on such Indebtedness being
Refinanced; (b) such Refinancing Indebtedness has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (c) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes
or the Subsidiary Guarantees, as the case may be, such Refinancing Indebtedness
has a final maturity date later than the final maturity date of the Notes and is
subordinated in right of payment to the Notes or the relevant Subsidiary
Guarantee on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; provided, however, that
Refinancing Indebtedness shall not include (1) Indebtedness of a Subsidiary that
is not a Subsidiary Guarantor that Refinances Indebtedness of the Company, (2)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary or (3) Indebtedness of the Company or
a Subsidiary Guarantor that Refinances Indebtedness of a Restricted Subsidiary
which is not a Subsidiary Guarantor.
"Registrar" has the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated October 16, 1998 among the Company, the Subsidiary Guarantors
and the Initial Purchasers for the benefit of themselves and the Holders, as the
same may be amended or modified from time to time in accordance with the terms
thereof.
"Regulation S" means Regulation S under the Securities Act.
"Related Business" means any business reasonably related, ancillary
or
20
<PAGE>
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means the indenture trustee or other trustee, agent
or representative in respect of any Designated Senior Indebtedness; provided
that if, and for so long as, any Designated Senior Indebtedness lacks such a
representative, then the Representative for such Designated Senior Indebtedness
shall at all times be the holders of a majority in outstanding principal amount
of such Designated Senior Indebtedness in respect of any Designated Senior
Indebtedness.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" has the meaning provided in Section 4.10.
"Restricted Subsidiary" means any Subsidiary of the Company that is
not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale/Leaseback Transaction" means an agreement relating to property
now owned or hereafter acquired whereby the Company or any Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person, other than leases required to be classified as
capitalized leases for financial reporting purposes in accordance with GAAP.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of a Person secured by
a Lien.
"Securities Act" means, the Securities Act of 1933, as amended, or
any successor statute or statutes thereto.
"Senior Discount Notes" means the 15% Senior Discount Notes due 2009
of Holdco issued pursuant to an Indenture, dated as of October 16, 1998, between
Holdco and United States Trust Company of New York, as trustee.
"Senior Indebtedness" means with respect to the Company or any
Subsidiary Guarantor (x) Bank Indebtedness and (y) all other Indebtedness (and
interest thereon (including, but not limited to, interest accruing pursuant to
the terms of such Indebtedness on or after the filing of any petition in any
bankruptcy, reorganization or similar proceeding relating to the Company or such
Subsidiary Guarantor, whether or not a claim for such is allowed in such
proceeding)), whether outstanding on the Issue Date or thereafter, unless, by
the terms of the instrument creating or evidencing such Indebtedness, such
Indebtedness is made not senior in right of payment to the Notes or the
applicable Subsidiary Guarantee, other than (1) any obligation of such Person to
any subsidiary of such Person or to any officer, director or employee of such
Person or any such subsidiary, (2) any liability of such Person
21
<PAGE>
for federal, state, local or other taxes owed or owing by such Person, (3) any
accounts payable or other liability of such Person to trade creditors arising in
the ordinary course of business (including Guarantees thereof or instruments
evidencing such liabilities), (4) any Indebtedness, Guarantee or obligation of
such Person which is, expressly by its terms, subordinate or junior in any
respect to any other Indebtedness, Guarantee or obligation of such Person, (5)
that portion of any Indebtedness of such Person which at the time of issuance is
issued in violation of the Indenture, (6) Indebtedness of such Person
represented by Disqualified Stock or Preferred Stock or (7) Capitalized Lease
Obligations.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company which ranks pari passu with the Notes in right of
payment and is not subordinated by its terms in right of payment to any
Indebtedness or other obligation of the Company which is not Senior
Indebtedness.
"Significant Subsidiary" means any Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"SPC" means any special purpose Restricted Subsidiary of the Company
(i) created for the purpose of incurring, directly or indirectly, Indebtedness
permitted under paragraph (b)(xi) of Section 4.13, (ii) whose Indebtedness and
other obligations are without recourse to the Company or any of its other
Subsidiaries or any of their respective assets and (iii) that does not and shall
not at any time, (a) engage in any business or activity other than operating,
owning and/or financing the acquisition or build-out of Permitted Testing Center
Assets and any activities incidental thereto or (b) Incur any Indebtedness other
than the Indebtedness described in clause (i) above.
"Stated Maturity" means, with respect to any security, the final
date specified in such security as the fixed date on which all outstanding
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or
any Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the Notes or the
relevant Subsidiary Guarantee, as applicable, pursuant to the terms thereof or
any written agreement to that effect.
"Subsidiary" means (a) any corporation, association, partnership,
limited liability company or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) the Company,
(ii) the Company and one or more Subsidiaries or (iii) one or more Subsidiaries
or (b) any limited partnership of which the Company or any Subsidiary is a
general partner, or (c) any other Person (other than a corporation or limited
partnership) in which the Company, or one or
22
<PAGE>
more other Subsidiaries or the Company and one or more other Subsidiaries,
directly or indirectly, has more than 50% of the outstanding partnership or
similar interests or has the power, by contract or otherwise, to direct or cause
the direction of the policies, management and affairs thereof. Unless the
context otherwise requires, Subsidiary means each direct and indirect Subsidiary
of the Company. Unrestricted Subsidiaries shall not be included in the
definition of Subsidiary for any purposes of this Indenture, except, as the
context may otherwise require, for purposes of the definitions of "Significant
Subsidiary" and "Unrestricted Subsidiary" and Section 4.20.
"Subsidiary Guarantee" means a Guarantee by a Subsidiary Guarantor
of the Company's Obligations with respect to the Notes.
"Subsidiary Guarantor" means any Subsidiary of the Company that
Guarantees the Company's Obligations with respect to the Notes.
"TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C.
Sections 77aaa-77bbbb), as in effect on the date of this Indenture.
"Transervice" means Transervice Limited, all of the Capital Stock of
which will be owned by the Company or a Restricted Subsidiary, conducting
emissions testing activities in the United Kingdom.
"Trust Officer" means any authorized officer of the Trustee assigned
by the Trustee to administer this Indenture, or in the case of a successor
trustee, an authorized officer assigned to the department, division or group
performing the corporation trust work of such successor and assigned to
administer this Indenture.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company (other
than a Subsidiary Guarantor) designated as such pursuant to and in compliance
with Section 4.21. Any such designation may be revoked by a resolution of the
Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"U.S. Government Obligations" means direct obligations (or
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Voting Stock" of a Person means Capital Stock of such Person of the
class or
23
<PAGE>
classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each of the remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twentieth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such Shares are required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary, which shares
in each such case shall not exceed more than 5% of the Capital Stock of such
Restricted Subsidiary) is owned by the Company or one or more Wholly Owned
Subsidiaries.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Holder or a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
24
<PAGE>
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP as in effect on the date hereof;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision; and
(6) reference to Sections or Articles means reference to such
Section or Article in this Indenture, unless stated otherwise.
SECTION 1.04. One Class of Securities.
The Initial Notes, the Private Exchange Notes and the Exchange Notes
shall be considered one class of securities and the Initial Notes, the Private
Exchange Notes and the Exchange Notes shall vote and consent together on all
matters as one class.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.
(a) Provisions relating to the Initial Notes, the Private Exchange
Notes and the Exchange Notes are set forth in the Rule 144A/Regulation S
Appendix attached hereto (the "Appendix"), which is hereby incorporated in and
expressly made a part of this Indenture. The Initial Notes and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit A
hereto. The Exchange Notes, the Private Exchange Notes and the Trustee's
certificate of authentication shall be substantially in the form of Exhibit B
hereto. The Notes may have notations, legends or endorsements as required by
law, stock exchange rule, agreements to which the Company is subject, if any, or
depository rule or usage. The Company and the Trustee shall approve the forms of
the Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its issuance and shall show the date of its authentication.
The Initial Notes are being offered and sold by the Company pursuant
to a Subscription Agreement, dated October 15, 1998 between the Company, the
Subsidiary Guarantors and the Initial Purchasers named therein.
(b) The terms and provisions contained in the Appendix and in the
forms of
25
<PAGE>
the Notes, annexed hereto as Exhibits A and B, shall constitute, and are hereby
expressly made, a part of this Indenture and, to the extent applicable, the
Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
SECTION 2.02. Execution and Authentication; Aggregate Principal
Amount.
Two Officers shall sign, or one Officer shall sign and one Officer
or an Assistant Secretary (each of whom shall, in each case, have been duly
authorized by all requisite corporate actions) shall attest to, the Notes for
the Company by manual or facsimile signature. The Company's seal shall also be
reproduced on the Notes.
If an Officer or Assistant Secretary whose signature is on a Note
was an Officer or Assistant Secretary at the time of such execution but no
longer holds that office or position at the time the Trustee authenticates the
Note, the Note shall nevertheless be valid.
The Trustee shall authenticate (i) Initial Notes for original issue
in the aggregate principal amount not to exceed $100,000,000 and (ii) Exchange
Notes and Private Exchange Notes from time to time for issue only in exchange
for a like principal amount of Initial Notes in each case upon a written order
of the Company in the form of an Officers' Certificate. The Officers'
Certificate shall specify the amount of Notes to be authenticated, whether the
Notes are to be Initial Notes, Exchange Notes or Private Exchange Notes and
whether the Notes are to be issued as certificated Securities or Global
Securities, or such other information as the Trustee may reasonably request. The
aggregate principal amount of Notes outstanding at any time may not exceed
$100,000,000, except as provided in Sections 2.07 and 2.08 hereof. Capitalized
terms used in this paragraph that are not otherwise defined in this Indenture
shall have the meanings ascribed to them in the Appendix.
A Note shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Note. The
signature shall be conclusive evidence that the Note has been authenticated
under this Indenture.
The Trustee may appoint an authenticating agent (the "Authenticating
Agent") reasonably acceptable to the Company to authenticate Notes. Unless
otherwise provided in the appointment, an Authenticating Agent may authenticate
Notes whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such Authenticating
Agent. An Authenticating Agent has the same rights as an Agent to deal with the
Company and Affiliates of the Company.
The Notes shall be issuable in fully registered form only, without
coupons, in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain or designate an office or agency (which
shall be
26
<PAGE>
located in the Borough of Manhattan in the City of New York, State of New York
and which may be the office of the Trustee) where (a) Notes may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Notes may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Notes and this
Indenture may be served. The Registrar shall keep a register of the Notes and of
their transfer and exchange. The Company may have one or more co-Registrars and
one or more additional paying agents. The term "Paying Agent" includes any
additional Paying Agent. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar, except that for purposes of Articles Three and Eight
and Sections 4.16 and 4.17, neither the Company nor any of its Subsidiaries or
Affiliates shall act as Paying Agent. The Company may change any Paying Agent or
Registrar without notice to any Holder.
The Paying Agent shall comply with all withholding tax, information
reporting and backup withholding tax requirements under the Code and the
Treasury Regulations issued thereunder in respect of any payment on, or in
respect of, a Note (including, without limitation, the collection of Internal
Revenue Service ("IRS") forms 1001, 4224, W-8 or W-9 (or any successor form), as
the case may be, and the filing of IRS Forms 1042 and 1042-S with respect
thereto).
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee of the name and address of
any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or
fails to give the foregoing notice, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar, Paying
Agent and agent for service of demands and notices in connection with the Notes,
until such time as the Trustee has resigned or a successor has been appointed.
The Paying Agent or Registrar may resign upon 30 days notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of the Holders or the Trustee all assets held by the Paying Agent for the
payment of principal of, or interest on, the Notes (whether such assets have
been distributed to it by the Company or any other obligor on the Notes), and
the Company and the Paying Agent shall notify the Trustee of any Default by the
Company (or any other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to distribute all assets held by
it to the Trustee and account for any assets disbursed and the Trustee may, and
upon direction of a majority of the Holders shall, at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee and
to account for any assets distributed. Upon distribution to the Trustee of all
assets that shall have been delivered by the Company or any other obligor on the
Notes to the Paying Agent, the Paying Agent shall have no further liability for
such assets.
27
<PAGE>
SECTION 2.05. Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses
of the Holders, and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish or cause the
Registrar to furnish to the Trustee before each Record Date and at such other
times as the Trustee may request in writing a list as of such date and in
such form as the Trustee may reasonably require of the names and addresses of
the Holders, which list may be conclusively relied upon by the Trustee and
the Company shall otherwise comply with TIA Section 312(a).
SECTION 2.06. [Intentionally Omitted]
SECTION 2.07. Replacement Notes.
If a mutilated Note is surrendered to the Trustee or if the Holder
of a Note claims that the Note has been lost, destroyed or wrongfully taken,
subject to the terms of the next succeeding sentence, the Company shall issue
and the Trustee shall authenticate a replacement Note if the Trustee's
reasonable requirements for replacement Notes are met. If required by the
Trustee or the Company, such Holder must provide an affidavit of lost
certificate and an indemnity bond or other indemnity, sufficient in the judgment
of both the Company and the Trustee, to protect the Company, the Trustee, any
Agent or any Authenticating Agent from any loss which any of them may suffer if
a Note is replaced. The Company and the Trustee may charge such Holder for their
out-of-pocket expenses in replacing a Note, including reasonable fees and
expenses of counsel, and for any tax that may be imposed in replacing such
Notes. Every replacement Note shall constitute an additional obligation of the
Company.
SECTION 2.08. Outstanding Notes.
Notes outstanding at any time are all the Notes that have been
authenticated by the Trustee except those cancelled by it, those delivered to it
for cancellation and those described in this Section as not outstanding. Subject
to the provisions of Section 2.09, a Note does not cease to be outstanding
because the Company or any of its Affiliates holds the Note.
If a Note is replaced pursuant to Section 2.07 (other than a
mutilated Note surrendered for replacement), it ceases to be outstanding unless
the Trustee receives proof satisfactory to it that the replaced Note is held by
a bona fide purchaser. A mutilated Note ceases to be outstanding upon surrender
of such Note and replacement thereof pursuant to Section 2.07.
Except as otherwise provided in Article Eight of this Indenture, if
on a Redemption Date or the Maturity Date the Paying Agent holds U.S. Legal
Tender or U.S. Government Obligations sufficient to pay all of the principal and
interest due on the Notes payable on that date and is not prohibited from paying
such money to the Holders thereof pursuant to the terms of this Indenture, then
on and after that date such Notes cease to be
28
<PAGE>
outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver, consent or notice, Notes owned
by the Company or any of its Affiliates shall be considered as though they are
not outstanding, except that for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver, consent or notice,
only Notes which a Trust Officer of the Trustee actually knows are so owned
shall be so considered.
SECTION 2.10. Temporary Notes.
Until definitive Notes are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Notes upon receipt of a
written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Notes to be
authenticated and the date on which the temporary Notes are to be authenticated.
Temporary Notes shall be substantially in the form of definitive Notes but may
have variations that the Company considers appropriate for temporary Notes.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate upon receipt of a written order of the Company pursuant to Section
2.02 definitive Notes in exchange for, and upon surrender of, temporary Notes.
Until so exchanged, the temporary Notes shall in all respects be entitled to the
same benefits under this Indenture as definitive Notes authenticated and
delivered hereunder.
SECTION 2.11. Cancellation.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, exchange or payment. The Trustee, or
at the direction of the Trustee, the Registrar or the Paying Agent, and no one
else, shall cancel and, at the written direction of the Company, shall dispose
of all Notes surrendered for transfer, exchange, payment or cancellation.
Subject to Section 2.07, the Company may not issue new Notes to replace Notes
that it has paid or delivered to the Trustee for cancellation. If the Company
shall acquire any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Notes unless
and until the same are surrendered to the Trustee for cancellation pursuant to
this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Notes
(without regard to any grace period therefor), it shall pay the defaulted
interest, plus (to the extent lawful) any interest payable on the defaulted
interest to the Persons who are Holders on a subsequent special record date,
which date shall be the fifteenth day preceding the date fixed by the Company
for the payment of defaulted interest or the next succeeding Business Day if
such date is not a Business Day. At least 15 days before the subsequent special
record date, the
29
<PAGE>
Company shall mail to each Holder, as of a recent date selected by the Company,
with a copy to the Trustee, a notice that states the subsequent special record
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Notes may use "CUSIP" numbers, and if so,
the Trustee shall use such CUSIP numbers in notices of redemption or exchange as
a convenience to Holders; provided that no representation is hereby deemed to be
made by the Trustee as to the correctness or accuracy of such CUSIP numbers
printed in the notice or on the Notes, and that reliance may be placed only on
the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in a CUSIP number.
SECTION 2.14. Deposit of Moneys.
Prior to 9:00 a.m. New York City time on each Interest Payment Date
and on the Maturity Date, the Company shall deposit with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Interest Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Notes pursuant to Section 3.07 of
this Indenture and Paragraph 6 of the Notes, it shall notify the Trustee and the
Paying Agent in writing of the Redemption Date and the principal amount of the
Notes to be redeemed.
The Company shall give each notice provided for in this Section 3.01
at least 60 days before the Redemption Date (unless a shorter notice period
shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf
of the Trustee), together with an Officers' Certificate stating that such
redemption shall comply with the conditions contained herein and in the Notes.
SECTION 3.02. Selection of Notes To Be Redeemed.
If fewer than all of the Notes are to be redeemed, selection of the
Notes to be redeemed shall be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not then listed on a national securities
exchange by the Trustee, on a pro rata basis, by lot or in such other fair and
reasonable manner chosen at the discretion of the Trustee; provided, however,
30
<PAGE>
that if a partial redemption is made with the proceeds of a Public Equity
Offering, selection of the Notes or portion thereof for redemption shall be made
by the Trustee only on a pro rata basis, unless such method is otherwise
prohibited. The Company shall promptly notify the Trustee and the Paying Agent
in writing of the date of listing and the name of the securities exchange if and
when the Notes are listed on a principal national securities exchange. The
Trustee shall make the selection from the Notes outstanding and not previously
called for redemption and shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes in denominations
of $1,000 may be redeemed only in whole. The Trustee may select for redemption
portions (equal to $1,000 or any integral multiple thereof) of the principal of
Notes that have denominations larger than $1,000. Provisions of this Indenture
that apply to Notes called for redemption also apply to portions of Notes called
for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail or cause to be mailed a notice of redemption by first
class mail, postage prepaid, to each Holder whose Notes are to be redeemed, with
a copy to the Trustee and any Paying Agent. At the Company's written request no
less than 35 days prior to the Redemption Date (or such shorter period as may be
acceptable to the Trustee), the Trustee shall mail or cause to be mailed the
notice of redemption in the Company's name and at the Company's expense.
Each notice for redemption shall identify the Notes to be redeemed
and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if any,
to be paid;
(3) the name and address of the Paying Agent;
(4) the subparagraph of the Notes pursuant to which such redemption
is being made;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price plus accrued interest, if
any;
(6) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the Redemption Date, and the only remaining right of the Holders of
such Notes is to receive payment of the Redemption Price plus accrued
interest, if any, upon surrender to the Paying Agent of the Notes
redeemed;
31
<PAGE>
(7) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
Redemption Date, and upon surrender of such Note, a new Note or Notes in
the aggregate principal amount equal to the unredeemed portion thereof
shall be issued; and
(8) if fewer than all the Notes are to be redeemed, the aggregate
principal amount of Notes to be redeemed and the aggregate principal
amount of Notes to be outstanding after such partial redemption and, if
the redemption is not made pro rata, the identification of the particular
Notes (or portion thereof) to be redeemed; and
(9) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Notes called for redemption become due and payable on the Redemption Date and at
the Redemption Price plus accrued interest, if any. Upon surrender to the
Trustee or Paying Agent, such Notes called for redemption shall be paid at the
Redemption Price and the amount of accrued interest payable thereon, provided
that if a Note is redeemed on or after a Record Date for an interest payment but
on or prior to the related Interest Payment Date, then any accrued and unpaid
interest shall be paid to the Holder of record at the close of business on such
Record Date. Failure to give notice or any defect in the notice to any Holder
shall not affect the validity of the notice to any other Holder.
Except in connection with a defeasance pursuant to Section 8.02 of
this Indenture, at any time prior to the mailing of a notice of redemption to
the Holders pursuant to Section 3.03, the Company may withdraw, revoke or
rescind any notice of redemption delivered to the Trustee without any continuing
obligation to redeem the Notes.
SECTION 3.05. Deposit of Redemption Price.
On or before 9:00 a.m. New York City time on the Redemption Date,
the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to
pay the Redemption Price plus accrued interest, if any, of all Notes to be
redeemed on that date (other than Notes or portions of Notes called for
redemption which have been delivered by the Company to the Trustee for
cancellation). The Paying Agent shall promptly return to the Company any U.S.
Legal Tender so deposited which is not required for that purpose, except with
respect to monies owed as obligations to the Trustee pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless
the Company defaults in the payment of such Redemption Price plus accrued
interest, if any, interest on the Notes to be redeemed shall cease to accrue on
and after the applicable Redemption Date, whether or not such Notes are
presented for payment.
SECTION 3.06. Notes Redeemed in Part.
32
<PAGE>
Upon surrender of a Note that is to be redeemed in part, the Company
shall execute and the Trustee shall authenticate for the Holder a new Note or
Notes equal in principal amount to the unredeemed portion of the Note
surrendered.
SECTION 3.07. Optional Redemption.
(a) Except as set forth in the clause (b) below, the Notes shall not
be redeemable at the option of the Company prior to October 31, 2003.
Thereafter, the Notes shall be redeemable, at the Company's option, in whole or
in part, at any time or from time to time, upon not less than 30 nor more than
60 days' prior notice mailed by first class mail to each Holder's registered
address at the following redemption prices (expressed in percentages of
principal amount), plus accrued and unpaid interest to the Redemption Date
(subject to the right of Holders of record on the relevant Record Date to
receive interest due on the relevant Interest Payment Date), if redeemed during
the 12-month period commencing on October 31 of the years set forth below:
<TABLE>
<CAPTION>
Redemption
Period Price
------ -----
<S> <C>
2003 ............................................... 106.500%
2004 ............................................... 104.333%
2005 ............................................... 102.167%
2006 and thereafter................................. 100.000%
</TABLE>
(b) In addition, at any time and from time to time prior to October
31, 2001, the Company may redeem in the aggregate up to 35% of the original
principal amount of the Notes with the Net Cash Proceeds of one or more Public
Equity Offerings, at a redemption price (expressed as a percentage of principal
amount) of 113% plus accrued interest to the Redemption Date (subject to the
right of Holders of record on the relevant Record Date to receive interest due
on the relevant Interest Payment Date); provided, however, that at least 65% of
the aggregate principal amount of the Notes originally outstanding must remain
outstanding after each such redemption.
In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes.
The Company shall pay or cause to be paid the principal of and
interest on the
33
<PAGE>
Notes on the dates and in the manner provided in the Notes and in this
Indenture. An installment of principal of or interest on the Notes shall be
considered paid on the date it is due if the Trustee or Paying Agent (other than
the Company or an Affiliate of the Company) holds on that date U.S. Legal Tender
designated for and sufficient to pay the installment in full and is not
prohibited from paying such money to the Holders pursuant to the terms of this
Indenture.
Notwithstanding anything to the contrary contained in this
Indenture, the Company or Paying Agent may, to the extent it is required to do
so by law, deduct or withhold income or other similar taxes imposed by the
United States of America from principal or interest payments hereunder.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain the office or agency required under
Section 2.03. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the address of the
Trustee set forth in Section 13.02.
SECTION 4.03. Corporate Existence.
Except as otherwise permitted by Article Five and Section 4.16, the
Company shall do or cause to be done, at its own cost and expense, all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate existence of each of its Restricted Subsidiaries in accordance
with the respective organizational documents of each of them (as the same may be
amended from time to time) and the material rights (charter and statutory) and
franchises of the Company and each such Restricted Subsidiary; provided,
however, that neither the Company nor any Restricted Subsidiary shall be
required to preserve any right or franchise if the Board of Directors of the
Company or the Restricted Subsidiary, as the case may be, shall reasonably
determine that the preservation thereof is no longer desirable in the conduct of
the business of such entity; provided further that no Restricted Subsidiary
shall be required to maintain its corporate existence if the Board of Directors
and the board of directors of such Restricted Subsidiary both reasonably
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries, taken as a whole,
and cessation of such corporate existence is not disadvantageous in any material
respect to the Holders.
SECTION 4.04. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all material taxes,
assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon it or any of
its Restricted Subsidiaries or properties of it or any of its Restricted
Subsidiaries (other than those taxes, assessments and governmental charges the
nonpayment of
34
<PAGE>
which would not have a material adverse effect upon the business, financial
condition or results of operations of the Company and its Restricted
Subsidiaries, taken as a whole) and (ii) all lawful claims for labor, materials
and supplies which are for an amount in excess of $1,000,000 and remain unpaid
for at least 90 days after the due date thereof and which if unpaid, might by
law become a Lien other than a Permitted Lien upon the property of it or any of
its Subsidiaries; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings properly instituted and diligently
conducted for which adequate reserves, to the extent required under and in
accordance with GAAP, have been taken.
SECTION 4.05. Maintenance of Properties and Insurance.
(a) The Company shall, and shall cause each of its Restricted
Subsidiaries to, maintain its material properties in good working order and
condition (subject to ordinary wear and tear) and make all necessary repairs,
renewals, replacements, additions, betterments and improvements thereto and
actively conduct and carry on its business; provided, however, that nothing in
this Section 4.05 shall prevent the Company or any of its Restricted
Subsidiaries from discontinuing the operation and maintenance of any of its
properties, if such discontinuance is, in the reasonable good faith judgment of
the Board of Directors of the Company or the Restricted Subsidiary, as the case
may be, desirable in the conduct of the business of the Company and its
Restricted Subsidiaries, taken as a whole, and is not disadvantageous in any
material respect to the Holders.
(b) The Company shall provide or cause to be provided, for itself
and each of its Restricted Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the good faith
judgment of the Board of Directors of the Company, are adequate and appropriate
for the conduct of the business of the Company and such Restricted Subsidiaries
in a prudent manner, with reputable insurers or with the government of the
United States of America or an agency or instrumentality thereof, in such
amounts, with such deductibles, and by such methods as shall be customary, in
the reasonable good faith judgment of the Board of Directors of the Company, for
companies similarly situated in the industry.
SECTION 4.06. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee, within 120 days after
the end of the Company's fiscal year, an Officers' Certificate stating that a
review of its activities and the activities of its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers, one of whom must be the Company's chief executive or chief financial
officer with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture and further
stating, as to each such Officer signing such certificate, that to the best of
such Officer's knowledge, based on such review, the Company during such
preceding fiscal year has kept, observed, performed and fulfilled each and every
such covenant contained in this Indenture and no Default or Event of Default
occurred during such year and at the date of such certificate there is no
Default or
35
<PAGE>
Event of Default that has occurred and is continuing or, if such signers do know
of such Default or Event of Default, the certificate shall describe the Default
or Event of Default and its status with particularity. The Officers' Certificate
shall also notify the Trustee should the Company elect to change the manner in
which it fixes its fiscal year end.
(b) So long as not contrary to the then-current recommendations of
the American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.08 shall be accompanied by a written
report of the Company's independent accountants (who shall be a firm of
established national reputation) that in conducting their audit of such
financial statements nothing has come to their attention that would lead them to
believe that the Company has violated any provisions of Article Four or Five of
this Indenture or, if any such violation has occurred, specifying the nature and
period of existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation.
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Notes, the Company
shall deliver to the Trustee, at its address set forth in Section 13.02 hereof,
by registered or certified mail or by telegram, telex or facsimile transmission
followed by hard copy by registered or certified mail an Officers' Certificate
specifying such event, notice or other action within five Business Days' of its
becoming aware of such occurrence.
SECTION 4.07. Compliance with Laws.
The Company shall comply, and shall cause each of its Restricted
Subsidiaries to comply, with all applicable statutes, rules, regulations, orders
and restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as are not in the aggregate
reasonably likely to have a material adverse effect on the financial condition
or results of operations of the Company and its Restricted Subsidiaries, taken
as a whole.
SECTION 4.08. SEC Reports.
(a) So long as the Notes are outstanding, whether or not required by
the rules and regulations of the SEC, beginning with the year ended December 31,
1998, the Company (at its own expense) shall furnish to the Trustee and all
Holders of Notes (i) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, as
applicable, if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the SEC on Form 8-K if the Company were
required to file such reports, in each case within the time periods specified in
the SEC's rules and regulations;
36
<PAGE>
provided that the foregoing shall not require the Company to furnish separate
financial results of its Subsidiaries. The Company shall make such information
available to securities analysts and prospective investors upon request, and,
for so long as any Notes remain outstanding, shall furnish to the Trustee,
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
(b) The Company shall provide to any Holder any information
reasonably requested by such Holder concerning the Company (including financial
statements) necessary in order to permit such Holder to sell or transfer Notes
in compliance with Rule 144A under the Securities Act.
SECTION 4.09. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it shall not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Notes as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not hinder, delay or
impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law had
been enacted.
SECTION 4.10. Limitation on Restricted Payments.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any dividend or make
any distribution on or in respect of, or to the direct or indirect holders, of
the Capital Stock of Holdco, the Company, any Restricted Subsidiary or any other
Affiliate of the Company in their capacities as such (except dividends or
distributions payable solely in its respective Capital Stock (other than
Disqualified Stock, or except in the case of the Company, Preferred Stock) or in
options, warrants or other rights to purchase its respective Capital Stock
(other than Disqualified Stock, or except in the case of the Company, Preferred
Stock) and except dividends or distributions payable to the Company or a
Restricted Subsidiary, (ii) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of Holdco, the Company, any Restricted Subsidiary or any
other Affiliate of the Company to the extent such Capital Stock is held by
Persons other than the Company or any Wholly Owned Subsidiary that is a
Subsidiary Guarantor, (iii) purchase, repurchase, redeem, defease or otherwise
acquire or retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment, any Subordinated Obligations or (iv) make any
Restricted Investment (any such dividend, distribution, purchase, redemption,
repurchase, defeasance, other acquisition, retirement or Investment being herein
referred to as a "Restricted Payment"), if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have
occurred and be continuing (or would result therefrom); or (2) the Company would
not be permitted to
37
<PAGE>
Incur an additional $1.00 of Indebtedness pursuant to clause (a) of Section 4.13
after giving pro forma effect to such Restricted Payment; or (3) the aggregate
amount of such Restricted Payment (other than Restricted Payments made on or
about the Issue Date in connection with the acquisition by the Company of
Envirotest Systems Corp. and the transactions related thereto) and all other
Restricted Payments since the beginning of the fiscal quarter during which the
Notes were originally issued would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued during the period (treated as one accounting
period) from the beginning of the fiscal quarter during which the Notes were
originally issued to the end of the most recent fiscal quarter for which
financial statements are available (or, in case such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) and (B) the aggregate Net Cash
Proceeds received by the Company from the issue or sale of its Capital Stock
(other than Disqualified Stock) or from Capital Contributions subsequent to the
Issue Date (other than an issuance or sale (q) to a Restricted Subsidiary to an
employee stock ownership plan or similar trust for the benefit of employees or
(r) with respect to which the purchase price thereof is financed directly or
indirectly using funds (x) borrowed from the Company or a Restricted Subsidiary
unless and until such borrowing is repaid in full or (y) contributed, extended,
Guaranteed or advanced by the Company or a Restricted Subsidiary) to the extent
such proceeds or Capital Contributions are not used to redeem, repurchase,
retire, defease or otherwise acquire Capital Stock or any Indebtedness of the
Company or such Restricted Subsidiary.
(b) The provisions of clauses (a)(2) and (3) of this Section 4.10
shall not prohibit the following Restricted Payments: (1) any purchase or
redemption of Capital Stock of the Company or any Restricted Subsidiary or
Subordinated Obligations of the Company or any Subsidiary Guarantor made by
exchange for, or out of the proceeds of the substantially concurrent sale or
issuance of, Capital Stock of the Company (other than Disqualified Stock and
other than Capital Stock issued or sold to a Subsidiary or an employee stock
ownership plan or similar trust for the benefit of employees); provided,
however, that the Net Cash Proceeds from such sale and such purchases shall be
excluded from the calculation in clause (a)(3) of this Section 4.10; (2)
dividends paid within 60 days after the date of declaration if at such date of
declaration such dividend would have complied with the provisions of this
Indenture; provided, however, that such dividend shall be deducted in the
calculation of the amount of Restricted Payments available to be made referred
to in clause (a)(3) of this Section 4.10; (3) dividends and distributions made
by a Restricted Subsidiary to stockholders other than the Company or another
Restricted Subsidiary on no more than a pro rata basis, measured by value; (4)
any purchase or redemption of Subordinated Obligations of the Company or any
Subsidiary Guarantor made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Refinancing Indebtedness of the Company or any
Subsidiary Guarantor that is permitted to be incurred pursuant to clause (b) of
Section 4.13; (5) the repurchase of shares of, or options to purchase shares of,
Capital Stock of Holdco or the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of Holdco or the
Company or any of their respective Subsidiaries (or permitted transferees of
such employees, former employees, directors or former directors), pursuant to
the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the board of directors of Holdco or Board of
Directors, as the case may be, under which such individuals purchase or sell or
are granted the option to purchase or sell,
38
<PAGE>
shares of such Capital Stock; provided, however, that the aggregate amount of
such repurchases shall not exceed $1.5 million per year or $5.0 million in the
aggregate on or after the Issue Date; provided, further, that such repurchases
shall be deducted in the calculation of the amount of Restricted Payments
available to be made referred to in clause (a)(3) of this Section 4.10; (6)
payments to Holdco (x) in an amount sufficient to enable Holdco to pay necessary
operating expenses and other reasonable administrative expenses and (y) to
enable Holdco to pay foreign, federal, state or local tax liabilities, not to
exceed the amount of any tax liabilities that would otherwise be payable by the
Company and its Subsidiaries to the appropriate taxing authorities if they filed
separate tax returns to the extent that Holdco has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company and its
Subsidiaries, provided that any such payment shall either be used by Holdco to
pay such tax liabilities within 30 days of receipt of such payment or refunded
to the payee; provided, further, that such payments shall be excluded from the
calculation of the amount of Restricted Payments available to be made referred
to in clause (a)(3) of this Section 4.10; and (7) payments to Holdco (i) to
enable Holdco to make purchases of Senior Discount Notes with the Net Cash
Proceeds of an Asset Disposition required to be made pursuant to the indenture
governing the Senior Discount Notes and permitted under Section 4.17 or (ii)
from and after April 30, 2004, to enable Holdco to make required interest
payments on the Senior Discount Notes; provided, in each case that at the time
and immediately following such payment, no Default or Event of Default shall
have occurred and be continuing; provided, further, that such payments shall be
deducted in the calculation of the amount of Restricted Payments available to be
made referred to in clause (a)(3) of this Section 4.10.
SECTION 4.11. Limitation on Restrictions on Distributions from
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions on its Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits to the Company or a Restricted Subsidiary or pay any Indebtedness or
other obligation owed to the Company or a Restricted Subsidiary, (ii) make any
loans or advances to the Company or any other Restricted Subsidiary or (iii)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (a) (x) this Indenture, the Credit Facility or the indenture governing
the Senior Discount Notes, in each case as in effect on the Issue Date, and any
amendments, restatements, renewals, replacements or refinancings thereof;
provided, however, that any such amendments, restatements, renewals,
replacements or refinancings to or under the Credit Facility or the indenture
governing the Senior Discount Notes are not materially more restrictive, when
taken as a whole, with respect to such dividend and other payment restrictions,
to the Company or any Restricted Subsidiary than those contained in the Credit
Facility or such indenture, as the case may be, (or, if more restrictive, than
those contained in this Indenture) immediately prior to any such amendment,
restatement, renewal, replacement or refinancing, or (y) the indenture relating
to any Public Debt issued after the date hereof, which encumbrances or
restrictions are not materially more restrictive, when taken as a whole, with
respect to such dividend and other payment restrictions, to the
39
<PAGE>
Company or any Restricted Subsidiary than those contained in this Indenture, (b)
applicable law, (c) any instrument governing Indebtedness or Capital Stock of an
Acquired Person acquired by the Company or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition or in violation of Section 4.13; provided, however, that (1) such
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Acquired Person, and (2) the consolidated net income of
such Acquired Person for any period prior to such acquisition shall not be taken
into account in determining whether such acquisition was permitted by the terms
of this Indenture, (d) customary non-assignment provisions in leases or other
agreements entered into the ordinary course of business, (e) Purchase Money
Indebtedness for property acquired in the ordinary course of business that only
impose restrictions on the property so acquired, (f) an agreement for the sale
or disposition of the Capital Stock or assets of such Restricted Subsidiary;
provided, however, that such restriction is only applicable to such Restricted
Subsidiary or assets, as applicable, and such sale or disposition otherwise is
permitted under Section 4.17; provided, further, however, that such restriction
or encumbrance shall be effective only for a period from the execution and
delivery of such agreement through a termination date not later than 180 days
after such execution and delivery, or (g) Refinancing Indebtedness permitted
under this Indenture; provided, however, that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more restrictive in
the aggregate than those contained in the agreements governing the Indebtedness
being refinanced immediately prior to such refinancing. Notwithstanding the
foregoing, neither (a) customary provisions restricting subletting or assignment
of any lease entered into in the ordinary course of business, nor (b) Liens
permitted under this Indenture, shall in and of themselves be considered a
restriction on the ability of the applicable Restricted Subsidiary to transfer
such agreements or assets, as the case may be.
SECTION 4.12. Limitation on Affiliate Transactions.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, conduct any business or enter into any
transaction or series of similar transactions (including the purchase, sale,
lease, transfer or other disposition or exchange of any asset or property or the
rendering of any service) with any Affiliate of the Company (other than the
Company or any Wholly Owned Subsidiary of the Company or any employee stock
ownership plan or similar trust for the benefit of the Company's or a Restricted
Subsidiary's employees) unless the terms of such business, transaction or series
of transactions are (i) no less favorable to the Company or such Restricted
Subsidiary as terms that would be obtainable at the time for a comparable
transaction or series of similar transactions in arms' length dealings with an
unrelated third Person and (ii) in the event that such transaction involves an
aggregate amount in excess of $5.0 million, a majority of the disinterested
members of the Board of Directors have, by resolution, determined in good faith
that such business or transaction or series of transactions meets the criteria
set forth in (i) above and have approved the transaction; provided, however,
that if such transaction involves an amount in excess of $10.0 million, the
Company shall also obtain from a nationally recognized independent investment
banking firm, accounting firm or appraisal firm with experience in evaluating
the terms and conditions of the type of business or transaction an opinion that
such transaction is
40
<PAGE>
fair from a financial point of view to the Company or its Restricted Subsidiary,
as the case may be.
(b) The provisions of clause (a) of this Section 4.12 shall not
prohibit (i) any Restricted Payment permitted to be made pursuant to Section
4.10 or any payment or transaction specifically excepted from the definition of
Restricted Payment, (ii) any issuance of securities, or other payments, awards
or grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans entered into in
the ordinary course of business and approved by a majority of the entire Board
of Directors or by a majority of the disinterested members of the Board of
Directors or a majority of the entire board of directors or by a majority of the
disinterested members of the board of directors of the relevant Restricted
Subsidiary, (iii) the grant of stock options or similar rights to employees and
directors pursuant to plans approved by a majority of the entire Board of
Directors or by a majority of the disinterested members of the Board of
Directors or a majority of the entire board of directors or by a majority of the
disinterested members of the board of directors of the relevant Restricted
Subsidiary, (iv) loans or advances to officers, directors or employees in the
ordinary course of business which, except with respect to ordinary travel
expenses and advances, have been approved by the Board of Directors, (v) the
payment of reasonable fees to directors of Holdco, the Company and the
Subsidiaries who are not employees of Holdco, the Company or the Subsidiaries
for rendering of services (including attending meetings of the board of
directors) as a director, (vi) any Affiliate transaction between the Company and
a Subsidiary Guarantor, between Subsidiary Guarantors, or between Restricted
Subsidiaries which are each not Subsidiary Guarantors, (vii) indemnification or
insurance provided to officers or directors of Holdco, the Company or any
Subsidiary of the Company approved in good faith by the Board of Directors;
(viii) payment of compensation and benefits to directors, officers and employees
of the Company and Subsidiaries of the Company approved in good faith by the
Board of Directors; (ix) payment of a management or similar fee by Holdco, the
Company or any Restricted Subsidiary to Alchemy Partners (or a Person designated
by Alchemy Partners) in an amount, together with all other such payments made by
the Company and Restricted Subsidiaries, not to exceed $1.0 million per year (or
the equivalent thereof in another currency) plus reasonable out
of-pocket-expenses; (x) loans made to officers of the Company or its
Subsidiaries in an aggregate amount not to exceed $4.5 million outstanding at
any time solely for the purpose of reimbursing such officers for the amount of
income taxes payable by such officers in connection with shares of Capital Stock
of Holdco issued to such officers, which shares are pledged to the Company or
the Subsidiary making such loans, and (xi) the Permitted Investment contemplated
by clause (xii) of the definition of Permitted Investment.
SECTION 4.13. Limitation on Indebtedness.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, Incur, directly or indirectly, any Indebtedness (including
Acquired Indebtedness); provided, however, that the Company or any Subsidiary
Guarantor shall be permitted to Incur such Indebtedness if, on the date of such
Incurrence, and after giving pro forma effect thereto, (i) no Default or Event
of Default shall have occurred and be continuing or would occur and (ii) the
Consolidated Cash Flow Coverage Ratio at the date of such Incurrence exceeds
2.10 to 1.0
41
<PAGE>
if such Indebtedness is Incurred prior to October 31, 1999, and 2.35 to 1 if
such Indebtedness is Incurred thereafter.
(b) Notwithstanding clause (a) of this Section 4.13, the Company and
any Restricted Subsidiary (other than a Restricted Subsidiary that is not a
Subsidiary Guarantor in the cases of clauses (i) and (xiii) below) may Incur the
following Indebtedness: (i) Indebtedness Incurred pursuant to the Credit
Facility not to exceed $435 million in aggregate principal amount outstanding at
any time, less the aggregate amount of all mandatory payments applied to
permanently reduce the commitments with respect to such Indebtedness, including
but not limited to reductions pursuant to clause (a) of Section 4.17; (ii)
Indebtedness of the Company to a Restricted Subsidiary; provided that any such
Indebtedness is subordinated in right of payment to the Notes; provided,
further, that any subsequent issuance, sale, transfer or other disposition of
any Capital Stock (including by consolidation or merger) or other event
(including the designation of a Restricted Subsidiary as an Unrestricted
Subsidiary under Section 4.20) which results in such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer or other
disposition of any such Indebtedness (except to the Company or another
Restricted Subsidiary) shall be deemed, in each case, to be an Incurrence of
such Indebtedness by the issuer thereof at the time of any such issuance, sale,
transfer or other disposition, as the case may be; (iii) Indebtedness of a
Restricted Subsidiary to the Company or another Restricted Subsidiary; provided
that (x) if a Subsidiary Guarantor Incurs such Indebtedness to a Restricted
Subsidiary that is not a Subsidiary Guarantor, such Indebtedness is subordinated
in right of payment to the Subsidiary Guarantee of such Subsidiary Guarantor;
and (y) if a Restricted Subsidiary that is not a Subsidiary Guarantor Incurs
such Indebtedness to the Company or a Restricted Subsidiary that is a Subsidiary
Guarantor, the Incurrence of such Indebtedness constitutes a Restricted
Investment for the purposes of Section 4.10; provided, further, that any
subsequent issuance, sale, transfer or other disposition of any Capital Stock
(including by consolidation or merger) of any Restricted Subsidiary to which
such Indebtedness is owed or any other event (including the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary under Section 4.20) which
results in such Restricted Subsidiary ceasing to be a Restricted Subsidiary or
any subsequent transfer or other disposition of any such Indebtedness (except to
the Company or another Restricted Subsidiary that is a Subsidiary Guarantor)
shall be deemed, in each case, to be an Incurrence of such Indebtedness by the
issuer thereof at the time of any such issuance, sale, transfer or other
disposition, as the case may be; (iv) the Notes and the Subsidiary Guarantees;
(v) Indebtedness (other than Indebtedness described in clause (i), (ii), (iii)
or (iv) above) outstanding on the Issue Date; (vi) any Refinancing Indebtedness
in respect of Indebtedness Incurred pursuant to paragraph (a) of this Section
4.13 or pursuant to clause (iv) or (v) of this clause (b) or this clause (vi);
(vii) obligations of the Company or such Restricted Subsidiary pursuant to (A)
Interest Rate Protection Agreements designed to protect the Company or such
Restricted Subsidiary against fluctuations in interest rates in respect of
Indebtedness of the Company or such Restricted Subsidiary that is permitted by
the terms of the Indenture to be outstanding to the extent the notional
principal amount of such obligation does not exceed the aggregate principal
amount of the Indebtedness to which such Interest Rate Protection Agreements
relate, (B) Currency Agreement Obligations in respect of foreign exchange
exposures Incurred by the Company or any Restricted Subsidiary in the ordinary
course of its business and (C) commodity agreements of the Company or such
Restricted Subsidiary to the extent entered into
42
<PAGE>
in the ordinary course of business to protect the Company or any Restricted
Subsidiary from fluctuations in the prices of raw materials used in its
business; (viii) Indebtedness of the Company or any Restricted Subsidiary
consisting of obligations in respect of purchase price adjustments in connection
with the acquisition or disposition of assets by the Company or any Restricted
Subsidiary permitted under this Indenture; (ix) Capital Lease Obligations,
Purchase Money Indebtedness and Acquired Indebtedness (to the extent not
Incurred in connection with, or in anticipation or contemplation of, the
relevant transaction), in each case Incurred in connection with a Related
Business and any Refinancing Indebtedness in respect thereof in an aggregate
principal amount not exceeding $10.0 million at any time outstanding; (x)
Attributable Debt in connection with Sale/Leaseback Transactions in an aggregate
principal amount not exceeding $10.0 million at any time outstanding; (xi)
provided that the Company would be able to Incur $1.00 of Indebtedness pursuant
to Section 4.13(a), Indebtedness Incurred by one or more SPCs in aggregate
principal amount not exceeding $30.0 million at any one time outstanding; (xii)
Indebtedness in an amount not to exceed $4.5 million issued in connection with
the Investment permitted pursuant to clause (xii) of the definition of
"Permitted Investment"; and (xii) Indebtedness in an aggregate principal amount
which, together with all other Indebtedness of the Company and its Restricted
Subsidiaries then outstanding (other than Indebtedness Incurred pursuant to
clauses (i) through (xii) of this clause or clause (a) of this Section) does not
exceed $10.0 million.
(c) Notwithstanding that such Indebtedness is permitted to be
incurred pursuant to clauses (a) and (b) of this Section 4.13, the Company shall
not, and shall not permit any Restricted Subsidiary to, Incur any Indebtedness
if the proceeds thereof are used, directly or indirectly, to repay, prepay,
redeem, defease, retire, refund or refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes or the relevant Subsidiary
Guarantee, as applicable, to at least the same extent as such Subordinated
Obligations.
(d) For purposes of determining compliance with this Section 4.13,
in the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness described in clauses (a) or (b) of this Section 4.13,
the Company, in its sole discretion, at the time of the Incurrence of such
Indebtedness shall classify such item of Indebtedness, and, except as
specifically stated otherwise, only be required to include the amount of such
Indebtedness, in one of the above clauses, and such item of Indebtedness may be
divided and classified among more than one of such types.
(e) For purposes of determining amounts of Indebtedness outstanding
under this Section 4.13 and for the purpose of avoiding duplication only,
Indebtedness resulting from security interests granted with respect to
Indebtedness otherwise included in the determination of Indebtedness, and
Guarantees (and security interests with respect thereof) of, or obligations with
respect to letters of credit supporting, Indebtedness otherwise included in the
determination of Indebtedness shall not be included in the determination of
Indebtedness.
(f) Indebtedness of any Person which is outstanding at the time such
Person becomes a Restricted Subsidiary of the Company (including upon
designation of any subsidiary or other person as a Restricted Subsidiary) or is
merged with or into or consolidated with the
43
<PAGE>
Company or a Restricted Subsidiary of the Company shall be deemed to have been
Incurred at the time such Person becomes a Restricted Subsidiary of the Company
or merged with or into or consolidated with the Company or a Restricted
Subsidiary of the Company, as applicable.
SECTION 4.14.
[INTENTIONALLY OMITTED]
SECTION 4.15. Limitation on Other Senior Subordinated Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary to, create, Incur, assume, Guarantee or in any other manner become
liable with respect to any Indebtedness that is subordinate in right of payment
to any other Indebtedness of the Company or any such Restricted Subsidiary,
unless such Indebtedness is also pari passu with, or subordinate in right of
payment to, the Notes, or the relevant Subsidiary Guarantee, as the case may be.
SECTION 4.16. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require that the Company repurchase all or, at each Holder's
option, any part of such Holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date).
(b) Within 20 days following any Change of Control, the Company
shall mail a notice to the Trustee and to each Holder stating: (i) that a Change
of Control has occurred and that such Holder has the right to require the
Company to purchase all or a portion of such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (subject to the right of holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (ii) the circumstances and relevant facts and financial
information regarding such Change of Control (including, to the extent
available, information with respect to pro forma historical income, cash flow
and capitalization after giving effect to such Change of Control); (iii) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (iv) the instructions determined by
the Company, consistent with this Section 4.16, that a Holder must follow in
order to have its Notes purchased; provided, however, that notwithstanding the
occurrence of a Change of Control, the Company shall not be obligated to
repurchase the Notes pursuant to this Section 4.16 if the Company has exercised
its right to redeem all the Notes under the terms of clause 6 of the Notes.
(c) Holders electing to have a Note purchased will be required to
surrender the Note, with an appropriate form (as provided for in Exhibit A or B,
as appropriate) duly completed, to the Company at the address specified in the
notice not later than 3 p.m. New
44
<PAGE>
York City time two Business Days prior to the purchase date. Holders will be
entitled to withdrawal their election if the Trustee or the Company receives not
later than 3 p.m. New York City time two Business Days prior to the purchase
date, a telegram, telex, facsimile transmission or letter setting forth the name
of the Holder, the principal amount of the Note which was delivered for purchase
by the Holder and a statement that such Holder is withdrawing his election to
have such note purchased.
(d) On the purchase date, all Notes purchased by the Company under
this Section shall be delivered to the Trustee for cancellation, and the Company
shall pay or cause to be paid the purchase price plus accrued and unpaid
interest, if any, to the Holders entitled thereto.
(e) At the time the Company delivers Notes to the Trustee which are
to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Notes are to be accepted by the Company pursuant
to and in accordance with the terms of this Section. A Note shall be deemed to
have been accepted for purchase at the time the Trustee, directly or through an
agent, mails or delivers payment therefor to the surrendering Holder.
(f) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
Section 4.16. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 4.16, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.16 by virtue
thereof.
SECTION 4.17. Limitation on Sales of Assets and Subsidiary Stock.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, make any Asset Disposition unless (i) (x) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset
Disposition at least equal to the fair market value, as determined in good faith
by the Board of Directors (including as to the value of all non-cash
consideration), of the shares and assets subject to such Asset Disposition and
(y) at least 80% of the consideration thereof received by the Company or such
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents provided, however, that the requirement set forth in (i) (x) above
shall not apply to any Asset Disposition to any governmental authority as may be
required, from time to time, by governmental authority, and (ii) an amount equal
to 100% of the Net Available Cash from such Asset Disposition is applied by the
Company (or such Restricted Subsidiary, as the case may be) (A) first, to the
extent the Company elects (or is required by the terms of any Senior
Indebtedness), to prepay, repay or purchase Senior Indebtedness of the Company
or any Subsidiary Guarantor or any Indebtedness or other Obligations under the
Credit Facility or, if the Asset Disposition was made by a Restricted Subsidiary
that is not a Subsidiary Guarantor, of any Restricted Subsidiary, within 360
days of the Company's or such Restricted Subsidiary's receipt of Net Available
Cash from such Asset Disposition; (B) second, to the extent of the balance of
such Net Available Cash after application in accordance with clause (A), at the
Company's election, to the investment by the Company or any Subsidiary Guarantor
or, if the Asset Disposition
45
<PAGE>
was made by a Restricted Subsidiary that is not a Subsidiary Guarantor, any
Restricted Subsidiary, in (1) assets of the Company, such Subsidiary Guarantor
or, if the Asset Disposition was made by a Restricted Subsidiary that is not a
Subsidiary Guarantor, such Restricted Subsidiary to replace the assets (other
than Indebtedness or Capital Stock) that were the subject of such Asset
Disposition or (2) assets (other than (q) inventory or other current assets or
(r) Indebtedness or Capital Stock) of the Company, any Subsidiary Guarantor or
if the Asset Disposition was made by a Restricted Subsidiary that is not a
Subsidiary Guarantor, any Restricted Subsidiary that (as determined in good
faith by the Board of Directors) are related to the business of the Company and
the Wholly Owned Subsidiaries existing on the Issue Date or which are used in a
Related Business, in each case within 360 days from the date of the Company's or
such Restricted Subsidiary's receipt of Net Available Cash from such Asset
Disposition; (C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make a pro rata
offer to purchase Notes at par (and, to the extent required by the instrument
governing such Indebtedness, any other Senior Subordinated Indebtedness
designated by the Company, at a price no greater than par or accreted value,
whichever is less) plus accrued and unpaid interest; and (D) fourth, to the
extent of the balance of such Net Available Cash after application in accordance
with clauses (A), (B) and (C), in any manner that does not violate this
Indenture; provided, however, that in connection with any prepayment, repayment
or purchase of Indebtedness pursuant to clause (A) or (C) above, the Company or
such Subsidiary shall permanently retire such Indebtedness and cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing
provisions of this clause (a), the Company and its Restricted Subsidiaries shall
not be required to apply any Net Available Cash in accordance with clause
(a)(ii)(C) of this Section 4.17 except to the extent that the aggregate Net
Available Cash from all Asset Dispositions which are not applied in accordance
with clauses (a)(ii)(A) and (B) of this Section 4.17 exceeds $10.0 million.
Pending application of Net Available Cash pursuant to this clause (a), such Net
Available Cash shall be used to temporarily reduce Senior Indebtedness or
invested in Cash Equivalents.
For the purposes of this Section 4.17, the following is deemed to be
cash or Cash Equivalents: the express assumption of Indebtedness (other than any
Indebtedness that is by its terms subordinated to the Notes) of the Company or
any Restricted Subsidiary, but only to the extent that such assumption is
effected on a basis under which there is no further recourse to the Company or
any of the Restricted Subsidiaries with respect to such liabilities.
(b) In the event of an Asset Disposition that requires the purchase
of the Notes (and other Senior Subordinated Indebtedness) pursuant to clause
(a)(ii)(C) of this Section 4.17, the Company shall be required to purchase Notes
tendered pursuant to an offer by the Company for the Notes (and, to the extent
required, other Senior Subordinated Indebtedness) (the "Offer) at a purchase
price of 100% of their principal amount or the accreted value thereof, whichever
is less, (without premium) plus accrued but unpaid interest (or, in respect of
such other Senior Subordinated Indebtedness such lesser price, if any, as may be
provided for by the terms of such other Senior Subordinated Indebtedness) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in this Indenture. If the aggregate purchase price
of Notes (and, to the extent required, any other Senior
46
<PAGE>
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company shall be required
to apply the remaining Net Available Cash in accordance with clause (a)(ii)(D)
of this Section 4.17.
(c) (1) Promptly, and in any event within 30 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Notes purchased by the Company
either in whole or in part (subject to prorating as hereinafter described in the
event the Offer is oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable purchase price. The notice shall specify a purchase
date not less than 30 days nor more than 60 days after the date of such notice
(the "Purchase Date") and shall contain such information which the Company in
good faith believes will enable such Holders to make an informed decision.
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, the Company shall deliver to
the Trustee an Officers' Certificate as to (i) the amount of the Offer
(the "Offer Amount'), (ii) the allocation of the Net Available Cash from
the Asset Dispositions pursuant to which such Offer is being made and
(iii) the compliance of such allocation with the provisions of Section
4.17(a). Upon the expiration of the period for which the Offer remains
open (the "Offer Period"), the Company shall deliver to the Trustee for
cancellation the Notes or portions thereof which have been properly
tendered to and are to be accepted by the Company. The Trustee shall, on
the Purchase Date, mail or deliver payment to each tendering Holder in the
amount of the purchase price. In the event that the aggregate purchase
price of the Notes delivered by the Company to the Trustee is less than
the Offer Amount, the Trustee shall deliver the excess to the Company
immediately after the expiration of the Offer Period for application in
accordance with this Section.
(3) Holders electing to have a Note purchased shall be required to
surrender the Note, with an appropriate form duly completed, to the
Company at the address specified in the notice not later than 3:00 p.m.,
New York City time, two Business Days prior to the Purchase Date. Holders
shall be entitled to withdraw their election if the Trustee or the Company
receives not later than 3:00 p.m., New York City time, two Business Days
prior to the Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Note which was delivered for purchase by the Holder and a statement that
such Holder is withdrawing his election to have such Note purchased. If at
the expiration of the Offer Period the aggregate principal amount of Notes
surrendered by Holders exceeds the Offer Amount, the Company shall select
the Notes to be purchased on a pro rata basis taking into account any
other tendered Senior Subordinated Indebtedness which is the subject of
such offer (with such adjustments as may be deemed appropriate by the
Company so that only Notes in denominations of $ 1,000, or integral
multiples thereof, shall be purchased). Holders whose Notes are purchased
only in part shall be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered.
47
<PAGE>
(4) At the time the Company delivers Notes to the Trustee which are
to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Notes are to be accepted by the Company
pursuant to and in accordance with the terms of this Section. A Note shall
be deemed to have been accepted for purchase at the time the Trustee,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
Section 4.17. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 4.17, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 4.17 by virtue
thereof.
SECTION 4.18. Limitation on Liens Securing Subordinated
Indebtedness.
The Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, create, Incur, assume or suffer to exist
any Liens of any kind (other than Permitted Liens) upon any of their respective
assets or properties now owned or acquired after the date of this Indenture or
any income or profits therefrom securing (i) any Indebtedness of the Company or
a Restricted Subsidiary which is expressly by its terms subordinate or junior in
right of payment to any other Indebtedness of the Company or such Restricted
Subsidiary, as the case may be, unless the Notes or the relevant Subsidiary
Guarantee, as the case may be, are equally and ratably secured for so long as
such Indebtedness is so secured; provided that, if such Indebtedness which is
expressly by its terms subordinate or junior in right of payment to any other
Indebtedness of the Company or a Restricted Subsidiary is expressly subordinate
or junior to the Notes or the relevant Subsidiary Guarantee, as the case may be,
then the Lien securing such subordinated or junior Indebtedness shall be
subordinate and junior to the Lien securing the Notes or the relevant Subsidiary
Guarantee, as the case may be, with the same relative priority as such
subordinated or junior Indebtedness shall have with respect to the Notes or the
relevant Subsidiary Guarantee, as the case may be or (ii) any assumption,
Guarantee or other liability of the Company or such Restricted Subsidiary in
respect of any Indebtedness of the Company or a Restricted Subsidiary which is
expressly by its terms subordinate or junior in right of payment to any other
Indebtedness of the Company or such Restricted Subsidiary, unless the Notes or
the relevant Subsidiary Guarantee, as the case may be, are equally and ratably
secured for so long as such assumption, guaranty or other liability is so
secured; provided that, if such subordinated Indebtedness which is expressly by
its terms subordinate or junior in right of payment to any other Indebtedness of
the Company or a Restricted Subsidiary is expressly by its terms subordinate or
junior to the Notes or the relevant Subsidiary Guarantee, as the case may be,
then the Lien securing the assumption, Guarantee or other liability of such
Subsidiary shall be subordinate and junior to the Lien securing the Notes or the
relevant Subsidiary Guarantee, as the case may be, with the same relative
priority as such subordinated or junior Indebtedness shall have with respect to
the Notes or the relevant Subsidiary Guarantee, as the case may be.
SECTION 4.19. Future Subsidiary Guarantors.
48
<PAGE>
The Company shall cause each Restricted Subsidiary of the Company,
and each Subsidiary Guarantor shall cause each Restricted Subsidiary which is a
subsidiary of such Subsidiary Guarantor, (other than SPCs) (a) that is organized
or existing under the laws of the United States, any state thereof or the
District of Columbia, (b) more than 65% of the Capital Stock of which is pledged
to a United States lender or (c) that Guarantees any Indebtedness owed to a
United States lender, on and after the date of this Indenture (if not then a
Subsidiary Guarantor), that becomes a Restricted Subsidiary to execute and
deliver an indenture supplemental to this Indenture and thereby become a
Subsidiary Guarantor which shall be bound by the Subsidiary Guarantee of the
Notes in the form set forth in this Indenture (without such future Subsidiary
Guarantor being required to execute and deliver the Subsidiary Guarantee
endorsed on the Notes). The Company shall not permit any Restricted Subsidiary
that is not a Subsidiary Guarantor to (i) Guarantee any other Indebtedness of
the Company or any Subsidiary Guarantor or (ii) otherwise become obligated with
respect to Indebtedness of the Company or any Subsidiary Guarantor, including
but not limited to, Indebtedness Incurred by the Company or a Subsidiary
Guarantor under the Credit Facility, unless such Restricted Subsidiary
simultaneously executes a supplemental indenture to this Indenture providing for
the Guarantee of the payment of the Notes by such Restricted Subsidiary, which
Guarantee of the payment of the Notes shall be subordinated to the Guarantee of
such other Indebtedness to the same extent as the Notes or the Subsidiary
Guarantees, as applicable, are subordinated to such other Indebtedness;
provided, however, that such Restricted Subsidiary shall not be required to so
Guarantee the payment of the Notes to the extent that such other Indebtedness
does not exceed $1 million individually or, together with any other Indebtedness
of the Company or any Subsidiary Guarantor Guaranteed by such Restricted
Subsidiary, $3 million in the aggregate. Such Restricted Subsidiary shall be
deemed released from its obligations under the Guarantee of the payment of the
Notes at any such time that such Restricted Subsidiary is released from all of
its obligations under its Guarantee of such other Indebtedness unless such
release results from the payment under such Guarantee of other Indebtedness.
SECTION 4.20. Limitation on Designations of Unrestricted
Subsidiaries.
(a) The Company may designate any Subsidiary of the Company (other
than a Subsidiary Guarantor) as an "Unrestricted Subsidiary"(a "Designation")
only if:
(i) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation; and
(ii) either (x) the assets of such Subsidiary do not exceed $1,000
or (y) the Company would be permitted under this Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the fair
market value of the Company's Investment in such Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
4.10 for all purposes of this Indenture in the Designation Amount. The Company
shall not, and shall not permit
49
<PAGE>
any Restricted Subsidiary to, at any time (a) provide credit support for, or a
Guarantee of, any Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such Indebtedness) or (b) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary.
(b) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, have been permitted to be Incurred for all purposes of this
Indenture and for all purposes of this Indenture shall be deemed to have
been Incurred at such time.
All Designations and Revocations must be evidenced by resolutions of
the Board of Directors delivered to the Trustee certifying compliance with the
foregoing provisions.
Notwithstanding the foregoing, no Subsidiary that is a Subsidiary
Guarantor as of the Issue Date shall be permitted to become an Unrestricted
Subsidiary.
SECTION 4.21. Limitation on Lines of Business.
Neither the Company nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which, in the reasonable good faith judgment of the
Board of Directors, is a Related Business.
SECTION 4.22. Limitation on Holdco and the Holding Companies.
Holdco and the Holding Companies shall not, and the Company shall
not permit the Holding Companies to, engage in any business other than holding
the securities of their respective direct subsidiaries.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets of the
Company.
The Company shall not, in a single transaction or a series of
related transactions, consolidate with or merge with or into, or sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all its
assets (computed on a consolidated basis) to, any Person or group of affiliated
Persons, unless: (i) the resulting, surviving or transferee Person
50
<PAGE>
shall be the Company or, if not the Company, shall be a corporation organized
and existing under the laws of the United States of America, any State thereof
or the District of Columbia (the "Successor Company"), and such Successor
Company shall expressly assume, by an indenture supplemental to this Indenture
in a form reasonably satisfactory to the Trustee, executed and delivered to the
Trustee, all the obligations of the Company under the Notes and this Indenture
(and the Guarantees shall be confirmed as applying to such Person's
obligations); (ii) at the time of and immediately after giving effect to such
transaction or transactions on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the resulting, surviving or transferee Person or
any Subsidiary as a result of such transaction as having been Incurred by such
Person or such Subsidiary at the time of such transaction), no Default or Event
of Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person or any Subsidiary as
a result of such transaction as having been Incurred by such Person or such
Subsidiary at the time of such transaction) the resulting, surviving or
transferee Person would be able to Incur at least $1.00 of Indebtedness pursuant
to clause (a) of Section 4.13; and (iv) the Company shall have delivered to the
Trustee an Officers' Certificate and if a supplemental indenture is required, an
Opinion of Counsel, each stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with this Indenture.
Notwithstanding the foregoing, (i) the consolidation or merger of
the Company with, or (ii) the sale, assignment, conveyance, transfer, lease or
other disposition by the Company of all or substantially all of its property or
assets to, one or more Subsidiaries of the Company shall not relieve the Company
from its obligations under the Notes and this Indenture.
For purposes of the foregoing, the transfer (by sale, assignment,
conveyance, transfer, lease or otherwise) of all or substantially all of the
properties and assets of one or more Subsidiaries, the Company's interest in
which constitutes all or substantially all of the properties and assets of the
Company shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
SECTION 5.02. Successor Corporation Substituted for the Company.
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the Successor
Company formed by such consolidation or into which the Company is merged or to
which such sale, assignment, conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under this Indenture and the Notes with the same effect as if such
surviving entity had been named as such, and the predecessor company, in the
case of a sale, assignment, conveyance, transfer or other disposition (but not
in the case of a lease), shall be released from the obligation to pay the
principal of and interest on the Notes.
SECTION 5.03. Merger, Consolidation and Sale of Assets of Any
51
<PAGE>
Subsidiary Guarantor.
The Company shall not permit any Subsidiary Guarantor to consolidate
with or merge with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of, in one transaction or a series of transactions, all or
substantially all of its assets to, any Person unless: (i) the resulting,
surviving or transferee Person shall be the Company or a Subsidiary Guarantor
or, if not the Company or such a Subsidiary Guarantor, shall be a corporation
organized and existing under the laws of the jurisdiction under which such
Subsidiary was organized or under the laws of the United States of America, or
any State thereof or the District of Columbia, and such Person shall expressly
assume, by executing a Subsidiary Guarantee, all the obligations of such
Subsidiary, if any, under its Subsidiary Guarantee; (ii) immediately after
giving effect to such transaction or transactions on a pro forma basis (and
treating any Indebtedness which becomes an obligation of the resulting,
surviving or transferee Person as a result of such transaction as having been
issued by such Person at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction, the Company would be able to Incur at least $1.00 of
Indebtedness pursuant to Section 4.13(a); and (iv) the Company delivers to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
such consolidation, merger or transfer and such Subsidiary Guarantee, if any,
complies with this Indenture. The provisions of clauses (i), (ii) and (iii)
above shall not apply to any one or more transactions which constitute an (a)
Asset Disposition subject to the applicable provisions of the covenant described
under Section 4.17 or (b) the grant of any Lien on the assets of a Restricted
Subsidiary to secure outstanding Indebtedness under the Credit Facility, which
Lien is permitted by the terms of this Indenture, or any conveyance or transfer
of such assets resulting from an exercise of remedies in respect of any such
Lien.
Notwithstanding the foregoing, but subject to the terms of the first
paragraph of Section 5.01 and this Section 5.03, the Company may merge with or
into, or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets to, any Subsidiary Guarantor, and a Subsidiary
Guarantor may merge with or into, or sell, assign, convey, transfer or lease all
or substantially all of its assets to, any other Subsidiary Guarantor.
SECTION 5.04. Successor Corporation Substituted for Subsidiary
Guarantor.
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of any Subsidiary Guarantor in accordance
with the foregoing, in which such Subsidiary Guarantor is not the continuing
corporation, the successor Person formed by such consolidation or into which
such Subsidiary Guarantor is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, such Subsidiary Guarantor under this Indenture with
the same effect as if such surviving entity had been named as such, and the
predecessor company, in the case of a conveyance, transfer or lease, shall be
released from the obligation to pay the principal of and interest on the Notes.
52
<PAGE>
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any Notes
when the same becomes due and payable (whether or not such payment shall
be prohibited by Article Ten of this Indenture) and the Default continues
for a period of 30 days; or
(2) the Company defaults in the payment of the principal on any
Notes when such principal becomes due and payable (whether or not such
payment shall be prohibited by Article Ten or Article Twelve), at
maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise; or
(3) the failure by the Company to comply with its obligations under
Sections 4.16, 4.17 or Article Five above; or
(4) the failure by the Company to comply for 30 days after notice
with any of its obligations under Sections 4.08, 4.10, 4.11, 4.12, 4.13,
4.15, 4.18, 4.19, 4.20, 4.21, and 4.22; or
(5) the Company defaults in the observance or performance of any
other covenant, obligation, warranty or agreement contained in this
Indenture and which default continues for a period of 60 days after
notice; or
(6) Indebtedness of Holdco, the Company or any Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
amount of Indebtedness unpaid or accelerated together with the principal
amount of any other such Indebtedness which is unpaid or which has been
accelerated, exceeds $10.0 million at any time and such default shall not
have been cured or such acceleration rescinded; or
(7) the Company or any Significant Subsidiary of the Company (A)
commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (B) consents to the entry of a judgment, decree or
order for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (C) consents to the appointment of a Custodian of it or
for substantially all of its property, (D) consents to or acquiesces in
the institution of a bankruptcy or an insolvency proceeding against it,
(E) makes a general assignment for the benefit of its creditors, or (F)
takes any corporate action to authorize or effect any of the foregoing; or
(8) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any Significant Subsidiary
of the Company in an
53
<PAGE>
involuntary case or proceeding under any Bankruptcy Law, which shall (A)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of the Company or any such
Significant Subsidiary, (B) appoint a Custodian of the Company or any such
Significant Subsidiary or for substantially all of its property or (C)
order the winding-up or liquidation of its affairs; and such judgment,
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or
(9) any judgment or decree for the payment of money the portion of
which is not covered by insurance is in an aggregate amount in excess of
$10.0 million shall have been rendered against the Company or any of its
Subsidiaries and is not discharged and either (A) an enforcement
proceeding has been commenced by any creditor upon such judgment or decree
or (B) there is a period of 60 days following such judgment during which
such judgment or decree is not discharged, waived or the execution thereof
stayed (including pending appeal); or
(10) any Subsidiary Guarantee of a Significant Subsidiary ceases to
be in full force and effect or becomes unenforceable or invalid or is
declared null and void (other than in accordance with the terms of the
Subsidiary Guarantee or this Indenture) or any Subsidiary Guarantor that
is a Significant Subsidiary denies or disaffirms its obligations under its
Subsidiary Guarantee.
However, a default under clause (4) or (5) shall not constitute an
Event of Default until the Trustee or the Holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (6) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5) or (9), its status and what action the Company is taking or
proposes to take with respect thereto.
SECTION 6.02. Acceleration.
(a) If an Event of Default (other than an Event of Default specified
in Section 6.01(7) or (8) with respect to the Company) occurs and is continuing,
and has not been waived pursuant to Section 6.04, then the Trustee, by written
notice to the Company, or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued but unpaid interest
on all the Notes to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a "notice
of acceleration". Upon any such declaration, such amount shall be immediately
due and payable provided, however, that for so long as the Credit Facility
remains in effect, such declaration shall not become effective until the earlier
of (i) five Business Days following delivery of notice to the Representative of
such creditors of the intention to accelerate the Notes or (ii) the acceleration
of any Indebtedness under the Credit Facility.
54
<PAGE>
(b) If an Event of Default specified in Section 6.01(7) or (8)
relating to the Company or any Significant Subsidiary occurs and is continuing,
the principal of and interest on all the Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holders.
(c) The Holders of a majority in principal amount of the Notes may,
on behalf of the Holders of all of the Notes, rescind and cancel an acceleration
and its consequences (i) if the rescission would not conflict with any judgment
or decree, (ii) if all existing Events of Default have been cured or waived
except nonpayment of principal or interest that has become due solely because of
the acceleration, (iii) if the Company has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements and
advances and (iv) in the event of the cure or waiver of an Event of Default of
the type described in Section 6.01(7) or 6.01(8), the Trustee shall have
received an Officers' Certificate and an Opinion of Counsel that such Event of
Default has been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Notes or to enforce the performance
of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy accruing
upon an Event of Default shall not impair the right or remedy or constitute a
waiver of or acquiescence in the Event of Default. No remedy is exclusive of any
other remedy. All available remedies are cumulative to the extent permitted by
law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 2.09, 6.07 and 9.02, the Holders of a majority
in principal amount of the then outstanding Notes by notice to the Trustee may,
on behalf of the Holders of all of the Notes, waive an existing Default or Event
of Default and its consequences, except a Default in the payment of principal of
or interest on any Note as specified in clauses (1) and (2) of Section 6.01.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal
amount of the then outstanding Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it, including, without limitation, any remedies
provided for in Section 6.03. Subject to
55
<PAGE>
Section 7.01, however, the Trustee may refuse to follow any direction that the
Trustee reasonably believes conflicts with any law or this Indenture, that the
Trustee reasonably determines may be unduly prejudicial to the rights of another
Holder, or that may involve the Trustee in personal liability; provided that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction; and provided further, that this provision
shall not affect the rights of the Trustee set forth in Sections 6.06, 7.01(d)
and 7.02(f).
SECTION 6.06. Limitation on Suits.
Subject to Article Seven, if an Event of Default occurs and is
continuing, the Trustee shall be under no obligation to exercise any of the
rights or powers under this Indenture at the request or direction of any of the
Holders unless such Holders have offered to the Trustee indemnity or security
against any loss, liability or expense reasonably satisfactory to the Trustee.
Except to enforce the right to receive payment of principal, premium (if any) or
interest when due, no Holder of a Note may pursue any remedy with respect to
this Indenture or the Notes unless (i) such Holder has previously given the
Trustee notice that an Event of Default is continuing, (ii) Holders of at least
25% in principal amount of the outstanding Notes have requested the Trustee to
pursue the remedy, (iii) such Holders have offered the Trustee security or
indemnity against any loss, liability or expense reasonably satisfactory to the
Trustee, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Note, on or
after the respective due dates expressed in such Note, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Notes for the whole amount of principal and
accrued interest remaining unpaid, together with interest on overdue principal
and, to the extent that payment of such interest is lawful, interest on overdue
installments of interest at the rate set forth on the face of the Note and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents, consultants and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
56
<PAGE>
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses, taxes,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relating to the Company or any other
obligor upon the Notes, any of their respective creditors or any of their
respective property and shall be entitled and empowered to collect and receive
any monies or other property payable or deliverable on any such claims and to
distribute the same, and any Custodian in any such judicial proceedings is
hereby authorized by each Holder to make such payments to the Trustee and, if
the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, taxes, disbursements and advances of the Trustee, its
agents, consultants and counsel, and any other amounts due the Trustee under
Section 7.07. The Company's payment obligations under this Section 6.09 shall be
secured in accordance with the provisions of Section 7.07 hereunder. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money or property pursuant to this
Article Six, it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against the Company
directly without the Trustee, to Holders for their collection costs;
Third: to Holders for amounts due and unpaid on the Notes for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Notes for principal
and interest, respectively; and
Fourth: to the Company or any other obligor on the Notes, as their
interests may appear, or as a court of competent jurisdiction may direct.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits
57
<PAGE>
and good faith of the claims or defenses made by the party litigant. This
Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Notes.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in its exercise thereof as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be
implied in this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) Notwithstanding anything to the contrary herein contained, the
Trustee may not be relieved from liability for its own negligent action, its own
negligent failure to act, or its own wilful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.02, 6.04 or 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties
58
<PAGE>
hereunder or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not assured to it.
(e) Whether or not herein expressly provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely and shall be fully protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document reasonably believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate, an Opinion of Counsel or
both, which shall conform to Sections 13.04 and 13.05. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or indirectly or by or through
agents or attorneys and the Trustee shall not be responsible for the misconduct
or negligence of any agent or attorney appointed with due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it reasonably believes to be authorized or
within its rights or powers; provided, however that the Trustee's conduct does
not constitute wilful misconduct, negligence or bad faith.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit, and, if the Trustee shall determine to make such further inquiry or
investigation, it shall be entitled, upon reasonable notice to the Company, to
examine the books, records, and premises of the Company, personally or by agent
or attorney and to consult with the officers and representatives of the Company,
including the Company's accountants and attorneys.
59
<PAGE>
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the loss, expenses and liabilities which may
be incurred by it in compliance with such request, order or direction.
(g) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder.
(h) The Trustee may determine (i) the execution by any Holder of any
instrument in writing, (ii) the date of such execution or (iii) the authority of
any Person executing the same, in any manner the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(i) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Notes shall be full and complete authorization and protection from liability in
respect to any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company, any
Subsidiary of the Company, or their respective Affiliates with the same rights
it would have if it were not Trustee. However, if the Trustee acquires any
conflicting interest within the meaning of Section 3.10(b) of the TIA, it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights.
However, the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Offering Circular and the recitals contained herein and in the
Notes shall be taken as statements of the Company and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representation as to
the validity or adequacy of this Indenture or the Notes, and it shall not be
accountable for the Company's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Company in this Indenture or the
Notes other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default occurs and is continuing and if it is known to the
Trustee, the Trustee shall mail to each Holder notice of the Default within 90
days after such Default occurs. Except in the case of a Default in payment of
principal of, or interest on, any Note, including an accelerated payment and the
failure to make payment on the purchase date
60
<PAGE>
pursuant to a Change in Control under Section 4.16 and, except in the case of a
failure to comply with Article Five hereof, the Trustee may withhold the notice
if and so long as its board of directors, the executive committee of its board
of directors or a committee of its Trust Officers in good faith reasonably
determines that withholding the notice is in the best interest of the Holders.
In addition, the Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate regarding knowledge of the Company's
compliance with all covenants and conditions under this Indenture. The Company
also shall deliver to the Trustee pursuant to Section 6.01, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or proposes
to take in respect thereof.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each May 15, beginning with the May 15
following the date of this Indenture, the Trustee shall, to the extent that
any of the events described in TIA Section 313(a) occurred within the
previous twelve months, but not otherwise, mail to each Holder a brief report
dated as of such date that complies with TIA Section 313(a). The Trustee
also shall comply with TIA Section Section 313(b) and (c).
The Company shall promptly notify the Trustee if the Notes become
listed on, or delisted from, any stock exchange and the Trustee shall comply
with TIA Section 313(d).
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable fees and
expenses, including out-of-pocket expenses incurred or made by it in
connection with the performance of its duties under this Indenture. Such
expenses shall include the reasonable fees and expenses of the Trustee's
agents, consultants, experts and counsel.
The Company shall indemnify the Trustee and its agents,
employees, stockholders and directors and officers for, and hold them
harmless against, any loss, liability or expense incurred by them, arising
out of or in connection with the administration of this trust including the
reasonable costs and expenses of defending themselves against any claim or
liability in connection with the exercise or performance of any of their
rights, powers or duties hereunder. The Company need not reimburse any
expense or indemnify against any loss, liability or expense Incurred by the
Trustee through the Trustee's own wilful misconduct, negligence or bad faith.
The Trustee shall notify the Company promptly of any claim asserted against
the Trustee for which it may seek indemnity. At the Trustee's sole
discretion, the Company shall defend the claim and the Trustee shall
cooperate and may participate in the defense; provided that any settlement of
a claim shall be approved in writing by the Trustee. Alternatively, the
Trustee may at its option have separate counsel of its own choosing and the
Company shall pay the reasonable fees and expenses of such counsel; provided
that the Company shall not be required to pay such fees and expenses if it
assumes the Trustee's
61
<PAGE>
defense and there is no conflict of interest between the Company and the
Trustee in connection with such defense as reasonably determined by the
Trustee. The Company need not pay for any settlement made without its written
consent. The Company need not reimburse any expense or indemnify against any
loss or liability to the extent incurred by the Trustee through its
negligence, bad faith or wilful misconduct.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Notes on all assets or money held
or collected by the Trustee, in its capacity as Trustee, except assets or
money held in trust to pay principal of or interest on particular Notes. The
Trustee's right to receive payment of any amounts due under this Section 7.07
shall not be subordinate to any other liability or indebtedness of the
Company (even though the Notes may be subordinate to such other liability or
indebtedness).
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(7) or (8) occurs, such expenses
and the compensation for such services are intended to constitute expenses of
administration under any Bankruptcy Law; provided, however, that this shall
not affect the Trustee's rights as set forth in the preceding paragraph or
Section 6.10.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Company and the Trustee and may appoint a
successor Trustee. The Company may remove the Trustee if:
(A) the Trustee fails to comply with Section 7.10;
(B) the Trustee is adjudged bankrupt or insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(C) a receiver or other public officer takes charge of the Trustee
or its property; or
(D) the Trustee becomes incapable of acting.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
If the Trustee resigns or is removed as Trustee or if a vacancy
exists in the office of Trustee for any reason, the Company shall notify each
Holder of such event and shall promptly appoint a successor Trustee. Within one
year after the successor Trustee takes office, the Holders of a majority in
principal amount of the Notes may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
62
<PAGE>
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee; provided that such
corporation shall be otherwise qualified and eligible under this Article Seven.
If at the time such successor or successors by merger, conversion,
consolidation or transfer of assets to the Trustee shall succeed to the trust
created by this Indenture any of the Notes shall have been authenticated but not
delivered, any successor to the Trustee may adopt a certificate of
authentication of any predecessor Trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Trustee may authenticate such Notes either
in the name of any predecessor hereunder or in the name of the successor to the
Trustee; and in all such cases such certificates shall have the full force which
it is anywhere in the Notes or in this Indenture provided that the certificate
of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the
case of a corporation included in a bank holding company system, the related
bank holding company) shall have a combined capital and surplus of at least
$50 million as set forth in its most recent published annual report of
condition. In addition, if the Trustee is a corporation included in a bank
holding company
63
<PAGE>
system, the Trustee, independently of such bank holding company, shall meet
the capital requirements of TIA Section 310(a)(2). The Trustee shall comply
with TIA Section 310(b); provided, however, that there shall be excluded from
the operation of TIA Section 310(b)(1) any indenture or indentures under
which other securities, or certificates of interest or participation in other
securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA
Section 310 shall apply to the Company, as obligor of the Notes.
SECTION 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the
extent indicated therein.
ARTICLE EIGHT
DISCHARGE OF INDENTURE; DEFEASANCE
SECTION 8.01. Discharge of Liability on Notes; Defeasance.
(a) When (i) the Company delivers to the Trustee all outstanding
Notes (other than Notes replaced pursuant to Section 2.07) for cancellation or
(ii) all outstanding Notes have become due and payable at maturity or shall be
due and payable within 60 days as a result of the mailing of a notice of
redemption pursuant to Article Three hereof, in each case, and the Company
irrevocably deposits with the Trustee funds sufficient to pay at maturity or
upon redemption all outstanding Notes, including interest thereon to maturity or
such redemption date (other than Notes replaced pursuant to Section 2.07), and
if in either case the Company pays all other sums payable hereunder by the
Company, then this Indenture shall, subject to Section 8.01(c), cease to be of
further effect. The Trustee shall acknowledge satisfaction and discharge of this
Indenture on demand of the Company accompanied by an Officers' Certificate and
an Opinion of Counsel as to the satisfaction of all conditions to such
satisfaction and discharge of this Indenture and at the cost and expense of the
Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time
may terminate (i) all its obligations under the Notes and this Indenture ("legal
defeasance option") or (ii) its obligations under Sections 4.8 and 4.10 through
4.23 and the operation of Section 6.01(4) and the limitations contained in
clause (iii) of the first paragraph of each Section 5.01 and Section 5.03
("covenant defeasance option"). The Company may exercise its legal defeasance
option notwithstanding its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Notes may not be accelerated because of an Event of Default. If the Company
exercises its covenant defeasance option, payment of the Notes may not be
accelerated because of an Event of Default specified in Section 6.01(4) or
because of the failure of the Company to comply with clause (iii) of the first
paragraph of each Section 5.01 and Section 5.03. If the Company
64
<PAGE>
exercises its legal defeasance option or its covenant defeasance option, each
Subsidiary Guarantor, if any, shall be released from all its obligations under
its Subsidiary Guarantee.
Upon satisfaction of the conditions set forth herein and upon
request of the Company, the Trustee shall acknowledge in writing the discharge
of those obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.07, 2.08, 7.07, 7.08, 8.05, 8.06 and
the Appendix shall survive until the Notes have been paid in full. Thereafter,
the Company's obligations in Sections 7.07, 8.05 and 8.06 shall survive.
SECTION 8.02. Conditions to Defeasance.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of, interest
and premium, if any, on the Notes to maturity or redemption (including, in
the case of payment of principal, interest and premium, if any, to
redemption, under arrangements reasonably satisfactory to the Trustee
providing for redemption pursuant to irrevocable instructions delivered to
the Trustee prior to 60 days before a Redemption Date), as the case may
be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm expressing their opinion
that the payments of principal and interest when due and without
reinvestment on the deposited U.S. Government Obligations plus any
deposited money without investment shall provide cash at such times and in
such amounts as shall be sufficient to pay principal, premium, if any, and
interest when due on all outstanding Notes to maturity or redemption, as
the case may be;
(3) (x) no Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit and (y)
no Event of Default under Section 6.01(7) or (8) shall occur at any time
in the period ending on the 123rd day after the date of such deposit (it
being understood that the condition set forth in the preceding clause (y)
is a condition subsequent which shall not be deemed satisfied until the
expiration of such 123-day period, but in the case of the covenant
defeasance, the covenants which are defeased under Section 8.01(b) shall
cease to be in effect unless an Event of Default under Section 6.01(7) or
(8) occurs during such period);
(4) the Company delivers to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering,
65
<PAGE>
delaying or defrauding any other creditors of the Company and the deposit
is not prohibited under any Designated Senior Indebtedness;
(5) neither the deposit nor the defeasance shall result in a default
or event of default under any other material agreement to which the
Company is a party or by which the Company is bound and neither the
deposit nor the defeasance shall be prohibited by Article Ten;
(6) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or
is qualified as, a regulated investment company under the Investment
Company Act of 1940;
(7) in the case of the legal defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of this Indenture there
has been a change in the applicable Federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Noteholders shall not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and shall be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred;
(8) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Noteholders shall not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and shall be subject
to Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and
(9) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Notes as contemplated by this Article
Eight have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Notes at a future date in
accordance with Article Three.
SECTION 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article Eight. It shall apply the deposited
money and the money from U.S. Government Obligations through the Paying Agent
and in accordance with this Indenture to the payment of principal of and
interest on the Notes. Money and securities so held in trust are not subject to
Article Ten.
SECTION 8.04. Repayment to Company.
66
<PAGE>
The Trustee and the Paying Agent shall promptly turn over to the
Company, upon delivery of an Officers' Certificate stating that such payment
does not violate the terms of this Indenture, any excess money or securities
held by them at any time, subject to Section 7.07.
Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon its written request any money
held by them for the payment of principal or interest that remains unclaimed for
two years, and, thereafter, Noteholders entitled to the money must look to the
Company for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations.
The Company shall pay and shall indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against deposited U.S.
Government Obligations or the principal and interest received on such U.S.
Government Obligations.
SECTION 8.06. Reinstatement.
If the funds deposited with the Trustee to effect legal defeasance
or covenant defeasance are insufficient to pay the principal of, premium, if
any, and interest on the Notes when due, then the obligations of the Company and
the Subsidiary Guarantors under the Indenture shall be revived and no such
defeasance shall be deemed to have occurred.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with this Article Eight by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's and the Subsidiary Guarantors' obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to this Article Eight until such time as the
Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S.
Government Obligations in accordance with this Article 8; provided, however,
that, if the Company has made any payment of interest on or principal of any
Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or
Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Notes without notice to
or consent of any Holder:
67
<PAGE>
(1) to cure any ambiguity, omission, defect or inconsistency;
provided that such amendment or supplement does not, in the reasonable
opinion of the Trustee, adversely affect the rights of any Holder in any
material respect;
(2) to comply with Article Five;
(3) to provide for uncertificated Notes in addition to or in place
of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code);
(4) to comply with any requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA;
(5) to make any change that would provide any additional benefit or
rights to the Holders or that does not adversely affect the rights of any
Holder; or to surrender any right or power conferred upon the Company;
(6) to add Subsidiary Guarantees with respect to the Notes;
(7) to secure the Notes;
(8) to make any other change that does not, in the reasonable
opinion of the Trustee, adversely affect in any material respect the
rights of any Holders hereunder; or
(9) alter the provisions with respect to the mandatory redemption of
the Notes or the redemption of the Notes at the option of the Company in a
manner adverse to the Holders;
provided that the Company has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.01.
After an amendment, supplement or waiver under this Section 9.01
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee, together, with the written consent of the Holder or
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes, may amend or supplement this Indenture or the Notes, without
notice to any other Holders. Subject to Section 6.07, the Holder or Holders of
at least a majority in aggregate principal amount of the
68
<PAGE>
then outstanding Notes may waive compliance by the Company with any provision of
this Indenture or the Notes without notice to any other Holder. No amendment,
supplement or waiver, including a waiver pursuant to Section 6.04, shall,
without the consent of each Holder of each Note affected thereby:
(1) reduce the amount of Notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the rate of or extend the time for payment of interest on
any Notes;
(3) reduce the principal of or change or have the effect of changing
the Stated Maturity of any Note, or alter the provisions with respect to
the mandatory redemption of the Notes or the redemption of the Notes at
the option of the Company in a manner adverse to the Holders;
(4) waive a Default or Event of Default in the payment of principal
of, premium, if any, or interest on, the Notes;
(5) waive a mandatory redemption payment with respect to any Note;
(6) make any Notes payable in money or payable in a place other than
that stated in the Notes;
(7) make any change in Section 6.04 or Section 6.07 or the second
sentence of this Section;
(8) amend, modify, change or waive any provision of this Section
9.02;
(9) modify Articles Ten or Twelve or the definitions used in
Articles Ten or Twelve to adversely affect the Holders of the Notes; or
(10) make any change in any Subsidiary Guarantee that would
adversely affect the Holders.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.03. Effect on Senior Indebtedness.
69
<PAGE>
No amendment of this Indenture shall adversely affect the rights of
any holder of Senior Indebtedness of the Company or any Restricted Subsidiary
under Article Ten or Twelve of this Indenture, without the consent of such
holder (or its Representative).
SECTION 9.04. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the Notes
shall comply with the TIA as then in effect.
SECTION 9.05. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note, even if notation of the consent is not made on any
Note. Subject to the following paragraph, any such Holder or subsequent Holder
may revoke the consent as to such Holder's Note or portion of such Note by
notice to the Trustee or the Company received before the date the amendment,
supplement or waiver becomes effective.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (1)
through (10) of Section 9.02, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided that any such waiver shall not impair or
affect the right of any Holder to receive payment of principal of and interest
on a Note, on or after the respective due dates expressed in such Note, or to
bring suit for the enforcement of any such payment on or after such respective
dates without the consent of such Holder.
SECTION 9.06. Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note,
the Trustee may require the Holder of such Note to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Note about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
70
<PAGE>
Any such notation or exchange shall be made at the sole cost and expense of the
Company. Failure to make the appropriate notation or to issue a new Note shall
not affect the validity of such amendment, supplement or waiver.
SECTION 9.07. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture. Such Opinion of Counsel shall not be an expense of the Trustee.
SECTION 9.08. Payment for Consent.
Neither the Company nor any Affiliate of the Company shall, directly
or indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of this Indenture
or the Notes, unless such consideration is offered to be paid to all Holders
that so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or agreement.
ARTICLE TEN
SUBORDINATION
SECTION 10.01. Notes Subordinated to Senior Indebtedness.
The Company covenants and agrees, and each Holder of the Notes, by
its acceptance thereof, likewise covenants and agrees, that all Notes shall be
issued subject to the provisions of this Article Ten; and each Person holding
any Note, whether upon original issue or upon transfer, assignment or exchange
thereof, accepts and agrees that the payment of all Obligations on the Notes by
the Company shall, to the extent and in the manner herein set forth, be
subordinated and junior in right of payment to the prior payment in full in cash
of all Senior Indebtedness of the Company; that the subordination is for the
benefit of, and shall be enforceable directly by, the holders of Senior
Indebtedness of the Company, and that each holder of Senior Indebtedness of the
Company whether now outstanding or hereafter created, incurred, assumed or
Guaranteed shall be deemed to have acquired Senior Indebtedness of the Company
in reliance upon the covenants and provisions contained in this Indenture and
the Notes. Only Indebtedness of the Company that is Senior Indebtedness of the
Company shall rank senior to the Notes in accordance with the provisions of the
Indenture. The Notes shall in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Company. Unsecured Indebtedness is not deemed
to be subordinated or junior to secured Indebtedness
71
<PAGE>
merely because it is unsecured. The terms of the subordination provisions
described in this Article Ten shall not apply to payments from money or the
proceeds of U.S. Government Obligations in trust by the Trustee for the payment
of principal and interest on the Notes pursuant to the provisions described in
Article Eight unless such payments were in violation of Designated Senior
Indebtedness.
SECTION 10.02. No Payment on Notes in Certain Circumstances.
(a) The Company may not, and no other Person on behalf of the
Company may pay principal of, premium (if any) or interest on the Notes or make
any other payments with respect to the Notes or make any deposit pursuant to the
provisions described under Article Eight above and may not repurchase, redeem or
otherwise retire any Notes (collectively, "pay the Notes") if (i) any amount of
principal, interest or other payments due under any Senior Indebtedness of the
Company has not been paid when due and remains outstanding or (ii) any other
default on Senior Indebtedness of the Company occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived in writing and any such
acceleration has been rescinded or such Designated Senior Indebtedness has been
paid in full in cash, after which the Company shall resume making any and all
required payments in respect of the Notes, including any missed payments.
However, the Company may pay the Notes without regard to the foregoing if the
Company and the Trustee receive written notice approving such payment from the
Representative of the Senior Indebtedness of the Company with respect to which
either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing, after which the Company shall
resume making any and all required payments in respect of the Notes, including
any missed payments. During the continuance of any default (other than a default
described in clause (i) or (ii) of the second preceding sentence) with respect
to any Designated Senior Indebtedness of the Company pursuant to which the
maturity thereof may be accelerated either immediately without further notice
(except such notice as may be required to effect such acceleration) or upon the
expiration of any applicable grace periods, the Company may not pay the Notes
for a period (a "Payment Blockage Period") commencing upon the receipt by the
Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of
such default from the Representative of the holders of such Designated Senior
Indebtedness of the Company specifying an election to effect a Payment Blockage
Period and ending 179 days thereafter (or earlier if such Payment Blockage
Period is terminated (A) by written notice to the Trustee and the Company from
the Person or Persons who gave such Blockage Notice, (B) because the default
giving rise to such Blockage Notice is no longer continuing (solely as evidenced
by written notice to the Trustee by the Representative of such Designated Senior
Indebtedness which notice shall be promptly delivered) or (C) because such
Designated Senior Indebtedness of the Company has been repaid in full in cash).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness of the
Company or the Representative of such holders has accelerated the maturity of
such Designated Senior Indebtedness of the Company, the Company may resume
payments on the Notes after the end of such Payment Blockage Period, including
any missed payments. No more than one Payment Blockage Period may be commenced
in any consecutive 360-day period, irrespective of the number of
72
<PAGE>
defaults with respect to Designated Senior Indebtedness of the Company during
such period.
(b) If, notwithstanding the foregoing, any payment shall be received
by the Trustee or any Holder when such payment is prohibited by Section
10.02(a), such payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of such Senior Indebtedness of the
Company (pro rata to such holders on the basis of the respective amount of such
Senior Indebtedness of the Company held by such holders) or their respective
Representatives, as their respective interests may appear. The Trustee shall be
entitled to rely on information regarding amounts then due and owing on the
Senior Indebtedness of the Company, if any, received from the holders of such
Senior Indebtedness of the Company (or their Representatives) or, if such
information is not received from such holders or their Representatives, from the
Company and only amounts included in the information provided to the Trustee
shall be paid to the holders of Senior Indebtedness of the Company.
The provisions of this Section shall not apply to any payment with
respect to which Section 10.03 would be applicable.
Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders of Notes to take any action to accelerate the maturity of
the Notes pursuant to Section 6.02 or to pursue any rights or remedies
hereunder; provided that all Senior Indebtedness of the Company thereafter due
or declared to be due shall first be paid in full in cash before the Holders are
entitled to receive any payment of any kind or character with respect to
Obligations on the Notes.
SECTION 10.03. Payment Over of Proceeds upon Dissolution, Etc.
(a) Upon any payment or distribution of assets of the Company or any
of its Subsidiaries of any kind or character, whether in cash, property or
securities, to creditors upon any total or partial liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors or
marshaling of assets of the Company or any of its Subsidiaries or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to the Company or any of its Subsidiaries or any of their property,
whether voluntary or involuntary, all Obligations due or to become due upon all
Senior Indebtedness of the Company shall first be paid in full in cash, or such
payment duly provided for to the satisfaction of the holders of Senior
Indebtedness of the Company, before any payment or distribution of any kind or
character is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise. Upon any
total or partial liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding, any payment or distribution of assets of the Company or any of its
Subsidiaries of any kind or character, whether in cash, property or securities,
to which the Holders of the Notes or the Trustee under this Indenture would be
entitled, except for the provisions hereof, shall be paid by the Company or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Holders or by the Trustee under
this Indenture if received by them, directly to the holders of Senior
Indebtedness
73
<PAGE>
of the Company (pro rata to such holders on the basis of the respective amounts
of Senior Indebtedness of the Company held by such holders) or their respective
Representatives, or to the trustee or trustees under any indenture pursuant to
which any of such Senior Indebtedness of the Company may have been issued, as
their respective interests may appear, for application to the payment of Senior
Indebtedness of the Company remaining unpaid until all such Senior Indebtedness
of the Company has been paid in full in cash after giving effect to any
concurrent payment, distribution or provision therefor to or for the holders of
Senior Indebtedness of the Company.
(b) To the extent any payment of Senior Indebtedness of the Company
(whether by or on behalf of the Company, as proceeds of security or enforcement
of any right of setoff or otherwise) is declared to be fraudulent or
preferential, set aside or required to be paid to any receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person under any
bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness of the Company or part thereof originally intended to be satisfied
shall be deemed to be reinstated and outstanding as if such payment had not
occurred.
(c) If, notwithstanding the foregoing, any payment or distribution
of assets of the Company of any kind or character, whether in cash, property or
securities, shall be received by any Holder or the Trustee when such payment or
distribution is prohibited by this Section 10.03, such payment or distribution
shall be held in trust for the benefit of, and shall be paid over or delivered
to, the holders of Senior Indebtedness of the Company (pro rata to such holders
on the basis of the respective amount of Senior Indebtedness of the Company held
by such holders) or their respective Representatives, or to the trustee or
trustees under any indenture pursuant to which any of such Senior Indebtedness
of the Company may have been issued, as their respective interests may appear,
for application to the payment of Senior Indebtedness of the Company remaining
unpaid until all such Senior Indebtedness of the Company has been paid in full
in cash, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Senior Indebtedness of the
Company.
(d) The consolidation of the Company with, or the merger of the
Company with or into, another corporation or the liquidation or dissolution of
the Company following the conveyance or transfer of all or substantially all of
its assets, to another corporation upon the terms and conditions provided in
Article Five hereof and as long as permitted under the terms of the Senior
Indebtedness of the Company shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, assume the Company's obligations hereunder in accordance with Article
Five hereof.
SECTION 10.04. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Ten or elsewhere in this Indenture
shall prevent (i) the Company, except under the conditions described in Sections
10.02 and 10.03,
74
<PAGE>
from making payments at any time for the purpose of making payments of principal
of and interest on the Notes, or from depositing with the Trustee any moneys for
such payments, or (ii) in the absence of actual knowledge by the Trustee that a
given payment would be prohibited by Section 10.02 or 10.03, the application by
the Trustee of any moneys deposited with it for the purpose of making such
payments of principal of, and interest on, the Notes to the Holders entitled
thereto unless at least two Business Days prior to the date upon which such
payment would otherwise become due and payable the written notice provided for
in the third sentence of Section 10.02(a) or in Section 10.07 has been received
by the Trustee (provided that, notwithstanding the foregoing, such application
shall otherwise be subject to the provisions of the first sentence of Section
10.02(a), 10.02(b) and Section 10.03). The Company shall give prompt written
notice to the Trustee of any dissolution, winding-up, liquidation or
reorganization of the Company.
SECTION 10.05. Subrogation.
Subject to, and only after, the payment in full in cash of all
Senior Indebtedness of the Company, the Holders of the Notes shall be subrogated
to the rights of the holders of Senior Indebtedness of the Company to receive
payments or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness of the Company until the Notes shall be
paid in full; and, for the purposes of such subrogation, no such payments or
distributions to the holders of the Senior Indebtedness of the Company by or on
behalf of the Company or by or on behalf of the Holders by virtue of this
Article Ten which otherwise would have been made to the Holders shall, as
between the Company and the Holders of the Notes, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness of the Company, it being
understood that the provisions of this Article Ten are and are intended solely
for the purpose of defining the relative rights of the Holders of the Notes, on
the one hand, and the holders of the Senior Indebtedness of the Company, on the
other hand. If any payment or distribution to which the Holders would otherwise
have been entitled but for the application of the provisions of this Article
Ten, shall have been applied, pursuant to the provisions of this Article Ten, to
the payment of amounts payable under Senior Indebtedness of the Company, then
the Holders shall be entitled to receive from the holders of such Senior
Indebtedness any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount sufficient to pay all amounts payable under
or in respect of such Senior Indebtedness in full in cash.
SECTION 10.06. Obligations of the Company Unconditional.
Nothing contained in this Article Ten or elsewhere in this Indenture
or in the Notes or the Subsidiary Guarantees is intended to or shall impair, as
among the Company, its creditors other than the holders of Senior Indebtedness
of the Company, and the Holders, the obligation of the Company, which is
absolute and unconditional, to pay to the Holders the principal of, premium, if
any, and any interest on the Notes as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders and creditors of the Company other than the
holders of the Senior Indebtedness of the Company, nor shall anything herein or
therein prevent the Holder of any Note or the Trustee on its behalf from
exercising all remedies otherwise permitted by
75
<PAGE>
applicable law upon default under this Indenture, subject to the rights, if any,
in respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
SECTION 10.07. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any
fact known to the Company which would prohibit the making of any payment to or
by the Trustee in respect of the Notes pursuant to the provisions of this
Article Ten. Regardless of anything to the contrary contained in this Article
Ten or elsewhere in this Indenture, the Trustee shall not be charged with
knowledge of the existence of any default or event of default with respect to
any Senior Indebtedness of the Company or of any other facts which would
prohibit the making of any payment to or by the Trustee unless and until the
Trustee shall have received notice in writing from the Company, or from a holder
of Senior Indebtedness of the Company or a Representative therefor and, prior to
the receipt of any such written notice, the Trustee shall be entitled to assume
(in the absence of actual knowledge to the contrary) that no such facts exist.
If the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of Senior
Indebtedness of the Company to participate in any payment or distribution
pursuant to this Article Ten, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amounts of
Senior Indebtedness of the Company held by such Person, the extent to which such
Person is entitled to participate in such payment or distribution and any other
facts pertinent to the rights of such Person under this Article Ten, and if such
evidence is not furnished the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.
SECTION 10.08. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of the Company referred
to in this Article Ten, the Trustee, subject to the provisions of Article Seven
hereof, and the Holders of the Notes shall be entitled to rely upon any order or
decree made by any court of competent jurisdiction in which any insolvency,
bankruptcy, receivership, dissolution, winding-up, liquidation, reorganization
or similar case or proceeding is pending so long as such order gives effect to
the provisions of this Article Ten, or upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, receiver, assignee for the benefit
of creditors, agent or other person making such payment or distribution,
delivered to the Trustee or the Holders of the Notes, for the purpose of
ascertaining the persons entitled to participate in such payment or
distribution, the holders of the Senior Indebtedness of the Company and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Ten.
SECTION 10.09. Trustee's Relation to Senior Indebtedness.
The Trustee and any agent of the Company or the Trustee shall be
entitled to all
76
<PAGE>
the rights set forth in this Article Ten with respect to any Senior Indebtedness
of the Company which may at any time be held by it in its individual or any
other capacity to the same extent as any other holder of Senior Indebtedness of
the Company and nothing in this Indenture shall deprive the Trustee or any such
agent of any of its rights as such holder.
With respect to the holders of Senior Indebtedness of the Company,
the Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Ten, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness of
the Company shall be read into this Indenture against the Trustee. The Trustee
shall not be deemed to owe any fiduciary duty to the holders of Senior
Indebtedness of the Company.
Whenever a distribution is to be made or a notice given to holders
or owners of Senior Indebtedness of the Company, the distribution may be made
and the notice may be given to their Representative, if any. The Company shall
provide the Trustee with the name and address of any Representative.
SECTION 10.10. Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders of Senior
Indebtedness.
No right of any present or future holders of any Senior Indebtedness
of the Company to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Company may, at any time
and from time to time, without the consent of or notice to the Trustee, without
incurring responsibility to the Trustee or the Holders of the Notes and without
impairing or releasing the subordination provided in this Article Ten or the
obligations hereunder of the Holders of the Notes to the holders of the Senior
Indebtedness of the Company, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Indebtedness of the Company, or otherwise amend or supplement in
any manner Senior Indebtedness of the Company, or any instrument evidencing the
same or any agreement under which Senior Indebtedness of the Company is
outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness of the Company;
(iii) release any Person liable in any manner for the payment or collection of
Senior Indebtedness of the Company; and (iv) exercise or refrain from exercising
any rights against the Company and any other Person.
SECTION 10.11. Noteholders Authorize Trustee To Effectuate
Subordination of Notes.
Each Holder of Notes by its acceptance of them authorizes and
expressly directs
77
<PAGE>
the Trustee on its behalf to take such action as may be necessary or appropriate
to effectuate, as between the holders of Senior Indebtedness of the Company and
the Holders of Notes, the subordination provided in this Article Ten, and
appoints the Trustee its attorney-in-fact for such purposes, including, in the
event of any dissolution, winding-up, liquidation or reorganization of the
Company (whether in bankruptcy, insolvency, receivership, reorganization or
similar proceedings or upon an assignment for the benefit of creditors or
otherwise) tending towards liquidation of the business and assets of the
Company, the filing of a claim for the unpaid balance of its Notes and accrued
interest in the form required in those proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Senior Indebtedness
of the Company or their Representatives are or is hereby authorized to have the
right to file and are or is hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Notes, and the Trustee shall supply such
Holders and Representatives all information and documents they reasonably
request in order to file such claims. Nothing herein contained shall be deemed
to authorize the Trustee or the holders of Senior Indebtedness of the Company or
their Representative to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof, or to authorize the
Trustee or the holders of Senior Indebtedness of the Company or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 10.12. This Article Ten Not To Prevent Events of Default.
The failure to make a payment on account of principal of or interest
on the Notes by reason of any provision of this Article Ten shall not be
construed as preventing the occurrence of an Event of Default.
Nothing contained in this Article Ten shall limit the right of the
Trustee or the Holders to take any action or accelerate the maturity of the
Notes pursuant to Article Six or to pursue any rights or remedies hereunder or
under applicable law, subject to the rights, if any, under this Article Ten of
the holders from time to time, of Senior Indebtedness of the Company.
SECTION 10.13. Trustee's Compensation Not Prejudiced.
Nothing in this Article Ten shall apply to amounts due to the
Trustee pursuant to other sections in this Indenture
SECTION 10.14. Acceleration of Payment of Notes.
If payment of the Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of
Designated Senior Indebtedness of the Company or the Representative of
such holders of the acceleration (in the case of the Trustee, only to the extent
of its actual knowledge of such holders or the Representative of
78
<PAGE>
such holders). Such notice is in addition to, and not in lieu of, any notice
that may be required to be delivered under Section 6.02 prior to the
effectiveness of any such acceleration.
ARTICLE ELEVEN
SUBSIDIARY GUARANTEES
SECTION 11.01. Unconditional Subsidiary Guarantee.
Each of the Subsidiary Guarantors hereby unconditionally jointly and
severally Guarantees (such Guarantee to be referred to herein as the "Subsidiary
Guarantee") to each Holder of a Note authenticated and delivered by the Trustee
and to the Trustee and its successors and assigns, the Notes or the Obligations
of the Company hereunder or thereunder, that: (i) the principal of and interest
on the Notes shall be promptly paid in full when due, subject to any applicable
grace period, whether at maturity, by acceleration or otherwise and interest on
the overdue principal, if any, and interest on any interest, to the extent
lawful, of the Notes and all other Obligations of the Company to the Holders or
the Trustee hereunder or thereunder shall be promptly paid in full or performed,
all in accordance with the terms hereof and thereof; and (ii) in case of any
extension of time of payment or renewal of any Notes or of any such other
Obligations, the same shall be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, subject to any applicable
grace period, whether at stated maturity, by acceleration or otherwise.
Each Subsidiary Guarantor further agrees that, as between such
Subsidiary Guarantor on one hand, and the Holders and the Trustee on the other
hand, (x) the maturity of the Obligations Guaranteed hereby may be accelerated
as provided in Article Six for the purposes of the Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations Guaranteed hereby, and (y) in the
event of any acceleration of such Obligations as provided in Article Six, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by such Subsidiary Guarantor for the purposes of the Subsidiary
Guarantee.
Each of the Subsidiary Guarantors hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Each of the Subsidiary Guarantors hereby waives diligence, presentment, demand
of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that the
Subsidiary Guarantee shall not be discharged except by complete performance of
the Obligations contained in the Notes, this Indenture and in the Subsidiary
Guarantee. If any Noteholder or the Trustee is required by any court or
otherwise to return to the Company, any Subsidiary Guarantor, or any custodian,
trustee, liquidator or
79
<PAGE>
other similar official acting in relation to the Company or any Subsidiary
Guarantor, any amount paid by the Company or such Subsidiary Guarantor to the
Trustee or such Noteholder, the Subsidiary Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each of the Subsidiary
Guarantors hereby agrees that, in the event of default in the payment of
principal (or premium, if any) or interest on such Notes, whether at their
Stated Maturity, by acceleration, called for redemption, purchase or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Notes, subject to the terms and conditions set forth in this
Indenture, directly against each of the Subsidiary Guarantors to enforce the
Subsidiary Guarantee without first proceeding against the Company. Each
Subsidiary Guarantor agrees that if, after the occurrence and during the
continuance of an Event of Default, the Trustee or any Holders are prevented by
applicable law from exercising their respective rights to accelerate the
maturity of the Notes, to collect interest on the Notes, or to enforce any other
right or remedy with respect to the Notes, the Subsidiary Guarantors agree to
pay to the Trustee for the account of the Holders, upon demand therefor, the
amount that would otherwise have been due and payable had such rights and
remedies been permitted to be exercised by the Trustee or any of the Holders.
SECTION 11.02. Subordination of Subsidiary Guarantee.
The obligations of each Subsidiary Guarantor to the Holders of the
Notes and to the Trustee pursuant to the Subsidiary Guarantee and this Indenture
are expressly subordinate and subject in right of payment to the prior payment
in full in cash of all Senior Indebtedness of such Subsidiary Guarantor, to the
extent and in the manner provided in Article Twelve.
SECTION 11.03. Severability.
In case any provision of the Subsidiary Guarantee shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.04. Release of Subsidiary Guarantor from the Subsidiary
Guarantee.
Upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Subsidiary Guarantor (or all or substantially all
of its assets) to an entity which is not the Company or a Subsidiary or
Affiliate of the Company and which sale or disposition is otherwise in
compliance with the terms of this Indenture, including but not limited to the
provisions of Section 5.03, or pursuant to a foreclosure of a Lien that secures
outstanding Bank Indebtedness on the capital stock of such Subsidiary Guarantor
in accordance with the Credit Facility, such Subsidiary Guarantor shall be
deemed released from all obligations under this Article Eleven without any
further action required on the part of the Trustee or any Holder.
The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate and Opinion of Counsel certifying as to the compliance with this
Section 11.04.
80
<PAGE>
SECTION 11.05. Limitation on Amount Guaranteed; Contribution by
Subsidiary Guarantors.
(a) Anything contained in this Indenture or the Subsidiary Guarantee
to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter
defined) is determined by a court of competent jurisdiction to be applicable to
the obligations of any Subsidiary Guarantor under the Subsidiary Guarantee, such
obligations of such Subsidiary Guarantor under the Subsidiary Guarantee shall be
limited to a maximum aggregate amount equal to the largest amount that would not
render its obligations under the Subsidiary Guarantee subject to avoidance as a
fraudulent transfer or conveyance under Section 548 of Title 11 of the United
States Code or any applicable provisions of comparable state law (collectively,
the "Fraudulent Transfer Laws"), in each case after giving effect to all other
liabilities of such Subsidiary Guarantor, contingent or otherwise, that are
relevant under the Fraudulent Transfer Laws (specifically excluding, however,
any liabilities of such Subsidiary Guarantor (x) in respect of intercompany
Indebtedness to Company or other Affiliates of Company to the extent that such
Indebtedness would be discharged in an amount equal to the amount paid by such
Subsidiary Guarantor under the Subsidiary Guarantee and (y) under any Subsidiary
Guarantee of Subordinated Indebtedness which Subsidiary Guarantee contains a
limitation as to maximum amount similar to that set forth in this clause (a) of
Section 11.05, pursuant to which the liability of such Subsidiary Guarantor
under the Subsidiary Guarantee is included in the liabilities taken into account
in determining such maximum amount) and after giving effect as assets to the
value (as determined under the applicable provisions of the Fraudulent Transfer
Laws) of any rights to subrogation, reimbursement, indemnification or
contribution of such Subsidiary Guarantor pursuant to applicable law or pursuant
to the terms of any agreement (including without limitation any such right of
contribution under clause (b) of Section 11.05).
(b) The Subsidiary Guarantors together desire to allocate among
themselves in a fair and equitable manner, their obligations arising under the
Subsidiary Guarantee. Accordingly, if any payment or distribution is made on any
date by any Subsidiary Guarantor under the Subsidiary Guarantee (a "Funding
Guarantor") that exceeds its Fair Share (as defined below) as of such date, that
Funding Guarantor shall be entitled to a contribution from each of the other
Subsidiary Guarantors in the amount of such other Subsidiary Guarantor's Fair
Share Shortfall (as defined below) as of such date, with the result that all
such contributions shall cause each Subsidiary Guarantor's Aggregate Payments
(as defined below) to equal its Fair Share as of such date. "Fair Share" means,
with respect to a Subsidiary Guarantor as of any date of determination, an
amount equal to (i) the ratio of (x) the Adjusted Maximum Amount (as defined
below) with respect to such Subsidiary Guarantor to (y) the aggregate of the
Adjusted Maximum Amounts with respect to all Subsidiary Guarantors, multiplied
by (ii) the aggregate amount paid or distributed on or before such date by all
Funding Guarantors under the Subsidiary Guarantee in respect of the obligations
guarantied. "Fair Share Shortfall" means, with respect to a Subsidiary Guarantor
as of any date of determination, the excess, if any, of the Fair Share of such
Subsidiary Guarantor over the Aggregate Payments of such Subsidiary Guarantor.
"Adjusted Maximum Amount" means, with respect to a Subsidiary Guarantor as of
any date of determination, the maximum aggregate amount of the obligations
81
<PAGE>
of such Subsidiary Guarantor under the Subsidiary Guarantee, determined as of
such date in accordance with clause (a) of Section 11.05; provided that, solely
for purposes of calculating the Adjusted Maximum Amount with respect to any
Subsidiary Guarantor for purposes of this clause (b) of Section 11.05, any
assets or liabilities of such Subsidiary Guarantor arising by virtue of any
rights to subrogation, reimbursement or indemnification or any rights to or
obligations of contribution hereunder shall not be considered as assets or
liabilities of such Subsidiary Guarantor. "Aggregate Payments" means, with
respect to a Subsidiary Guarantor as of any date of determination, an amount
equal to (i) the aggregate amount of all payments and distributions made on or
before such date by such Subsidiary Guarantor in respect of the Subsidiary
Guarantee (including, without limitation, in respect of this clause (b) of
Section 11.05 minus (ii) the aggregate amount of all payments received on or
before such date by such Subsidiary Guarantor from the other Subsidiary
Guarantors as contributions under this clause (b) of Section 11.05). The amounts
payable as contributions hereunder shall be determined as of the date on which
the related payment or distribution is made by the applicable Funding Guarantor.
The allocation among Subsidiary Guarantors of their obligations as set forth in
this clause (b) of Section 11.05 shall not be construed in any way to limit the
liability of any Subsidiary Guarantor under this Indenture or under the
Subsidiary Guarantee.
SECTION 11.06. Waiver of Subrogation.
Until payment in full is made of the Notes and all other obligations
of the Company to the Holders or the Trustee hereunder and under the Notes, each
Subsidiary Guarantor hereby irrevocably waives any claim or other rights which
it may now or hereafter acquire against the Company that arise from the
existence, payment, performance or enforcement of such Subsidiary Guarantor's
obligations under the Subsidiary Guarantee and this Indenture, including without
limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Notes against the Company, whether or not such claim, remedy or right
arises in equity, or under contract, statute or common law, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or any other manner, payment
or security on account of such claim or other rights. If any amount shall be
paid to any Subsidiary Guarantor in violation of the preceding sentence and the
Notes shall not have been paid in full, such amount shall have been deemed to
have been paid to such Subsidiary Guarantor for the benefit of, and held in
trust for the benefit of, the Holders of the Notes, and shall forthwith be paid
to the Trustee for the benefit of such Holders to be credited and applied upon
the Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Subsidiary Guarantor acknowledges that it shall receive direct
and indirect benefits from the financing arrangements contemplated by this
Indenture and that the waiver set forth in this Section 11.06 is knowingly made
in contemplation of such benefits.
SECTION 11.07. Execution of Subsidiary Guarantee.
To evidence its Guarantee to the Noteholders set forth in this
Article Eleven, each Subsidiary Guarantor hereby agrees to execute the
Subsidiary Guarantee in substantially the form included in Exhibit A, which
shall be endorsed on such Note ordered to be
82
<PAGE>
authenticated and delivered by the Trustee. Each Subsidiary Guarantor hereby
agrees that the Subsidiary Guarantee set forth in this Article Eleven shall
remain in full force and effect notwithstanding any failure to endorse on each
Note a notation of the Subsidiary Guarantee. The Subsidiary Guarantee shall be
signed on behalf of each Subsidiary Guarantor by one Officer (who shall have
been duly authorized by all requisite corporate actions) prior to the
authentication of the Note on which it is endorsed, and the delivery of such
Note by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of the Subsidiary Guarantee on behalf of such Subsidiary
Guarantor. Such signatures upon the Subsidiary Guarantee may be by manual or
facsimile signature of such officers and may be imprinted or otherwise
reproduced on the Subsidiary Guarantee, and in case any such Officer who shall
have signed the Subsidiary Guarantee shall cease to be such officer before the
Note on which the Subsidiary Guarantee is endorsed shall have been authenticated
and delivered by the Trustee or disposed of by the Company, such Note
nevertheless may be authenticated and delivered or disposed of as though the
person who signed the Subsidiary Guarantee had not ceased to be such Officer of
such Subsidiary Guarantor.
SECTION 11.08. Waiver of Stay, Extension or Usury Laws.
Each Subsidiary Guarantor jointly and severally covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay or extension law or any usury law or other law that would prohibit or
forgive such Subsidiary Guarantor from performing the Subsidiary Guarantee as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) each Subsidiary Guarantor hereby expressly
waives all benefit or advantage of any such law, and covenants that it shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 11.09. Effectiveness of Subsidiary Guarantee.
The Subsidiary Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Notes, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee on the Notes, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such a payment
or performance had not been made. If any payments, or any part thereof, is
rescinded, reduced, restored or returned, the Notes shall, to the fullest extent
permitted by law, be reinstituted and deemed reduced only by such amount paid
and not so rescinded, reduced, restored or returned.
ARTICLE TWELVE
83
<PAGE>
SUBORDINATION OF GUARANTEE OBLIGATIONS
SECTION 12.01. Guarantee Obligations Subordinated to Senior
Indebtedness of Subsidiary Guarantors.
Each Subsidiary Guarantor covenants and agrees, and each Holder of
the Notes, by its acceptance thereof, likewise covenants and agrees, that any
payment of obligations by each Subsidiary Guarantor in respect of the Subsidiary
Guarantee (its "Guarantee Obligations") shall be made subject to the provisions
of this Article Twelve, and each Person holding any Note, whether upon original
issue or upon transfer, assignment or exchange thereof, accepts and agrees that
the payment of all such Subsidiary Guarantor's Guarantee Obligations shall, to
the extent and in the manner herein set forth, be subordinated and junior in
right of payment to the prior payment in full in cash of all Obligations in
respect of such Subsidiary Guarantor's Senior Indebtedness, including principal,
premium (if any) or interest (including post-petition interest) thereon, that
the subordination is for the benefit of, and shall be enforceable directly by,
the holders of such Subsidiary Guarantor's Senior Indebtedness, and that each
holder of any Subsidiary Guarantor's Senior Indebtedness whether now outstanding
or hereafter created, incurred, assumed or Guaranteed shall be deemed to have
acquired such Subsidiary Guarantor's Senior Indebtedness in reliance upon the
covenants and provisions contained in this Indenture and the Notes. Only
Indebtedness of a Subsidiary Guarantor that is Senior Indebtedness of such
Subsidiary Guarantor shall rank senior to the Subsidiary Guarantee of such
Subsidiary Guarantor in accordance with the provisions of this Indenture. A
Subsidiary Guarantee shall in all respects rank pari passu with all other Senior
Subordinated Indebtedness of the Subsidiary Guarantor to which it relates.
Unsecured Indebtedness is not deemed to be subordinated or junior to secured
Indebtedness merely because it is unsecured.
SECTION 12.02. No Payment on Notes in Certain Circumstances.
(a) No Subsidiary Guarantor may, and no other Person on behalf of
such Subsidiary Guarantor may, make any payment with respect to the Subsidiary
Guarantee or make any deposit pursuant to Article Eight above (collectively,
"pay the Subsidiary Guarantee") if (i) any amount of principal, interest or
other payments due under any Senior Indebtedness of such Subsidiary Guarantor or
the Company has not been paid when due whether at maturity, upon redemption, by
declaration or otherwise or (ii) any other default on Senior Indebtedness of
such Subsidiary Guarantor or the Company occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms unless, in either case,
the default has been cured or waived in writing and any such acceleration has
been rescinded or such Senior Indebtedness has been paid in full in cash, after
which such Subsidiary Guarantor shall resume making any and all required
payments in respect of the Subsidiary Guarantee, including any missed payments.
However, a Subsidiary Guarantor may pay the Subsidiary Guarantee without regard
to the foregoing if such Subsidiary Guarantor and the Trustee receive written
notice approving such payment from the Representative of the Senior Indebtedness
Guaranteed by such Subsidiary Guarantor with respect to which either of the
events set forth in clause (i) or (ii) of the immediately preceding sentence has
occurred and is continuing, after which such Subsidiary Guarantor shall resume
making any and all required payments in
84
<PAGE>
respect of the Subsidiary Guarantee, including any missed payments. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the second preceding sentence) with respect to any Designated Senior
Indebtedness of a Subsidiary Guarantor or the Company pursuant to which the
maturity thereof may be accelerated either immediately without further notice
(except such notice as may be required to effect such acceleration) or upon the
expiration of any applicable grace periods, such Subsidiary Guarantor may not
pay the Subsidiary Guarantee for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to such Subsidiary
Guarantor) of written notice (a "Blockage Notice") of such default from the
Representative of the holders of such Designated Senior Indebtedness of such
Subsidiary Guarantor or the Company specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (A) by written notice to the Trustee and such
Subsidiary Guarantor from the Person or Persons who gave such Blockage Notice,
(B) because the default giving rise to such Blockage Notice is no longer
continuing (solely as evidenced by written notice to the Trustee by the
Representative of such Designated Senior Indebtedness which notice shall be
promptly delivered) or (C) because such Designated Senior Indebtedness of such
Subsidiary Guarantor and the related Designated Senior Indebtedness of the
Company has been repaid in full in cash). Notwithstanding the provisions
described in the immediately preceding sentence (but subject to the provisions
contained in the first sentence of this paragraph), unless the holders of such
Designated Senior Indebtedness of such Subsidiary Guarantor or the Company or
the Representative of such holders has accelerated the maturity of such
Designated Senior Indebtedness of such Subsidiary Guarantor or the Company, such
Subsidiary Guarantor may resume payments on the Subsidiary Guarantee after the
end of such Payment Blockage Period including any missed payments. No more than
one Payment Blockage Period may be commenced in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness Guaranteed by such Subsidiary Guarantor during such period.
(b) If, notwithstanding the foregoing, any payment shall be received
by the Trustee or any Holder when such payment is prohibited by Section
12.02(a), such payment shall be held in trust for the benefit of, and shall be
paid over or delivered to, the holders of such Guarantor's Senior Indebtedness
(pro rata to such holders on the basis of the respective amount of such
Subsidiary Guarantor's Senior Indebtedness held by such holders) or their
respective Representatives, as their respective interests may appear. The
Trustee shall be entitled to rely on information regarding amounts then due and
owing on such Subsidiary Guarantor's Senior Indebtedness, if any, received from
the holders of such Subsidiary Guarantor's Senior Indebtedness (or their
Representatives) or, if such information is not received from such holders or
their Representatives, from such Subsidiary Guarantor and only amounts included
in the information provided to the Trustee shall be paid to the holders of such
Subsidiary Guarantor's Senior Indebtedness.
The provisions of this Section shall not apply to any payment with
respect to which Section 12.03 would be applicable.
Nothing contained in this Article Twelve shall limit the right of
the Trustee or the Holders of Notes to take any action to accelerate the
maturity of the Notes pursuant to
85
<PAGE>
Section 6.02 or to pursue any rights or remedies hereunder; provided that all
Senior Indebtedness of the Company thereafter due or declared to be due shall
first be paid in full in cash or before the Holders are entitled to receive any
payment of any kind or character with respect to Obligations on the Notes.
SECTION 12.03. Payment Over of Proceeds upon Dissolution, Etc.
(a) Upon any payment or distribution of assets of any Subsidiary
Guarantor or any of its Subsidiaries of any kind or character, whether in cash,
property or securities, to creditors upon any total or partial liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of creditors
or marshaling of assets of such Subsidiary Guarantor or in a bankruptcy,
reorganization, insolvency, receivership or other similar proceeding relating to
such Subsidiary Guarantor or any of its Subsidiaries or any of their property,
whether voluntary or involuntary, all Obligations due or to become due upon all
of such Subsidiary Guarantor's Senior Indebtedness shall first be paid in full
in cash, or such payment duly provided for to the satisfaction of the holders of
such Subsidiary Guarantor's Senior Indebtedness, before any payment or
distribution of any kind or character is made on account of any Obligations with
respect to the Subsidiary Guarantee of such Subsidiary Guarantor, or for the
acquisition of such Subsidiary Guarantee for cash or property or otherwise. Upon
any such total or partial liquidation, dissolution, winding-up, reorganization,
assignment for the benefit of creditors or marshaling of assets of such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding, any payment or distribution of assets
of such Subsidiary Guarantor or any of its Subsidiaries of any kind or
character, whether in cash, property or securities, to which the Holders of the
Notes or the Trustee under this Indenture would be entitled, except for the
provisions hereof, shall be paid by such Subsidiary Guarantor or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, or by the Holders or by the Trustee under
this Indenture if received by them, directly to the holders of such Subsidiary
Guarantor's Senior Indebtedness (pro rata to such holders on the basis of the
respective amounts of such Subsidiary Guarantor's Senior Indebtedness held by
such holders) or their respective Representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Subsidiary Guarantor's Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of such Subsidiary Guarantor's Senior Indebtedness
remaining unpaid until all such Subsidiary Guarantor's Senior Indebtedness has
been paid in full in cash after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Subsidiary
Guarantor's Senior Indebtedness.
(b) To the extent any payment of any Subsidiary Guarantor's Senior
Indebtedness (whether by or on behalf of such Subsidiary Guarantor, as proceeds
of security or enforcement of any right of setoff or otherwise) is declared to
be fraudulent or preferential, set aside or required to be paid to any receiver,
trustee in bankruptcy, liquidating trustee, agent or other similar Person under
any bankruptcy, insolvency, receivership, fraudulent conveyance or similar law,
then, if such payment is recovered by, or paid over to, such receiver, trustee
in bankruptcy, liquidating trustee, agent or other similar Person, such
Subsidiary Guarantor's Senior Indebtedness or part thereof originally intended
to be satisfied shall be deemed to be
86
<PAGE>
reinstated and outstanding as if such payment had not occurred.
(c) If, notwithstanding the foregoing, any payment or distribution
of assets of any Subsidiary Guarantor of any kind or character, whether in cash,
property or securities, shall be received by any Holder or the Trustee when such
payment or distribution is prohibited by this Section 12.03, such payment or
distribution shall be held in trust for the benefit of, and shall be paid over
or delivered to, the holders of such Subsidiary Guarantor's Senior Indebtedness
(pro rata to such holders on the basis of the respective amount of such
Subsidiary Guarantor's Senior Indebtedness held by such holders) or their
respective Representatives, or to the trustee or trustees under any indenture
pursuant to which any of such Subsidiary Guarantor's Senior Indebtedness may
have been issued, as their respective interests may appear, for application to
the payment of such Subsidiary Guarantor's Senior Indebtedness remaining unpaid
until all such Subsidiary Guarantor's Senior Indebtedness has been paid in full
in cash, after giving effect to any concurrent payment, distribution or
provision therefor to or for the holders of such Subsidiary Guarantor's Senior
Indebtedness.
(d) The consolidation of any Subsidiary Guarantor with, or the
merger of any Subsidiary Guarantor with or into, another corporation or the
liquidation or dissolution of any Subsidiary Guarantor following the conveyance
or transfer of all or substantially all of its assets, to another corporation
upon the terms and conditions provided in Article Five hereof and as long as
permitted under the terms of such Subsidiary Guarantor's Senior Indebtedness
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section if such other corporation shall, as a part of such
consolidation, merger, conveyance or transfer, assume such Subsidiary
Guarantor's obligations hereunder in accordance with Article Five hereof.
SECTION 12.04. Payments May Be Paid Prior to Dissolution.
Nothing contained in this Article Twelve or elsewhere in this
Indenture shall prevent (i) any Subsidiary Guarantor, except under the
conditions described in Sections 12.02 and 12.03, from making payments at any
time for the purpose of making payments in respect of this Subsidiary Guarantee,
or from depositing with the Trustee any moneys for such payments, or (ii) in the
absence of actual knowledge by the Trustee that a given payment would be
prohibited by Section 12.02 or 12.03, the application by the Trustee of any
moneys deposited with it for the purpose of making such payments to the Holders
entitled thereto unless at least two Business Days prior to the date upon which
such payment would otherwise become due and payable the written notice provided
for in the third sentence of Section 12.02(a) or in Section 12.07 has been
received by the Trustee (provided that, notwithstanding the foregoing, such
application shall otherwise be subject to the provisions of the first sentence
of Section 12.02(a), 12.02(b) and Section 12.03). Each Subsidiary Guarantor
shall give prompt written notice to the Trustee of any dissolution, winding-up,
liquidation or reorganization of such Subsidiary Guarantor.
SECTION 12.05. Subrogation.
Subject to, and only after, the payment in full in cash of all
Subsidiary
87
<PAGE>
Guarantor Senior Indebtedness, the Holders of the Obligations of any Subsidiary
Guarantor shall be subrogated to the rights of the holders of such Subsidiary
Guarantor's Senior Indebtedness to receive payments or distributions of cash,
property or securities of such Subsidiary Guarantor applicable to such
Subsidiary Guarantor's Senior Indebtedness until the Obligations of such
Subsidiary Guarantor under the Subsidiary Guarantee shall be paid in full; and,
for the purposes of such subrogation, no such payments or distributions to the
holders of such Subsidiary Guarantor's Senior Indebtedness by or on behalf of
such Subsidiary Guarantor or by or on behalf of the Holders by virtue of this
Article Twelve which otherwise would have been made to the Holders shall, as
between such Subsidiary Guarantor and the Holders of such Subsidiary Guarantor's
Obligations, be deemed to be a payment by such Subsidiary Guarantor to or on
account of such Subsidiary Guarantor's Senior Indebtedness, it being understood
that the provisions of this Article Twelve are and are intended solely for the
purpose of defining the relative rights of the Holders of such Subsidiary
Guarantor's Obligations, on the one hand, and the holders of such Subsidiary
Guarantor's Senior Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise
have been entitled but for the application of the provisions of this Article
Twelve shall have been applied, pursuant to the provisions of this Article
Twelve, to the payment of amounts payable under Senior Indebtedness of any
Subsidiary Guarantor, then the Holders shall be entitled to receive from the
holders of such Senior Indebtedness any payments or distributions received by
such holders of Senior Indebtedness in excess of the amount sufficient to pay
all amounts payable under or in respect of such Senior Indebtedness in full in
cash.
SECTION 12.06. Obligations of Subsidiary Guarantor Unconditional.
Nothing contained in this Article Twelve or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as among the
Subsidiary Guarantors, their respective creditors other than the holders of such
Subsidiary Guarantor's Senior Indebtedness, and the Holders, the obligation of
such Subsidiary Guarantor, which is absolute and unconditional, to pay to the
Holders the Guarantee Obligations as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the Holders and creditors of such Subsidiary Guarantor other
than the holders of such Subsidiary Guarantor's Senior Indebtedness, nor shall
anything herein or therein prevent the Holder of any Note or the Trustee on its
behalf from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, in respect of cash,
property or securities of such Subsidiary Guarantor received upon the exercise
of any such remedy.
SECTION 12.07. Notice to Trustee.
Each Subsidiary Guarantor shall give prompt written notice to the
Trustee of any fact known to such Subsidiary Guarantor which would prohibit the
making of any payment to or by the Trustee in respect of the Subsidiary
Guarantee or the Notes pursuant to the provisions of this Article Twelve.
Regardless of anything to the contrary contained in this Article Twelve or
elsewhere in this Indenture, the Trustee shall not be charged with knowledge of
the existence of any default or event of default with respect to any Subsidiary
Guarantor's
88
<PAGE>
Senior Indebtedness or of any other facts which would prohibit the making of any
payment to or by the Trustee unless and until the Trustee shall have received
notice in writing from such Subsidiary Guarantor or from a holder of such
Subsidiary Guarantor's Senior Indebtedness or a Representative therefor, and,
prior to the receipt of any such written notice, the Trustee shall be entitled
to assume (in the absence of actual knowledge to the contrary) that no such
facts exist.
If the Trustee determines in good faith that any evidence is
required with respect to the right of any Person as a holder of such Subsidiary
Guarantor's Senior Indebtedness to participate in any payment or distribution
pursuant to this Article Twelve, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amounts of such
Subsidiary Guarantor's Senior Indebtedness held by such Person, the extent to
which such Person is entitled to participate in such payment or distribution and
any other facts pertinent to the rights of such Person under this Article
Twelve, and if such evidence is not furnished the Trustee may defer any payment
to such Person pending judicial determination as to the right of such Person to
receive such payment.
SECTION 12.08. Reliance on Judicial Order or Certificate of
Liquidating Agent.
Upon any payment or distribution of assets of any Subsidiary
Guarantor referred to in this Article Twelve, the Trustee, subject to the
provisions of Article Seven hereof, and the Holders of the Notes shall be
entitled to rely upon any order or decree made by any court of competent
jurisdiction in which any insolvency, bankruptcy, receivership, dissolution,
winding-up, liquidation, reorganization or similar case or proceeding is pending
so long as such order gives effect to the provisions of this Article Twelve, or
upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee,
receiver, assignee for the benefit of creditors, agent or other person making
such payment or distribution, delivered to the Trustee or the Holders of the
Notes, for the purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holders of each Subsidiary Guarantor's Senior
Indebtedness and other Indebtedness of any Subsidiary Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article Twelve.
SECTION 12.09. Trustee's Relation to Subsidiary Guarantor's Senior
Indebtedness.
The Trustee, any agent of the Trustee and any agent of any
Subsidiary Guarantor shall be entitled to all the rights set forth in this
Article Twelve with respect to the respective Subsidiary Guarantor's Senior
Indebtedness which may at any time be held by it in its individual or any other
capacity to the same extent as any other holder of the respective Subsidiary
Guarantor's Senior Indebtedness and nothing in this Indenture shall deprive the
Trustee or any such agent of any of its rights as such holder.
With respect to the holders of the respective Subsidiary Guarantor's
Senior Indebtedness, the Trustee undertakes to perform or to observe only such
of its covenants and
89
<PAGE>
obligations as are specifically set forth in this Article Twelve, and no implied
covenants or obligations with respect to the holders of the respective
Subsidiary Guarantor's Senior Indebtedness shall be read into this Indenture
against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty
to the holders of any Subsidiary Guarantor's Senior Indebtedness.
Whenever a distribution is to be made or a notice given to holders
or owners of any Subsidiary Guarantor's Senior Indebtedness, the distribution
may be made and the notice may be given to their Representative, if any.
SECTION 12.10. Subordination Rights Not Impaired by Acts or
Omissions of Subsidiary Guarantors or Holders of
Subsidiary Guarantors' Senior Indebtedness.
No right of any present or future holders of any Subsidiary
Guarantor's Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of such Subsidiary Guarantor or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by such Subsidiary
Guarantor with the terms of this Indenture, regardless of any knowledge thereof
which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of any Subsidiary Guarantor's Senior Indebtedness may, at
any time and from time to time, without the consent of or notice to the Trustee,
without incurring responsibility to the Trustee or the Holders of the Notes and
without impairing or releasing the subordination provided in this Article Twelve
or the obligations hereunder of the Holders of the Notes to the holders of such
Subsidiary Guarantor's Senior Indebtedness, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, such Subsidiary Guarantor's Senior Indebtedness, or
otherwise amend or supplement in any manner such Subsidiary Guarantor's Senior
Indebtedness, or any instrument evidencing the same or any agreement under which
such Subsidiary Guarantor's Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Subsidiary Guarantor's Senior Indebtedness; (iii)
release any Person liable in any manner for the payment or collection of such
Subsidiary Guarantor's Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against such Subsidiary Guarantor and any other Person.
SECTION 12.11. Noteholders Authorize Trustee To Effectuate
Subordination of Notes.
Each Holder of Notes by its acceptance of them authorizes and
expressly directs the Trustee on its behalf to take such action as may be
necessary or appropriate to effectuate, as between the holders of each
Subsidiary Guarantor's Senior Indebtedness and the Holders of Notes, the
subordination provided in this Article Twelve, and appoints the Trustee its
attorney-in-fact for such purposes, including, in the event of any dissolution,
winding-up, liquidation or reorganization of such Subsidiary Guarantor (whether
in bankruptcy, insolvency,
90
<PAGE>
receivership, reorganization or similar proceedings or upon an assignment for
the benefit of creditors or otherwise) tending towards liquidation of the
business and assets of such Subsidiary Guarantor, the filing of a claim for the
unpaid balance of its Notes and accrued interest in the form required in those
proceedings.
If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of each Subsidiary
Guarantor's Senior Indebtedness or their Representative are or is hereby
authorized to have the right to file and are or is hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Notes, and the
Trustee shall supply such Holders and Representatives all information and
documents they reasonably request in order to file such claims. Nothing herein
contained shall be deemed to authorize the Trustee or the holders of any
Subsidiary Guarantor's Senior Indebtedness or their respective Representatives
to authorize or consent to or accept or adopt on behalf of any Holder any plan
of reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee or the holders of
any Subsidiary Guarantor's Senior Indebtedness or their Representatives to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 12.12. This Article Twelve Not To Prevent Events of Default.
The failure to make a payment on account of Obligations of any
Subsidiary Guarantor by reason of any provision of this Article Twelve shall not
be construed as preventing the occurrence of an Event of Default. Nothing
contained in this Article Twelve shall limit the right of the Trustee or the
Holders to take any action or accelerate the maturity of the Notes pursuant to
Article Six or to pursue any rights or remedies hereunder or under applicable
law, subject to the rights, if any, under this Article Twelve of the holders
from time to time, of Senior Indebtedness of any Subsidiary Guarantor.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
SECTION 13.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by commercial courier service, by telex, by telecopier or registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
91
<PAGE>
if to the Company or any Subsidiary Guarantor:
Environmental Systems Products Holdings Inc.
c/o Environmental Systems Products, Inc.
7 Kripes Road
East Granby, Connecticut 06026
Facsimile No.: (860) 653-4868
Telephone: (860) 653-0081
Attn: David J. Langevin
with a copy to:
White & Case, Limited Liability Partnership
1155 Avenue of the Americas
New York, NY 10036-2787
Facsimile No.: (212) 354-8113
Telephone: (212) 819-8200
Attn: Frank Schiff, Esq.
if to the Trustee:
United States Trust Company of Texas, N.A.
c/o United States Trust Company of New York
114 West 47th Street
New York, NY 10036-2787
Facsimile No.: (212) 852-1626
Telephone No.: (212) 852-1000
Attn: Corporate Trust Department
Each of the Company, the Subsidiary Guarantors and the Trustee by
written notice to each other such Person may designate additional or different
addresses for notices to such Person. Any notice or communication to the
Company, the Subsidiary Guarantors and the Trustee shall be deemed to have been
given or made as of the date so delivered if personally delivered; when receipt
is confirmed if delivered by commercial courier service; when receipt is
acknowledged, if faxed; and five (5) calendar days after mailing if sent by
registered or certified mail, postage prepaid (except that a notice of change of
address shall not be deemed to have been given until actually received by the
addressee and notice to the Trustee shall not be deemed to have been given until
actually received by a Trust Officer).
Any notice or communication mailed to a Holder shall be mailed to
him by first class mail or other equivalent means at his address as it appears
on the registration books of the Registrar and shall be sufficiently given to
him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect
in it shall not affect its sufficiency with respect to other Holders. If a
notice or communication is mailed to a Holder in the manner provided above, it
is duly given, whether or not the addressee
92
<PAGE>
receives it.
SECTION 13.03. Communications by Holders with Other Holders.
Holders may communicate pursuant to the TIA Section 312(b) with
other Holders with respect to their rights under this Indenture or the Notes.
The Company, the Subsidiary Guarantors, the Trustee, the Registrar and any
other Person shall have the protection of the TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to
take or refrain from taking any action under this Indenture, the Company shall
furnish to the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent to be performed by the Company, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent to be performed by the Company, if
any, provided for in this Indenture relating to the proposed action have
been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.06, shall include:
(1) a statement that the Person making such certificate or opinion
has read such covenant or condition and the definitions relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is reasonably necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
93
<PAGE>
The Trustee may make reasonable rules in accordance with the
Trustee's customary practices for action by or at a meeting of Holders. The
Paying Agent or Registrar may make reasonable rules for its functions.
SECTION 13.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York or at such place of payment are not required to be open. If a payment date
is a Legal Holiday at such place, payment may be made at such place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
SECTION 13.08. Governing Law.
THIS INDENTURE AND THE NOTES (AND THE SUBSIDIARY GUARANTEES RELATING
THERETO) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE
OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE
PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
INDENTURE.
SECTION 13.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of the Company or any of its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
SECTION 13.10. No Recourse Against Others.
No past, present or future director, officer, employee, stockholder
or incorporator, as such, of the Company, any Subsidiary Guarantor or of the
Trustee shall have any liability for any obligations of the Company under the
Notes or this Indenture or for any claim based on, in respect of or by reason of
such obligations or their creation. Each Holder by accepting a Note waives and
releases all such liability. Such waiver and release are part of the
consideration for the issuance of the Notes.
SECTION 13.11. Successors.
All agreements of the Company and the Subsidiary Guarantors in this
Indenture and the Notes shall bind their respective successors. All agreements
of the Trustee in this Indenture shall bind its successors.
94
<PAGE>
SECTION 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 13.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Notes shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms of provisions hereof.
95
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the date first written above.
Issuer:
ENVIRONMENTAL SYSTEMS
PRODUCTS HOLDINGS INC.
By: /s/ Terrence P. McKenna
---------------------------------
Name: Terrence P. McKenna
Title: President & CEO
Subsidiary Guarantors:
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CEO
ENVIROTEST SYSTEMS CORP. (DELAWARE)
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
ENVIROTEST HOLDINGS, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
<PAGE>
ENVIROTEST TECHNOLOGIES, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
ENVIROTEST PARTNERS (PENNSYLVANIA)
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
REMOTE SENSING TECHNOLOGIES, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
ENVIROTEST WISCONSIN, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
ES FUNDING CORPORATION
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
ENVIROTEST ACQUISITIONS CO.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
<PAGE>
ENVIROTEST SYSTEMS CORP.
(WASHINGTON)
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
ENVIROTEST ILLINOIS, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
WELLMAN NORTH AMERICA, INC.
By: /s/ David Langevin
---------------------------------
Name: David Langevin
Title: EVP & CFO
WELLMAN OVERSEAS LIMITED
By: /s/ Terrence Smith
---------------------------------
Name: Terrence Smith
Title: Director
NEWMALL LIMITED
By: /s/ Terrence Smith
---------------------------------
Name: Terrence Smith
Title: Director
<PAGE>
Holdco:
ENVIROSYSTEMS CORP.
By: /s/ Terrence P. McKenna
---------------------------------
Name: Terrence P. McKenna
Title: President & CEO
Trustee:
UNITED STATES TRUST COMPANY OF
TEXAS, N.A., as Trustee
By: /s/ Gerard F. Ganey
---------------------------------
Name: Gerard F. Ganey
Title: Authorized Signatory
<PAGE>
APPENDIX
RULE 144A/REGULATION S
PROVISIONS RELATING TO
INITIAL NOTES, PRIVATE EXCHANGE NOTES AND EXCHANGE NOTES
1. Definitions.
1.1 Definitions.
For the purposes of this Appendix the following terms shall have the
meanings indicated below:
"Depositary" means The Depository Trust Company, its nominees and
their respective successors and assigns.
"Exchange Notes" means the 13% Senior Subordinated Exchange Notes
Due 2008 to be issued pursuant to this Indenture in connection with a Registered
Exchange Offer pursuant to the Registration Rights Agreement.
"Initial Notes" means the 13% Senior Subordinated Notes Due 2008,
issued under this Indenture on or about the date hereof.
"Initial Purchasers" means Credit Suisse First Boston (Europe)
Limited and one or more of its affiliates, DLJ Merchant Banking Partners II,
L.P. and one or more of its affiliates and Chase Equity Associates L.P. and one
or more of its affiliates.
"Private Exchange" means the offer by the Company, pursuant to the
Registration Rights Agreement, to the Initial Purchasers to issue and deliver to
each Initial Purchaser, in exchange for the Initial Notes held by the Initial
Purchaser as part of its initial distribution, a like aggregate principal amount
of Private Exchange Notes.
"Private Exchange Notes" means the 13% Senior Subordinated Private
Exchange Notes Due 2008, if any, to be issued pursuant to this Indenture to the
Initial Purchasers in a Private Exchange.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to the Registration Rights Agreement, to certain Holders of Initial Notes, to
issue and deliver to such Holders, in exchange for the Initial Notes, a like
aggregate principal amount of Exchange Notes registered under the Securities
Act.
I
<PAGE>
"Registration Rights Agreement" means the Registration Rights
Agreement dated October 16, 1998 among the Company, the Subsidiary Guarantors
and the Initial Purchasers.
"Registration Statement" means the registration statement issued by
the Company, in connection with the offer and sale of Initial Notes, pursuant to
the Registration Rights Agreement.
"Securities" means the Initial Notes, the Private Exchange Notes and
the Exchange Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depositary), or any successor person thereto and
shall initially be United States Trust Company of New York.
"Shelf Registration Statement" means the shelf registration
statement issued by the Company, in connection with the offer and sale of
Initial Notes or Private Exchange Notes, pursuant to the Registration Rights
Agreement.
"Subscription Agreement" means the Subscription Agreement dated
October 15, 1998, among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.3(b) hereto.
1.2 Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section:
---- -------------------
<S> <C>
"Agent Members".......................................... 2.1(b)
"Global Security"........................................ 2.1(a)
"Regulation S"........................................... 2.1(a)
"Rule 144A".............................................. 2.1(a)
</TABLE>
2. The Securities.
2.1 Form and Dating.
II
<PAGE>
The Initial Notes are being offered and sold by the Company pursuant
to the Subscription Agreement.
(a) Global Securities. Initial Notes offered and sold to the Initial
Purchasers in reliance on an exemption from the registration requirements under
the Securities Act, in each case as provided in the Subscription Agreement,
shall be issued initially in the form of one permanent global Securities in
definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Exhibit 1 hereto
(a "Global Security"), which shall be deposited on behalf of the purchasers of
the Initial Notes represented thereby with the Trustee as custodian for the
Depositary (or with such other custodian as the Depositary may direct), and
registered in the name of the Depositary or a nominee of the Depositary, duly
executed by the Company and authenticated by the Trustee as hereinafter
provided. The aggregate principal amount of the Global Securities may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
Global Security deposited with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b), authenticate and deliver initially one or more Global
Securities that (a) shall be registered in the name of the Depositary for such
Global Security or Global Securities or the nominee of such Depositary and (b)
shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's instructions or held by the Trustee as custodian for the
Depositary.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary or by the Trustee as the custodian of the
Depositary or under such Global Security, and the Depositary may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or impair, as between the Depositary and its Agent Members, the operation of
customary practices of such Depositary governing the exercise of the rights of a
holder of a beneficial interest in any Global Security.
(c) Certificated Securities. Except as provided in this Section 2.1
or Section 2.3 or 2.5 of this Appendix, owners of beneficial interests in Global
Securities will not be entitled to receive physical delivery of certificated
Securities.
2.2 Authentication. The Trustee shall authenticate and deliver: (i)
Initial Notes for original issue in an aggregate principal amount of $100
million and (2) Exchange Notes or
III
<PAGE>
Private Exchange Notes for issue only in a Registered Exchange Offer or a
Private Exchange, respectively, pursuant to the Registration Rights Agreement,
for a like principal amount of Initial Notes, in each case upon a written order
of the Company signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of the Company. Such order shall specify the
amount of the Securities to be authenticated and the date on which the original
issue of Securities is to be authenticated and whether the Securities are to be
Initial Notes, Exchange Notes or Private Exchange Notes. The aggregate principal
amount of Securities outstanding at any time may not exceed $100 million except
as provided in Section 2.07 and 2.08 of this Indenture.
2.3 Transfer and Exchange.
(a) Transfer and Exchange of Global Securities.
(i) The transfer and exchange of Global Securities or
beneficial interests therein shall be effected through the Depositary, in
accordance with this Indenture (including applicable restrictions on
transfer set forth herein, if any) and the procedures of the Depositary
therefor. A transferor of a beneficial interest in a Global Security shall
deliver to the Registrar a written order given in accordance with the
Depositary's procedures containing information regarding the participant
account of the Depositary to be credited with a beneficial interest in the
Global Security. The Registrar shall, in accordance with such
instructions, instruct the Depositary to credit to the account of the
Person specified in such instructions a beneficial interest in the Global
Security and to debit the account of the Person making the transfer the
beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix
(other than the provisions set forth in Section 2.5 of this Appendix), a
Global Security may not be transferred as a whole except by the Depositary
to a nominee of the Depositary or by a nominee of the Depositary to the
Depositary or another nominee of the Depositary or by the Depositary or
any such nominee to a successor Depositary or a nominee of such successor
Depositary.
(iii) In the event that a Global Security is exchanged for
Securities in definitive registered form pursuant to Section 2.5 of this
Appendix or Section 2.10 of this Indenture, prior to the consummation of a
Registered Exchange Offer or the effectiveness of a Registration Statement
with respect to such Securities, such Securities may be exchanged only in
accordance with such procedures as are substantially consistent with the
provisions of this Section 2.3 (including the certification requirements
set forth on the reverse of the Initial Notes intended to ensure that such
transfers comply with Rule 144A or Regulation S, as the case may be) and
such other procedures as may from time to time be adopted by the Company.
(b) Legend.
IV
<PAGE>
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Security certificate evidencing the Initial Notes or
the Private Exchange Notes (and all Securities issued in exchange therefor
or in substitution thereof) shall bear a legend in substantially the
following form:
"THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE SELLER OF THIS
NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION
5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
"THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT
(A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
ONLY (i) INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE UNITED STATES IN A
TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(iii) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR
(iv) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN ACCORDANCE WITH
ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES,
AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS
REFERRED TO IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Securities Act, the
Registrar shall permit the Holder thereof to exchange such Transfer
Restricted Security for such Security without the restricted securities
legend set forth on Exhibit 1 hereto that does not bear the legend set
forth above and rescind any restriction on the transfer of such Transfer
Restricted Security, if
V
<PAGE>
the Holder certifies in writing to the Registrar that its request for such
exchange was made in reliance on Rule 144 (such certification to be in the
form set forth on the reverse of the Security).
(iii) After a transfer of any Initial Notes or Private
Exchange Notes during the period of the effectiveness of a Registration
Statement or a Shelf Registration Statement with respect to Initial Notes
or Private Exchange Notes, as the case may be, all requirements pertaining
to legends on such Initial Notes or such Private Exchange Notes shall
cease to apply so long as such Initial Notes or such Private Exchange
Notes were transferred pursuant to such Registration Statement, but the
requirements requiring such Initial Notes or such Private Exchange Notes
issued to certain Holders be issued in global form will continue to apply,
and Initial Notes or Private Exchange Notes in global form without legends
will be available to the transferee of the Holder of such Initial Notes or
Private Exchange Notes upon exchange of such transferring Holder's Initial
Notes or Private Exchange Notes or directions to transfer such Holder's
interest in the Global Security, as applicable.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Notes pursuant to which Holders of such Initial
Notes are offered Exchange Notes in exchange for their Initial Notes, all
requirements pertaining to such Initial Notes that Initial Notes issued to
certain Holders be issued in global form will continue to apply and
Initial Notes in global form with the restricted securities legend set
forth in Exhibit 1 hereto will be available to Holders of such Initial
Notes that do not exchange their Initial Notes, and Exchange Notes in
global form without the restricted securities legend set forth in Exhibit
1 hereto will be available to Holders that exchange such Initial Notes in
such Registered Exchange Offer.
(v) Upon the consummation of a Private Exchange with respect
to the Initial Notes pursuant to which Holders of such Initial Notes are
offered Private Exchange Notes in exchange for their Initial Notes, all
requirements pertaining to such Initial Notes that Initial Notes issued to
certain Holders be issued in global form will still apply, and Private
Exchange Notes in global form with the restricted securities legend set
forth in Exhibit 1 hereto will be available to Holders that exchange such
Initial Notes in such Private Exchange.
(c) Cancellation or Adjustment of Global Security. At such time as
all beneficial interests in a Global Security have either been exchanged for
certificated Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to the Depositary for cancellation or retained and canceled by
the Trustee. At any time prior to such cancellation, if any beneficial interest
in a Global Security is exchanged for certificated Securities, redeemed,
repurchased or canceled, the principal amount of Securities represented by such
Global Security shall be reduced and an adjustment shall be made on the books
and records of the Trustee (if it is then the Securities Custodian for such
Global Security) with respect to such Global Security, by the Trustee or the
Securities Custodian, to reflect such reduction.
VI
<PAGE>
(d) Obligations with Respect to Transfers and Exchanges of
Securities.
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate certificated
Securities at the Registrar's or any co-registrar's request.
(ii) No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax, assessments, or similar governmental
charge payable in connection therewith (other than any such transfer
taxes, assessments or similar governmental charge payable upon exchange or
transfer pursuant to Sections 2.10, 3.06, 4.16, 4.17 and Section 9.06 of
this Indenture).
(iii) The Registrar or any co-registrar shall not be required
to register the transfer of or exchange of (a) any certificated Security
selected for redemption in whole or in part pursuant to Article Three of
this Indenture, except the unredeemed portion of any certificated Security
being redeemed in part, or (b) any Security for a period beginning 15
Business Days before the mailing of a notice of an offer to repurchase or
redeem Securities or 15 Business Days before an Interest Payment Date.
(iv) Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying Agent, the
Registrar or any co-registrar may deem and treat the person in whose name
a Security is registered as the absolute owner of such Security for the
purpose of receiving payment of principal of and interest on such Security
and for all other purposes whatsoever, whether or not such Security is
overdue, and none of the Company, the Trustee, the Paying Agent, the
Registrar or any co-registrar shall be affected by notice to the contrary.
(v) All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture shall evidence the same debt and
shall be entitled to the same benefits under this Indenture as the
Securities surrendered upon such transfer or exchange.
(e) No Obligation of the Trustee.
(i) All notices and communications to be given to the Holders
and all payments to be made to Holders under the Securities shall be given
or made only to or upon the order of the registered Holders.
(ii) The Trustee shall have no responsibility or obligations
to any beneficial owner of a Global Security, a member of, or a
participant in the Depositary or other Person with respect to the accuracy
of the records of the Depositary or its nominee or of any participant or
member thereof, with respect to any ownership interest in the Securities
or with respect to the delivery to any participant, member,
VII
<PAGE>
beneficial owner or other Person (other than the Depositary) of any notice
(including any notice of redemption) or the payment of any amount, under
or with respect to such Securities. All notices and communications to be
given to the Holders and all payments to be made to Holders under the
Securities shall be given or made only to or upon the order of the
registered Holders (which shall be the Depositary or its nominee in the
case of a Global Security). The rights of beneficial owners in any Global
Security shall be exercised only through the Depositary subject to the
applicable rules and procedures of the Depositary. The Trustee may rely
and shall be fully protected in relying upon information furnished by the
Depositary with respect to its members, participants and any beneficial
owners.
(iii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depositary participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this Indenture, and to
examine the same to determine substantial compliance as to form with the
express requirements hereof.
2.4 Original Issue Discount Legend.
The Company will cause each physical Note to contain on its face a
legend that satisfies the requirements of U.S. Treasury Regulations Section
1.1275-3.
2.5 Certificated Securities.
(a) A Global Security deposited with the Depositary or with the
Trustee as custodian for the Depositary pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depositary notifies the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial
owners thereof pursuant to this Section shall be surrendered by the Depositary
to the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal
VIII
<PAGE>
aggregate principal amount of certificated Securities of authorized
denominations. Any portion of a Global Security transferred pursuant to this
Section shall be executed, authenti cated and delivered only in denominations of
$1,000 and any integral multiple thereof and registered in such names as the
Depositary shall direct. Any certificated Initial Note delivered in exchange for
an interest in the Global Security shall, except as otherwise provided by
Section 2.3(b), bear the restricted securities legend set forth in Exhibit 1
hereto.
(c) Subject to the provisions of Section 2.5(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to take any action which a Holder is entitled to take under this
Indenture or the Securities.
(d) In the event of the occurrence of either of the events specified
in Section 2.5(a) above, the Company will promptly make available to the Trustee
a reasonable supply of certificated Securities in definitive, fully registered
form without interest coupons.
IX
<PAGE>
EXHIBIT 1
TO RULE 144A/REGULATION S
APPENDIX
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN,
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THIS
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF
1933 (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE
EXEMPTION THEREFROM. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIED THAT THE
SELLER OF THIS NOTE MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER.
THE HOLDER OF THIS NOTE AGREES FOR THE BENEFIT OF THE ISSUER THAT
(A) THIS NOTE MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i)
INSIDE THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES
ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (ii) OUTSIDE THE
UNITED STATES
X
<PAGE>
IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, (iii)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE) OR (iv) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASES (i) THROUGH (iv) IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES, AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO,
NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONS REFERRED TO
IN (A) ABOVE.
XI
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have
been made:
<TABLE>
<CAPTION>
- ------------------ ----------------------- ----------------------- -------------------- ---------------------------
Date of Exchange Amount of decrease in Amount of increase in Principal Amount of Signature of authorized
Principal Amount of Principal Amount of this Global Security officer of Trustee or
this Global Security this Global Security following such Securities Custodian
decrease or increase
<S> <C> <C> <C> <C>
</TABLE>
XII
<PAGE>
EXHIBIT A
FORM OF INITIAL NOTE
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
13% SENIOR SUBORDINATED NOTE DUE 2008
CUSIP No. 29408Q AA7
No. $
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., a Delaware corporation
(the "Company," which term includes any successor entity), for value received
promises to pay to _______ or registered assigns, the principal sum of _________
Dollars, on _______, 2008.
Interest Payment Dates: April 30 and October 31
Record Dates: April 15 and October 15
Reference is made to the further provisions of this Note contained
herein, which shall for all purposes have the same effect as if set forth at
this place.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES. FOR FURTHER INFORMATION, PLEASE CONTACT
DAVID J. LANGEVIN, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., C/O ENVIRONMENTAL SYSTEMS
PRODUCTS, INC., 7 KRIPES ROAD, EAST GRANBY, CONNECTICUT 06026, (860) 653-0081.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
ENVIRONMENTAL SYSTEMS PRODUCTS
HOLDINGS INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Dated: ____________ Title:
A-2
<PAGE>
Certificate of Authentication
This is one of the 13% Senior Subordinated Notes due 2008 referred
to in the within-mentioned Indenture.
_________________________________
UNITED STATES TRUST COMPANY
OF TEXAS, N.A.
as Trustee
Dated: ____________ By:___________________________________
Authorized Signatory
A-3
<PAGE>
(REVERSE OF SECURITY)
13% SENIOR SUBORDINATED NOTE DUE 2008
1. Interest. ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., a
Delaware corporation (the "Company"), promises to pay to the registered holder
of this Note interest on the principal amount of this Note at the rate per annum
shown above. Interest on the Notes shall accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from October 16,
1998. The Company shall pay interest semi-annually in arrears on each Interest
Payment Date, commencing April 30, 1999. For U.S. federal income tax purposes,
the "issue price" of the Notes shall be less than the aggregate principal amount
to the extent of the fair market value of the common stock of Holdco acquired in
connection with the purchase of the Notes. To the extent of such difference,
"original issue discount" ("OID") shall be recognized by a Holder during such
Holder's ownership of the Notes. Interest shall be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal at the rate
borne by the Notes plus 1% per annum and on overdue installments of interest
(without regard to any applicable grace periods) at such higher rate to the
extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, the Trustee (as defined
below) shall act as Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders.
4. Indenture and Subsidiary Guarantee. The Company issued the Notes
under an Indenture, dated as of October 16, 1998 (the "Indenture"), among the
Company, the Subsidiary Guarantors named therein, Holdco and United States Trust
Company of Texas, N.A., as trustee (the "Trustee"). This Note is one of a duly
authorized issue of Initial Notes of the Company designated as its 13% Senior
Subordinated Notes due 2008 (the "Initial Notes"). The Notes are limited in
aggregate principal amount to $100,000,000. The Notes include the Initial Notes,
the Private Exchange Notes and the Exchange Notes issued in
A-4
<PAGE>
exchange for the Initial Notes pursuant to the Indenture. The Initial Notes, the
Private Exchange Notes and the Exchange Notes are treated as a single class of
securities under the Indenture. Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the
"TIA"), as in effect on the date of the Indenture. Notwithstanding anything to
the contrary herein, the Notes are subject to all such terms, and Holders of
Notes are referred to the Indenture and the TIA Act for a statement of them. The
Notes are unsecured senior subordinated obligations of the Company. Payment on
each Note is Guaranteed on a senior subordinated basis by the Subsidiary
Guarantors pursuant to Article Eleven of the Indenture. To the extent of any
conflict between the terms of the Notes and the Indenture, the applicable terms
of the Indenture shall govern.
5. Subordination. The Notes are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment in
full in cash of all Senior Indebtedness of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or
Guaranteed. The obligations of each Subsidiary Guarantor pursuant to its
Subsidiary Guarantee and the terms of the Indenture are subordinated in right of
payment to the prior payment in full in cash of all Senior Indebtedness of such
Subsidiary Guarantor to the extent set forth in the Indenture. Each Holder by
his acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on his behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-fact for such purposes.
6. Redemption.
(a) Optional Redemption. Except as set forth in the following
paragraph, the Notes shall not be redeemable at the option of the Company prior
to October 31, 2003. Thereafter, the Notes shall be redeemable, at the Company's
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on October 31 of the years set
forth below:
<TABLE>
<CAPTION>
Period Price
------ -----
<S> <C>
2003 ............................................... 106.500%
2004 ............................................... 104.333%
2005 ............................................... 102.167%
2006 and thereafter................................. 100.000%
</TABLE>
A-5
<PAGE>
(b) Optional Redemption Upon Public Equity Offerings. In addition,
at any time and from time to time prior to October 31, 2001, the Company may
redeem in the aggregate up to 35% of the original principal amount of the Notes
with the Net Cash Proceeds of one or more Public Equity Offerings, at a
redemption price (expressed as a percentage of principal amount) of 113% plus
accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the aggregate
principal amount of the Notes originally outstanding must remain outstanding
after each such redemption.
In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
7. Notice of Redemption. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations of $1,000 may be redeemed only in whole. Notes in denominations
larger than $1,000 may be redeemed in part but only in multiples of $1,000.
Except as set forth in the Indenture, if monies for the redemption
of the Notes called for redemption shall have been deposited with the Paying
Agent for redemption on such Redemption Date, then, unless the Company defaults
in the payment of such Redemption Price plus accrued and unpaid interest, if
any, the Notes called for redemption shall cease to bear interest from and after
such Redemption Date and the only right of the Holders of such Notes shall be to
receive payment of the Redemption Price plus accrued and unpaid interest, if
any.
8. Offers to Purchase. Sections 4.16 and 4.17 of the Indenture
provide that, in the event of certain Asset Dispositions (as defined in the
Indenture) and upon the occurrence of a Change of Control (as defined in the
Indenture), and subject to further limitations contained therein, the Company
shall make an offer to purchase certain amounts of the Notes in accordance with
the procedures set forth in the Indenture.
9. Registration Rights. Pursuant to the Registration Rights
Agreement (as defined in the Indenture), under certain circumstances, (i) the
Company shall be obligated to consummate an exchange offer pursuant to which the
Holder of this Note shall have the right to exchange this Note for the Company's
13% Senior Subordinated Exchange Notes due 2008 (the "Exchange Notes") which
shall have been registered under the Securities Act or the Company's 13% Senior
Subordinated Private Exchange Notes due 2008 (the "Private Exchange Notes"), in
each case in like principal amount and having terms identical in all material
respects to the Initial Notes and (ii) the Company shall be required to cause to
become effective a resale shelf registration statement with respect to this
Note.
10. Denominations; Transfer; Exchange. The Notes are in registered
form,
A-6
<PAGE>
without coupons, in denominations of $1,000 and integral multiples of $1,000. A
Holder shall register the transfer of or exchange of Notes in accordance with
the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption (except, in
the case of Notes to be redeemed in part, the portion of such Notes not to be
redeemed) or any Note for a period beginning 15 Business Days before the mailing
of a notice of an offer to repurchase or a notice of redemption or 15 Business
Days before any Interest Payment Date.
11. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
12. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent shall
pay the money back to the Company (subject to any applicable abandoned property
law). After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company shall be discharged from certain provisions of the
Indenture and the Notes (including certain covenants, but excluding its
obligation to pay the principal of and interest on the Notes).
14. Amendment; Supplement; Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding, and any existing Default or Event of Default or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without notice to or consent of any Holder, the parties thereto may
amend or supplement the Indenture or the Notes to, among other things, cure any
ambiguity, omission, defect or inconsistency, provide for uncertificated Notes
in addition to or in place of certificated Notes, or comply with Article Five of
the Indenture or make any other change that does not adversely affect in any
material respect the rights of any Holder of a Note.
15. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
A-7
<PAGE>
16. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor shall be released from those obligations.
17. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Certain events of bankruptcy and insolvency are Events of Default which shall
result in the Notes being due and payable immediately upon the occurrence of
such Events of Default. Holders of Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Notes unless it has received indemnity reasonably
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Notes then outstanding to direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest) if it determines that withholding notice is in their interest.
18. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
19. No Recourse Against Others. No stockholder, director, officer,
em ployee or incorporator, as such, of the Company or any Subsidiary Guarantor
shall have any liability for any obligation of the Company under the Notes or
the Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Note by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
20. Authentication. This Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on this
Note.
21. Governing Law. The Laws of the State of New York shall govern
this Note and the Indenture (and the Guarantees relating thereto), without
regard to principles of conflict of laws.
22. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
23. CUSIP Numbers. Pursuant to a recommendation promulgated by the
A-8
<PAGE>
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
24. Indenture. Each Holder, by accepting a Note, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
25. Holders' Compliance with Registration Rights Agreement. Each
Holder of a Note, by acceptance hereof, acknowledges and agrees to the
provisions of the Registration Rights Agreement, including, without limitation,
the obligations of the Holders with respect to a registration and the
indemnification of the Company to the extent provided therein.
The Company shall furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., c/o Environmental Systems
Products, Inc., 7 Kripes Road, East Granby, Connecticut 06026, Attn: David J.
Langevin.
A-9
<PAGE>
SUBSIDIARY GUARANTEE
Environmental Systems Products, Inc., Envirotest Systems Corp.
(Delaware), Envirotest Holdings, Inc., Envirotest Technologies, Inc., Envirotest
Partners (Pennsylvania), Remote Sensing Technologies, Inc., Envirotest
Wisconsin, Inc., ES Funding Corporation, Envirotest Acquisitions Co., Envirotest
Systems Corp. (Washington), Envirotest Illinois, Inc., Wellman North America,
Inc., Wellman Overseas Limited and Newmall Limited (collectively, the
"Subsidiary Guarantors"), have each jointly and severally unconditionally
Guaranteed on a senior subordinated basis (such Guarantee by each Subsidiary
Guarantor being referred to herein as the "Subsidiary Guarantee") (i) the due
and punctual payment of the principal of and interest on the Notes, subject to
any applicable grace period, whether at maturity, by acceleration or otherwise,
the due and punctual payment of interest on the overdue principal and interest,
if any, on the Notes, to the extent lawful, and the due and punctual performance
of all other obligations of the Company to the Holders or the Trustee all in
accordance with the terms set forth in Article Eleven of the Indenture and (ii)
in case of any extension of time of payment or renewal of any Notes or any of
such other obligations, that the same shall be promptly paid in full when due or
performed in accordance with the terms of the extension or renewal, whether at
stated maturity by acceleration or otherwise.
The obligations of each Subsidiary Guarantor to the Holders of Notes
and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly set forth and are senior subordinated obligations of each Subsidiary
Guarantor, to the extent and in the manner provided, in Articles Eleven and
Twelve of the Indenture, and reference is hereby made to such Indenture for the
precise terms of the Subsidiary Guarantee therein made.
No stockholder, officer, director, employee or incorporator, as
such, past, present or future, of any Subsidiary Guarantor shall have any
liability under the Subsidiary Guarantee by reason of his or its status as such
stockholder, officer, director, employee or incorporator.
The Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Notes upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By:______________________________________
Name:
Title:
ENVIROTEST SYSTEMS CORP. (DELAWARE)
By:______________________________________
Name:
Title:
ENVIROTEST HOLDINGS, INC.
By:______________________________________
Name:
Title:
ENVIROTEST TECHNOLOGIES, INC.
By:______________________________________
Name:
Title:
ENVIROTEST PARTNERS (PENNSYLVANIA)
By:______________________________________
Name:
Title:
A-11
<PAGE>
REMOTE SENSING TECHNOLOGIES, INC.
By:______________________________________
Name:
Title:
ENVIROTEST WISCONSIN, INC.
By:______________________________________
Name:
Title:
ES FUNDING CORPORATION
By:______________________________________
Name:
Title:
ENVIROTEST ACQUISITIONS CO.
By:______________________________________
Name:
Title:
ENVIROTEST SYSTEMS CORP. (WASHINGTON)
By:______________________________________
Name:
Title:
<PAGE>
ENVIROTEST ILLINOIS, INC.
By:______________________________________
Name:
Title:
WELLMAN NORTH AMERICA, INC.
By:______________________________________
Name:
Title:
WELLMAN OVERSEAS LIMITED
By:______________________________________
Name:
Title:
NEWMALL LIMITED
By:______________________________________
Name:
Title:
<PAGE>
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below
and have your signature Guaranteed:
I or we assign and transfer this Note to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ________________________, agent to transfer this Note on
the books of the Company. The agent may substitute another to act for him.
Date: _______________ Signed: _______________________________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: ________________
(Signature must be Guaranteed by an "eligible guarantor
institution," that is, a bank, stockbroker, savings and loan association or
credit union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature Guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934, as amended).
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Note (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) October 16, 2000, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Note is being transferred:
A-14
<PAGE>
[Check One]
(1) __ to the Company or a Subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under the Securities Act; or
(3) __ outside the United States to a "foreign person" in compliance with Rule
904 of Regulation S under the Securities Act; or
(4) __ pursuant to the exemption from registration provided by Rule 144 under
the Securities Act; or
(5) __ pursuant to an effective registration statement under the Securities Act;
or
(6) __ pursuant to another available exemption from the registration
requirements of the Securities Act.
Unless one of the boxes is checked, the Trustee shall refuse to register any of
the Notes evidenced by this certificate in the name of any person other than the
registered Holder thereof; provided that if box (3), (4) or (6) is checked, the
Company or the Trustee may require, prior to registering any such transfer of
the Notes, in its sole discretion, such legal opinions, certifications and other
information as the Trustee or the Company has reasonably requested to confirm
that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
A-15
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall not be
obligated to register this Note in the name of any person other than the Holder
hereof unless and until the conditions to any such transfer of registration set
forth herein and in the Appendix to the Indenture shall have been satisfied.
Dated: _______________ Signed: _______________________________________________
(Sign exactly as name
appears on the other side
of this Security)
Signature Guarantee: ___________________________________________________________
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: _______________ ______________________________________________________
NOTICE: To be executed by
an executive officer
A-16
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ]
Section 4.17 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount you elect to have purchased:
$________________________
Dated: __________________ __________________________________________
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in
every particular without alteration
or enlargement or any change
whatsoever and be Guaranteed by the
endorser's bank or broker.
Signature Guarantee: _____________________
(Signature must be Guaranteed by an "eligible guarantor
institution," that is, a bank, stockbroker, savings and loan association or
credit union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature Guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934, as amended).
A-17
<PAGE>
EXHIBIT B
FORM OF EXCHANGE NOTE AND PRIVATE EXCHANGE NOTE
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
13% SENIOR SUBORDINATED NOTE DUE 2008
CUSIP NO.29408Q AA7
No. $
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., a Delaware corporation
(the "Company," which term includes any successor entity), for value received
promises to pay to _______ or registered assigns, the principal sum of _________
Dollars, on _______, 2008.
Interest Payment Dates: April 30 and October 31
Record Dates: April 15 and October 15
Reference is made to the further provisions of this Note contained
herein, which shall for all purposes have the same effect as if set forth at
this place.
THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED
STATES FEDERAL INCOME TAX PURPOSES. FOR FURTHER INFORMATION, PLEASE CONTACT
DAVID J. LANGEVIN, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER,
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., C/O ENVIRONMENTAL SYSTEMS
PRODUCTS, INC., 7 KRIPES ROAD, EAST GRANBY, CONNECTICUT 06026, (860) 653-0081.
B-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers and a facsimile of its
corporate seal to be affixed hereto or imprinted hereon.
ENVIRONMENTAL SYSTEMS PRODUCTS
HOLDINGS INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Dated: ____________ Title:
Certificate of Authentication
This is one of the 13% Senior Subordinated Notes due 2008 referred
to in the within-mentioned Indenture.
_________________________________
UNITED STATES TRUST COMPANY
OF TEXAS, N.A.
as Trustee
Dated: ____________ By:_________________________________
Authorized Signatory
[If the Note is to be issued in global form add the Global Securities Legend
from Exhibit 1 to the Appendix and the attachment from such Exhibit 1 captioned
"[TO BE ATTACHED TO GLOBAL SECURITIES] -- SCHEDULE OF INCREASES OR DECREASES IN
GLOBAL SECURITY".]
[If the Note is a Private Exchange Note issued in a Private Exchange to an
Initial Purchaser holding an unsold portion of its initial allotment, add the
restricted securities legend from Exhibit 1 to Appendix A and replace the
Assignment Form with that included in Exhibit A.]
B-2
<PAGE>
(REVERSE OF SECURITY)
13% SENIOR SUBORDINATED NOTE DUE 2008
1. Interest. ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., a
Delaware corporation (the "Company"), promises to pay to the registered holder
of this Note interest on the principal amount of this Note at the rate per annum
shown above. Interest on the Notes will accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from October 16,
1998. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing April 30, 1999. For U.S. federal income tax purposes,
the "issue price" of the Notes shall be less than the aggregate principal amount
to the extent of the fair market value of the common stock of Holdco acquired in
connection with the purchase of the Notes. To the extent of such difference,
"original issue discount" ("OID") shall be recognized by a Holder during such
Holder's ownership of the Notes. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal at the rate
borne by the Notes plus 1% per annum and on overdue installments of interest
(without regard to any applicable grace periods) at such higher rate to the
extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are cancelled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, United States Trust
Company of Texas, N.A., as trustee (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders.
4. Indenture and Guarantee. The Company issued the Notes under an
Indenture, dated as of October 16, 1998 (the "Indenture"), among the Company,
the Subsidiary Guarantors named therein and the Trustee. [This Note is one of a
duly authorized issue of Exchange Notes of the Company designated as its 13%
Senior Subordinated Exchange Notes due 2008 (the "Exchange Notes").] [This Note
is one of a duly authorized issue of Private Exchange Notes of the Company
designated as its 13% Senior Subordinated Private Exchange Notes due 2008 (the
"Private Exchange Notes").] The Notes are limited in aggregate principal amount
to $100,000,000. The Notes include the Initial Notes (the 13% Senior
Subordinated Notes due
B-3
<PAGE>
2008) and the Private Exchange Notes and the Exchange Notes issued in
exchange for the Initial Notes pursuant to the Indenture. The Initial Notes,
the Private Exchange Notes and the Exchange Notes are treated as a single
class of securities under the Indenture. Capitalized terms herein are used as
defined in the Indenture unless otherwise defined herein. The terms of the
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the TIA of 1939 (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture.
Notwithstanding anything to the contrary herein, the Notes are subject to all
such terms, and Holders of Notes are referred to the Indenture and the TIA
for a statement of them. The Notes are general unsecured obligations of the
Company. Payment on each Note is guaranteed on a senior subordinated basis by
the Subsidiary Guarantors pursuant to Article Eleven of the Indenture. To the
extent of any conflict between the terms of the Notes and the Indenture, the
applicable terms of the Indenture shall govern.
5. Subordination. The Notes are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment in
full in cash of all Senior Indebtedness of the Company, whether outstanding on
the date of the Indenture or thereafter created, incurred, assumed or
guaranteed. The obligations of each Subsidiary Guarantor pursuant to its
Subsidiary Guarantee and the terms of the Indenture are subordinated in right of
payment to the prior payment in full in cash of all Senior Indebtedness of such
Subsidiary Guarantor to the extent set forth in the Indenture. Each Holder by
his acceptance hereof agrees to be bound by such provisions and authorizes and
expressly directs the Trustee, on his behalf, to take such action as may be
necessary or appropriate to effectuate the subordination provided for in the
Indenture and appoints the Trustee his attorney-in-fact for such purposes.
6. Redemption.
(a) Optional Redemption. Except as set forth in the following
paragraph, the Notes shall not be redeemable at the option of the Company prior
to October 31, 2003. Thereafter, the Notes shall be redeemable, at the Company's
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first-class mail to each
Holder's registered address, at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on October 31 of the years set forth below:
Redemption
Period Price
------ ----------
2003 ....................................... 106.500%
2004 ....................................... 104.333%
2005 ....................................... 102.167%
2006 and thereafter......................... 100.000%
B-4
<PAGE>
(b) Optional Redemption Upon Public Equity Offerings. In addition,
at any time and from time to time prior to October 31, 2001, the Company may
redeem in the aggregate up to 35% of the original principal amount of the Notes
with the Net Cash Proceeds of one or more Public Equity Offerings, at a
redemption price (expressed as a percentage of principal amount) of 113.000%
plus accrued interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date); provided, however, that at least 65% of the aggregate
principal amount of the Notes originally outstanding must remain outstanding
after each such redemption.
In order to effect the foregoing redemption with the proceeds of any
Public Equity Offering, the Company shall make such redemption not more than 120
days after the consummation of any such Public Equity Offering.
7. Notice of Redemption. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the Redemption Date to each
Holder of Notes to be redeemed at such Holder's registered address. Notes in
denominations of $1,000 may be redeemed only in whole. Notes in denominations
larger than $1,000 may be redeemed in part but only in multiples of $1,000.
Except as set forth in the Indenture, if monies for the redemption
of the Notes called for redemption shall have been deposited with the Paying
Agent for redemption on such Redemption Date, then, unless the Company defaults
in the payment of such Redemption Price plus accrued and unpaid interest, if
any, the Notes called for redemption will cease to bear interest from and after
such Redemption Date and the only right of the Holders of such Notes will be to
receive payment of the Redemption Price plus accrued and unpaid interest, if
any.
8. Offers to Purchase. Sections 4.16 and 4.17 of the Indenture
provide that, in the event of certain Asset Dispositions (as defined in the
Indenture) and upon the occurrence of a Change of Control (as defined in the
Indenture), and subject to further limitations contained therein, the Company
will make an offer to purchase certain amounts of the Notes in accordance with
the procedures set forth in the Indenture.
9. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer of or exchange of Notes in
accordance with the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
certain transfer taxes or similar governmental charges payable in connection
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange of any Notes or portions thereof selected for redemption
(except, in the case of Notes to be redeemed in part, the portion of such Notes
not to be redeemed) or any Note for a period beginning 15 Business Days before
the mailing of a notice of an offer to repurchase or a notice of redemption or
15 Business Days before any Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated
B-5
<PAGE>
as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the Company (subject to any applicable abandoned property
law). After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of and interest on the Notes to redemption or
maturity and complies with the other provisions of the Indenture relating
thereto, the Company will be discharged from certain provisions of the Indenture
and the Notes (including certain covenants, but excluding its obligation to pay
the principal of and interest on the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the written
consent of the Holders of at least a majority in aggregate principal amount of
the Notes then outstanding, and any existing Default or Event of Default or
noncompliance with any provision may be waived with the written consent of the
Holders of a majority in aggregate principal amount of the Notes then
outstanding. Without notice to or consent of any Holder, the parties thereto may
amend or supplement the Indenture or the Notes to, among other things, cure any
ambiguity, omission, defect or inconsistency, provide for uncertificated Notes
in addition to or in place of certificated Notes, or comply with Article Five of
the Indenture or make any other change that does not adversely affect in any
material respect the rights of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations
on the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of its Capital
Stock or certain Indebtedness, enter into transactions with Affiliates, create
dividend or other payment restrictions affecting Subsidiaries, merge or
consolidate with any other Person, sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its assets or adopt a plan of
liquidation. Such limitations are subject to a number of important
qualifications and exceptions. The Company must annually report to the Trustee
on compliance with such limitations.
15. Successors. When a successor assumes, in accordance with the
Indenture, all the obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Certain events of bankruptcy and insolvency are Events of Default which will
result in the Notes being due and payable immediately upon the occurrence of
such Events of Default. Holders of Notes may not enforce the Indenture or the
Notes except as
B-6
<PAGE>
provided in the Indenture. The Trustee is not obligated to enforce the Indenture
or the Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any continuing Default or Event of Default (except a
Default in payment of principal or interest) if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture,
in its individual or any other capacity, may become the owner or pledgee of
Notes and may otherwise deal with the Company, its Subsidiaries or their
respective Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No past, present or future
stockholder, director, officer, employee or incorporator, as such, of the
Company or any Subsidiary Guarantor shall have any liability for any obligation
of the Company under the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder of a
Note by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
19. Authentication. This Note shall not be valid until the Trustee
or Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. The Laws of the State of New York shall govern
this Note and the Indenture (and the Subsidiary Guarantees relating thereto),
without regard to principles of conflict of laws.
21. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture. Each Holder, by accepting a Note, agrees to be bound
by all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
24. [Registration Rights. Pursuant to the Registration Rights
Agreement (as defined in the Indenture), the Company will have certain
obligations to the Holders of the Private Exchange Notes.]
B-7
<PAGE>
The Company will furnish to any Holder of a Note upon written
request and without charge a copy of the Indenture, which has the text of this
Note in larger type. Requests may be made to: ENVIRONMENTAL SYSTEMS PRODUCTS
HOLDINGS INC., c/o Environmental Systems Products, Inc., 7 Kripes Road, East
Granby, Connecticut 06026, Attn: David J. Langevin.
B-8
<PAGE>
SUBSIDIARY GUARANTEE
Environmental Systems Products, Inc., Envirotest Systems Corp.
(Delaware), Envirotest Holdings, Inc., Envirotest Technologies, Inc., Envirotest
Partners (Pennsylvania), Remote Sensing Technologies, Inc., Envirotest
Wisconsin, Inc., ES Funding Corporation, Envirotest Acquisitions Co., Envirotest
Systems Corp. (Washington), Envirotest Illinois, Inc., Wellman North American,
Inc., Wellman Overseas Limited and Newmall Limited (collectively, the
"Subsidiary Guarantors"), have each unconditionally guaranteed on a senior
subordinated basis (such Guarantee by the Subsidiary Guarantors being referred
to herein as the "Subsidiary Guarantee") (i) the due and punctual payment of the
principal of and interest on the Notes, subject to any applicable grace period,
whether at maturity, by acceleration or otherwise, the due and punctual payment
of interest on the overdue principal and interest, if any, on the Notes, to the
extent lawful, and the due and punctual performance of all other obligations of
the Company to the Holders or the Trustee all in accordance with the terms set
forth in Article Eleven of the Indenture and (ii) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor to the Holders of Notes
and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are
expressly set forth and are senior subordinated obligations of each Subsidiary
Guarantor, to the extent and in the manner provided, in Articles Eleven and
Twelve of the Indenture, and reference is hereby made to such Indenture for the
precise terms of the Subsidiary Guarantee therein made.
No stockholder, officer, director, employee or incorporator, as
such, past, present or future, of each Subsidiary Guarantor shall have any
liability under the Subsidiary Guarantee by reason of his or its status as such
stockholder, officer, director, employee or incorporator.
The Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Notes upon which the
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
B-9
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: _______________________________________
Name:
Title:
ENVIROTEST SYSTEMS CORP. (DELAWARE)
By: _______________________________________
Name:
Title:
ENVIROTEST HOLDINGS, INC.
By: _______________________________________
Name:
Title:
ENVIROTEST TECHNOLOGIES, INC.
By: _______________________________________
Name:
Title:
ENVIROTEST PARTNERS (PENNSYLVANIA)
By: _______________________________________
Name:
Title:
B-10
<PAGE>
REMOTE SENSING TECHNOLOGIES, INC.
By: _______________________________________
Name:
Title:
ENVIROTEST WISCONSIN, INC.
By: _______________________________________
Name:
Title:
ES FUNDING CORPORATION
By: _______________________________________
Name:
Title:
ENVIROTEST ACQUISITIONS CO.
By: _______________________________________
Name:
Title:
ENVIROTEST SYSTEMS CORP. (WASHINGTON)
By: _______________________________________
Name:
Title:
B-11
<PAGE>
ENVIROTEST ILLINOIS, INC.
By: _______________________________________
Name:
Title:
WELLMAN NORTH AMERICA, INC.
By: _______________________________________
Name:
Title:
WELLMAN OVERSEAS LIMITED
By: _______________________________________
Name:
Title:
NEWMALL LIMITED
By: _______________________________________
Name:
Title:
B-12
<PAGE>
ASSIGNMENT FORM(1)
If you the Holder want to assign this Note, fill in the form below
and have your signature guaranteed:
I or we assign and transfer this Note to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint _________________________, agent to transfer this Note
on the books of the Company. The agent may substitute another to act for him.
Date: _______________ Signed: _______________________________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee: _________________
(Signature must be guaranteed by an "eligible guarantor institution," that is, a
bank, stockbroker, savings and loan association or credit union meeting the
requirements of the Registrar, which requirements include membership or
participation in the Securities Transfer Agents Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended).
- ----------
(1) If the Note is a Private Exchange Note, replace the Assignment Form with
that included in Exhibit A to the Indenture.
B-13
<PAGE>
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ]
Section 4.17 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount you elect to have purchased:
$_____________________
Dated: __________________ ___________________________________________
NOTICE: The signature on this
assignment must correspond with
the name as it appears upon the
face of the within Note in
every particular without alteration
or enlargement or any change
whatsoever and be guaranteed by the
endorser's bank or broker.
Signature Guarantee: ________________________
(Signature must be guaranteed by an "eligible guarantor
institution," that is, a bank, stockbroker, savings and loan association or
credit union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP, all
in accordance with the Securities Exchange Act of 1934, as amended).
B-14
<PAGE>
EXHIBIT C
Subsidiary Guarantors
Environmental Systems Products, Inc.
Envirotest Systems Corp. (Washington)
Envirotest Holdings, Inc.
Envirotest Technologies, Inc.
Envirotest Partners
Remote Sensing Technologies, Inc.
Envirotest Wisconsin, Inc.
ES Funding Corporation
Envirotest Acquisitions Co.
Envirotest Systems Corp. (Delaware)
Envirotest Illinois, Inc.
Wellman North America, Inc.
Wellman Overseas Limited
Newmall Limited
C-1
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Section Indenture Section
- ----------- -----------------
<S> <C>
310(a)(1) ................................. 7.10
(a)(2) ................................. 7.10
(a)(3) ................................. N.A.
(a)(4) ................................. N.A.
(a)(5) ................................. 7.08; 7.10
(b) ................................. 7.03; 7.08; 7.10; 13.02
(c) ................................. N.A.
311(a) ................................. 7.11
(b) ................................. 7.11
(c) ................................. N.A.
312(a) ................................. 2.05
(b) ................................. 13.03
(c) ................................. 13.03
313(a) ................................. 7.06
(b)(1) ................................. N.A.
(b)(2) ................................. 7.06
(c) ................................. 7.06; 13.02
(d) ................................. 7.06
314(a) ................................. 4.07; 4.08; 13.02
(b) ................................. N.A.
(c)(1) ................................. 13.04
(c)(2) ................................. 13.04
(c)(3) ................................. N.A.
(d) ................................. N.A.
(e) ................................. 13.05
(f) ................................. N.A.
315(a) ................................. 7.01(b)
(b) ................................. 7.05; 13.02
(c) ................................. 7.01(a)
(d) ................................. 7.01(c)
(e) ................................. 6.11
316(a)(last sentence) ................................. 2.09
(a)(1)(A) ................................. 6.05
(a)(1)(B) ................................. 6.04
(a)(2) ................................. N.A.
(b) ................................. 6.07
(c) ................................. 9.05
317(a)(1) ................................. 6.08
(a)(2) ................................. 6.09
(b) ................................. 2.04
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
318(a) ................................. 13.01
(c) ................................. 13.01
</TABLE>
- ----------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
ii
<PAGE>
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
dated as of October 16, 1998
among
DLJ INVESTMENT PARTNERS, L.P.,
DLJ ESC II L.P.,
DLJ INVESTMENT FUNDING, INC.,
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED,
CHASE EQUITY ASSOCIATES, L.P.,
ENVIROSYSTEMS CORP.
and
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE 1
DEFINITIONS
<S> <C>
SECTION 1.01. Definitions......................................................1
ARTICLE 2
REGISTRATION RIGHTS
SECTION 2.01. Rule 144A Matters, Initial Registration and Demand Registration..5
SECTION 2.02. Registration Procedures..........................................9
SECTION 2.03. Indemnification by the Issuer...................................12
SECTION 2.04. Indemnification by Participating Securityholders................12
SECTION 2.05. Conduct of Indemnification Proceedings..........................13
SECTION 2.06. Contribution....................................................14
SECTION 2.07. Participation in Public Offering................................15
ARTICLE 3
MISCELLANEOUS
SECTION 3.01. Entire Agreement................................................15
SECTION 3.02. Binding Effect; Benefit.........................................15
SECTION 3.03. Assignability...................................................16
SECTION 3.04. Amendment; Waiver...............................................16
SECTION 3.05. Obligations of Holdco and the Guarantors........................16
SECTION 3.06. Notices.........................................................16
SECTION 3.07. Headings........................................................17
SECTION 3.08. Counterparts....................................................18
SECTION 3.09. Applicable Law..................................................18
SECTION 3.10. Specific Enforcement............................................18
SECTION 3.11. Consent to Jurisdiction.........................................18
</TABLE>
2
<PAGE>
REGISTRATION RIGHTS AGREEMENT
AGREEMENT dated as of October 16,1998 among DLJ Investment Partners,
L.P., a Delaware limited partnership, DLJ ESC II L.P., a Delaware limited
partnership, DLJ Investment Funding, Inc., a Delaware corporation (each of the
foregoing, a "DLJ Entity", and collectively, the "DLJ Entities"), Credit Suisse
First Boston (Europe) Limited (the "CSFB Entity"), Chase Equity Associates, L.P.
(the "Chase Entity"), EnviroSystems Corp., a Delaware corporation ("Holdco"),
Environmental Systems Products Holdings Inc., a Delaware corporation ("ESPH"),
and certain direct or indirect subsidiaries of ESPH set forth on the signature
pages hereto (the "Guarantors", and together with ESPH, the "Issuer").
W I T N E S S E T H:
WHEREAS, pursuant to the Senior Subordinated Note Subscription
Agreement (as defined below), the DLJ Entities, the CSFB Entity and the Chase
Entity have agreed severally to purchase in aggregate $100 million aggregate
principal amount of senior subordinated notes (the "Senior Subordinated Notes")
of the Issuer and will receive in aggregate 2,291.282 shares of Series A Common
Stock of Holdco ("Holdco Stock");
WHEREAS, pursuant to the Senior Discount Note Subscription Agreement
(as defined below), certain of the DLJ Entities and their affiliates and the
Chase Entity have agreed to purchase senior discount notes of Holdco (the
"Discount Notes") and receive shares of Holdco Stock;
WHEREAS, the parties hereto, certain affiliates of the DLJ Entities,
the Chase Entity and certain other shareholders of Holdco have entered into an
Investors Agreement dated as of even date herewith (the "Investors Agreement")
in connection with the acquisition of the Discount Notes and shares of Holdco
Stock;
WHEREAS, the Issuer desires to provide registration rights for the
DLJ Entities, the CSFB Entity and the Chase Entity with regard to the Senior
Subordinated Notes;
WHEREAS, the execution of this Agreement is a condition precedent to
the transactions contemplated by the Senior Subordinated Note Subscription
Agreement;
NOW, THEREFORE the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.01. Definitions. (a) The following terms, as used herein,
have the following meanings:
i
<PAGE>
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided that no securityholder of ESPH shall be deemed an
Affiliate of any other Securitybolder solely by reason of any investment in
ESPH. For the purpose of this definition, the term "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
"Affiliated Employee Benefit Trust" means any trust that is a
successor to the assets held by a trust established under an employee benefit
plan subject to ERISA or any other trust established directly or indirectly
under such plan or any other such plan having the same sponsor.
"Business Day" means any day except a Saturday, Sunday or other day
on which commercial banks in New York City are authorized by law to close.
"CSFBC" means Credit Suisse First Boston Corporation.
"Envirotest" means Envirotest Systems Corp., a Delaware corporation.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ESP" means Environmental Systems Products, Inc., a Delaware
corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Permitted Transferee" means:
(i) in the case of any DLJ Entity, (A) any other DLJ Entity, (B) any
general or limited partner of any such entity (a "DLJ Partner"), and any
corporation, partnership, Affiliated Employee Benefit Trust or other
entity which is an Affiliate of any DLJ Partner (collectively, the "DLJ
Affiliates"), (C) any managing director, general partner, director,
limited partner, officer or employee of such DLJ Entity or a DLJ
Affiliate, or the heirs, executors, administrators, testamentary trustees,
legatees or beneficiaries of any of the foregoing Persons referred to in
this clause (C) (collectively, "DLJ Associates"), (D) any trust, the
beneficiaries of which, or any corporation, limited liability company or
partnership, the stockholders, members or general or limited partners of
which, include only such DLJ Entity, DLJ Affiliates, DLJ Associates, their
spouses or their lineal descendants and (E) a voting trustee for one or
more DLJ Entities, DLJ Affiliates or DLJ Associates under the terms of a
voting trust;
(ii) in the case of any CSFB Entity, (A) any general or limited
partner of any such entity (a "CSFB Partner"), and any corporation,
partnership, Affiliated Employee Benefit Trust or other entity which is an
Affiliate of any CSFB Partner (collectively, the "CSFB Affiliates"), (B)
any managing director, general partner, director, limited partner,
-2-
<PAGE>
officer or employee of such CSFB Entity or a CSFB Affiliate, or the heirs,
executors, administrators, testamentary trustees, legatees or
beneficiaries of any of the foregoing Persons referred to in this clause
(B) (collectively, "CSFB Associates"), (C) any trust, the beneficiaries of
which, or any corporation, limited liability company or partnership, the
stockholders, members or general or limited partners of which, include
only such CSFB Entity, CSFB Affiliates, CSFB Associates, their spouses or
their lineal descendants and (D) a voting trustee for one or more CSFB
Entities, CSFB Affiliates or CSFB Associates under the terms of a voting
trust; and
(iii) in the case of any Chase Entity, (A) any general or limited
partner of any such entity (a "Chase Partner"), and any corporation,
partnership, Affiliated Employee Benefit Trust or other entity which is an
Affiliate of any Chase Partner (collectively, the "Chase Affiliates"), (B)
any managing director, general partner, director, limited partner, officer
or employee of such Chase Entity or a Chase Affiliate, or the heirs,
executors, administrators, testamentary trustees, legatees or
beneficiaries of any of the foregoing Persons referred to in this clause
(B) (collectively, "Chase Associates"), (C) any trust, the beneficiaries
of which, or any corporation, limited liability company or partnership,
the stockholders, members or general or limited partners of which, include
only such Chase Entity, Chase Affiliates, Chase Associates, their spouses
or their lineal descendants and (D) a voting trustee for one or more Chase
Entities, Chase Affiliates or Chase Associates under the terms of a voting
trust.
"Person" means an individual, corporation, partnership, association,
trust or other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Registrable Securities" means, with respect to any Securityholder
or its Permitted Transferees, any principal amount of the Senior Subordinated
Notes (including any Private Exchange Securities) owned by such Securityholder
or its Permitted Transferees until (i) a registration statement covering such
securities has been declared effective by the SEC and such securities have been
disposed of pursuant to such effective registration statement, (ii) such
securities are sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met or (iii) such securities are otherwise transferred, the
Issuer has delivered a new certificate or other evidence of ownership for such
securities not bearing the legend required pursuant to this Agreement and such
securities may be resold without subsequent registration under the Securities
Act.
"Registration Expenses" means (i) all registration and filing fees,
(ii) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Securities), (iii) printing expenses, (iv) internal
expenses of the Issuer (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), (v) fees
and disbursements of counsel for the Issuer and customary fees and expenses for
independent certified public accountants retained by the Issuer (including
expenses relating to any comfort letters or costs associated with the delivery
by independent certified public accountants of a comfort letter or comfort
letters requested pursuant to Section 2.02(h) hereof), (vi) the fees and
expenses of any
-3-
<PAGE>
special experts retained by the Issuer in its discretion in connection with such
registration, (vii) reasonable fees and expenses of one counsel for the DLJ
Entities participating in the offering, selected by the DLJ Entities, reasonable
fees and expenses of one counsel for the CSFB Entity participating in the
offering, selected by the CSFB Entity, and reasonable fees and expenses of one
counsel for the Chase Entity participating in the offering, selected by the
Chase Entity, (viii) fees and expenses in connection with any review of
underwriting arrangements by the National Association of Securities Dealers,
Inc. (the "NASD") including fees and expenses of any "qualified independent
underwriter" and (ix) fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but shall not include any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities, or
any out-of-pocket expenses (except as set forth in clause (vii) above) of the
Securityholders or any fees and expenses of underwriter's counsel.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Senior Subordinated Notes and any other debt
or equity securities of the Issuer.
"Securities Act" means the Securities Act of 1933, as amended.
"Securityholder" means each Person (other than Holdco and the
Issuer) who shall be a party to this Agreement, whether in connection with the
execution and delivery hereof as of the date hereof, pursuant to Section 3.03 or
otherwise, so long as such Person shall "beneficially own" (as such term is
defined in Rule 13d-3 under the Exchange Act) any Senior Subordinated Notes.
"Senior Discount Note Subscription Agreement" means the Subscription
Agreement dated as of October 15, 1998 among Holdco, ESPH, ESP, Envirotest, and
the Purchasers named therein relating to the Senior Discount Notes and shares of
Holdco Stock.
"Senior Subordinated Note Subscription Agreement" means the
Subscription Agreement dated as of October 15, 1998 among Holdco, ESPH, the
Guarantors and the Purchasers named therein relating to the Senior Subordinated
Notes and shares of Holdco Stock.
"Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"Transaction Documents" mean this Agreement, the Senior Discount
Note Subscription Agreement, the Senior Subordinated Note Subscription
Agreement, the Placement Agreements dated October 15, 1998 among Holdco, ESPH,
CSFBC and the other parties thereto, and the Investors Agreement.
"Underwritten Public Offering" means an underwritten public offering
of Securities of the Issuer pursuant to an effective registration statement
under the Securities Act.
-4-
<PAGE>
(b) The term "DLJ Entities", to the extent such entities shall have
transferred any of their Securities to Permitted Transferees, shall mean the DLJ
Entities and the Permitted Transferees of the DLJ Entities, taken together, and
any right or action that may be taken at the election of the DLJ Entities may be
taken at the election of the DLJ Entities, and such Permitted Transferees.
(c) The term "CSFB Entity", to the extent such entity shall have
transferred any of its Securities to Permitted Transferees, shall mean the CSFB
Entity and the Permitted Transferees of the CSFB Entity, taken together, and any
right or action that may be taken at the election of the CSFB Entity may be
taken at the election of the CSFB Entity, and such Permitted Transferees.
(d) The term "Chase Entity", to the extent such entity shall have
transferred any of its Securities to Permitted Transferees, shall mean the Chase
Entity and the Permitted Transferees of the Chase Entity, taken together, and
any right or action that may be taken at the election of the Chase Entity may be
taken at the election of the Chase Entity, and such Permitted Transferees.
(e) Each of the following terms is defined in the Section set forth
opposite such term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Demand Registration 2.01 (c)
Exchange Offer Registration Rights Agreement 2.01 (a)
Exchange Offer Registration Statement 2.01 (a)
Holders 2.01 (c)
Indemnified Party 2.05
Indemnifying Party 2.05
Initial Registration 2.01(b)
Inspectors 2.02(g)
NASD 1.01(a)
Records 2.02(g)
Registered Exchange Offer 2.01(a)
Rule 144A Offering Memorandum 2.01(a)
Rule 144A Sellers 2.01(a)
Selling Securityholder 2.01(c)
</TABLE>
ARTICLE 2
REGISTRATION RIGHTS
SECTION 2.01. Rule 144A Matters, Initial Registration and Demand
Registration. (a) Immediately following the date hereof, the Issuer will as
promptly as practicable prepare an offering memorandum (as amended or
supplemented, the "Rule 144A Offering Memorandum") relating to the Senior
Subordinated Notes so that such Senior Subordinated
-5-
<PAGE>
Notes may be resold by the CSFB Entity (and if so prepared for the CSFB Entity,
by the DLJ Entities or the Chase Entity if they elect to participate) (the
participating CSFB Entity, DLJ Entities and the Chase Entity are hereinafter
referred to as the "Rule 144A Sellers") pursuant to Rule 144A or Regulation S
under the Securities Act. Such Rule 144A Offering Memorandum shall contain such
disclosures as are customary and appropriate for such a document. In addition,
in connection with the preparation of such Rule 144A Offering Memorandum, the
Issuer shall (i) execute such customary and appropriate documents or agreements
relating to such Senior Subordinated Notes and their terms including providing
for customary opinions, comfort letters and indemnification provisions relating
to the Rule 144A Offering Memorandum, as determined by the Rule 144A Sellers and
reasonably agreed to by the Issuer, and (ii) enter into a registration rights
agreement in form and substance reasonably satisfactory to the Issuer and the
Rule 144A Sellers that provides for the exchange of Senior Subordinated Notes
for securities with substantially the same terms and conditions as the Senior
Subordinated Notes except for transfer restrictions (the "Exchange Offer
Registration Rights Agreement"). As used in this Section 2.01 (a), the term
"customary and appropriate" shall be determined with reference to Rule 144A
transactions underwritten by nationally recognized investment banking firms and
involving securities that are similar to the Senior Subordinated Notes and that
are issued by entities that are not subject to the reporting requirements of the
Exchange Act.
The Issuer will promptly advise the Rule 144A Sellers of the
happening of any event that would require an amendment of or supplement to the
Rule 144A Offering Memorandum then being used so that the Rule 144A Offering
Memorandum as thereafter delivered to purchasers would not include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein not misleading. Upon receipt of such notice, the Rule
144A Sellers shall cease delivering such Rule 144A Offering Memorandum to
prospective purchasers of the Senior Subordinated Notes until such time as such
amended or supplemented Rule 144A Offering Memorandum is available for delivery
to such prospective purchasers. The Issuer will also give the Rule 144A Sellers
notice of any intention to make any amendment or supplement to the Rule 144A
Offering Memorandum, will furnish the Rule 144A Sellers in advance with copies
of any such amendment or supplement proposed to be made and will not permit any
such amendment or supplement to be made without first consulting with the Rule
144A Sellers and their counsel.
The Issuer will furnish to the Rule 144A Sellers copies of the Rule
144A Offering Memorandum and all amendments and supplements thereto, in each
case as soon as available and in such quantities as the Rule 144A Sellers may
reasonably request.
Unless otherwise agreed to by all of the parties hereto, the right
of the Rule 144A Sellers to resell Senior Subordinated Notes pursuant to this
Section 2.01(a) (other than pursuant to the Exchange Offer Registration Rights
Agreement) shall expire upon the earlier of (x) the sale of all of the Senior
Subordinated Notes pursuant to the Rule 144A Offering Memorandum or (y) the
Business Day immediately prior to the earlier of (A) the filing of the Initial
Registration and (B) the filing of the Exchange Offer Registration Statement.
The Exchange Offer Registration Rights Agreement shall provide,
among other things, that the Issuer shall, if Senior Subordinated Notes have
been sold under the Rule 144A
-6-
<PAGE>
Offering Memorandum, at its own cost, use its reasonable best efforts to prepare
and, not later than 60 days after (or if the 60th day is not a Business Day, the
first Business Day thereafter) the date hereof, file with the SEC a registration
statement ("Exchange Offer Registration Statement") on an appropriate form under
the Securities Act, with respect to a proposed offer (the "Registered Exchange
Offer") to the holders of Senior Subordinated Notes sold under the Rule 144A
Offering Memorandum, who are not prohibited by any law or policy of the SEC from
participating in the Registered Exchange Offer, to issue and deliver to such
holders, in exchange for such Senior Subordinated Notes, a like aggregate
principal amount of debt securities of the Issuer issued under the indenture
relating to the Senior Subordinated Notes (the "Exchange Securities") and
identical in all material respects to the Senior Subordinated Notes (except for
the transfer restrictions relating to the initial Senior Subordinated Notes)
that would be registered under the Securities Act. The Issuer shall use its
reasonable best efforts to cause such Exchange Offer Registration Statement to
become effective under the Securities Act within 150 days (or if the 150th day
is not a Business Day, the first Business Day thereafter) from the date hereof
and shall keep the Exchange Offer Registration Statement effective for not less
than 30 days (or longer, if required by applicable law) after the date notice of
the Registered Exchange Offer is mailed to the holders.
Prior to the filing of the Exchange Offer Registration Statement and
the registration statement related to the Initial Registration, the parties
hereto shall use their reasonable best efforts to take such actions as are
necessary such that the Exchange Securities and the Securities (the "Initial
Securities") held by the CSFB Entity, the DLJ Entities and the Chase Entity (the
"Original Holders") after being registered pursuant to the Initial Registration
(as defined below) are traded as fungible securities, including, if appropriate,
legal and in compliance with the Securities Act, having the Issuer,
simultaneously with the delivery of the Exchange Securities pursuant to the
Registered Exchange Offer, issue and deliver to such Original Holders upon the
written request of such Original Holders, in exchange for the Initial Securities
held by such Original Holders, a like principal amount of debt securities (the
"Private Exchange Securities") of the Issuer issued under the indenture relating
to the Senior Subordinated Notes and identical in all material respects (other
than the inclusion of provisions relating to restrictions on transfer under the
Securities Act and the securities laws of the several states of the United
States identical to such provisions in the Initial Securities), to the Exchange
Securities.
(b) In addition to the Issuer's obligations under Section 2.01(a),
the Issuer will (i) file a registration statement under the Securities Act
relating to all of the Registrable Securities held by the Securityholders (the
"Initial Registration") within 60 days from the date hereof (or if the 60th day
is not a Business Day, the first Business Day thereafter), and (ii) use its
reasonable best efforts to have such registration statement declared effective
within 150 days from the date hereof (or if the 150th day is not a Business Day,
the first Business Day thereafter), all to the extent necessary to permit the
disposition (in accordance with the intended methods thereof) of the Registrable
Securities. Securityholders representing a majority of the outstanding principal
amount of the Registrable Securities may, at any time prior to the effective
date of the registration statement relating to such registration, revoke such
request, without liability to any of the other Securityholders, by providing a
written notice to ESPH revoking such request.
-7-
<PAGE>
(c) In the event that all of the Senior Subordinated Notes have not
been sold under the Rule 144A Offering Memorandum pursuant to Section 2.01 (a)
or under the Initial Registration pursuant to Section 2.01(b), subject to the
provisions herein, from and after the date which is twelve months after the date
effectiveness of any registration statement pursuant to Section 2.01(b) expires,
any DLJ Entity, the CSFIB Entity or the Chase Entity that holds Registrable
Securities may make a written request (any such requesting Person, a "Selling
Securityholder") that the Issuer effect the registration under the Securities
Act of all or a portion of such Selling Securityholder's Registrable Securities,
which request shall specify the intended method of disposition thereof. All such
written requests will be sent to ESPH and each potential Selling Securityholder
and more than one Selling Securityholder may request a Demand Registration (as
defined below) at the same time. The Issuer will promptly give written notice of
such requested registration (a "Demand Registration") at least 30 days prior to
the anticipated filing date of the registration statement relating to such
Demand Registration to all other Securityholders and thereupon will use its best
efforts to effect, as expeditiously as possible, the registration under the
Securities Act of the Registrable Securities which the Issuer has been so
requested to register by the Selling Securityholders and the Registrable
Securities which the other Securityholders have requested the Issuer to register
by written request received by ESPH within 15 days after the receipt by such
Securityholders of such written notice given by the Issuer (all such
Securityholders, together with the Selling Securityholders, the "Holders"), all
to the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; provided that, subject to Section 2.01(e) hereof, the Issuer shall
not be obligated to effect more than one Demand Registration pursuant to this
Section 2.01. Promptly after the expiration of the 15-day period referred to
above, the Issuer will notify all the Holders to be included in the Demand
Registration of the other Holders and the number of shares of Registrable
Securities requested to be included therein. The Selling Securityholders
requesting a registration under this Section 2.01 may, at any time prior to the
effective date of the registration statement relating to such registration,
revoke such request, without liability to any of the other Holders, by providing
a written notice to ESPH revoking such request, in which case such request, so
revoked, shall be not considered a Demand Registration; provided that all
Registration Expenses relating to such revoked registration are reimbursed by
such Selling Securityholders (unless such revocation arose out of the fault of
the Issuer, in which case no such reimbursement need be made).
(d) The Issuer will pay all Registration Expenses in connection with
any registration pursuant to this Section 2.01.
(e) The Initial Registration or a Demand Registration pursuant to
this Section 2.01 shall not be deemed to have been effected unless the
registration statement relating thereto (i) has become effective under the
Securities Act and (ii) has remained effective for a period of, in the case of
the Initial Registration, at least 180 days (or such shorter period in which all
Registrable Securities included in such registration have actually been sold
thereunder) and, in the case of a Demand Registration, at least 90 days (or such
shorter period in which all Registrable Securities included in such registration
have actually been sold thereunder); provided that, if after any such
registration statement becomes effective such registration statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration statement shall
be at the sole expense of the Issuer and shall not be
-8-
<PAGE>
considered the Initial Registration or a Demand Registration, unless any such
interference referred to in this proviso arose out of the fault of the Holders
of the Registrable Securities included in such registration statement, in which
case such registration statement shall be considered the Initial Registration or
a Demand Registration, as the case may be.
SECTION 2.02. Registration Procedures. Pursuant to Section 2.01(b)
and whenever Securityholders request that any Registrable Securities be
registered pursuant to Section 2.01(c), the Issuer will, subject to the
provisions of such Sections, use its best efforts to effect the registration and
the sale of such Registrable Securities in accordance with the intended method
of disposition thereof as quickly as practicable, and in connection with any
such request:
(a) The Issuer will as expeditiously as possible (in the case of the
Initial Registration, within 60 days from the date hereof) prepare and
file with the SEC a registration statement on any form for which the
Issuer then qualifies or which counsel for the Issuer shall deem
appropriate and which form shall be available for the sale of the
Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use its best efforts (in the
case of the Initial Registration, within 150 days from the date hereof) to
cause such filed registration statement to become effective and to remain
effective for a period of, in the case of the Initial Registration, not
less than 180 days (or such shorter period in which all of the Registrable
Securities of the Securityholders included in such registration statement
shall have actually been sold thereunder) and, in the case of a Demand
Registration, not less than 90 days (or such shorter period in which all
of the Registrable Securities of the Securityholders included in such
registration statement shall have actually been sold thereunder).
(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
each Securityholder and each underwriter, if any, of the Registrable
Securities covered by such registration statement copies of such
registration statement as proposed to be filed, and thereafter the Issuer
will furnish to such Securityholder and underwriter, if any, such number
of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the prospectus included in such
registration statement (including each preliminary prospectus) and such
other documents as such Securityholder or underwriter may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by such Securityholder. Each Securityholder shall have
the right to request that the Issuer modify any information contained in
such registration statement, amendment and supplement thereto pertaining
to such Securityholder and the Issuer shall use its reasonable best
efforts to comply with such request, provided that the Issuer shall not
have any obligation to so modify any information if so doing would cause
the prospectus to contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(c) After the filing of the registration statement, the Issuer will
cause the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Securities Act, (ii) comply with
-9-
<PAGE>
the provisions of the Securities Act with respect to the disposition of
all Registrable Securities covered by such registration statement during
the applicable period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement or supplement to such prospectus and promptly notify each
Securityholder holding Registrable Securities covered by such registration
statement of any stop order issued or threatened by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered.
(d) The Issuer will use its best efforts to (i) register or qualify
the Registrable Securities covered by such registration statement under
such other securities or blue sky laws of such jurisdictions in the United
States as any Securityholder holding such Registrable Securities
reasonably (in light of such Securityholder's intended plan of
distribution) requests and (ii) cause such Registrable Securities to be
registered with or approved by such other governmental agencies or
authorities as may be necessary by virtue of the business and operations
of the Issuer and do any and all other acts and things that may be
reasonably necessary or advisable to enable such Securityholder to
consummate the disposition of the Registrable Securities owned by such
Securityholder; provided that the Issuer will not be required to (A)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (d), (B) subject
itself to taxation in any such jurisdiction or (C) consent to general
service of process in any such jurisdiction.
(e) The Issuer will immediately notify each Securityholder holding
such Registrable Securities covered by such registration statement, at any
time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of an event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities,
such prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and promptly prepare and
make available to each such Securityholder and file with the SEC any such
supplement or amendment.
(f) Except as provided below, the Issuer may select the underwriter
or underwriters in connection with the Initial Registration and any Demand
Registration as it may deem appropriate. If the Initial Registration is an
Underwritten Public Offering, the DLJ Entities will have the right to
select one co-lead managing underwriter and, if the CSFB Entity has
Registrable Securities covered by such registration, the CSFB Entity will
have the right to select the other co-lead managing underwriter provided
that if the CSFB Entity has no Registrable Securities covered by such
registration, the DLJ Entities will have the right to select the lead
managing underwriter. If any Demand Registration is an Underwritten Public
Offering, the DLJ Entities and, if the CSFB Entity has Registrable
Securities covered by such registration, the CSFB Entity will each have
the right to select one of the co-lead managing underwriters; provided
that such Entities or Entity, as the case may be, have Registrable
Securities covered by such registration. Any Affiliate of any of the DLJ
Entities or any affiliate of the CSFB Entities may be selected as
underwriter for the Initial Registration and any Demand Registration. The
Issuer will
-10-
<PAGE>
enter into customary agreements (including an underwriting agreement in
customary form) and take such other actions as are reasonably required in
order to expedite or facilitate the disposition of such Registrable
Securities, including the engagement of a "qualified independent
underwriter" in connection with the qualification of the underwriting
arrangements with the NASD. If any DLJ Entity elects to be a Rule 144A
Seller, the DLJ Entities will have the right to select one co-lead
managing underwriter or placement agent and the CSFB Entity will have the
right to select the other co-lead managing underwriter or placement agent
in connection with sales under the Rule 144A Offering Memorandum.
(g) The Issuer will make available for inspection by any
Securityholder and any underwriter participating in any disposition
pursuant to a registration statement being filed by the Issuer pursuant to
this Section 2.02 and any attorney, accountant or other professional
retained by any such Securityholder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Issuer (collectively, the "Records") as
shall be reasonably requested by any such Person, and cause the Issuer's
officers, directors and employees to supply all information reasonably
requested by any Inspectors in connection with such registration
statement.
(h) The Issuer will furnish to each such Securityholder and to each
such underwriter, if any, a signed counterpart, addressed to such
underwriter, of (i) an opinion or opinions of counsel to the Issuer and
(ii) a comfort letter or comfort letters from the Issuer's independent
public accountants, each in customary form and covering such matters of
the type customarily covered by opinions or comfort letters, as the case
may be, as a majority of such Securityholders or the managing underwriter
therefor reasonably requests.
(i) The Issuer will otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act.
(j) The Issuer may require each such Securityholder to promptly
furnish in writing to the Issuer such information regarding the
distribution of the Registrable Securities as the Issuer may from time to
time reasonably request and such other information as may be legally
required in connection with such registration.
(k) Each such Securityholder agrees that, upon receipt of any notice
from the Issuer of the happening of any event of the kind described in
Section 2.02(e) hereof, such Securityholder will forthwith discontinue
disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Securityholder's
receipt of the copies of the supplemented or amended prospectus
contemplated by Section 2.02(e) hereof, and, if so directed by the Issuer,
such Securityholder will deliver to the Issuer all copies, other than any
permanent file copies then in such Securityholder's possession, of the
most recent prospectus covering such Registrable Securities at the time
-11-
<PAGE>
of receipt of such notice. In the event that the Issuer shall give such
notice, the Issuer shall extend the period during which such registration
statement shall be maintained effective (including the period referred to
in Section 2.02(a) hereof) by the number of days during the period from
and including the date of the giving of notice pursuant to Section 2.02(e)
hereof to the date when the Issuer shall make available to such
Securityholder a prospectus supplemented or amended to conform with the
requirements of Section 2.02(e) hereof.
SECTION 2.03. Indemnification by the Issuer. The Issuer agrees to
indemnify and hold harmless each Securityholder holding Registrable Securities
covered by a registration statement, its officers, directors and agents, and
each Person, if any, who controls such Securityholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Registrable Securities (as
amended or supplemented if the Issuer shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
such losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission so made in strict
conformity with information furnished in writing to the Issuer by such
Securityholder or on such Securityholder's behalf expressly for use therein;
provided that with respect to any untrue statement or omission or alleged untrue
statement or omission made in any preliminary prospectus, or in any prospectus,
as the case may be, the indemnity agreement contained in this paragraph shall
not apply to the extent that any such loss, claim, damage, liability or expense
results from the fact that a current copy of the prospectus (or, in the case of
a prospectus, the prospectus as amended or supplemented) was not sent or given
to the Person asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Securities
concerned to such Person if it is determined that the Issuer has provided such
prospectus and it was the responsibility of such Securityholder to provide such
Person with a current copy of the final prospectus (or such amended or
supplemented prospectus, as the case may be) and such current copy of the final
prospectus (or such amended or supplemented prospectus, as the case may be)
would have cured the defect giving rise to such loss, claim, damage, liability
or expense. The Issuer also agrees to indemnify any underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Securityholders provided in this Section 2.03.
SECTION 2.04. Indemnification by Participating Securityholders. (a)
Subject to Section 2.04(b), each Securityholder holding Registrable Securities
included in any registration statement agrees, severally but not jointly, to
indemnify and hold harmless the Issuer, its officers, directors and agents and
each Person, if any, who controls the Issuer within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Issuer to such Securityholder, but
only (i) with respect to information furnished in writing by such Securityholder
or on such Securityholder's behalf expressly for use in any registration
statement or prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary prospectus or (ii) to the extent that
-12-
<PAGE>
any loss, claim, damage, liability or expense described in Section 2.03 results
from the fact that a current copy of the prospectus (or, in the case of a
prospectus, the prospectus as amended or supplemented) was not sent or given to
the Person asserting any such loss, claim, damage, liability or expense at or
prior to the written confirmation of the sale of the Registrable Securities
concerned to such Person if it is determined that it was the responsibility of
such Securityholder to provide such Person with a current copy of the prospectus
(or such amended or supplemented prospectus, as the case may be) and such
current copy of the prospectus (or such amended or supplemented prospectus, as
the case may be) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. Subject to Section 2.04(b), each such
Securityholder also agrees to indemnify and hold harmless underwriters of the
Registrable Securities, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Issuer provided in this Section 2.04. As a condition to
including Registrable Securities in any registration statement filed in
accordance with Article 2 hereof, the Issuer may require that it shall have
received an undertaking reasonably satisfactory to it from any underwriter to
indemnify and hold it harmless to the extent customarily provided by
underwriters with respect to similar securities.
(b) No Securityholder shall be liable under Section 2.04(a) for any
damage thereunder in excess of the net proceeds realized by such Securityholder
in the sale of the Registrable Securities of such Securityholder.
SECTION 2.05. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
this Article 2, such Person (an "Indemnified Party") shall promptly notify the
Person against whom such indemnity may be sought (the "Indemnifying Party") in
writing and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified Party, and
shall assume the payment of all fees and expenses; provided that the failure of
any Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent that the
Indemnifying Party is materially prejudiced by such failure to notify. In any
such proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent, or if there be a final judgment for the plaintiff, the Indemnifying
Party shall indemnify and hold harmless such Indemnified Parties from and
against any and all losses, claims, damages, liabilities and expenses or
liability (to the extent stated above) by reason of such settlement or judgment.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any
-13-
<PAGE>
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such proceeding.
SECTION 2.06. Contribution. If the indemnification provided for in
this Article 2 is held by a court of competent jurisdiction to be unavailable to
the Indemnified Parties in respect of any losses, claims, damages or liabilities
referred to herein, then each such Indemnifying Party, in lieu of indemnifying
such Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (i)
as between the Issuer and the Securityholders holding Registrable Securities
covered by a registration statement on the one hand and the underwriters on the
other, in such proportion as is appropriate to reflect the relative benefits
received by the Issuer and such Securityholders on the one hand and the
underwriters on the other, from the offering of the Registrable Securities, or
if such allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Issuer and such Securityholders on the one hand and of such
underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations and (ii) as between the Issuer on the one hand
and each such Securityholder on the other, in such proportion as is appropriate
to reflect the relative fault of the Issuer and of each such Securityholder in
connection with such statements or omissions, as well as any other relevant
equitable considerations. The relative benefits received by the Issuer and such
Securityholders on the one hand and such underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering (net
of underwriting discounts and commissions but before deducting expenses)
received by the Issuer and such Securityholders bear to the total underwriting
discounts and commissions received by such underwriters, in each case as set
forth in the table on the cover page of the prospectus. The relative fault of
the Issuer and such Securityholders on the one hand and of such underwriters on
the other shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Issuer
and such Securityholders or by such underwriters. The relative fault of the
Issuer on the one hand and of each such Securityholder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Issuer and the Securityholders agree that it would not be just
and equitable if contribution pursuant to this Section 2.06 were determined by
pro rata allocation (even if the underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable to an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 2.06, no underwriter shall be
-14-
<PAGE>
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Securityholder
shall be required to contribute any amount in excess of the amount by which the
net proceeds realized on the sale of the Registrable Securities of such
Securityholder exceeds the amount of any damages which such Securityholder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each Securityholder's obligation to contribute
pursuant to this Section 2.06 is several in the proportion that the proceeds of
the offering received by such Securityholder bears to the total proceeds of the
offering received by all such Securityholders and not joint.
SECTION 2.07. Participation in Public Offering. (a) No Person may
participate in the Initial Registration or any Demand Registration hereunder
unless such Person (i) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements and the provisions of this Agreement in respect of registration
rights.
(b) In the event any Securityholder shall transfer any Registrable
Securities pursuant to Rule 144A under the Securities Act, the Issuer shall
cooperate with such Securityholder and shall use its reasonable best efforts to
provide to such Securityholder such information as such Securityholder shall
reasonably request.
ARTICLE 3
MISCELLANEOUS
SECTION 3.01. Entire Agreement. The Transaction Documents constitute
the entire agreement between the parties with respect to the subject matter of
the Transaction Documents and supersede all prior agreements and understandings,
both oral and written, between the parties with respect to the subject matter of
this Agreement and the other Transaction Documents.
SECTION 3.02. Binding Effect; Benefit. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
heirs, successors, legal representatives and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer on any Person other than
the parties hereto, and their respective heirs, successors, legal
representatives and permitted assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
-15-
<PAGE>
SECTION 3.03. Assignability. Neither this Agreement nor any right,
remedy, obligation or liability arising hereunder or by reason hereof shall be
assignable by the Issuer or any Securityholder, except by any Securityholder to
its Permitted Transferees. Any Securityholder who ceases to beneficially own any
Securities shall cease to be bound by the terms hereof (other than Sections
2.04, 2.05 and 2.06).
SECTION 3.04. Amendment; Waiver. No provision of this Agreement may
be waived except by an instrument in writing executed by the party against whom
the waiver is to be effective; provided that for purposes of any such waiver, an
instrument in writing executed by ESPH shall constitute an instrument in writing
executed by the Guarantors. No provision of this Agreement may be amended or
otherwise modified except by an instrument in writing executed by the parties
hereto; provided that for purposes of any such amendment or modification, an
instrument in writing executed by ESPH shall constitute an instrument in writing
executed by the Guarantors.
SECTION 3.05. Obligations of Holdco and the Guarantors. Holdco will
take all action necessary to cause the Issuer to perform its obligations under
this Agreement on the terms and conditions set forth in this Agreement. ESPH
will take all action necessary to cause the Guarantors to perform their
obligations under this Agreement on the terms and conditions set forth in this
Agreement.
SECTION 3.06. Notices. All notices and other communications given or
made pursuant hereto or pursuant to any other agreement among the parties,
unless otherwise specified, shall be in writing and shall be deemed to have been
duly given or made if sent by fax (with confirmation in writing), delivered
personally or sent by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the fax number or address set forth below
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made upon
receipt:
if to the DLJ Entities, to:
c/o DLJ Merchant Banking II, Inc.
277 Park Avenue
New York, NY 10172
Attention: Ivy Dodes
Fax: (212) 892-7272
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: John Knight
Fax: (212) 450-4800
-16-
<PAGE>
if to the CSFB Entity, to:
Credit Suisse First Boston (Europe) Limited
c/o Credit Suisse First Boston Corporation
11 Madison Avenue
New York, NY 10010
Attention: Richard Gallant
Fax: (212) 325-9136
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022-3897
Attention: David J. Goldschmidt
Fax: (212) 735-2000
if to the Chase Entity, to:
Chase Equity Associates, L.P.
c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Attention: Richard D. Waters, Jr.
Fax: (212) 622-3950
if to Holdco or ESPH, to:
Environmental Systems Products Holdings Inc.
7 Kripes Road
East Granby, CT 06026
Attention: David J. Langevin
Fax: (860) 653-4868
with a copy to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036-2787
Attention: Frank Schiff
Fax: (212) 354-8113
Any Person who becomes a Securityholder shall provide its address
and fax number to ESPH, which shall promptly provide such information to each
other Securityholder.
SECTION 3.07. Headings. The headings contained in this Agreement are
for convenience only and shall not affect the meaning or interpretation of this
Agreement.
-17-
<PAGE>
SECTION 3.08. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall be deemed to be one and the same instrument.
SECTION 3.09. Applicable Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York, without
regard to the conflicts of law rules of such state.
SECTION 3.10. Specific Enforcement. Each party hereto acknowledges
that the remedies at law of the other parties for a breach or threatened breach
of this Agreement would be inadequate and, in recognition of this fact, any
party to this Agreement, without posting any bond, and in addition to all other
remedies which may be available, shall be entitled to obtain equitable relief in
the form of specific performance, a temporary restraining order, a temporary or
permanent injunction or any other equitable remedy which may then be available.
SECTION 3.11. Consent to Jurisdiction. Any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Agreement or the transactions contemplated
hereby shall be brought in the United States District Court for the Southern
District of New York or any other New York State court sitting in New York City,
and each of the parties hereby consents to the jurisdiction of such courts (and
of the appropriate appellate courts therefrom) in any such suit, action or
proceeding and irrevocably waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding in any such court or that any such suit, action
or proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 3.06 shall be deemed
effective service of process on such party.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
DLJ INVESTMENT PARTNERS, L.P.
By: DLJ INVESTMENT PARTNERS, INC.
Managing General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: Vice President
DLJ ESC II L.P.
By: DLJ LBO PLANS MANAGEMENT
CORPORATION
General Partner
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: President
DLJ INVESTMENT FUNDING, INC.
By: /s/ Ivy Dodes
-----------------------------------
Name: Ivy Dodes
Title: President
CREDIT SUISSE FIRST BOSTON (EUROPE)
LIMITED
By: [Illegible]
-----------------------------------
Name:
Title:
By: [Illegible]
-----------------------------------
Name:
Title:
-19-
<PAGE>
CHASE EQUITY ASSOCIATES, L.P.
By: /s/ John M. B. O'Connor
-----------------------------------
Name: John M. B. O'Connor
Title: General Partners
ENVIROSYSTEMS CORP.
By: /s/ David J. Langevin
-----------------------------------
Name: David J. Langevin
Title: EVP CFO
ENVIRONMENTAL SYSTEMS PRODUCTS
HOLDINGS INC.
By: /s/ David J. Langevin
-----------------------------------
Name: David J. Langevin
Title: EVP CFO
-20-
<PAGE>
GUARANTORS:
ENVIRONMENTAL SYSTEMS PRODUCTS,
INC.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST SYSTEMS CORP. (Delaware)
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST HOLDINGS, INC.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST TECHNOLOGIES, INC.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST PARTNERS
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
REMOTE SENSING TECHNOLOGIES, INC.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
-21-
<PAGE>
ENVIROTEST WISCONSIN, INC.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ES FUNDING CORPORATION
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST ACQUISITIONS CO.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST SYSTEMS CORP. (Washington)
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
ENVIROTEST ILLINOIS, INC.
By: /s/ Terrence McKenna
-----------------------------------
Name: Terrence McKenna
Title: President & CEO
NEWMALL LTD.
By: [Illegible]
-----------------------------------
Name:
Title:
-22-
<PAGE>
WELLMANN OVERSEAS LTD.
By: [Illegible]
-----------------------------------
Name:
Title:
-23-
<PAGE>
Exhibit 4.4
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
and
ENVIROSYSTEMS CORP.
$100,000,000
Aggregate Principal Amount of
13% Senior Subordinated Notes due 2008
and 2,291.268 Shares of
Series A Common Stock
PLACEMENT AGREEMENT
October 15, 1998
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Environmental Systems Products Holdings Inc., a Delaware
corporation (the "Company"), proposes to issue and sell $100,000,000 aggregate
principal amount of the Company's 13% Senior Subordinated Notes due 2008 (the
"Notes") and EnviroSystems Corp., a Delaware corporation and the sole
shareholder of the Company (the "Parent"), proposes to issue and sell 2,291.268
shares (the "Series A Shares") of Series A common stock, par value $0.0001 per
share (the "Series A Common Stock"), of the Parent. The Notes are to be issued
under an indenture, dated as of October 16, 1998 (the "Indenture"), among the
Company, the Parent, the Guarantors (as defined) and United States Trust Company
of New York, as Trustee (the "Trustee"), which Notes will be unconditionally
guaranteed by the guarantors listed on Schedule A hereto (collectively, the
"Guarantors," and together with the Company and the Parent, the "Issuers"). For
purposes of this agreement, (i) the term "Securities" means the Notes, together
with
<PAGE>
the guarantees (the "Guarantees") thereof by the Guarantors, and the Series A
Shares and (ii) references to "Subsidiaries" or "subsidiaries" of the Company
shall mean all subsidiaries of the Company, including Envirotest Systems Corp.,
a Delaware corporation ("Envirotest"), and the direct and indirect subsidiaries
of Envirotest, and Environmental Systems Products, Inc., a Delaware corporation
("ESP"), and the direct and indirect subsidiaries of ESP. The United States
Securities Act of 1933, as amended, is herein referred to as the "Securities
Act."
Pursuant to the terms of an Agreement and Plan of Merger, dated as of
August 12, 1998 (the "Merger Agreement"), among ESP, Stone Rivet, Inc., a
Delaware corporation ("Stone Rivet") and a wholly-owned subsidiary of ESP, and
Envirotest, Stone Rivet made a cash tender offer (the "Equity Offer") to acquire
all of the issued and outstanding shares of Envirotest's Class A Common Stock,
par value $.01 per share, under an Offer to Purchase, dated August 19, 1998 (the
"Equity Offer to Purchase"). Pursuant to the Merger Agreement, (i) upon
completion of the Equity Offer, Stone Rivet will be merged with and into
Envirotest, (ii) the separate corporate existence of Stone Rivet will cease and
(iii) Envirotest will continue as the surviving corporation (the above
transactions are herein referred to as the "Merger"). The net proceeds of the
sale of the Notes and the Series A Shares, together with the net proceeds from
the sale by the Parent of 15% Senior Discount Notes due 2009 and shares of
Series A Common Stock in connection therewith (the "Senior Discount
Transaction"), a portion of the initial borrowings under the New Credit Facility
(as defined below), available cash and the proceeds of the Equity Investment (as
defined below), will be used to finance the Merger and to complete the
Refinancing Plan (as defined below). Concurrently with the consummation of the
issuance and sale of the Notes and the Series A Shares hereunder, Alchemy
Partners (Guernsey) Limited, a U.K. partnership, shall cause to be made by
certain shareholders of Newmall Ltd., a company incorporated under the laws of
England and Wales, an indirect equity contribution of approximately $80 million
to ESP (the "Equity Contribution"). Immediately prior to the issuance and sale
of the Notes and the Series A Shares, the shareholders of Newmall shall exchange
their Newmall shares for shares of stock in the Company (the "Newmall Share
Exchange"). In addition, the shareholders of the Company shall exchange their
shares of the Company for shares of the Parent (the "Company Share Exchange"
and, collectively with the Newmall Share Exchange, the "Share Exchange"). In
addition, the Parent and the purchasers party thereto shall enter into a share
price adjustment agreement, dated October 16, 1998 (the "Share Price Adjustment
Agreement"), regarding the shares of Series A Common Stock to be issued in
connection with this Agreement and the Senior Discount Transaction (the "Share
Price Adjustment"). At or prior to the issuance and sale of the Notes and the
Series A Shares, the Parent, the Company and certain of its subsidiaries intend
to
2
<PAGE>
complete a refinancing plan (the "Refinancing Plan"). The principal elements of
the Refinancing Plan are: (i) the issuance and sale of the Notes and the Series
A Shares; (ii) the Senior Discount Transaction; (iii) the offers by the Company
to purchase, and the solicitation of consents (together, the "Debt Offers") from
the holders of, all of the outstanding 9 1/8% Senior Notes due 2001 (the "2001
Notes") and 9 5/8% Senior Subordinated Notes due 2003 (the "2003 Notes" and,
together with the 2001 Notes, the "Existing Notes") of Envirotest pursuant to
Offers to Purchase and Consent Solicitations, each dated September 1, 1998 (the
"Debt Offers to Purchase"); (iv) the entering by the Company into a new senior
secured credit facility consisting of up to approximately an aggregate of $385
million of term loan facilities and up to approximately an aggregate of $50
million of revolving credit facilities (the "New Credit Facility") with Credit
Suisse First Boston Corporation ("CSFB"), as administrative and collateral
agent, DLJ Capital Funding, Inc. ("DLJCF"), as syndication agent, and certain
lenders named therein; (v) the repayment in full of indebtedness under ESP's
existing credit facility (the "ESP Credit Facility") and the termination of such
facility; (vi) the repayment in full of approximately $___ million of other
outstanding indebtedness of Envirotest; (vii) the Equity Contribution; and
(viii) certain other refinancing transactions (together with the transaction
described in (vi) above, the "Other Refinancings"). After the Closing Date, upon
consummation of the Merger, pursuant to a Stock Purchase Agreement, dated
______, 1998 (the "Envirotest Agreement"), between ESP and the Company, all of
the outstanding capital stock of Envirotest will be sold to the Company by ESP
(the "Envirotest Sale") in exchange for a subordinated note of the Company in
the amount of $[80.0] million to be issued to ESP. Upon consummation of the
Envirotest Sale, Envirotest will become a wholly-owned direct subsidiary of the
Company. In addition, the Company expect that after the Closing Date (as
hereinafter defined), it and/or one of its subsidiaries will enter into a
written agreement, (the "Transervice Agreement"), with Wellman Overseas Ltd., an
affiliate of the Company ("Wellman"), to acquire the Transervice division of
Wellman (the "Transervice Acquisition") for aggregate consideration of
approximately $13.5 million.
This Agreement, the Indenture, the Securities, the Subscription Agreement,
dated October 15, 1998 (the "Subscription Agreement"), among the Issuers and the
purchasers named therein substantially in the form of Exhibit B hereto, the
Registration Rights Agreement, dated October 16, 1998 (the "Registration Rights
Agreement"), among the Parent, the Company, DLJ Investment Partners, L.P., DLJ
ESC II, L.P., DLJ Investment Funding, Inc., Chase Equity Associates L.P. and
Credit Suisse First Boston (Europe) Limited, the Investors Agreement, dated
October 16, 1998 (the "Investors Agreement"), among the Parent, Alchemy Partners
(Guernsey) Limited, DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking
Partners
3
<PAGE>
II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ
Diversified Partners-A, L.P., DLJMB Funding II, Inc., DLJ Millennium Partners,
L.P., DLJ Millennium Partners-A, L.P., DLJ EAB Partners, L.P., UK Investment
Plan 1997 Partners, DLJ First ESC, L.P., DLJ ESC II, L.P., DLJ Investment
Partners, L.P., DLJ Investment Funding, Inc., Credit Suisse First Boston
(Europe) Limited, Chase Equity Associates L.P. and the other securityholders
named therein, the Merger Agreement, the Equity Offer to Purchase, the Debt
Offers to Purchase, the agreements evidencing the Equity Contribution, the
agreements evidencing the Senior Discount Transaction, the Share Price
Adjustment Agreement, the agreements evidencing the Share Exchange, the New
Credit Facility and the agreements creating security interests in the assets of
the Company for the benefit of the holders of indebtedness arising under the New
Credit Facility (together with the New Credit Facility, the "Bank Agreements"),
the Envirotest Agreement and the Transervice Agreement are sometimes referred to
in this Agreement, individually, as a "Transaction Document" and, collectively,
as the "Transaction Documents," and the Merger, the Equity Offer, the Debt
Offers, the Equity Contribution, the Senior Discount Transaction, the Share
Exchange, the Share Price Adjustment, the execution and delivery of the Bank
Agreements, the repayment and termination of the ESP Credit Facility, the Other
Refinancings, the Envirotest Sale, the Transervice Acquisition, the execution
and delivery of the Indenture, and the issuance and sale of the Notes and the
Series A Shares are sometimes referred to herein, individually, as a
"Transaction" and collectively, as the "Transactions."
Holders (including subsequent transferees) of the Securities will have the
rights (including the registration rights obligations) set forth in the
Registration Rights Agreement and the Investors Agreement. Pursuant to the
Registration Rights Agreement and the Investors Agreement, the Issuers will
agree to file with the Securities and Exchange Commission (the "Commission")
under the circumstances set forth therein, a registration statement under the
Securities Act (the "Registration Statement") registering the Securities. The
Investors Agreement also contains various restrictions on the transfer of Series
A Shares, various provisions requiring and in certain cases permitting Series A
stockholders to participate in sales of Series A Common Stock by the other
Series A Common stockholders that are party to that agreement and certain rights
to subscribe for newly issued Series A Common Stock of the Company.
Subject to the terms and conditions stated herein, the Issuers hereby
appoint Credit Suisse First Boston Corporation (the "Placement Agent") as the
exclusive agent of the Company for the purpose of soliciting offers to purchase
the Notes and the Series A Shares from the Company in transactions that are
intended to be exempt
4
<PAGE>
from the Securities Act.
2. Representations and Warranties of the Issuers. Each of the Issuers,
jointly and severally, represents and warrants to, and agrees with, the
Placement Agent that, as of the date hereof and as of the Closing Date:
(a) An offering memorandum (the "Offering Memorandum") relating to
the Securities to be sold to the purchasers thereof has been prepared by
the Company and the Parent. Such Offering Memorandum shall be referred to
herein as the "Offering Document." On the date of this Agreement and as of
the Closing Date, the Offering Document does not and will not include any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the Parent and the Company was duly incorporated and is
in good standing under the laws of the jurisdiction of its incorporation,
with the power and authority (corporate and other) to own its properties
and conduct its business as described in the Offering Document; and each
of the Parent and the Company is duly qualified to do business as a
foreign corporation in good standing in all other jurisdictions in which
its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not
have a material adverse effect upon the business, condition (financial or
otherwise), properties or results of operations of the Parent, the Company
and its subsidiaries, taken as a whole (a "Material Adverse Effect").
(c) Each subsidiary of the Company was duly incorporated and is in
good standing under the laws of the jurisdiction of its incorporation,
with the power and authority (corporate and other) to own its properties
and conduct its business as described in the Offering Document; and each
subsidiary of the Company is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not
have a Material Adverse Effect; except as disclosed in the Offering
Document, all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued and
is fully paid and nonassessable; and the capital stock of each subsidiary
owned by the Company, directly or through
5
<PAGE>
subsidiaries, is owned free from liens, encumbrances and defects.
(d) All of the issued and outstanding shares of capital stock of
each of the Parent and the Company were duly authorized and validly
issued, are fully paid and non-assessable and were not issued in violation
of any preemptive or similar rights. Except as disclosed in the Offering
Document, there are no outstanding subscriptions, rights, warrants, calls,
commitments of sale or options to acquire, or instruments convertible into
or exchangeable for, any capital stock of the Parent or the Company.
(e) The Indenture has been duly authorized by each Issuer; and when
the Notes, the Guarantees and the Series A Shares are delivered and paid
for pursuant to this Agreement and the Subscription Agreement on the
Closing Date (as defined below), the Indenture will have been duly
executed and delivered by each of the Issuers which is a party thereto,
and the Indenture will constitute valid and legally binding obligations of
each of the Issuers which is a party thereto, enforceable in accordance
with their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles and, as to rights of indemnification and contribution, to
principles of public policy and federal and state securities laws relating
thereto.
(f) The Notes and the Guarantees have been duly authorized by the
Company and the Guarantors, respectively, and, when issued and delivered
to and paid for by the purchasers thereof in accordance with the terms of
the Subscription Agreement, the Notes and the Guarantees will conform in
all material respects to the description thereof in the Offering Document.
(g) At the Closing Date, the Notes and the Guarantees will have been
duly executed by the Company and the Guarantors, respectively, and, when
the Notes are authenticated in the manner provided for in the Indenture
and delivered against payment of the purchase price therefor, the Notes
and the Guarantees will constitute valid and legally binding obligations
of the Company and the Guarantors, respectively, enforceable against the
Company and the Guarantors, respectively, in accordance with their terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles and, as to
rights of indemnification and
6
<PAGE>
contribution, to principles of public policy and federal and state
securities laws relating thereto.
(h) The Subscription Agreement has been duly authorized, executed
and delivered by each Issuer.
(i) The Series A Shares have been duly authorized and, when issued
and delivered to and paid for by the purchasers thereof in accordance with
the terms of the Subscription Agreement, will have been validly issued and
will be fully paid and non-assessable.
(j) The Securities, the Indenture, the Registration Rights Agreement
and the Investors Agreement will conform in all material respects to the
respective statements relating thereto contained in the Offering Document.
(k) There are no preemptive rights or similar rights that have not
been waived to subscribe for or purchase the Notes by the Company or the
Series A Shares by the Parent upon their issuance and sale pursuant to
this Agreement and the Subscription Agreement. No securityholder of any
Issuer has any right that has not been waived to require such Issuer to
register the sale of any securities owned by such securityholder under the
Securities Act in the offering and sale contemplated by this Agreement and
the Subscription Agreement.
(l) Except as disclosed in the Offering Document or other documents
or agreements to which CSFB, DLJCF or one or more of their respective
affiliates is a party, there are no contracts, agreements or
understandings between any Issuer and any person that would give rise to a
valid claim against any of the Issuers or any or their affiliates or the
Placement Agent for a brokerage commission, finder's fee or other like
payment in connection with the Transactions.
(m) Except as disclosed in the Offering Document, there are no
contracts, agreements or understandings between any of the Issuers and any
person granting such person the right to require any of the Issuers to
file a registration statement under the Securities Act with respect to any
securities of any of the Issuers owned or to be owned by such person or to
require any of the Issuers to include such securities in any registration
statement filed by any of the Issuers under the Securities Act.
7
<PAGE>
(n) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the Transactions as contemplated by (i) this Agreement and
the Subscription Agreement in connection with the issuance and sale of the
Securities by the Issuers or (ii) any other Transaction Documents in
connection with the consummation of the transactions contemplated therein,
other than those consents, approvals, authorizations, orders or filings
that have been made or obtained and such as may be required by the
Securities Act (including Regulation D thereunder) and securities or blue
sky laws of any state of the United States or of any foreign jurisdiction
in connection with the offer and sale of the Securities and as may be
required under the Securities Act in connection with the Registration
Rights Agreement and the Investors Agreement.
(o) The issuance and sale of the Securities, and the execution,
delivery and performance of each of the Transaction Documents and
compliance with the terms and provisions thereof will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any statute, any rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Parent, the Company or any subsidiary of the Parent
or the Company or any of their respective properties, or any agreement or
instrument to which the Parent, the Company or any such subsidiary is a
party or by which the Parent, the Company or any such subsidiary is bound
or to which any of the properties of the Parent or the Company or any such
subsidiary is subject, or the charter or by-laws of the Company, the
Parent or any such subsidiary, and each of the Issuers has full power and
authority to authorize, issue and sell the Securities as contemplated by
this Agreement.
(p) Each of this Agreement and the Subscription Agreement has been
duly authorized, executed and delivered by each of the Issuers. Each of
the other Transaction Documents has been, or as of the Closing Date will
have been, duly authorized, executed and delivered by each of the Parent,
the Company and their subsidiaries (to the extent each is a party thereto)
and each conforms or will conform in all material respects to the
descriptions thereof contained in the Offering Document and each will
constitute valid and legally binding obligations of the Parent, the
Company and their subsidiaries (to the extent each is a party thereto),
enforceable in accordance with its respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
8
<PAGE>
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles and, as to
rights of indemnification and contribution, to principles of public policy
and federal and state securities laws relating thereto.
(q) Except as disclosed in the Offering Document, the Parent, the
Company and their subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case
free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof by them; and except as disclosed in the Offering Document, the
Parent, the Company and their subsidiaries hold any leased real or
personal property under valid and enforceable leases with no exceptions
that would materially interfere with the use made or to be made thereof by
them.
(r) The Parent, the Company and their subsidiaries possess all
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by them
and have not received any notice of proceedings relating to the revocation
or modification of any such certificate, authority or permit that, if
determined adversely to the Parent, the Company or any of its
subsidiaries, would individually or in the aggregate, have a Material
Adverse Effect.
(s) Neither the Parent, the Company nor any of their subsidiaries is
in violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained
in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the
Parent, the Company or any of their subsidiaries is a party or by which or
any of them may be bound, or to which any of the property or assets of the
Parent, the Company or any of their subsidiaries is subject, except for
such defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
(t) Except as disclosed in the Offering Document, no labor strike,
slowdown, stoppage or dispute (except for routine disciplinary and
grievance matters) with the employees of the Parent, the Company or any of
their subsidiaries exists or, to the knowledge of the Parent or the
Company, is imminent, that could reasonably be expected, individually or
in the aggregate, to have a Material Adverse Effect.
9
<PAGE>
(u) The Parent, the Company and their subsidiaries own, possess,
have the legal rights to use or can acquire on reasonable terms, adequate
trademarks, trade names and other rights to inventions, know-how, patents,
copyrights, confidential information and other intellectual property
(collectively, "intellectual property rights") used in the business now
operated by them, or presently employed by them and have not received any
notice of infringement of or conflict with asserted rights of others with
respect to any intellectual property rights that, if determined adversely
to the Parent, the Company or any of their subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
(v) Except as disclosed in the Offering Document, none of the
Parent, the Company or any of their subsidiaries (i) is in violation of
any statute, any rule, regulation, decision or order of any governmental
agency or body or any court, domestic or foreign, relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to
hazardous or toxic substances (collectively, "environmental laws"), (ii)
to its knowledge owns or operates any real property contaminated with any
substance that is subject to any environmental laws, (iii) is liable for
any off-site disposal or contamination pursuant to any environmental laws,
or (iv) is subject to any claim relating to any environmental laws, which
violation, contamination, liability or claim would individually or in the
aggregate have a Material Adverse Effect; and the Parent, the Company and
their subsidiaries are not aware of any pending investigation which might
lead to such a claim.
(w) Except as disclosed in the Offering Document, there are no
pending actions, suits or proceedings against or affecting the Parent, the
Company, any of their subsidiaries or any of their respective properties
that, if determined adversely to the Parent, the Company or any of its
subsidiaries, would individually or in the aggregate have a Material
Adverse Effect or would materially and adversely affect the ability of the
Parent, the Company and their subsidiaries to perform their respective
obligations under the Transaction Documents, or which are otherwise
material in the context of the sale of the Securities and the consummation
of the other Transactions; and, to the Parent's, the Company's and their
subsidiaries' knowledge, no such actions, suits or proceedings are
threatened or contemplated.
(x) The historical financial statements of each of ESP and
Envirotest and their respective consolidated subsidiaries included in the
10
<PAGE>
Offering Document present fairly the financial position of each of ESP and
Envirotest and their respective consolidated subsidiaries as of the dates
shown and their results of operations and cash flows for the periods
shown, and such financial statements have been prepared in conformity with
the generally accepted accounting principles in the United States applied
on a consistent basis. The assumptions used in preparing the pro forma
financial statements included in the Offering Document provide a
reasonable basis for presenting the significant effects directly
attributable to the transactions or events described therein, the related
pro forma adjustments give appropriate effect to those assumptions, and
the pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
The pro forma financial statements of the Company and the Parent, together
with related schedules and notes, set forth in the Offering Document
comply in all material respects with the requirements applicable to pro
forma financial statements to be included in a registration statement on
Form S-1 under the Securities Act.
(y) Except as disclosed in the Offering Document, since the date of
the latest financial statements included in the Offering Document, there
has been no material adverse change in the business, condition (financial
or other), properties or results of operations of the Company and its
subsidiaries taken as a whole (a "Material Adverse Change"), nor any
development or event involving a prospective Material Adverse Change and,
except as disclosed in or contemplated by the Offering Document, there has
been no dividend or distribution of any kind declared, paid or made by the
Parent or the Company on any class of its capital stock.
(z) The proceeds to the Issuers from the issuance and sale of the
Securities will not be used to purchase or carry any security except any
securities evidencing indebtedness being purchased in connection with the
Refinancing Plan. None of the Issuers is an open-end investment company,
unit investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the United States Investment
Company Act of 1940 (the "Investment Company Act"); and each of the
Issuers is not and, after giving effect to the offering and sale of the
Securities and the application of the proceeds thereof as described in the
Offering Document and the consummation of the other Transactions, will not
be, an "investment company" as defined in the Investment Company Act.
(aa) Each of the Parent, the Company and their subsidiaries is, and
11
<PAGE>
immediately after the Closing Date will be, Solvent. As used herein, the
term "Solvent" means, with respect to each of the Parent, the Company and
its subsidiaries on a particular date, that on such date (A) the fair
market value of the assets of the Company or such subsidiary is greater
than the total amount of liabilities (including contingent liabilities) of
the Parent, the Company or such subsidiary, (B) the present fair salable
value of the assets of the Parent, the Company or such subsidiary is
greater than the amount that will be required to pay the probable
liabilities of the Parent, the Company or such subsidiary on its debts as
they become absolute and matured, (C) the Parent, the Company or such
subsidiary is able to realize upon its assets and pay its debts and other
liabilities, including contingent obligations, as they mature, and (D) the
Parent, the Company or such subsidiary does not have unreasonably small
capital.
(bb) No securities of the Parent, the Company or any of its
subsidiaries of the same class (within the meaning of Rule 144A(d)(3)
under the Securities Act) as the Securities are listed on any national
securities exchange registered under Section 6 of Exchange Act or quoted
in a U.S. automated inter-dealer quotation system.
(cc) The issuance and sale of the Securities in the manner
contemplated by this Agreement and the Subscription Agreement will be
exempt from the registration requirements of the Securities Act by reason
of Section 4(2) thereof and Regulation S thereunder; and it is not
necessary to qualify an indenture in respect of the Notes under the United
States Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act").
(dd) None of the Parent, the Company, or any of their affiliates,
nor any person acting on its or their behalf (i) has, within the six-month
period prior to the date hereof, offered or sold in the United States or
to any U.S. person (as such terms are defined in Regulation S under the
Securities Act) the Securities or any security of the same class or series
as the Securities or (ii) has offered or will offer or sell the Securities
(A) in the United States by means of any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the Securities
Act or (B) with respect to any such securities sold in reliance on Rule
903 of Regulation S under the Securities Act, by means of any directed
selling efforts within the meaning of Rule 902(b) of Regulation S. The
Parent, the Company and any person acting on their behalf have complied
and will comply with the offering restrictions requirement of Regulation
S. Neither the Parent nor the Company has entered
12
<PAGE>
and they will not enter into any contractual arrangement with respect to
the issuance and sale of the Securities except for this Agreement, the
Registration Rights Agreement, the Investors Agreement and the
Subscription Agreement.
(ee) Neither the Parent nor the Company has, directly or indirectly,
solicited any offer to buy or offered to sell, and they will not, directly
or indirectly, solicit any offer to buy or offer to sell, in the United
States or to any United States citizen or resident, any security that is
or would be integrated with the sale of the Securities in a manner that
would require the Securities to be registered under the 1933 Act.
(ff) The issuance and sale of the Securities hereunder will not
involve any transaction that is subject to the prohibitions of Section
406(a)(1) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or in connection with which a tax could be imposed
pursuant to Section 4975(c)(1)(A)-(D) of the Internal Revenue Code of
1986, as amended (the "Code"). The representation of the Issuers in the
first sentence of this Article 2(ff) is made in reliance upon, and subject
to the accuracy of, the representations of the Purchasers in Article 4.2
of the Subscription Agreement, and with respect to any transferee, the
accuracy of the representation made by such transferee pursuant to Article
4.3(b) of the Subscription Agreement.
No condition exists or event or transaction has occurred in
connection with any Benefit Plan maintained or contributed to by the
Company and its subsidiaries, or any Affiliate of any such entity, which
is likely to result in any of them incurring any liability, fine or
penalty which singly or in the aggregate would have a material adverse
effect on the Company and its subsidiaries, taken as a whole, resulting
from the failure of the Company or its subsidiaries or any Affiliate of
any such entity to comply with ERISA insofar as such Act applies to them.
(gg) The Company is an "operating company" as such term is defined
in Department of Labor Regulation 2510.3-101(c), as may be amended.
3. Purchase, Sale and Delivery of Notes and the Series A Shares. On the
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, the Placement Agent agrees
to solicit offers to purchase the Notes from the Company and the Series A Shares
from
13
<PAGE>
the Parent upon the terms and conditions set forth in the Subscription
Agreement. The Placement Agent shall have the right, in its sole discretion, to
reject any offer received by it to purchase Notes and Series A Shares, as a
whole or in part, and any such rejection by the Placement Agent shall not be
deemed a breach of its agreements contained herein. The Placement Agent shall
communicate to the Parent and the Company, orally or in writing, each offer to
purchase Notes and Series A Shares and may reject any proposed purchase of Notes
and Series A Shares as a whole or in part. Neither the Parent nor the Company
shall have any obligation to any prospective purchaser in respect of any
Securities proposed to be sold to such prospective purchaser until such
prospective purchaser has entered into the Subscription Agreement pursuant to
which purchasers will subscribe for the Notes and the Series A Shares. The
Parent and the Company agrees to pay or cause to be paid to the Placement Agent
placement fees with respect to its services as set forth in this Agreement in an
amount equal to the product of 2% and the principal amount of Notes sold. The
placement fees will be paid by the Parent and the Company to the Placement Agent
at the Closing Date by wire transfer of immediately available funds.
The Parent and Company will deliver against payment of the purchase price
the Notes, in the form of one or more permanent global securities in definitive
form (the "Global Securities") deposited with the Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any permanent Global Securities will be held only
in book-entry form through DTC, except in the limited circumstances described in
the Indenture. The Parent will deliver the Series A Shares, in the form of
certificated securities in definitive form. Payment for the Notes and the Series
A Shares shall be made by the purchasers thereof in Federal (same day) funds by
official check or checks drawn to the order of the Parent or the Company or wire
transfer to an account at a bank acceptable to the Placement Agent, at the
office of Skadden, Arps, Slate, Meagher & Flom LLP at 9:00 A.M. (New York time),
on October 16, 1998, or at such other time not later than seven full business
days thereafter as the Placement Agent, the purchasers of such Notes and Series
A Shares, the Parent and the Company determine, such time being herein referred
to as the "Closing Date." Payment for the Notes shall be made against delivery
to the Trustee for the Notes as custodian for DTC of the Global Securities
representing all of the Notes. The Global Securities and the certificates
representing the Series A Shares to be purchased by each purchaser thereof shall
be made available for examination and packaging by the Placement Agent in The
City of New York not later than 10:00 A.M. on the last business day prior to the
Closing Date.
4. Agreement of Placement Agent Regarding No Advertising. The
14
<PAGE>
Placement Agent agrees that it and each of its affiliates will not offer or sell
the Notes or the Series A Shares in the United States by means of any form of
general solicitation or general advertising within the meaning of Rule 502(c)
under the Securities Act, including, but not limited to (i) any advertisement,
article, notice or other communication published in any newspaper, magazine or
similar media or broadcast over television or radio, or (ii) any seminar or
meeting whose attendees have been invited by any general solicitation or general
advertising.
5. Certain Agreements of the Issuers. Each of the Issuers, jointly and
severally, agrees with the Placement Agent that:
(a) The Parent and the Company will advise the Placement Agent
promptly of any proposal to amend or supplement the Offering Document and
will not effect such amendment or supplementation without the Placement
Agent's consent. If, at any time prior to the completion of the placement
of the Notes and the Series A Shares by the Placement Agent, any event
occurs as a result of which the Offering Document as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary at any such time to amend or supplement
the Offering Document to comply with any applicable law, the Parent and
the Company promptly will notify the Placement Agent of such event and
promptly will prepare, at its own expense, an amendment or supplement
which will correct such statement or omission or effect such compliance.
Neither the Placement Agent's consent to, nor the Placement Agent's
delivery to offerees or investors of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section 6.
(b) The Company will deliver to each purchaser of the Notes and
Parent will deliver to each purchaser of the Series A Shares, in
connection with the sale of the Notes and the Series A Shares, a copy of
the Offering Document, as amended and supplemented at the date of such
delivery.
(c) The Parent and the Company will furnish to the Placement Agent
copies of the Offering Document and all amendments and supplements
thereto, in each case as soon as available and in such quantities as the
Placement Agent reasonably requests, and the Parent and the Company will
furnish to the Placement Agent on the date hereof three copies of the
Offering Document signed by a duly authorized officer of each of the
Parent and the
15
<PAGE>
Company, one of which will include the independent accountants' reports
therein manually signed by such independent accountants. At any time when
the either of the Parent or the Company is not subject to Section 13 or
15(d) of the Exchange Act, such entity will promptly furnish or cause to
be furnished to the Placement Agent and, upon request of holders and
prospective purchasers of the Securities, to such holders and purchasers,
copies of the information required to be delivered to holders and
prospective purchasers of the Securities pursuant to Rule 144A(d)(4) under
the Securities Act in order to permit compliance with Rule 144A in
connection with resales by such holders of the Securities. The Parent and
the Company will pay the expenses of printing and distributing to the
Placement Agent and the holders and the prospective purchasers of the
Securities all such documents.
(d) The Parent and the Company will arrange for the qualification of
the Securities for sale and will use their reasonable best efforts to
arrange for the determination of their eligibility for investment under
the laws of such jurisdictions as the Placement Agent designates and will
continue such qualifications in effect so long as required for the resale
of the Securities by the purchasers thereof provided that the Parent and
the Company will not be required to qualify as a foreign corporation or to
file a general consent to service of process in any such jurisdiction.
(e) During the period of five years hereafter, the Parent and the
Company will furnish to the Placement Agent and, upon request, to each
purchaser of the Securities, as soon as practicable after the end of each
fiscal year, a copy of its annual report to stockholders for such year, if
any; and the Parent and the Company will furnish to the Placement Agent
and, upon request, to each purchaser of the Securities as soon as
available, (i) a copy of each description of reports, notices or
communications sent to securityholders or, if applicable, filed with
foreign regulators or securities exchanges, and (ii) from time to time,
such other information concerning the Parent or the Company as the
Placement Agent may reasonably request.
(f) During the period of two years after the Closing Date, the
Parent and the Company will, upon request, furnish to the Placement Agent
and any holder of Securities a copy of the restrictions on transfer
applicable to the Securities.
(g) [Intentionally omitted.]
16
<PAGE>
(h) During the period of two years after the Closing Date, none of
the Issuers will be or become, an open-end investment company, unit
investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the Investment Company Act.
(i) The Issuers will pay all expenses incidental to the performance
of their obligations under this Agreement, the Subscription Agreement and
the Indenture, including (i) the fees and expenses of the Trustee and its
professional advisers in connection with the Indenture and the Securities;
(ii) all expenses in connection with the execution, issue, authentication,
packaging and initial delivery of the Securities, the preparation and
printing of this Agreement, the Indenture, the Notes, the Series A Shares,
the Offering Document and amendments and supplements thereto, and any
other document relating to the issuance, offer, sale and delivery of the
Securities; (iii) the cost of listing the Offered Securities and
qualifying the Offered Securities for trading in The Portal(SM) Market
("PORTAL"), the cost of obtaining CUSIP numbers and any expenses
incidental thereto; (iv) any expenses (including fees and disbursements of
counsel) incurred in connection with qualification of the Securities for
sale under the laws of such jurisdiction as the Placement Agent designates
and the printing of memoranda relating thereto; (v) any fees charged by
investment rating agencies for the rating of the Securities; (vi) all
costs and expenses of any Registration Statement, as set forth in the
Registration Rights Agreement and the Investors Agreement and (vii)
expenses incurred in distributing the Offering Document (including any
amendments and supplements thereto) to the Placement Agent and the
purchasers of the Notes and the Series A Shares. The Issuers will also pay
or reimburse the Placement Agent (to the extent incurred by them and, upon
the Company's request, only upon presentation to the Company of
documentation reasonably evidencing the same) for all travel expenses of
the Placement Agent and the Parent's and the Company's officers and
employees and any other expenses of the Placement Agent, the Parent and
the Company in connection with attending or hosting meetings with
prospective purchasers of the Notes and the Series A Shares.
(j) In connection with the offering, until the Placement Agent shall
have notified the Parent and the Company of the completion of the
placement of the Notes and the Series A Shares, none of the Parent, the
Company or any of their affiliates has or will, either alone or with one
or more other persons, bid for or purchase, for any account in which it or
any of its affiliates has a beneficial interest, any Securities or attempt
to induce any person to purchase
17
<PAGE>
any Securities, and they shall not make bids or purchases for the purpose
of creating actual, or apparent, active trading in, or of raising the
price of, the Securities.
(k) For a period of 180 days after the date of the sale of the Notes
and the Series A Shares to the purchasers thereof, none of the Issuers
will offer, sell, contract to sell, announce their intention to sell,
pledge or otherwise dispose of, directly or indirectly, any United States
dollar-denominated debt securities issued or guaranteed by any of the
Issuers and having a maturity of more than one year from the date of issue
without the prior written consent of the Placement Agent. None of the
Issuers will at any time offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, any securities under
circumstances where such offer, sale, pledge, contract or disposition
would cause the exemption afforded by Section 4(2) of the Securities Act
or the safe harbor of Regulation S thereunder to cease to be applicable to
the offer and sale of the Securities.
(l) The Parent and the Company agree that they will use the net
proceeds to them from the sale of the Securities in the manner described
in the Offering Document under the caption "Use of Proceeds". The Company
further agrees that on the Closing Date it will, in accordance with
respective terms of the Indenture, dated as of March 15, 1994, as
supplemented, between Envirotest, the guarantors named therein and First
Trust National Association, as trustee (the "2001 Trustee"), pursuant to
which the 2001 Notes were issued (the "2001 Indenture") and the Indenture,
dated as of April 1, 1993, as supplemented, between Envirotest, the
guarantors named therein and First Trust National Association, as trustee
(the "2003 Trustee"), pursuant to which the 2003 Notes were issued (the
"2003 Indenture"), (i) defease any and all of the 2001 Notes and the 2003
Notes remaining outstanding on such Closing Date after consummation of the
Debt Offers, in accordance with Section 8.1 of the 2001 Indenture and
Section 8.01 of the 2003 Indenture, respectively, or (ii) give such
notices to the 2001 Trustee and the 2003 Trustee, as applicable, and take
such other actions as may be required to exercise, at the earliest
practicable date, its optional redemption right under Section 3.1 of the
2001 Indenture and Section 3.01 of the 2003 Indenture, with respect to any
2001 Notes or 2003 Notes remaining outstanding after consummation of the
Debt Offers.
(m) In connection with the original distribution of the Notes and
the Series A Shares, the Issuers agree that, prior to any offer or sale of
the
18
<PAGE>
Notes by the Company or the Series A Shares by the Parent, the Placement
Agent and counsel for the Placement Agent shall have the right to make
reasonable inquiries into the business of the Parent, the Company and
their subsidiaries. The Issuers will provide each prospective purchaser
the opportunity to ask questions of, and receive answers from, the
officers, employees and representatives of the Issuers concerning the
terms and conditions of the offering and to obtain any other additional
information about the Parent, the Company and their subsidiaries and the
Securities, to the extent the officers and employees of the Issuers
possess the same or can acquire it without unreasonable effort or expense.
(n) The Issuers will furnish or cause to be furnished to the
Placement Agent such information as the Placement Agent reasonably
believes appropriate to its appointment as Placement Agent, including
without limitation such information as the Placement Agent reasonably
believes is necessary in connection with its assistance in the preparation
of, or for inclusion in the Offering Document (all such information so
furnished being hereinafter referred to as the "Information"). It is also
understood that the Parent and the Company may make available to
prospective purchasers of the Notes and the Series A Shares additional
material, data or other information (whether oral or written) relating to
the Parent or the Company (the "Company Data"). The Issuers recognize and
confirm that: (i) in performing the services contemplated by this
Agreement, the Placement Agent will use and rely primarily on the
Information and on other information available from generally recognized
public sources without having independently verified the same; (ii) the
Placement Agent does not assume responsibility for the accuracy or
completeness of the Offering Document, the Information, the Company Data
and such other information; and (iii) the Placement Agent will not make an
appraisal of any of the assets owned or managed by the Issuers as part of
the services to be performed by it hereunder except in connection with its
valuation of the Series A Common Stock.
(o) Offers and sales of the Notes and the Series A Shares will be
made only by the Issuers to persons whom the Issuers reasonably believe to
be institutional "accredited investors" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the Securities Act ("Institutional
Accredited Investors") and in a manner not involving a public offering
with the meaning of Section 4 of the Securities Act.
(p) No general solicitation or general advertising (within the
19
<PAGE>
meaning of Rule 502(c) under the Securities Act) will be used in
connection with the offering of the Notes and the Series A Shares. If
required, the Issuers will file in a timely manner with the Commission any
notices with respect to the Securities required by Regulation D and will
furnish to the Placement Agent promptly thereafter a signed copy of each
such notice.
(q) The transfer restrictions and the other provisions set forth in
(i) the Indenture and the Registration Rights Agreement with respect to
the Notes and (ii) the Investors Agreement, the Share Price Adjustment
Agreement and the certificates representing the Series A Shares with
respect to such Shares, including the legends required thereby or
appearing thereon, shall apply to the Securities except as otherwise
agreed by the Issuers and the Placement Agent. Following the sale of the
Notes by the Company and the Series A Shares by the Parent to purchasers
thereof pursuant to the terms of the Subscription Agreement, the Placement
Agent (solely in its capacity as Placement Agent) shall not be liable or
responsible to any of the Issuers for any losses, damages or liabilities
suffered or incurred by any of the Issuers, including any losses, damages
or liabilities under the Securities Act, arising from or relating to any
sale, resale or transfer of any Security except for any such loss, damage
or liability incurred by the Company as a result of gross negligence or
willful misconduct on the part of the Placement Agent or any of its
affiliates.
(r) Each of the Issuers agrees that it will not and will cause its
affiliates not to make any offer or sale of securities of any of the
Issuers of any class if, as a result of the doctrine of "integration"
referred to in Rule 502 under the Securities Act, such offer or sale would
render invalid (for the purpose of the sale of the Notes and the Series A
Shares by the Company and the Parent to the purchasers thereof) the
exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereof or otherwise.
6. Conditions of the Obligations of the Placement Agent. The obligations
of the Placement Agent hereunder will be subject to the accuracy of the
representations and warranties on the part of the Issuers herein, to the
accuracy of the statements of officers of the Issuers made pursuant to the
provisions hereof, to the performance by the Issuers of their respective
obligations hereunder and to the following additional conditions precedent and
conditions subsequent:
(a) The Placement Agent shall have received a letter, dated the
20
<PAGE>
Closing Date and satisfactory to the Placement Agent and the purchasers of
Securities, of PriceWaterhouseCoopers LLP addressed to the Placement
Agent, the Parent, the Company and the purchasers of the Securities
pursuant to this Agreement confirming that they are independent public
accountants within the meaning of the Securities Act and the applicable
published rules and regulations thereunder ("Rules and Regulations") and
to the effect that:
(i) in their opinion the financial statements and schedules
examined by them and included in the Offering Document comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act and the related published Rules
and Regulations;
(ii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of
interim financial information as described in Statement of Auditing
Standards No. 71, Interim Financial Information, on the unaudited
financial statements included in the Offering Document;
(iii) on the basis of the review referred to in clause (ii)
above, a reading of the latest available interim financial
statements of the Parent and the Company, and of all subsidiaries of
the Company for which such interim financial statements are
provided, inquiries of officials of the Parent, the Company, and of
such subsidiaries, who have responsibility for financial and
accounting matters and other specified procedures, nothing came to
their attention that caused them to believe that:
(A) the unaudited financial statements included in the
Offering Document do not comply as to form in all material
respects with the applicable accounting requirements of the
Securities Act and the related published Rules and Regulations
or any material modifications should be made to such unaudited
financial statements for them to be in conformity with
generally accepted accounting principles;
(B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date
not more than three business days prior to the Closing Date,
there was any change in the capital stock or any material
increase in
21
<PAGE>
long-term debt of the Parent or the Company and its
consolidated subsidiaries or, at the date of the latest
available balance sheet read by such accountants, there was
any decrease in consolidated net current assets, as compared
with amounts shown on the latest balance sheet included in the
Offering Document, or
(C) for the period from the closing date of the latest
income statement included in the Offering Document to the
closing date of the latest available income statement read by
such accountants there were any decreases, as compared with
the corresponding period of the previous year and with the
period of corresponding length ended the date of the latest
income statement included in the Offering Document, in
consolidated net sales, net operating income or in the total
or per share amounts of consolidated income before
extraordinary items or net income; except in all cases set
forth in clauses (B) and (C) above for changes, increases or
decreases which the Offering Document disclose have occurred
or may occur or which are described in such letter;
(iv) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review on
pro forma financial information as described in Statement on
Standards for Attestation Engagement No. 1, Reporting on Pro Forma
Financial Statements, on the pro forma financial statements included
in the Offering Document;
(v) on the basis of the review referred to in clause (iv)
above, nothing came to their attention that caused them to believe
that the pro forma financial statements included in the Offering
Document do not comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
related published Rules and Regulations or that the pro forma
adjustments have not been properly applied to the historical amounts
in the compilation of those statements; and
(vi) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Offering Document (in each case to the
22
<PAGE>
extent that such dollar amounts, percentages and other financial
information are derived from the general accounting records of the
Parent or the Company and its subsidiaries subject to the internal
controls of the Company's accounting system or are derived directly
from such records by analysis or computation) with the results
obtained from inquiries, a reading of such general accounting
records and other procedures specified in such letter and have found
such dollar amounts, percentages and other financial information to
be in agreement with such results, except as otherwise specified in
such letter.
(vii) the presentation of Management's Discussion and Analysis
of Financial Condition and Results of Operations in the Offering
Document includes, in all material respects, the required elements
of the rules and regulations adopted by the Commission; the
historical financial amounts included therein have been accurately
derived, in all material respects, from the Company's financial
statements; and the underlying information, determination, estimates
and assumptions of the Company provide a reasonable basis for the
disclosures contained therein.
(b) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) a change in U.S. or international
financial, political or economic conditions or currency exchange rates or
exchange controls as would, in the reasonable judgment of the Placement
Agent, be likely to prejudice materially the success of the proposed issue
and sale of the Notes and the Series A Shares, whether in the primary
market or in respect of dealings in the secondary market, or (ii) (A) any
change, or any development or event involving a prospective change, in the
condition (financial or other), business prospects, properties or results
of operations of the Parent and its subsidiaries taken as a whole, which,
in the reasonable judgment of the Placement Agent, is material and adverse
to the Parent and its subsidiaries taken as a whole and makes it
impractical or inadvisable to proceed with completion of the issuance or
the sale of and payment for the Securities; (B) any downgrading in the
rating of any debt securities of the Parent, the Company or any of their
subsidiaries by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the Securities
Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Parent,
the Company or any of their subsidiaries (other than an announcement with
23
<PAGE>
positive implications of a possible upgrading, and no implication of a
possible downgrading, of such rating); (C) any suspension or limitation of
trading in securities generally on the New York Stock Exchange or the
Nasdaq National Market, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the
Parent, the Company or any of their subsidiaries on any exchange or in the
over-the-counter market; (D) any banking moratorium declared by U.S.
Federal or New York authorities; or (E) any outbreak or escalation of
major hostilities in which the United States is involved, any declaration
of war by Congress or any other substantial national or international
calamity or emergency if, in the reasonable judgment of the Placement
Agent, the effect of any such outbreak, escalation, declaration, calamity
or emergency makes it impractical or inadvisable to proceed with
completion of the issuance or sale of and payment for the Notes and the
Series A Shares.
(c) The Placement Agent shall have received an opinion or opinions,
dated such Closing Date, of counsel for the Issuers, substantially to the
effect that:
(i) Each of the Parent, the Company and each subsidiary of the
Company was duly incorporated and is in good standing under the laws
of its jurisdiction of incorporation, with corporate power and
authority to own its properties and conduct its businesses as
described in the Offering Document.
(ii) Each of the Transaction Documents (except for the
Envirotest Agreement and the Transervice Agreement) has been duly
authorized, executed and delivered by each of the Parent, the
Company and their subsidiaries (to the extent each is a party
thereto); each of the Transaction Documents conforms to the
description thereof contained in the Offering Document (to the
extent described therein); and each of the Transaction Documents
(other than this Agreement and the Subscription Agreement)
constitutes valid and legally binding obligations of each of the
Parent, the Company and their subsidiaries (to the extent each is a
party thereto) enforceable in accordance with its respective terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles and, as to rights of indemnification and contribution, to
principles of public policy and federal and state
24
<PAGE>
securities laws relating thereto.
(iii) The Notes, the Guarantees and the Series A Shares
conform in all material respects to the description thereof in the
Offering Document.
(iv) The Notes and the Guarantees have been duly authorized
and executed by the Company and the Guarantors, respectively, and,
when the Notes are authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase price
therefor, the Notes and the Guarantees will constitute valid and
binding obligations of the Company and the Guarantors, respectively,
enforceable against the Company and the Guarantors, respectively, in
accordance with their terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and
to general equity principles and, as to rights of indemnification
and contribution, to principles of public policy and federal and
state securities laws relating thereto.
(v) The Series A Shares have been duly authorized and, when
issued and delivered to and paid for by the purchasers thereof in
accordance with the terms of the Subscription Agreement, will have
been validly issued and fully paid and nonassessable.
(vi) [Intentionally omitted.]
(vii) To our knowledge, there are no preemptive rights or
similar rights that have not been waived to subscribe for or
purchase the Securities upon their issuance and sale by the Issuers
pursuant to this Agreement and the Subscription Agreement. To our
knowledge, no securityholder of any Issuer has any right that has
not been waived to require such Issuer to register the sale of any
securities owned by such securityholder under the Securities Act in
the offering and sale contemplated by this Agreement and the
Subscription Agreement.
(viii) The execution, delivery of, and performance by each of
the Parent, the Company and their subsidiaries (to the extent each
is a party thereto) of its obligations under each of the Transaction
Documents (including the issuance and sale of the Securities) and
25
<PAGE>
compliance with the terms and provisions thereof will not result in
a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or
order of any governmental agency or body or any court, domestic or
foreign, having jurisdiction over the Parent, the Company or any
subsidiary of the Company or any of their respective properties, or
the charter or by-laws of the Parent, the Company or any such
subsidiary, any agreement or instrument set forth on Schedule B
attached hereto or the Transaction Documents, and each of the
Issuers has full power and authority to authorize, issue and sell
the Securities as contemplated by this Agreement and the
Subscription Agreement.
(ix) Each of the Issuers is not and, after giving effect to
the offering and sale of the Securities and the application of the
proceeds thereof as described in the Offering Document and the
consummation of the other Transactions, will not, be an "investment
company" as defined in the Investment Company Act.
(x) No consent, approval, authorization or order of, or filing
with, any governmental agency or body or any court is required to be
obtained or made by the Parent, the Company or any subsidiary of the
Parent or the Company for the consummation of the Transactions or
otherwise in connection with the issuance and sale of the
Securities, other than those consents, approvals, authorizations,
orders or filings that have been made or obtained and such as may be
required by the Securities Act (including Regulation D thereunder)
and securities or blue sky laws of any state of the United States or
of any foreign jurisdiction in connection with the offer and sale of
the Securities and as may be required under the Securities Act in
connection with the Registration Rights Agreement and the Investors
Agreement.
(xi) It is not necessary in connection with the offer, sale
and delivery of the Securities by the Parent and the Company to the
purchasers thereof pursuant to this Agreement and the Subscription
Agreement to register the Securities under the Securities Act or to
qualify the Indenture under the Trust Indenture Act.
(xii) Except as set forth in the Offering Document, all
outstanding shares of the capital stock of the Parent, the Company
and
26
<PAGE>
each of their subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and conform in all material
respects to the description thereof contained in the Offering
Document; the Parent is the record owner of all of the issued and
outstanding capital stock of the Company. The Company, directly or
through subsidiaries, is the record owner of all of the issued and
outstanding capital stock of each subsidiary of the Company, and the
securityholders of the Parent, the Company and their subsidiaries
have no preemptive rights with respect to the Securities.
(xiii) Except as set forth in the Offering Document or any
Transaction Document, there are no contracts, agreements or
understandings known to such counsel between the Parent, the Company
or any of their subsidiaries and any person granting such person the
right to require the Parent, the Company or any of their
subsidiaries to file a registration statement under the Securities
Act with respect to any securities of the Parent, the Company or any
of their subsidiaries owned or to be owned by such person or to
require the Parent, the Company or any of their subsidiaries to
include such securities in any registration statement filed by the
Parent, the Company or any of their subsidiaries under the
Securities Act.
(xiv) The statements under the captions "Business--Legal
Proceedings," "Description of Other Indebtedness," "Description of
the Notes," "Description of Capital Stock" and "Certain United
States Federal Income Tax Considerations" in the Offering Document,
insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein, fairly
present in all material respects the information called for with
respect to such legal matters, documents and proceedings as if such
Offering Document were a prospectus included in a registration
statement on Form S-1.
(xv) None of the Parent, the Company or any of their
subsidiaries is in violation of its respective charter or by-laws
and none of the Parent, the Company or any of their subsidiaries is
in default in the performance of any obligation, agreement, covenant
or condition contained in any indenture, loan agreement, mortgage,
lease or other agreement or instrument as set forth on Schedule B
attached hereto.
(xvi) Based solely on discussions with the Parent, the
27
<PAGE>
Company or any of their subsidiaries but without independent
investigation or verification thereof, such counsel does not know of
any legal or governmental proceedings pending or threatened to which
the Parent, the Company or any of their subsidiaries is or could be
a party or to which any of their respective property is or could be
subject, which might result, singly or in the aggregate, in a
Material Adverse Effect.
(xvii) Based upon our participation in the preparation of the
Offering Document, but without independent check and verification,
nothing has come to our attention which causes us to believe that as
of its date or as of the Closing Date the Offering Document as
amended or supplemented (other than the financial statements and
other financial data included therein or omitted therefrom, as to
which we express no belief) contained or contains an untrue
statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Placement Agent shall have received from Skadden, Arps,
Slate, Meagher & Flom LLP, counsel for the Placement Agent, such opinion
or opinions, dated such Closing Date, with respect to such matters as the
Placement Agent may reasonably require, and the Issuers shall have
furnished to such counsel such documents as they request for the purpose
of enabling them to pass upon such matters.
(e) The Placement Agent shall have received a certificate, dated the
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of each of the Issuers in which such
officers after reasonable investigation shall state that the
representations and warranties of such company in this Agreement are true
and correct as of such date, that such company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date, and that, subsequent
to the date of the most recent financial statements in the Offering
Document, there has been no Material Adverse Change, nor any development
or event involving a prospective Material Adverse Change, and there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock, except as disclosed in or
contemplated by the Offering Document or as described in such certificate.
28
<PAGE>
(f) The Company and the Parent shall have caused the ENR Transfer to
be effected and consummated pursuant to the documentation described in the
definition of Transaction Documents and the Company shall have pledged and
delivered the capital stock of Envirotest to the Collateral Agent (as
defined in the Bank Agreements) pursuant to the Collateral Documents (as
defined in the Bank Agreements) and all conditions and requirements under
the Collateral Documents with respect to the pledging of capital stock
shall have been fulfilled to the satisfaction of the Collateral Agent, in
each case, on or prior to November 20, 1998. For purposes of this
paragraph, "ENR Transfer" means the purchase, following the Merger, by the
Company of all of the outstanding capital stock of Envirotest from ESP for
a purchase price (which may be paid in the form of a note) in an amount,
and pursuant to documentation, satisfactory to the Administrative Agent
(including, without limitation, provisions of any such note relating to
subordination, payments of principal and interest and the exercise of
remedies) under the Credit Agreement.
(g) The Issuers and the Trustee shall have entered into the
Indenture and you shall have received executed counterparts thereof.
(h) The Issuers shall have entered into the Registration Rights
Agreement and the Investors Agreement and you shall have received executed
counterparts thereof.
(i) On or prior to the Closing Date, (i)(a) the Company and the
other parties thereto shall have entered into the Bank Agreements and all
conditions precedent to the effectiveness thereof shall have been
satisfied or waived to the satisfaction of the Placement Agent and (b)
each of the Transactions (other than the Transervice Acquisition and the
Envirotest Sale) shall have been consummated in accordance with the terms
set forth in each Transaction Document and all conditions precedent to the
effectiveness thereof shall have been satisfied or waived to the
satisfaction of the Placement Agent; (ii) such transactions described in
the foregoing clause (i) shall continue to be in full force and effect in
accordance with the terms thereof; and (iii) the Company shall have
provided to the Placement Agent and counsel to the Placement Agent copies
of all Transaction Documents delivered to the parties relating to the
Transactions (including but not limited to legal opinions relating
thereto). To the extent the conditions in any of the agreements and
documents referred to in clause (i) above permit any person or persons to
29
<PAGE>
waive compliance with such condition, or require that a document, opinion
or other instrument or any event or condition be acceptable or
satisfactory to any person or persons, for purposes of this Agreement,
such condition shall be complied with only if waived by the Placement
Agent and such document, opinion or other instrument and such events or
conditions shall be acceptable or satisfactory only if acceptable or
satisfactory to the Placement Agent. No amendment to or waiver of such
condition made pursuant to the Bank Agreements or any of the Transaction
Documents shall be effective to amend or waive such condition for the
purposes of this Agreement without the consent of the Placement Agent.
(j) The Placement Agent shall have been furnished with a copy of the
opinions delivered on behalf of the Company in connection with the
Transactions, which opinions shall expressly state that the Placement
Agent is justified in relying upon the opinions therein.
(k) The Placement Agent shall have received an opinion addressed to
them from Murray, Devine & Co. in form and substance reasonably
satisfactory to the purchasers of the Notes and the Series A Shares that
the Transactions and the application of the net proceeds therefrom will
not render the Parent, the Company or any of their subsidiaries insolvent,
leave the Parent, the Company or any of their subsidiaries with inadequate
or unreasonably small capital with which to conduct business or result in
the Parent, the Company or any of their subsidiaries incurring
indebtedness beyond its ability to repay as such indebtedness matures.
(l) The Placement Agent shall have received a certificate, dated the
Closing Date, of the President or any Vice President of the Company in
which such officer after reasonable investigation shall state that (i)
each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals
("permits") of, and has made all filings with and notice to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under
any applicable environmental laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except
where the failure to have any such permit or to make any such filing or
notice would not, singly or in the aggregate, have a Material Adverse
Effect, (ii) each such permit is valid and in full force and effect and
each of the Company and its subsidiaries is in compliance with all the
terms and conditions thereof and with the rules and regulations of the
authorities and
30
<PAGE>
governing bodies having jurisdiction with respect thereto, (iii) no event
has occurred (including the receipt of any notice from any authority or
governing body) which allows or, after notice or elapse of time or both,
would allow for revocation, suspension or termination of any such permit
or has resulted or, after notice or lapse of time or both, would result,
in any other impairment of the rights of the holder of any such permit,
and (iv) such permits contain no restrictions that are burdensome to the
Company or any of its subsidiaries except where such failure to be valid
and in full force and effect or to be in compliance, the occurrence of any
such event or the presence of any such restriction would not, singly or in
the aggregate, have a Material Adverse Effect.
(m) Upon consummation of the Envirotest Sale, the Company shall
provide notice to the Placement Agent of such sale and shall provide the
Placement Agent with an executed copy of the Envirotest Agreement.
(n) The Placement Agent shall have received a certificate, dated the
Closing Date, of the President or any Vice President of the Company in
which such officer shall state that (i) each of the Transactions (other
than the Transervice Acquisition and the Envirotest Sale) shall have been
consummated in accordance with the terms set forth in each Transaction
Document, (ii) each of the Transactions shall be in full force and effect
in accordance with the terms thereof and (iii) each Transaction Document
shall have been executed and delivered.
(o) The Securities shall have been designated PORTAL securities in
accordance with the rules and regulations adopted by the NASD relating to
trading in the PORTAL market.
(p) The Placement Agent shall have received evidence satisfactory to
it that all conditions set forth herein shall have been met and such
further certificates and documents as the Placement Agent shall reasonably
request.
(q) The Company will furnish the Placement Agent with such conformed
copies of such opinions, certificates, letters and documents as the
Placement Agent reasonably requests. The Placement Agent may in its sole
discretion waive compliance with any conditions to the obligations of the
Placement Agent hereunder.
(r) As of the Closing Date, the Parent and the Company shall have
31
<PAGE>
received CUSIP numbers for the Notes and the Series A Shares and will
provide the Placement Agent with such CUSIP numbers.
(s) On the Closing Date, the Placement Agent shall have received the
final Offering Document, in a form satisfactory to the Placement Agent,
the purchasers of Securities and their respective counsel.
7. Indemnification and Contribution. (a) Each of the Issuers, jointly and
severally, will indemnify and hold harmless the Placement Agent against any
losses, claims, damages or liabilities, joint or several, to which the Placement
Agent may become subject, under the Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Offering
Document, or any amendment or supplement thereto, or in the Information or
Company Data furnished or made available by the Parent or the Company directly,
through the Placement Agent or otherwise, to any prospective purchaser of the
Notes and the Series A Shares or its representatives, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and will reimburse the
Placement Agent for any legal or other expenses reasonably incurred by the
Placement Agent in connection with investigating or defending any such loss,
claim, damage, liability or action as such expenses are incurred upon
presentation of documentation reasonably evidencing the same or (ii) the
engagement of the Placement Agent pursuant to, and the performance by the
Placement Agent of the services contemplated by, this Agreement;
(b) [Intentionally omitted.]
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under subsection (a) above, notify the indemnifying
party of the commencement thereof; but the omission so to notify the
indemnifying party will not relieve it from any liability which it may
have to any indemnified party otherwise than under subsection (a) above.
In case any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the
consent
32
<PAGE>
of the indemnified party (which consent shall not be unreasonably
withheld), be counsel to the indemnifying party), and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
action in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) above, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the
losses, claims, damages or liabilities referred to in subsection (a) above
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Issuers on the one hand and the Placement Agent on the
other from the issuance and sale of the Notes and the Series A Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the
relative fault of the Issuers on the one hand and the Placement Agent on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities as well as any other relevant
equitable considerations. The relative benefits received by the Issuers on
the one hand and the Placement Agent on the other shall be deemed to be in
the same proportion as the total net proceeds from the issuance and sale
of the Notes and the Series A Shares (before deducting expenses) received
by the Parent and the Company bear to the total placement fees received by
the Placement Agent from the Parent and the Company. The relative fault
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied
by any of the Issuers or the Placement Agent and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection
33
<PAGE>
(d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any action or claim which is the subject of this subsection (d).
Notwithstanding the provisions of this subsection (d), the Placement Agent
shall not be required to contribute any amount in excess of the actual
fees paid to the Placement Agent.
(e) The obligations of the Issuers under this Section shall be in
addition to any liability which the Issuers may otherwise have and shall
extend, upon the same terms and conditions, to the Placement Agent, its
representatives, officers and directors and each person, if any, who
controls the Placement Agent within the meaning of the Securities Act or
the Exchange Act; and the obligations of the Placement Agent under this
Section shall be in addition to any liability which the Placement Agent
may otherwise have and shall extend, upon the same terms and conditions to
each Company, its representatives, officers and directors and person, if
any, who controls the Issuers within the meaning of the Securities Act or
the Exchange Act.
8. Services; Default. In connection with the services to be rendered
hereunder, the Placement Agent shall act as an independent contractor, and any
duties of the Placement Agent arising out of its engagement pursuant to this
Agreement shall be owed solely to the Parent and the Company. In soliciting
orders from others to purchase Notes and Series A Shares, the Placement Agent is
acting solely as an agent for the Parent and the Company, and not as a
principal. The Placement Agent will not have any liability to the Parent and the
Company in the event any purchaser whose offer to purchase Notes and Series A
Shares has been accepted by the Parent or the Company does not perform its
obligations to the Parents or the Company. If the Parent or the Company shall
default on their obligation to deliver Notes and Series A Shares to a purchaser
thereof whose offer they have accepted, the Parents or the Company shall
indemnify the Placement Agent against any loss, claim, or damage arising from or
as a result of such default by the Parent or the Company.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of
each of the Issuers or its officers and of the Placement Agent set forth in or
made pursuant to this Agreement will remain in full force and effect, regardless
of any investigation, or statement as to the results thereof, made by or on
behalf of the Placement Agent, the Issuers or any of their respective
representatives, officers or directors or any controlling person, and will
survive delivery of and payment for the Notes and the Series A Shares. If for
any reason the purchase of the Notes and the Series A Shares
34
<PAGE>
by the purchasers thereof is not consummated, the Issuer shall remain
responsible for the expenses (including fees and disbursements of counsel) to be
paid or reimbursed by them pursuant to Section 5(i) and the obligations of each
of the Issuers and the Placement Agent pursuant to Section 7 shall remain in
effect; provided, however, that the Companies shall have no obligations under
either Section 5(i) or Section 7 if this Agreement is terminated pursuant to
Section 8 or as a result of the occurrence of any event specified in clause (C),
(D) or (E) of Section 6(b)(ii) or if the purchase of the Securities is not
consummated due to a material breach of, or default under, this Agreement by the
Placement Agent; if any Notes and Series A Shares have been purchased hereunder
and under the Subscription Agreement, the Issuers shall remain responsible for
the expenses to be paid or reimbursed by them pursuant to Section 5 and the
obligations of the Issuers pursuant to Section 7 shall remain in effect, and the
representations and warranties in Section 2 and all other obligations under
Section 5 shall also remain in effect.
10. Notices. All communications hereunder will be in writing and, if sent
to the Placement Agent will be mailed, delivered or telegraphed and confirmed to
the Placement Agent at Credit Suisse First Boston Corporation, Eleven Madison
Avenue, New York, N.Y. 10010-3629, Attention: Investment Banking Department B
Transactions Advisory Group, or, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at EnviroSystems Corp., c/o
Environmental Systems Products, Inc., 7 Kripes Road, East Granby, Connecticut
06026, Attention: David J. Langevin.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors and the representatives,
officers and directors controlling persons referred to in Section 7, and no
other person will have any right or obligation hereunder, except that holders of
Securities shall be entitled to enforce the agreements for their benefit
contained in the second and third sentences of Section 5(c) hereof against the
Parent and the Company as if such holders were parties thereto.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to principles
of conflicts of laws.
35
<PAGE>
EACH OF THE ISSUERS HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF
THE FEDERAL AND STATE COURTS IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK
IN ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
36
<PAGE>
If the foregoing is in accordance with the Placement Agent's understanding
of our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement among the Companies and the
Placement Agent in accordance with its terms.
Very truly yours,
ENVIROSYSTEMS CORP.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIRONMENTAL SYSTEMS
PRODUCTS HOLDINGS INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST SYSTEMS CORP. (Delaware)
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
37
<PAGE>
ENVIROTEST HOLDINGS, INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST TECHNOLOGIES,
INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST PARTNERS
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
REMOTE SENSING
TECHNOLOGIES, INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST WISCONSIN, INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
38
<PAGE>
ES FUNDING CORPORATION
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST ACQUISITIONS CO.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST SYSTEMS CORP.
(Washington)
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
ENVIROTEST ILLINOIS, INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
WELLMAN NORTH AMERICA, INC.
By: /s/ David J. Langevin
---------------------------------
Name: David Langevin
Title: EVP CFO
39
<PAGE>
WELLMAN OVERSEAS LIMITED
By: /s/ T. Smith [Illegible]
---------------------------------
Name: T. Smith [Illegible]
Title: Director Company Secretary
NEWMALL LIMITED
By: /s/ T. Smith [Illegible]
---------------------------------
Name: T. Smith [Illegible]
Title: Director Company Secretary
The foregoing Placement Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON
CORPORATION
By: /s/ Richard Gallant
---------------------------------
Name: Richard Gallant
Title: Director
40
<PAGE>
SCHEDULE A
List of Guarantors
Environmental Systems Products. Inc.
Envirotest Systems Corp. (Delaware)
Envirotest Holdings, Inc.
Envirotest Technologies, Inc.
Envirotest Partners (Pennsylvania)
Remote Sensing Technologies, Inc.
Envirotest Wisconsin, Inc.
ES Funding Corporation
Envirotest Acquisitions Co.
Envirotest Systems Corp. (Washington)
Envirotest Illinois, Inc.
Wellman North America, Inc.
Wellman Overseas Ltd.
Newmall Ltd.
41
<PAGE>
SCHEDULE B
[LIST OF "NO-CONFLICT" CONTRACTS]
[Envirotest State Contracts]
[Ohio Notes]
42
<PAGE>
Exhibit 10.6
MOTOR VEHICLE EMISSIONS INSPECTION AND MAINTENANCE PROGRAM
Amendment No. 5
THIS AGREEMENT dated for reference the l4th day of August, 1992.
BETWEEN:
HER MAJESTY THE QUEEN IN RIGHT OF THE PROVINCE OF BRITISH COLUMBIA
represented by the Superintendent of Motor Vehicles, Ministry of
Attorney General
(the "Province")
OF THE FIRST PART
AND:
EBCO-HAMILTON TEST SYSTEMS LTD., EBCO AUTOMOTIVE TESTING HOLDINGS LTD.
and HAMILTON TEST SYSTEMS (B.C.) LTD., carrying on business as
EBCO-HAMILTON PARTNER , a general partnership registered in accordance
with the laws of the Province of British Columbia under No. 121626-91
and having an office at 2120 Van Dyke Place, Richmond, British
Columbia, V6V 1X9
(the "Contractor")
OF THE SECOND PART
WHEREAS:
A. By an agreement dated for reference the 30th day of August, 1991 and
entitled the MOTOR VEHICLE EMISSIONS INSPECTION AND MAINTENANCE PROGRAM
ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assumption Agreement"), the
Contractor assumed the obligations under the agreement dated for reference
the 15th day of April, 1991, between the Province and Ebco-Hamilton Test
Systems Ltd., as amended on May 15, 1991 (Amendment No. 1) and May 31, 1991
(Amendment No. 2), by letter agreements, which, inter alia, provides for
the Motor Vehicle Emissions Inspection and Maintenance Program established
by the Superintendent of Motor Vehicles for the purpose of certifying
compliance of motor vehicles with regulations concerning motor vehicle air
pollution emissions which agreement was further amended by an agreement
dated for reference the 13th day of December, 1991 and entitled the Motor
Vehicle Emissions Inspection and Maintenance Program Amendment No. 3, and
further amended by an agreement dated for reference the 1st day of April,
1992 and entitled Motor Vehicle Emissions Inspection and Maintenance
Program Amendment No. 4 (such agreement as amended and the Assumption
Agreement being hereinafter collectively referred to as the "Contract").
<PAGE>
B. The parties wish to amend the payment mechanism set out in Schedule "2",
Contract Fee Schedule of the Contract.
NOW THEREFORE in consideration of the premises and the covenants, agreements,
representations and warranties hereinafter contained, the parties agree as
follows:
DEFINITIONS
1. In this Agreement those terms that are defined in the Contract and used in
this Agreement:
(a) are hereby incorporated by reference in this Agreement as if set out
at length in this Agreement; and
(b) will have the respective meanings assigned to them as in the Contract
unless the context otherwise required or unless otherwise defined in
this Agreement.
REPRESENTATIONS AND WARRANTIES
2. The Contractor represents and warrants to the Province that:
(a) all of the representations and warranties made in the Contract are
true and correct;
(b) the Contract has been performed in accordance with its terms to the
date hereof and there is no Event of Default outstanding at the date
hereof;
(c) it is a subsisting partnership constituted solely of the Partners as
disclosed in the "Declaration for Partnership and Business Name" filed
in the office of the Registrar of Companies of British Columbia on
July 29, 1991, and it is not a Limited Partnership under Part 3 of the
PARTNERSHIP ACT of British Columbia;
(d) it has the power and authority to enter into this Agreement and to
observe, perform and comply with the terms of the Contract as amended
by this Agreement;
(e) all necessary proceedings have been taken and done to authorize the
execution and delivery of this Agreement by the Contractor; and
(f) this Agreement has been legally and properly executed by the
Contractor and the Contract as amended by this Agreement is legally
binding upon and enforceable against the Contractor, and is legally
binding and enforceable, jointly and severally, against the Partners,
in accordance with its terms.
-2-
<PAGE>
AMENDMENTS
3. The Contract is amended as follows:
(a) by replacing paragraph 1 of Schedule "2", Contract Fee Schedule, with
the following:
"1. FEE COLLECTION AND DEPOSIT AND CONTRACTOR PAYMENT
The Contractor shall collect all fees to be paid at the time of
inspection at the Vehicle Emissions Inspection Centres. Fees
collected shall be $15.00 (plus Goods and Services Tax if it is
determined to be applicable) per emissions inspection, whether a first
inspection or a reinspection. Additional fees may be collected for
combined safety and emissions inspection provided the motorist
volunteers for the safety inspection as provided in paragraph 8 below.
The Contractor shall allow fee payment by cash or approved cheques.
(Contractor will develop criteria for approving cheques). From time
to time the Superintendent may change the amount of the fees to be
collected by the Contractor so long as the fees collected, in
combination with other appropriated monies, are adequate to compensate
the Contractor according to the Terms of this Agreement.
The Contractor shall deposit the amount of all fees collected to an
account designated by the Contractor for such purpose. Deposit of the
fees collected by the Contractor shall be made in a manner approved by
the Program Administrator to allow reconciliation of the fees
collected by the Contractor to amounts deposited. The Contractor
shall transfer to an account designated by the Province the amount of
the fees collected less the amount due the Contractor from the fees
collected. The Contractor shall transfer to the Province that net
amount prior to the end of the banking business day following the day
of the collection.
All fees collected by the Contractor are the responsibility of the
Contractor until they are deposited to the Province's account. The
Contractor shall take whatever steps are necessary to ensure the
security of collected fees, and shall reimburse the Province for any
monies due the Province that are lost, stolen, destroyed, or not
deposited to the Province's account for any other reason.";
(b) by deleting the date "June 30, 1999" in both subsection 14.07(f) and
in section 26.05 and substituting the date "August 31, 1999" in both
cases; and
(c) by deleting the phrase "giving possession" in subsection 14.02(d) and
substituting the phrase "taking possession".
RATIFICATION
4. The Contract, as amended by this Agreement, is hereby ratified and
confirmed by the Province and the Contractor.
-3-
<PAGE>
HEADINGS
5. The headings appearing in this Agreement have been inserted for reference
and as a matter of convenience and in no way define, limit or enlarge the
scope of any provision of this Agreement.
DULY EXECUTED by the Superintendent of Motor Vehicles, on behalf of Her Majesty
the Queen in Right of the Province of British Columbia and by Ebco-Hamilton
Partners by its authorized representatives, Ebco-Hamilton Test Systems Ltd.,
Ebco Automotive Testing Holdings Ltd. and Hamilton Test Systems (B.C.) Ltd., as
of the date first above written.
SIGNED on behalf of Her Majesty the )
Queen in Right of the Province of )
British Columbia by the Superintendent )
of Motor Vehicles in the presence of: )
)
/s/ Peter Burleigh ) [ILLEGIBLE]
- -------------------------------- ) ----------------------------------
(Name) Peter Burleigh ) Superintendent of Motor Vehicles
)
Deputy Superintendant of )
Motor Vehicles )
- -------------------------------- )
(Title) )
)
) Dated August 27, 1992
) ---------------------------
EBCO-HAMILTON PARTNERS by its authorized
representatives, Ebco-Hamilton Test
Systems Ltd., Ebco Automotive Testing
Holdings Ltd. and Hamilton Test Systems
(B.C.) Ltd.:
THE COMMON SEAL of EBCO-HAMILTON )
TEST SYSTEMS LTD., was hereunto )
affixed in the presence of: )
)
)
[ILLEGIBLE] )
- -------------------------------- ) C/S
(Name) )
)
President )
- -------------------------------- )
(Title) )
)
-4-
<PAGE>
THE COMMON SEAL of EBCO AUTOMOTIVE )
TESTING HOLDINGS LTD. was hereunto )
affixed in the presence of: )
)
)
[ILLEGIBLE] )
- -------------------------------- ) C/S
(Name) )
)
President )
- -------------------------------- )
(Title) )
)
THE COMMON SEAL of HAMILTON )
TEST SYSTEMS (B.C.) LTD. was hereunto )
affixed in the presence of: )
)
)
[ILLEGIBLE] )
- -------------------------------- ) C/S
(Name) President )
)
)
- -------------------------------- )
(Title) )
)
-5-
<PAGE>
Exhibit 10.16
AGREEMENT FOR RENEWAL OF CONTRACT FOR
MOTOR VEHICLE INSPECTION PROGRAM
ZONE 3 - PALM BEACH COUNTY
WHEREAS, Envirotest Technologies (hereinafter referred to as
"Contractor"), and the Department of Highway Safety and Motor Vehicles
(hereinafter referred to as "the State"), are parties to an agreement entitled
"A Contract for Motor Vehicle Inspection Program" and assigned Contract Number
M0169 (hereinafter "the Contract"), and
WHEREAS, the Contract will expire on March 31, 1998, and
WHEREAS, the parties desire to exercise the renewal option set forth in
section I, paragraph U of the Contract,
NOW, THEREFORE, be it agreed that the Contractor and the State do
hereby covenant and agree that the term of the Contract be renewed for two
additional one-year periods, up to and including March 31, 2000, and,
BE IT FURTHER AGREED that the Contract, all exhibits thereto, and all
amendments thereto, if any, are incorporated by reference in this Agreement just
as though fully set out herein, and, except as otherwise provided herein, the
Contractor and the State do hereby bind themselves to perform all the
obligations of said Contract until the same expires on March 31, 2000, and,
BE IT FURTHER AGREED that during the renewal period and as
consideration for this renewal, the Contractor waives and releases the State
from any claims for damages pursuant to section 325.207(8)(i), Florida Statutes,
and Section V, Paragraph H of the Contract as a result of cancellation of the
Program at any time during the renewal period by the Legislature. This waiver
and release extends to any compensation to which the Contractor may be entitled
in equity, law, or contract arising out of section 325.207(8)(i), Florida
Statutes, and Section V, paragraph H of the Contract. In furtherance of this
waiver, the Contractor hereby releases the State from any and all obligations it
may have in equity, law, or contract arising out of section 325.207(8)(i),
Florida Statutes, and Section V, paragraph H of the Contract: to negotiate an
amount to be paid to the Contractor as compensation for such termination; to
determine such an
<PAGE>
amount; to offer the Contractor a point of entry to an administrative proceeding
relating such compensation; and to seek or request an appropriation for payment
of such compensation from the Legislature.
BE IT FURTHER AGREED that this waiver and release shall not apply to
any funds expended by the Contractor in response to the enactment of any law
that alters the services to be provided by the Contractor as part of the
Program.
BE IT FURTHER AGREED that this waiver and release shall not apply to
the damages arising from the Contractor's obligation under the leases entered
into in furtherance of its obligations under the Contract.
2
<PAGE>
IN WITNESS WHEREOF, State and Contractor have caused this Agreement to
be executed by their respective undersigned officials authorized to do so, on
the dates set out below.
Contractor:
[Illegible]
- ---------------------------- -------------------------------------
/s/ Barbara P. Davis President of CEO
- ---------------------------- -------------------------------------
Witness as to Contractor Title
February 14, 1997
-------------------------------------
Date
State:
/s/ Nelda Parker /s/ William Snodgrass
- ---------------------------- -------------------------------------
Director of Administrative Services
/s/ Brenda L. Mathew February 24, 1997
- ---------------------------- -------------------------------------
Witness as to State Date
Approved as to form and legality, subject only to full and proper execution by
the parties.
/s/ Enoch J. Whitney
-------------------------------------
Enoch J. Whitney
General Counsel
3
<PAGE>
Exhibit 10.19
AGREEMENT FOR RENEWAL OF CONTRACT FOR
MOTOR VEHICLE INSPECTION PROGRAM
ZONE 5 - DADE COUNTY
WHEREAS, Envirotest Technologies (hereinafter referred to as
"Contractor"), and the Department of Highway Safety and Motor Vehicles
(hereinafter referred to as "the State"), are parties to an agreement entitled
"A Contract for Motor Vehicle Inspection Program" and assigned Contract Number
MO171 (hereinafter "the Contract"), and
WHEREAS, the Contract will expire on March 31, 1998, and
WHEREAS, the parties desire to exercise the renewal option set forth
in section I, paragraph U of the Contract,
NOW, THEREFORE, be it agreed that the Contractor and the State do
hereby covenant and agree that the term of the Contract be renewed for two
additional one-year periods, up to and including March 31, 2000, and,
BE IT FURTHER AGREED that the Contract, all exhibits thereto, and
all amendments thereto, if any, are incorporated by reference in this Agreement
just as though fully set out herein, and, except as otherwise provided herein,
the Contractor and the State do hereby bind themselves to perform all the
obligations of said Contract until the same expires on March 31, 2000, and,
BE IT FURTHER AGREED that during the renewal period and as
consideration for this renewal, the Contractor waives and releases the State
from any claims for damages pursuant to section 325.207(8)(i), Florida Statutes,
and Section V, Paragraph H of the Contract as a result of cancellation of the
Program at any time during the renewal period by the Legislature. This waiver
and release extends to any compensation to which the Contractor may be entitled
in equity, law, or contract arising out of section 325.207(8)(i), Florida
Statutes, and Section V, paragraph H of the Contract. In furtherance of this
waiver, the Contractor hereby releases the State from any and all obligations it
may have in equity, law, or contract arising out of section
<PAGE>
325.207(8)(i), Florida Statutes, and Section V, paragraph H of the Contract: to
negotiate an amount to be paid to the Contractor as compensation for such
termination; to determine such an amount; to offer the Contractor a point of
entry to an administrative proceeding relating such compensation; and to seek or
request an appropriation for payment of such compensation from the Legislature.
BE IT FURTHER AGREED that this waiver and release shall not apply to
any funds expended by the Contractor in response to the enactment of any law
that alters the services to be provided by the Contractor as part of the
Program.
BE IT FURTHER AGREED that this waiver and release shall not apply to
the damages arising from the Contractor's obligation under the leases entered
into in furtherance of its obligations under the Contract.
-2-
<PAGE>
IN WITNESS WHEREOF, State and Contractor have caused this Agreement
to be executed by their respective undersigned officials authorized to do so, on
the dates set out below.
Contractor:
[illegible]
- ----------------------------- -----------------------------------
/s/ Barbara L. Davis President & CEO
- ----------------------------- -----------------------------------
Witness as to Contractor Title
February 14, 1997
-----------------------------------
Date
State:
/s/ Nelda Parker [illegible]
- ----------------------------- -----------------------------------
Director of Administrative Services
[illegible] February 24, 1995
- ----------------------------- -----------------------------------
Witness as to State Date
Approved as to form and legality, subject only to full and proper execution by
the parties.
/s/ Enoch J. Witney
-----------------------------------
Enoch J. Witney
General Counsel
-3-
<PAGE>
Exhibit 10.21
STATE OF ILLINOIS
ENVIRONMENTAL PROTECTION AGENCY
AMENDMENT NUMBER 1 TO
AGENCY SERVICE AGREEMENT
In consideration of the execution of the Professional Services Agreement
Number VI-8302, executed May 19, 1997 (hereinafter, "Enhanced I/M Agreement"),
between the Illinois Environmental Protection Agency (hereinafter, "Agency") and
Envirotest Illinois, Inc., (hereinafter, "Contractor"), whose address is 246
Sobrante Way, Sunnyvale, CA 94086, the parties hereto further agree as follows:
WITNESSETH:
WHEREAS, the Agency and the Contractor entered into the Enhanced I/M
Agreement hereinabove described, pursuant to which the Agency engaged the
Contractor to perform services in connection with the Illinois Vehicle Emissions
Inspection Law of 1995;
WHEREAS, the Parties recognize that the Governor's Executive Order #2
requires the Contractor to notify the Agency in the event it solicits, or
intends to solicit, any Agency employee for employment by the Contractor;
WHEREAS, to reflect the further understandings and agreement of the Agency
and the Contractor, the Agency and the Contractor have determined it to be in
their best interests to enter into this Amendment Number 1 to the Enhanced I/M
Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. The following is added to Agency Service Agreement VI-8302:
HH. CONTRACTOR EMPLOYMENT OF AGENCY EMPLOYEES
The Contractor shall give notice to the Agency if it solicits or intends to
solicit for employment any of the Agency's employees during any part of the
term of this contract. This notice shall be given in writing at the
earliest possible time to the Agency's Ethics Officer.
(The remainder of this page is intentionally left blank.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number
1 to the Enhanced I/M Agreement this 22nd day of October, 1997, and have
agreed that it shall become a part of the Agency Service Agreement Number
VI-8302 as evidenced by the signatures of their duly authorized representatives
as affixed below.
ENVIROTEST ILLINOIS, INC. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY
BY /s/ F. Robert Miller BY /s/ Mary A. Gade 10/30/97
------------------------------- -------------------------------
F. Robert Miller Mary A. Gade, Director
President and CEO
INTRA-AGENCY CONCURRENCE:
/s/ Elizabeth R. Tracy 10/29/97
----------------------------------
Division Manager
[ILLEGIBLE] 10/29/97
----------------------------------
Manager of Administration
[ILLEGIBLE] 10/29/97
----------------------------------
Associate Director for Legal Affairs
-2-
<PAGE>
STATE OF ILLINOIS
ENVIRONMENTAL PROTECTION AGENCY
AMENDMENT NUMBER 2 TO
AGENCY SERVICE AGREEMENT
In consideration of the execution of the Professional Services Agreement
Number VI-8302, executed May 19, 1997 (hereinafter, "Enhanced I/M Agreement"),
between the Illinois Environmental Protection Agency (hereinafter, "Agency") and
Envirotest Illinois, Inc. (hereinafter, "Contractor"), whose address is 246
Sobrante Way, Sunnyvale, CA 94086, the parties hereto further agree as follows:
WITNESSETH:
WHEREAS, the Agency and the Contractor entered into the Enhanced I/M
Agreement hereinabove described, pursuant to which the Agency engaged the
Contractor to perform services in connection with the Illinois Vehicle Emissions
Inspection Law of 1995;
WHEREAS, the Enhanced I/M Agreement incorporates the Scope of Services for
the Extension of the Vehicle Emission Test Program, dated October 31, 1990
(hereinafter, "Scope"), the License Agreement, dated October 31, 1990, the
Contractor's Technical Proposal, dated September 21, 1990, and each of seven (7)
Amendments subsequently entered into pursuant to the terms of the Agreement
(collectively contained in Appendix 10.20 of the Enhanced I/M Agreement, and
hereinafter referred to as the "Basic I/M Agreement");
WHEREAS, the Parties are desirous of amending the requirement to provide
updated system documentation contained in Paragraph 10 of Amendment Number 6 to
the Basic I/M Agreement;
WHEREAS, to reflect the further understandings and agreement of the Agency
and the Contractor, the Agency and the Contractor have determined it to be in
their best interests to enter into this Amendment Number 2 to the Enhanced I/M
Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. The Contractor has submitted updates to the following outstanding elements
of system documentation which fully satisfies the obligation contained in
Paragraph 10 to Amendment Number 6 to the Basic I/M Agreement:
Functional Specification
Architecture Document
Detail Design Documentation for:
SOSUPD
Mailing
Clears/Echo Back
(the remainder of this page is intentionally left blank.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number
2 to the Enhanced I/M Agreement this 22nd day of October, 1997, and have
agreed that it shall become a part of the Agency Service Agreement Number
VI-8302 as evidenced by the signatures of their duly authorized representatives
as affixed below.
ENVIROTEST ILLINOIS, INC. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY
BY /s/ F. Robert Miller BY /s/ Mary A. Gade 10/30/97
------------------------------- -------------------------------
F. Robert Miller Mary A. Gade, Director
President & CEO
INTRA-AGENCY CONCURRENCE:
/s/ Elizabeth R. Tracy 10/29/97
----------------------------------
Division Manager
[ILLEGIBLE] 10/29/97
----------------------------------
Manager of Administration
[ILLEGIBLE] 10/29/97
----------------------------------
Associate Director for Legal Affairs
<PAGE>
Exhibit 10.23
STATE OF ILLINOIS
ENVIRONMENTAL PROTECTION AGENCY
AMENDMENT NUMBER 3 TO
AGENCY SERVICE AGREEMENT
In consideration of the execution of the Professional Services Agreement
Number VI-8302, executed May 19, 1997 (hereinafter, "Enhanced I/M Agreement"),
between the Illinois Environmental Protection Agency (hereinafter, "Agency") and
Envirotest Illinois, Inc. (hereinafter, "Contractor"), whose address is 246
Sobrante Way, Sunnyvale, CA 94086, the parties hereto further agree as follows:
WITNESSETH:
WHEREAS, the Agency and the Contractor entered into the Enhanced I/M
Agreement hereinabove described, pursuant to which the Agency engaged the
Contractor to perform services in connection with the Illinois Vehicle Emissions
Inspection Law of 1995;
WHEREAS, the Enhanced I/M Agreement incorporates the Scope of Services for
the Extension of the Vehicle Emission Test Program, dated October 31, 1990
(hereinafter, "Scope"), the License Agreement, dated October 31, 1990, the
Contractor's Technical Proposal, dated September 21, 1990, and each of seven (7)
Amendments subsequently entered into pursuant to the terms of the Agreement
(collectively contained in Appendix 10.20 of the Enhanced I/M Agreement, and
hereinafter referred to as the "Basic I/M Agreement");
WHEREAS, currently, owners of vehicles subject to the program receive a
two-year new vehicle model year exemption and are therefore initially notified
of the requirement for emissions testing beginning in the second year after the
vehicle's model year and thereafter are notified and tested biennially;
WHEREAS, P.A. 90-475 grants the Agency a degree of discretion within
defined limits to choose the year that a new model year vehicle is initially
notified to begin its biennial emissions testing cycle;
WHEREAS, the Agency has elected, and the Contractor agrees, that the
current two-year new model vehicle exemption be extended to a four-year new
model vehicle exemption beginning either January 1, 1998, or the date of
execution of this amendment, whichever date is later, and continue through the
period of the Start-Up Phase;
WHEREAS, the current Reimbursable Test Fee formula is based, in part, on a
higher volume of tests than will exist when the initial notification schedule is
modified to accommodate the change from a two-year new model vehicle exemption
to a four-year new model vehicle exemption, and the parties recognize that the
formula requires modification to take into account the effects of this change to
the operating cost;
<PAGE>
WHEREAS, to reflect the further understandings and agreement of the Agency
and the Contractor, the Agency and the Contractor have determined it to be in
their best interests to enter into this Amendment Number 3 to the Enhanced I/M
Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. No later than November 19, 1997, the Contractor shall implement all
software changes necessary to prevent the scheduling and assignment for
testing of vehicles subject to the four-year new model vehicle exemption.
This includes, but is not limited to, modification to the ZIPSCAN report
generation program to update the definition of "eligible unassigned
vehicles," and the modification of the MAILING program to limit the
selection of vehicles for initial assignment and mailing to vehicles of
model year equal to, or less than, the assigned date year minus four, with
the exception for noncomplying vehicles registered to new owner(s). After
January 1, 1998, or the execution date of this amendment, whichever date is
later, the Contractor shall not receive reimbursement for tests performed
on vehicles subject to the four-year new model vehicle exemption, unless
specifically assigned by the Agency, or assigned for testing prior to
January 1, 1998, or the execution date of this amendment, whichever date
is later.
2. The "Reimbursable Test Fee" formula contained in the Basic I/M Agreement at
Section 8.2.2. of the Scope of Services (as amended by Paragraph 13 of
Amendment 6 to the Basic I/M Agreement), shall be amended as described
below, and shall apply ONLY to reimbursable tests posted to the transaction
database between either January 1, 1998, or the execution date of this
contract amendment, whichever date is later, and the end of the Start-Up
Phase:
F1 = (F X V) + [0.1 X B X (T - V)]
-----------------------------
T
Where:
Fl is the adjusted Vehicle Inspection Fee per Reimbursable Test to the
nearest whole cent
F is the base Vehicle Inspection Fee per Reimbursable Test which is
$5.82
V is the monthly Base Volume of Tests which is 175,000
B is the Operating Cost Component of the Vehicle Inspection Fee which is
$5.22. The product of 0.1 multiplied by B will be rounded to the
nearest whole cent
T is the number of Reimbursable Tests in the month.
(The remainder of this page is intentionally left blank).
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number 3 to
the Enhanced I/M Agreement this 19th day of November, 1997, and have
agreed that it shall become a part of the Agency Service Agreement Number
VI-8302 as evidenced by the signatures of their duly authorized representatives
as affixed below.
ENVIROTEST ILLINOIS, INC. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY
BY BY
/s/ F. Robert Miller 11/11/97 /s/ Mary A. Gade 11/18/97
--------------------- ----------- -------------------------- ----------
F. Robert Miller Date Mary A. Gade, Director Date
President and CEO
INTRA-AGENCY CONCURRENCE:
/s/ Elizabeth R. Tracy 11/12/97
---------------------------------- ---------
Division Manager Date
[ILLEGIBLE] 11/12/97
---------------------------------- ---------
Manager of Administration Date
[ILLEGIBLE] 11/12/97
---------------------------------- ---------
Associate Director for Legal Affairs Date
-3-
<PAGE>
Exhibit 10.24
STATE OF ILLINOIS
ENVIRONMENTAL PROTECTION AGENCY
AMENDMENT NUMBER 4 TO
AGENCY SERVICE AGREEMENT
In consideration of the execution of the Professional Services Agreement
Number VI-8302, executed May 19, 1997 (hereinafter, "Enhanced I/M Agreement"),
between the Illinois Environmental Protection Agency (hereinafter, "Agency") and
Envirotest Illinois, Inc. (hereinafter, "Contractor"), whose address is 246
Sobrante Way, Sunnyvale, CA 94086, the parties hereto further agree as follows:
WITNESSETH:
WHEREAS, the Agency and the Contractor entered into the Enhanced I/M
Agreement hereinabove described, pursuant to which the Agency engaged the
Contractor to perform services in connection with the Illinois Vehicle Emissions
Inspection Law of 1995;
WHEREAS, the Enhanced I/M Agreement incorporates the Scope of Services for
the Extension of the Vehicle Emission Test Program, dated October 31, 1990
(hereinafter, "Scope"), the License Agreement, dated October 31, 1990, the
Contractor's Technical Proposal, dated September 21, 1990, and each of seven (7)
Amendments subsequently entered into pursuant to the terms of the Agreement
(collectively contained in Appendix 10.20 of the Enhanced I/M Agreement and
hereinafter referred to as the "Basic I/M Agreement");
WHEREAS, the Parties are desirous of clarifying the requirement to provide
updated system documentation in conjunction with the implementation of each
future Engineering Modification Request ("EMR") as described in Paragraph 9 of
Amendment Number 6 to the Basic I/M Agreement (contained in Appendix 10.20 of
the Enhanced I/M Agreement);
WHEREAS, to reflect the further understandings and agreement of the Agency
and the Contractor, the Agency and the Contractor have determined it to be in
their best interests to enter into this Amendment Number 4 to the Enhanced I/M
Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. Henceforth, all future EMR requests, as anticipated in Paragraph 9 of
Amendment 6 of the Basic I/M Agreement, shall only be initiated by either
the Agency Program Manager or the Contractor General Manager. EMR requests
shall be submitted in writing. At a minimum, the EMR shall consist of a
clear and concise description of the system change proposed, the
initiator's basis for the change and shall specify the program benefits to
be achieved by the proposed change. Each EMR request shall also include an
identification of updated system documentation that the initiating party
believes should be prepared and incorporated into the system documentation
set. The updating of system documentation may be accomplished solely by
change page updates. If both the system change and the identification of
updated system documentation is mutually agreed upon, then the
<PAGE>
Contractor shall implement the system change within 90 days after the date
the EMR request is mutually agreed upon (unless alternate schedules are
agreed to) and shall update the agreed system documentation within 60 days
after the date the EMR request is mutually agreed upon (unless alternate
schedules are agreed to).
If, however, the Agency and Contractor cannot agree upon all of the system
documents to be updated as a result of the system change, but the system
change itself and minimal system documentation updates are mutually agreed
upon, the Contractor shall proceed to implement the system change within 90
days after the date of such agreement and provide the Agency with these
mutually agreed upon updates to system documentation within 60 days after
acceptance of the EMR requests.
For those system documents which the Agency and the Contractor disagree
need to be updated, this disagreement shall be deemed a dispute, and shall
be resolved utilizing the dispute resolution process of Section 6.10 of the
Scope of Services portion of Appendix 10.20 of the Enhanced I/M Contract.
(The remainder of this page is intentionally left blank.)
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number 4 to
the Enhanced I/M Agreement this 19th day of February, 1998, and have
agreed that it shall become a part of the Agency Service Agreement Number
VI-8302 as evidenced by the signatures of their duly authorized representatives
as affixed below.
ENVIROTEST ILLINOIS, INC. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY
BY /s/ Richard P. Webb BY /s/ Mary A. Gade
------------------------------- -------------------------------
Richard P. Webb Mary A. Gade, Director
Executive VP & COO
January 22, 1998
INTRA-AGENCY CONCURRENCE:
/s/ Elizabeth R. Tracy
----------------------------------
Division Manager
[ILLEGIBLE]
----------------------------------
Manager of Administration
[ILLEGIBLE]
----------------------------------
General Counsel
-3-
<PAGE>
Exhibit 10.26
STATE OF ILLINOIS
ENVIRONMENTAL PROTECTION AGENCY
AMENDMENT NUMBER 6 TO
AGENCY SERVICE AGREEMENT
In consideration of the execution of the Professional Services Agreement
Number VI-8302, executed May 19, 1997 (hereinafter, "Enhanced I/M Agreement")
between the Illinois Environmental Protection Agency (hereinafter, "Agency") and
Envirotest Illinois, Inc., (hereinafter, "Contractor"), whose address is 246
Sobrante Way, Sunnyvale, CA 94086, the parties hereto further agree as follows:
WITNESSETH:
WHEREAS, the Agency and the Contractor entered into the Enhanced I/M
Agreement hereinabove described, pursuant to which the Agency engaged the
Contractor to perform services in connection with the Illinois Vehicle Emissions
Inspection Law of 1995;
WHEREAS, the Parties recognize that certain provisions in the Enhanced I/M
Agreement concerning disbursement of Congestion Mitigation and Air Quality
("CMAQ") funds need to be modified to accurately reflect all current
requirements necessary for the proper disbursement of such funds;
WHEREAS, advancements in technology and design improvements have, in many
instances, provided the Contractor an opportunity to substitute either
different, equivalent equipment, or newer, better equipment for the equipment
originally specified in the Contractor's Four Year New Vehicle Exemption
Technical Proposal;
WHEREAS, to reflect the further understandings and agreement of the
Agency and the Contractor, the Agency and the Contractor have determined it
to be in their best interests to enter into this Amendment Number 6 to the
Enhanced I/M Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. Section 8.3.7.1. of the RFP Portion of the Enhanced I/M Agreement is
replaced with the following:
8.3.7.1 TEST SYSTEM PAYMENTS
The Contractor shall be paid by the State for costs incurred in
constructing and equipping the Test System for an amount not to exceed $48
million of CMAQ funds on a 100 percent reimbursement basis for expenditures
made for buildings and equipment as specified in the Contractor's Technical
Proposal. Reimbursement shall be made, not more often than monthly, based
upon a written Contractor Certification of the actual construction of test
facilities completed to date and the purchase of equipment and furnishings
as validated by the State. The Contractor Certification shall identify the
work
<PAGE>
completed and the amount owed the Contractor and shall be supported by the
reports as required by Section 6.1.4. Test System costs to be reimbursed
through the use of CMAQ funds shall include the new buildings (including
materials and building costs, architectural and engineering fees, site
improvement costs and test contractor oversight fee) and equipment as
specified in the Contractor's Technical Proposal.
2. Amendment 5 to the Enhanced I/M Agreement is replaced in its entirety with
the following:
The Contractor may propose, and the Agency may approve, the substitution of
certain equipment originally specified to be provided by the Contractor in
its Four Year New Vehicle Exemption Technical Proposal, as follows:
A) if the originally specified equipment is unavailable, the
proposed substitution(s) must be equal to or better than the
equipment originally specified in performance, quality, material,
and workmanship; and
B) if the originally specified equipment is currently available, the
proposed substitution(s) must be better than the equipment
originally specified in performance, quality, material, and
workmanship.
3. The Contractor's Emission Lane Computer described in Section 4.3.7.4 of the
Technical Proposal will provide Windows 95 operating system software and
14" monochrome monitors with associated video adapter cards in lieu of
Windows NT operating system software and 15" color monitors. In addition,
the Contractor will substitute Windows 95 operating system software for
Windows NT operating system software specified for all other PCs required
to be provided by the Contractor in accordance with the Enhanced I/M
Agreement. The Contractor also agrees to reduce the amount it will seek to
be reimbursed under Section 8.3.7.1 of the RFP Portion of the Enhanced I/M
Agreement for the cost difference between the originally proposed
equipment, operating system software, and customized software, and the
replacement equipment and operating system software described hereinabove
(such amount being agreed to as $245,000), and it shall not make any other
claim under the Enhanced I/M Agreement for these funds.
4. Except as hereinabove amended, the Enhanced I/M Agreement as originally
executed and heretofore amended shall remain in full force and effect.
(The remainder of this page is intentionally left blank).
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number 6 to
the Enhanced I/M Agreement this 1st day of May, 1998, and have
agreed that it shall become a part of the Agency Service Agreement Number
VI-8302 as evidenced by the signatures of their duly authorized representatives
as affixed below.
ENVIROTEST ILLINOIS, INC. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY
BY /s/ Richard Webb BY /s/ Mary A. Gade 5/1/98
-------------------------------- ------------------------------------
Richard Webb Mary A. Gade, Director
Chief Operating Officer
INTRA-AGENCY CONCURRENCE:
/s/ Elizabeth R. Tracy 5/1/98
--------------------------------------
Division Manager
[ILLEGIBLE]
--------------------------------------
Manager of Administration
[ILLEGIBLE]
--------------------------------------
Associate Director for Legal Affairs
-3-
<PAGE>
Exhibit 10.33
AMENDMENT NUMBER FOUR TO THE GENERAL CONDITIONS OF THE
CONTRACT FOR THE ESTABLISHMENT AND OPERATION OF MOTOR
VEHICLE INSPECTION/MAINTENANCE PROGRAM FOR THE
STATE OF MINNESOTA POLLUTION CONTROL AGENCY
This Amendment Number Four is made to the Contract entered into between the
State of Minnesota, acting through its Pollution Control Agency, hereafter
referred to as "State," and Envirotest Technologies, Inc., doing business in
Minnesota as Envirotest Technologies, Inc., hereafter referred to as the
"Contractor." Additions are underlined; deletions are shown in over-strike type.
WHEREAS, the State and the Contractor entered into a contract on July 18,
1990, for the design, construction, equipment, establishment, maintenance, and
operation of public inspection stations for the motor vehicle inspection and
maintenance program for the Twin Cities Metropolitan Area, hereafter referred to
as the "I/M Program;"
WHEREAS, the contract requires the Contractor to construct and operate
eleven vehicle emission testing stations at locations throughout the Twin Cities
Metropolitan Area;
WHEREAS, the contract has been amended three times, on June 17,1991, May
15, 1992, and September 30, 1993, and as amended is in effect today;
WHEREAS, the statute governing the I/M Program, Minn. Stat.
Sections 116.60 - .65, was amended by the 1995 Minnesota Legislature in 1995
Minn. Laws ch. 204, hereafter referred to as the "1995 Legislation";
WHEREAS, the 1995 Legislation exempts newer vehicles from vehicle emission
testing;
WHEREAS, the Contractor wishes to reduce service required by the contract
in light of the reduced number of vehicles tested;
WHEREAS, the Contractor and the State have been negotiating on possible
changes to this contract in light of the 1995 Legislation;
WHEREAS, the State and the Contractor continue to negotiate on several
issues;
<PAGE>
WHEREAS, an immediate amendment is necessary to allow the service
reductions specified in this amendment to be implemented by October 1, 1995 and
the State wishes in good faith to allow these agreed-upon service reductions to
occur while remaining issues continue to be negotiated; and
WHEREAS, the Contractor and State agree that the changes to the contract
made in this amendment will not cause excessive wait times and public
inconvenience for citizens required to test their vehicles.
NOW THEREFORE, the State and Contractor agree to amend the July 18, 1990
contract as follows:
1. Section I.5, Months and Hours of Operation, of the General Conditions
of the contract, is amended to read as follows:
The first sentence of Volume 2, Section 2.4 of the Proposal is amended to
read: Contractor shall operate all inspection facilities twelve (12) months per
year, and shall have an operational schedule of 4l hours per week, from Tuesday
to Saturday, including convenient evening and weekend hours.
The Contractor shall operate all inspection facilities during the following
41 hours of operation:
-2-
<PAGE>
Tuesday: 7:30 a.m. to 6:30 p.m.
Wednesday: 9:00 a.m. to 4:00 p.m.
Thursday: 7:30 a.m. to 6:30 p.m.
Friday: 9:00 a.m. to 4:00 p.m.
Saturday: 9:00 a.m. to 2:00 p.m.
2. Section I.23.a.i, Temporary Extensions and Annual Exemptions, At
Inspection Stations, of the General Conditions of the contract, is amended to
read as follows:
i. AT INSPECTION STATIONS. The station manager or lead lane
inspector shall handle applications for temporary extension and annual
exemption. All of the Contractor's station managers shall be notaries public.
The Contractor shall make available to motorists at each inspection station
application forms for temporary extensions and annual exemptions. The
Contractor shall keep an accurate count of the number of citizens waiting for
items such as the processing of applications for temporary extensions and annual
exemptions during each fifteen minute period. If the Contractor does not
process each application and decide whether to issue a certificate of temporary
extension or annual exemption with no more than a fifteen minute wait for each
motorist who comes to an inspection station to apply for a temporary extension
or annual exemption, the Contractor shall report to the State what actions the
Contractor will take to process these applications with no
-3-
<PAGE>
more than a fifteen minute wait for each motorist. If, within ninety (90) days
after taking these actions, the Contractor still is failing to process these
applications with no more than a fifteen (15) minute wait for each motorist, the
Contractor and State shall mutually determine what additional actions need to be
taken to reduce the waiting time for applicants to below fifteen minutes.
3. Section I of the General Conditions of the contact is amended by
adding a paragraph number 24, Closing of Inspection Stations, at the end of the
section to state:
The contractor is authorized to close the vehicle emission testing stations
located in Brooklyn Park (station number 2) and in White Bear Lake (station
number 3) on or after October 1, 1995. Upon closing each vehicle emission
testing station, the Contractor shall remove from the station property all
signs that identify it as a vehicle emission testing station and shall
place prominently at the station a sign that informs motorists where their
vehicles may be tested, including locations of nearby testing stations and
their hours of operation. Contractor shall make it a condition of sale of
all former stations that subsequent owners shall maintain the sign until
the station building is removed. Upon closing each testing station,
Contractor shall also remove all roadway/highway signs providing directions
to the station being closed.
4. The parties further agree as a term of this Amendment Four that:
Contractor has alleged that the 1995 Legislation constitutes a breach of
this Contract. The State denies that there has been any breach of this Contract
by the State as a consequence of changes required by the 1995 Legislation. The
Contractor and State agree that neither shall assert, offer or otherwise use
this Amendment Four in any way in any forum, including legislative or judicial
proceedings, as evidence of a breach of an admission of a breach of this
Contract by the State, or as evidence of an admission by the Contractor of an
absence of breach by the State.
-4-
<PAGE>
This Amendment Four is effective when it is signed by the Commissioner of
Administration.
All other terms and conditions of the contract remain in full force and
effect, except as specifically amended above.
<TABLE>
<S> <C>
ENVIROTEST TECHNOLOGIES, INC. MINNESOTA POLLUTION CONTROL AGENCY
By: By: /s/ Elaine Johnson
--------------------------------- ----------------------------------------------
Name (print): Chester Doveman Name (print): Elaine Johnson
----------------------- ------------------------------------
Title: Chairman & CEO Title: Manager, Administrative Services Division
------------------------------ -------------------------------------------
Date: 9/1/95 Date: Sept. 9, 1995
------------------------------- --------------------------------------------
By: [illegible] AS TO FORM AND EXECUTION BY
--------------------------------- THE ATTORNEY GENERAL
Name (print): [illegible]
----------------------- By: /s/ Ann M. Seha
Title: Vice President ---------------------------------
------------------------------ Ann M. Seha
Date: Sept. 1, 1995 Assistant Attorney General
------------------------------- Date: Sept. 5, 1995
-------------------------------
COMMISSIONER OF ADMINISTRATION
By: [illegible]
---------------------------------
Name (print): Gerald [illegible]
-----------------------
Title: Contract Administrator
------------------------------
Date: Sept. 1, 1995
-------------------------------
</TABLE>
-5-
<PAGE>
Exhibit 10.34
AMENDMENT NUMBER FIVE TO THE GENERAL CONDITIONS OF THE
CONTRACT FOR THE ESTABLISHMENT AND OPERATION OF MOTOR
VEHICLE INSPECTION/MAINTENANCE PROGRAM FOR THE
STATE OF MINNESOTA POLLUTION CONTROL AGENCY
This Amendment Number Five is made to the Contract entered into between the
State of Minnesota, acting through its Pollution Control Agency, hereafter
referred to as the "State," and Envirotest Technologies, Inc., doing business in
Minnesota as Envirotest Technologies, Inc., hereafter referred to as the
"Contractor." Additions are underlined; deletions are shown in over-strike type.
WHEREAS, the State and the Contractor entered into the Contract on July 18,
1990, for the design, construction, equipment, establishment, maintenance and
operation of public inspection stations for the motor vehicle inspection and
maintenance program for the Twin Cities Metropolitan Area, hereafter referred to
as the "I/M Program;"
WHEREAS, the Contract required the Contractor to construct and operate
eleven vehicle emission testing stations at locations throughout the Twin Cities
Metropolitan Area;
WHEREAS, the Contract has been amended four times, on June 17, 1991, May
15, 1992, September 30, 1993, and September 6, 1995, and as amended is in effect
today;
WHEREAS, the statute governing the I/M Program, Minn. Stat. Sections 116.60
- - .65, was amended by the 1995 Minnesota Legislature in 1995 Minn. Laws ch. 204,
hereafter referred to as the "1995 Legislation";
WHEREAS, the 1995 Legislation exempts newer vehicles from vehicle emission
testing;
WHEREAS, the Contractor wishes to reduce some of the services required by
the Contract, increase the portion of the testing fee that it is paid and
undertake other revenue-producing activities at the vehicle emission testing
stations, in light of the reduced number of vehicles to be tested;
<PAGE>
WHEREAS, the Contractor and State agree that the changes to the Contract
made in this amendment will not cause excessive wait times and public
inconvenience for citizens required to test their vehicles; and
WHEREAS, the Contractor and State agree that the additional compensation
given to the Contractor in this amendment shall not exceed the funds, minus
State administrative costs, appropriated from the Vehicle Emission Inspection
Account established in Minn. Stat. Section 116.65.
NOW THEREFORE, the State and Contractor agree to amend the July 18, 1990
Contract as follows:
1. Section I.23.d, Temporary Extensions and Annual Exemptions, Hotline,
of the General Conditions of the Contract, is amended to read as follows:
d. HOTLINE. The Contractor shall have a minimum of five (5)
full-time equivalent personnel providing hotline telephone service. One
full-time employee of the Contractor's Minnesota headquarters staff shall
supervise the hotline telephone service. The Contractor shall staff the hotline
for forty-five (45) hours per week from Monday through Friday, including
adequate coverage for peak periods of calling. The Contractor shall adequately
handle 1400 calls per day during the busiest days of the month, and 200 calls
per hour during the busiest hours of the month.
2. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 25, Rulemaking, at the end of the Section to state:
As soon as reasonably practicable, the Minnesota Pollution Control Agency
(MPCA) staff will prepare and present to the MPCA Board a request to
initiate rulemaking on a proposed amendment to Minn. R. 7023.1105, subp.
2(A) that makes the inspection fee cover the initial inspection and one
reinspection. The MPCA staff will use their best
-2-
<PAGE>
efforts to encourage this rule amendment to be adopted by the MPCA Board.
The Contractor understands and agrees that whether such a rule proceeding
is initiated and whether such a rule amendment is adopted rest fully in the
discretion of the MPCA Board, and must be based upon the record of the rule
proceeding. For the purposes of this paragraph, the Commissioner is
considered a member of the MPCA Board, not the MPCA staff.
3. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 26, Printing of Vehicle Inspection Reports, at the end
of the Section to state:
The State will print the Vehicle Instruction Report forms.
4. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 27, One Day Temporary Registrations, at the end of the
Section to state:
The Contractor shall administer the one day temporary registration process
as follows:
a. At the vehicle emission testing station, the station manager or
lead lane inspector shall handle requests for one day temporary
registrations. The Contractor's staff at the Contractor's headquarters
office shall also handle requests for one day temporary registrations.
b. When a person requests a one day temporary registration, the
Contractor must ask for the vehicle's license number and carefully review
the SISM records to verify that the vehicle has not already been tested. If
the vehicle owner qualifies for a temporary extension, the Contractor must
grant one. The one day temporary registration is an additional option for
vehicle owners, but does not replace the temporary extension.
c. If the vehicle owner does not qualify for a temporary extension
and if the vehicle's registration has expired, or will expire shortly, the
Contractor must offer the vehicle owner a one day temporary registration.
The vehicle owner may receive a one day temporary registration even if the
vehicle owner has not complied with a previous temporary extension.
-3-
<PAGE>
d. The Contractor shall not require an application for a one day
temporary registration. The one day temporary registration must be on a
form approved in writing by the State and clearly state that it does not
allow the vehicle owner to purchase vehicle license tabs.
e. The Contractor may issue a one day temporary registration only to
the registered owner of the vehicle, unless the registered owner is not
available. If the registered owner is not available, the Contractor may
issue a one day temporary registration to a person who is a spouse, parent
or adult child of, or who holds a power of attorney for, the registered
owner.
f. The contractor must issue one day temporary registrations using a
procedure approved in writing by the State. The currently approved
procedure is attached to this Amendment Five as Attachment G of the General
Conditions, and it is incorporated by reference herein and made an integral
and enforceable part of this Contract.
g. Any changes to the procedure or form must be approved in writing
by the State prior to the Contractor implementing them.
5. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 28, Other Revenue-Producing Activities, at the end of
the Section to state:
The Contractor may use some or all of the vehicle emission testing
stations for the sale and delivery of goods and services or other
revenue-producing activities if the Contractor requests and obtains the
prior written approval of the State for each kind of sale, service, or
other revenue-producing activity. Any Contractor's request under this
paragraph must be in writing, and must contain the Contractor's analysis of
the effect of the activity on the length of the queue, wait times,
throughput and customer service at the station(s) where the activity will
occur, and on the Contractor's ability to carry out all other obligations
under this Contract. The State's approval shall not be unreasonably
withheld. The State may, however, reject or modify any proposed sale,
service, or other revenue-producing activity if it finds the proposal
likely to significantly adversely affect the length of
-4-
<PAGE>
the queue, wait times, throughput, customer service or the Contractor's
ability to carry out all other obligations under this Contract, at any
individual testing station or on the testing network as a whole, to
constitute a conflict of interest under Section VI.E. or to be
inappropriate in light of public expectations of a government service
facility. The State shall review a request under this paragraph and provide
the Contractor with its written approval, approval conditional on
modification, or rejection within forty-five (45) days of the State's
receipt of the request. Any sale, service or other revenue-producing
activity carried out by the Contractor under this paragraph is at the
Contractor's own risk, and capital costs and other expenditures related
thereto are not eligible for compensation under Section IX.C.
The State may terminate, upon sixty (60) days prior written notice,
the Contractor's approval to carry out a sale, service or other
revenue-producing activity at any time the State finds that the Contractor
is not carrying out the activity in compliance with the State's approval or
approval conditioned on modification; that the activity causes or
contributes to a violation of the contract on the length of the queue, wait
times, throughput, customer service or of any of the Contractor's other
obligations under this Contract, at any individual testing station or on
the testing network as a whole; or that the activity constitutes a conflict
of interest under Section VI.E or is inappropriate in light of public
expectations of a government service facility. The State agrees to not
unreasonably terminate an approved activity and to meet informally with the
Contractor to discuss the State's concerns about an activity before the
State sends its written notice terminating approval of an activity.
In the event that the Contractor makes a request of or claim against
the State for any additional compensation, including a request under
Section IX.C., the Contractor shall submit within thirty (30) days of the
State's written request, a report to the State on all activities conducted
under the previous paragraphs, including: the Contractor's revenues,
capital costs and other expenditures and profits on each activity, the
Contractor's evaluation of the impact of each activity on the length of the
queue, wait times, throughput,
-5-
<PAGE>
and customer service, and the Contractor's ability to carry out all other
obligations under this Contract.
6. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 29, Lane Deactivation, at the end of the Section to
state:
The Contractor may deactivate specific lanes at some or all of the
vehicle emission testing stations if the Contractor requests and obtains
the prior written approval of the State for each lane deactivated. Any
Contractor's request for lane deactivation must not be made before the
Contractor has submitted the report required by Section I.31. Amendment
Four Report, must be in writing, and must contain the Contractor's analysis
of the effect of deactivating each lane on the length of the queue, wait
times, throughput and customer service at the station(s) where lanes would
be deactivated, and the Contractor's ability to carry out all other
obligations under this Contract. The State's approval shall not be
unreasonably withheld. The State may, however, reject or modify any
proposed lane deactivation if it finds that the lane deactivation is likely
to significantly adversely affect the length of the queue, wait times,
throughput, customer service, or the Contractor's ability to carry out all
other obligations under this Contract, at any individual testing station or
on the testing network as a whole. The State shall review a request under
this paragraph and provide the Contractor with its written approval,
approval conditioned on modification, or rejection within forty-five (45)
days of the State's receipt of the request.
If the State determines that an approved lane deactivation causes or
contributes to a violation of the contract requirements on the length of
the queue, wait times throughput, customer service, or of any of the
Contractor's other obligations under this Contract, at any individual
testing station or on the testing network as a whole, the State may
terminate, upon sixty (60) days prior written notice, the Contractor's
approval to deactivate a lane. The State agrees to not unreasonably
terminate an approved lane deactivation and to meet informally with the
Contractor to discuss the State's concerns about lane deactivation before
the State sends its written notice terminating approval of the lane
deactivation.
-6-
<PAGE>
7. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 30, Minnesota Headquarters Staff, at the end of the
Section to state:
The Contractor may decrease the staff in its Minnesota headquarters office
(headquarters office) required under this Contract, provided that any reduction
does not significantly adversely affect customer service, the Contractor's
ability to provide appropriate headquarters office support for operations at the
vehicle emission testing stations, and the Contractor's ability to carry out all
other obligations under this Contract. The Contractor shall notify the State in
writing of the reduction no later than the time the Contractor announces the
changes to its headquarters office staff. The Contractor's notification shall
include an organization chart of the headquarters office staff that shows the
functions of managerial personnel.
8. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 31, Amendment Four Report, at the end of the Section
to state:
By January 20, 1996, the Contractor shall provide the State with the
Contractor's analysis of the effect of the changes authorized in Amendment Four
on the length of the queue, wait times, throughput and customer service and the
Contractor's ability to carry out all other obligations under this Contract, at
each testing station and on the network as a whole. The State shall review this
report and provide the Contractor with its written approval, approval
conditioned on modification, or rejection within forty-five (45) days of the
State's receipt of the report.
9. Section I of the General Conditions of the Contract is amended by
adding a paragraph number 32, Organization of Minnesota Operations, at the end
of the Section to state:
By November 15, 1995, Contractor shall submit to the State an updated
organization chart of its Minnesota headquarters and testing station staff that
shows the organizational structure and number of staff assigned to each function
over the testing network. The proposed organization or staffing levels must not
significantly adversely
-7-
<PAGE>
affect the Contractor's ability to provide appropriate headquarters office
support for operations at the vehicle emission testing stations. Contractor's
ability to properly supervise and conduct operations at the vehicle emission
testing stations, or the Contractor's ability to carry out all other obligations
under this Contract, at any individual testing station or on the testing network
as a whole.
10. Section II.A., Consideration of the-General Conditions of the
Contract is amended to read as follows:
The State shall pay the Contractor, until November 1, 1995, for all
activities conducted pursuant to this contract, $7.07 for each fee bearing
inspection, each fee bearing reinspection and each fee bearing elective
inspection performed on or after the Extension/Exemption Startup Date and for
which the State has been paid by the citizen who obtained the inspection. On
and after November 1, 1995, and until June 30, 1996, the State shall pay the
Contractor, for all activities conducted pursuant to this contract, $8.00 for
each fee bearing inspection, each fee bearing reinspection, and each fee
bearing elective inspection performed by the Contractor and for which the
State has been paid by the citizen who obtained the inspection. After June
30, 1996, and until June 30, 1997, the State shall pay the Contractor, for all
activities conducted pursuant to this contract, $7.28 for each fee bearing
inspection, each fee bearing reinspection and each fee bearing elective
inspection performed by the Contractor and for which the State has been paid
by the citizen who obtained the inspection. After June 30, 1997 and until
June 30, 1998, the State shall pay the Contractor, for all activities
conducted pursuant to this contract, a To-Be-Determined Amount ("TBDA") for
each fee bearing inspection, each fee bearing reinspection and each fee
bearing elective inspection performed by the Contractor and for which the
State has been paid by the citizen who obtained the inspection. The State, on
the effective date of Amendment Five, estimates that the TBDA will be
approximately $7.00, but the exact amount of the TBDA shall be determined as
provided by the following sentence. The TBDA shall not exceed $8.00 and shall
be determined by the
-8-
<PAGE>
State after review of testing revenues and the vehicle emission inspection
account balance through June 30, 1997, and projected revenues and MPCA and
Department administrative costs through the end of all State and Contractor
activities under the I/M Program, so that the amount of revenues allocated for
the year beginning July 1, 1997 to the Contractor through the TBDA will assure
that all MPCA and Department administrative costs plus a contingency of $15,000
are allowed for in the vehicle emission inspection account. The TBDA shall be
determined by the State by August 15, 1997. These fees are, in the event of
termination of the I/M Program by legislation prior to June 30, 1998, subject to
adjustment as provided in the next paragraph, and are the Contractor's sole
compensation for all activities conducted pursuant to this contract, except as
may be provided in Section IX.C.
If the legislature terminates the I/M Program prior to June 30, 1998, and
the Contractor has received more than an average of $7.35, between July 1, 1995,
and the date testing ends, per fee bearing inspection, fee bearing reinspection
and fee bearing elective performed by the Contractor, and for which the State
has been paid by the citizen who obtained the inspection, then the amounts
specified in the preceding paragraph due the Contractor will be reduced by the
State, and as necessary reimbursed to the State by the Contractor (except as may
be provided in Section IX.C.) within sixty (60) days of the State's written
request, so that by the end of testing the Contractor will have been provided
with an average of $7.35 per fee bearing inspection, fee bearing reinspection
and fee bearing elective inspection performed by the Contractor, and for which
the State has been paid by the citizen who obtained the inspection, between July
1, 1995, and the date testing ends.
A fee-bearing inspection is the initial inspection and, if the vehicle
fails the initial inspection, the number of reinspections of a subject vehicle
during one annual registration period covered by the initial fee assessed
pursuant to Minn. Rules pt. 7023.1105, subp. 2(A). A fee bearing reinspection
is
-9-
<PAGE>
each subsequent reinspection of a subject vehicle during one annual registration
period for which an additional fee is assessed under Minn. Rules pt. 7023.1105,
subp. 2(A). A fee bearing elective inspection is any single inspection of a
subject or nonsubject vehicle approved in advance by the State and conducted
pursuant to Minn. Rules pt. 7023.1105, subp. 2(B). The State agrees that,
pursuant to Minn. Rules pt. 7023.1105, it will set the inspection fee at an
amount not less than the amounts specified in the first paragraph, and that if
its administrative costs exceed the difference between the inspection fee
collected from citizens and the amounts specified in the first paragraph due the
Contractor, the excess State administrative costs will not reduce the amount
paid to the Contractor under Section II.
The State shall not pay the Contractor for inspections conducted by the
Contractor for which the State has not been paid by the citizen who obtained the
inspection. The State shall not pay the Contractor for inspections conducted
before the network startup date.
The total obligation of the State for all compensation and reimbursements
to Contractor shall not exceed the funds appropriated to the I/M Program in the
vehicle emission inspection account. Minn. Stat. Section 116.65, subd. 1
establishes a vehicle emission inspection account which consists of the revenues
listed in Minn. Stat. Section 116.65, subd. 2, including the proceeds of the
vehicle inspection fee. Minn. Stat. Section 116.65 provides that the vehicle
emission inspection account is appropriated to the Agency by the legislature,
and may be used only to pay the Contractor for vehicles inspected and MPCA and
Department administrative costs for the I/M Program. The Contractor understands
and agrees, however, that the vehicle emission inspection account will not
contain substantial funds until the commencement of vehicle inspection and the
collection of fees from motorists for vehicle inspection, and that the vehicle
emission inspection account will be regularly depleted after that point to pay
the Contractor for vehicles inspected and to pay State administrative costs to
conduct the I/M Program. Contractor also understands and
-10-
<PAGE>
agrees that, in the unlikely event that the legislature ceases to appropriate
funds for the I/M Program, the legislature may not authorize sufficient funds to
pay the Contractor's costs.
11. Section VII. E., Performance Bond, of the General Conditions of the
Contract is amended to read as follows:
The Contractor has filed with the State's Authorized Agent a performance
bond on the forms included in Attachment B to these General Conditions, which is
attached, incorporated by reference herein, and made an integral and enforceable
part of this contract, in the amount of $1,000,000 as security for the faithful
performance of the contract. The Contractor shall provide a performance bond or
a series of performance bonds that shall remain in full force and effect, under
the same terms and conditions as Attachment B, during the entire term of this
contract, except that after the effective date of Amendment Five, the amount of
the performance bond may be reduced to $100,000. The surety furnishing the
performance bond shall be licensed to conduct business in the State of
Minnesota. The initial performance bond shall be for a four (4) year term, and
the Contractor shall renew the bond, on the same terms and conditions, for an
additional four (4) year term commencing the day after expiration of the initial
performance bond, and submit the performance bond to the MPCA for approval at
least sixty (60) days prior to expiration of the initial performance bond. The
Contractor's obligation to deliver a renewed performance bond shall not be an
obligation secured by the initial performance bond.
The attorney-in-fact who executes the performance bond on behalf of the
surety must attach a notarized copy of its power of attorney as evidence of its
authority to bind the surety on the date of execution of the performance bond.
12. The parties further agree as a term of this Amendment Five that:
Contractor has alleged that the 1995 Legislation constitutes a breach of
this Contract. The State denies that there has been any breach of this Contract
by the State as
-11-
<PAGE>
a consequence of changes required by the 1995 Legislation. In consideration for
the State's entering into this Amendment Five, the Contractor waives any and all
claims or causes of action, in law or equity, it may have against the State
resulting from the 1995 Legislation. This waiver shall not be effective if the
legislature terminates the I/M Program before June 30, 1998 or if the
legislature makes changes to the I/M Program the result of which is a further
reduction in vehicles subject to fee bearing inspections between the effective
date of this Amendment Five and June 30, 1998. Contractor's waiver does not
prevent the Contractor from requesting additional appropriations from the
legislature.
13. This Amendment Five is effective when it is signed by the Commissioner
of Administration.
-12-
<PAGE>
14. All other terms and conditions of the Contract remain in full force
and effect, except as specifically amended above.
ENVIROTEST TECHNOLOGIES, INC. MINNESOTA POLLUTION CONTROL AGENCY
By: /s/ Lawrence H. Taylor By: /s/ Elaine Johnson
------------------------------- -------------------------------
Name (Print): Lawrence H. Taylor Elaine Johnson
--------------------- Manager, Administrative Services
Title: Vice President Division
----------------------------
Date: Oct. 25, 1995 Date: Oct. 25, 1995
----------------------------- -----------------------------
By: /s/ C. Michael Alston AS TO FORM AND EXECUTION BY
------------------------------- THE ATTORNEY GENERAL
Name (print): C. Michael Alston
--------------------- By: /s/ Ann M. Seha
Title: Vice President -------------------------------
---------------------------- Ann M. Seha
Date: Oct. 25, 1995 Assistant Attorney General
----------------------------- Date: Oct. 30, 1995
-----------------------------
COMMISSIONER OF ADMINISTRATION
By: /s/ Gerald T. Joyce
-------------------------------
Gerald T. Joyce
Contract Administrator
Date: Oct. 31, 1995
-----------------------------
-13-
<PAGE>
AMENDMENT NO. 3
TO CONTRACT NO. L-90-5140
BY AND BETWEEN
THE METROPOLITAN GOVERNMENT OF NASHVILLE AND DAVIDSON COUNTY
AND
ENVIROTEST SYSTEMS CORP.
(FORMERLY HAMILTON TEST SYSTEMS, INC.)
This Amendment to Contract No. L-90-5140 is made effective this 19th day of
December, 1995, by and between the Metropolitan Government of Nashville and
Davidson County (hereinafter "Metropolitan Government") and Envirotest Systems
Corp. (hereinafter "Contractor"), the successor corporate name for Hamilton Test
Systems, Inc. a for-profit corporation, authorized to do business in the State
of Tennessee and having its principal offices and place of business at Phoenix,
Maricopa County, Arizona.
WHEREAS, the Metropolitan Government of Nashville and Davidson County has a
contract (No. L-90-5140) with Contractor to operate the light duty motor
vehicle inspection and maintenance program in Davidson County; and
WHEREAS, Section 24 of the Contract provides for an additional 3-year term
of the Contract to December 31, 1998 if the Metropolitan Government decides to
continue the program;
WHEREAS, the Metropolitan Government gave notice to Contractor of its
decision to continue the program by letter dated May 15, 1995 and Contractor
exercised its right to extend the contract by letter dated August 1, 1995; and
WHEREAS, the Metropolitan Government has received and will continue to
receive $1.10 for each motor vehicle registered and tested in Davidson County;
and
WHEREAS, Contractor has foregone any price increase to the public in the
additional 3-year term; and
<PAGE>
WHEREAS, the amendment is in the public's best interests, and pursuant to
Section 24 of Contract No. L-90-5140, it must be approved by the Metropolitan
Council prior to taking effect.
NOW, THEREFORE, for good and valuable consideration, the parties agree to
amend Contract No. L-90-5140 as follows:
1. Section 3, entitled TERM, is hereby amended by deleting "1995" and in
its place substituting "1998".
2. Section 2, entitled CONSIDERATION, is hereby amended by deleting the
last sentence thereof and substituting instead the following:
In consideration of the exclusive right to inspect Light-Duty Motor
Vehicles, excepting Fleets, for compliance with Regulation No. 8 granted by
this Contract, and in consideration of the expenses relating to the
Metropolitan Government's duty to supervise the vehicle inspection program
and to perform its obligations under this Contract, the Contractor shall
remit to the Metropolitan Government one dollar and ten cents ($1.10) for
each Light-Duty Motor Vehicle registered in Davidson County pursuant to
Chapter 4 of Title 55 of the Tennessee Code Annotated it shall inspect in
Davidson County, exclusive of the one free re-test allowed by Regulation
No. 8.
3. All other terms and conditions of Contract No. L-90-5140, as amended,
shall remain in full force and effect.
4. This Amendment No. 3 shall not take effect until approved by
Resolution of the Metropolitan Council as provided in Section 24 of this
Contract.
WHEREFORE, in reliance upon the premises and representations made
hereinabove, the Metropolitan Government of Nashville and Davidson County and
Envirotest Systems Corp., hereby acknowledge and execute this Amendment No. 3 to
Contract No. L-90-5140, effective on the date first stated above and as shown by
the signatures of their authorized representatives herein below.
-2-
<PAGE>
THE METROPOLITAN GOVERNMENT OF
NASHVILLE AND DIVIDSON COUNTY: ENVIROTEST SYSTEMS CORP.:
[illegible] [illegible]
- --------------------------------- ---------------------------------
Director of Health President and Chief
Executive Officer
[illegible]
- ---------------------------------
Chairman, Metropolitan Board of Health
APPROVED AS TO AVAILABILITY OF FUNDS:
[illegible]
- ---------------------------------
Director of Finance
APPROVED AS TO LEGALITY
OF FORM AND COMPOSITION:
[illegible]
- ---------------------------------
Metropolitan Attorney
APPROVED AS TO PURCHASING
PROCEDURES:
[illegible]
- ---------------------------------
Purchasing Agent
[illegible]
- ---------------------------------
Metropolitan County Mayor
ATTEST:
/s/ Marilyn S. Swing
- ---------------------------------
Metropolitan Clerk
-3-
<PAGE>
shown by the signatures of their authorized representatives hereinbelow.
THE METROPOLITAN GOVERNMENT OF
NASHVILLE AND DIVIDSON COUNTY: ENVIROTEST SYSTEMS CORP.:
[illegible] [illegible]
- --------------------------------- ---------------------------------
Director of Health President and Chief
Executive Officer
[illegible]
- ---------------------------------
Chairman, Metropolitan Board of Health
APPROVED AS TO AVAILABILITY OF FUNDS:
[illegible]
- ---------------------------------
Director of Finance
APPROVED AS TO LEGALITY
OF FORM AND COMPOSITION:
[illegible]
- ---------------------------------
Metropolitan Attorney
APPROVED AS TO PURCHASING
PROCEDURES:
[illegible]
- ---------------------------------
Purchasing Agent
[illegible]
- ---------------------------------
Metropolitan County Mayor
-4-
<PAGE>
ATTEST:
/s/ Marilyn S. Swing
- ---------------------------------
Metropolitan Clerk
-5-
<PAGE>
Exhibit 10.42
AMENDMENT NO. 1 TO CONTRACT
BETWEEN
ENVIROTEST SYSTEMS CORPORATION
AND
STATE OF TENNESSEE
DEPARTMENT OF ENVIRONMENT AND CONSERVATION
WHEREAS, Envirotest Systems Corporation and the State of Tennessee,
Department of Environment and Conservation, entered into Contract No.
RV-5-00575-5-00 on May 16, 1994, relating to the operation of vehicle inspection
and maintenance programs in Rutherford, Sumner, Williamson, and Wilson counties,
and
WHEREAS, the said parties desire to amend said Contract in the manner
described below.
NOW, THEREFORE, the parties hereby amend said Contract as follows:
1. Section 42 is amended as follows:
a. By deleting therefrom the following:
"SECTION 42. TERM. The term of this Contract shall commence on
May 16, 1994, and shall extend through December 31, 1995. The
State shall have no obligation for services rendered by the
Contractor which are not performed within the specified period."
b. By substituting in lieu thereof the following:
"SECTION 42. TERM. The term of this Contract shall commence on
May 16, 1994, and shall extend through December 31, 1998.
The State shall have no obligation for services rendered by the
Contractor which are not performed within the specified period."
<PAGE>
2. By adding a new section as follows:
"SECTION 43. The Contractor shall maintain documentation for all
payments made to the State under this Contract. The books,
records and documents of the Contractor, insofar as they relate
to work performed or money received under this Contract, shall be
maintained for a period of three (3) full years from the date of
the final payment, and shall be subject to audit, at any
reasonable time and upon reasonable notice, by the Tennessee
Department of Environment and Conservation or the Comptroller of
the Treasury or their duly appointed representatives. Any
financial statements prepared pursuant to Section 11.F shall be
prepared in accordance with generally accepted accounting
principles."
3. The other terms and provisions not amended hereby shall remain in full
force and effect.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties have by their duly authorized
representatives set their signatures.
ENVIROTEST SYSTEMS CORPORATION:
By /s/ Chester C. Davenport 8/23/94
-------------------------------------- --------------------
CHESTER C. DAVENPORT, Chairman Date
STATE OF TENNESSEE
DEPARTMENT OF ENVIRONMENT AND CONSERVATION
By /s/ Edward H. Cole 10/17/94
-------------------------------------- --------------------
EDWARD H. COLE Date
Interim Commissioner
APPROVED:
TENNESSEE DEPARTMENT OF FINANCE AND
ADMINISTRATION
By /s/ David L. Manning 10/24/94
-------------------------------------- --------------------
DAVID L. MANNING Date
Commissioner
COMPTROLLER OF THE TREASURY
By /s/ William R. Snodgrass 10/26/94
-------------------------------------- --------------------
WILLIAM R. SNODGRASS Date
Comptroller
-3-
<PAGE>
Exhibit 10.48
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of October 16,
1998, by ENVIROSYSTEMS CORP., a Delaware corporation with its principal place of
business at 7 Kripes Road, Granby, Connecticut 06026 (the "Company"), and
TERRENCE P. McKENNA, residing at 7 Nestor Way, North Granby, Connecticut 06060
(the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company; and
WHEREAS, the parties wish to set forth the terms and conditions of the
employment;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby accepts
employment with the Company, upon the terms set forth in this Agreement. The
Executive's employment pursuant to this Agreement shall commence on October 16,
1998 and shall end at the expiration of the thirty-sixth (36th) month thereafter
("Expiration Date") unless terminated earlier as provided herein. The
Executive's employment may be extended beyond the Expiration Date for successive
twelve (12) month terms upon the written approval of the Executive and the
Company.
2. Title; Duties.
The Executive shall serve as the President and Chief Executive Officer of
the Company and of Environmental Systems Products, Inc. throughout the term of
his
1
<PAGE>
employment under this Agreement. The Executive shall report to the Board of
Directors of the Company, which shall have the authority to direct, control and
supervise the activities of the Executive. The Executive shall perform such
services consistent with his position as may be assigned to him from time to
time by the Board of Directors of the Company.
3. Extent of Services.
The Executive shall (a) devote substantially all of his time, attention
and skill to the performance of his duties under this Agreement; (b) faithfully
and diligently perform such duties and exercise such powers as amy from time to
time be assigned to or vested in him; (c) accept such offices in the Company,
any holding company of the the Company, and any subsidiary of the Company or any
such holding company (any such entity, a "Group Company" and all Group Companies
collectively, the "Group") and accept appointments to the board of any Group
Company as may reasonably be required by the Board of Directors of the Company,
as the same may be constituted from time to time; and (d) use his best efforts
to promote the interest, reputation, business and welfare of the Group. The
Executive shall serve as a member of the Board of Directors of the Company and
of Environmental Systems Products, Inc. The Executive shall work at the
principal office of the Company located in the Granby, Connecticut area, subject
to ordinary travel consistent with his time commitment and scope of
responsibilities.
4. Base Salary.
The Company shall pay the Executive a base annual salary of $350,000.00.
The salary shall be payable as of the first day of each month in monthly
installments, less applicable deductions for taxes or otherwise. The Company
will review his base salary for upward adjustment no less often than annually in
conjunction with its regular
2
<PAGE>
review of executive salaries. The base salary of the Executive will not be
decreased during the term of this Agreement.
5. Incentive Compensation Program.
The Executive shall participate in an incentive compensation program (the
"Incentive Compensation Program"). There shall be no minimum or guaranteed
amount of compensation payable to the Executive under the Incentive Compensation
Program. Payments to the Executive pursuant to the Incentive Compensation
Program ("Incentive Compensation Payments") shall be based on business
performance objectives to be agreed between the Executive and the Company, and
the maximum amount of aggregate annual Incentive Compensation Payments shall be
fifty percent (50%) of the Executive's annual salary, as the same may be
adjusted from time to time. For exceptional performance by the Executive, the
Company may, in its sole discretion, grant to the Executive options with respect
to the Company's common stock, in addition to those granted pursuant to Section
6. The Incentive Compensation Payments for each year shall be paid to the
Executive no later than two and one-half months following the close of the
Company's fiscal year.
6. Stock Options.
The Executive shall be entitled to receive nonqualified stock options for
420 shares of the common stock of the Company with an exercise price equal to
$4761.12 per share, the fair market value of the common stock of the Company on
the date of grant. The stock option agreement shall provide that the option
shall vest at the rate of thirty-three and one-third percent (33 1/3%) on each
anniversary date of the Executive's employment, such that the option is fully
vested on the third anniversary date of the Executive's employment under this
Agreement, provided, however, that the option shall become fully vested on the
date on which the registration statement for initial public offering of the
common stock of the Company is declared effective by the
3
<PAGE>
Securities and Exchange Commission. The stock option shall provide that it may
be exercised for ten (10) years from the date of grant, unless earlier
terminated. The unvested portion of the option shall expire upon the Executive's
termination of employment. The stock option also shall provide that the option
shall become fully vested and exercisable in the event of the Executive's death,
disability, involuntary termination by the Company without cause, or in the
event of a Change of Control. For purposes of this Agreement and the related
option, a "Change of Control" shall mean any of the following events:
(a) The acquisition by any "person" or "group" (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") who is not a shareholder (directly or indirectly)
of the Company as of the date of this Agreement of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act of 50% or more of
the shares of Newmall Limited or of the Company generally entitled to vote for
the election of directors ("Voting Stock");
(b) The consummation of a reorganization, merger or consolidation or
sale or other disposition of substantially all of the assets of Newmall Limited
or the Company, other than a reorganization that does not affect the beneficial
ownership of Newmall or the Company; and
(c) Approval by the shareholders of the Company of a complete
liquidation or dissolution.
The sale of fifty percent (50%) or more of the common stock of the Company
in an initial public offering shall not constitute a Change in Control. The
stock option shall be set forth in a written agreement and shall be subject to
such additional terms as may be contained in such agreement that are not
inconsistent with this Section 7. The
4
<PAGE>
Company has advised the Executive that it intends to file a registration
statement on Form S-8 with respect to the plan and the underlying stock
following the initial public offering of the Company's common stock.
7. Fringe Benefits.
The Executive shall be entitled to receive health and dental coverage for
the Executive and his family in accordance with the terms of the health and
dental plans of Environmental Systems Products, Inc. In addition, the Company
shall provide a term life insurance policy insuring the life of the Executive
and shall pay an annual premium for such policy of $5,000.00. The Executive
shall be entitled to participate in any other employee plans offered by the
Company or Environmental Systems Products, Inc., including, but not limited to
any qualified retirement plan sponsored or maintained by the Company, if he
meets the eligibility requirements for such participation under the terms of the
applicable executive benefit plan or policy.
The Executive shall be entitled to four (4) weeks of vacation during each
year of employment. Such vacation shall be taken at such times as the Executive
and the Chairman of the Board of Directors mutually agree. The Executive shall
be entitled to sick leave and holidays in accordance with the policy of the
Company as to its executive employees.
The Company shall reimburse the Executive for the reasonable legal fees
the Executive incurs in connection with the negotiation and preparation of this
Agreement and the agreement dated October 8, 1998 by and among the Executive,
Newmall Limited, Environmental Systems Products, Inc., and Rinaldo R. Tedeschi,
in an amount not to exceed $10,000.00.
8. Reimbursement of Business Expenses.
5
<PAGE>
The Company shall reimburse the Executive for all reasonable out-of-pocket
costs incurred or paid by the Executive in connection with, or related to, the
performance of his duties, responsibilities or services under this Agreement,
upon presentation by the Executive of documentation, expense statements,
vouchers, and/or such other supporting information as the Company may reasonably
request; provided, however, that the amount available for such out-of-pocket
costs may be fixed in advance by the Company. Such reimbursable costs shall
include, but not be limited to, travel, food, and lodging while away from home;
telephone and mailing expenses; the cost of attendance at professional meetings
related to the performance of the Executive's duties under this Agreement; and
reasonable amounts of dues for membership in a country club of the Executive's
choice (with the prior written approval of the Company). The Company shall pay
the reasonable expenses, not to exceed $1,218.00 per month, to lease an
automobile of the Executive's choice, such automobile to be used primarily for
business purposes, plus the costs of insuring and maintaining the automobile.
9. Non-Competition Agreement.
While employed by the Company, and, (a) if the Executive voluntarily
terminates his employment following a Change of Control pursuant to Section 12.4
or the Company terminates the Executive without cause, for a period equal to the
greater of (i) one year, or (ii) the unexpired term of this Agreement, or (b) if
the Executive voluntarily terminates employment prior to the Expiration Date
(other than upon a Change of Control pursuant to Section 12.4) or the Executive
is involuntarily terminated by the Company with cause, for a period equal to six
(6) months following the Executive's termination of employment, the Executive
shall not, without the prior written consent of the Company, provide services,
whether as a consultant or
6
<PAGE>
executive, to any business or enterprise in the United States with respect to
environmental or emissions testing.
10. Review of Prospectus.
The Executive shall review the prospectus and amendments to such
prospectus filed by the Company with the Securities and Exchange Commission for
its initial public offering as they relate to any description of the Executive
and this Agreement. The Executive shall provide comments to the Company or its
counsel regarding the prospectus.
11. Confidentiality Agreement.
During the term of this Agreement and thereafter, the Executive shall keep
secret and retain in strictest confidence, and shall not use for his benefit or
the benefit of others, except in connection with the business and affairs of the
Group, all confidential matters relating to the business of the Group and shall
not disclose them to anyone except with the written consent of the Company. This
Section 11 shall not apply to confidential information which (a) at the time of
receipt or thereafter becomes publicly known, through no breach of this Section
11 by the Executive or (b) is received by the Executive from a third party not
under an obligation to keep such information confidential. The provisions of
this Section 11 shall survive the termination of this Agreement.
12. Termination.
12.1. Termination by the Company for Cause. The Company may at any
time terminate the Executive's employment under this Agreement for cause, upon
written notice by the Company to the Executive. For the purpose of this Section
12.1, "cause" for termination shall mean (a) the conviction of the Executive of,
or the entry of a guilty (or nolo contendere) plea by the Executive to, any
felony; (b) fraud,
7
<PAGE>
misappropriation or embezzlement by the Executive; (c) the Executive's willful
failure or gross negligence in the performance of his assigned duties for the
Company which failure continues for ten (10) days following the Executive's
receipt of written notice specifying the manner in which the Executive is in
default of his duties; or (d) the Executive's breach of fiduciary duty which
breach continues for ten (10) days following the Executive's written notice
specifying the manner in which the Executive is in default of his duties.
12.2. Termination by the Company or the Executive Without Cause.
Either party may terminate this Agreement at any time without cause, upon giving
the other party sixty (60) days written notice.
12.3. Executive's Death or Disability. The Executive's employment
shall terminate immediately upon his death or disability. As used in this
Agreement, the term "disability" shall mean the inability of the Executive, due
to a physical or mental disability, to perform the services contemplated under
this Agreement for a period of one hundred eighty (180) days in any consecutive
twelve-month period.
12.4. Termination by Executive Following Change of Control. In the
event of a Change of Control, the Executive may terminate his employment by
giving the Company (or any successor entity) sixty (60) days written notice
commencing within three (3) months following a Change of Control. In that event,
the Executive shall be entitled to receive his salary, bonus, and benefits in
accordance with Sections 4, 5, and 7 of this Agreement as if the Company had
terminated his employment without cause as provided in Section 13.2. In
addition, he shall become fully vested in all stock options granted to the
Executive prior to the date of the Change of Control.
13. Effect of Termination.
8
<PAGE>
13.1. Termination by the Company for Cause or by the Executive
Without Cause. If the Company terminates this Agreement for cause pursuant to
Section 12.1, or the Executive terminates this Agreement without cause pursuant
to Section 12.2, the Company shall pay to the Executive only the salary, bonus,
and benefits otherwise payable to him under Sections 4, 5, and 7 through the
last day of his employment by the Company. The Executive shall not be entitled
to receive any Incentive Compensation Payment that had not accrued prior to the
Executive's termination for cause by the Company or without cause by the
Executive. The Executive shall be entitled to receive any Incentive Compensation
Payment that accrued prior to the date on which the Executive's employment
terminates as specified in Section 5.
13.2. Termination by the Company Without Cause. If the Company
terminates the Executive's employment without cause pursuant to Section 12.2 or
if the Executive terminates his employment following a Change in Control, the
Executive shall be entitled to receive his salary, Incentive Compensation
Payment, and benefits in accordance with Sections 4, 5, and 7 of this Agreement
through the last date of his employment and a lump sum severance payment in an
amount equal to the greater of (a) the base salary due for the balance of the
unexpired term of this Agreement, or (b) one year's base salary, based upon the
Executive's base salary at the time of the termination of his employment. These
amounts shall be paid within ten (10) days following the Executive's termination
without cause. In addition, the Executive shall be entitled to receive any
Incentive Compensation Payments accrued prior to the Executive's termination
without cause. All stock options previously granted to the Executive by the
Company shall become fully vested and exercisable in the event the Executive is
terminated without cause by the Company. Except as provided in this Section
13.2, the Company shall have no other obligation to make any additional
9
<PAGE>
payment or, except as may be provided by the terms of any employee benefit plan,
to provide additional benefits in the event of the Executive's termination
without cause.
13.3. Termination for Death or Disability. If the Executive's
employment is terminated by the Executive's death or disability pursuant to
Section 12.3, the Company shall pay to the estate of the Executive or to the
Executive, as the case may be, the salary and benefits which would otherwise be
payable to the Executive up to the end of the month in which his employment is
terminated because of death or disability.
14. Miscellaneous.
14.1. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in writing from time to time.
14.2. Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
14.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
14.4. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
10
<PAGE>
14.5. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware, without
regard to its conflicts of laws principles.
14.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any entity with which or into which the Company may be merged
or which may succeed to its assets or business or any entity to which the
Company may assign its rights and obligations under this Agreement; provided,
however, that the obligations of the Executive are personal and shall not be
assigned or delegated by him.
14.7. Waiver. No delays or omission by the Company or the Executive
in exercising any right under this Agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company or the Executive on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
14.8. Captions. The captions appearing in this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
14.9. Severability. In case any provision of this Agreement shall be
held by a court with jurisdiction over the parties to this Agreement to be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.10. Arbitration. Any disputes between the Company and the
Executive in any way concerning the Executive's employment, the termination of
employment, this Agreement or its enforcement, shall be submitted at the
initiative of either party to
11
<PAGE>
mandatory arbitration before a single arbitrator who is familiar with the
environmental testing industry and conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, or its successor,
then in effect. The decision of the arbitrator shall be final and may be entered
as a judgment in any court of the State of Connecticut or State of Delaware.
14.11. Counterparts. This Agreement may be executed in counterparts,
which together shall constitute a valid and enforceable original agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ENVIROSYSTEMS CORP. TERRENCE P. McKENNA
By: /s/ Rinaldo R. Tedeschi By: /s/ Terrence P. McKenna
------------------------- ------------------------
Executive Vice President
13
<PAGE>
Exhibit 10.49
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of October 16,
1998, by ENVIROSYSTEMS CORP., a Delaware corporation with its principal place of
business at 7 Kripes Road, Granby, Connecticut 06026 (the "Company"), and
RINALDO R. TEDESCHI, residing at 11 Trumbull Street, Newington, Connecticut
06111 (the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company; and
WHEREAS, the parties wish to set forth the terms and conditions of the
employment;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby accepts
employment with the Company, upon the terms set forth in this Agreement. The
Executive's employment pursuant to this Agreement shall commence on October 16,
1998 and shall end at the expiration of the thirty-sixth (36th) month thereafter
("Expiration Date") unless terminated earlier as provided herein. The
Executive's employment may be extended beyond the Expiration Date for successive
twelve (12) month terms upon the written approval of the Executive and the
Company.
2. Title; Duties.
The Executive shall serve as the Executive Vice President of the Company
and of Environmental Systems Products, Inc. throughout the term of his
employment under
1
<PAGE>
this Agreement. The Executive shall report to the President and Chief Executive
Officer and the Board of Directors of the Company, which shall have the
authority to direct, control and supervise the activities of the Executive. The
Executive shall perform such services consistent with his position as may be
assigned to him from time to time by the President and Chief Executive Officer
or the Board of Directors of the Company.
3. Extent of Services.
The Executive shall (a) devote substantially all of his time, attention
and skill to the performance of his duties under this Agreement; (b) faithfully
and diligently perform such duties and exercise such powers as amy from time to
time be assigned to or vested in him; (c) accept such offices in the Company,
any holding company of the the Company, and any subsidiary of the Company or any
such holding company (any such entity, a "Group Company" and all Group Companies
collectively, the "Group") and accept appointments to the board of any Group
Company as may reasonably be required by the Board of Directors of the Company,
as the same may be constituted from time to time; and (d) use his best efforts
to promote the interest, reputation, business and welfare of the Group. The
Executive shall serve as a member of the Board of Directors of the Company and
of Environmental Systems Products, Inc. The Executive shall work at the
principal office of the Company located in the Granby, Connecticut area, subject
to ordinary travel consistent with his time commitment and scope of
responsibilities.
4. Base Salary.
The Company shall pay the Executive a base annual salary of $300,000.00.
The salary shall be payable as of the first day of each month in monthly
installments, less applicable deductions for taxes or otherwise. The Company
will review his base salary for upward adjustment no less often than annually in
conjunction with its regular
2
<PAGE>
review of executive salaries. The base salary of the Executive will not be
decreased during the term of this Agreement.
5. Incentive Compensation Program.
The Executive shall participate in an incentive compensation program (the
"Incentive Compensation Program"). There shall be no minimum or guaranteed
amount of compensation payable to the Executive under the Incentive Compensation
Program. Payments to the Executive pursuant to the Incentive Compensation
Program ("Incentive Compensation Payments") shall be based on business
performance objectives to be agreed between the Executive and the Company, and
the maximum amount of aggregate annual Incentive Compensation Payments shall be
fifty percent (50%) of the Executive's annual salary, as the same may be
adjusted from time to time. For exceptional performance by the Executive, the
Company may, in its sole discretion, grant to the Executive options with respect
to the Company's common stock, in addition to those granted pursuant to Section
6. The Incentive Compensation Payments for each year shall be paid to the
Executive no later than two and one-half months following the close of the
Company's fiscal year.
6. Stock Options.
The Executive shall be entitled to receive nonqualified stock options for
420 shares of the Class A common stock of the Company with an exercise price
equal to $4,761.12, the fair market value of the Class A common stock of the
Company on the date of grant. The stock option agreement shall provide that the
option shall vest at the rate of thirty-three and one-third percent (33 1/3%) on
each anniversary date of the Executive's employment, such that the option is
fully vested on the third anniversary date of the Executive's employment under
this Agreement, provided, however, that the option shall become fully vested on
the date on which the registration statement for initial public offering of the
common stock of the Company is declared effective by the
3
<PAGE>
Securities and Exchange Commission. The stock option shall provide that it may
be exercised for ten (10) years from the date of grant to the extent vested. The
unvested portion of the option shall expire upon the Executive's termination of
employment. The stock option also shall provide that the option shall become
fully vested and exercisable in the event of the Executive's death, disability,
involuntary termination by the Company without cause, or in the event of a
Change of Control. For purposes of this Agreement and the related option, a
"Change of Control" shall mean any of the following events:
(a) The acquisition by any "person" or "group" (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") who is not a shareholder (directly or indirectly)
of the Company as of the date of this Agreement of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act of 50% or more of
the shares of Newmall Limited or of the Company generally entitled to vote for
the election of directors ("Voting Stock");
(b) The consummation of a reorganization, merger or consolidation or
sale or other disposition of substantially all of the assets of Newmall Limited
or the Company, other than a reorganization that does not affect the beneficial
ownership of Newmall or the Company; and
(c) Approval by the shareholders of the Company of a complete
liquidation or dissolution.
The sale of fifty percent (50%) or more of the common stock of the Company
in an initial public offering shall not constitute a Change in Control. The
stock option shall be set forth in a written agreement and shall be subject to
such additional terms as may be contained in such agreement that are not
inconsistent with this Section 7. The
4
<PAGE>
Company has advised the Executive that it intends to file a registration
statement on Form S-8 with respect to the plan and the underlying stock
following the initial public offering of the Company's common stock.
7. Fringe Benefits.
The Executive shall be entitled to receive health and dental coverage for
the Executive and his family in accordance with the terms of the health and
dental plans of Environmental Systems Products, Inc. The Company shall provide a
term life insurance policy for the Executive and shall pay an annual premium for
such policy in the amount of $5,000.00. The Executive shall be entitled to
participate in any other employee plans offered by the Company or Environmental
Systems Products, Inc., including, but not limited to any qualified retirement
plan sponsored or maintained by the Company, if he meets the eligibility
requirements for such participation under the terms of the applicable executive
benefit plan or policy.
The Executive shall be entitled to four (4) weeks of vacation during each
year of employment. Such vacation shall be taken at such times as the Executive
and the Chairman of the Board of Directors mutually agree. The Executive shall
be entitled to sick leave and holidays in accordance with the policy of the
Company as to its executive employees.
The Company shall reimburse the Executive for the reasonable legal fees
the Executive incurs in connection with the negotiation and preparation of this
Agreement and the agreement dated October 8, 1998 by and among the Executive,
Newmall Limited, Environmental Systems Products, Inc., and Terrence P. McKenna,
in an amount not to exceed $10,000.00.
8. Reimbursement of Business Expenses.
5
<PAGE>
The Company shall reimburse the Executive for all reasonable out-of-pocket
costs incurred or paid by the Executive in connection with, or related to, the
performance of his duties, responsibilities or services under this Agreement,
upon presentation by the Executive of documentation, expense statements,
vouchers, and/or such other supporting information as the Company may reasonably
request; provided, however, that the amount available for such out-of-pocket
costs may be fixed in advance by the Company. Such reimbursable costs shall
include, but not be limited to, travel, food, and lodging while away from home;
telephone and mailing expenses; the cost of attendance at professional meetings
related to the performance of the Executive's duties under this Agreement; and
reasonable amounts of dues for membership in a country club of the Executive's
choice (with the prior written approval of the Company). The Company shall pay
the reasonable expenses, not to exceed $1,218.00 per month, for leasing an
automobile of the Executive's choice, such automobile to be used primarily for
business purposes, plus the costs of insuring and maintaining the automobile.
9. Non-Competition Agreement.
While employed by the Company, and, (a) if the Executive voluntarily
terminates his employment following a Change of Control pursuant to Section 12.4
or the Company terminates the Executive without cause, for a period equal to the
greater of (i) one year, or (ii) the unexpired term of the Agreement, or (b) if
the Executive voluntarily terminates employment prior to the Expiration Date
(other than upon a Change of Control pursuant to Section 12.4) or the Executive
is involuntarily terminated by the Company with cause, for a period equal to six
(6) months following the Executive's termination of employment, the Executive
shall not, without the prior written consent of the Company, provide services,
whether as a consultant or
6
<PAGE>
executive, to any business or enterprise in the United States with respect to
environmental or emissions testing.
10. Review of Prospectus.
The Executive shall review the prospectus and amendments to such
prospectus filed by the Company with the Securities and Exchange Commission for
its initial public offering as they relate to any description of the Executive
and this Agreement. The Executive shall provide comments to the Company or its
counsel regarding the prospectus.
11. Confidentiality Agreement.
During the term of this Agreement and thereafter, the Executive shall keep
secret and retain in strictest confidence, and shall not use for his benefit or
the benefit of others, except in connection with the business and affairs of the
Group, all confidential matters relating to the business of the Group and shall
not disclose them to anyone except with the written consent of the Company. This
Section 11 shall not apply to confidential information which (a) at the time of
receipt or thereafter becomes publicly known, through no breach of this Section
11 by the Executive or (b) is received by the Executive from a third party not
under an obligation to keep such information confidential. The provisions of
this Section 11 shall survive the termination of this Agreement.
12. Termination.
12.1. Termination by the Company for Cause. The Company may at any
time terminate the Executive's employment under this Agreement for cause, upon
written notice by the Company to the Executive. For the purpose of this Section
12.1, "cause" for termination shall mean (a) the conviction of the Executive of,
or the entry of a guilty (or nolo contendere) plea by the Executive to, any
felony; (b) fraud,
7
<PAGE>
misappropriation or embezzlement by the Executive; (c) the Executive's willful
failure or gross negligence in the performance of his assigned duties for the
Company which failure continues for ten (10) days following the Executive's
receipt of written notice specifying the manner in which the Executive is in
default of his duties; or (d) the Executive's breach of fiduciary duty which
breach continues for ten (10) days following the Executive's written notice
specifying the manner in which the Executive is in default of his duties.
12.2. Termination by the Company or the Executive Without Cause.
Either party may terminate this Agreement at any time without cause, upon giving
the other party sixty (60) days written notice.
12.3. Executive's Death or Disability. The Executive's employment
shall terminate immediately upon his death or disability. As used in this
Agreement, the term "disability" shall mean the inability of the Executive, due
to a physical or mental disability, to perform the services contemplated under
this Agreement for a period of one hundred eighty (180) days in any consecutive
twelve-month period.
12.4. Termination by Executive Following Change of Control. In the
event of a Change of Control, the Executive may terminate his employment by
giving the Company (or any successor entity) sixty (60) days written notice
commencing within three (3) months following a Change of Control. In that event,
the Executive shall be entitled to receive his salary, bonus, and benefits in
accordance with Sections 4, 5, and 7 of this Agreement as if the Company had
terminated his employment without cause as provided in Section 13.2. In
addition, he shall become fully vested in all stock options granted to the
Executive prior to the date of the Change of Control.
13. Effect of Termination.
8
<PAGE>
13.1. Termination by the Company for Cause or by the Executive
Without Cause. If the Company terminates this Agreement for cause pursuant to
Section 12.1, or the Executive terminates this Agreement without cause pursuant
to Section 12.2, the Company shall pay to the Executive only the salary, bonus,
and benefits otherwise payable to him under Sections 4, 5, and 7 through the
last day of his employment by the Company. The Executive shall not be entitled
to receive any Incentive Compensation Payment that had not accrued prior to the
Executive's termination for cause by the Company or without cause by the
Executive. The Executive shall be entitled to receive any Incentive Compensation
Payment that accrued prior to the date on which the Executive's employment
terminates as specified in Section 5.
13.2. Termination by the Company Without Cause. If the Company
terminates the Executive's employment without cause pursuant to Section 12.2 or
if the Executive terminates his employment following a Change in Control, the
Executive shall be entitled to receive his salary, Incentive Compensation
Payment, and benefits in accordance with Sections 4, 5, and 7 of this Agreement
through the last date of his employment and a lump sum severance payment in an
amount equal to the greater of (a) the base salary due for the balance of the
unexpired term of this Agreement or (b) one year's base salary, based upon the
Executive's base salary at the time of the termination of his employment. These
amounts shall be paid within ten (10) days following the Executive's termination
without cause. In addition, the Executive shall be entitled to receive any
Incentive Compensation Payments accrued prior to the Executive's termination
without cause as specified in Section 5. All stock options previously granted to
the Executive by the Company shall become fully vested and exercisable in the
event the Executive is terminated without cause by the Company. Except as
provided in this Section 13.2, the Company shall be under no obligation to
9
<PAGE>
make any additional payment or provide additional benefits in the event of the
Executive's termination without cause.
13.3. Termination for Death or Disability. If the Executive's
employment is terminated by the Executive's death or disability pursuant to
Section 12.3, the Company shall pay to the estate of the Executive or to the
Executive, as the case may be, the salary and benefits which would otherwise be
payable to the Executive up to the end of the month in which his employment is
terminated because of death or disability.
14. Miscellaneous.
14.1. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in writing from time to time.
14.2. Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
14.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
14.4. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
10
<PAGE>
14.5. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware, without
regard to its conflicts of laws principles.
14.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any entity with which or into which the Company may be merged
or which may succeed to its assets or business or any entity to which the
Company may assign its rights and obligations under this Agreement; provided,
however, that the obligations of the Executive are personal and shall not be
assigned or delegated by him.
14.7. Waiver. No delays or omission by the Company or the Executive
in exercising any right under this Agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company or the Executive on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
14.8. Captions. The captions appearing in this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
14.9. Severability. In case any provision of this Agreement shall be
held by a court with jurisdiction over the parties to this Agreement to be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.10. Arbitration. Any disputes between the Company and the
Executive in any way concerning the Executive's employment, the termination of
employment, this Agreement or its enforcement, shall be submitted at the
initiative of either party to
11
<PAGE>
mandatory arbitration before a single arbitrator who is familiar with the
environmental testing industry and conducted pursuant to the Commercial
Arbitration Rules of the American Arbitration Association, or its successor,
then in effect. The decision of the arbitrator shall be final and may be entered
as a judgment in any court of the State of Connecticut or State of Delaware.
14.11. Counterparts. This Agreement may be executed in counterparts,
which together shall constitute a valid and enforceable original agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ENVIROSYSTEMS CORP. RINALDO R. TEDESCHI
By: /s/ Terrence P. McKenna By: /s/ Rinaldo R. Tedeschi
----------------------- -----------------------
President and CEO
12
<PAGE>
Exhibit 10.50
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of October 16,
1998, by ENVIROSYSTEMS CORP., a Delaware corporation with its principal place of
business at 7 Kripes Road, Granby, Connecticut 06026 (the "Company"), and DAVID
LANGEVIN, residing at 115 Lampwick Lane, Fairfield, Connecticut 06430 (the
"Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company; and
WHEREAS, the parties wish to set forth the terms and conditions of the
employment;
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
1. Term of Employment.
The Company hereby employs the Executive, and the Executive hereby accepts
employment with the Company, upon the terms set forth in this Agreement. The
Executive's employment pursuant to this Agreement shall commence on October 16,
1998 and shall end at the expiration of the thirty-sixth (36th) month thereafter
("Expiration Date") unless terminated earlier as provided herein. The
Executive's employment may be extended beyond the Expiration Date for successive
twelve (12) month terms upon the written approval of the Executive and the
Company.
2. Title; Duties.
The Executive shall serve as the Chief Financial Officer of the Company
and of Environmental Systems Products, Inc. throughout the term of his
employment under
1
<PAGE>
this Agreement. The Executive shall report to the President and Chief Executive
Officer and the Board of Directors of the Company, which shall have the
authority to direct, control and supervise the activities of the Executive. The
Executive shall perform such services consistent with his position as may be
assigned to him from time to time by the President and Chief Executive Officer
or the Board of Directors of the Company.
3. Extent of Services.
The Executive shall (a) devote substantially all of his time, attention
and skill to the performance of his duties under this Agreement; (b) faithfully
and diligently perform such duties and exercise such powers as amy from time to
time be assigned to or vested in him; (c) accept such offices in the Company,
any holding company of the the Company, and any subsidiary of the Company or any
such holding company (any such entity, a "Group Company" and all Group Companies
collectively, the "Group") and accept appointments to the board of any Group
Company as may reasonably be required by the Board of Directors of the Company,
as the same may be constituted from time to time; and (d) use his best efforts
to promote the interest, reputation, business and welfare of the Group. The
Executive shall work at the principal office of the Company located in the
Granby, Connecticut area, subject to ordinary travel consistent with his time
commitment and scope of responsibilities.
4. Base Salary.
The Company shall pay the Executive a base annual salary of $275,000.00.
The salary shall be payable as of the first day of each month in monthly
installments, less applicable deductions for taxes or otherwise. The Company
will review his base salary for upward adjustment no less often than annually in
conjunction with its regular review of executive salaries. The base salary of
the Executive will not be decreased during the term of this Agreement.
2
<PAGE>
5. Incentive Compensation Program.
The Executive shall participate in an incentive compensation program (the
"Incentive Compensation Program"). There shall be no minimum or guaranteed
amount of compensation payable to the Executive under the Incentive Compensation
Program. Payments to the Executive pursuant to the Incentive Compensation
Program ("Incentive Compensation Payments") shall be based on business
performance objectives to be agreed between the Executive and the Company, and
the maximum amount of aggregate annual Incentive Compensation Payments shall be
fifty percent (50%) of the Executive's annual salary, as the same may be
adjusted from time to time. For exceptional performance by the Executive, the
Company may, in its sole discretion, grant to the Executive options with respect
to the Company's common stock, in addition to those granted pursuant to Section
6. The Incentive Compensation Payments for each year shall be paid to the
Executive no later than two and one-half months following the close of the
Company's fiscal year.
6. Stock Options.
The Executive shall be entitled to receive nonqualified stock options for
105 shares of the common stock of the Company with an exercise price equal to
$4,761.12, the fair market value of the Class A common stock of the Company on
the date of grant. The stock option agreement shall provide that the option
shall vest at the rate of thirty-three and one-third percent (33 1/3%) on each
anniversary date of the Executive's employment, such that the option is fully
vested on the third anniversary date of the Executive's employment under this
Agreement, provided, however, that the option shall become fully vested on the
date on which the registration statement for initial public offering of the
common stock of the Company is declared effective by the Securities and Exchange
Commission. The stock option shall provide that it may be exercised for ten (10)
years from the date of grant, unless earlier terminated. The vested portion
of the option may be exercised within two (2) years following the Executive's
termination of employment to the extent vested. The
3
<PAGE>
unvested portion of the option shall expire upon the Executive's termination of
employment. The stock option also shall provide that the option shall become
fully vested and exercisable in the event of the Executive's death, disability,
involuntary termination by the Company without cause, or in the event of a
Change of Control. For purposes of this Agreement and the related option, a
"Change of Control" shall mean any of the following events:
(a) The acquisition by any "person" or "group" (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") who is not a shareholder (directly or indirectly)
of the Company as of the date of this Agreement of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act of 50% or more of
the shares of Newmall Limited or of the Company generally entitled to vote for
the election of directors ("Voting Stock");
(b) The consummation of a reorganization, merger or consolidation or
sale or other disposition of substantially all of the assets of Newmall Limited
or the Company, other than a reorganization that does not affect the beneficial
ownership of Newmall or the Company; and
(c) Approval by the shareholders of the Company of a complete
liquidation or dissolution.
The sale of fifty percent (50%) or more of the common stock of the Company
in an initial public offering shall not constitute a Change in Control. The
stock option shall be set forth in a written agreement and shall be subject to
such additional terms as may be contained in such agreement that are not
inconsistent with this Section 6. The Company has advised the Executive that it
intends to file a registration statement on
4
<PAGE>
Form S-8 with respect to the plan and the underlying stock following the initial
public offering of the Company's common stock.
7. Fringe Benefits.
The Executive shall be entitled to receive health and dental coverage for
the Executive and his family in accordance with the terms of the health and
dental plans of Environmental Systems Products, Inc. The Executive shall be
entitled to participate in any other employee plans offered by the Company or
Environmental Systems Products, Inc., including, but not limited to any
qualified retirement plan sponsored or maintained by the Company, if he meets
the eligibility requirements for such participation under the terms of the
applicable executive benefit plan or policy.
The Executive shall be entitled to four (4) weeks of vacation during each
year of employment. Such vacation shall be taken at such times as the Executive
and the Chairman of the Board of Directors mutually agree. The Executive shall
be entitled to sick leave and holidays in accordance with the policy of the
Company as to its executive employees.
8. Reimbursement of Business Expenses.
The Company shall reimburse the Executive for all reasonable out-of-pocket
costs incurred or paid by the Executive in connection with, or related to, the
performance of his duties, responsibilities or services under this Agreement,
upon presentation by the Executive of documentation, expense statements,
vouchers, and/or such other supporting information as the Company may reasonably
request; provided, however, that the amount available for such out-of-pocket
costs may be fixed in advance by the Company. Such reimbursable costs shall
include, but not be limited to, travel, food, and lodging while away from home;
telephone and mailing expenses; the cost of attendance at professional meetings
related to the performance of the
5
<PAGE>
Executive's duties under this Agreement (with the prior written approval of the
President and Chief Executive Officer of the Company).
9. Non-Competition Agreement.
While employed by the Company, and, (a) if the Executive voluntarily
terminates his employment following a Change of Control pursuant to Section 12.4
or the Company terminates the Executive without cause, for a period equal to the
period in respect of which the Executive is paid severance pursuant to Section
12.4 or Section 13.2, or (b) if the Executive voluntarily terminates employment
prior to the Expiration Date (other than upon a Change of Control pursuant to
Section 12.4) or the Executive is involuntarily terminated by the Company with
cause, for a period equal to three (3) months following the Executive's
termination of employment, the Executive shall not, without the prior written
consent of the Company, provide services, whether as a consultant or executive,
to any business or enterprise in the United States with respect to environmental
or emissions testing.
10. Review of Prospectus.
The Executive shall review the prospectus and amendments to such
prospectus filed by the Company with the Securities and Exchange Commission for
its initial public offering as they relate to any description of the Executive
and this Agreement. The Executive shall provide comments to the Company or its
counsel regarding the prospectus.
11. Confidentiality Agreement.
During the term of this Agreement and thereafter, the Executive shall keep
secret and retain in strictest confidence, and shall not use for his benefit or
the benefit
6
<PAGE>
of others, except in connection with the business and affairs of the Group, all
confidential matters relating to the business of the Group and shall not
disclose them to anyone except with the written consent of the Company. This
Section 11 shall not apply to confidential information which (a) at the time of
receipt or thereafter becomes publicly known, through no breach of this Section
11 by the Executive or (b) is received by the Executive from a third party not
under an obligation to keep such information confidential. The provisions of
this Section 11 shall survive the termination of this Agreement.
12. Termination.
12.1. Termination by the Company for Cause. The Company may at any
time terminate the Executive's employment under this Agreement for cause, upon
written notice by the Company to the Executive. For the purpose of this Section
12.1, "cause" for termination shall mean (a) the conviction of the Executive of,
or the entry of a guilty (or nolo contendere) plea by the Executive to, any
felony; (b) fraud, misappropriation or embezzlement by the Executive; (c) the
Executive's willful failure or gross negligence in the performance of his
assigned duties for the Company which failure continues for ten (10) days
following the Executive's receipt of written notice specifying the manner in
which the Executive is in default of his duties; or (d) the Executive's breach
of fiduciary duty which breach continues for ten (10) days following the
Executive's written notice specifying the manner in which the Executive is in
default of his duties.
12.2. Termination by the Company or the Executive Without Cause.
Either party may terminate this Agreement at any time without cause, upon giving
the other party sixty (60) days written notice.
7
<PAGE>
12.3. Executive's Death or Disability. The Executive's employment
shall terminate immediately upon his death or disability. As used in this
Agreement, the term "disability" shall mean the inability of the Executive, due
to a physical or mental disability, to perform the services contemplated under
this Agreement for a period of one hundred eighty (180) days in any consecutive
twelve-month period.
12.4. Termination by Executive Following Change of Control. In the
event of a Change of Control, the Executive may terminate his employment by
giving the Company (or any successor entity) sixty (60) days written notice
commencing within three (3) months following a Change of Control. In that event,
the Executive shall be entitled to receive his salary, bonus, and benefits in
accordance with Sections 4, 5, and 7 of this Agreement as if the Company had
terminated his employment without cause as provided in Section 13.2. In
addition, he shall become fully vested in all stock options granted to the
Executive prior to the date of the Change of Control.
13. Effect of Termination.
13.1. Termination by the Company for Cause or by the Executive
Without Cause. If the Company terminates this Agreement for cause pursuant to
Section 12.1, or the Executive terminates this Agreement without cause pursuant
to Section 12.2, the Company shall pay to the Executive only the salary, bonus,
and benefits otherwise payable to him under Sections 4, 5, and 7 through the
last day of his employment by the Company. The Executive shall not be entitled
to receive any Incentive Compensation Payment that had not accrued prior to the
Executive's termination for cause by the Company or without cause by the
Executive. The Executive shall be entitled to receive any Incentive Compensation
Payment that accrued prior to the date on which the Executive's employment
terminates as specified in Section 5.
8
<PAGE>
13.2. Termination by the Company Without Cause. If the Company
terminates the Executive's employment without cause pursuant to Section 12.2 or
if the Executive terminates his employment following a Change in Control, the
Executive shall be entitled to receive his salary, Incentive Compensation
Payment, and benefits in accordance with Sections 4, 5, and 7 of this Agreement
through the last date of his employment and a lump sum severance payment in an
amount equal to one year's base salary, with base salary determined as of the
date of the Executive's termination of employment. These amounts shall be paid
within ten (10) days following the Executive's termination without cause. In
addition, the Executive shall be entitled to receive any Incentive Compensation
Payments accrued prior to the Executive's termination without cause or within
six (6) months following the Executive's termination without cause as specified
in Section 5. All stock options previously granted to the Executive by the
Company shall become fully vested and exercisable in the event the Executive is
terminated without cause by the Company.
13.3. Termination for Death or Disability. If the Executive's
employment is terminated by the Executive's death or disability pursuant to
Section 12.3, the Company shall pay to the estate of the Executive or to the
Executive, as the case may be, the salary and benefits which would otherwise be
payable to the Executive up to the end of the month in which his employment is
terminated because of death or disability.
14. Miscellaneous.
14.1. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit with the United States Postal Service, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in writing from time to time.
9
<PAGE>
14.2. Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
14.3. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Agreement.
14.4. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
14.5. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware, without
regard to its conflicts of laws principles.
14.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any entity with which or into which the Company may be merged
or which may succeed to its assets or business or any entity to which the
Company may assign its rights and obligations under this Agreement; provided,
however, that the obligations of the Executive are personal and shall not be
assigned or delegated by him.
14.7. Waiver. No delays or omission by the Company or the Executive
in exercising any right under this Agreement shall operate as a waiver of that
or any other right. A waiver or consent given by the Company or the Executive on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion.
10
<PAGE>
14.8. Captions. The captions appearing in this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
14.9. Severability. In case any provision of this Agreement shall be
held by a court with jurisdiction over the parties to this Agreement to be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
14.10. Arbitration. Any disputes between the Company and the
Executive in any way concerning the Executive's employment, the termination of
employment, this Agreement or its enforcement, shall be submitted at the
initiative of either party to mandatory arbitration before a single arbitrator
who is familiar with the environmental testing industry and conducted pursuant
to the Commercial Arbitration Rules of the American Arbitration Association, or
its successor, then in effect. The decision of the arbitrator shall be final and
may be entered as a judgment in any court of the State of Connecticut or State
of Delaware.
14.11. Counterparts. This Agreement may be executed in counterparts,
which together shall constitute a valid and enforceable original agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ENVIROSYSTEMS CORP. DAVID LANGEVIN
By: /s/ Terrence P. McKenna By: /s/ David Langevin
----------------------- -------------------
President & CEO
12
<PAGE>
Exhibit 10.51
================================================================================
CREDIT AGREEMENT
DATED AS OF OCTOBER 15, 1998
AMONG
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.,
as Borrower,
ENVIROSYSTEMS CORP.,
as Parent,
THE LENDERS LISTED HEREIN,
as Lenders,
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent and Collateral Agent,
DLJ CAPITAL FUNDING, INC.,
as Syndication Agent,
AND
CREDIT SUISSE FIRST BOSTON
AND
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
as Arrangers
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS.........................................................1
1.1 Certain Defined Terms..................................................1
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement..........................................42
1.3 Other Definitional Provisions.........................................42
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.........................42
2.1 Commitments; Loans....................................................42
2.2 Interest on the Loans.................................................49
2.3 Fees..................................................................52
2.4 Repayments, Prepayments and Reductions in Commitments;
General Provisions Regarding Payments.................................53
2.5 Use of Proceeds.......................................................63
2.6 Special Provisions Governing Eurodollar Rate Loans....................63
2.7 Increased Costs; Taxes; Capital Adequacy..............................65
2.8 Obligation of Lenders and Issuing Bank to Mitigate....................69
SECTION 3. LETTERS OF CREDIT..................................................70
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein ...............................................70
3.2 Letter of Credit Fees.................................................72
3.3 Drawings and Payments and Reimbursement of Amounts Drawn or
Paid Under Letters of Credit..........................................73
3.4 Obligations Absolute..................................................75
3.5 Indemnification; Nature of Issuing Lender's Duties....................76
3.6 Increased Costs and Taxes Relating to Letters of Credit...............77
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT..........................78
4.1 Conditions to Term Loans; Initial Revolving Loans.....................78
4.2 Conditions to All Loans...............................................85
4.3 Conditions to Letters of Credit.......................................86
SECTION 5. REPRESENTATIONS AND WARRANTIES.....................................87
5.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries ............................................87
5.2 Authorization of Borrowing, etc.......................................88
5.3 Financial Condition; Projections......................................89
5.4 No Material Adverse Change; No Restricted Payments....................90
5.5 Title to Properties; Liens; Real Property; Intellectual Property......90
5.6 Litigation; Adverse Facts.............................................91
5.7 Payment of Taxes......................................................92
5.8 Performance of Agreements; Materially Adverse Agreements..............92
5.9 Governmental Regulation...............................................92
5.10 Securities Activities.................................................92
5.11 Employee Benefit Plans................................................93
5.12 Certain Fees..........................................................93
5.13 Environmental Matters.................................................93
5.14 Employee Matters......................................................95
5.15 Solvency..............................................................95
5.16 Transaction Documents.................................................95
5.17 Disclosure............................................................95
5.18 Subordination of Subordinated Indebtedness............................96
5.19 Year 2000 Problems....................................................96
5.20 Tax Classification....................................................97
5.21 Parent................................................................97
SECTION 6. AFFIRMATIVE COVENANTS..............................................97
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
6.1 Financial Statements and Other Reports................................97
6.2 Corporate Existence..................................................103
6.3 Payment of Taxes and Claims; Tax Consolidation.......................103
6.4 Maintenance of Properties; Insurance.................................104
6.5 Inspection; Lender Meeting...........................................104
6.6 Compliance with Laws, etc............................................104
6.7 Environmental Disclosure and Inspection..............................104
6.8 The Company's Remedial Action Regarding Hazardous Materials..........106
6.9 Execution of Guaranty and Collateral Documents by Future
Subsidiaries ........................................................106
6.10 Interest Rate Protection.............................................107
6.11 Further Assurances...................................................108
6.12 Conforming Leasehold Interests; Matters Relating to Additional
and Closing Real Property Collateral.................................108
6.13 Year 2000 Problems...................................................112
6.14 ENR Transfer.........................................................112
SECTION 7. NEGATIVE COVENANTS................................................112
7.1 Indebtedness.........................................................112
7.2 Liens and Related Matters............................................114
7.3 Investments; Joint Ventures..........................................115
7.4 Contingent Obligations...............................................117
7.5 Restricted Payments..................................................118
7.6 Financial Covenants..................................................119
7.7 Restriction on Fundamental Changes; Asset Sales......................122
7.8 Sales and Lease-Backs................................................123
7.9 Sale or Discount of Receivables......................................123
7.10 Transactions with Shareholders and Affiliates........................124
7.11 Ownership of Subsidiary Stock........................................124
7.12 Conduct of Business..................................................125
7.13 Amendments or Waivers of Certain Agreements..........................125
7.14 Fiscal Year..........................................................126
7.15 Parent Restrictions..................................................126
7.16 Corporate Separateness...............................................126
7.17 Loaner Inventory.....................................................127
SECTION 8. EVENTS OF DEFAULT.................................................127
8.1 Failure to Make Payments When Due....................................127
8.2 Default in Other Agreements..........................................127
8.3 Breach of Certain Covenants..........................................128
8.4 Breach of Warranty...................................................128
8.5 Other Defaults Under Loan Documents..................................128
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.................128
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc...................129
8.8 Judgments and Attachments............................................129
8.9 Dissolution..........................................................129
8.10 Employee Benefit Plans...............................................129
8.11 Change in Control....................................................130
8.12 Invalidity of Guaranties.............................................130
8.13 Failure of Security..................................................130
SECTION 9. AGENTS............................................................132
9.1 Appointment..........................................................132
9.2 Powers; General Immunity.............................................133
9.3 Representations and Warranties; No Responsibility For
Appraisal of Creditworthiness .......................................134
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
9.4 Right to Indemnity...................................................135
9.5 Successor Administrative Agent and Swing Line Lender.................135
9.6 Collateral Documents; Successor Collateral Agent.....................136
SECTION 10. MISCELLANEOUS....................................................136
10.1 Assignments and Participations in Loans, Letters of Credit...........136
10.2 Expenses.............................................................139
10.3 Indemnity............................................................139
10.4 Set-Off; Security Interest in Deposit Accounts.......................140
10.5 Ratable Sharing......................................................140
10.6 Amendments and Waivers...............................................141
10.7 Independence of Covenants............................................143
10.8 Notices..............................................................143
10.9 Survival of Representations, Warranties and Agreements...............143
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative................143
10.11 Marshalling; Payments Set Aside......................................144
10.12 Severability.........................................................144
10.13 Obligations Several; Independent Nature of the Lenders' Rights.......144
10.14 Maximum Amount.......................................................144
10.15 Headings.............................................................145
10.16 Applicable Law.......................................................145
10.17 Successors and Assigns...............................................145
10.18 Consent to Jurisdiction and Service of Process.......................145
10.19 Waiver of Jury Trial.................................................146
10.20 Confidentiality......................................................147
10.21 Counterparts; Effectiveness..........................................147
</TABLE>
iii
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV-A FORM OF TERM A NOTE
IV-B FORM OF TERM B NOTE
V-A FORM OF REVOLVING NOTE
V-B FORM OF SWING LINE NOTE
VI FORM OF SUBSIDIARY AND PARENT GUARANTY
VII FORM OF PLEDGE AGREEMENT
VIII FORM OF SECURITY AGREEMENT
IX FORM OF COMPLIANCE CERTIFICATE
X-A&B FORMS OF OPINIONS OF COUNSEL TO LOAN PARTIES
XI FORM OF OPINION OF SASMF
XII FORM OF ASSIGNMENT AGREEMENT
XIII FORM OF COLLATERAL ACCOUNT AGREEMENT
XIV FORM OF CERTIFICATE OF NON-BANK STATUS
XV FORM OF MORTGAGE
XVI FORM OF FINANCIAL CONDITION CERTIFICATE
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
SCHEDULES
<S> <C> <C>
1.1 SCHEDULED EBITDA AND STATE CONTRACT ADJUSTMENTS
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1E CERTAIN NECESSARY CONSENTS
4.1G CLOSING DATE MORTGAGED PROPERTIES
4.1R CORPORATE STRUCTURE; CAPITAL STRUCTURE; OWNERSHIP
5.1 SUBSIDIARIES OF THE COMPANY
5.5B CERTAIN REAL PROPERTY MATTERS
5.5C CERTAIN INTELLECTUAL PROPERTY MATTERS
5.8 STATE CONTRACTS
5.11 CERTAIN EMPLOYEE BENEFIT PLANS
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2A CERTAIN EXISTING LIENS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
7.7 CERTAIN ASSET SALES
10.8 ADDRESSES FOR NOTICES
</TABLE>
v
<PAGE>
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of October 15, 1998 and entered
into by and among ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC., a Delaware
corporation (the "Company"), ENVIROSYSTEMS CORP., a Delaware corporation (the
"Parent"), THE BANKS, FINANCIAL INSTITUTIONS AND OTHER ENTITIES LISTED ON THE
SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and
collectively as "Lenders"), CREDIT SUISSE FIRST BOSTON ("CSFB"), as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent") and as collateral agent for the Administrative Agent and the Lenders (in
such capacity, the "Collateral Agent"), DLJ CAPITAL FUNDING, INC. ("DLJ
Capital"), as syndication agent (in such capacity, the "Syndication Agent"), and
CSFB and DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION ("DLJ Securities"),
as arrangers (collectively, in such capacity, the "Arrangers"),
R E C I T A L S
WHEREAS, the Company desires that the Lenders extend certain credit
facilities to the Company hereunder, the proceeds of which, together with cash
on hand and the proceeds of the Equity Contribution (capitalized terms used in
these Recitals without definition shall have the respective meanings assigned in
subsection 1.1 hereof), the Senior Discount Notes and the Senior Subordinated
Notes, will be used to: (a) finance the purchase price for the Shares payable in
connection with the Shares Acquisition and the ENR Merger, (b) repay the
Existing Debt, (c) pay Transaction Costs, and (d) provide financing for working
capital and other general corporate purposes for the Company and its
Subsidiaries, all subject to the terms and conditions contained herein; and
WHEREAS, the Lenders are willing to make such credit facilities
available upon and subject to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto hereby agree as
follows:
SECTION 1.
DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Additional Mortgage" has the meaning assigned to that term in
subsection 6.12C.
"Additional Mortgaged Property" has the meaning assigned to that
term in subsection 6.12C.
"Administrative Agent" has the meaning assigned to that term in the
Preamble to this
<PAGE>
Agreement and shall include any successor Administrative Agent appointed
pursuant to subsection 9.5.
"Affected Class" has the meaning assigned to that term in subsection
10.6A.
"Affected Lender" has the meaning assigned to that term in
subsection 2.6C.
"Affected Loans" has the meaning assigned to that term in subsection
2.6C.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control
with, that Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any
Person, means either (a) the power, directly or indirectly, to vote 5% or
more of the securities having ordinary voting power for the election of
directors (or persons performing similar functions) of such Person, or (b)
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
"Agents" means, collectively, the Administrative Agent, the
Syndication Agent, the Collateral Agent and the Arrangers.
"Agreement" means this Credit Agreement dated as of October 15,
1998, as it may be amended, restated, supplemented or otherwise modified
from time to time.
"AIP" means those investors in the Alchemy Investment Plan (on the
Closing Date after giving effect to the Transactions) advised by Alchemy.
"Alchemy" means Alchemy Partners, an English partnership.
"Anniversary" means a date that is an anniversary of the Closing
Date.
"Applicable Base Rate Margin" means a percentage per annum
determined by reference to the Leverage Ratio as set forth below:
<TABLE>
<CAPTION>
Leverage Ratio Applicable Applicable
(applicable only after Base Rate Base Rate
the First Adjustment Margin for Margin for
Date) Term A Term B
Loans and Loans
Revolving
Loans
-----------------------------------------------
<S> <C> <C>
Closing Date to the 2.25% 3.00%
First Adjustment Date
-----------------------------------------------
>= 4.25x 2.50% 3.00%
-----------------------------------------------
>= 3.75x and < 4.25x 2.25% 3.00%
-----------------------------------------------
>= 3.25x and < 3.75x 2.00% 3.00%
>= 2.75x and < 3.25x 1.75% 3.00%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Leverage Ratio Applicable Applicable
(applicable only after Base Rate Base Rate
the First Adjustment Margin for Margin for
Date) Term A Term B
Loans and Loans
Revolving
Loans
-----------------------------------------------
<S> <C> <C>
>= 2.25x and < 2.75x 1.50% 3.00%
-----------------------------------------------
< 2.25x 1.25% 3.00%
-----------------------------------------------
-----------------------------------------------
</TABLE>
After the First Adjustment Date, the Applicable Base Rate Margin shall be
determined by reference to the Leverage Ratio as of the end of the most
recently ended Fiscal Quarter for which the financial statements required
by subsection 6.1(ii) (or subsection 6.1(iii), if such Fiscal Quarter is
the last Fiscal Quarter of a Fiscal Year) have been delivered in
accordance therewith; provided, however, that (x) no change in the
Applicable Base Rate Margin shall be effective until the date on which the
Administrative Agent receives such financial statements and an Officer's
Certificate calculating such Leverage Ratio in reasonable detail, and (y)
the Applicable Base Rate Margin shall be 2.50% in the case of Term A Loans
and Revolving Loans for so long (but only for so long) as an Event of
Default has occurred and is continuing or the Company has not submitted to
the Administrative Agent the information described in clause (x) of this
proviso as and when required under subsection 6.1(ii) or (iii), as
applicable.
"Applicable Commitment Fee Percentage" means, (i) from the Closing
Date until the First Adjustment Date, 0.50% per annum, and (ii)
thereafter, a percentage per annum determined by reference to the Leverage
Ratio as set forth below:
<TABLE>
<CAPTION>
Applicable Commitment Fee
Leverage Ratio Percentage
------------------------------------------------
<S> <C>
>= 2.75x .50%
------------------------------------------------
< 2.75x .375%
-----------------------------------------------
</TABLE>
After the First Adjustment Date, the Applicable Commitment Fee Percentage
shall be determined by reference to the Leverage Ratio as of the end of
the most recently ended Fiscal Quarter for which the financial statements
required by subsection 6.1(ii) (subsection 6.1(iii), if such Fiscal
Quarter is the last of a Fiscal Year) have been delivered in accordance
therewith; provided, however, that (x) no change in the Applicable
Commitment Fee Percentage shall be effective until the date on which the
Administrative Agent receives such financial statements and an Officer's
Certificate calculating such Leverage Ratio in reasonable detail, and (y)
the Applicable Commitment Fee Percentage shall be .50% for so long (but
only for so long) as an Event of Default has occurred and is continuing or
the Company has not submitted to the Administrative Agent the information
described in clause (x) of this proviso as and when required under
subsection 6.1(ii) or (iii), as applicable.
"Applicable Eurodollar Rate Margin" means a percentage per annum
determined by reference to the Leverage Ratio as set forth below:
3
<PAGE>
<TABLE>
<CAPTION>
Leverage Ratio Applicable Applicable
(applicable only after Eurodollar Eurodollar
the First Adjustment Rate Margin Rate Margin
Date) for Term A for Term B
Loans and Loans
Revolving
Loans
-------------------------------------------------
<S> <C> <C>
Closing Date to the 3.25% 4.00%
First Adjustment Date
-------------------------------------------------
>= 4.25x 3.50% 4.00%
-------------------------------------------------
>= 3.75x and < 4.25x 3.25% 4.00%
-------------------------------------------------
>= 3.25x and < 3.75x 3.00% 4.00%
-------------------------------------------------
>= 2.75x and < 3.25x 2.75% 4.00%
-------------------------------------------------
>= 2.25x and < 2.75x 2.50% 4.00%
-------------------------------------------------
< 2.25x 2.25% 4.00%
</TABLE>
After the First Adjustment Date, the Applicable Eurodollar Rate Margin
shall be determined by reference to the Leverage Ratio as of the end of
the most recently ended Fiscal Quarter for which the financial statements
required by subsection 6.1(ii) (subsection 6.1(iii), if such Fiscal
Quarter is the last of a Fiscal Year) have been delivered in accordance
therewith; provided, however, that (x) no change in the Applicable
Eurodollar Rate Margin shall be effective until the date on which the
Administrative Agent receives such financial statements and an Officer's
Certificate calculating such Leverage Ratio in reasonable detail, and (y)
the Applicable Eurodollar Rate Margin shall be 3.50% in the case of Term A
Loans and Revolving Loans for so long (but only for so long) as an Event
of Default has occurred and is continuing or the Company has not submitted
to the Administrative Agent the information described in clause (x) of
this proviso as and when required under subsection 6.1(ii) or (iii), as
applicable.
"Applicable Laws" means, collectively, all statutes, laws, rules,
regulations, ordinances, decisions, writs, judgments, decrees, and
injunctions of any Governmental Authority affecting the Company or any of
its Subsidiaries or any Collateral or any of their other assets, whether
now or hereafter enacted and in force, and all Governmental Authorizations
relating thereto, and all covenants, conditions, and restrictions
contained in any instruments, either of record or known to the Company or
any of its Subsidiaries, at any time in force affecting any Real Property
Asset or any part thereof, including any such covenants, conditions and
restrictions which may (i) require material improvements, repairs or
alterations in or to such Real Property Asset or any part thereof or (ii)
in any material way limit the use and enjoyment of such Real Property
Asset as used or intended to be used by the Company and its Subsidiaries.
"Approved Fund" with respect to any Lender that is a fund that
invests in bank loans, any other fund or trust or entity that invests in
bank loans and is advised or managed by the same investment advisor as
such Lender or by an Affiliate of such investment advisor.
"Arrangers" has the meaning assigned to that term in the Preamble to
this Agreement.
"Asset Sale" means the sale, lease, sale and leaseback, assignment,
conveyance, transfer
4
<PAGE>
or other disposition by the Company or any of its Subsidiaries to any
Person (other than any member of the Related Subsidiary Group of the
seller) of any right or interest in or to property of any kind whatsoever,
whether real, personal or mixed and whether tangible or intangible,
including, without limitation, Capital Stock (including, without
limitation, of any of the Company's Subsidiaries), but excluding (a) sales
of assets in the ordinary course of business, which in the case of such
asset sales in excess of $1,000,000 in a single transaction or series of
related transactions, shall be certified in an Officer's Certificate as
being in the ordinary course of business, and (b) sales of obsolete
equipment, which in the case of such asset sales in excess of $1,000,000
in a single transaction or series of related transactions, shall be
certified in an Officer's Certificate as being a sale of obsolete
equipment. It is the intent of the parties that "Asset Sales" include, in
any event, sales of Permitted Testing Center Assets not constituting
inventory of the seller.
"Assignment Agreement" means an assignment agreement in
substantially the form of Exhibit XII annexed hereto or in such other form
as may be approved by the Administrative Agent.
"Assignment of Rents and Leases" means each Assignment of Rents and
Leases executed and delivered by any Loan Party in favor of the Collateral
Agent for the benefit of the Agents and the Lenders in such form as shall
be approved by the Collateral Agent in its reasonable discretion, in each
case with such changes thereto as may be reasonably recommended by the
Collateral Agent's local counsel based on local laws or customary
practice, as any such Assignment of Rents and Leases may heretofore have
been or hereafter may be amended, restated, supplemented, consolidated,
extended or otherwise modified from time to time in accordance with the
terms thereof and hereof.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"Base Rate" means, at any time, the higher of (x) the Prime Rate or
(y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective
Rate.
"Base Rate Loans" means Loans bearing interest at rates determined
by reference to the Base Rate as provided in subsection 2.2A.
"Business Day" means a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required
by law to close; provided that, with respect to matters relating to
Eurodollar Rate Loans, the term "Business Day" shall mean a day other than
a Saturday, Sunday or other day on which commercial banks in New York City
or London, England, are authorized or required by law to close.
"Calculation Period" has the meaning assigned to that term in
subsection 7.6A.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee that,
in conformity with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person.
"Capital Stock" means any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests
5
<PAGE>
in a Person (other than a corporation), including, without limitation,
partnership interests and membership interests, and any and all warrants,
rights or options to purchase or other arrangements or rights to acquire
any of the foregoing.
"Cash" means money, currency or a credit balance in a Deposit
Account.
"Cash Equivalents" means (i) marketable securities issued or
directly and unconditionally guaranteed by the United States Government or
issued by any agency thereof and backed by the full faith and credit of
the United States, in each case maturing within one year from the date of
acquisition thereof; (ii) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any
such state or any public instrumentality thereof maturing within one year
from the date of acquisition thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's, a
division of the McGraw-Hill Companies, Inc. ("S&P"), or Moody's Investors
Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than
one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's, issued by any Lender or any commercial bank organized under the
laws of the United States of America or any state thereof or the District
of Columbia having unimpaired capital and surplus of not less than
$500,000,000 (each Lender and each such commercial bank being herein
called a "Cash Equivalent Bank"); and (v) Eurodollar time deposits having
a maturity of less than one year purchased directly from any Cash
Equivalent Bank (provided such deposit is with such Cash Equivalent Bank
or any other Cash Equivalent Bank).
"Cash Proceeds" means, with respect to any Asset Sale, Cash payments
(including any Cash received by way of deferred payment pursuant to, or
monetization of, a note receivable or otherwise, but only as and when so
received) received from such Asset Sale.
"Certificate of Non-Bank Status" means a certificate substantially
in the form of Exhibit XIV annexed hereto delivered by a Lender to the
Administrative Agent pursuant to subsection 2.7B(iii).
"Class" means each of the following classes of the Lenders: (i) the
Lenders having Term A Loan Exposure, (ii) the Lenders having Term B Loan
Exposure, and (iii) the Lenders having Revolving Loan Exposure.
"Cleanup" means all actions required to: (1) cleanup, remove, treat
or remediate Hazardous Materials in the indoor or outdoor environment; (2)
prevent the Release of Hazardous Materials so that they do not migrate,
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment; (3) perform pre-remedial studies and investigations
and post-remedial monitoring and care; or (4) respond to any government
requests for information or documents in any way relating to cleanup,
removal, treatment or remediation or potential cleanup, removal, treatment
or remediation of Hazardous Materials in the indoor or outdoor
environment.
"Closing Date" means October 16, 1998 or such earlier date requested
by the Company on which the conditions precedent set forth in section 4
shall be satisfied.
6
<PAGE>
"Closing Date Mortgage" has the meaning assigned to that term in
subsection 4.1G hereof.
"Closing Date Mortgage Policies" has the meaning assigned to that
term in subsection 4.1G hereof.
"Closing Date Mortgaged Property" has the meaning assigned to that
term in subsection 4.1G hereof.
"Collateral" means all of the properties and assets (including
Capital Stock) in which Liens are purported to be granted by the
Collateral Documents.
"Collateral Account" has the meaning assigned to that term in the
Collateral Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement executed and delivered by the Company and the Collateral Agent
as of the Closing Date, substantially in the form of Exhibit XIII annexed
hereto, as such Collateral Account Agreement may be amended, restated,
supplemented or otherwise modified from time to time.
"Collateral Agent" means CSFB, in its capacity as collateral agent
hereunder and under the Collateral Documents, and any successor in such
capacity.
"Collateral Documents" means the Pledge Agreement, the Security
Agreement, the Foreign Subsidiary Pledge Agreement, the Collateral Account
Agreement, the Mortgages, the Assignments of Rents and Leases, and any
other documents, instruments or agreements delivered by any Loan Party
pursuant to this Agreement or any of the other Loan Documents in order to
grant or perfect liens on any assets of such Loan Party as security for
all or any of the Obligations.
"Commercial Letter of Credit" means any letter of credit or similar
instrument, in form and substance acceptable to the Issuing Bank, issued
for the purpose of providing the primary payment mechanism in connection
with the purchase of any materials, goods or services by the Company or
any of its Subsidiaries (other than SPC's or Excluded Foreign
Subsidiaries) in the ordinary course of business of the Company or such
Subsidiary.
"Commitments" means the commitments of the Lenders to make Loans as
set forth in subsection 2.1A of this Agreement.
"Company" has the meaning assigned to that term in the Preamble to
this Agreement.
"Company Group" means the Company and its direct and indirect
Subsidiaries.
"Company Stock Contribution" means, immediately after giving effect
to the Newmall Stock Contribution, the sale or contribution by the
Existing Investors of all of the Capital Stock of the Company to the
Parent in consideration or exchange for all of the Capital Stock of the
Parent, such that, after giving effect thereto, the Parent shall be wholly
and directly owned by the Existing Investors and the Company shall be a
wholly and directly owned Subsidiary of the Parent.
7
<PAGE>
"Company Stock Contribution Agreement" means an agreement, as in
effect on the Closing Date, entered into among the Existing Investors and
the Parent in respect of the Company Stock Contribution, that is in form
and substance reasonably satisfactory to the Administrative Agent, as the
same may thereafter be amended, restated, supplemented or otherwise
modified from time to time to the extent permitted under subsection 7.13A.
"Compliance Certificate" means a certificate substantially in the
form of Exhibit IX annexed hereto delivered to the Administrative Agent by
the Company pursuant to subsection 6.1(iv).
"Conforming Leasehold Interest" means any Recorded Leasehold
Interest as to which the lessor has agreed in writing for the benefit of
the Collateral Agent (which writing has been delivered to the Collateral
Agent), whether under the terms of the applicable lease, under the terms
of a Landlord Consent and Estoppel, or otherwise, to the grant of a
Mortgage on the lessee's interest in such Recorded Leasehold Interest and
such other matters requested by the Collateral Agent, which interest, if a
subleasehold or sub-subleasehold interest, is not subject to any contrary
restrictions contained in a superior lease or sublease.
"Condemnation Proceeds" has the meaning assigned to that term in
subsection 2.4B(iii)(d).
"Consolidated Adjusted EBITDA" means, for any period, without
duplication, (x) the sum of the amounts for such period (as determined for
the Company and its Subsidiaries other than Excluded Foreign Subsidiaries
on a consolidated basis) of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) provisions for taxes based on income, (iv) total
depreciation expense, (v) total amortization expense, (vi) other non-cash
items reducing Consolidated Net Income to the extent reflected as a charge
or otherwise deducted from the determination of Consolidated Net Income
(other than any non-cash charges to the extent such charges represent an
accrual of or reserve for cash expenditures in any future period), (vii)
in the case of any such period which includes the last Fiscal Quarter of
the 1998 Fiscal Year or the first Fiscal Quarter of the 1999 Fiscal Year,
the Interim EBITDA Adjustment Amount for each such included quarter and
(viii) the State Contract adjustments set forth on Schedule 1.1 annexed
hereto for the periods stated in such Schedule 1.1 less (y) the sum of (a)
non-cash items increasing Consolidated Net Income, (b) the amount for such
period of gains on sales of assets (excluding sales in the ordinary course
of business) and other extraordinary gains, and (c) the aggregate amount
of dividends, if any, paid during such period to the Parent pursuant to
clause (v)(a) of the proviso to subsection 7.5, all of the foregoing
(except as otherwise provided in the definition of any term used herein)
as determined on a consolidated basis in conformity with GAAP. With
respect to calculations of Consolidated Adjusted EBITDA for any period
prior to the completion of four Fiscal Quarters following the Closing
Date, such calculations shall be made assuming that Consolidated Adjusted
EBITDA for each of the applicable Fiscal Quarters ending prior to the
Closing Date is as set forth on Schedule 1.1 annexed hereto.
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all expenditures (whether paid in cash or other consideration
or accrued as a liability (including that portion of Capital Leases which
is capitalized on a consolidated balance sheet in accordance with GAAP),
excluding expenditures for Permitted Acquisitions) by the Company and its
Subsidiaries other than Excluded Foreign Subsidiaries during that period
that, in conformity with GAAP, are
8
<PAGE>
or should be included in "purchases of property, plant or equipment" or
comparable items reflected in the consolidated statement of cash flows of
the Company and its Subsidiaries.
"Consolidated Current Assets" means, as at any date of
determination, the total assets of the Company and its Subsidiaries other
than Excluded Foreign Subsidiaries on a consolidated basis which may
properly be classified as current assets in conformity with GAAP,
excluding Cash, Cash Equivalents and deferred income taxes to the extent
otherwise included in current assets.
"Consolidated Current Liabilities" means, as at any date of
determination, the total liabilities of the Company and its Subsidiaries
other than Excluded Foreign Subsidiaries on a consolidated basis which may
properly be classified as current liabilities in conformity with GAAP,
other than (i) any liabilities that are the current portion of
Indebtedness classified as long term liabilities in conformity with GAAP
and (ii) deferred income taxes to the extent otherwise included in current
liabilities.
"Consolidated Excess Cash Flow" means, for any period, an amount (if
positive) equal to (i) the sum, without duplication, of the amounts for
such period of (a) Consolidated Adjusted EBITDA (without giving effect to
clause (x)(vii) of the definition of such term) and (b) the Consolidated
Working Capital Adjustment (which may be a negative number) minus (ii) the
sum, without duplication, of the amounts for such period of (a) scheduled
cash principal repayments made in respect of Consolidated Total Debt
(excluding repayments of Revolving Loans except to the extent the
Revolving Loan Commitments are permanently reduced in connection with such
repayments and excluding Indebtedness maturing within one (1) year of the
date of its creation or incurrence), (b) Consolidated Capital Expenditures
made in cash (net of any proceeds of any related financings with respect
to such expenditures and excluding Consolidated Capital Expenditures in
Reinvestment Assets or directly or indirectly funded by any Governmental
Authority), (c) Consolidated Interest Expense paid in cash during such
period and (d) the provision for taxes based on income of the Company and
its Subsidiaries other than Excluded Foreign Subsidiaries and paid in cash
with respect to such period.
"Consolidated Fixed Charges" means, for any period, an amount equal
to the sum, without duplication, of the amounts for such period as
determined for the Company and its Subsidiaries other than Excluded
Foreign Subsidiaries on a consolidated basis of (i) scheduled repayments
of principal of all Indebtedness (as reduced by prepayments thereon
previously made), (ii) Consolidated Interest Expense, (iii) Consolidated
Capital Expenditures, and (iv) the portion of taxes based on income
actually paid in cash or provision for cash income taxes. With respect to
the determination of Consolidated Fixed Charges for any period prior to
the completion of four Fiscal Quarters following the Closing Date,
Consolidated Fixed Charges shall be calculated on a Pro Forma Basis for
such period after giving effect to the Transactions; provided that the
Consolidated Interest Expense component of Consolidated Fixed Charges for
such period shall be calculated as set forth in the definition of
"Consolidated Interest Expense."
"Consolidated Interest Expense" means, for any period (as determined
for the Company and its Subsidiaries other than Excluded Foreign
Subsidiaries on a consolidated basis), total interest expense (including
that portion attributable to capital leases in accordance with GAAP)
payable in cash (whether in that period or any other period), including,
without limitation, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements and other Hedge
9
<PAGE>
Agreements, but excluding, however, (i) any amounts referred to in
subsection 2.3 payable to Agents or the Lenders on or before the Closing
Date and (ii) any amortized Transaction Costs. With respect to the
determination of Consolidated Interest Expense for any period prior to the
completion of four Fiscal Quarters following the Closing Date,
Consolidated Interest Expense shall be calculated on an annualized basis
for the period from the Closing Date through the date of determination by
multiplying (a) the Consolidated Interest Expense for the period from the
Closing Date to the date of determination by (b) a fraction, the numerator
of which is 365 and the denominator of which is the number of days during
the period from the Closing Date to the date of determination.
"Consolidated Net Income" means, for any period, the net income (or
loss) of the Company and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period determined in conformity with
GAAP; provided that there shall be excluded therefrom (i) the income (or
loss) of any Person (other than a Subsidiary of the Company that is not an
Excluded Foreign Subsidiary) in which the Company or any of its
Subsidiaries has an equity interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any
Subsidiary of the Company other than an Excluded Foreign Subsidiary by
such Person during such period, (ii) the income (or loss) of any Person
accrued prior to the date it becomes a Subsidiary of the Company other
than an Excluded Foreign Subsidiary or is merged into or consolidated with
the Company or any Subsidiary of the Company other than an Excluded
Foreign Subsidiary or that Person's assets are acquired by the Company or
any Subsidiary of the Company other than an Excluded Foreign Subsidiary,
(iii) the income of any Subsidiary of the Company to the extent that the
declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the
terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Subsidiary, (iv) any after-tax gains or losses attributable to Asset
Sales, (v) one time Transaction Costs, and (vi) to the extent not included
in clauses (i) through (v) above, any net extraordinary gains or net
non-cash extraordinary losses.
"Consolidated Total Debt" means, as at any date of determination,
the aggregate amount of all outstanding Indebtedness of the Company and
its Subsidiaries other than Excluded Foreign Subsidiaries on a
consolidated basis.
"Consolidated Working Capital" means, as at any date of
determination, the excess of Consolidated Current Assets over Consolidated
Current Liabilities.
"Consolidated Working Capital Adjustment" means, for any period on a
consolidated basis, the amount (which may be a negative number) by which
Consolidated Working Capital as of the beginning of such period exceeds
(or is less than) Consolidated Working Capital as of the end of such
period.
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person (i) with
respect to any Indebtedness, lease, dividend or other obligation of
another if the primary purpose or intent thereof by the Person incurring
the Contingent Obligation is to provide assurance to the obligee of such
obligation of another that such obligation of another will be paid or
discharged, or that any agreements relating thereto will be complied with,
or that the holders of such obligation will be protected (in whole or in
part) against loss in respect thereof, (ii) with respect to any letter of
credit issued for the account of that Person
10
<PAGE>
or as to which that Person is otherwise liable for reimbursement of
drawings, or (iii) under Interest Rate Agreements or other Hedge
Agreements. Contingent Obligations shall include, without limitation, (a)
the direct or indirect guaranty, endorsement (otherwise than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the
obligation of another, (b) the obligation to make take-or-pay or similar
payments if required regardless of non-performance by any other party or
parties to an agreement, and (c) any liability of such Person for the
obligation of another through any agreement (contingent or otherwise) (X)
to purchase, repurchase or otherwise acquire such obligation or any
security therefor, or to provide funds for the payment or discharge of
such obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise) or (Y) to maintain the solvency or any
balance sheet item, level of income or financial condition of another if,
in the case of any agreement described under subclauses (X) or (Y) of this
sentence, the primary purpose or intent thereof is as described in the
preceding sentence. The amount of any Contingent Obligation shall be equal
to the amount of the obligation so guaranteed or otherwise supported or,
if less, the amount to which such Contingent Obligation is specifically
limited.
"Continuing Director" shall mean, as of any date of determination,
any member of the Board of Directors of the Parent who (i) was a member of
such Board of Directors on the Closing Date or (ii) was nominated for
election or elected to such Board of Directors with the affirmative vote
(directly or indirectly) of Alchemy.
"Contractual Obligation" means, as applied to any Person, any
provision of any indenture, mortgage, deed of trust, contract, undertaking
or other agreement or instrument to which such Person is a party or to
which such Person or any of its assets is subject.
"CSFB" means Credit Suisse First Boston.
"Debt Tender Offer" means, collectively, (i) the offer by the
Company to repurchase up to and including 100% of the outstanding Existing
Senior Notes and the consent solicitation by the Company from the holders
of outstanding Existing Senior Notes of consents to certain amendments to
the Existing Senior Note Indenture, and (ii) the offer by the Company to
repurchase up to and including 100% of the outstanding Existing Senior
Subordinated Notes and the consent solicitation by the Company from the
holders of outstanding Existing Senior Subordinated Notes of consents to
certain amendments to the Existing Senior Subordinated Note Indenture, in
each case as described in the Debt Tender Offer Materials.
"Debt Tender Offer Materials" means, collectively, the respective
Offer to Purchase and Consent Solicitation Statements dated September 1,
1998 made by the Company in respect of the Existing Senior Notes and
Existing Senior Subordinated Notes, as any of the same may thereafter have
been or may be amended, restated, supplemented or otherwise modified from
time to time (i) on or prior to the Closing Date pursuant to documentation
in form and substance reasonably satisfactory to the Administrative Agent
and the Requisite Lenders or (ii) thereafter to the extent permitted under
subsection 7.13A.
"Default" means a condition or event that, after notice or after any
applicable grace period has lapsed, or both, would constitute an Event of
Default.
"Defaulting Lender" means any Lender with respect to which a Lender
Default is in
11
<PAGE>
effect.
"Deposit Account" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate
of deposit.
"Dollars" and the sign "$" mean the lawful money of the United
States of America.
"Domestic Subsidiary" means any Subsidiary of the Company
incorporated, formed or organized under the laws of any jurisdiction
within the United States of America or any territory thereof.
"Eligible Assignee" means (A) (i) a commercial bank organized under
the laws of the United States or any state thereof; (ii) a commercial bank
organized under the laws of any other country or a political subdivision
thereof; provided that (x) such bank is acting through a branch or agency
located in the United States or (y) such bank is organized under the laws
of a country that is a member of the Organization for Economic Cooperation
and Development or a political subdivision of such country; and (iii) any
other financial institution or entity which is an "accredited investor"
(as defined in Regulation D under the Securities Act) which extends credit
or buys loans as one of its businesses including, but not limited to,
insurance companies, mutual funds and lease financing companies, in each
case (under clauses (i) through (iii) above) that is reasonably acceptable
to the Administrative Agent; (B) any Lender and any Affiliate of any
Lender; provided that neither the Company nor any Affiliate of the Company
shall be an Eligible Assignee and (C) an Approved Fund.
"Employee Benefit Plan" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is subject to ERISA and which is maintained
or contributed to by the Company or any of its ERISA Affiliates.
"ENR" means Envirotest Systems Corp., a Delaware corporation,
including, from and after the Closing Date, after giving effect to the ENR
Merger.
"ENR Group" means ENR and its direct and indirect Subsidiaries.
"ENR Merger" means the merger of Stone Rivet into ENR pursuant to
the ENR Merger Agreement.
"ENR Merger Agreement" means the Agreement and Plan of Merger dated
as of August 12, 1998 among ESP, Stone Rivet, and ENR, as such agreement
may thereafter have been or may be amended, restated, supplemented or
otherwise modified from time to time (i) on or prior to the Closing Date
pursuant to documentation in form and substance reasonably satisfactory to
the Administrative Agent and the Requisite Lenders or (ii) thereafter to
the extent permitted under subsection 7.13A.
"ENR Transfer" means the purchase, following the ENR Merger, by the
Company of all of the outstanding Capital Stock of ENR from ESP for a
purchase price (which may be paid in the form of a note) in an amount, and
pursuant to documentation, satisfactory to the Administrative Agent
(including, without limitation, provisions of any such note relating to
subordination,
12
<PAGE>
payments of principal and interest and the exercise of remedies).
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging potential
liability (including, without limitation, potential liability for
investigatory costs, Cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties)
arising out of, based on or resulting from (a) the presence, or Release of
any Hazardous Materials at any location, whether or not owned, leased or
operated by the Company or any of its Subsidiaries, or (b) circumstances
forming the basis of any violation, or alleged violation, of any
Environmental Law.
"Environmental Laws" means all federal, state, local and foreign
laws and regulations relating to pollution or protection of human health
or the environment, including, without limitation, laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, Release, disposal, transport or handling of Hazardous Materials,
laws and regulations with regard to recordkeeping, notification,
disclosure and reporting requirements respecting Hazardous Materials and
laws relating to the management or use of natural resources.
"Environmental Liabilities" means all liabilities, obligations,
responsibilities, obligations to conduct Cleanup, and all Environmental
Claims pending or threatened against any Loan Party or its Subsidiaries or
against any Person whose liability for any Environmental Claim any Loan
Party or its Subsidiaries may have retained or assumed either
contractually or by operation of law, arising from (a) environmental,
health or safety conditions, (b) the presence, Release or threatened
Release of Hazardous Materials at any location, whether or not owned,
leased or operated by the Company or its Subsidiaries, or (c)
circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.
"Equity Contribution" means an additional equity contribution on or
prior to the Closing Date by all or any of the Existing Investors of
$80,000,000 in cash to Newmall.
"Equity Proceeds" means the cash proceeds (net of underwriting
discounts and commissions and other reasonable costs associated therewith)
from the issuance of any Capital Stock or other equity Securities of, or
the making of any capital contribution to, the Parent, the Company or any
of its Subsidiaries after the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
"ERISA Affiliate" means, as applied to any Person, (i) any
corporation which is a member of a controlled group of corporations within
the meaning of Section 414(b) of the Internal Revenue Code of which that
Person is a member; (ii) any trade or business (whether or not
incorporated) which is a member of a group of trades or businesses under
common control within the meaning of Section 414(c) of the Internal
Revenue Code of which that Person is a member; and (iii) solely for
purposes of obligations under Section 412 of the Internal Revenue Code or
under the applicable sections set forth in Section 414(t)(2) of the
Internal Revenue Code, any member of an affiliated service group within
the meaning of Section 414(m) or (o) of the Internal Revenue Code of which
that Person, any corporation described in clause (i) above or any trade or
business described in clause (ii) above is a member.
13
<PAGE>
"ERISA Event" means (i) a "reportable event" within the meaning of
Section 4043(c) of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for
30-day notice to the PBGC has been waived by regulation or with respect to
which no penalty will be assessed by the PBGC for failure to satisfy such
notice requirements); (ii) the failure to meet the minimum funding
standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of
the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code
with respect to any Pension Plan or the failure to make any required
contribution to a Multiemployer Plan; (iii) the provision by the
administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA
of a notice of intent to terminate such plan in a distress termination
described in Section 4041(c) of ERISA; (iv) the withdrawal by the Company
or any of its ERISA Affiliates from any Pension Plan with two or more
contributing sponsors or the termination of any such Pension Plan
resulting, in either case, in liability pursuant to Section 4063 or 4064
of ERISA, respectively; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan pursuant to Section 4042 of ERISA; (vi) the
imposition of liability on the Company or any of its ERISA Affiliates
pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA; (vii) the withdrawal by the
Company or any of its ERISA Affiliates in a complete or partial withdrawal
(within the meaning of Sections 4203 and 4205 of ERISA) from any
Multiemployer Plan resulting in withdrawal liability pursuant to Section
4201 of ERISA, or the receipt by the Company or any of its ERISA
Affiliates of written notice from any Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or
that it intends to terminate or has terminated under Section 4042 of ERISA
or under Section 4041A of ERISA if such termination would result in
liability to the Company or any of its ERISA Affiliates; (viii) the
imposition on the Company or any of its ERISA Affiliates of fines,
penalties or taxes under Chapter 43 of the Internal Revenue Code or under
Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any
Employee Benefit Plan; (ix) the disqualification by the Internal Revenue
Service of any Pension Plan (or any other Employee Benefit Plan intended
to be qualified under Section 401(a) of the Internal Revenue Code) under
Section 401(a) of the Internal Revenue Code, or the determination by the
Internal Revenue Service that any trust forming part of any Pension Plan
fails to qualify for exemption from taxation under Section 501(a) of the
Internal Revenue Code; or (x) the imposition of a Lien pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA
with respect to any Pension Plan.
"ESP" means Environmental Systems Products, Inc., a Delaware
corporation.
"ESP Group" means ESP and its direct and indirect Subsidiaries.
"Eurocurrency Reserve Requirements" means, for each Interest Period
for each Eurodollar Rate Loan, the highest reserve percentage applicable
to any Lender during such Interest Period under regulations issued from
time to time by the Board of Governors of the Federal Reserve System or
any successor for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement), with respect to liabilities or assets consisting of or
including Eurocurrency liabilities having a term equal to such Interest
Period.
"Eurodollar Base Rate" means the rate per annum determined by the
Administrative
14
<PAGE>
Agent at approximately 11:00 A.M. (London time) on the date which is two
(2) Business Days prior to the beginning of the relevant Interest Period
(as specified in the applicable Notice of Borrowing) by reference to the
British Bankers' Association Interest Settlement Rates for deposits in
Dollars (as set forth by any service selected by the Administrative Agent
which has been nominated by the British Bankers' Association as an
authorized information vendor for the purpose of displaying such rates)
for a period equal to such Interest Period; provided that, to the extent
that an interest rate is not ascertainable pursuant to the foregoing
provisions of this definition, the "Eurodollar Base Rate" shall be the
interest rate per annum determined by the Administrative Agent to be the
average of the rates per annum at which deposits in Dollars are offered
for such relevant Interest Period to major banks in the London interbank
market in London, England by the Reference Lenders at approximately 11:00
A.M. (London time) on the date which is two Business Days prior to the
beginning of such Interest Period. If any of the Reference Lenders shall
be unable or shall otherwise fail to supply such rates to the
Administrative Agent upon its request, the rate of interest shall be
determined on the basis of the quotations of the remaining Reference
Lender.
"Eurodollar Rate Loans" means Loans bearing interest at rates
determined by reference to the Reserve Adjusted Eurodollar Rate as
provided in subsection 2.2A.
"Event of Default" means each of the events set forth in Section 8.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Excluded Foreign Subsidiary" means any Foreign Subsidiary created
after the Closing Date that (i) is not a Foreign Subsidiary Guarantor,
(ii) is, during all times that it is an Excluded Foreign Subsidiary, an
Unrestricted Subsidiary under and as defined in each of the Senior
Discount Note Indenture and the Senior Subordinated Note Indenture, and
(iii) intends to, and promptly thereafter incurs, Indebtedness pursuant to
subsection 7.1(ix); provided, that as soon as such Indebtedness incurred
by such Foreign Subsidiary is no longer outstanding, such Foreign
Subsidiary shall cease to be considered, and shall not thereafter become,
an Excluded Foreign Subsidiary; and, provided further, that, solely for
purposes of calculating Consolidated Excess Cash Flow for any period, no
such Foreign Subsidiary shall be considered an Excluded Foreign Subsidiary
notwithstanding anything to the contrary herein unless, as of the end of
the period for which Consolidated Excess Cash Flow is being calculated,
such Indebtedness prohibits such Foreign Subsidiary from declaring or
paying dividends or similar distributions and such prohibitions are
customary for Indebtedness of a similar nature as such Indebtedness.
"Excluded Lease Asset " has the meaning assigned to that term in
subsection 6.12C.
"Existing Debt" means all Indebtedness (other than Indebtedness
hereunder and Indebtedness identified in Schedule 7.1 annexed hereto) of
the Company and its Subsidiaries (including, for such purpose, ENR and its
Subsidiaries) outstanding at any time on the Closing Date, including,
without limitation, Indebtedness under the Existing ENR Debt Agreements
and the Existing ESP Debt Agreements.
"Existing ENR Debt Agreements" means (i) that certain Credit
Agreement dated as of December 30, 1992, by and between ENR and U.S. Bank,
as amended to, and in effect on, the Closing Date, (ii) the Existing
Senior Notes and the Existing Senior Subordinated Notes, (iii) that
15
<PAGE>
certain Loan Agreement, Mortgage, Security Agreement and Financing
Statement dated as of June 1, 1996 between ENR and the Indiana Development
Finance Authority, and the notes issued pursuant thereto, and (iv) that
certain Trust Indenture and Security Agreement and that certain Mortgage
and Security Agreement, each dated as of December 1, 1995 between
Envirotest Wisconsin, Inc. and Firstar Bank Milwaukee, N.A.
"Existing ESP Debt Agreements" means that certain Credit Agreement
dated as of April 28, 1998 by and among ESP, various banks, Bank of
America National Trust and Savings Association, as Administrative Agent,
and BancAmerica Robertson Stephens, as Arranger, as in effect on the
Closing Date.
"Existing Indentures Amendments" means the amendments, modifications
and supplements to each of the Existing Senior Note Indenture and the
Existing Senior Subordinated Note Indenture described in the Debt Tender
Offer Materials.
"Existing Investors" means, collectively, Alchemy and the Other
Investors.
"Existing Senior Note Indenture" means that certain Indenture dated
as of March 15, 1994 between ENR, as issuer, the guarantors named therein
and First Trust National Association, as Indenture Trustee, pursuant to
which the Existing Senior Notes were issued by ENR, as such Indenture has
been amended prior to the Closing Date and as such Indenture may have been
further amended, supplemented or otherwise modified from time to time to
the extent contemplated by the Debt Tender Offer Materials or otherwise
permitted under subsection 7.13A.
"Existing Senior Notes" means ENR's $200,000,000 in original
aggregate principal amount of 9-1/8% Senior Notes due 2001, issued
pursuant to the Existing Senior Note Indenture.
"Existing Senior Subordinated Note Indenture" means that certain
Indenture dated as of April 1, 1993 between ENR, as issuer, the guarantors
named therein and First Trust National Association, as Indenture Trustee,
pursuant to which the Existing Senior Subordinated Notes were issued by
ENR, as such Indenture has been amended prior to the Closing Date and as
such Indenture may have been further amended, supplemented or otherwise
modified from time to time to the extent to the extent contemplated by the
Debt Tender Offer Materials or otherwise permitted under subsection 7.13A.
"Existing Senior Subordinated Notes" means ENR's $125,000,000 in
original aggregate principal amount of 9-5/8% Senior Subordinated Notes
due 2003, issued pursuant to the Existing Senior Subordinated Note
Indenture.
"Facilities" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon)
now, hereafter or heretofore owned, leased, operated or used by the
Company or any of its Subsidiaries (but only as to portions thereof
actually owned, leased, operated or used) or any of their respective
predecessors or any of their respective Affiliates that are directly or
indirectly controlled by the Company.
"Federal Funds Effective Rate" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
16
<PAGE>
published for such day (or, if such day is not a Business Day, for the
next preceding Business Day) by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by
the Administrative Agent from three Federal funds brokers of recognized
standing selected by the Administrative Agent.
"Financial Services Affiliate" means ESP Financial Services LLC, a
Delaware limited liability company.
"Financial Services Program" means the financing by the Financial
Services Affiliate of the purchase or use by customers of ESP of
automotive emission test and analysis equipment and systems manufactured
by ESP.
"First Adjustment Date" means, the later of (a) the date on which
the financial statements for the Fiscal Quarter ending March 31, 1999 are
delivered as required pursuant to subsection 6.1(ii) and (b) the date
which is six months after the Closing Date.
"First Priority" means, with respect to any Lien purported to be
created in any Collateral pursuant to any Collateral Document, that such
Lien is the most senior Lien (other than Permitted Encumbrances and other
Liens permitted pursuant to subsection 7.2A to the extent not perfected by
filing of any UCC financing statements) to which such Collateral is
subject.
"Fiscal Quarter" means a fiscal quarter of a Fiscal Year.
"Fiscal Year" means the fiscal year of the Company and its
Subsidiaries ending on December 31 of each calendar year.
"Flood Hazard Property" means a Mortgaged Property located in an
area designated by the Federal Emergency Management Agency as having
special flood or mud slide hazards.
"Foreign Subsidiary" means any Subsidiary of the Company that is not
a Domestic Subsidiary.
"Foreign Subsidiary Guarantors" means any of Newmall, Wellman UK and
any other Person that becomes a Foreign Subsidiary (other than an Excluded
Foreign Subsidiary) after the Closing Date and becomes a party to a
Guaranty pursuant to subsection 6.9.
"Foreign Subsidiary Guaranty" means a guaranty of the Obligations
governed by such foreign laws as may be reasonably selected by the
Administrative Agent, and otherwise in form and substance satisfactory to
the Administrative Agent, executed and delivered by Newmall and Wellman UK
as of the Closing Date or by any additional Foreign Subsidiary Guarantor
from time to time thereafter pursuant to subsection 6.9, as such guaranty
may heretofore have been or hereafter may be amended, restated,
supplemented or otherwise modified from time to time.
"Foreign Subsidiary Pledge Agreement" means a pledge agreement
governed by such foreign laws as may be reasonably selected by the
Administrative Agent, and otherwise in form and substance satisfactory to
the Administrative Agent and the Collateral Agent, executed and delivered
by Newmall and Wellman UK as of the Closing Date or by any additional
Foreign Subsidiary Guarantor from time to time thereafter pursuant to
subsection 6.9, as such pledge
17
<PAGE>
agreement may heretofore have been or hereafter may be amended, restated,
supplemented or otherwise modified from time to time.
"Funding and Payment Office" means the office of the Administrative
Agent located at 11 Madison Avenue, New York, NY 11010 (or such office of
the Administrative Agent or any successor Administrative Agent specified
by the Administrative Agent or such successor Administrative Agent in a
written notice to the Loan Parties and the Lenders).
"Funding Date" means the date of the funding of a Loan, which, in
the case of the Term Loans and the Initial Revolving Loans, shall be the
Closing Date.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set
forth in opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a significant
segment of the accounting profession, in each case as the same are
applicable to the circumstances as of the date of determination and
specifically, terms used herein applicable to the Company and its
Subsidiaries defined by reference to GAAP shall give effect to the
subtraction of minority interests.
"Governmental Acts " has the meaning assigned to that term in
subsection 3.5A.
"Governmental Authority" means any nation or government, any state
or any political subdivision of any of the foregoing and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Governmental Authorization" means any permit, license,
authorization, plan, directive, consent order or consent decree of or from
any Governmental Authority.
"Group" means any or all of the Company Group, the ESP Group or the
ENR Group, as the context may require.
"Guaranty" means, individually, the Subsidiary and Parent Guaranty,
the Foreign Subsidiary Guaranty or any other guaranty of the Obligations,
and "Guaranties" means, collectively, the Subsidiary and Parent Guaranty,
the Foreign Subsidiary Guaranty and each other guaranty of the
Obligations.
"Guarantor" means, individually, the Parent, the Subsidiary
Guarantors, or any other guarantor of the Obligations, and "Guarantors"
means, collectively, the Parent, the Subsidiary Guarantors and each other
guarantor of the Obligations.
"Hazardous Materials" means all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and
Hazardous Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5,
or defined as such by, or regulated as such under, any Environmental Law.
"Hedge Agreements" means all interest rate swaps, caps or collar
agreements or similar arrangements entered into by the Company or any of
its Subsidiaries providing for protection
18
<PAGE>
against fluctuations in interest rates or currency exchange rates or the
exchange of nominal interest obligations, either generally or under
specific contingencies.
"Holding Companies" means each of Newmall, Wellman UK and Wellman
U.S. and their respective successors.
"Improvements" means all buildings, structures, fixtures, tenant
improvements, and other improvements of any kind and description now or
hereafter located in or on or attached to any land that is a Real Property
Asset, including all building materials, water sanitary and storm sewers,
drainage, electricity, steam, gas, telephone and other utility,
facilities, parking areas, roads, driveways, walks and other site
improvements; and all additions and betterments thereto and all renewals,
substitutions and replacements thereof.
"Indebtedness" means, as applied to any Person, (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to
Capital Leases that is properly classified as a liability on a balance
sheet in conformity with GAAP, (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations
for borrowed money (other than current accounts payable incurred in the
ordinary course of business and accrued expenses incurred in the ordinary
course of business), (iv) any obligation owed for all or any part of the
deferred purchase price of property or services (excluding any such
obligations incurred under ERISA and current trade payables incurred in
the ordinary course of business), (v) all obligations evidenced by notes,
bonds (other than performance bonds), debentures or other similar
instruments, (vi) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to any
property or assets acquired by such Person (even though the rights and
remedies of the seller or the lender under such agreement in the event of
default are limited to repossession or sale of such property or assets),
(vii) all obligations, contingent or otherwise, as an account party under
any Letter of Credit or under acceptance, letter of credit or similar
facilities to the extent not reflected as trade liabilities on the balance
sheet of such Person in accordance with GAAP, (viii) all obligations,
contingent or otherwise, to purchase, redeem, retire or otherwise acquire
for value any Capital Stock, (ix) all obligations under Interest Rate
Agreements and other Hedge Agreements, including, as of any date of
determination, the net amounts, if any, that would be required to be paid
by such Person if such Hedge Agreements were terminated on such date, (x)
all Contingent Obligations in respect of obligations of the kind referred
to in clauses (i) through (ix) above or in respect of the payment of
dividends on the Capital Stock of any other Person, and (xi) all
indebtedness secured by any Lien on any property or asset owned or held by
that Person regardless of whether the indebtedness secured thereby shall
have been assumed by that Person or is nonrecourse to the credit of that
Person.
"Indemnitee" has the meaning assigned to that term in subsection
10.3.
"Information Memorandum" means the Confidential Information
Memorandum dated September 1998, as supplemented by the memorandum dated
September 30, 1998, that was used in connection with the syndication of
the credit facilities set forth herein.
"Initial Period" means the period commencing on and including the
Closing Date and ending on the earlier of (i) the date on which the
Arrangers notify the Company that they have concluded their primary
syndication of the Loans and the Commitments, and (ii) ninety (90) days
after the Closing Date.
19
<PAGE>
"Initial Revolving Loans" means the Revolving Loans to be made by
the Lenders to the Company on the Closing Date, in an amount not to exceed
$15,000,000, to be used for the purposes described in subsection 2.5A.
"Insurance Proceeds" has the meaning assigned to that term in
subsection 2.4B(iii)(d).
"Intellectual Property" has the meaning assigned to that term in
subsection 5.5C.
"Interest Coverage Ratio" has the meaning assigned to that term in
subsection 7.6.
"Interest Payment Date" means (i) with respect to any Base Rate
Loan, the last Business Day in each of March, June, September and December
of each year, commencing on December 31, 1998, and (ii) with respect to
any Eurodollar Rate Loan, the last day of each Interest Period applicable
to such Loan; provided that in the case of each Interest Period of longer
than three months, "Interest Payment Date" shall also include the date
that is three months after the commencement of such Interest Period.
"Interest Period" has the meaning assigned to that term in
subsection 2.2B.
"Interest Rate Agreement" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other
similar agreement or arrangement designed to hedge the Company or any of
its Subsidiaries against fluctuations in interest rates.
"Interest Rate Determination Date" means each date for calculating
the Reserve Adjusted Eurodollar Rate, for purposes of determining the
interest rate in respect of an Interest Period. The Interest Rate
Determination Date for purposes of calculating the Reserve Adjusted
Eurodollar Rate shall be the second Business Day prior to the first day of
the related Interest Period.
"Interim EBITDA Adjustment Amount" means, as to any particular
Fiscal Quarter, but only to the extent any of the Cost Savings Measures
(as defined below) have not been taken prior to the beginning of such
Fiscal Quarter, an amount, not to exceed $2,350,000, equal to the amount
by which the costs and expenses of the Company and its Subsidiaries (other
than the Excluded Foreign Subsidiaries) for such Fiscal Quarter are
greater than they would have been had such Cost Savings Measures been
taken prior to the beginning of such Fiscal Quarter. As used herein, "Cost
Savings Measures" means the expense and cost reduction initiatives
intended to be taken by the Company following the consummation of the
Transactions and contemplated by footnote 4 of the pro forma financial
statements of the Company and its Subsidiaries for the Fiscal Year 1997
that were delivered to the Lenders pursuant to subsection 5.3A(i)(b).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter and any
successor statute.
"Investment" means (i) any direct or indirect purchase or other
acquisition by the Company or any of its Subsidiaries of, or of a
beneficial interest in, stock or other Securities of any other Person, or
(ii) any direct or indirect loan, advance (other than advances to
employees for moving, entertainment and travel expenses, drawing accounts
and similar expenditures in the
20
<PAGE>
ordinary course of business) or capital contribution by the Company or any
of its Subsidiaries to any other Person, including all indebtedness and
accounts receivable acquired from that other Person that are not current
assets or did not arise from sales to that other Person in the ordinary
course of business; provided, however, that the term "Investment" shall
not include (a) current trade and customer accounts receivable for goods
furnished or services rendered in the ordinary course of business and
payable in accordance with customary trade terms, (b) advances and
prepayments to suppliers for goods and services in the ordinary course of
business, (c) stock or other securities acquired in connection with the
satisfaction or enforcement of Indebtedness or claims due or owing to the
Company or any of its Subsidiaries or as security for any such
Indebtedness or claims, (d) Cash held in Deposit Accounts with banks,
trust companies and the Lenders and (e) shares in a mutual fund that
invests solely in Cash Equivalents. The amount of any Investment shall be
the original cost of such Investment plus the cost of all additions
thereto, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment.
Without limitation of the foregoing, "Investments" shall include the
incurring by any Person of Contingent Obligations in respect of the
obligations of any other Person.
"IP Collateral" has the meaning assigned to the term "Intellectual
Property Collateral" in the Security Agreement.
"Issuing Bank" means, with respect to any Letter of Credit, CSFB, in
its capacity as issuer of Letters of Credit, and, any other Lender that is
a New York based commercial bank, reasonably acceptable to the Company and
the Administrative Agent, having a Letter of Credit Subfacility
Commitment.
"Landlord Consent and Estoppel" means, with respect to any Leasehold
Property, a letter, certificate or other instrument in writing from the
lessor under the related lease, in form and substance acceptable to the
Collateral Agent in its reasonable discretion.
"Leasehold Property" means any leasehold interest of any Loan Party
as lessee under any lease of real property, other than any such leasehold
interest designated from time to time by the Collateral Agent in its sole
discretion as not being required to be included in the Collateral.
"Lender" and "Lenders" means the Persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their
successors and permitted assigns pursuant to subsection 10.1, and the term
"Lenders" shall include the Swing Line Lender unless the context otherwise
requires; provided that the term "Lenders", when used in the context of a
particular Commitment, shall mean the Lenders having that Commitment.
"Lender Default" means (i) the refusal (which has not been
retracted) of a Lender to make available its portion of any Loans
(including any Revolving Loans made to pay Refunded Swing Line Loans or to
reimburse drawings under Letters of Credit) in accordance with subsection
2.1A or its portion of any unreimbursed drawing or payment under a Letter
of Credit in accordance with subsection 3.3C or (ii) a Lender having
notified the Company and/or the Administrative Agent in writing that it
does not intend to comply with its obligations under subsection 2.1 or
subsections 3.1C, 3.3B or 3.3C, as a result of any takeover of such Lender
by any regulatory authority or agency.
21
<PAGE>
"Lending Office" means, as to any Lender, the office or offices of
such Lender specified as the "Lending Office" on Schedule 2.1, or such
other office or offices as such Lender may from time to time notify the
Company and the Administrative Agent.
"Letter of Credit" or "Letters of Credit" means Commercial Letters
of Credit and Standby Letters of Credit issued or to be issued by the
Issuing Bank for the account of the Company or any Subsidiary Guarantor
that is a Domestic Subsidiary pursuant to subsection 3.1.
"Letter of Credit Issuing Office" means, as to any Issuing Bank, the
address from time to time specified by such Issuing Bank to the Company
and the Administrative Agent as its letter of credit issuing office. The
initial "Letter of Credit Issuing Office" for CSFB shall be 5 World Trade
Center, 8th Floor, New York, New York, 10048.
"Letter of Credit Subfacility Commitment" means, with respect to any
Issuing Bank at any time, the commitment of such Issuing Bank to issue
Letters of Credit pursuant to subsection 3.1A; provided, that the
aggregate amount the Letter Credit Subfacility Commitments shall in no
event exceed $30,000,000; provided, further, that any reduction in the
Revolving Loan Commitments to a level that is below the then aggregate
amount of the Letter of Credit Subfacility Commitments shall result in the
pro rata reduction of the aggregate Letter of Credit Subfacility
Commitments pro rata to each Issuing Bank.
"Letter of Credit Usage" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter
may become available for drawing under all Letters of Credit then
outstanding plus (ii) the aggregate amount of all drawings under Letters
of Credit honored by the Issuing Bank and not theretofore reimbursed by
the Company (including any such reimbursement out of the proceeds of
Revolving Loans pursuant to subsection 3.3B).
"Leverage Ratio" has the meaning assigned to that term in subsection
7.6.
"Lien" means any lien, mortgage, pledge, assignment, security
interest, fixed or floating charge or encumbrance of any kind (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest) and any
option, trust or deposit or other preferential arrangement having the
practical effect of any of the foregoing.
"Loan" or "Loans" means, as the context requires, one or more of the
Term Loans, Revolving Loans, Swing Line Loans or any combination thereof.
"Loan Documents" means this Agreement, the Notes, the Letters of
Credit (and any applications for, or reimbursement agreements or other
documents or certificates executed by the Company in favor of the Issuing
Bank relating to, the Letters of Credit), the Guaranties and the
Collateral Documents.
"Loan Parties" means the Parent, the Company and each Subsidiary
Guarantor.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
22
<PAGE>
"Material Adverse Effect" means (i) a material adverse effect upon
the business, operations, properties, assets, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a
whole (or ENR and its Subsidiaries, taken as a whole, prior to the
consummation of the Transactions), (ii) the material impairment of the
ability of any Loan Party to perform the Obligations, (iii) a material
adverse effect upon the legality, validity, binding effect or
enforceability against a Loan Party of a Loan Document to which it is a
party, or (iv) a material adverse effect upon the rights, remedies and
benefits, taken as a whole, available to, or conferred upon, the Agents
and the Lenders under any Loan Document.
"Material Contracts" means any or all of the following, as the
context may require: (i) any Security issued by the Company or any of its
Subsidiaries, (ii) any material indenture, mortgage, deed of trust,
contract, undertaking, agreement or other instrument to which the Company
or any of its Subsidiaries is a party or by which it or any of its
properties is bound or to which it or any of its properties is subject,
(iii) each State Contract, and (iv) any other document, agreement or
instrument that is material to the operation or business of the Company
and its Subsidiaries, taken as a whole.
"Merger" means the merger contemplated by Article II of the ENR
Merger Agreement.
"Merger Certificate" means the Certificate of Merger dated as of the
Closing Date by and between ENR and ESP.
"Minimum Shares" means 90% of all of the issued and outstanding
shares of the Class A Common Stock, par value $0.01 per share ("Class A
Common Stock"), of ENR, assuming the conversion of all issued and
outstanding shares of Class B Common Stock, par value $0.01 per share, of
ENR and Class C Common Stock, par value $0.01 per share, of ENR into Class
A Common Stock; provided, that all shares of Class A Common Stock that are
issuable upon conversion (and assuming conversion) of all of the then
issued and outstanding shares of such Class B Common Stock and Class C
Common Stock shall have been tendered and not withdrawn prior to the
expiration of the Shares Offer to Purchase.
"Mortgage" means (i) a security instrument (whether designated as a
deed of trust or a mortgage or by any similar title) executed and
delivered by any Loan Party, substantially in the form of Exhibit XV
annexed hereto (in the case of any security instrument in respect of
Leasehold Property, with such changes as shall be appropriate to reflect a
security interest in Leasehold Property) or in such other form as may be
approved by the Collateral Agent in its sole discretion, in each case with
such changes thereto as may be recommended by the Collateral Agent's local
counsel based on local laws or customary local mortgage or deed of trust
practices, or (ii) at the Collateral Agent's option, in the case of an
Additional Mortgaged Property, an amendment to an existing Mortgage, in
form satisfactory to the Collateral Agent, adding such Additional
Mortgaged Property to the assets encumbered by such existing Mortgage, in
either case as such security instrument or amendment may heretofore have
been or hereafter may be amended, supplemented or otherwise modified from
time to time. "Mortgages" means all such instruments, including the
Closing Date Mortgages and any Additional Mortgages, collectively.
"Mortgaged Property" means a Closing Date Mortgaged Property or an
Additional Mortgaged Property.
23
<PAGE>
"Multiemployer Plan" means a "multiemployer plan", as defined in
Section 4001(a)(3) of ERISA which is subject to Title IV of ERISA, to
which the Company or any of its ERISA Affiliates is contributing or to
which the Company or any of its ERISA Affiliates has an obligation to
contribute.
"Net Cash Proceeds" means, with respect to any Asset Sale, Cash
Proceeds of such Asset Sale net of bona fide direct costs of sale
including, without limitation, (i) income taxes reasonably estimated to be
actually payable as a result of such Asset Sale within two years of the
date of receipt of such Cash Proceeds, (ii) transfer, sales, use and other
taxes payable in connection with such Asset Sale, (iii) payment of the
outstanding principal amount of, premium or penalty, if any, and interest
on any Indebtedness (other than the Loans) that is secured by a Lien on
the stock or assets in question and that is required to be repaid under
the terms thereof as a result of such Asset Sale, and (iv) financial
advisor's commissions and reasonable fees and expenses of counsel and
other advisors in connection with such Asset Sale.
"Newmall" means Newmall Ltd., (registered number 3461909) a private
limited company incorporated in England and Wales.
"Newmall ESP Intercompany Indebtedness" means the Indebtedness in an
outstanding principal amount of approximately $116,000,000 immediately
prior to the Closing Date owing by Newmall to ESP.
"Newmall Stock Contribution" means the contribution by the Existing
Investors of all of the Capital Stock of Newmall to the Company in
exchange for all of the Capital Stock of the Company, such that, after
giving effect thereto, the Company shall be directly owned by the Existing
Investors and Newmall shall be a direct Subsidiary of the Company.
"Newmall Stock Contribution Agreement" means an agreement, as in
effect on the Closing Date, entered into among the Existing Investors and
Newmall in respect of the Newmall Stock Contribution Agreement, that is in
form and substance reasonably satisfactory to the Administrative Agent, as
the same may thereafter be amended, restated, supplemented or otherwise
modified from time to time to the extent permitted under subsection 7.13A.
"Non-Defaulting Lender" means and includes each Lender other than a
Defaulting Lender.
"Non-US Lender" has the meaning assigned to that term in subsection
2.7B(iii).
"Notes" means one or more of the Term Notes, Revolving Notes, Swing
Line Notes or any combination thereof.
"Notice of Borrowing" means a notice in the form of Exhibit I
annexed hereto delivered by the Company to the Administrative Agent
pursuant to subsection 2.1B with respect to a proposed borrowing.
"Notice of Conversion/Continuation" means a notice substantially in
the form of Exhibit II annexed hereto delivered by the Company to the
Administrative Agent pursuant to subsection 2.2D with respect to a
proposed conversion or continuation of the applicable basis for
determining
24
<PAGE>
the interest rate with respect to the Loans specified therein.
"Notice of Issuance of Letter of Credit" means a notice in the form
of Exhibit III annexed hereto delivered by the Company to the
Administrative Agent pursuant to subsection 3.1B(i) with respect to the
proposed issuance of a Letter of Credit.
"Obligations" means all obligations of every nature of each Loan
Party from time to time owed to the Agents, the Lenders or any of them or
their respective Affiliates under the Loan Documents, whether for
principal, interest, reimbursement of amounts drawn under Letters of
Credit or payments for early termination of Interest Rate Agreements,
fees, expenses, indemnification or otherwise.
"Officer's Certificate" means, with respect to any Person, a
certificate executed on behalf of such Person (x) if such Person is a
partnership or limited liability company, by its chairman of the Board (if
an officer) or chief executive officer or by the chief financial officer
of its general partner or managing member or other Person authorized to do
so by its Organizational Documents, (y) if such Person is a corporation,
on behalf of such corporation by its chairman of the board (if an officer)
or chief executive officer or its chief financial officer or vice
president, and (z) if such person is the Company or a Subsidiary of the
Company, a Responsible Officer; provided that every Officer's Certificate
with respect to the compliance with a condition precedent to the making of
any Loans hereunder shall include (i) a statement that the officer or
officers making or giving such Officer's Certificate have read such
condition and any definitions or other provisions contained in this
Agreement relating thereto, (ii) a statement that, in the opinion of the
signer or signers, they have made or have caused to be made such
examination or investigation as is necessary to enable them to express an
informed opinion as to whether or not such condition has been complied
with, and (iii) a statement as to whether, in the opinion of the signer or
signers, such condition has been complied with.
"Ohio Debt" means all Indebtedness and other obligations of the
Company under (i) the Loan Agreement dated as of April 1, 1995 between
Ohio Air Quality Development Authority and the Company and all notes
issued pursuant thereto, and (ii) the Master Lease Agreement dated as of
April 1, 1995 between Keating Ohio Development Company, Inc. and the
Company, together with the Indenture and Bonds (as such terms are defined
in such Loan Agreement), in each case as the same may be amended,
supplemented or otherwise modified from time to time after the date hereof
in accordance with subsection 7.13.
"Operating Lease" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the
lessee at any time) of any property (whether real, personal or mixed) that
is not a Capital Lease other than any such lease under which that Person
is the lessor.
"Organizational Authorizations" means, with respect to any Person,
resolutions of its Board of Directors, general partners or members of such
Person, and such other Persons, groups or committees (including, without
limitation, managers and managing committees), if any, required by the
Organizational Certificate or Organization Documents of such Person to
authorize or approve the taking of any action or the entering into of any
transaction.
"Organizational Certificate" means, with respect to any Person, the
certificate or articles
25
<PAGE>
of incorporation, partnership or limited liability company or any other
similar or equivalent organizational, charter or constitutional
certificate or document filed with the applicable Governmental Authority
in the jurisdiction of its incorporation, organization or formation,
which, if such Person is a partnership or limited liability company, shall
include such certificates, articles or other certificates or documents in
respect of each partner or member of such Person.
"Organizational Documents" means, with respect to any Person, the
by-laws, partnership agreement, limited liability company agreement,
operating agreement, management agreement or other similar or equivalent
organizational, charter or constitutional agreement or arrangement, which,
if such Person is a partnership or limited liability company, shall
include such by-laws, agreements or arrangements in respect of each
partner or member of such Person.
"Other Investors" means such Persons other than Alchemy as shall
hold Capital Stock of (i) Newmall immediately prior to giving effect to
the Newmall Stock Contribution, and (ii) the Parent immediately after
giving effect to the Newmall Stock Contribution.
"Parent" has the meaning assigned to that term in the Preamble to
this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA (or any successor thereto).
"Pension Plan" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Title IV of ERISA.
"Permitted Acquisitions" means (i) the acquisition by the Company of
100% of the issued and outstanding Capital Stock of Transervice, on terms
and conditions (including, without limitation, all applicable
documentation) reasonably satisfactory to the Administrative Agent,
provided, that (a) the Company shall be in Pro Forma Compliance after
giving effect to such acquisition, (b) no Default or Event of Default
shall have occurred and be continuing or result therefrom, (c) the
aggregate purchase price shall not exceed $18,000,000 (of which no more
than $13,500,000 shall be paid in cash and the remainder of which shall be
paid in the form of promissory note having no principal payments prior to
the third Anniversary), (d) no Indebtedness shall be assumed by the
Parent, the Company or any of its Subsidiaries in connection therewith and
the Indebtedness of Transervice, if not paid in full, shall not be
recourse to the Parent, the Company, any other Subsidiary of the Company
or any of their respective assets, and (e) Transervice shall have become a
Subsidiary Guarantor to the extent required by subsection 6.9 and the
provisions of subsection 6.9 shall have been complied with to the
satisfaction of the Administrative Agent and the Collateral Agent; and
(ii) any acquisition of 100% of the issued and outstanding Capital Stock
of any other Person organized under the laws of any State of the United
States of America whose direct and indirect revenues are generated
primarily from businesses operated in the United States of America, on
terms and conditions (including, without limitation, all applicable
documentation) satisfactory to the Administrative Agent, provided, that
(a) the Company shall be in Pro Forma Compliance after giving effect to
such acquisition, assuming for such purpose that the maximum Leverage
Ratios set forth in subsection 7.6C were each lower by 0.35x, (b) no
Default or Event of Default shall have occurred and be continuing or
result therefrom, (c) the aggregate purchase price of all such
acquisitions shall not exceed $30,000,000 in any calendar year and
$50,000,000 in the aggregate since the Closing Date, which purchase prices
shall be deemed to include the amount of any Indebtedness assumed by the
Company or any
26
<PAGE>
of its Subsidiaries in connection therewith, and (d) such Person shall
have become a Subsidiary Guarantor and the provisions of subsection 6.9
shall have been complied with to the satisfaction of the Administrative
Agent and the Collateral Agent.
"Permitted Encumbrances" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by
subsection 6.3;
(ii) statutory Liens of landlords, statutory Liens of
carriers, warehousemen, mechanics and materialmen and other Liens
imposed by law (other than any such Lien imposed pursuant to Section
401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA)
incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith pursuant to appropriate
proceedings, if such reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, trade contracts,
performance and return-of-money bonds and other similar obligations
(exclusive, in each case, of obligations for the payment of borrowed
money or other Indebtedness);
(iv) any attachment or judgment Lien not constituting an Event
of Default under subsection 8.8, so long as such Lien could not
reasonably be expected to have a Material Adverse Effect;
(v) leases or subleases granted to others (in the ordinary
course of business consistent with past practices) not interfering
in any material respect with the ordinary conduct of the business or
operations of the Company or any of its Subsidiaries;
(vi) easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the
ordinary conduct of the business of the Company or any of its
Subsidiaries and encumbrances other than Liens which are prohibited
hereunder set forth on the title reports delivered to the
Administrative Agent on or before the Closing Date pursuant to
subsection 4.1G;
(vii) any (a) interest or title of a lessor or sublessor under
any Capital Lease permitted by subsection 7.1(iv) or any operating
lease not prohibited by this Agreement, (b) restriction or
encumbrance that the interest or title of such lessor or sublessor
may be subject to, or (c) subordination of the interest of the
lessee or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (b);
(viii) Liens arising from filing UCC financing statements
relating solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising
as a matter of
27
<PAGE>
law to secure payment of customs duties in connection with the
importation of goods;
(x) deposits in the ordinary course of business to secure
liabilities to insurance carriers, lessors, utilities and other
service providers; and
(xi) bankers liens and rights of setoff with respect to
customary depository arrangements entered into in the ordinary
course of business.
"Permitted Testing Center Assets" means vehicles emission test site
equipment and the related test site or sites located in the United States
of America (or, solely with respect to Excluded Foreign Subsidiaries, in
any foreign jurisdiction) used or to be used by the Company or any of its
Subsidiaries in connection with a centralized emission testing program
pursuant to a State Contract.
"Permitted Testing Center Asset Sales" means sales of (i) Permitted
Testing Center Assets used under any State Contract in connection with any
change in emissions testing standards pursuant to the requirements of such
State Contract, but only so long as the Net Cash Proceeds of such sale are
used within two hundred seventy (270) days of the acquisition thereof to
acquire Permitted Testing Center Assets to be used under such State
Contract, or (ii) Permitted Testing Center Assets used in connection with
any State Contract that has been or is being terminated or cancelled
pursuant to the terms thereof or modified in a manner which makes such
equipment no longer useful or required in connection with such State
Contract, in any such case but only so long as the Net Cash Proceeds of
such sale are reinvested within two hundred seventy (270) days of the
receipt thereof (and three hundred sixty (360) days of the modification,
termination or cancellation of such State Contract) in Permitted Testing
Center Assets required by a different State Contract.
"Permitted Testing Center Proceeds" means the Net Cash Proceeds of
Permitted Testing Center Asset Sales.
"Person" means and includes natural persons, corporations, limited
partnerships, limited liability companies, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other organizations,
whether or not legal entities, and governments and agencies and political
subdivisions thereof and any other entities of whatever nature.
"Pledge Agreement" means that certain Pledge Agreement entered into
by and among the Company, the Parent, the Subsidiary Guarantors and the
Collateral Agent as of the Closing Date, or pursuant to subsection 6.9,
substantially in the form of Exhibit VII annexed hereto as such Pledge
Agreement may heretofore have been or hereafter may be amended, restated,
supplemented or otherwise modified from time to time.
"Prime Rate" means the rate of interest per annum publicly announced
from time to time by CSFB as its prime commercial lending rate in effect
at its principal office in New York City. The Prime Rate is a reference
rate and does not necessarily represent the lowest or best rate actually
charged to any customer. CSFB or any other Lender may make commercial
loans or other loans at rates of interest at, above or below the Prime
Rate.
"Pro Forma Basis" means, with respect to compliance with any test or
covenant
28
<PAGE>
hereunder, compliance with such covenant or test after giving effect to
any proposed acquisition or other action which requires compliance on a
pro forma basis (including pro forma adjustments arising out of events
which are directly attributable to a specific transaction, are factually
supportable and are expected to have a continuing impact, in each case
determined on a basis consistent with Article 11 of Regulation S-X of the
Securities Act, which (to the extent consistent therewith) may include
cost savings resulting from head count reductions, closure of facilities
and similar restructuring charges, which pro forma adjustments shall be
certified by the chief financial officer of the Company), using, for
purposes of determining such compliance, the historical financial
statements of all entities or assets so acquired or to be acquired and the
consolidated financial statements of the Company and its Subsidiaries
(other than Excluded Foreign Subsidiaries) which shall be reformulated as
if such acquisition or other action, and any acquisitions which have been
consummated during the period, and any Indebtedness or other liabilities
incurred in connection with any such acquisition had been consummated at
the beginning of such period and assuming that such Indebtedness bears
interest during any portion of the applicable measurement period prior to
the relevant acquisition at the weighted average of the interest rates
applicable to outstanding Loans during such period, and otherwise in
conformity with such procedures as may be agreed upon between the
Administrative Agent and the Company.
"Pro Forma Compliance" means, at any date of determination, the
Company shall be in pro forma compliance with the covenants set forth in
subsections 7.6A, B and C as of the last day of the most recent Fiscal
Quarter end (computed on the basis of (i) balance sheet amounts as of the
most recently completed Fiscal Quarter, and (ii) income statement amounts
for the most recently completed period of four consecutive Fiscal
Quarters, in each case, for which financial statements shall have been
delivered to the Lenders and calculated on a Pro Forma Basis in respect of
the event giving rise to such determination and each event described in
subsection 7.F occurring during or after the end of such four consecutive
Fiscal Quarters period), and the Company shall have demonstrated such
compliance to the reasonable satisfaction of the Administrative Agent.
"Pro Rata Share" means (i) with respect to all payments,
computations and other matters relating to the Term A Loan Commitment or
the Term A Loans of any Lender, the percentage obtained by dividing (x)
the Term A Loan Exposure of that Lender by (y) the aggregate Term A Loan
Exposure of all the Lenders; (ii) with respect to all payments,
computations and other matters relating to the Term B Loan Commitment or
the Term B Loans of any Lender, the percentage obtained by dividing (x)
the Term B Loan Exposure of that Lender by (y) the aggregate Term B Loan
Exposure of all the Lenders; (iii) with respect to all payments,
computations and other matters relating to the Revolving Loan Commitment
or the Revolving Loans of any Lender or any Letters of Credit issued by
any Lender or any participations purchased by any Lender therein or in any
Swing Line Loans, the percentage obtained by dividing (x) the Revolving
Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure
of all the Lenders; and (iv) for all other purposes with respect to each
Lender, the percentage obtained by dividing (x) the sum of the Term Loan
Exposure of that Lender and the Revolving Loan Exposure of that Lender by
(y) the sum of the aggregate Term Loan Exposure of all the Lenders and the
aggregate Revolving Loan Exposure of all the Lenders; in any such case as
the applicable percentage may be adjusted by assignments permitted
pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for
purposes of each of clauses (i), (ii) and (iii) of the preceding sentence
is set forth opposite the name of that Lender in Schedule 2.1 annexed
hereto.
"Projections" has the meaning assigned to that term in subsection
5.3B.
29
<PAGE>
"PTO" means the United States Patent and Trademark Office.
"Public Offering" means any public offering of any Capital Stock of
the Parent (whether a "primary" offering by the Parent or a "secondary"
offering by an existing shareholder of the Parent) pursuant to an
effective registration statement under the Securities Act (other than
pursuant to a registration statement on Form S-8 or otherwise relating to
equity securities issuable exclusively under any Employee Benefit Plan).
"Real Property Asset" means, at any time of determination, any
interest (fee, leasehold or otherwise) then owned by any Loan Party in any
real property.
"Recorded Leasehold Interest" means a Leasehold Property with
respect to which a Record Document (as hereinafter defined) has been
recorded in all places necessary or desirable, in the Collateral Agent's
reasonable judgment, to give constructive notice of such Leasehold
Property to third-party purchasers and encumbrancers of the affected real
property. For purposes of this definition, the term "Record Document"
means, with respect to any Leasehold Property, (a) the lease evidencing
such Leasehold Property or a memorandum thereof, executed and acknowledged
by the owner of the affected real property, as lessor, or (b) if such
Leasehold Property was acquired or subleased from the holder of a Recorded
Leasehold Interest, the applicable assignment or sublease document,
executed and acknowledged by such holder, in each case in form sufficient
to give such constructive notice upon recordation and otherwise in form
reasonably satisfactory to the Collateral Agent.
"Recovery Event" has the meaning assigned to that term in subsection
2.4B(iii)(d).
"Reference Lenders" means (i) CSFB and (ii) another Lender
determined by the Administrative Agent with the consent of the Company.
"Refunded Swing Line Loans" has the meaning assigned to that term in
subsection 2.1A(iv).
"Register" has the meaning assigned to that term in subsection 2.1D.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reimbursement Date" has the meaning assigned to that term in
subsection 3.3B.
"Reinvestment Assets" means, in the case of any Reinvestment Event,
any assets (other than Indebtedness or Capital Stock of any Person) which
are either (i) in replacement of the assets subject to the Reinvestment
Event, or (ii) long term assets useful in the business of the Related
Subsidiary Group of the Person whose assets were subject to the
Reinvestment Event.
"Reinvestment Deferred Amount" means, with respect to any
Reinvestment Event, the aggregate Net Cash Proceeds (including, without
limitation, Permitted Testing Center Proceeds), Insurance Proceeds or
Condemnation Proceeds, as the case may be, received by the Company or any
of its Subsidiaries in connection therewith which are not applied to
prepay the Loans (and/or reduce the Revolving Loan Commitments) in
accordance with subsection 2.4B(iii)(a) or (d) as a
30
<PAGE>
result of the delivery of a Reinvestment Notice.
"Reinvestment Event" means any Asset Sale or Recovery Event in
respect of which the Company has delivered a Reinvestment Notice.
"Reinvestment Notice" means a written notice executed by a
Responsible Officer stating that no Default or Event of Default has
occurred and is continuing and that the Company (directly or indirectly
through a member of the Related Subsidiary Group of the seller) intends
and expects to use all or a specified portion of the Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds, as the case may be, of an
Asset Sale or Recovery Event to acquire Reinvestment Assets within two
hundred seventy (270) days of the receipt of such Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds, as the case may be.
"Reinvestment Prepayment Amount" means, with respect to any
Reinvestment Event, the Reinvestment Deferred Amount, if any, relating
thereto less any amount expended prior to the relevant Reinvestment
Prepayment Date to acquire Reinvestment Assets.
"Reinvestment Prepayment Date" means, with respect to any
Reinvestment Event, the earlier of (a) the date occurring two hundred
seventy (270) days after such Reinvestment Event and (b) the date on which
the Company shall have determined not to, or shall have otherwise ceased
to, acquire Reinvestment Assets with all or any portion of the relevant
Reinvestment Deferred Amount.
"Related Subsidiary Group" means (i) with respect to the Company,
any wholly-owned Domestic Subsidiary which is a Subsidiary Guarantor, (ii)
with respect to any Domestic Subsidiary, the Company or any other Domestic
Subsidiary which is a Subsidiary Guarantor, (iii) with respect to any
Excluded Foreign Subsidiary, any other Excluded Foreign Subsidiary, (iv)
with respect to any Foreign Subsidiary Guarantor, the Company, any
Domestic Subsidiary which is a Subsidiary Guarantor or any other Foreign
Subsidiary Guarantor, (v) with respect to any Foreign Subsidiary which is
not an Excluded Foreign Subsidiary or a Foreign Subsidiary Guarantor, the
Company, any Domestic Subsidiary or any other Foreign Subsidiary which is
not an Excluded Foreign Subsidiary, and (vi) with respect to any SPC, no
other Person; provided, that, notwithstanding anything to the contrary,
with respect to any wholly-owned Subsidiary of the Company, any Subsidiary
which is a member of such wholly-owned Subsidiary's Related Subsidiary
Group shall also be a wholly-owned Subsidiary of the Company.
"Release" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including, without limitation, the abandonment or
disposal of any barrels, containers or other closed receptacles containing
any Hazardous Materials), or into or out of any property, including the
movement of any Hazardous Material through the air, soil, surface water,
groundwater or property.
"Requisite Class Lenders" means, at any time of determination (i)
for the Class of the Lenders having Term A Loan Exposure, Non-Defaulting
Lenders having or holding more than 50% of the aggregate Term A Loan
Exposure of all Non-Defaulting Lenders, (ii) for the Class of Lenders
having Term B Loan Exposure, Non-Defaulting Lenders having or holding more
than 50% of the aggregate Term B Loan Exposure of all Non-Defaulting
Lenders, and (iii) for the
31
<PAGE>
Class of Lenders having Revolving Loan Exposure, Non-Defaulting Lenders
having or holding more than 50% of the aggregate Revolving Loan Exposure
of all Non-Defaulting Lenders; provided, however, that until such time as
a successful syndication of the Commitments has been completed such that
no Lender, together with its Affiliates, has more than 40% of the sum of
the aggregate Term Loan Exposure of all Non-Defaulting Lenders and the
aggregate Revolving Loan Exposure of all Non-Defaulting Lenders,
"Requisite Class Lenders" shall mean (i) for the Class of Lenders having
Term A Loan Exposure, at least two (or one, if there is only one
Non-Defaulting Lender with Term A Loan Exposure) Non-Defaulting Lenders
having or holding at least two-thirds of the sum of the aggregate Term A
Loan Exposure of all Non-Defaulting Lenders; (ii) for the Class of Lenders
having Term B Loan Exposure, at least two (or one, if there is only one
Non-Defaulting Lender with Term B Loan Exposure) Non-Defaulting Lenders
having or holding at least two-thirds of the sum of the aggregate Term B
Loan Exposure of all Non-Defaulting Lenders; and (iii) for the Class of
Lenders having Revolving Loan Exposure, at least two (or one, if there is
only one Non-Defaulting Lender with Revolving Loan Exposure)
Non-Defaulting Lenders having or holding at least two-thirds of the sum of
the aggregate Revolving Loan Exposure of all Non-Defaulting Lenders.
"Requisite Lenders" means Non-Defaulting Lenders having or holding
more than 50% of the sum of the aggregate Term Loan Exposure of all
Non-Defaulting Lenders and the aggregate Revolving Loan Exposure of all
Non-Defaulting Lenders; provided, however, that until such time as a
successful syndication of the Commitments has been completed such that no
Lender, together with its Affiliates, has more than 40% of the sum of the
aggregate Term Loan Exposure of all Non-Defaulting Lenders and the
aggregate Revolving Loan Exposure of all Non-Defaulting Lenders, the
"Requisite Lenders" shall mean at least two (or one, if there is only one
Non-Defaulting Lender) Non-Defaulting Lenders having or holding at least
two-thirds of the sum of the aggregate Term Loan Exposure of all
Non-Defaulting Lenders and the aggregate Revolving Loan Exposure of all
Non-Defaulting Lenders.
"Reserve Adjusted Eurodollar Rate" means, with respect to each day
during each Interest Period pertaining to a Eurodollar Rate Loan, a rate
per annum determined for such day in accordance with the following
formula:
Eurodollar Base Rate
---------------------------
1.00 - Eurocurrency Reserve Requirements
"Responsible Officer" means the chief executive officer, president,
executive vice president, general counsel or chief financial officer of
the Company, but in any event, with respect to financial matters, the
chief financial officer or treasurer of the Company.
"Restricted Payment" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock (or of
any other Capital Stock) of the Parent, the Company or any of their
respective Subsidiaries now or hereafter outstanding, except a dividend
payable solely in shares of that class of stock to the holders of that
class, (ii) any redemption, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares
of any class of stock (or of any other Capital Stock) of the Parent, the
Company or
32
<PAGE>
any of their respective Subsidiaries now or hereafter outstanding, (iii)
any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of stock
(or of any other Capital Stock) of the Parent, the Company or any of their
respective Subsidiaries now or hereafter outstanding, (iv) any payment or
prepayment of principal of, premium, if any, or interest on, or
redemption, purchase, retirement, defeasance (including in substance or
legal defeasance), sinking fund or similar payment with respect to, any
Subordinated Indebtedness or Senior Discount Notes, and (v) any voluntary
prepayment of any Ohio Debt.
"Revolving Loan Commitment" means the commitment of a Lender to make
Revolving Loans to the Company pursuant to subsection 2.1A(iii) and
"Revolving Loan Commitments" means such commitments of all Lenders in the
aggregate.
"Revolving Loan Commitment Termination Date" means, if the initial
Loans are made on or before October 16, 1998, March 31, 2004; otherwise,
the "Revolving Loan Commitment Termination Date" means October 16, 1998.
"Revolving Loan Exposure" means, with respect to any Lender as of
any date of determination (i) prior to the termination of the Revolving
Loan Commitments, that Lender's Revolving Loan Commitment and (ii) after
the termination of the Revolving Loan Commitments, the sum of (a) the
aggregate outstanding principal amount of the Revolving Loans of that
Lender plus (b) in the event that Lender is an Issuing Bank, the aggregate
Letter of Credit Usage in respect of all Letters of Credit issued by that
Lender (net of any participations purchased by other Lenders in such
Letters of Credit) plus (c) the aggregate amount of all participations
purchased by that Lender in any outstanding Letters of Credit or any
unreimbursed drawings under any Letters of Credit plus (d) the aggregate
amount of all participations purchased by that Lender in any outstanding
Swing Line Loans plus (e) in the case of Swing Line Lender, the sum of the
aggregate outstanding principal amount of all Swing Line Loans (in each
case net of any participations therein purchased by other Lenders).
"Revolving Loans" means the Loans made by the Lenders to the Company
pursuant to subsection 2.1A(iii).
"Revolving Notes" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E(iii) on the Closing Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Revolving Loan
Commitment and Revolving Loans of any Lender, in each case substantially
in the form of Exhibit V-A annexed hereto, as they may be amended,
restated, supplemented or otherwise modified from time to time.
"Securities" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds,
debentures, notes, or other evidences of indebtedness, secured or
unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of
interest, shares or participations in temporary or interim certificates
for the purchase or acquisition of, or any right to subscribe to, purchase
or acquire, any of the foregoing.
"Security Agreement" means the Security Agreement entered into by
and among the Company, the Subsidiary Guarantors and the Collateral Agent
on and as of the Closing Date, or pursuant to subsection 6.9,
substantially in the form of Exhibit VIII annexed hereto, as such
33
<PAGE>
Security Agreement may heretofore have been or hereafter may be amended,
restated, supplemented or otherwise modified from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"Senior Discount Note Indenture" means the Indenture dated as of a
date occurring on or about the Closing Date among the Parent, as Issuer,
and United States Trust Company of Texas, N.A., as the Trustee, as such
Indenture may thereafter have been or may be amended, restated,
supplemented or otherwise modified from time to time (i) on or prior to
the Closing Date pursuant to documentation in form and substance
reasonably satisfactory to the Administrative Agent and the Requisite
Lenders or (ii) thereafter to the extent permitted under subsection 7.13.
"Senior Discount Note Related Documents" means any or all of, as the
context may require, (i) the Senior Discount Notes, (ii) the Senior
Discount Note Indenture, (iii) the Placement Agreement dated October 15,
1998 among the Parent, the Company and Credit Suisse First Boston
Corporation, and (iv) the Subscription Agreement dated as of October 15,
1998 among the Parent and the Persons party thereto as purchasers, as any
of the foregoing may thereafter have been or may be amended, restated,
supplemented or otherwise modified from time to time (a) on or prior to
the Closing Date pursuant to documentation in form and substance
reasonably satisfactory to the Administrative Agent and the Requisite
Lenders or (b) thereafter to the extent permitted under subsection 7.13.
"Senior Discount Notes" means the 15% Senior Discount Notes due 2009
issued by the Parent pursuant to the Senior Discount Note Indenture.
"Senior Subordinated Note Indenture" means the Indenture dated as of
a date occurring on or about the Closing Date among the Company, as
Issuer, the Subsidiaries of the Company named therein as Guarantors, and
United States Trust Company of Texas, N.A., as the Trustee, as such
Indenture may thereafter have been or may be amended, restated,
supplemented or otherwise modified from time to time (i) on or prior to
the Closing Date pursuant to documentation in form and substance
reasonably satisfactory to the Administrative Agent and the Requisite
Lenders or (ii) thereafter to the extent permitted under subsection 7.13.
"Senior Subordinated Note Related Documents" means any or all of, as
the context may require, (i) the Senior Subordinated Notes, (ii) the
Senior Subordinated Note Indenture, (iii) the Placement Agreement dated
October 15, 1998 among the Parent, the Company, the Subordinated Note
Guarantors (as defined below) and Credit Suisse First Boston Corporation,
(iv) the Subscription Agreement dated as of October 15, 1998 among the
Parent, the Company, the Subsidiaries of the Company named therein as
Guarantors (as used in this definition, the "Subordinated Note
Guarantors"), and the Persons party thereto as Purchasers (as used in this
definition, the "Purchasers"), and (v) the Registration Rights Agreement
dated as of a date occurring on or about the Closing Date among the
Parent, the Company and the Purchasers, as any of the foregoing may
thereafter have been or may be amended, restated, supplemented or
otherwise modified from time to time (a) on or prior to the Closing Date
pursuant to documentation in form and substance reasonably satisfactory to
the Administrative Agent and the Requisite Lenders or (b) thereafter to
the extent permitted under subsection 7.13.
34
<PAGE>
"Senior Subordinated Notes" means the $100,000,000 aggregate
original principal amount of 13% Senior Subordinated Notes due 2008 issued
by the Company pursuant to the Senior Subordinated Note Indenture.
"Shares" means all of issued and outstanding shares of the Class A
Common Stock, par value $0.01 per share, of ENR.
"Shares Acquisition" means the acquisition by Stone Rivet of the
Shares (or portion thereof, which, in no event, shall be less than the
Minimum Shares) as contemplated by the ENR Merger Agreement and the Shares
Offer to Purchase.
"Shares Offer to Purchase" means the Offer to Purchase dated August
19, 1998 in respect of an offer by Stone Rivet to purchase the Shares for
a cash payment of $17.25 per share, as such Offer to Purchase may
thereafter have been or may be amended, restated, supplemented or
otherwise modified from time to time (i) on or prior to the Closing Date
pursuant to documentation in form and substance reasonably satisfactory to
the Administrative Agent and the Requisite Lenders or (ii) thereafter to
the extent permitted under subsection 7.13A.
"Shares Tender Offer" means the recommended cash tender offer by
Stone Rivet to acquire the Shares pursuant to the Shares Offer to
Purchase.
"Solvent" means, with respect to any Person, that as of the date of
determination both (i) (a) the then fair saleable value of the property of
such Person is (y) greater than the total amount of liabilities (including
contingent liabilities but excluding amounts payable under intercompany
promissory notes) of such Person and (z) not less than the amount that
will be required to pay the probable liabilities on such Person's then
existing debts as they become absolute and matured considering all
financing alternatives and potential asset sales reasonably available to
such Person; (b) such Person's capital is not unreasonably small in
relation to its business or any contemplated or undertaken transaction;
and (c) such Person does not intend to incur, or believe (nor should it
reasonably believe) that it will incur, debts beyond its ability to pay
such debts as they become due; and (ii) such Person is "solvent" within
the meaning given that term and similar terms under applicable laws
relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be
computed as the amount that, in light of all of the facts and
circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SPC" means any special purpose Domestic Subsidiary of the Company
(i) created for the purpose of incurring, directly or indirectly,
Indebtedness permitted under subsection 7.1(iv), (ii) whose Indebtedness
and other obligations are without recourse to any of the Loan Parties, any
of the Company's other Subsidiaries or any of their respective assets, and
(iii) that does not and shall not at any time, (a) engage in any business
or activity other than operating, owning and/or financing the acquisition
or build-out of Permitted Testing Center Assets and any activities
incidental thereto or (b) become liable for any other Indebtedness.
"Standby Letter of Credit" means any standby letter of credit or
similar instrument, in form and substance acceptable to the Issuing Bank,
issued for the purpose of supporting obligations of the Company and its
Subsidiaries (other than Excluded Foreign Subsidiaries and SPCs) incurred
or arising in the ordinary course of business; provided that Standby
Letters of Credit may not be
35
<PAGE>
issued for the purpose of supporting (a) trade payables or (b) any
Indebtedness other than (i) the Ohio Debt in a stated amount under such
Standby Letters of Credit not to exceed the minimum amount required by the
terms of the Ohio Debt as of the date hereof, and (ii) other Indebtedness
permitted hereunder in a stated amount under such Standby Letters of
Credit not to exceed $10,000,000 in the aggregate incurred for the purpose
of financing for Permitted Testing Center Assets in connection with the
award of a State Contract.
"State Contract" means any contract, undertaking, agreement or other
arrangement with any Governmental Authority pursuant to which the Company
or any of its Subsidiaries provides or will provide centralized or other
vehicle emissions testing services.
"Stockholders Agreement" means that certain Investors Agreement to
be entered into on or prior to the Closing Date by and among the Parent
and certain shareholders of the Parent, which Investors Agreement shall be
in form and substance reasonably satisfactory to Agents, as such Investors
Agreement may heretofore have been or hereafter may be amended, restated,
supplemented or otherwise modified from time to time in accordance with
the provisions of subsection 7.13A.
"Stone Rivet" means Stone Rivet, Inc., a Delaware corporation.
"Subordinated Indebtedness" means the Indebtedness under the Senior
Subordinated Note Related Documents.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association, joint venture or other business entity of which
more than 50% of the total voting power of shares of stock or other
ownership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the
management and policies thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof.
"Subsidiary Guarantor" means any Subsidiary of the Company that is a
party to the Subsidiary and Parent Guaranty or any other Guaranty on the
Closing Date (which shall be each Domestic Subsidiary existing as of the
Closing Date, Newmall and Wellman UK) or at any time after the Closing
Date pursuant to subsection 6.9.
"Subsidiary and Parent Guaranty" means the Subsidiary and Parent
Guaranty, substantially in the form of Exhibit VI annexed hereto, executed
and delivered by the Parent and the Subsidiary Guarantors (other than the
Foreign Subsidiary Guarantors) as of the Closing Date or by any additional
Subsidiary Guarantor from time to time thereafter pursuant to subsection
6.9, as such Subsidiary and Parent Guaranty may heretofore have been or
hereafter may be amended, restated, supplemented or otherwise modified
from time to time.
"Swing Line Lender" means CSFB, or any Person serving as a successor
Administrative Agent hereunder, in its capacity as Swing Line Lender
hereunder.
"Swing Line Loan Commitment" means the commitment of Swing Line
Lender to make
36
<PAGE>
Swing Line Loans to Company pursuant to subsection 2.1A(iv).
"Swing Line Loans" means the Loans made by Swing Line Lender
pursuant to subsection 2.1A(iv).
"Swing Line Note" means (i) the promissory note of Company issued
pursuant to subsection 2.1E(iv) on the Closing Date and (ii) any
promissory note issued by Company to any successor Swing Line Lender
pursuant to the last sentence of subsection 9.5B, in each case
substantially in the form of Exhibit V-B annexed hereto, as it may be
amended, restated, supplemented or otherwise modified from time to time.
"Syndication Agent" has the meaning assigned to that term in the
Preamble to this Agreement.
"Tax" or "Taxes" means any present or future tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature and whatever
called, by whomsoever, on whomsoever and wherever imposed, levied,
collected, withheld or assessed; provided that "Tax on the overall net
income" of a Person shall be construed as a reference to a tax imposed by
the jurisdiction in which that Person's principal office (and/or, in the
case of a Lender, its relevant Lending Office) is located or in which that
Person is deemed to be doing business on all or part of the net income,
profits or gains of that Person (whether worldwide, or only insofar as
such income, profits or gains are considered to arise in or to relate to a
particular jurisdiction, or otherwise).
"Term A Loan Commitment" means the commitment of a Lender to make a
Term A Loan to the Company pursuant to subsection 2.1A(i), and "Term A
Loan Commitments" means such commitments of all Lenders in the aggregate.
"Term A Loan Exposure" means, with respect to any Lender, as of any
date of determination (i) prior to the funding of the Term A Loans, that
Lender's Term A Loan Commitment and (ii) after the funding of the Term A
Loans, the outstanding principal amount of the Term A Loan of that Lender.
"Term A Loans" means the Loans made by the Lenders pursuant to
subsection 2.1A(i).
"Term A Notes" means (i) the promissory notes of the Company issued
pursuant to subsection 2.1E(i) on the Closing Date and (ii) any promissory
notes issued by the Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Term A Loans of any Lender,
in each case substantially in the form of Exhibit IV-A annexed hereto, as
they may be amended, restated, supplemented or otherwise modified from
time to time.
"Term B Loan Commitment" means the commitment of a Lender to make a
Term B Loan to the Company pursuant to subsection 2.1A(ii), and "Term B
Loan Commitments" means such commitments of all Lenders in the aggregate.
"Term B Loan Exposure" means, with respect to any Lender, as of any
date of determination (i) prior to the funding of the Term B Loans, that
Lender's Term B Loan Commitment and (ii) after the funding of the Term B
Loans, the outstanding principal amount of the Term B Loan of that Lender.
37
<PAGE>
"Term B Loans" means the Loans made by the Lenders pursuant to
subsection 2.1A(ii).
"Term B Notes" means (i) the promissory notes of the Company issued
pursuant to subsection 2.1E(ii) on the Closing Date and (ii) any
promissory notes issued by the Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Term B Loans of
any Lender, in each case substantially in the form of Exhibit IV-B annexed
hereto, as they may be amended, restated, supplemented or otherwise
modified from time to time.
"Term Loan Commitment" means the Term A Loan Commitment or the Term
B Loan Commitment of a Lender, and "Term Loan Commitments" means such
commitments of all Lenders in the aggregate.
"Term Loan Exposure" means, with respect to any Lender as of any
date of determination, the aggregate Term A Loan Exposure and Term B Loan
Exposure of that Lender.
"Term Loans" means the Term A Loans and the Term B Loans.
"Term Notes" means the Term A Notes and the Term B Notes.
"Title Company" means, collectively, one or more title insurance
companies reasonably satisfactory to the Administrative Agent.
"Total Utilization of Revolving Loan Commitments" means, as at any
date of determination, the sum of (i) the aggregate principal amount of
all outstanding Revolving Loans (other than Revolving Loans made for the
purpose of repaying any Refunded Swing Line Loans or reimbursing the
applicable Issuing Bank for any amount drawn under any Letter of Credit
but not yet so applied) plus (ii) the aggregate principal amount of all
outstanding Swing Line Loans plus (iii) the Letter of Credit Usage.
"Transaction Costs" means the fees, costs and expenses payable by
the Company and its Subsidiaries in connection with the Transactions and
set forth in the schedule delivered by the Company pursuant to subsection
4.1I, including, without limitation, amounts payable to the Agents and the
Lenders and change of control payments required to be made pursuant to
employment agreements between ENR and persons that will not be employed by
the Company or any of its Subsidiaries after giving effect to the
Transactions.
"Transaction Documents" means, collectively, (i) any documentation
related to the Equity Contribution, (ii) any documentation related to any
repayment of Newmall ESP Intercompany Indebtedness or any Existing Debt,
(iii) the Newmall Stock Contribution Agreement and the Company
Contribution Agreement, (iv) the Senior Discount Note Related Documents
and the Senior Subordinated Note Related Documents, (v) the Shares Offer
to Purchase, (vi) the ENR Merger Agreement, (vii) the Merger Certificate,
(viii) any documentation related to the ENR Transfer, which documentation
may be executed and delivered after the Closing Date, (ix) the Debt Tender
Offer Materials, (x) the Existing Senior Note Indenture and Existing
Senior Subordinated Note Indenture, (xi) the Existing Indentures
Amendments, (xii) the Loan Documents, (xii) the Stockholders Agreement,
and (xiii) and any and all other documents, agreements, instruments and
arrangements related to or in connection with any of the foregoing or any
other
38
<PAGE>
Transaction.
"Transactions" means, collectively, (i) the Equity Contribution and
the repayment of the Newmall ESP Intercompany Indebtedness with the
proceeds thereof, (ii) the Newmall Stock Contribution and the Company
Stock Contribution, (iii) the issuance and sale of the Senior Discount
Notes by the Parent and the contribution of the gross proceeds thereof,
net of reasonable fees and expenses, by the Parent to the Company and the
issuance and sale of the Senior Subordinated Notes by the Company, (iv)
the Shares Tender Offer and the Shares Acquisition, (v) the Debt Tender
Offer, the purchase of all Existing Senior Notes and Existing Senior
Subordinated Notes tendered pursuant thereto and the effecting of the
Existing Indentures Amendments, (vi) the ENR Merger, (vii) the ENR
Transfer, which may be consummated after the Closing Date, (viii) loans
from the Company to ESP and Stone Rivet in amounts (and evidenced by
notes) reasonably satisfactory to the Administrative Agent for purposes of
funding, in whole or in part, (A) in the case of ESP, payment of its
Existing Debt and Transaction Costs and (B) in the case of Stone Rivet,
payments in respect of Existing Debt of ENR, the Shares Acquisition, the
ENR Merger and its and ENR's Transaction Costs, (ix) the repayment of all
Existing Debt (other than that purchased pursuant to the Debt Tender
Offer), (x) the making of the Loans, and (xi) any other transactions
contemplated by or entered into in connection with the Transaction
Documents.
"Unfunded Current Liability" means, with respect to any Pension
Plan, the amount, if any, by which the actuarial present value of the
accumulated plan benefits under such Pension Plan as of the close of its
most recent plan year exceeds the fair market value of the assets
allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by such Pension Plan's actuary in the most recent annual
valuation of such Pension Plan.
"Wellman UK" means Wellman Overseas Ltd., (Registered number
1581549) a private limited company incorporated in England and Wales.
"Wellman US" means Wellman North America Inc., a Delaware
corporation.
"Year 2000 Problems" means limitations in the capacity or readiness
to handle date information (including, without limitation, calculations
based on date information) for the Year 1999 or years beginning January 1,
2000 of any of the hardware, firmware or software systems ("Systems")
associated with information processing and delivery, operations or
services (e.g., security and alarms, elevators, communications, and HVAC),
including, without limitation, equipment containing embedded microchips,
operated by, provided to or otherwise reasonably necessary to the business
or operations of the Company and its Subsidiaries.
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under
Agreement.
Except as otherwise expressly provided in this Agreement, (a) all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP; and (b) financial statements and other
information required to be delivered by the Company to the Lenders pursuant to
clauses (i), (ii), (iii) and (xiii) of subsection 6.1 shall be prepared in
accordance with GAAP (except, with respect to interim financial statements,
normal year-end audit adjustments and the absence of explanatory footnotes) as
in effect at the time of such preparation (and delivered together with the
reconciliation statements provided for in subsection 6.1(v)). Calculations in
connection with the definitions, covenants
39
<PAGE>
and other provisions of this Agreement shall utilize accounting principles and
policies in conformity with those used to prepare the financial statements of
the Subsidiaries of the Company referred to in subsection 5.3A.
1.3 Other Definitional Provisions.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. The words "includes," "including" and similar forms used in any Loan
Document shall be construed as if followed by the words "without limitation."
SECTION 2.
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 Commitments; Loans.
A. Commitments. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of Loan Parties set forth
herein and in the other Loan Documents, each Lender hereby severally agrees to
make the Loans described in subsections 2.1A(i), 2.1A(ii) and 2.1A(iii) and the
Swing Line Lender hereby agrees to make the Swing Line Loans as described in
subsection 2.1A(iv).
(i) Term A Loans. Each Lender severally agrees to make Loans to the
Company on the Closing Date in an aggregate amount not exceeding its Pro
Rata Share of the aggregate amount of the Term A Loan Commitments to be
used for the purposes identified in subsection 2.5A. The amount of each
Lender's Term A Loan Commitment is set forth opposite its name on Schedule
2.1 annexed hereto and the aggregate amount of the Term Loan Commitments
is $175,000,000; provided that the Term A Loan Commitments of the Lenders
shall be adjusted to give effect to any assignments of the Term A Loan
Commitments pursuant to subsection 10.1B. Each Lender's Term Loan
Commitment shall expire immediately and without further action on October
16, 1998 if the Term A Loans are not made on or before that date. The
Company may make only one borrowing under the Term A Loan Commitments.
Amounts borrowed under this subsection 2.1A(i) and subsequently repaid or
prepaid may not be reborrowed.
(ii) Term B Loans. Each Lender severally agrees to make Loans to the
Company on the Closing Date in an aggregate amount not exceeding its Pro
Rata Share of the aggregate amount of the Term B Loan Commitments to be
used for the purposes identified in subsection 2.5A. The amount of each
Lender's Term B Loan Commitment is set forth opposite its name on Schedule
2.1 annexed hereto and the aggregate amount of the Term B Loan Commitments
is $210,000,000; provided that the Term B Loan Commitments of the Lenders
shall be adjusted to give effect to any assignments of the Term Loan
Commitments pursuant to subsection 10.1B. Each Lender's Term Loan
Commitment shall expire immediately and without further action on October
16, 1998 if the Term B Loans are not made on or before that date. The
Company may make only one borrowing under the Term B Loan Commitments.
Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid or
prepaid may not be reborrowed.
40
<PAGE>
(iii) Revolving Loans. Each Lender severally agrees, subject to the
limitations set forth below with respect to the maximum amount of
Revolving Loans permitted to be outstanding from time to time, to lend to
the Company from time to time during the period from the Closing Date to
but excluding the Revolving Loan Commitment Termination Date an aggregate
amount not exceeding its Pro Rata Share of the aggregate amount of the
Revolving Loan Commitments, to be used for the purposes identified in
subsection 2.5A or B, as applicable, including, without limitation, the
Initial Revolving Loans on the Closing Date. The original amount of each
Lender's Revolving Loan Commitment is set forth opposite its name on
Schedule 2.1 annexed hereto and the aggregate original amount of the
Revolving Loan Commitments is $50,000,000; provided that the Revolving
Loan Commitments of the Lenders shall be adjusted to give effect to any
assignments of the Revolving Loan Commitments pursuant to subsection
10.1B; provided further that the amount of the Revolving Loan Commitments
shall be reduced from time to time by the amount of any reductions thereto
made pursuant to subsections 2.4B. Each Lender's Revolving Loan Commitment
shall expire on the Revolving Loan Commitment Termination Date and all
Revolving Loans and all other amounts owed hereunder with respect to the
Revolving Loans and the Revolving Loan Commitments shall be paid in full
no later than that date. Amounts borrowed under this subsection 2.1A(iii)
may be repaid and reborrowed, subject to the limitations and conditions
set forth herein, to but excluding the Revolving Loan Commitment
Termination Date.
Notwithstanding anything contained herein to the contrary, in no
event shall the Total Utilization of Revolving Loan Commitments at any
time exceed the Revolving Loan Commitments then in effect.
(iv) Swing Line Loans. The Swing Line Lender hereby agrees, subject
to the limitations set forth below with respect to the maximum aggregate
amount of all Swing Line Loans outstanding from time to time, to make a
portion of the Revolving Loan Commitments available to the Company from
time to time during the period from the Closing Date to but excluding the
Revolving Loan Commitment Termination Date by making Base Rate Loans as
Swing Line Loans to the Company in an aggregate amount not to exceed the
amount of the Swing Line Loan Commitment, to be used for the purposes
identified in subsection 2.5B, notwithstanding the fact that such Swing
Line Loans, when aggregated with the sum of the Swing Line Lender's
outstanding Revolving Loans and the Swing Line Lender's Pro Rata Share of
the Letter of Credit Usage then in effect, may exceed the Swing Line
Lender's Revolving Loan Commitment. The original amount of the Swing Line
Loan Commitment is $5,000,000; provided that the amounts of the Swing Line
Loan Commitment are subject to reduction as provided in clause (b) of the
next paragraph. The Swing Line Loan Commitment shall expire on the
Revolving Loan Commitment Termination Date and all Swing Line Loans and
all other amounts owed hereunder with respect to the Swing Line Loans
shall be paid in full no later than that date. Amounts borrowed under this
subsection 2.1A(iv) may be repaid and reborrowed to but excluding the
Revolving Loan Commitment Termination Date.
Notwithstanding anything contained herein to the contrary, the Swing
Line Loans and the Swing Line Loan Commitment shall be subject to the
following limitations:
(a) in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then
in effect;
(b) any reduction of the Revolving Loan Commitments made
pursuant to subsection 2.4B which reduces the aggregate Revolving
Loan Commitments to an amount less than the then current amount of
the Swing Line Loan Commitment shall result in an
41
<PAGE>
automatic corresponding reduction of the Swing Line Loan Commitment
such that the amount thereof equals the amount of the Revolving Loan
Commitments, as so reduced, without any further action on the part
of the Company, the Administrative Agent or the Swing Line Lender;
and
(c) the Swing Line Lender shall have no obligation to make any
Swing Line Loans during any period when a Lender Default exists,
unless the Swing Line Lender has entered into arrangements
satisfactory to it and the Company to eliminate the Swing Line
Lender's risk with respect to the Defaulting Lender, including by
cash collateralizing such Defaulting Lender's Pro Rata Share of the
Revolving Loans that may be required to be made to refund the
applicable Swing Line Loan as contemplated by the immediately
following paragraph.
With respect to any Swing Line Loans which have not been voluntarily
prepaid by the Company pursuant to subsection 2.4B(i), the Swing Line
Lender may, at any time in its sole and absolute discretion, deliver to
the Administrative Agent (with a copy to the Company), no later than 11:00
a.m. (New York time) at least one (1) Business Day in advance of the
proposed Funding Date, a notice (which shall be deemed to be a Notice of
Borrowing given by the Company) requesting the Lenders to make Revolving
Loans that are Base Rate Loans to the Company on such Funding Date in an
amount equal to the amount of such Swing Line Loans (the "Refunded Swing
Line Loans") outstanding on the date such notice is given which the Swing
Line Lender requests the Lenders to prepay. Anything contained in this
Agreement to the contrary notwithstanding, (i) the proceeds of such
Revolving Loans made by the Lenders other than the Swing Line Lender shall
be immediately delivered by the Administrative Agent to the Swing Line
Lender (and not to the Company) and applied to repay a corresponding
portion of the Refunded Swing Line Loans and (ii) on the day such
Revolving Loans are made, the Swing Line Lender's Pro Rata Share of the
Refunded Swing Line Loans shall be deemed to be paid with the proceeds of
a Revolving Loan made by the Swing Line Lender to the Company, and such
portion of the Swing Line Loans deemed to be so paid shall no longer be
outstanding as Swing Line Loans and shall no longer be due under the Swing
Line Note of the Swing Line Lender but shall instead constitute part of
the Swing Line Lender's outstanding Revolving Loans to the Company and
shall be due under the Revolving Note issued by the Company to the Swing
Line Lender. The Company hereby authorizes the Administrative Agent and
the Swing Line Lender to charge the Company's accounts with the
Administrative Agent and the Swing Line Lender (up to the amount available
in each such account) in order to immediately pay the Swing Line Lender
the amount of the Refunded Swing Line Loans to the extent the proceeds of
such Revolving Loans made by the Lenders, including the Revolving Loan
deemed to be made by the Swing Line Lender, are not sufficient to repay in
full the Refunded Swing Line Loans. If any portion of any such amount paid
(or deemed to be paid) to the Swing Line Lender should be recovered by or
on behalf of the Company from the Swing Line Lender in bankruptcy, by
assignment for the benefit of creditors or otherwise, the loss of the
amount so recovered shall be ratably shared among all Lenders in the
manner contemplated by subsection 10.5.
If for any reason Revolving Loans are not made pursuant to this
subsection 2.1A(iv) in an amount sufficient to repay any amounts owed to
the Swing Line Lender in respect of any outstanding Swing Line Loans on or
before the third (3rd) Business Day after demand for payment thereof by
the Swing Line Lender, each Lender shall be deemed to, and hereby agrees
to, have purchased a participation in such outstanding Swing Line Loans,
and in an amount equal to its Pro
42
<PAGE>
Rata Share of the applicable unpaid amount together with accrued interest
thereon. Upon one (1) Business Day's notice from the Swing Line Lender,
each Lender shall deliver to the Swing Line Lender an amount equal to its
respective participation in the applicable unpaid amount in same day funds
at the office of the Swing Line Lender located at the Funding and Payment
Office. In order to evidence such participation each Lender agrees to
enter into a participation agreement at the request of the Swing Line
Lender in form and substance satisfactory to the Swing Line Lender. In the
event any Lender fails to make available to the Swing Line Lender the
amount of such Lender's participation as provided in this paragraph, the
Swing Line Lender shall be entitled to recover such amount on demand from
such Lender together with interest thereon at the rate customarily used by
the Swing Line Lender for the correction of errors among banks for three
(3) Business Days and thereafter at the Base Rate, as applicable.
Notwithstanding anything contained herein to the contrary, (i) each
Lender's obligation to make Revolving Loans for the purpose of repaying
any Refunded Swing Line Loans pursuant to the second preceding paragraph
and each Lender's obligation to purchase a participation in any unpaid
Swing Line Loans pursuant to the immediately preceding paragraph shall be
absolute and unconditional and shall not be affected by any circumstance,
including without limitation (a) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against the Swing Line
Lender, the Company or any other Person for any reason whatsoever; (b) the
occurrence or continuation of a Default or Event of Default; (c) any
adverse change in the business, operations, properties, assets, condition
(financial or otherwise) or prospects of the Company or any of its
Subsidiaries; (d) any breach of this Agreement or any other Loan Document
by any party thereto; or (e) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided that
such obligations of each Lender are subject to the condition that the
Swing Line Lender believed in good faith that all conditions under Section
4 to the making of the applicable Refunded Swing Line Loans or other
unpaid Swing Line Loans, were satisfied at the time such Refunded Swing
Line Loans or unpaid Swing Line Loans were made, or the satisfaction of
any such condition not satisfied had been waived by Requisite Lenders
prior to or at the time such Refunded Swing Line Loans or other unpaid
Swing Line Loans were made; and (ii) the Swing Line Lender shall not be
obligated to make any Swing Line Loans if it has elected not to do so
after the occurrence and during the continuation of a Default or Event of
Default.
B. Borrowing Mechanics. Term Loans or Revolving Loans (including any such
Loans made as Eurodollar Rate Loans with a particular Interest Period) made on
any Funding Date (other than Revolving Loans made pursuant to a request by the
Swing Line Lender pursuant to subsection 2.1A(iv) for the purpose of repaying
any Refunded Swing Line Loans and Revolving Loans made pursuant to subsection
3.3B for the purpose of reimbursing the Issuing Bank for the amount of a drawing
or payment under a Letter of Credit issued by it) shall be in an aggregate
minimum amount of $2,000,000 and integral multiples of $500,000 in excess of
that amount; provided that any Eurodollar Rate Loan shall be in a minimum amount
of $2,500,000 and integral multiples of $500,000 in excess of that amount. Swing
Line Loans made on any Funding Date shall be in an aggregate minimum amount of
$500,000 and integral multiples of $100,000 in excess of that amount. Whenever
the Company desires that the Lenders make Term Loans or Revolving Loans it shall
deliver to the Administrative Agent a Notice of Borrowing no later than 11:00
a.m. (New York time), at least three (3) Business Days in advance of the
proposed Funding Date in the case of a Eurodollar Rate Loan, or at least one (1)
Business Day in advance of the proposed Funding Date in the case of a Base Rate
Loan. Whenever the Company desires that the Swing Line Lender make a Swing Line
Loan, it shall deliver to Administrative Agent a Notice of Borrowing no
43
<PAGE>
later than 11:00 a.m. (New York time) on the proposed Funding Date. The Notice
of Borrowing shall specify (i) the proposed Funding Date (which shall be a
Business Day), (ii) the amount and type of Loans requested, (iii) in the case of
Swing Line Loans and Loans made on the Closing Date, that such Loans shall be
Base Rate Loans, (iv) in the case of any Loans other than Swing Line Loans,
whether such Loans shall be Base Rate Loans or Eurodollar Rate Loans, and (v) in
the case of any Loans requested to be made as Eurodollar Rate Loans, the initial
Interest Period requested therefor. Term Loans and Revolving Loans may be
continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the
manner provided in subsection 2.2D. In lieu of delivering the above-described
Notice of Borrowing, the Company may give the Administrative Agent telephonic
notice by the required time of any proposed borrowing under this subsection
2.1B; provided that such notice shall be promptly confirmed in writing by
delivery of a Notice of Borrowing to the Administrative Agent on or before the
applicable Funding Date.
Neither the Administrative Agent nor any Lender shall incur any liability
to the Company in acting upon any telephonic notice referred to above that the
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of the Company
or for otherwise acting in good faith under this subsection 2.1B, and upon
funding of Loans by the Lenders in accordance with this Agreement pursuant to
any such telephonic notice the Company shall have effected Loans hereunder.
The Company shall notify the Administrative Agent prior to the funding of
any Loans in the event that any of the matters to which the Company is required
to certify in the applicable Notice of Borrowing are no longer true and correct
as of the applicable Funding Date, and the acceptance by the Company of the
proceeds of any Loans shall constitute a re-certification by the Company, as of
the applicable Funding Date, as to the matters to which the Company is required
to certify in the applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the Related Interest Rate Determination Date,
and the Company shall be bound to make a borrowing in accordance therewith.
C. Disbursement of Funds. All Term Loans and all Revolving Loans under
this Agreement shall be made by the Lenders simultaneously and proportionately
to their respective Pro Rata Shares, it being understood that no Lender shall be
responsible for any default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder nor shall the Commitment of any
Lender to make the particular type of Loan requested be increased or decreased
as a result of a default by any other Lender in that other Lender's obligation
to make a Loan requested hereunder. Promptly after receipt by the Administrative
Agent of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice
in lieu thereof), the Administrative Agent shall notify each Lender or the Swing
Line Lender, as the case may be, of the proposed borrowing and of the amount of
such Lender's Pro Rata Share of the applicable Loans.
Each Lender shall make the amount of its Loan available to the
Administrative Agent not later than 12:00 Noon (New York time) on the applicable
Funding Date and the Swing Line Lender shall make the amount of its Swing Line
Loan available to the Administrative Agent not later than 2:00 P.M. (New York
time) on the applicable Funding Date, in each case in same day funds, at the
Funding and Payment Office. Except as provided in subsection 2.1A(iv) or
subsection 3.3B with respect to Revolving Loans used to repay Refunded Swing
Line Loans or to reimburse the Issuing Bank for the amount of an honored drawing
or payment under a Letter of Credit issued by it, upon satisfaction or waiver of
the conditions precedent specified in subsections 4.1 (in the case of Loans made
on the Closing Date) and 4.2 (in the case of all
44
<PAGE>
Loans), the Administrative Agent shall make the proceeds of such Loans available
to the Company on the applicable Funding Date by causing an amount of same day
funds equal to the proceeds of all such Loans received by the Administrative
Agent from the Lenders or the Swing Line Lender, as the case may be, to be
credited to the account of the Company at the Funding and Payment Office.
Unless the Administrative Agent shall have been notified by any Lender
prior to the Funding Date for any Loans that such Lender does not intend to make
available to the Administrative Agent the amount of such Lender's Loan requested
on such Funding Date, the Administrative Agent may assume that such Lender has
made such amount available to the Administrative Agent on such Funding Date and
the Administrative Agent may, in its sole discretion, but shall not be obligated
to, make available to the Company a corresponding amount on such Funding Date.
If such corresponding amount is not in fact made available to the Administrative
Agent by such Lender, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Lender together with interest thereon,
for each day from such Funding Date until the date such amount is paid to the
Administrative Agent, at the customary rate set by the Administrative Agent for
the correction of errors among banks for three Business Days and thereafter at
the Base Rate. If such Lender does not pay such corresponding amount forthwith
upon the Administrative Agent's demand therefor, the Administrative Agent shall
promptly notify the Company and the Company shall immediately pay such
corresponding amount to the Administrative Agent, together with interest thereon
for each day from such Funding Date until the date such amount is paid to the
Administrative Agent at the rate applicable to such Loan. Nothing in this
subsection 2.1C shall be deemed to relieve any Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that the Company
may have against any Lender as a result of any default by such Lender hereunder.
D. The Register.
(i) The Administrative Agent shall maintain, at its address referred
to in subsection 10.8, a register for the recordation of the names and
addresses of the Lenders and the Commitments and Loans of each Lender from
time to time (the "Register"). The Register shall be available for
inspection by the Company or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
(ii) The Administrative Agent shall record in the Register the
Commitments and the outstanding Loans from time to time of each Lender and
each repayment or prepayment in respect of the principal amount of the
outstanding Loans of each Lender. Any such recordation shall be conclusive
and binding on the Company and each Lender, absent manifest error;
provided that failure to make any such recordation, or any error in such
recordation, shall not affect the Company's Obligations in respect of the
applicable Loans.
(iii) Each Lender shall record on its internal records (including,
without limitation, the Notes held by such Lender) the amount of each Loan
made by it and each payment in respect thereof. Any such recordation shall
be conclusive and binding on the Company, absent manifest error; provided
that failure to make any such recordation, or any error in such
recordation, shall not affect the Company's Obligations in respect of the
applicable Loans; and provided, further that in the event of any
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
(iv) The Company, the Administrative Agent and the Lenders shall
deem and treat the
45
<PAGE>
Persons listed as the Lenders in the Register as the holders and owners of
the corresponding Commitments and Loans listed therein for all purposes
hereof, and no assignment or transfer of any Commitment or Loan shall be
effective, in each case unless and until an Assignment Agreement effecting
the assignment or transfer thereof shall have been accepted by the
Administrative Agent and recorded in the Register as provided in
subsection 10.1B(ii). Prior to such recordation, all amounts owed with
respect to the applicable Commitment or Loan shall be owed to the Lender
listed in the Register as the owner thereof, and any request, authority or
consent of any Person who, at the time of making such request or giving
such authority or consent, is listed in the Register as a Lender shall be
conclusive and binding on any subsequent holder, assignee or transferee of
the corresponding Commitments or Loans.
(v) The Company hereby designates CSFB and any financial institution
serving as a successor Administrative Agent to serve as the Company's
agent solely for purposes of maintaining the Register as provided in this
subsection 2.1D, and the Company hereby agrees that, to the extent CSFB
serves in such capacity, CSFB and its officers, directors, employees,
agents and affiliates shall constitute Indemnitees for all purposes under
subsection 10.3.
E. Notes. The Company shall execute and deliver on the Closing Date to
each Lender (or to the Administrative Agent for that Lender) (i) a Term A Note
substantially in the form of Exhibit IV-A annexed hereto, respectively, to
evidence that Lender's Term A Loans in the principal amount of that Lender's
Term A Loans and with other appropriate insertions, and each Lender's Term A
Notes shall evidence such Lender's Pro Rata Share of such respective amounts,
(ii) a Term B Note substantially in the form of Exhibit IV-B annexed hereto,
respectively, to evidence that Lender's Term B Loans in the principal amount of
that Lender's Term B Loans and with other appropriate insertions, and each
Lender's Term B Notes shall evidence such Lender's Pro Rata Share of such
respective amounts, (iii) a Revolving Note substantially in the form of Exhibit
V-A annexed hereto to evidence that Lender's Revolving Loans, in the principal
amount of that Lender's Revolving Loan Commitment and with other appropriate
insertions and (iv) a Swing Line Note substantially in the form of Exhibit V-B
annexed hereto to evidence that Lender's Swing Line Loans, in the principal
amount of that Lender's Swing Line Loan Commitment and with other appropriate
insertions. The Notes and the Obligations evidenced thereby shall be governed
by, subject to and benefit from all of the terms and conditions of this
Agreement and the other Loan Documents and shall be secured by the Collateral.
2.2 Interest on the Loans.
A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7,
each Term Loan and each Revolving Loan shall bear interest on the unpaid
principal amount thereof from the date made to maturity (whether by acceleration
or otherwise) at a rate determined by reference to the Base Rate or the Reserve
Adjusted Eurodollar Rate, as the case may be. Subject to the provisions of
subsection 2.7, each Swing Line Loan shall bear interest on the unpaid principal
amount thereof from the date made to maturity (whether by acceleration or
otherwise) at a rate determined by reference to the Base Rate. The applicable
basis for determining the rate of interest with respect to any Loan shall be
selected by the Company initially at the time a Notice of Borrowing is given
with respect to such Loan pursuant to subsection 2.1B. The basis for determining
the interest rate with respect to any Term Loan or any Revolving Loan may be
changed from time to time pursuant to subsection 2.2D. If on any day any Term
Loan or Revolving Loan is outstanding with respect to which notice has not been
delivered to the Administrative Agent in accordance with the terms of this
Agreement specifying the applicable basis for determining the rate of interest,
then for that day that Loan shall bear interest determined by reference to the
Base Rate. Subject
46
<PAGE>
to the provisions of subsections 2.2E and 2.7, the Term Loans and the Revolving
Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, then at the sum of the Base Rate plus
the Applicable Base Rate Margin; or
(ii) if a Eurodollar Rate Loan, then at the sum of the Reserve
Adjusted Eurodollar Rate plus the Applicable Eurodollar Rate Margin.
Subject to the provisions of subsections 2.2E and 2.7, the Swing Line
Loans shall bear interest to maturity at the sum of the Base Rate plus the
Applicable Base Rate Margin for Revolving Loans less the Applicable Commitment
Fee Percentage.
B. Interest Periods. In connection with each Eurodollar Rate Loan, the
Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, on behalf of the Company select an
interest period (each an "Interest Period") to be applicable to such Loan, which
Interest Period shall be, at the Company's option, either a one, two, three or
six month period; provided that:
(i) the initial Interest Period for any Eurodollar Rate Loan shall
commence on the Funding Date in respect of such Loan, in the case of a
Loan initially made as a Eurodollar Rate Loan, or on the date specified in
the applicable Notice of Conversion/Continuation, in the case of a Loan
converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the Term A
Loans shall extend beyond March 31, 2004, no Interest Period with respect
to any portion of the Term B Loans shall extend beyond September 30, 2005,
and no Interest Period with respect to any portion of the Revolving Loans
shall extend beyond the Revolving Loan Commitment Termination Date;
(vi) no Interest Period with respect to any portion of the Term
Loans shall extend beyond a date on which the Company is required to make
a scheduled payment of principal of the Term A Loans or the Term B Loans,
as the case may be, unless the aggregate principal amount of Term A Loans
or Term B Loans, as the case may be, that are Base Rate Loans plus the
aggregate
47
<PAGE>
principal amount of Term A Loans or Term B Loans, as the case may be, that
are Eurodollar Rate Loans with Interest Periods expiring on or before such
date equals or exceeds the principal amount required to be paid on the
Term A Loans or Term B Loans, as the case may be, on such date;
(vii) the Company may not select an Interest Period of longer than
one month prior to the end of the Initial Period;
(viii) there shall be no more than five (5) Interest Period
outstanding at any time during the Initial Period, and thereafter no more
than ten (10) Interest Periods shall be outstanding at any time; and
(ix) in the event the Company fails to specify an Interest Period
for any Eurodollar Rate Loan in the applicable Notice of Borrowing or
Notice of Conversion/Continuation, the Company shall be deemed to have
selected an Interest Period of one month.
C. Interest Payments. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity, by acceleration or otherwise); provided that in the event that any
Swing Line Loans, Revolving Loans or any Term Loans that are Base Rate Loans are
prepaid pursuant to subsection 2.4B(i), interest accrued on such Loans through
the date of such prepayment shall be payable on the next succeeding Interest
Payment Date applicable to Base Rate Loans (or, if earlier, at final maturity).
D. Conversion or Continuation. Subject to the provisions of subsection
2.6, the Company shall have the option (i) to convert at any time all or any
part of its outstanding Term Loans or Revolving Loans equal to $2,000,000 and
integral multiples of $500,000 in excess of that amount from Loans bearing
interest at a rate determined by reference to one basis to Loans bearing
interest at a rate determined by reference to an alternative basis (provided
that any Loan being converted to a Eurodollar Rate Loan shall be in a minimum
amount of $2,500,000 and integral multiples of $500,000 in excess of such
amount) or (ii) upon the expiration of any Interest Period applicable to a
Eurodollar Rate Loan, to continue all or any portion of such Loan equal to
$2,500,000 and integral multiples of $500,000 in excess of that amount as a
Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be
converted into a Base Rate Loan on the expiration date of an Interest Period
applicable thereto.
The Company shall deliver a Notice of Conversion/Continuation to the
Administrative Agent no later than 11:00 a.m. (New York time) at least one
Business Day in advance of the proposed conversion date (in the case of a
conversion to a Base Rate Loan), and at least three Business Days in advance of
the proposed conversion/continuation date (in the case of a conversion to, or a
continuation of, a Eurodollar Rate Loan). A Notice of Conversion/Continuation
shall specify (i) the proposed conversion/continuation date (which shall be a
Business Day), (ii) the amount and type of the Loan to be converted/continued,
(iii) the nature of the proposed conversion/continuation, (iv) in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan, the requested
Interest Period, and (v) in the case of a conversion to, or a continuation of, a
Eurodollar Rate Loan, that no Default or Event of Default has occurred and is
continuing. In lieu of delivering the above-described Notice of
Conversion/Continuation, the Company may give the Administrative Agent
telephonic notice by the required time of any proposed conversion/continuation
under this subsection 2.2D; provided that such notice shall be promptly
confirmed in writing by delivery of a Notice of Conversion/Continuation to the
Administrative Agent on or before the proposed conversion/continuation date.
48
<PAGE>
Neither the Administrative Agent nor any Lender shall incur any liability
to the Company in acting upon any telephonic notice referred to above that the
Administrative Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of the Company or
for otherwise acting in good faith under this subsection 2.2D, and upon
conversion or continuation of the applicable basis for determining the interest
rate with respect to any Loans in accordance with this Agreement pursuant to any
such telephonic notice the Company shall have effected a conversion or
continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice
of Conversion/Continuation for conversion to, or continuation of, a Eurodollar
Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and
after the related Interest Rate Determination Date, and the Company shall be
bound to effect a conversion or continuation in accordance therewith.
E. Post-Default Interest. Upon the occurrence and during the continuation
of any Event of Default, the outstanding principal amount of all Loans and, to
the extent permitted by applicable law, any interest payments thereon not paid
when due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code, or other applicable bankruptcy or insolvency laws)
payable upon demand at a rate that is 2% per annum in excess of the interest
rate otherwise payable under this Agreement with respect to the applicable Loans
(or, in the case of any such fees and other amounts, at a rate which is 2% per
annum in excess of the interest rate otherwise payable under this Agreement for
Revolving Loans bearing interest at a rate determined by reference to the Base
Rate); provided that, in the case of Eurodollar Rate Loans, upon the expiration
of the Interest Period in effect at the time any such increase in interest rate
is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans
and shall thereafter bear interest payable upon demand at a rate equal to 2% per
annum in excess of the interest rates otherwise payable under this Agreement for
Base Rate Loans that are Term A Loans, Term B Loans, or Revolving Loans, as
applicable. Payment or acceptance of the increased rates of interest provided
for in this subsection 2.2E is not a permitted alternative to timely payment and
shall not constitute a waiver of any Event of Default or otherwise prejudice or
limit any rights or remedies of the Administrative Agent or any Lender.
F. Computation of Interest. Interest on Loans shall be computed on the
basis of a 360-day year (a 365 or 366-day year, as applicable, in the case of
Base Rate Loans based on the Prime Rate) and for the actual number of days
elapsed in the period during which it accrues. In computing interest on any
Loan, the date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan
to such Base Rate Loan, as the case may be, shall be included, and the date of
payment of such Loan or the expiration date of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar
Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate
Loan, as the case may be, shall be excluded; provided that if a Loan is repaid
on the same day on which it is made, one day's interest shall be paid on that
Loan.
2.3 Fees.
A. Commitment Fees.
(i) Revolving Loan Commitments. The Company agrees to pay to the
Administrative Agent, for distribution to each Lender in proportion to
that Lender's Pro Rata
49
<PAGE>
Share of the Revolving Loan Commitments, commitment fees for the period
from and including the date hereof to and excluding the Revolving Loan
Commitment Termination Date equal to the sum of (x) the average of the
daily excess of the Revolving Loan Commitments over the sum of the
aggregate principal amount of Revolving Loans outstanding (but not any
Swing Line Loans outstanding) plus (y) the Letter of Credit Usage
multiplied by the Applicable Commitment Fee Percentage.
(ii) Term Loan Commitments. The Company agrees to pay to the
Administrative Agent, for distribution to each Lender in proportion to
that Lender's Pro Rata Share of the applicable Commitments, commitment
fees in respect of each type of Term Loan Commitments for the period from
and excluding the date hereof to and excluding the earlier of October 16,
1998 and the Closing Date equal to the product of the aggregate amount of
such type of Term Loan Commitments and the Applicable Commitment Fee
Percentage.
(iii) Calculation and Payment. All of the foregoing commitment fees
shall be calculated on the basis of a 360-day year and the actual number
of days elapsed and shall be payable in arrears on the Closing Date, the
last Business Day in each of March, June, September and December of each
year, commencing in December 1998, and on the Revolving Loan Commitment
Termination Date.
B. Annual Administrative Fee. The Company agrees to pay to the
Administrative Agent an annual administrative fee in such amounts as may have
been or hereafter be agreed between them from time to time.
C. Other Agent Fees. The Company agrees to pay such other fees as may have
been or hereafter be agreed upon from time to time.
2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions
Regarding Payments.
A. Scheduled Payments of Term Loans.
(i) Scheduled Payments of Term A Loans. The Company shall make
principal payments on the Term A Loans in installments on the dates set
forth below, each such installment to be in an amount equal to the
corresponding percentages set forth below of the principal amount of the
Term A Loans as of the Closing Date:
<TABLE>
<CAPTION>
--------------------------------------------------------
SCHEDULED REPAYMENT
DATE OF
TERM A LOANS
--------------------------------------------------------
<S> <C>
March 31, 1999 2.75%
June 30, 1999 2.75%
September 30, 1999 2.75%
December 31, 1999 2.75%
--------------------------------------------------------
March 31, 2000 5.00%
June 30, 2000 5.00%
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------
SCHEDULED REPAYMENT
DATE OF
TERM A LOANS
--------------------------------------------------------
<S> <C>
September 30, 2000 5.00%
December 31, 2000 5.00%
--------------------------------------------------------
March 31, 2001 5.25%
June 30, 2001 5.25%
September 30, 2001 5.25%
December 31, 2001 5.25%
--------------------------------------------------------
March 31, 2002 5.25%
June 30, 2002 5.25%
September 30, 2002 5.25%
December 31, 2002 5.25%
--------------------------------------------------------
March 31, 2003 6.00%
June 30, 2003 6.00%
September 30, 2003 6.00%
December 31, 2003 6.00%
--------------------------------------------------------
March 31, 2004 3.00%
--------------------------------------------------------
</TABLE>
; provided that the scheduled installments of principal of the Term A
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Term A Loans in accordance with subsection
2.4C; and provided, further that the final installment specified above for
the repayment by the Company of the Term A Loans shall be in an amount, if
such amount is different from that specified above, sufficient to repay
all amounts owing by the Company under this Agreement with respect to the
Term A Loans.
(ii) Scheduled Payments of Term B Loans. The Company shall make
principal payments on the Term B Loans in installments on the dates set
forth below, each such installment to be in an amount equal to the
corresponding percentages set forth below of the principal amount of the
Term B Loans as of the Closing Date:
<TABLE>
<CAPTION>
--------------------------------------------------------
SCHEDULED REPAYMENT
DATE OF
TERM B LOANS
--------------------------------------------------------
<S> <C>
March 31, 1999 0.25%
June 30, 1999 0.25%
September 30, 1999 0.25%
December 31, 1999 0.25%
--------------------------------------------------------
March 31, 2000 0.25%
June 30, 2000 0.25%
September 30, 2000 0.25%
December 31, 2000 0.25%
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------
SCHEDULED REPAYMENT
DATE OF
TERM B LOANS
--------------------------------------------------------
<S> <C>
March 31, 2001 0.25%
June 30, 2001 0.25%
September 30, 2001 0.25%
December 31, 2001 0.25%
--------------------------------------------------------
March 31, 2002 0.25%
June 30, 2002 0.25%
September 30, 2002 0.25%
December 31, 2002 0.25%
--------------------------------------------------------
March 31, 2003 0.25%
June 30, 2003 0.25%
September 30, 2003 0.25%
December 31, 2003 0.25%
--------------------------------------------------------
March 31, 2004 0.25%
June 30, 2004 0.25%
September 30, 2004 0.25%
December 31, 2004 0.25%
--------------------------------------------------------
March 31, 2005 0.25%
June 30, 2005 0.25%
September 30, 2005 93.50%
</TABLE>
; provided that the scheduled installments of principal of the Term B
Loans set forth above shall be reduced in connection with any voluntary or
mandatory prepayments of the Term B Loans in accordance with subsection
2.4C; and provided, further that the final installment specified above for
the repayment by the Company of the Term B Loans shall be in an amount, if
such amount is different from that specified above, sufficient to repay
all amounts owing by the Company under this Agreement with respect to the
Term B Loans.
B. Prepayments and Reductions in Commitments.
(i) Voluntary Prepayments. The Company may, upon written or
telephonic notice to the Administrative Agent on or prior to 11:00 a.m.
(New York time) on the date of prepayment, which notice, if telephonic,
shall be promptly confirmed in writing, at any time and from time to time
prepay, without premium or penalty, any Swing Line Loan on any Business
Day in whole or in part in an aggregate minimum amount of $500,000 and
integral multiples of $100,000 in excess of that amount. In addition, so
long as no Swing Line Loans are then outstanding, the Company may, upon
not less than three (3) Business Days' prior written or telephonic notice,
promptly confirmed in writing to the Administrative Agent (which notice
the Administrative Agent will promptly transmit by facsimile or telephone
to each Lender), at any time and from time to time prepay, without premium
or penalty (except as set forth in subsection 2.4B(iv) below), the Loans
(other than Swing Line Loans) on any Business Day in whole or in part in
an aggregate minimum amount of (a) in the case of Base Rate Loans,
$2,000,000 and integral multiples of $500,000 in excess of that amount,
and (b) in the case of Eurodollar Rate Loans, $2,500,000 and integral
52
<PAGE>
multiples of $500,000 in excess of that amount; provided, however, that in
the event the Company shall prepay a Eurodollar Rate Loan other than on
the expiration of the Interest Period applicable thereto, the Company
shall, at the time of such prepayment, also pay any amounts payable under
subsection 2.6D hereof. Notice of prepayment having been given as
aforesaid, the Loans shall become due and payable on the prepayment date
specified in such notice and in the aggregate principal amount specified
therein. Any voluntary prepayments pursuant to this subsection 2.4B(i)
shall be applied as specified in subsection 2.4C.
(ii) Voluntary Reductions of Revolving Loan Commitments. The Company
may, upon not less than three (3) Business Days' prior written or
telephonic notice, promptly confirmed in writing to the Administrative
Agent (which notice the Administrative Agent will promptly transmit by
facsimile or telephone to each Lender), at any time and from time to time
terminate in whole or permanently reduce in part, without premium or
penalty, the Revolving Loan Commitments in an amount up to the amount by
which the Revolving Loan Commitments exceed the Total Utilization of
Revolving Loan Commitments at the time of such proposed termination or
reduction; provided that any such partial reduction of the Revolving Loan
Commitments shall be in an aggregate minimum amount of $2,500,000 and
integral multiples of $500,000 in excess of that amount. The Company's
notice to the Administrative Agent shall designate the date (which shall
be a Business Day) of such termination or reduction and the amount of any
partial reduction, and such termination or reduction of the Revolving Loan
Commitments shall be effective on the date specified in such notice and
shall reduce the Revolving Loan Commitment of each Lender proportionately
to its Pro Rata Share.
(iii) Mandatory Prepayments.
The Loans shall be prepaid in the manner provided in subsection 2.4C
upon the occurrence of the following circumstances:
(a) Prepayments from Asset Sales. No later than the first
(1st) Business Day following the date of receipt by the Parent, the
Company or any of its Subsidiaries of Cash Proceeds of any Asset
Sale, the Company shall prepay the Term Loans in an amount equal to
the Net Cash Proceeds received; provided that (I) if the Company
shall have delivered a Reinvestment Notice to the Administrative
Agent no later than one (1) Business Day after the consummation of
such Asset Sale (other than Asset Sales described in Schedule 7.7
annexed hereto) and no Default or Event of Default exists at the
time of such consummation or delivery of such notice, the Company
shall not be required to make any prepayment with the proceeds of
such Asset Sale to the extent that (x) all or any portion of such
proceeds are reinvested in Reinvestment Assets within two hundred
seventy (270) days from the date of receipt of such proceeds, and
(y) after giving effect thereto, the aggregate amount of proceeds
(other than (1) Permitted Testing Center Proceeds, and (2) proceeds
of Asset Sales described in Schedule 7.7 annexed hereto in an amount
not to exceed $5,000,000) not used to make mandatory prepayments of
Term Loans pursuant to this proviso and the corresponding proviso to
subsection 2.4B(iii)(d) shall not exceed $10,000,000 measured on a
cumulative basis from the Closing Date; (II) if at any time the
aggregate amount of Net Cash Proceeds (including, without
limitation, Permitted Testing Center Proceeds) in respect of which
Reinvestment Notices have been delivered and which have not yet been
reinvested in Reinvestment Assets or used to repay Loans shall
exceed $10,000,000, then the Borrower shall promptly deliver all
such Net Cash Proceeds (including the portion not in excess of
$10,000,000) to the Collateral Agent
53
<PAGE>
to be held and applied by it in accordance with the terms of the
Collateral Account Agreement; and (III) on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment
Amount with respect to the relevant Reinvestment Event shall be
applied to prepay the Term Loans. Concurrently with any prepayment
of Loans pursuant to this subsection 2.4B(iii)(a), the Company shall
deliver to the Administrative Agent an Officer's Certificate
demonstrating in detail reasonably satisfactory to the
Administrative Agent the derivation of the Net Cash Proceeds of the
correlative Asset Sale from the gross sales price thereof. In
addition, in the event that the Company shall, at any time after
receipt of proceeds of any Reinvestment Event requiring a prepayment
pursuant to this subsection 2.4B(iii)(a), determine that the
prepayments previously made in respect of such Reinvestment Event
were in an aggregate amount less than that required by the terms of
this subsection 2.4B(iii)(a), the Company shall promptly cause to be
made an additional prepayment of the Term Loans in an amount equal
to the amount of any such deficit, and the Company shall
concurrently therewith deliver to the Administrative Agent an
Officer's Certificate demonstrating the derivation of the additional
proceeds resulting in such deficit.
(b) Prepayments Due to Issuance of Debt. On or prior to the
first (1st) Business Day after receipt by the Parent, the Company or
any of its Subsidiaries of any proceeds of any Indebtedness (other
than the Loans and any other Indebtedness permitted by this
Agreement), the Company shall prepay the Term Loans in an amount
equal to the amount of such proceeds; provided that payment or
acceptance of the amounts provided for in this subsection
2.4B(iii)(b) shall not constitute a waiver of any Event of Default
resulting from the incurrence of such Indebtedness or otherwise
prejudice any rights or remedies of the Administrative Agent or any
Lender.
(c) Prepayments Due to Issuance of Equity Securities. On or
prior to the first (1st) Business Day after receipt by the Parent,
the Company or any of their respective Subsidiaries of any Equity
Proceeds (other than, so long as no Default or Event of Default
shall have occurred and be continuing or result therefrom, (x)
Equity Proceeds of up to $5,000,000 in the aggregate received by the
Parent, the Company or any of their respective Subsidiaries as
payment of the exercise price under any option for any shares of
Capital Stock of the Parent held by any officer or employee of the
Parent, the Company or any of their respective Subsidiaries, and (y)
Equity Proceeds received by the Parent, the Company or any of their
respective Subsidiaries solely to the extent that such Equity
Proceeds are used within one Business Day of such receipt to finance
a Permitted Acquisition and are not realized from a Public
Offering), the Company shall prepay the Term Loans in an amount
equal to such Equity Proceeds.
(d) Prepayments Due to Insurance and Condemnation Proceeds. No
later than the first (1st) Business Day following the date of
receipt by the Company or any of its Subsidiaries of any cash
payments under any insurance policy as a result of any damage to or
loss of all or any portion of the Collateral or any other tangible
asset (net of actual and documented reasonable costs incurred by the
Company or any of its Subsidiaries in connection with adjustment and
settlement thereof, "Insurance Proceeds") or any proceeds resulting
from the taking of assets by the power of eminent domain,
condemnation or otherwise (net of actual and documented reasonable
costs incurred by the Company or any of its Subsidiaries in
connection with adjustment and settlement thereof,
54
<PAGE>
"Condemnation Proceeds") (any such event resulting in the recovery
of Insurance Proceeds or Condemnation Proceeds, a "Recovery Event"),
the Company shall prepay the Term Loans in an amount equal to the
Insurance Proceeds or Condemnation Proceeds, as the case may be,
received; provided, that, if the Company shall have delivered a
Reinvestment Notice to the Administrative Agent no later than five
(5) Business Days prior to the consummation of such Recovery Event
and no Default or Event of Default exists at the time of such
consummation or delivery of such notice, the Company shall not be
required to make any prepayment with the proceeds of such Recovery
Event to the extent that (x) all or any portion of such proceeds are
reinvested in Reinvestment Assets within one hundred eighty (180)
days from the date of receipt of such proceeds, and (y) after giving
effect thereto, the aggregate amount of proceeds not used to make
mandatory prepayments of Term Loans pursuant to this proviso and the
corresponding proviso to subsection 2.4B(iii)(a) shall not exceed
$10,000,000 measured on a cumulative basis from the Closing Date;
provided, further, that, on each Reinvestment Prepayment Date, an
amount equal to the Reinvestment Prepayment Amount with respect to
the relevant Reinvestment Event shall be applied to prepay the Term
Loans. Concurrently with any prepayment of Loans pursuant to this
subsection 2.4B(iii)(d), the Company shall deliver to the
Administrative Agent an Officer's Certificate demonstrating in
detail reasonably satisfactory to the Administrative Agent the
derivation of the Insurance Proceeds or Condemnation Proceeds, as
the case may be, of the correlative Recovery Event. In addition, in
the event that the Company shall, at any time after receipt of
proceeds of any Reinvestment Event requiring a prepayment pursuant
to this subsection 2.4B(iii)(d), determine that the prepayments
previously made in respect of such Reinvestment Event were in an
aggregate amount less than that required by the terms of this
subsection 2.4B(iii)(d), the Company shall promptly cause to be made
an additional prepayment of the Term Loans in an amount equal to the
amount of any such deficit, and the Company shall concurrently
therewith deliver to the Administrative Agent an Officer's
Certificate demonstrating the derivation of the additional proceeds
resulting in such deficit.
(e) Prepayments Due to Reductions or Restrictions of Revolving
Loan Commitments. The Company shall prepay the Swing Line Loans
and/or Revolving Loans from time to time to the extent necessary so
that (1) the Total Utilization of Revolving Loan Commitments shall
not at any time exceed the Revolving Loan Commitments then in
effect, and (2) the aggregate principal amount of all outstanding
Swing Line Loans shall not at any time exceed the Swing Line Loan
Commitment then in effect. All Swing Line Loans shall be prepaid in
full prior to the prepayment of any Revolving Loans pursuant to this
subsection 2.4B(iii)(e). If at any time that there are no Revolving
Loans and Swing Line Loans outstanding (whether after giving effect
to any prepayment thereof pursuant to this subclause (e) or
otherwise) the Total Utilization of Revolving Loan Commitments
exceeds the Revolving Loan Commitment, the Company shall deposit
into the Collateral Account such amounts as are necessary so that,
after giving effect thereto, the amount on deposit in the Collateral
Account pursuant to this subclause (e) is at least equal to such
excess.
(f) Prepayments from Consolidated Excess Cash Flow. In the
event that there shall be Consolidated Excess Cash Flow for any
Fiscal Year (commencing with the Fiscal Year ending December 31,
1999), the Company shall, no later than ninety-five (95) days after
the end of such Fiscal Year, prepay the Term Loans in an aggregate
amount
55
<PAGE>
equal to (x) if the Leverage Ratio is greater than 3.0x, 75% of such
Consolidated Excess Cash Flow, and (y) if the Leverage Ratio is
equal to or less than 3.0x, 50% of such Consolidated Excess Cash
Flow.
(g) Prepayments Due to Termination or Cancellation of State
Contracts. On or prior to the first (1st) Business Day after receipt
by the Company or any of its Subsidiaries of any termination
payments, settlement or judgment awards or similar payments in
connection with, or as a result of the termination or cancellation
of, any State Contract, the Company shall prepay the Term Loans in
an amount equal to the amount of such termination payments, awards
or similar payments; provided that payment or acceptance of the
amounts provided for in this subsection 2.4B(iii)(g) shall not
constitute a waiver of any Default or Event of Default resulting
from the termination or cancellation of any State Contract or
otherwise prejudice any rights or remedies of the Agents or any
Lender.
(iv) Prepayment Fee. Together with any prepayment of the Loans, the
Company shall pay a prepayment fee as follows:
(a) Voluntary Prepayments. Any voluntary prepayment of Term B
Loans required on or prior to (x) the first (1st) Anniversary of the
Closing Date pursuant to subsection 2.4B(i) shall be accompanied by
a prepayment fee in an amount equal to 2% of the amount of such
prepayment, and (y) the second (2nd) Anniversary of the Closing Date
pursuant to subsection 2.4B(i) shall be accompanied by a prepayment
fee in an amount equal to 1% of the amount of such prepayment.
(b) Mandatory Prepayments. Any mandatory prepayment of Term B
Loans required on or prior to the second (2nd) Anniversary of the
Closing Date pursuant to subsection 2.4B(iii) (other than subsection
2.4(B)(iii)(f)) shall be accompanied by a prepayment fee in an
amount equal to 1% of the amount of such prepayment.
(c) Reimbursement. Except as provided in subclauses (a) and
(b) above, no premium or penalty shall be payable as a result of any
prepayment of the Loans; provided, that any and all prepayments of
the Loans shall be accompanied by payment of any amounts owing or
payable to the Lenders under subsection 2.6D.
C. Application of Prepayments.
(i) Application of Prepayments by Type of Loans. Any voluntary
prepayments pursuant to subsection 2.4B(i) shall be applied: first to
repay outstanding Swing Line Loans to the full extent thereof, and second
to repay the types of Loans as specified in the correlative notice of
prepayment and, absent such specification, to repay outstanding Term
Loans. Any amount required to be applied as a prepayment of Term Loans
pursuant to subsection 2.4B(iii) or this subsection 2.4C(i) shall be
applied to prepay the two (2) different tranches of Term Loans ratably to
the full extent thereof; provided that, in the case of any such prepayment
of the Term Loans, (a) the Company shall use reasonable efforts to notify
the Lenders of such prepayment five (5) Business Days in advance of
payment to the Administrative Agent of such amount, (b) upon receipt of
such payment, the Administrative Agent shall notify the Lenders of such
payment, (c) in the event any Lender with Term B Loans elects to waive
such Lender's right to receive such
56
<PAGE>
prepayment in respect of any such Loans, such Lender shall so advise the
Administrative Agent in writing no later than the close of business on the
date it receives such notice from the Administrative Agent and (d) upon
receipt of such written advice from such Lender, the Administrative Agent
shall apply the amount waived by such Lender to prepay the Term A Loans.
(ii) Application of Prepayments of Term Loans to Installments. The
amount of any voluntary prepayments of Term A Loans or Term B Loans, as
applicable, shall be applied to reduce each scheduled installment thereof
set forth in subsection 2.4A(i) or 2.4A(ii), as applicable, that is unpaid
in the inverse order that such installments are scheduled to occur. The
amount of any mandatory prepayments applied to Term A Loans or Term B
Loans, as applicable, shall be applied to ratably reduce each scheduled
installment of principal thereof set forth in subsection 2.4A(i) or
2.4A(ii), as applicable.
(iii) Application of Prepayments of Loans to Base Rate Loans and
Eurodollar Rate Loans. Considering Loans constituting Term A Loans, Term B
Loans and Revolving Loans being prepaid separately, any prepayment thereof
shall be applied first to Base Rate Loans to the full extent thereof
before application to Eurodollar Rate Loans, in each case in a manner
which minimizes the amount of any payments required to be made by the
Company pursuant to subsection 2.6D.
(iv) Application of Prepayment Fee. Any prepayment fee paid in
connection with any prepayment shall be paid ratably to the applicable
holders of the Loans then being prepaid.
D. Application of Proceeds of Collateral and Payments Under Guaranties.
(i) Application of Proceeds of Collateral. Except as provided in
subsection 2.4B(iii) with respect to prepayments from Net Cash Proceeds,
Insurance Proceeds or Condemnation Proceeds, all proceeds received by the
Administrative Agent or the Collateral Agent, as the case may be, in
respect of any sale of, collection from, or other realization upon all or
any part of the Collateral under any Collateral Document may, in the
discretion of the Collateral Agent, be held by the Collateral Agent as
Collateral for, and/or (then or at any time thereafter) applied in full or
in part by the Administrative Agent against, the applicable Secured
Obligations (as defined in such Collateral Document) in the following
order of priority:
(a) to the payment of all costs and expenses of such sale,
collection or other realization, including without limitation
reasonable compensation to such Agents and their agents and counsel,
and all other reasonable expenses, liabilities and advances made or
incurred by such Agents in connection therewith, and all amounts for
which such Agents are entitled to indemnification under such
Collateral Document and all advances made by the Collateral Agent
thereunder for the account of the applicable Loan Party, and to the
payment of all reasonable costs and expenses paid or incurred by the
Collateral Agent in connection with the exercise of any right or
remedy under such Collateral Document, all in accordance with the
terms of this Agreement and such Collateral Document;
(b) thereafter, to the extent of any excess proceeds, to the
payment of all other such Secured Obligations for the ratable
benefit of the holders thereof; and
(c) thereafter, to the extent of any excess proceeds, to the
payment to or upon
57
<PAGE>
the order of such Loan Party or to whosoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction
may direct.
(ii) Application of Payments Under Guaranties. All payments received
by the Administrative Agent under any Guaranty shall be applied promptly
from time to time by the Administrative Agent in the following order of
priority:
(a) to the payment of the reasonable costs and expenses of any
collection or other realization under such Guaranty, including
without limitation reasonable compensation to the Administrative
Agent and its agents and counsel, and all expenses, liabilities and
advances made or incurred by the Administrative Agent in connection
therewith, all in accordance with the terms of this Agreement and
such Guaranty;
(b) thereafter, to the extent of any excess such payments, to
the payment of all other Guarantied Obligations (as defined in such
Guaranty) for the ratable benefit of the holders thereof; and
(c) thereafter, to the extent of any excess such payments, to
the payment to the applicable Guarantor or to whosoever may be
lawfully entitled to receive the same or as a court of competent
jurisdiction may direct.
E. General Provisions Regarding Payments.
(i) Manner and Time of Payment. All payments by the Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in same day funds and without defense, setoff or
counterclaim, free of any restriction or condition, and delivered to the
Administrative Agent not later than 12:00 Noon (New York time) on the date
due at the Funding and Payment Office for the account of the Lenders;
funds received by the Administrative Agent after that time on such due
date shall be deemed to have been paid by the Company on the next
succeeding Business Day. The Company hereby authorizes the Administrative
Agent to charge its accounts with the Administrative Agent in order to
cause timely payment to be made to the Administrative Agent of all
principal, interest, fees and expenses due hereunder (subject to
sufficient funds being available in its accounts for that purpose).
(ii) Application of Payments to Principal, Interest and Prepayment
Fees. Except as provided in subsection 2.2C, all payments in respect of
the principal amount of any Loan shall include payment of accrued interest
and prepayment fees, if any, on the principal amount being repaid or
prepaid, and all such payments (and in any event any payments made in
respect of any Loan on a date when interest is due and payable with
respect to such Loan) shall be applied to the payment of interest and
prepayment fees, if any, before application to principal.
(iii) Apportionment of Payments. Aggregate principal, prepayment
fees and interest payments shall be apportioned among all outstanding
Loans to which such payments relate, in each case proportionately to the
Lenders' respective Pro Rata Shares. The Administrative Agent shall
promptly distribute to each Lender, at its applicable Lending Office
specified on Schedule 2.1 or at such other address as such Lender may
request, its Pro Rata Share of all such payments received by the
Administrative Agent and the commitment fees of such Lender when received
by the Administrative Agent pursuant to subsection 2.3. Notwithstanding
the foregoing provisions of
58
<PAGE>
this subsection 2.4E(iii) if, pursuant to the provisions of subsection
2.6C, any Notice of Conversion/Continuation is withdrawn as to any
Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of
its Pro Rata Share of any Eurodollar Rate Loans, the Administrative Agent
shall give effect thereto in apportioning payments received thereafter.
(iv) Payments on Business Days. Except if expressly provided
otherwise, whenever any payment to be made hereunder shall be stated to be
due on a day that is not a Business Day, such payment shall be made on the
next succeeding Business Day and such extension of time shall be included
in the computation of the payment of interest hereunder or of the
commitment fees hereunder, as the case may be.
(v) Notation of Payment. Each Lender agrees that before disposing of
any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; provided
that the failure to make (or any error in the making of) a notation of any
Loan made under such Note shall not limit or otherwise affect such
disposition or the obligations of the Company hereunder or under such Note
with respect to any Loan or any payments of principal or interest on such
Note.
2.5 Use of Proceeds.
A. Term Loans and Initial Revolving Loans. The proceeds of Term Loans and
the Initial Revolving Loans made to Company shall be applied, together with the
proceeds of the Senior Discount Notes, the Senior Subordinated Notes and the
Equity Contribution and approximately $77,000,000 of cash on hand at ENR to (i)
finance the purchase price for the Shares (or portion thereof) payable in
connection with the Shares Acquisitions and the ENR Merger consideration, (ii)
repay (or, in the case of the Existing Senior Notes and Existing Senior
Subordinated Notes, purchase or defease to redemption) in full the Existing
Indebtedness, (iii) repay or make, as applicable, the intercompany loans
described in the definition of "Transactions" and (iv) pay the Transaction
Costs.
B. Revolving Loans; Swing Line Loans. The proceeds of any Revolving Loans
(other than the Revolving Loans referenced in subsection 2.5A) and any Swing
Line Loans shall be applied by the Company for working capital and general
corporate purposes of the Company and its Subsidiaries other than Excluded
Foreign Subsidiaries.
C. Compliance With Laws. The Company undertakes that no portion of the
proceeds of any Loans or other extensions of credit under this Agreement shall
be used by any Loan Party in any manner which would be illegal under, or which
would cause the invalidity or unenforceability (in each case in whole or in
part) of any Loan Document under, any applicable law.
D. Margin Regulations. Without limiting the generality of subsection 2.5C,
no portion of the proceeds of any borrowing under this Agreement shall be used
by the Company or any of its Subsidiaries in any manner that might cause the
borrowing or the application of such proceeds to violate Regulation U,
Regulation T or Regulation X of the Board of Governors of the Federal Reserve
System or any other regulation of such Board or to violate the Exchange Act, in
each case as in effect on the date or dates of such borrowing and such use of
proceeds.
2.6 Special Provisions Governing Eurodollar Rate Loans.
59
<PAGE>
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to Eurodollar Rate Loans as to
the matters covered:
A. Determination of Applicable Interest Rate. As soon as practicable after
11:00 A.M. (New York time) on each Interest Rate Determination Date, the
Administrative Agent shall determine (which determination shall, absent manifest
error, be final, conclusive and binding upon all parties) the interest rate that
shall apply to the Eurodollar Rate Loans for which an interest rate is then
being determined for the applicable Interest Period and shall promptly give
notice thereof (in writing or by telephone confirmed in writing) to the Company
and each Lender.
B. Inability to Determine Applicable Interest Rate. In the event that the
Administrative Agent shall have reasonably determined (which determination shall
be final and conclusive and binding upon all parties hereto), on any Interest
Rate Determination Date with respect to any Eurodollar Rate Loans, that by
reason of circumstances arising after the date of this Agreement affecting the
London interbank market, adequate and fair means do not exist for ascertaining
the interest rate applicable to such Loans on the basis provided for in the
definition of Reserve Adjusted Eurodollar Rate the Administrative Agent shall on
such date give notice (by telecopy or by telephone confirmed in writing) to the
Company and each Lender of such determination, whereupon (i) no Loans may be
made or continued as, or converted to, Eurodollar Rate Loans, until such time as
the Administrative Agent notifies the Company and the Lenders that the
circumstances giving rise to such notice no longer exist (such notification not
to be unreasonably withheld or delayed) and (ii) any Notice of Borrowing or
Notice of Conversion/Continuation given by the Company with respect to the Loans
in respect of which such determination was made shall be deemed to be rescinded
by the Company.
C. Illegality or Impracticability of Eurodollar Rate Loans. In the event
that on any date any Lender shall have reasonably determined (which
determination shall be final and conclusive and binding upon all parties hereto
but shall be made only after consultation with the Company and the
Administrative Agent) that the making, maintaining or continuation of its
Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such
Lender in good faith with any law, treaty, governmental rule, regulation,
guideline or order (or would conflict with any such treaty, governmental rule,
regulation, guideline or order not having the force of law even though the
failure to comply therewith would not be unlawful) or (ii) has become
impracticable, or would cause such Lender material hardship, as a result of
contingencies occurring after the date of this Agreement which materially and
adversely affect the London interbank market, then, and in any such event, such
Lender shall be an "Affected Lender" and it shall on that day give notice (by
telecopy or by telephone confirmed in writing) to the Company and the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each other Lender). Thereafter (a) the
obligation of the Affected Lender to make Loans as, or to convert Loans to,
Eurodollar Rate Loans, shall be suspended until such notice shall be withdrawn
by the Affected Lender, (b) to the extent such determination by the Affected
Lender relates to a Eurodollar Rate Loan then being requested by the Company
pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the
Affected Lender shall make such Loan as (or convert such Loan to, as the case
may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its
outstanding Eurodollar Rate Loans, as the case may be (the "Affected Loans"),
shall be terminated at the earlier to occur of the expiration of the Interest
Period then in effect with respect to the Affected Loans or when required by
law, and (d) the Affected Loans shall automatically convert into Base Rate Loans
on the date of such termination. Notwithstanding the foregoing, to the extent a
determination by an Affected Lender as described above relates to a Eurodollar
Rate Loan then being requested by the Company pursuant to a
60
<PAGE>
Notice of Borrowing or a Notice of Conversion/Continuation, the Company shall
have the option, subject to the provisions of subsection 2.6D, to rescind such
Notice of Borrowing or Notice of Conversion/ Continuation as to all Lenders by
giving notice (by telecopy or by telephone confirmed in writing) to the
Administrative Agent of such rescission on the date on which the Affected Lender
gives notice of its determination as described above (which notice of rescission
the Administrative Agent shall promptly transmit to each other Lender). Except
as provided in the immediately preceding sentence, nothing in this subsection
2.6C shall affect the obligation of any Lender other than an Affected Lender to
make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in
accordance with the terms of this Agreement.
D. Compensation For Breakage or Non-Commencement of Interest Periods. The
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including, without limitation, any
interest paid by that Lender to the Lenders of funds borrowed by it to make or
carry its Eurodollar Rate Loans and any actual loss, expense or liability
sustained by that Lender in connection with the liquidation or re-employment of
such funds) which that Lender may sustain: (i) if for any reason (other than a
default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur
on a date specified therefor in a Notice of Borrowing or a telephonic request
for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan
does not occur on a date specified therefor in a Notice of
Conversion/Continuation or a telephonic request for conversion or continuation,
(ii) if any prepayment (including any prepayment pursuant to subsection 2.4B) or
conversion of any of its Eurodollar Rate Loans occurs on a date that is not the
last day of an Interest Period applicable to that Loan, (iii) if any prepayment
of any of its Eurodollar Rate Loans is not made on any date specified in a
notice of prepayment given by the Company, or (iv) as a consequence of any other
default by the Company in the repayment of its Eurodollar Rate Loans when
required by the terms of this Agreement.
E. Booking of Eurodollar Rate Loans. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Reserve Adjusted Eurodollar Rate in an amount equal to the amount of such
Eurodollar Rate Loan and having a maturity comparable to the relevant Interest
Period and, through the transfer of such Eurodollar deposit from an offshore
office of that Lender to a domestic office of that Lender in the United States
of America; provided, however, that each Lender may fund each of its Eurodollar
Rate Loans in any manner it sees fit and the foregoing assumptions shall be
utilized only for the purposes of calculating amounts payable under this
subsection 2.6 and under subsection 2.7A.
G. Eurodollar Rate Loans After Default. After the occurrence of and during
the continuation of a Default or Event of Default, (i) the Company may not elect
to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan
after the expiration of any Interest Period then in effect for that Loan and
(ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or
Notice of Conversion/Continuation given by the Company with respect to a
requested borrowing or conversion/continuation that has not yet occurred shall
be deemed to be rescinded by the Company.
61
<PAGE>
2.7 Increased Costs; Taxes; Capital Adequacy.
A. Compensation for Increased Costs and Taxes. Subject to the provisions
of subsection 2.7B, in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the Closing
Date, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) results in a change in the basis of taxation of such Lender (or
its applicable lending office) (other than a change with respect to any
Tax on the overall net income of such Lender) with respect to this
Agreement or any of its obligations hereunder or any payments to such
Lender (or its applicable lending office) of principal, interest, fees or
any other amount payable hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
for the account of, or advances or loans by, or other credit extended by,
or any other acquisition of funds by, any office of such Lender (other
than any such reserve or other requirements with respect to Eurodollar
Rate Loans that are reflected in the definition of Reserve Adjusted
Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder, or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Eurodollar Rate Loans hereunder or to
reduce any amount received or receivable by such Lender (or its applicable
lending office) with respect thereto; then, in any such case, the Lender shall
promptly notify the Company and the Administrative Agent thereof and the Company
shall promptly pay to such Lender, upon receipt of the statement referred to in
the next sentence, such additional amount or amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender shall reasonably determine) as may be necessary to compensate
such Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Such Lender shall deliver to the Company (with a copy to
the Administrative Agent) a written statement, setting forth in reasonable
detail the basis for calculating the additional amounts owed to such Lender
under this subsection 2.7A, which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
B. Withholding of Taxes.
(i) Payments to Be Free and Clear. All sums payable by the Company
under this Agreement and the other Loan Documents shall (except to the
extent required by law) be paid free and clear of, and without any
deduction or withholding on account of, any Tax (other than a Tax on the
overall net income of the Administrative Agent or any Lender) imposed,
levied, collected,
62
<PAGE>
withheld or assessed by or within the United States of America.
(ii) Withholding of Taxes. Subject to the provisions of subsection
2.7B(iii), if the Company or any other Person is required by law to make
any deduction or withholding on account of any Tax (other than a Tax on
the overall net income of the Administrative Agent or any Lender) from any
sum paid or payable by the Company to the Administrative Agent or any
Lender under any of the Loan Documents:
(a) The Company shall notify the Administrative Agent of any
such requirement or any change in any such requirement as soon as
practicable;
(b) The Company shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on the Company) for its own account or
(if that liability is imposed on the Administrative Agent or such
Lender, as the case may be) on behalf of and in the name of the
Administrative Agent or such Lender;
(c) the sum payable by the Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making
of that deduction, withholding or payment, the Administrative Agent
or such Lender, as the case may be, receives on the due date a net
sum equal to what it would have received had no such deduction,
withholding or payment of such tax been required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required
by clause (b) above to pay, the Company shall deliver to the
Administrative Agent evidence satisfactory to the other affected
parties of such deduction, withholding or payment and of the
remittance thereof to the relevant taxing or other authority;
provided that no such additional amount shall be required to be paid to any
Lender under clause (c) above except to the extent that any change after the
Closing Date or after the date of the Assignment Agreement pursuant to which
such Lender became a Lender (in the case of each other Lender) in any such
requirement for a deduction, withholding or payment as is mentioned therein
shall result in an increase in the rate of such deduction, withholding or
payment from that in effect at the date of this Agreement or at the date of such
Assignment Agreement, as the case may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is not a United States Person (as such
term is defined in Section 7701(a)(30) of the Internal Revenue Code)
for U.S. federal income tax purposes (for purposes of this
subsection 2.7B(iii), a "Non-US Lender") shall deliver to each of
the Administrative Agent and the Company, on or prior to the Closing
Date, in the case of a Lender that is an assignee or transferee of
an interest under this Agreement pursuant to Sections 10.1, or on or
prior to the date of the Assignment Agreement pursuant to which it
becomes a Lender, and at such other times as may be necessary in the
determination of the Company or the Administrative Agent (each in
the reasonable exercise of its discretion), (1) two original copies
of Internal Revenue Service Form 1001 or 4224 (or
63
<PAGE>
any successor forms), accurately completed and duly executed by such
Lender, together with any other certificate or statement of
exemption required under the Internal Revenue Code or the
regulations issued thereunder to establish that such Lender is not
subject to deduction or withholding of United States federal income
tax with respect to any payments to such Lender of principal,
interest, fees or other amounts payable under any of the Loan
Documents or (2) if such Lender is not a "bank" or other Person
described in Section 881(c)(3) of the Internal Revenue Code and
cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (1) above, a Certificate of Non-Bank Status
together with an original copy of Internal Revenue Service Form W-8
(or any successor form), properly completed and duly executed by
such Lender, together with any other certificate or statement of
exemption required under the Internal Revenue Code or the
regulations issued thereunder to establish that such Lender is not
subject to deduction or withholding of United States federal income
tax with respect to any payments to such Lender of interest payable
under any of the Loan Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters pursuant to subsection 2.7B(iii)(a) hereby
agrees, from time to time after the initial delivery by such Lender
of such forms, certificates or other evidence, whenever a lapse in
time or change in circumstances renders such forms, certificates or
other evidence obsolete or inaccurate in any material respect, such
Lender shall (1) deliver to each of the Administrative Agent and the
Company two new original copies of Internal Revenue Service Form
1001 or 4224, or a Certificate of Non-Bank Status and an original
copy of Internal Revenue Service Form W-8, as the case may be,
accurately completed and duly executed by such Lender, together with
any other certificate or statement of exemption required in order to
confirm or establish that such Lender is not subject to deduction or
withholding of or is subject to a reduced rate of withholding of
United States federal income tax with respect to payments to such
Lender under the Loan Documents or (2) immediately notify the
Administrative Agent and the Company of its inability to deliver any
such forms, certificates or other evidence.
(c) The Company shall not be required to pay any additional
amount to any Non-US Lender under clause (c) of subsection 2.7B(ii)
in respect of deductions or withholdings of United States federal
income taxes if such Lender shall have failed to satisfy the
requirements of subsection 2.7B(iii)(a) or 2.7B(iii)(b); provided
that if such Lender shall have satisfied such requirements on the
Closing Date or on the date of the Assignment Agreement pursuant to
which it became a Lender (in the case of each other Lender), nothing
in this subsection 2.7B(iii)(c) shall relieve the Company of its
obligation to pay any additional amounts pursuant to clause (c) of
subsection 2.7B(ii) in the event that, as a result of any change
after the Closing Date in any applicable law, treaty or governmental
rule, regulation or order, or any change in the interpretation,
administration or application thereof, such Lender is no longer
properly entitled to deliver forms, certificates or other evidence
at a subsequent date establishing the fact that such Lender is not
subject to withholding as described in subsection 2.7B(iii)(a) or
2.7B(iii)(b).
C. Capital Adequacy Adjustment. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the Closing Date of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or
64
<PAGE>
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its applicable lending office) with any guideline, request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on the capital of such Lender or
any corporation controlling such Lender as a consequence of, or with reference
to, such Lender's Loans or Commitments or Letters of Credit or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender reasonably determines such
Lender or such controlling corporation could have achieved but for such
adoption, effectiveness, phase-in, applicability, change or compliance (taking
into consideration the policies of such Lender or such controlling corporation
with regard to capital adequacy), then from time to time, within fifteen
Business Days after receipt by the Company from such Lender of the statement
referred to in the next sentence, the Company shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such controlling
corporation on an after-tax basis for such reduction. Such Lender shall deliver
to the Company (with a copy to the Administrative Agent) a written statement,
setting forth in reasonable detail the basis of the calculation of such
additional amounts, which statement shall be conclusive and binding upon all
parties hereto absent manifest error.
D. Substitute Lenders. In the event the Company is required under the
provisions of this subsection 2.7 to make payments in a material amount to any
Lender or in the event any Lender fails to lend to the Company in accordance
with this Agreement, the Company may, so long as no Default or Event of Default
shall have occurred and be continuing, elect to terminate such Lender as a party
to this Agreement; provided that, concurrently with such termination, (i) the
Company shall pay that Lender all principal, interest and fees and other amounts
(including without limitation amounts, if any, owed under this subsection 2.7)
due to be paid to such Lender with respect to all periods through such date of
termination, (ii) another financial institution satisfactory to the Company and
the Administrative Agent (or, in the event the Administrative Agent is also the
Lender to be terminated, the successor Administrative Agent) shall agree, as of
such date, to become a Lender for all purposes under this Agreement (whether by
assignment or amendment) and to assume all obligations of the Lender to be
terminated as of such date, and (iii) all documents and supporting materials
necessary, in the judgment of the Administrative Agent (or, in the event the
Administrative Agent is also the Lender to be terminated, the successor
Administrative Agent) to evidence the substitution of such Lender shall have
been received and approved by the Administrative Agent as of such date.
2.8 Obligation of Lenders and Issuing Bank to Mitigate.
Each Lender and the Issuing Bank agrees that, as promptly as practicable
after the officer of such Lender or the Issuing Bank responsible for
administering the Loans or Letters of Credit of such Lender or the Issuing Bank,
as the case may be, becomes aware of the occurrence of an event or the existence
of a condition that would cause such Lender to become an Affected Lender or that
would entitle such Lender or the Issuing Bank to receive payments under
subsection 2.7 or subsection 3.6, it will, to the extent not inconsistent with
the internal policies of such Lender or the Issuing Bank and any applicable
legal or regulatory restrictions, use reasonable efforts (i) to make, issue,
fund or maintain the Commitments of such Lender or the affected Loans or Letters
of Credit of such Lender or the Issuing Bank through another lending or letter
of credit office of such Lender or the Issuing Bank, or (ii) take such other
measures as such Lender or the Issuing Bank may deem reasonable, if as a result
thereof the circumstances which
65
<PAGE>
would cause such Lender to be an Affected Lender would cease to exist or the
additional amounts which would otherwise be required to be paid to such Lender
or the Issuing Bank pursuant to subsection 2.7 or subsection 3.6 would be
materially reduced and if, as determined by such Lender or the Issuing Bank in
its sole discretion, the making, issuing, funding or maintaining of such
Commitments or Loans or Letters of Credit through such other the lending or
letter of credit office or in accordance with such other measures, as the case
may be, would not otherwise materially adversely affect such Commitments or
Loans or Letters of Credit or the interests of such Lender or the Issuing Bank;
provided that such Lender or the Issuing Bank will not be obligated to utilize
such other lending or letter of credit office pursuant to this subsection 2.8
unless the Company agrees to pay all incremental expenses incurred by such
Lender or the Issuing Bank as a result of utilizing such other lending or letter
of credit office. A certificate as to the amount of any such expenses payable by
the Company pursuant to this subsection 2.8 (setting forth in reasonable detail
the basis for requesting such amount) submitted by such Lender or the Issuing
Bank to the Company (with a copy to the Administrative Agent) shall be
conclusive absent manifest error.
SECTION 3.
LETTERS OF CREDIT
3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations
Therein.
A. Letters of Credit. In addition to the Company requesting that Lenders
make Revolving Loans pursuant to subsection 2.1A(iii) and that the Swing Line
Lender make Swing Line Loans pursuant to subsection 2.1A(iv), the Company may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Closing Date to but excluding the date which is
five (5) Business Days before the Revolving Loan Commitment Termination Date,
that the Issuing Bank issue Letters of Credit for the account of the Company for
the purposes specified in the definitions of Commercial Letters of Credit and
Standby Letters of Credit. Subject to and upon the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Loan
Parties herein set forth, the Issuing Bank agrees to issue such Letters of
Credit in accordance with the provisions of this subsection 3.1; provided that
the Company shall not request that the Issuing Bank issue (and the Issuing Bank
shall not issue):
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Loan Commitments would exceed the
Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed the Letter of Credit Subfacility
Commitment;
(iii) any Standby Letter of Credit having an expiration date later
than the earlier of (a) five (5) Business Days prior to the Revolving Loan
Commitment Termination Date and (b) the date which is one year from the
date of issuance of such Standby Letter of Credit; provided, that the
immediately preceding clause (b) shall not prevent the Issuing Bank from
agreeing that a Standby Letter of Credit will automatically be extended
for one or more successive periods absent a Default or Event of Default,
subject to the immediately preceding clause (a), not to exceed one year
each unless the Issuing Bank elects not to extend for any such additional
period; provided, further, that, unless the Requisite Lenders otherwise
consent, the Issuing Bank shall give notice that it will not extend such
Standby Letter of Credit if it has knowledge that a Default or Event of
Default has occurred and is continuing on the last day on which such
Issuing Bank may give notice to the beneficiary that it will not extend
such Standby Letter of Credit;
66
<PAGE>
(iv) any Commercial Letter of Credit (a) having an expiration date
later than the earlier of (x) thirty (30) days prior to the Revolving Loan
Commitment Termination Date and (y) the date which is one hundred eighty
(180) days from the date of issuance of such Commercial Letter of Credit
or (b) that is otherwise unacceptable to the Issuing Bank in its
reasonable discretion;
(v) any Letter of Credit denominated in a currency other than
Dollars; or
(vi) any Letter of Credit during any period when a Lender Default
exists, unless the Issuing Bank has entered into arrangements satisfactory
to it and the Company to eliminate the Issuing Bank's risk with respect to
the Defaulting Lender, including by cash collateralizing such Defaulting
Lender's Pro Rata Share of the Letter of Credit Usage (after giving effect
to the issuance of the proposed Letter of Credit).
B. Mechanics of Issuance.
(i) Notice of Issuance. Whenever the Company desires the issuance of
a Letter of Credit, it shall deliver to the Issuing Bank, at the Letter of
Credit Issuing Office, and the Administrative Agent, at the Funding and
Payment Office, a Notice of Issuance of Letter of Credit no later than
12:00 Noon (New York time) at least five (5) Business Days, or such
shorter period as may be agreed to by the Issuing Bank in any particular
instance, in advance of the proposed date of issuance. The Notice of
Issuance of Letter of Credit shall specify (a) the proposed date of
issuance (which shall be a Business Day), (b) the face amount of or
maximum aggregate liability under, as applicable, the Letter of Credit,
(c) the expiration date of the Letter of Credit, (d) the name and address
of the beneficiary, and (e) the verbatim text of the proposed Letter of
Credit or the proposed terms and conditions thereof, including a precise
description of any documents and the verbatim text of any certificates to
be presented by the beneficiary which, if presented by the beneficiary
prior to the expiration date of the Letter of Credit, would require the
Issuing Bank to make payment thereunder; provided that the Issuing Bank,
in its reasonable discretion, may require changes in the text of the
proposed Letter of Credit or any such documents or certificates; provided
further that no Letter of Credit shall require payment against a
conforming draft or other request for payment to be made thereunder on the
same business day (under the laws of the jurisdiction in which the office
of the Issuing Bank to which such draft or other request for payment is
required to be presented is located) that such draft or other request for
payment is presented if such presentation is made after 10:00 A.M. (in the
time zone of such office of the Issuing Bank) on such Business Day.
The Company shall notify the Issuing Bank and the Administrative
Agent prior to the issuance of any Letter of Credit in the event that any
of the matters to which the Company is required to certify in the
applicable Notice of Issuance of Letter of Credit is no longer true and
correct as of the proposed date of issuance of such Letter of Credit, and
upon the issuance of any Letter of Credit, the Company shall be deemed to
have re-certified, as of the date of such issuance, as to the matters to
which the Company is required to certify in the applicable Notice of
Issuance of Letter of Credit.
(ii) Issuance of Letter of Credit. Upon satisfaction or waiver (in
accordance with subsection 10.6) of the conditions set forth in subsection
4.3, the Issuing Bank shall issue the requested Letter of Credit in
accordance with the Issuing Lender's standard procedures, and upon
67
<PAGE>
its issuance of such Letter of Credit the Issuing Bank shall promptly
notify the Administrative Agent and each Lender of such issuance, which
notice shall be accompanied by a copy of such Letter of Credit.
(iii) Reports to Lenders. Within thirty (30) days after the end of
each calendar quarter ending after the Closing Date, so long as any Letter
of Credit shall have been outstanding during such calendar quarter, the
Issuing Bank shall deliver to the Administrative Agent and the
Administrative Agent shall deliver to each Lender a report setting forth
for such calendar quarter the daily maximum amount available to be drawn
under the Letters of Credit that were outstanding during such calendar
quarter.
C. Lenders' Purchase of Participations in Letters of Credit. Immediately
upon the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby agrees to, have irrevocably purchased from the Issuing Bank a
participation in such Letter of Credit and any drawings honored or payments made
thereunder in an amount equal to such Lender's Pro Rata Share (with respect to
the Revolving Loan Commitments) of the maximum amount which is or at any time
may become available to be drawn or required to be paid thereunder.
3.2 Letter of Credit Fees.
The Company agrees to pay the following amounts to the Issuing Bank with
respect to Letters of Credit issued by it for the account of the Company:
(i) with respect to each Letter of Credit, (a) a fronting fee equal
to 0.25% per annum of the daily maximum amount available to be drawn under
such Letter of Credit and (b) a Letter of Credit fee equal to the product
of (x) the then Applicable Eurodollar Rate Margin with respect to
Revolving Loans and (y) the daily maximum amount available to be drawn
under such Letter of Credit, in each case payable in arrears on and to the
last Business Day in each of March, June, September and December of each
year, commencing December 1998, and on the Revolving Loan Commitment
Termination Date and computed on the basis of a 360-day year for the
actual number of days elapsed; and
(ii) with respect to the issuance, amendment or transfer of each
Letter of Credit and each drawing made thereunder (without duplication of
the fees payable under clause (i) above), documentary and processing
charges in accordance with such Issuing Lender's standard schedule for
such charges in effect at the time of such issuance, amendment, transfer
or drawing, as the case may be.
Promptly upon receipt by such Issuing Bank of any amount described in clause
(i)(b) of this subsection 3.2, such Issuing Bank shall distribute to each other
Lender having Revolving Loan Exposure its Pro Rata Share of such amount.
3.3 Drawings and Payments and Reimbursement of Amounts Drawn or Paid Under
Letters of Credit.
A. Responsibility of Issuing Bank With Respect to Requests For Drawings
and Payments. In determining whether to honor any drawing or request for payment
under any Letter of Credit by the beneficiary thereof, the Issuing Bank shall be
responsible only to determine that the
68
<PAGE>
documents and certificates required to be delivered under such Letter of Credit
have been delivered and that they comply on their face with the requirements of
such Letter of Credit.
B. Reimbursement by the Company of Amounts Drawn or Paid Under Letters of
Credit. In the event an Issuing Bank has determined to honor a drawing or
request for payment under a Letter of Credit issued by it, the Issuing Bank
shall immediately notify the Company and the Administrative Agent, and the
Company shall reimburse such Issuing Bank on or before the Business Day on which
such drawing is honored or such payment is made (the applicable "Reimbursement
Date") in an amount in same day funds equal to the amount of such honored
drawing; provided that, anything contained in this Agreement to the contrary
notwithstanding, (i) unless the Company shall have notified the Administrative
Agent and the Issuing Bank prior to 12:00 Noon (New York time) on the date of
such honored drawing or request for payment that the Company intends to
reimburse such Issuing Bank for the amount of such honored drawing or payment
with funds other than the proceeds of Revolving Loans, the Company shall be
deemed to have given a timely Notice of Borrowing to the Administrative Agent
requesting the Lenders to make Revolving Loans which are Base Rate Loans on the
applicable Reimbursement Date in an amount equal to the amount of such honored
drawing or payment and (ii) subject to satisfaction or waiver of the conditions
specified in subsection 4.2B, the Lenders shall, on the applicable Reimbursement
Date, make Revolving Loans in the amount of such honored drawing or payment, the
proceeds of which shall be applied directly by the Administrative Agent to
reimburse the Issuing Bank for the amount of such honored drawing or payment;
provided further that if for any reason proceeds of Revolving Loans are not
received by the Issuing Bank on the applicable Reimbursement Date in an amount
equal to the amount of such honored drawing or payment, the Company shall
reimburse the Issuing Bank, on demand, in an amount in same day funds equal to
the excess of the amount of such honored drawing or payment over the aggregate
amount of such Revolving Loans, if any, which are so received. Nothing in this
subsection 3.3B shall be deemed to relieve any Lender from its obligation to
make Revolving Loans on the terms and conditions set forth in this Agreement,
and the Company shall retain any and all rights it may have against any Lender
resulting from the failure of such Lender to make such Revolving Loans under
this subsection 3.3B.
C. Payment by Lenders of Unreimbursed Drawings or Payments Under Letters
of Credit.
(i) Payment by Lenders. In the event that the Company shall fail for
any reason to reimburse any Issuing Bank as provided in subsection 3.3B in
an amount equal to the amount of any honored drawing or payment made by
such Issuing Bank under a Letter of Credit issued by it, such Issuing Bank
shall promptly notify each other Lender of the unreimbursed amount of such
honored drawing or payment and of such other Lender's respective
participation therein based on such Lender's Pro Rata Share of the
Revolving Loan Commitments. Each Lender shall make available to such
Issuing Bank an amount equal to its respective participation, in same day
funds, at the office of such Issuing Bank specified in such notice, not
later than 2:00 P.M. (New York time) on the first business day (under the
laws of the jurisdiction in which such office of such Issuing Bank is
located) after the date notified by such Issuing Bank. In the event that
any Lender fails to make available to such Issuing Bank on such business
day the amount of such Lender's participation in such Letter of Credit as
provided in this subsection 3.3C, such Issuing Bank shall be entitled to
recover such amount on demand from such Lender together with interest
thereon at the rate customarily used by such Issuing Bank for the
correction of errors among banks for three Business Days and thereafter at
the Base Rate. Nothing in this subsection 3.3C shall be deemed to
prejudice the right of any Lender to recover from any Issuing Bank any
amounts made available
69
<PAGE>
by such Lender to such Issuing Bank pursuant to this subsection 3.3C in
the event that it is determined by the final judgment of a court of
competent jurisdiction that the payment with respect to a Letter of Credit
by such Issuing Bank in respect of which payment was made by such Lender
constituted gross negligence or willful misconduct on the part of such
Issuing Bank.
(ii) Distribution to Lenders of Reimbursements Received From the
Company. In the event any Issuing Bank shall have been reimbursed by other
Lenders pursuant to subsection 3.3C(i) for all or any portion of any
honored drawing or payment made by such Issuing Bank under a Letter of
Credit issued by it, such Issuing Bank shall distribute to each other
Lender which has paid all amounts payable by it under subsection 3.3C(i)
with respect to such honored drawing or payment such other Lender's Pro
Rata Share of all payments subsequently received by such Issuing Bank from
the Company in reimbursement of such honored drawing or payment when such
payments are received. Any such distribution shall be made to a Lender at
its primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request.
D. Interest on Amounts Drawn or Paid Under Letters of Credit.
(i) Payment of Interest by the Company. The Company agrees to pay to
each Issuing Bank, with respect to drawings or payments made under any
Letters of Credit issued by it, interest on the amount paid by such
Issuing Bank in respect of each such drawing or payment from the date such
drawing is honored or payment is made to but excluding the date such
amount is reimbursed by the Company (including any such reimbursement out
of the proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate
equal to (a) for the period from the date such drawing is honored or
payment is made to but excluding the applicable Reimbursement Date, the
Base Rate plus the Applicable Base Rate Margin with respect to Revolving
Loans, and (b) thereafter, a rate which is 2% per annum in excess of the
rate of interest described in the foregoing clause (a). Interest payable
pursuant to this subsection 3.3D(i) shall be computed on the basis of a
360-day year for the actual number of days elapsed in the period during
which it accrues and shall be payable on demand or, if no demand is made,
on the date on which the related drawing or payment under a Letter of
Credit is reimbursed in full.
(ii) Distribution of Interest Payments by Issuing Bank. Promptly
upon receipt by any Issuing Bank of any payment of interest pursuant to
subsection 3.3D(i), (a) such Issuing Bank shall distribute to each other
Lender, out of the interest received by such Issuing Bank in respect of
the period from the date of the applicable honored drawing or payment
under a Letter of Credit issued by such Issuing Bank to but excluding the
date on which such Issuing Bank is reimbursed for the amount of such
drawing or payment (including any such reimbursement out of the proceeds
of Revolving Loans pursuant to subsection 3.3B), the amount that such
other Lender would have been entitled to receive in respect of the Letter
of Credit fee that would have been payable in respect of such Letter of
Credit for such period pursuant to subsection 3.2 if no drawing had been
honored or payment had been made under such Letter of Credit, and (b) in
the event such Issuing Bank shall have been reimbursed by other Lenders
pursuant to subsection 3.3C(i) for all or any portion of such drawing or
payment, such Issuing Bank shall distribute to each other Lender which has
paid all amounts payable by it under subsection 3.3C(i) with respect to
such drawing or payment such other Lender's Pro Rata Share of any interest
received by such Issuing Bank in respect of that portion of such drawing
or payment so reimbursed by other Lenders for the period from the date on
which such Issuing Bank was so reimbursed by other Lenders to and
including the date on
70
<PAGE>
which such portion of such drawing or payment is reimbursed by the
Company. Any such distribution shall be made to a Lender at its Lending
Office set forth on Schedule 2.1 or at such other address as such Lender
may request.
3.4 Obligations Absolute.
The obligation of the Company to reimburse each Issuing Bank for drawings
honored or payments made under the Letters of Credit issued by it and to repay
any Revolving Loans made by the Lenders pursuant to subsection 3.3B and the
obligations of the Lenders under subsection 3.3C(i) shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of any Letter of Credit;
(ii) the existence of any claim, set-off, defense or other right
which the Company or any Lender may have at any time against a beneficiary
or any transferee of any Letter of Credit (or any Persons for whom any
such transferee may be acting), any Issuing Bank or other Lender or any
other Person or, in the case of a Lender, against the Company whether in
connection with this Agreement, the transactions contemplated herein or
any unrelated transaction (including any underlying transaction between
the Company or one of its Subsidiaries and the beneficiary for which any
Letter of Credit was procured);
(iii) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by the applicable Issuing Bank under any Letter of
Credit against presentation of a demand, draft or certificate or other
document which appears to substantially comply with the terms of such
Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of the Company or
any of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or
(viii) the fact that Default or Event of Default shall have occurred
and be continuing;
provided, in each case, that payment by the applicable Issuing Bank under the
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Bank under the circumstances in question (as
determined by a final judgment of a court of competent jurisdiction).
3.5 Indemnification; Nature of Issuing Lender's Duties.
A. Indemnification. In addition to amounts payable as provided in
subsection 3.6, the Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Bank from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including
71
<PAGE>
reasonable fees, expenses and disbursements of counsel and allocated costs of
internal counsel) which such Issuing Bank may incur or be subject to as a
consequence, direct or indirect, of (i) the issuance of any Letter of Credit by
such Issuing Bank, other than as a result of (a) the gross negligence or willful
misconduct of such Issuing Bank as determined by a final judgment of a court of
competent jurisdiction or (b) subject to the following clause (ii), the wrongful
dishonor by such Issuing Bank of a proper demand for payment made under any
Letter of Credit issued by it or (ii) the failure of such Issuing Bank to honor
a drawing or other request for payment under any such Letter of Credit as a
result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or governmental authority (all such acts
or omissions herein called "Governmental Acts").
B. Nature of Issuing Bank's Duties. As between the Company and any Issuing
Bank, the Company assumes all risks of the acts and omissions of, or misuse of
the Letters of Credit issued by such Issuing Bank by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, such Issuing Bank shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they be in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing or
payment under such Letter of Credit; or (viii) any consequences arising from
causes beyond the control of such Issuing Bank, including without limitation any
Governmental Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of such Issuing Lender's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Bank under or in connection with the Letters of
Credit issued by it or any documents and certificates delivered thereunder, if
taken or omitted in good faith, shall not put such Issuing Bank under any
resulting liability to the Company.
Notwithstanding anything to the contrary contained in this subsection 3.5,
the Company shall retain any and all rights it may have against any Issuing Bank
for any liability arising solely out of the gross negligence or willful
misconduct of such Issuing Bank, as determined by a final judgment of a court of
competent jurisdiction.
3.6 Increased Costs and Taxes Relating to Letters of Credit.
In the event that any Issuing Bank or any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any law, treaty or governmental rule, regulation
or order, or any change therein or in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the Closing
Date, or compliance by any Issuing Bank or Lender with any guideline, request or
72
<PAGE>
directive issued or made after the Closing Date by any central bank or other
governmental or quasi-governmental authority (whether or not having the force of
law):
(i) results in any change in the basis of taxation of such Issuing
Bank or any Lender (or its applicable lending or letter of credit office)
(other than a change with respect to any Tax on the overall net income of
such Issuing Bank or Lender) with respect to the issuing or maintaining of
any Letters of Credit or the purchasing or maintaining of any
participations therein or any other obligations under this Section 3,
whether directly or by such being imposed on or suffered by any particular
Issuing Bank;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by any Issuing Bank
or participations therein purchased by any Lender; or
(iii) imposes any other condition on or affecting such Issuing Bank
or Lender (or its applicable lending or letter of credit office) regarding
this Section 3 or any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Bank or Lender of agreeing to issue, issuing or maintaining any Letter of Credit
or agreeing to purchase, purchasing or maintaining any participation therein or
to reduce any amount received or receivable by such Issuing Bank or Lender (or
its applicable lending or letter of credit office) with respect thereto; then,
in any case, the Company shall promptly pay to such Issuing Bank or Lender, upon
receipt of the statement referred to in the next sentence, such additional
amount or amounts (reasonably determined by such Issuing Bank or Lender) as may
be necessary to compensate such Issuing Bank or Lender for any such increased
cost or reduction in amounts received or receivable hereunder. Such Issuing Bank
or Lender shall deliver to the Company a written statement, setting forth in
reasonable detail the basis for calculating the additional amounts owed to such
Issuing Bank or Lender under this subsection 3.6, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
SECTION 4.
CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of the Lenders to make loans and of the Issuing Bank to
issue Letters of Credit hereunder are subject to the satisfaction of the
following conditions.
4.1 Conditions to Term Loans; Initial Revolving Loans.
The obligations of the Lenders to make the Term Loans and the Revolving
Loans to be made on the Closing Date are, in addition to the conditions
precedent specified in subsection 4.2, subject to prior or concurrent
satisfaction of the following conditions:
A. Parent and Company Documents. On or before the Closing Date, each of
the Parent and the Company shall deliver or cause to be delivered to the Lenders
and Agents (or to the Administrative Agent for the Lenders with sufficient
originally executed copies, where appropriate, for each Lender and Agent and its
counsel) the following, each, unless otherwise noted, dated the Closing Date:
73
<PAGE>
(i) Certified copies of its Certificate of Incorporation, together
with a good standing certificate from the Secretary of State of the State
of Delaware, each state in which any of its Real Property Asset is located
and each other state in which it is qualified as a foreign corporation to
do business, each dated a recent date prior to the Closing Date;
(ii) Copies of its Bylaws, certified as of the Closing Date by its
corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and
authorizing the execution, delivery and performance of this Agreement and
the other Loan Documents and the Transaction Documents to which it is a
party or by which it or its assets may be bound as of the Closing Date,
certified as of the Closing Date by its corporate secretary or an
assistant secretary as being in full force and effect without modification
or amendment;
(iv) Incumbency certificates of its officers executing this
Agreement and the other Loan Documents to which it is a party as of the
Closing Date;
(v) Executed originals of this Agreement and the other Loan
Documents to which it is a party;
(vi) Certified copies of each of the other Transaction Documents to
which it is a party; and
(vii) Such other documents as the Administrative Agent may
reasonably request.
B. Subsidiary Documents. On or before the Closing Date, the Company shall
deliver or cause to be delivered to the Lender and Agents (or to the
Administrative Agent for the Lenders with sufficient originally executed copies,
where appropriate, for each Lender and Agent and its counsel) the following for
each of its Subsidiaries (which may be waived by the Agents for any Subsidiaries
of the Company with respect to the items described in clause (i) below) after
giving effect to the Transactions, each, unless otherwise noted, dated the
Closing Date:
(i) Certified copies of the Organizational Certificate, together
with a good standing certificate from the applicable Governmental
Authority of its jurisdiction of incorporation, organization or formation,
each state in which a Real Property Asset of such Subsidiary is located
and each other jurisdiction in which it is qualified as a foreign
corporation or other entity to do business, each dated a recent date prior
to the Closing Date;
(ii) Copies of the Organizational Documents of such Subsidiary,
certified as of the Closing Date by its corporate secretary or an
assistant secretary;
(iii) Copies of the Organizational Authorizations of such Subsidiary
approving and authorizing the execution, delivery and performance of the
Subsidiary Guaranty or the Foreign Subsidiary Guaranty, as the case may
be, and the other Loan Documents to which such Subsidiary is party,
certified as of the Closing Date by its corporate secretary or an
assistant secretary as being in full force and effect without modification
or amendment;
(iv) Incumbency certificates of its officers executing the
Subsidiary Guaranty or the
74
<PAGE>
Foreign Subsidiary Guaranty, as the case may be, and the other Loan
Documents to which such Subsidiary is party;
(v) Executed originals of the Subsidiary Guaranty or the Foreign
Subsidiary Guaranty, as the case may be, and the other Loan Documents to
which such Subsidiary is party, it being understood that (a) the
Collateral Documents to which Newmall and Wellman UK are to be parties
shall, if requested by the Agents, be governed by English law pursuant to
documentation reasonably satisfactory in form and substance to the Agents
and (b) Excluded Foreign Subsidiaries shall not be required to become
parties to the Loan Documents;
(vi) Certified copies of each of the other Transaction Documents to
which such Subsidiary is a party; and
(vii) Such other documents as any Agent may reasonably request.
C. Consummation of Transactions.
(i) (a) Each of the Transaction Documents (other than the
documentation described in clause (viii) of the definition thereof) shall
be in form and substance reasonably satisfactory to the Agents and each
such Transaction Document shall be in full force and effect; provided that
the terms and conditions of any Transaction Document dated and delivered
to the Agents and the Lenders prior to the date hereof shall be deemed
satisfactory to the Agents and the Lenders to the extent there has been no
material amendments or other modifications thereto and (b) all conditions
to the Transactions set forth in the Transaction Documents (other than the
documentation described in clause (viii) of the definition thereof) shall
have been satisfied or the fulfillment of any such conditions shall have
been waived with the consent of the Agents;
(ii) the Existing Investors shall have made, and Newmall shall have
received, the Equity Contribution and Newmall shall have applied the
proceeds thereof to repay the Newmall ESP Intercompany Indebtedness and
the Agents shall have received evidence reasonably satisfactory to it of
the foregoing;
(iii) the Newmall Stock Contribution shall have been consummated in
accordance with the Newmall Stock Contribution Agreement and the Agents
shall have received evidence reasonably satisfactory to them of the
foregoing;
(iv) (a) the Parent shall have effected and consummated the issuance
of the Senior Discount Notes and received gross cash proceeds, net of
reasonable fees and expenses, of at least $100,000,000 in connection
therewith, the Parent shall have contributed such proceeds to the Company
and the Agents shall have received evidence reasonably satisfactory to
them of the foregoing, and (b) the Company shall have effected and
consummated the issuance of the Senior Subordinated Notes and received
gross cash proceeds, net of reasonable fees and expenses, of at least
$100,000,000 and the Agents shall have received evidence satisfactory to
them of the foregoing;
(v) each of the Debt Tender Offer, the purchase of all Existing
Senior Notes and Existing Senior Subordinated Notes tendered pursuant
thereto (or, to the extent not tendered pursuant thereto, the defeasance
thereof to the respective earliest possible voluntary redemption
75
<PAGE>
dates thereunder following the Closing Date) and the Existing Indentures
Amendments shall have been effected and consummated and the Agents shall
have received evidence reasonably satisfactory to them of the foregoing;
(vi) Stone Rivet shall have effected and consummated the Shares
Tender Offer and the Shares Acquisition for an aggregate purchase price,
when taken together with the consideration to be paid pursuant to the ENR
Merger and option spread payments, not in excess of $266,300,000 and the
Agents shall have received evidence reasonably satisfactory to them of the
foregoing;
(vii) the ENR Merger shall have been effected and consummated and
the Agents shall have received a certified copy of the Merger Certificate;
(viii) the Company Stock Contribution shall have been consummated in
accordance with the Company Stock Contribution Agreement and the Agents
shall have received evidence reasonably satisfactory to them of the
foregoing;
(ix) the inter-company loans contemplated by the definition of
"Transactions" shall have been made and the Agents shall have received
evidence reasonably satisfactory to them of the foregoing;
(x) all restricted cash of ENR and its Subsidiaries (including,
without limitation, cash securing any of their Indebtedness or other
obligations, but excluding up to $5,000,000 of cash securing performance
bonds in respect of State Contracts and certain outstanding letters of
credit) shall have become unrestricted cash and shall have been used
towards the funding of the Transactions and Transaction Costs;
(xi) each of the other Transactions shall have been effected and
consummated to the reasonable satisfaction of the Agents; and
(xii) the Agents shall be reasonably satisfied with all matters
relating to the Transactions that could have a Material Adverse Effect,
including, without limitation, with (a) all material legal, tax and
accounting matters relating to the Transactions, and (b) the ability of
Subsidiaries of the Company, ENR and ESP to transfer funds to the Company,
ENR and ESP and the withholding tax consequences thereof.
D. Repayment of Existing Debt. After giving effect to the Transactions,
all Existing Debt shall have been paid in full (or, in the case of the Existing
Senior Notes and the Existing Senior Subordinated Notes, purchased pursuant to
the Debt Tender Offer or, to the extent not tendered pursuant thereto, a notice
to redeem on the earliest possible voluntary redemption dates thereunder
following the Closing Date shall have been delivered), any commitments to lend
thereunder shall have been terminated, all security interests created to secure
the obligations arising in connection therewith shall have been terminated or
effectively assigned to the Collateral Agent for the benefit of the Lenders, and
the Company shall have delivered to the Administrative Agent UCC-3 termination
statements or assignments (or comparable forms) and any and all other
instruments of release, satisfaction, assignment and/or reconveyance (or
evidence of the filing thereof) as may be necessary or advisable to terminate or
assign to the Collateral Agent for the benefit of the Lenders all such security
interests and all other security interests in the Collateral. The aggregate
amount of principal and premium required to repay, purchase and defease, as
applicable, all of the Existing Debt shall not exceed $442,800,000 or such
larger amount, if any, as is satisfactory to the Requisite Lenders in their sole
discretion.
76
<PAGE>
E. Necessary Consents. The Parent and the Company shall have obtained all
consents of Governmental Authorities and other Persons necessary or advisable in
connection with the Transactions and the continued operation of the business
conducted by the Company and its Subsidiaries, and each of the foregoing shall
be in full force and effect and in form and substance reasonably satisfactory to
the Agents (other than those listed on Schedule 4.1E the failure to obtain
which, either individually or in the aggregate, is not reasonably likely to have
a Material Adverse Effect). All applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority which
would restrain, prevent or otherwise impose adverse conditions on the
Transactions or the financing thereof and no action, request for stay, petition
for review or rehearing, reconsideration or appeal shall be pending and any time
for agency action to set aside its consent on its own motion has expired.
F. Perfection of Security Interests. The Parent and the Company shall have
taken or caused to be taken such actions in such a manner so that the Collateral
Agent has a valid and perfected First Priority security interest in the entire
personal property (both tangible and intangible) and mixed Collateral. Such
actions shall include, without limitation: (i) the delivery pursuant to the
applicable Collateral Documents of (a) such certificates or other instruments
(each of which shall be registered in the name of the Collateral Agent or
properly endorsed in blank for transfer or accompanied by irrevocable undated
stock or equivalent powers duly endorsed in blank, all in form and substance
satisfactory to the Collateral Agent) representing all of the shares or other
interests of Capital Stock required to be pledged pursuant to the Collateral
Documents and (b) all promissory notes or other instruments (duly endorsed,
where appropriate, in a manner satisfactory to the Collateral Agent) evidencing
any Collateral; (ii) the delivery to the Collateral Agent of (a) the results of
a recent search, by a Person satisfactory to the Collateral Agent, of all
effective UCC financing statements and fixture filings and all judgment and tax
lien filings which may have been made with respect to any personal or mixed
property of any Loan Party, together with copies of all such filings disclosed
by such search; (iii) the delivery to the Collateral Agent of Uniform Commercial
Code financing statements executed by the applicable Loan Parties as to all such
Collateral granted by such Loan Parties for all jurisdictions as may be
necessary or desirable to perfect Administrative Agent's security interest in
such Collateral; (iv) the delivery to the Collateral Agent of evidence
reasonably satisfactory to the Collateral Agent that all other filings
(including, without limitation, Uniform Commercial Code termination statements
and releases and filings with the PTO and the United States Copyright Office
with respect to Intellectual Property of the Company and its Subsidiaries),
recordings and other actions the Collateral Agent deems necessary or advisable
to establish, preserve and perfect the First Priority Liens granted to the
Collateral Agent in personal (both tangible and intangible) and mixed property
shall have been made; and (v) such other filings, registrations, recordings and
other actions the Collateral Agent deems necessary or advisable to establish,
preserve and perfect the First Priority Liens granted to the Collateral Agent in
any Collateral, which by the nature, location or pledgor thereof, should be made
or taken in or with respect to any foreign jurisdiction.
G. Real Property. The Administrative Agent and the Collateral Agent shall
have received from the Company and each applicable Subsidiary Guarantor unless
waived by the Administrative Agent (in which case, any waived items shall be
delivered pursuant to subsection 6.12D):
(i) Closing Date Mortgages. Fully executed and notarized Mortgages
(each a "Closing Date Mortgage" and, collectively, the "Closing Date
Mortgages"), in proper form for recording in all appropriate places in all
applicable jurisdictions, encumbering each Real Property Asset listed in
Schedule 4.1G annexed hereto (each a "Closing Date Mortgaged Property"
and, collectively, the "Closing Date Mortgaged Properties");
77
<PAGE>
(ii) [RESERVED];
(iii) Title Insurance. (a) ALTA standard form mortgagee title
insurance policies or unconditional commitments therefor (the "Closing
Date Mortgage Policies") issued by the Title Company with respect to the
Closing Date Mortgaged Properties listed in Schedule 4.1G annexed hereto,
in amounts not less than the respective amounts designated on such
Schedule with respect to any particular Closing Date Mortgaged Properties,
insuring fee simple title to, or a valid leasehold interest in, each such
Closing Date Mortgaged Property vested in such Loan Party and insuring the
Collateral Agent that the applicable Closing Date Mortgages create valid
and enforceable First Priority mortgage Liens on the respective Closing
Date Mortgaged Properties encumbered thereby, subject only to a standard
survey exception limited to matters occurring after the date of the most
recent survey, which Closing Date Mortgage Policies (1) shall include an
endorsement for mechanics' liens, for future advances under this Agreement
and for any other matters reasonably requested by the Collateral Agent and
(2) shall provide for affirmative insurance and such reinsurance as the
Collateral Agent may reasonably request, all of the foregoing in form and
substance reasonably satisfactory to the Collateral Agent; and (b)
evidence satisfactory to the Collateral Agent that such Loan Party has (i)
delivered to the Title Company all certificates and affidavits required by
the Title Company in connection with the issuance of the Closing Date
Mortgage Policies and (ii) paid to the Title Company or to the appropriate
governmental authorities all expenses and premiums of the Title Company
and all other sums required in connection with the issuance of the Closing
Date Mortgage Policies and all recording and stamp taxes (including
mortgage recording and intangible taxes) payable in connection with
recording the Closing Date Mortgages in the appropriate real estate
records;
(iv) Title Reports. With respect to each Closing Date Mortgaged
Property listed in Schedule 4.1G annexed hereto, a title report issued by
the Title Company with respect thereto, dated a date, and in form and
substance, satisfactory to the Administrative Agent;
(v) Copies of Documents Relating to Title Exceptions. Copies of all
recorded documents listed as exceptions to title or otherwise referred to
in the Closing Date Mortgage Policies or in the title reports delivered
pursuant to clause (iv) above; and
(vi) Matters Relating to Flood Hazard Properties. (a) Evidence,
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to whether (1) any Closing Date Mortgaged Property
is a Flood Hazard Property and (2) the community in which any such Flood
Hazard Property is located is participating in the National Flood
Insurance Program, (b) if there are any such Flood Hazard Properties, such
Loan Party's written acknowledgment of receipt of written notification
from Administrative Agent (1) as to the existence of each such Flood
Hazard Property and (2) as to whether the community in which each such
Flood Hazard Property is located is participating in the National Flood
Insurance Program, and (c) in the event any such Flood Hazard Property is
located in a community that participates in the National Flood Insurance
Program, evidence that Company has obtained flood insurance in respect of
such Flood Hazard Property to the extent required under the applicable
regulations of the Board of Governors of the Federal Reserve System.
H. Solvency Appraisal; Financial Condition Certificate. The Company shall
have delivered to the Administrative Agent (with copies for each Lender) (i) a
certificate from the chief
78
<PAGE>
financial officer of the Company, substantially in the form of Exhibit XVI
annexed hereto, and (ii) an opinion from an independent valuation consultant in
form, scope and substance satisfactory to the Agents, in each case, dated the
Closing Date and with appropriate attachments, demonstrating that after giving
effect to the consummation of the Transactions and the financing transactions
contemplated hereby, the Company and its Subsidiaries are and will be Solvent.
I. Transaction Costs. On or prior to the Closing Date, the Company shall
have delivered to the Administrative Agent (with copies for each Lender) a
schedule, in a form satisfactory to the Agents, setting forth the Company's
reasonable best estimate of the Transaction Costs (other than fees payable to
any of the Agents) and such estimate (together with all fees payable to the
Agents) shall not exceed $53,000,000.
J. Opinions of Loan Parties' Counsel. The Agents and their respective
counsel shall have received originally executed copies for each Agent and Lender
of one or more favorable written opinions of (i) White & Case LLP, special New
York counsel for the Loan Parties, and (ii) Shaw, Pittman, Potts & Trowbridge,
special counsel for the Loan Parties, in each case in form and substance
reasonably satisfactory to Agents and their counsel, dated as of the Closing
Date and setting forth substantially the matters in the opinions designated in
Exhibits X - A and B, respectively, and otherwise reasonably satisfactory to the
Agents.
K. Opinions of Counsel in the Transactions. The Agents and their
respective counsel shall have received copies of each legal opinion delivered by
any counsel for any Loan Party pursuant to the Transaction Documents, together
with a letter from counsel rendering each such opinion authorizing the Agents
and the Lenders to rely upon the applicable opinion to the same extent as though
it were addressed to the Agents and the Lenders.
L. Opinions of Administrative Agent's Counsel. The Agents shall have
received originally executed copies for each Agent and Lender of one or more
favorable written opinions of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Administrative Agent, dated as of the Closing Date, substantially
in the form of Exhibit XI annexed hereto and as to such other matters as the
Administrative Agent acting on behalf of the Lenders may reasonably request.
M. Fees and Expenses. The Company shall have paid to the Administrative
Agent, for distribution (as appropriate) to the Agents and the Lenders, the fees
payable on the Closing Date referred to in subsection 2.3 and any expenses owing
to any such Person by the Company as of the Closing Date.
N. Financial Statements. On or before the Closing Date, the Administrative
Agent and the Lenders shall have received from each of the Company, ENR and ESP,
the financial information and projections described in subsection 5.3 hereof,
together with supporting documentation in respect thereof, all in form and
substance satisfactory to the Agents.
O. Insurance Appraisal; Evidence of Insurance. The Administrative Agent
shall have received (i) a copy of the insurance report, prepared by Persons
reasonably satisfactory to the Agents, with respect to the Company and its
Subsidiaries and such report shall be in form, scope and substance satisfactory
to the Agents, and (ii) satisfactory certificates of insurance with respect to
each of the insurance policies required pursuant to subsection 6.4, and the
Agents shall be satisfied with the nature and scope of these insurance policies.
79
<PAGE>
P. Environmental. (i) The Administrative Agent shall have received
information in form, scope and substance reasonably satisfactory to the Agents
with respect to all Environmental Liabilities to which any Loan Party or its
Subsidiaries may be subject, and (ii) the Agents shall be reasonably satisfied
that the amount and nature of any such Environmental Liabilities and the plans
of each Loan Party with respect thereto, could not be reasonably expected to
have a Material Adverse Effect.
Q. No Material Adverse Effect. (i) Since December 31, 1997, (x) no
Material Adverse Effect shall have occurred, and (y) there shall not have been
any material adverse change, or any event, condition (financial or otherwise) or
development that could reasonably be expected to have a material adverse change,
in or affecting the general affairs, industry, management, condition, financial
position, prospects, shareholders equity or results of operations of the Company
Group taken as a whole, the ESP Group taken as a whole or the ENR Group taken as
a whole, (ii) any information submitted to Agents shall not have been
inaccurate, incomplete or misleading in any respect, which the Agents, in their
good faith judgment, deem to be material and adverse, and (iii) there shall not
have occurred or become known to any of the Agents or the Lenders any event or
events, adverse condition or change that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
R. Corporate and Capital Structure, Ownership, Management, Etc.
(i) Corporate Structure. The corporate organizational structure of
the Company and its Subsidiaries, both before and after giving effect to
the Transactions, shall be as set forth on Schedule 4.1R annexed hereto.
(ii) Capital Structure and Ownership. The respective capital
structures and ownership of the Parent and the Company, in each case after
giving effect to the Transactions, shall be as set forth on Schedule 4.1R
annexed hereto.
(iii) Management; Employment Contracts. The management structure of
the Company after giving effect to the Transactions shall be as set forth
on Schedule 4.1R annexed hereto. The Agents shall have received copies of,
and shall be reasonably satisfied with the form and substance of, any and
all employment contracts with senior management of the Company and its
Subsidiaries after giving effect to the Transactions.
S. Representations and Warranties; Performance of Agreements. The Company
shall have delivered to the Agents (with a sufficient number of originally
executed counterparts for the Lenders) an Officer's Certificate, in form and
substance satisfactory to the Agents, to the effect that the representations and
warranties in Section 5 hereof are true and correct in all material respects on
and as of the Closing Date, and both before and after giving effect to the
Transactions, to the same extent as though made on and as of that date and that
the Company shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed or
satisfied by them on or before the Closing Date.
T. Completion of Proceedings. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto shall be satisfactory in form and substance to the
Agents and their respective counsel, and the Agents and such counsel shall have
received all such counterpart originals or certified copies of such documents,
instruments and legal opinions as any of the Agents may reasonably request.
U. No Litigation. There shall be no litigation or administrative
proceedings or other legal or
80
<PAGE>
regulatory developments, actual or threatened, that, singly or in the aggregate,
could reasonably be expected to have a Material Adverse Effect or that has a
reasonable likelihood of restraining, preventing or imposing burdensome
conditions on any of the Transactions.
4.2 Conditions to All Loans.
The obligations of the Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. The Administrative Agent shall have received before that Funding Date,
in accordance with the provisions of subsection 2.1B, an originally executed
Notice of Borrowing, in each case signed by the chief executive officer or the
chief financial officer of the Company or by any executive officer of the
Company designated by any of the above-described officers on behalf of the
Company in a writing delivered to the Administrative Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Loan Documents shall be true and correct in all material respects on
and as of that Funding Date to the same extent as though made on and as of
that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties shall have been true and correct in all material respects
on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute a Default or Event of Default;
(iii) Each Loan Party shall have performed in all material respects
all agreements and satisfied all conditions which this Agreement and the
other Loan Documents provide shall be performed or satisfied by it on or
before that Funding Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender from
making the Loans to be made by it, on that Funding Date;
(v) The making of the Loans requested on such Funding Date shall not
violate any law including, without limitation, Regulation T, Regulation U
or Regulation X of the Board of Governors of the Federal Reserve System;
and
(vi) There shall not be pending or, to the knowledge of the Company,
threatened, any action, suit, proceeding, Environmental Claim,
governmental investigation or arbitration against or affecting the Parent,
the Company or any of the Company's Subsidiaries or any property of the
Parent, the Company or any of the Company's Subsidiaries that has not been
disclosed by the Company in writing and that is required to be so
disclosed pursuant to subsection 5.6, 5.13 or 6.1(x) prior to the making
of the last preceding Loans, and there shall have occurred no development
not so disclosed in any such action, suit, proceeding, Environmental
Claim, governmental investigation or arbitration so disclosed that, in
either event, in the opinion of the Administrative Agent or of the
Requisite Lenders, would be expected to have a Material Adverse
81
<PAGE>
Effect; and no injunction or other restraining order shall have been
issued and no hearing to cause an injunction or other restraining order to
be issued shall be pending or noticed with respect to any action, suit or
proceeding seeking to enjoin or otherwise prevent the consummation of, or
to recover any damages or obtain relief as a result of any of the
transactions contemplated by this Agreement, including the making of Loans
hereunder.
4.3 Conditions to Letters of Credit.
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Bank is obligated to issue such Letter of Credit) is subject
to the satisfaction on or prior to October 16, 1998 of the conditions set forth
in subsection 4.1 and the satisfaction of the following additional conditions
precedent:
A. On or before the date of issuance of such Letter of Credit, the Issuing
Bank and the Administrative Agent shall have received, in accordance with the
provisions of subsection 3.1B(i), an originally executed Notice of Issuance of
Letter of Credit, signed by the chief executive officer or the chief financial
officer or by any executive officer of the Company designated by any of the
above-described officers on behalf of the Company and the Company in a writing
delivered to the Administrative Agent, together with all other information
specified in subsection 3.1B(i) and such other documents or information as the
applicable Issuing Bank may reasonably require in connection with the issuance
of such Letter of Credit.
B. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
SECTION 5.
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders to enter into this Agreement and to make
the Loans, to induce the Issuing Bank to issue Letters of Credit and to induce
the other Lenders to purchase participations therein, each of the Parent and the
Company represents and warrants to each Lender and the Issuing Bank, on the date
of this Agreement, on the Closing Date, on each Funding Date, and on the date of
issuance of each Letter of Credit, that the following statements are true and
correct.
5.1 Organization, Powers, Qualification, Good Standing, Business and
Subsidiaries.
A. Organization and Powers. The Parent, the Company and each of the
Company's Subsidiaries which is a corporation are duly organized, validly
existing and in good standing under the laws of their respective states of
organization. Each Subsidiary of the Company which is a partnership or limited
liability company is a duly organized and validly existing limited partnership
or limited liability company under the laws of its jurisdiction of formation and
is in good standing in such jurisdiction. The Parent, the Company and each of
the Company's Subsidiaries has all requisite corporate, partnership or limited
liability company (as applicable) power and authority to own and operate their
respective properties and to carry on their respective business as now conducted
and as proposed to be conducted, and each Loan Party has all requisite
corporate, partnership or limited liability company (as applicable) power and
authority to enter into the Loan Documents, to carry out the transactions
contemplated thereby and, in the case of the Company, to issue and pay the
Notes.
82
<PAGE>
B. Qualification and Good Standing. The Parent, the Company and each of
the Company's Subsidiaries are qualified or authorized to do business and in
good standing in every jurisdiction where their respective assets are located
and wherever necessary to carry out their respective businesses and operations,
except in jurisdictions where the failure to be so qualified or in good standing
has not had and will not have a Material Adverse Effect.
C. Conduct of Business. The Parent, the Company and the Company's
Subsidiaries are engaged only in the businesses permitted to be engaged in
pursuant to subsections 7.12 and 7.15.
D. The Company and Subsidiaries. All of the Subsidiaries of the Company as
of the Closing Date (after giving effect to the Transactions) are identified in
Schedule 5.1 annexed hereto, as it may be supplemented from time to time in
accordance with the provisions of subsection 6.9. The Capital Stock or other
equity interests of the Company and each of the Subsidiaries identified in
Schedule 5.1 annexed hereto is duly authorized, validly issued, fully paid and
nonassessable and none of such Capital Stock (other than Capital Stock of ENR
prior to the ENR Merger) or other equity interests constitutes Margin Stock.
Schedule 5.1 annexed hereto correctly sets forth the ownership interest of the
Company in each of its Subsidiaries identified therein. Other than the Company,
the Parent has no direct Subsidiaries or Investments in any Person.
5.2 Authorization of Borrowing, etc.
A. Authorization of Borrowing. The execution, delivery and performance of
the Loan Documents and the issuance, delivery and payment of the Notes have been
duly authorized by all necessary corporate and/or partnership (as applicable)
action on the part of each of the Loan Parties party thereto.
B. No Conflict. After giving effect to the consummation of the
transactions contemplated hereby to occur on the Closing Date, the execution,
delivery and performance by each of the applicable Loan Parties of the Loan
Documents, the issuance, delivery and payment of the Notes and the consummation
of the transactions contemplated by the Loan Documents do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to the Parent, the Company or any of the Company's Subsidiaries, the
Organizational Certificate or any other Organizational Documents of the Parent,
the Company or any of the Company's Subsidiaries or any order, judgment or
decree of any court or other agency of government binding on the Parent, the
Company or any of the Company's Subsidiaries, (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any Contractual Obligation of the Parent, the Company or any of the
Company's Subsidiaries, (iii) result in or require the creation or imposition of
any Lien upon any of the properties or assets of the Parent, the Company or any
of the Company's Subsidiaries (other than any Liens created under any of the
Loan Documents in favor of the Collateral Agent), or (iv) require any approval
of stockholders, partners or members or any approval or consent of any Person
under any Contractual Obligation of the Parent, the Company or any of the
Company's Subsidiaries, except for such approvals or consents which will be
obtained on or before the Closing Date and have been disclosed in writing to the
Lenders.
C. Governmental Consents. The execution, delivery and performance by the
Loan Parties of the Loan Documents, the issuance, delivery and payment of the
Notes and the consummation of the transactions contemplated by the Loan
Documents do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
83
<PAGE>
governmental authority or regulatory body except to the extent obtained on or
before the Closing Date.
D. Binding Obligation. Each of the Loan Documents has been duly executed
and delivered by each of the Loan Parties party thereto and is the legally valid
and binding obligation of each such Loan Party, enforceable against such Loan
Party in accordance with its respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
E. Collateral Documents. The security interests created in favor of the
Collateral Agent under the Collateral Documents will at all times from and after
the Closing Date constitute, as security for the obligations purported to be
secured thereby, a legal, valid and enforceable security interest in and
perfected First Priority Lien on all of the Collateral referred to therein in
favor of the Collateral Agent for the benefit of the Lenders. Each Loan Party
has good title to its respective Collateral. No consents, filings or recordings
are required in order to perfect (or maintain the perfection or priority of) the
security interests purported to be created by any of the Collateral Documents,
other than such as have been obtained and which remain in full force and effect
and other than the filing of Uniform Commercial Code Financing Statements
delivered to the Collateral Agent for filing but not yet filed, and the periodic
filing of Uniform Commercial Code continuation statements in respect of Uniform
Commercial Code financing statements filed by or on behalf of the Collateral
Agent.
F. Absence of Third-Party Filings. Except such as may have been filed in
favor of the Collateral Agent as contemplated by subsection 5.2E and except as
set forth on Schedule 7.2A annexed hereto, (i) no effective UCC financing
statement, fixture filing or other instrument similar in effect covering all or
any part of the Collateral is on file in any filing or recording office and (ii)
no effective filing covering all or any part of the IP Collateral is on file
with the PTO or any other Governmental Authority.
G. Margin Regulations. Immediately after giving effect to the ENR Merger,
the Capital Stock of ENR shall not be Margin Stock. Neither the making of the
Loans nor the pledge of the Collateral (including, with limitation, the Capital
Stock of ENR) pursuant to the Collateral Documents violates Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal Reserve
System.
5.3 Financial Condition; Projections.
A. Financial Statements. The Company has heretofore delivered to the
Lenders, at the Lenders' request, the following financial statements and
information:
(i) with respect to the Company, (a) pro forma quarterly
consolidated balance sheets of the Company and its Subsidiaries as at June
30, 1998, together with a related pro forma consolidated statements of
income for the Fiscal Quarter then ended, reflecting the consummation of
the Transactions, and (b) pro forma annual Statements of income of the
Company and its Subsidiaries for Fiscal Year 1997, reflecting the
consummation of the Transactions;
(ii) with respect to ESP, (a) unaudited consolidated balance sheets
of ESP and its Subsidiaries as at June 30, 1998 and March 31, 1998,
together with the related consolidated statements of income and cash flows
for such period, and (b) audited financial statements of ESP and its
Subsidiaries for Fiscal Years 1995, 1996 and 1997, consisting of
consolidated balance sheets and the related consolidated statements of
income for such Fiscal Years, together with the
84
<PAGE>
reports on such consolidated financial statements of the applicable
certified public accountants setting forth in each case in comparative
form the corresponding figures for the previous Fiscal Year; and
(iii) with respect to ENR, (a) unaudited consolidated balance sheets
of ENR and its Subsidiaries as at December 31, 1997, June 30, 1998 and
March 31, 1998, in each case, for the fiscal quarter then ended, together
with the related consolidated and consolidating statements of income and
cash flows for such period, and (b) audited financial statements of ENR
and its Subsidiaries for each of its fiscal years ended September 30,
1995, 1996 and 1997, consisting of consolidated balance sheets and the
related consolidated statements of income, operations, stockholder's
equity and cash flows for such fiscal year, together with the report on
such consolidated financial statements of the applicable certified public
accountants setting forth in each case in comparative form the
corresponding figures for the previous fiscal year;
together will all supporting documentation for any of the foregoing reasonably
requested by the Administrative Agent. All such statements were prepared in
conformity with GAAP and fairly present, in all material respects, the financial
position (on a consolidated basis) of the entities described in such financial
statements as at the respective dates thereof and the results of operations and
cash flows (on a consolidated basis) of the entities described therein for each
of the periods then ended, subject, in the case of any such unaudited financial
statements, to changes resulting from audit and normal year-end adjustments and
the absence of footnote disclosure required in accordance with GAAP. Neither the
Company nor any of its Subsidiaries has any Contingent Obligation, contingent
liability or liability for taxes, long-term lease or unusual forward or
long-term commitment that is not reflected in the financial statements referred
to in the preceding clauses of this subsection, the most recent financial
statements delivered pursuant to subsection 6.1 or the notes thereto and which
in any such case is material in relation to the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the
Company and its Subsidiaries taken as a whole or (but only in the case of any
making or deemed making of this representation and warranty at any time on or
prior to the Closing Date) ENR and its Subsidiaries taken as a whole.
B. Projections. On and as of the Closing Date, the projections of the
Company and its Subsidiaries for the period from January 1, 1998 through
December 31, 2006 previously delivered to the Lenders (the "Projections") are
based on good faith estimates and assumptions made by the management of the
Company, it being recognized, however, that projections as to future events are
not to be viewed as facts and that the actual results during the period or
periods covered by the Projections may differ from the projected results and
that the differences may be material. Notwithstanding the foregoing, as of the
Closing Date, management of the Company believed that the Projections were
reasonable and attainable.
5.4 No Material Adverse Change; No Restricted Payments.
Since December 31, 1997, no event or change has occurred that has caused
or evidences or could reasonably be expected to cause, either individually or in
the aggregate, a Material Adverse Effect. Since December 31, 1997, neither the
Company nor any of its Subsidiaries has directly or indirectly declared,
ordered, paid or made, or set apart any sum or property for, any Restricted
Payment or agreed to do so except as permitted by subsection 7.5 and except for
the Transactions.
5.5 Title to Properties; Liens; Real Property; Intellectual Property.
85
<PAGE>
A. Title to Properties; Liens. After giving effect to the transactions
contemplated hereby and by the other Transaction Documents to occur on the
Closing Date, the Company and its Subsidiaries have good and marketable fee
simple to or a valid leasehold interest in all of their respective properties
and assets reflected in the financial statements referred to in subsection 5.3
or in the most recent financial statements delivered pursuant to subsection 6.1,
except for assets disposed of since the date of such financial statements in the
ordinary course of business or as otherwise permitted under subsection 7.7 and
except for such defects that neither individually nor in the aggregate could
reasonably be expected to have a Material Adverse Effect. Except as permitted by
this Agreement, all such properties and assets are free and clear of Liens.
B. Real Property. As of the Closing Date, Schedule 5.5B annexed hereto
contains a true, accurate and complete list of (i) all fee interests of any Loan
Party in real property and the Loan Party which owns such fee interest and (ii)
all Leasehold Properties of any Loan Party. Except as specified in Schedule 5.5B
annexed hereto, each lease or sublease, as applicable, for each such Leasehold
Property is in full force and effect and the Company does not have knowledge of
any material default by any party thereto that has occurred and is continuing
thereunder, and each such agreement constitutes the legally valid and binding
obligation of each applicable Loan Party, enforceable against such Loan Party in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles.
C. Intellectual Property. The Company and its Subsidiaries own or have the
valid right to use all trademarks and service marks, tradenames, patents,
copyrights, trade secrets and technology used in or necessary to conduct the
Company's and its Subsidiaries' business (collectively, the "Intellectual
Property"), free and clear of any and all Liens other than Permitted
Encumbrances. All registrations therefor are in full force and effect and are
valid and enforceable. The conduct of the Company's and its Subsidiaries'
business as currently conducted, including, but not limited to, all products,
processes or services, made, offered or sold by the Company and its
Subsidiaries, does not infringe upon, violate, misappropriate or dilute any
intellectual property of any third party which infringement, violation,
misappropriation or dilution could reasonably be expected to have a Material
Adverse Effect. To the best of the Company's and its Subsidiaries' knowledge, no
third party is infringing upon the Intellectual Property in any material
respect. Except as set forth in Schedule 5.5C, there is no pending or to the
best of the Company's and its Subsidiaries' knowledge, threatened claim or
litigation contesting the Company's right to own or use any material
Intellectual Property or the validity or enforceability thereof.
5.6 Litigation; Adverse Facts.
There is no action, suit, proceeding, arbitration or governmental
investigation (whether or not purportedly on behalf of the Company or any of its
Subsidiaries) at law or in equity or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending or, to the knowledge of the
Company (after due inquiry), threatened against or affecting the Parent, the
Company or any of the Company's Subsidiaries or any property of the Parent, the
Company or any of the Company's Subsidiaries that, either individually or in the
aggregate together with all other such actions, proceedings and investigations,
has had, or could reasonably be expected to result in, a Material Adverse
Effect. Neither the Parent, the Company nor any of the Company's Subsidiaries is
(i) in violation of any applicable law that has had, or could reasonably be
expected to result in, a Material Adverse Effect or (ii) subject to or in
default with respect to any final judgment, writ, injunction, decree, rule or
regulation of any court or any federal, state, municipal or other
86
<PAGE>
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, that has had, or could reasonably be expected to result in,
a Material Adverse Effect.
5.7 Payment of Taxes.
Except to the extent permitted by subsection 6.3, all material tax returns
and reports of the Parent, the Company and the Company's Subsidiaries required
to be filed by any of them have been timely filed and are true, correct and
complete in all material respects, and all material taxes, assessments, fees and
other governmental charges upon the Parent, the Company and the Company's
Subsidiaries and upon their respective properties, assets, income, businesses
and franchises which are due and payable have been paid when due and payable.
Neither the Parent, the Company nor any of the Company's Subsidiaries knows of
any proposed tax assessment against the Parent, the Company or any of the
Company's Subsidiaries other than those which are being actively contested by
the Parent, the Company or such Subsidiary in good faith and by appropriate
proceedings and for which reserves or other appropriate provisions, if any, as
may be required in conformity with GAAP shall have been made or provided
therefor.
5.8 Performance of Agreements; Materially Adverse Agreements.
A. Neither the Parent, the Company nor any of its Subsidiaries is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its Contractual Obligations, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default, except, in each case, individually or in the
aggregate, where the consequences, direct or indirect, of such default or
defaults, if any, would not have a Material Adverse Effect. Each State Contract
in effect as of the Closing Date after giving effect to the Transactions is
listed on Schedule 5.8 annexed hereto.
B. Neither the Parent, the Company nor any of its Subsidiaries is a party
to or is otherwise subject to any agreement or instrument or any charter or
other internal restriction which has had, or could reasonably be expected (based
upon assumptions that are reasonable at the time made) to result in,
individually or in the aggregate, a Material Adverse Effect.
5.9 Governmental Regulation.
Neither the Parent, the Company nor any of its Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or the Investment Company Act of 1940 or
under any other federal or state statute or regulation which may limit its
ability to incur Indebtedness or which may otherwise render all or any portion
of the Obligations unenforceable.
5.10 Securities Activities.
Neither the Parent, the Company nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
5.11 Employee Benefit Plans.
A. Schedule 5.11 annexed hereto sets forth a list of each Pension Plan,
Multiemployer Plan,
87
<PAGE>
and each "welfare plan" (as defined in Section 3(1) of ERISA) which provides
post-retirement benefits other than benefits as required under Part 6 of Title I
of ERISA. The Company and each of its ERISA Affiliates are in compliance with
all applicable provisions and requirements of ERISA with respect to each
Employee Benefit Plan, and have performed all their obligations under each
Employee Benefit Plan, except to the extent that any non-compliance with ERISA
or any such failure to perform would not have a Material Adverse Effect on the
Company or any of its ERISA Affiliates. No material liability to the PBGC (other
than required premium payments), the Internal Revenue Service, any Plan or any
trust established under Title IV of ERISA has been, or is expected by the
Company or any of its ERISA Affiliates to be, incurred by the Company or any of
its ERISA Affiliates.
B. No ERISA Event has occurred which has resulted or is reasonably likely
to result in any material liability of the Company or any of its ERISA
Affiliates to the PBGC or to any other Person.
C. Except to the extent required under Section 4980B of the Internal
Revenue Code and/or Section 601 of ERISA, neither the Company nor any of its
Subsidiaries maintains or contributes to any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) that provides health or welfare benefits
(through the purchase of insurance or otherwise) for any retired or former
employees of the Company or any of its Subsidiaries other than as set forth on
Schedule 5.11 annexed hereto.
D. No Pension Plan has an Unfunded Current Liability in an amount that
would have a Material Adverse Effect.
E. The Borrower and each or its ERISA Affiliates have complied with the
requirements of Section 515 of ERISA with respect to each Multiemployer Plan and
is not in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan, except to the extent that such non-compliance
therewith or default would not, either individually or in the aggregate, have a
Material Adverse Effect. As of the most recent valuation date for each
Multiemployer Plan for which the actuarial report is available, the potential
liability of the Company, its Subsidiaries and their respective ERISA Affiliates
for a complete withdrawal from such Multiemployer Plan (within the meaning of
Section 4203 of ERISA), when aggregated with such potential liability for a
complete withdrawal from all Multiemployer Plans, based on information available
pursuant to Section 4221(e) of ERISA, could not reasonably be expected to have a
Material Adverse Effect.
5.12 Certain Fees.
No broker's or finder's fee or commission will be payable with respect to
this Agreement or any of the loan transactions contemplated hereby, and the
Company hereby indemnifies the Lenders against, and agrees that it will hold the
Lenders harmless from, any claim, demand or liability for any such broker's or
finder's fees alleged to have been incurred in connection herewith or therewith
and any expenses (including reasonable fees, expenses and disbursements of
counsel) arising in connection with any such claim, demand or liability.
5.13 Environmental Matters.
(i) The Company, each of its Subsidiaries (including without
limitation, all operations and conditions at or in the Facilities
presently owned and operated by the Company or its Subsidiaries), and, to
the knowledge of the Company (after due inquiry), each of the tenants
under any leases or occupancy agreements affecting any portion of any
Facilities presently owned
88
<PAGE>
or operated by the Company or its Subsidiaries, are in compliance with all
applicable Environmental Laws (which compliance includes, but is not
limited to, the possession by the Company, each of its Subsidiaries and
each of such tenants of all permits and other Governmental Authorizations
required under applicable Environmental Laws, and compliance with the
terms and conditions thereof), except where failure to be in compliance
would not have a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries, nor, to the knowledge of the Company (after due
inquiry), any tenants under any leases or occupancy agreements affecting
any portion of the Facilities presently owned or operated by the Company
or its Subsidiaries has received any communication (written or oral),
whether from a Governmental Authority, citizens group, employee or
otherwise, alleging that the Company, any of its Subsidiaries, or any such
tenant is not in such compliance, and there are no past or present (or to
the best knowledge of the Company, future) actions, activities,
circumstances conditions, events or incidents that may prevent or
interfere with such compliance in the future.
(ii) There is no Environmental Claim pending or threatened against
the Company or any of its Subsidiaries or, to the best knowledge of the
Company, against any Person whose liability for any Environmental Claim
the Company or any of its Subsidiaries has or may have retained or assumed
either contractually or by operation of law, in each such case which,
individually or in the aggregate, would have a Material Adverse Effect.
(iii) There are no past or present (or to the best knowledge of the
Company, future) actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the Release or presence of any
Hazardous Material, which could reasonably be expected to form the basis
of any Environmental Claim against the Company or any of its Subsidiaries,
or to the best knowledge of the Company, against any Person whose
liability for any Environmental Claim the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or
by operation of law, in each such case which would have a Material Adverse
Effect.
(iv) The Company and its Subsidiaries have not, and to the best
knowledge of the Company, no other Person has placed, stored, deposited,
discharged, buried, dumped or disposed of Hazardous Materials or any other
wastes produced by, or resulting from, any business, commercial or
industrial activities, operations or processes, on, beneath or adjacent to
any property currently or formerly owned, operated or leased by the
Company or any of its Subsidiaries, except for inventories of such
substances to be used, and wastes generated therefrom, in the ordinary
course of business of the Company and its Subsidiaries (which inventories
and wastes, if any, were and are stored or disposed of in accordance with
applicable Environmental Laws and in a manner such that there has been no
Release of any such substances), in each case, which, individually or in
the aggregate, would have a Material Adverse Effect.
(v) No Lien in favor of any Person relating to or in connection with
any Environmental Claim has been filed or has been attached to any
Facility.
(vi) Without in any way limiting the generality of the foregoing,
except as would not have a Material Adverse Effect, none of the Facilities
contain any: underground storage tanks; asbestos; polychlorinated
biphenyls ("PCBs"); underground injection wells; radioactive materials; or
septic tanks or waste disposal pits in which process wastewater or any
Hazardous Materials have been discharged or disposed.
89
<PAGE>
5.14 Employee Matters.
There is no strike or work stoppage in existence or threatened involving
the Company or any of its Subsidiaries that could reasonably be expected to have
a Material Adverse Effect.
5.15 Solvency.
Each Loan Party is, and the Parent, the Company and its Subsidiaries,
taken as a whole, are, and, upon the incurrence of any Obligations by any Loan
Party (including, without limitation, the making of the Loans, the delivery of
the Guaranties and the Liens created by the Collateral Documents) on any date on
which this representation is made, and after giving effect to the Transactions
and the incurrence of Indebtedness in connection therewith, will be, Solvent.
5.16 Transaction Documents
A. Delivery of Transaction Documents. The Parent and the Company have
delivered to the Agents complete and correct copies of each Transaction Document
and of all exhibits and schedules thereto.
B. Representations and Warranties. Except to the extent otherwise set
forth herein or in the schedules hereto, (i) each of the representations and
warranties of any Loan Party made in any other Transaction Document and (ii) to
the best of the Company's knowledge, each of the representations and warranties
of any party other than a Loan Party, an Agent or a Lender made in any
Transaction Document, in each case, except to the extent set forth in the
schedules to such Transaction Documents, was true and correct in all material
respects as of the Closing Date (or as of any earlier date to which such
representation and warranty specifically relates).
C. Governmental Authorizations. All Governmental Authorizations and all
other authorizations, approvals and consents of any other Person required by the
Transaction Documents or to consummate the Transactions have been obtained and
are in full force and effect.
D. Conditions and Consummation. On the Closing Date, (i) all of the
conditions to effecting or consummating the Transactions set forth in the
Transaction Documents have been duly satisfied or, with the consent of the
Requisite Lenders, waived, and (ii) each of the Transactions have been
consummated in accordance with the Transaction Documents and all applicable
laws.
5.17 Disclosure.
The representations and warranties of the Parent, the Company and its
Subsidiaries contained in the Loan Documents and the information contained in
the other documents, certificates and written statements furnished to any of the
Agents or the Lenders (including, without limitation, the Information
Memorandum) by or on behalf of the Parent, the Company or any of its
Subsidiaries for use in connection with the transactions contemplated by this
Agreement or any other Loan Document, when taken together, do not contain any
untrue statement of a material fact or omit to state a material fact (known to
the Company or the applicable Subsidiary, in the case of any document not
furnished by it) necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances in which the same were
made. Any projections and pro forma financial information contained in such
materials are based upon good faith estimates and assumptions believed by the
Company to be reasonable at the time
90
<PAGE>
made, it being recognized by the Agents and the Lenders that such projections as
to future events are not to be viewed as facts and that actual results during
the period or periods covered by any such projections may differ from the
projected results and that the differences may be material. There is no fact
known to the Company (other than matters of a general economic nature) that has
had, or could reasonably be expected to result in, a Material Adverse Effect and
that has not been disclosed herein or in such other documents, certificates and
statements furnished to the Lenders for use in connection with the transactions
contemplated hereby.
5.18 Subordination of Subordinated Indebtedness.
The subordination provisions of any Subordinated Indebtedness are
enforceable against the holders thereof, and the Loans and other monetary
Obligations hereunder are and will be within the definition of "Senior
Indebtedness" or "Senior Debt", as the case may be, included in such provisions.
5.19 Year 2000 Problems.
The Company and its Subsidiaries have (i) engaged in a process of
assessment of the existence of the Year 2000 Problems reasonably appropriate to
the scope and complexity of their respective Systems; (ii) adopted and are
successfully implementing a plan of correction ("Plan of Correction") which, the
Company reasonably believes will result in a substantial elimination of Year
2000 Problems (and, in any event, all Year 2000 Problems which could reasonably
be expected to have a Material Adverse Effect) which might have a Material
Adverse Effect and, in the case of all Systems (as defined in the definition of
Year 2000 Problems) critical to the business or operations of the Company and
its Subsidiaries, elimination in all material respects of Year 2000 Problems
prior to any processing failure of a System or Systems due to Year 2000 Problems
which might have a Material Adverse Effect; (iii) adopted and are successfully
implementing validation procedures calculated to test on an ongoing basis the
sufficiency of the Plan of Correction, its implementation, and the correction of
Year 2000 Problems in substantially all Systems and all Systems critical to the
business or operations of the Company and its Subsidiaries; (iv) adopted and are
successfully implementing policies and procedures requiring regular reports to,
and monitoring by, senior management of the Company concerning the foregoing
matters; and (v) provided the Administrative Agent true and correct copies of
the written Plan of Correction, and related implementation budgets, reviewed and
approved by each applicable Subsidiary's Board of Directors.
The Company reasonably believes that, as relating to each of the Company
Group taken as a whole, the ESP Group taken as a whole and the ENR Group taken
as a whole, (x) the assessment and correction of Year 2000 Problems, including,
without limitation, the Plan of Correction, and the testing of all Systems and
the correction of Year 2000 Problems, in each case, which, individually or in
the aggregate, if not corrected could reasonably be expected to have a Material
Adverse Effect, will be completed on or prior to June 30, 1999, (y) a Material
Adverse Effect will not occur as a result of any Year 2000 Problem, and (z) the
aggregate costs and expenses incurred and reasonably expected to be incurred in
connection with the assessment and correction of Year 2000 Problems, including,
without limitation, the Plan of Correction, and the testing and monitoring of
all Systems and the correction of Year 2000 Problems, could not reasonably be
expected to have a Material Adverse Effect.
5.20 Tax Classification.
Each of Newmall and Wellman UK has made a timely and effective election to
be as of the Closing Date, and at all times from and after the Closing Date,
will be, disregarded as an entity separate
91
<PAGE>
from its owner within the meaning of Treasury Regulation Section 1.7701-3(b)
under the Internal Revenue Code and each similar state or local tax law.
5.21 Parent.
On the Closing Date, after giving effect to the Transactions, the Parent
(i) has not incurred, directly or indirectly, any Indebtedness or any other
obligation or liability whatsoever (whether absolute, contingent or otherwise)
other than its obligations under the Transaction Documents to which it is a
party, (ii) is the owner of all of the outstanding Capital Stock of the Company
and has not created or suffered to exist any Lien upon any property or assets
owned by it, including, without limitation, the Capital Stock of the Company,
other than the Liens created under the Collateral Documents to which it is a
party, (iii) is not engaged in any business or activity and does not own any
assets or property other than holding the Capital Stock of the Company and
performing its obligations under the Transaction Documents to which it is a
party and (iv) is not a party to, or bound by, any document, instrument or
agreement other than the Loan Documents and Transaction Documents to which it is
a party.
SECTION 6.
AFFIRMATIVE COVENANTS
The Parent and the Company covenant and agree that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless the Requisite Lenders shall otherwise give prior
written consent, the Parent and the Company shall perform, and shall cause each
of its Subsidiaries to perform, all covenants in this Section 6.
6.1 Financial Statements and Other Reports.
The Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. The Company will deliver to the Administrative Agent:
(i) Monthly Financials: as soon as available and in any event within
thirty (30) days after each calendar month-end commencing with the
calendar month ending October 31, 1998, or in the case of the third month
of any fiscal quarter, within forty-five (45) days after the end of such
month, (a) the respective consolidated balance sheets as at the end of
each fiscal month of the Company Group, the Company Group excluding
Excluded Foreign Subsidiaries, the ENR Group and the ESP Group, in each
case, together with the related consolidated statements of income, and
consolidated statement of cash flows of each such Group for such month and
for the period from the beginning of the then current Fiscal Year to the
end of such month, setting forth, in the case of statements of income
only, in comparative form the corresponding figures for the corresponding
periods of the previous fiscal year and the corresponding figures from the
consolidated plan and financial forecast for the current Fiscal Year
delivered pursuant to subsection 6.1(xiii), all prepared in accordance
with the GAAP and in reasonable detail and certified by the chief
financial officer of the Company that they fairly present, in all material
respects, the financial condition of each such Group as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal
year-end adjustments; (b) the consolidating work sheets of each of the
Company Group, the Company Group excluding
92
<PAGE>
Excluded Foreign Subsidiaries, the ESP Group (as an integrated unit) and
the ENR Group (as an integrated unit) as the end of each fiscal month for
the period from the beginning of the then current Fiscal Year to the end
of such month, all prepared in accordance with the GAAP and in reasonable
detail and certified by the chief financial officer of the Company that
they fairly present, in all material respects, the financial condition of
the Company Group, the Company Group excluding Excluded Foreign
Subsidiaries, the ESP Group (as an integrated unit) and the ENR Group (as
an integrated unit) as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments; and (c) a
narrative report describing the operations of each of the Company Group,
the Company Group excluding Excluded Foreign Subsidiaries, the ESP Group
and the ENR Group taken as a whole, in the form prepared for presentation
to senior management for such month and for the period from the beginning
of the then current Fiscal Year to the end of such month;
(ii) Quarterly Financials: as soon as available and in any event
within forty-five (45) days after the end of each Fiscal Quarter
commencing with the Fiscal Quarter ending September 30, 1998, (a) the
respective consolidated balance sheets of the Company Group, the Company
Group excluding Excluded Foreign Subsidiaries, the ESP Group and the ENR
Group as at the end of such Fiscal Quarter and the related consolidated
statements of income and consolidated statement of cash flows each such
Group for such Fiscal Quarter and for the period from the beginning of the
then current Fiscal Year to the end of such Fiscal Quarter, setting forth,
in the case of statements of income only, in comparative form the
corresponding figures for the corresponding periods of the previous fiscal
year and the corresponding figures from the consolidated plan and
financial forecast for the current Fiscal Year delivered pursuant to
subsection 6.1(xiii), all prepared in accordance with the GAAP and in
reasonable detail and certified by the chief financial officer of the
Company that they fairly present, in all material respects, the financial
condition of each such Group as at the dates indicated and the results of
their operations and their cash flows for the periods indicated, subject
to changes resulting from audit and normal year-end adjustments; (b) the
consolidating work sheets of the Company Group, the Company Group
excluding Excluded Foreign Subsidiaries, the ESP Group (as an integrated
unit) and the ENR Group (as an integrated unit) as the end of such Fiscal
Quarter for the period from the beginning of the then current Fiscal Year
to the end of such Fiscal Quarter, all prepared in accordance with the
GAAP and in reasonable detail and certified by the chief financial officer
of the Company that they fairly present, in all material respects, the
financial condition of the Company Group, the Company Group excluding
Excluded Foreign Subsidiaries, the ESP Group (as an integrated unit) and
the ENR Group (as an integrated unit) as at the dates indicated and the
results of their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments; and (c) a narrative report describing the operations of the
Company Group, the Company Group excluding Excluded Foreign Subsidiaries,
the ESP Group and the ENR Group, in each case, taken as a whole, in the
form prepared for presentation to senior management for such Fiscal
Quarter and for the period from the beginning of the then current Fiscal
Year to the end of such Fiscal Quarter;
(iii) Year-End Financials: as soon as available and in any event
within ninety (90) days after the end of each Fiscal Year, (a) the
respective consolidated balance sheets of the Company Group, the Company
Group excluding Excluded Foreign Subsidiaries, the ESP Group and the ENR
Group as at the end of such Fiscal Year and the related consolidated
statements of income and consolidated statement of cash flows of each such
Group for such Fiscal Year, setting forth, in the case of statements of
income only, in comparative form the corresponding figures for
93
<PAGE>
the previous fiscal year and the corresponding figures from the
consolidated plan and financial forecast delivered pursuant to subsection
6.1(xiii) for the Fiscal Year covered by such financial statements, all
prepared in accordance with the GAAP and in reasonable detail and
certified by the chief financial officer of the Company that they fairly
present, in all material respects, the financial condition of each such
Group as at the dates indicated and the results of their operations and
their cash flows for the periods indicated; (b) the consolidating work
sheets of the Company Group, the Company Group excluding Excluded Foreign
Subsidiaries, the ESP Group (as an integrated unit) and the ENR Group (as
an integrated unit) at the end of such Fiscal Year for such Fiscal Year,
all prepared in accordance with the GAAP and in reasonable detail and
certified by the chief financial officer of the Company that they fairly
present, in all material respects, the financial condition of the Company
Group, the Company Group excluding Excluded Foreign Subsidiaries, the ESP
Group (as an integrated unit) and the ENR Group (as an integrated unit) as
at the dates indicated and the results of their operations and their cash
flows for the periods indicated; (c) a narrative report describing the
operations of the Company Group, the Company Group excluding Excluded
Foreign Subsidiaries, the ESP Group and the ENR Group, in each case, taken
as a whole, in the form prepared for presentation to senior management for
such Fiscal Year; and (d) in the case of such consolidated financial
statements of the Company Group, a report thereon of independent certified
public accountants of recognized national standing selected by the Company
and reasonably satisfactory to the Administrative Agent, which report
shall be unqualified as to going concern and scope of audit, and shall
state that such consolidated financial statements fairly present, in all
material respects, the consolidated financial position of the Company and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the audit by
such accountants in connection with such consolidated financial statements
has been made in accordance with generally accepted auditing standards;
(iv) Officer's and Compliance Certificates: together with each
delivery of financial statements of the Company and its Subsidiaries
pursuant to subdivisions (ii) and (iii) above, (a) an Officer's
Certificate of the Company stating that the signer has reviewed the terms
of this Agreement and has made, or caused to be made under his or her
supervision, a review in reasonable detail of the transactions and
condition of the Company and its Subsidiaries during the accounting period
covered by such financial statements and that such review has not
disclosed the existence during or at the end of such accounting period,
and that the signer did not have knowledge of the existence as at the date
of such Officer's Certificate, of any condition or event that constitutes
an Default or Event of Default, or, if any such condition or event existed
or exists, specifying the nature and period of existence thereof and what
action the Company has taken, is taking and proposes to take with respect
thereto; and (b) a Compliance Certificate demonstrating in reasonable
detail compliance during and at the end of the applicable accounting
periods with the restrictions contained in Section 7;
(v) Reconciliation Statements: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of any Group delivered pursuant to
subdivisions (i), (ii), (iii) or (xiii) of this subsection 6.1 will differ
in any material respect from the consolidated financial statements that
would have been delivered pursuant to such subdivisions had no such change
in accounting principles and policies been made, then (a) together with
the first delivery of financial statements pursuant to subdivision (i),
(ii), (iii) or (xiii) of this subsection 6.1 following such change,
consolidated financial statements of each affected Group for (y) the
current
94
<PAGE>
Fiscal Year to the effective date of such change and (z) the two (2) full
fiscal years immediately preceding the Fiscal Year in which such change is
made, in each case prepared on a pro forma basis as if such change had
been in effect during such periods, and (b) together with each delivery of
financial statements pursuant to subdivision (i), (ii), (iii) or (xiii) of
this subsection 6.1 following such change, a written statement of the
chief accounting officer or chief financial officer of the Company setting
forth the differences which would have resulted if such financial
statements had been prepared without giving effect to such change, if
reasonably requested by the Administrative Agent;
(vi) Accountants' Certification: together with each delivery of
consolidated financial statements of the Company and its Subsidiaries
pursuant to subdivision (iii) above, a written statement by the
independent certified public accountants giving the report thereon (a)
stating that their audit has included a reading of the terms of this
Agreement and the other Loan Documents as they relate to the covenants set
forth in subsection 7.6 and accounting matters, and (b) stating whether,
in connection with their audit examination, any condition or event,
insofar as such condition or event relates to the covenants set forth in
subsection 7.6 or accounting matters, that constitutes an Default or Event
of Default has come to their attention and, if such a condition or event
has come to their attention, specifying the nature and period of existence
thereof; provided that such accountants shall not be liable by reason of
any failure to obtain knowledge of any such Default or Event of Default
that would not be disclosed in the course of their audit examination;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to the Company by a national independent certified public
accountants in connection with each annual, interim or special audit of
the financial statements of the Company and its Subsidiaries made by such
accountants, including, without limitation, any comment letter submitted
by such accountants to management in connection with their annual audit;
(viii) SEC Filings and Press Releases: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by the Company to its
security holders, (b) all regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by the Company or any of its Subsidiaries with
any securities exchange or with the Securities and Exchange Commission or
any governmental or private regulatory authority, and (c) all press
releases and other statements made available generally by the Company or
any of its Subsidiaries to the public concerning material developments in
the business of the Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of the
Company obtaining knowledge (a) of any condition or event that constitutes
a Default or an Event of Default, or becoming aware that any Lender has
given any notice (other than to the Administrative Agent) or taken any
other action with respect to a claimed Default or Event of Default, (b)
that any Person has given any notice to the Company or any of its
Subsidiaries or taken any other action with respect to a claimed default
or event or condition of the type referred to in subsection 8.2, (c) of
any condition or event that would be required to be disclosed in a current
report filed by the Company with the Securities and Exchange Commission on
Form 8-K (Items 1, 2, 4, 5 and 6 of such Form as in effect on the date
hereof) if the Company were required to file such reports under the
Exchange Act, or (d) of the occurrence of any event or change that has
caused or evidences or could be reasonably expected to cause, either in
any case or in the aggregate, a Material Adverse
95
<PAGE>
Effect, an Officer's Certificate specifying the nature and period of
existence of such condition, event or change, or specifying the notice
given or action taken by any such Person and the nature of such claimed
Default, Event of Default, default, event or condition, and what action
the Company (or applicable Subsidiary) has taken, is taking and proposes
to take with respect thereto;
(x) Litigation or Other Proceedings: (a) promptly upon any officer
of the Company obtaining knowledge of (X) the institution of, or threat
of, any action, suit, proceeding (whether administrative, judicial or
otherwise), Environmental Claim, governmental investigation or arbitration
against or affecting the Company or any of its Subsidiaries or any
property of the Company or any of its Subsidiaries (collectively,
"Proceedings") not previously disclosed in writing by the Company to the
Lenders or (Y) any material development in any Proceeding that, in any
case:
(a) could reasonably be expected to have a Material Adverse
Effect; or
(b) seeks to enjoin or otherwise prevent the consummation of,
or to recover any damages or obtain relief as a result of, the
transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to the Company to enable the Lenders and their
counsel to evaluate such matters; and (b) within forty-five (45) days
after the end of each fiscal quarter of the Company, a schedule of all
Proceedings involving an alleged liability of, or claims against or
affecting, the Company or any of its Subsidiaries equal to or greater than
$2,500,000 and promptly after request by the Administrative Agent such
other information as may be reasonably requested by the Administrative
Agent to enable the Administrative Agent and its counsel to evaluate any
of such Proceedings;
(xi) ERISA Events: promptly upon the Company becoming aware of the
occurrence of any ERISA Event that would result in a material liability of
the Company or any of its ERISA Affiliates, a written notice specifying
the nature thereof, what action the Company or any of its ERISA Affiliates
has taken, is taking or proposes to take with respect thereto and, when
known, any action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a) all
written notices received by the Company or any of its ERISA Affiliates
from a Multiemployer Plan sponsor concerning an ERISA Event; and (b) such
other documents or governmental reports or filings relating to any
Employee Benefit Plan as the Administrative Agent shall reasonably
request;
(xiii) Financial Plans: as soon as practicable and in any event no
later than the beginning of each Fiscal Year, a monthly consolidated and
consolidating plan and financial forecast for the next succeeding Fiscal
Year, including without limitation (a) forecasted consolidated balance
sheet and forecasted consolidated and consolidating statements of income
and consolidated statement of cash flows of the Company and its
Subsidiaries for such Fiscal Year, together with a pro forma Compliance
Certificate for such Fiscal Year and an explanation of the assumptions on
which such forecasts are based, and (b) such other information and
projections as the Administrative Agent may reasonably request, it being
understood that, for purposes of the foregoing consolidating plans and
forecasts, the Subsidiaries of the Company shall be deemed to be the ENR
Group exclusive of Excluded Foreign Subsidiaries (taken as one entity),
the ESP
96
<PAGE>
Group exclusive of Excluded Foreign Subsidiaries (taken as one entity) and
the Exclusive Foreign Subsidiaries (taken as one entity);
(xiv) Insurance: as soon as practicable and in any event by the last
day of each Fiscal Year, a report in form and substance satisfactory to
the Administrative Agent outlining all material insurance coverage
maintained as of the date of such report by the Company and its
Subsidiaries and all material insurance coverage planned to be maintained
by the Company and its Subsidiaries in the immediately succeeding Fiscal
Year;
(xv) Environmental Audits and Reports: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of the Company or any of its Subsidiaries or
by independent consultants, with respect to environmental matters at any
Facility presently owned or operated by the Company or its Subsidiaries or
which relate to any Environmental Liabilities of the Company or its
Subsidiaries which, in any such case, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect;
(xvi) Regulatory Notices: as soon as practicable, notification of
any change in any law, rule or regulation relating to vehicle emissions
testing or regulations or any other business of the Company and its
Subsidiaries which could reasonably be expected to have a Material Adverse
Effect;
(xvii) Material Contracts: promptly after (a) any Material Contract
is terminated or expires or is renewed or is, amended or otherwise
modified in any material manner, (b) any new Material Contract is entered
into, or (c) any notice or other communication is delivered by any party
to any Material Contract pursuant thereto or in respect thereof relating
to (x) any financial matter or other matter having financial consequences
in excess of $2,500,000 or (y) any other non-financial matter which could
reasonably be expected to have material consequence to the business of the
Company or any of its Subsidiaries other than an Excluded Foreign
Subsidiary (whether or not constituting a Material Adverse Effect), notice
and a copy thereof and, in the case of any such renewal, amendment, other
modification or new Material Contract, a description in reasonable detail
of the material terms thereof; and
(xviii) Other Information: with reasonable promptness, such other
information and data with respect to the Parent, the Company or any of the
Company's Subsidiaries as from time to time may be reasonably requested by
the Administrative Agent or the Requisite Lenders.
6.2 Corporate Existence
Except as permitted under subsection 7.7, the Parent and the Company will,
and will cause each of its Subsidiaries to, at all times preserve and keep in
full force and effect its corporate existence and all rights and franchises
material to the business of the Company and its Subsidiaries (on a consolidated
basis) or the Loan Parties, taken as a whole.
6.3 Payment of Taxes and Claims; Tax Consolidation.
A. The Parent and the Company will, and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect
97
<PAGE>
of any of its income, businesses or franchises before any penalty accrues
thereon, and all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums that have become due and payable
which, if unpaid, might become a Lien (other than a Permitted Encumbrance) upon
any of its properties or assets; provided that no such tax, charge or claim need
be paid if being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor.
B. The Parent and the Company will not, nor will it permit any of its
Subsidiaries to, file or consent to the filing of any consolidated, combined or
other similar income tax return with any Person (other than the Parent, the
Company and Subsidiaries of the Company).
6.4 Maintenance of Properties; Insurance.
The Company will, and will cause each of its Subsidiaries to, maintain or
cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material properties used or useful in the business
of the Company and its Subsidiaries and from time to time will make or cause to
be made all appropriate repairs, renewals and replacements thereof. The Company
will maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business and the
properties and businesses of its Subsidiaries against loss or damage of the
kinds and with respect to liability customarily carried or maintained under
similar circumstances by corporations of established reputation engaged in
similar businesses. Each such policy of casualty insurance covering damage to or
loss of property (other than property of any Foreign Subsidiary that is not a
Foreign Subsidiary Guarantor) shall name the Collateral Agent for the benefit of
the Lenders as additional insured and as the loss payee thereunder for all
losses, subject to application of proceeds as required by subsection
2.4B(iii)(d), each such policy of liability insurance coverage shall name each
of the Lenders and Agents as additional insureds, and all such policies of
insurance shall provide for at least thirty (30) days' prior written notice to
the Collateral Agent of any modification or cancellation of such policy.
6.5 Inspection; Lender Meeting.
Each of the Parent and the Company shall, and shall cause each of its
Subsidiaries to, permit the Administrative Agent and (unless a Default or Event
of Default has occurred and is continuing, at the expense of the applicable
Lender) any authorized representatives designated by any Lender to visit and
inspect any of the properties of the Parent, the Company or any of the Company's
Subsidiaries, including its and their financial and accounting records, and to
make copies and take extracts therefrom, and to discuss its and their affairs,
finances and accounts with its and their officers and independent public
accountants, all upon reasonable advance notice and at such reasonable times
during normal business hours and as often as may be reasonably requested.
Without in any way limiting the foregoing, the Company will, upon the request of
the Administrative Agent, participate in a meeting of the Administrative Agent
and the Lenders once during each Fiscal Year to be held at the Company's
corporate offices (or such other location as may be agreed to by the Company and
the Administrative Agent) at such time as may be agreed to by the Company and
the Administrative Agent.
6.6 Compliance with Laws, etc.
The Parent and the Company shall, and shall cause each of its Subsidiaries
to, comply with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority,
98
<PAGE>
noncompliance with which, individually or in the aggregate with other
non-compliances, could reasonably be expected to cause a Material Adverse
Effect.
6.7 Environmental Disclosure and Inspection.
A. The Company shall, and shall cause each of its Subsidiaries to,
exercise all due diligence in order to comply and cause (i) all tenants under
any leases or occupancy agreements affecting any portion of the Facilities
presently owned or operated by the Company or its Subsidiaries and (ii) all
other Persons on or occupying such property, to comply with all Environmental
Laws, noncompliance with which could reasonably be expected to cause a Material
Adverse Effect.
B. The Company agrees that the Administrative Agent may, from time to
time, retain, at the Company's expense, an independent professional consultant
reasonably acceptable to the Company to review any report relating to Hazardous
Materials prepared by or for the Company and to conduct its own investigation of
any Facility currently owned, leased, operated or used by the Company or any of
its Subsidiaries, if (x) a Default or an Event of Default shall have occurred
and be continuing, or (y) the Administrative Agent reasonably believes (1) that
an occurrence relating to such Facility is likely to give rise to an
Environmental Liability or (2) that a violation of an Environmental Law on or
around such Facility has occurred or is likely to occur, which could, in either
such case, reasonably be expected to result in a Material Adverse Effect. The
Company agrees to use all reasonable efforts to obtain permission for the
Administrative Agent's professional consultant to conduct its own investigation
of any such Facility previously owned, leased, operated or used by the Company
or any of its Subsidiaries. The Company shall use its reasonable efforts to
obtain for the Administrative Agent and its agents, employees, consultants and
contractors the right, upon reasonable notice to the Company, to enter into or
on to the Facilities currently owned, leased, operated or used by the Company or
any of its Subsidiaries to perform such tests on such property as are reasonably
necessary to conduct such a review and/or investigation. Any such investigation
of any Facility shall be conducted, unless otherwise agreed to by the Company
and the Administrative Agent, during normal business hours and, to the extent
reasonably practicable, shall be conducted so as not to interfere with the
ongoing operations at any such Facility or to cause any damage or loss to any
property at such Facility. The Company and the Administrative Agent hereby
acknowledge and agree that any report of any investigation conducted at the
request of the Administrative Agent pursuant to this subsection 6.7B will be
obtained and shall be used by the Administrative Agent and the Lenders for the
purposes of the Lenders' internal credit decisions, to monitor and police the
Loans and to protect the Lenders' security interests, if any, created by the
Loan Documents, and the Administrative Agent and the Lenders hereby acknowledge
and agree any such report will be kept confidential by them to the extent
permitted by law except as provided in the following sentence. The
Administrative Agent agrees to deliver a copy of any such report to the Company
with the understanding that the Company acknowledges and agrees that (i) it will
indemnify and hold harmless the Administrative Agent and each Lender from any
costs, losses or liabilities relating to the Company's use of or reliance on
such report, (ii) neither Agent nor any Lender makes any representation or
warranty with respect to such report, and (iii) by delivering such report to the
Company, neither the Administrative Agent nor any Lender is requiring or
recommending the implementation of any suggestions or recommendations contained
in such report.
C. The Company shall promptly advise the Administrative Agent in writing
and in reasonable detail of (i) any Release or threatened Release of any
Hazardous Materials required to be reported to any federal, state, local or
foreign governmental or regulatory agency under any applicable Environmental
Laws, (ii) any and all communications (written or
99
<PAGE>
oral) with respect to any pending or threatened Environmental Claims in each
such case which, individually or in the aggregate, have a reasonable possibility
of giving rise to a Material Adverse Effect or any and all material
communications (written or oral) with respect to any Release or threatened
Release of Hazardous Materials, (iii) any Cleanup performed by the Company or
any other Person in response to (x) any Hazardous Materials on, under or about
any Facility, the existence of which has a reasonable possibility of resulting
in an Environmental Liability having a Material Adverse Effect, or (y) any
Environmental Liabilities that could have a Material Adverse Effect, (iv) the
Company's discovery of any occurrence or condition on any property that could
cause any Facility presently owned or operated by the Company or its
Subsidiaries or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use thereof under any Environmental
Laws, and (v) any request for information from any governmental agency that
fairly suggests such agency is investigating whether the Company or any of its
Subsidiaries may be potentially responsible for a Release or threatened Release
of Hazardous Materials.
D. The Company shall promptly notify the Administrative Agent of (i) any
proposed acquisition of stock, assets, or property by the Company or any of its
Subsidiaries that could reasonably be expected to expose the Company or any of
its Subsidiaries to, or result in, Environmental Liability that could have a
Material Adverse Effect or that could reasonably be expected to have a material
adverse effect on any Governmental Authorization then held by the Company or any
of its Subsidiaries and (ii) any proposed action to be taken by the Company or
any of its Subsidiaries to commence manufacturing, industrial or other similar
operations that could reasonably be expected to subject the Company or any of
its Subsidiaries to additional Environmental Laws, that are materially different
from the Environmental Laws applicable to the operations of the Company and its
Subsidiaries as of the Closing Date.
E. The Company shall, at its own expense, provide copies of such documents
or information as the Administrative Agent may reasonably request in relation to
any matters disclosed pursuant to this subsection 6.7.
6.8 The Company's Remedial Action Regarding Hazardous Materials.
The Company shall promptly take, and shall cause each of its Subsidiaries
promptly to take, any and all necessary remedial action in connection with the
presence, handling, storage, use, disposal, transportation or Release or
threatened Release of any Hazardous Materials on, under or affecting any
Facility in order to comply with all applicable Environmental Laws and
Governmental Authorizations unless the failure to so comply could not reasonably
be expected to have a Material Adverse Effect. In the event the Company or any
of its Subsidiaries undertakes any Cleanup action with respect to the presence,
Release or threatened Release of any Hazardous Materials on or affecting any
Facility, the Company or such Subsidiary shall conduct and complete such Cleanup
action in material compliance with all applicable Environmental Laws, and in
accordance with the policies, orders and directives of all federal, state and
local governmental authorities except when, and only to the extent that, the
Company's or such Subsidiary's liability for such presence, handling, storage,
use, disposal, transportation or Release or threatened Release of any Hazardous
Materials is being contested in good faith by the Company or such Subsidiary.
6.9 Execution of Guaranty and Collateral Documents by Future Subsidiaries.
In the event that any Person becomes a Subsidiary of the Company
(including, without limitation, any Domestic Subsidiary created in accordance
with subsection 7.7(viii)), the Company will promptly notify the Administrative
Agent of that fact and, unless such Subsidiary is an Excluded Foreign Subsidiary
or an SPC, cause such Subsidiary on or prior to the time it becomes a Subsidiary
to execute and deliver to the Administrative Agent and the Collateral Agent a
counterpart of the Subsidiary and Parent Guaranty or
100
<PAGE>
the Foreign Subsidiary Guaranty, as the case may be, and the Pledge Agreement
and the Security Agreement or the Foreign Subsidiary Pledge Agreement and a
foreign law governed security agreement, as the case may be, and to take all
such further action and execute all such further documents and instruments as
may be required to grant and perfect in favor of the Collateral Agent, for the
benefit of the Lenders, a First Priority security interest in all of the real,
mixed and personal property assets of such Subsidiary; provided, that a Foreign
Subsidiary shall not be required to enter into any Loan Document and become a
Foreign Subsidiary Guarantor if either (x) the grant by such Foreign Subsidiary
of a Lien on all of its assets as security for the Obligations or (y) the
guaranteeing by such Foreign Subsidiary of the Obligations, or both, would in
the good faith reasonable judgment of the Company, result in adverse tax
consequences to the Company. In addition, the Company shall pledge (if it is the
direct owner of Capital Stock of such Subsidiary) or shall cause each of its
applicable Subsidiaries (other than a Foreign Subsidiary that is not a Foreign
Subsidiary Guarantor) to pledge (if any of such other Subsidiaries is the direct
owner of Capital Stock of such Subsidiary, each such owner, whether the Company
or any of its other Subsidiaries, the "Pledging Parent") all of the Capital
Stock of such Subsidiary, including any SPC (or 65% of such Capital Stock if
such Subsidiary is an Excluded Foreign Subsidiary or a Foreign Subsidiary which
is not required to be a Foreign Subsidiary Guarantor hereunder) to the
Collateral Agent pursuant to the applicable Collateral Documents and to take all
such further action and execute all such further documents and instruments as
may be required to grant and perfect in favor of the Collateral Agent, for the
benefit of the Lenders, a First Priority security interest in such Capital
Stock. The Company shall deliver to the Administrative Agent, together with such
Loan Documents, in the case of each such Subsidiary that is required to be a
party to any Loan Document: (i) (a) certified copies of such Subsidiary's
Organizational Certificate together, if applicable, with a good standing
certificate from the Secretary of State of the jurisdiction of its
incorporation, formation or organization, as applicable, each to be dated a
recent date prior to their delivery to the Administrative Agent, (b) a copy of
such Subsidiary's Organizational Documents, certified by its secretary or an
assistant corporate secretary (or Person holding an equivalent title or having
equivalent duties and responsibilities) as of a recent date prior to their
delivery to the Administrative Agent, (c) a certificate executed by the
secretary or an assistant secretary of such Subsidiary as to (x) the incumbency
and signatures of the officers of such Subsidiary executing such Guaranty, the
Collateral Documents and the other Loan Documents to which such Subsidiary is a
party and (y) the fact that the attached Organizational Authorizations of such
Subsidiary authorizing the execution, delivery and performance of such Guaranty,
such Collateral Documents and such other Loan Documents are in full force and
effect and have not been modified or rescinded, and (ii) a favorable opinion of
counsel to such Subsidiary, that is reasonably satisfactory to the Agents and
their counsel, as to (a) the due organization and good standing of such
Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary
of such Guaranty, the Collateral Documents and any other Loan Documents to which
it is a party and (c) the enforceability of such Guaranty and such Collateral
Documents against such Subsidiary, (d) the validity and perfection of the
security interests granted by such Subsidiary (and by the Pledging Parent of
such Subsidiary in respect of the Capital Stock of such Subsidiary (including
each Foreign Subsidiary and SPC)) in favor of the Collateral Agent pursuant to
the Collateral Documents, and (e) such other matters as any Agent may reasonably
request, all of the foregoing to be reasonably satisfactory in form and
substance to the Administrative Agent, the Collateral Agent and their counsel.
In addition, the Company shall promptly deliver a supplement to Schedule 5.1 to
the Administrative Agent if any Subsidiary is created or acquired.
6.10 Interest Rate Protection.
At all times, commencing ninety (90) days after the Closing Date, the
Company shall maintain in effect one or more Interest Rate Agreements in form
and substance satisfactory to the Administrative
101
<PAGE>
Agent to the extent necessary so that, at all times, interest on the portion of
the outstanding principal amount of Term Loans equal to at least 50% of the
aggregate outstanding principal amount of the Term Loans is covered by such
Interest Rate Agreements.
6.11 Further Assurances.
A. In General. At any time or from time to time upon the request of the
Administrative Agent or the Collateral Agent, the Company will, at its expense,
promptly execute, acknowledge and deliver such further documents and do such
other acts and things as the Administrative Agent or the Collateral Agent may
reasonably request in order to effect fully the purposes of the Loan Documents
and to provide for payment of the Obligations in accordance with the terms of
this Agreement, the Notes and the other Loan Documents. In furtherance and not
in limitation of the foregoing, the Company shall take, and cause each of its
Subsidiaries to take, such actions as the Administrative Agent or the Collateral
Agent may reasonably request from time to time (including, without limitation,
the execution and delivery of guaranties, security agreements, pledge
agreements, mortgages, deeds of trust, landlord's consents and estoppels, stock
powers, financing statements and other documents, the filing or recording of any
of the foregoing, title insurance with respect to any of the foregoing that
relates to an interest in real property, and the delivery of stock certificates
and other collateral with respect to which perfection is obtained by possession)
to ensure that the Obligations are guarantied by the Guarantors and are secured
by substantially all of the assets of the Company and its Subsidiaries and all
of the outstanding Capital Stock of the Company.
B. State Contracts. The Company shall use all reasonable commercial
efforts to obtain (i) in the case of any State Contract in existence on the
Closing Date, as promptly as practicable after the Closing Date, and (ii) in the
case of any other State Contract, in connection with the execution and delivery
thereof, a consent, in form and substance reasonably satisfactory to the
Collateral Agent, of each Governmental Authority and other Persons party thereto
to the collateral assignment to the Collateral Agent, as security for the
Obligations, by each Loan Party thereto of all such Loan Party's right, title
and interest in, to and under such State Contract. In addition, the Company
shall use all reasonable commercial efforts to obtain, pursuant to documentation
reasonably satisfactory to the Administrative Agent, any necessary consent of
the Illinois Environmental Protection Agency to the pledge of the Capital Stock
of Envirotest Illinois, Inc. to the Collateral Agent pursuant to the Pledge
Agreement and the transfer of such Capital Stock pursuant to the terms thereof.
C. Registration of Copyrights. The Company agrees to file in the United
States Copyright Office, on or prior to November 20, 1998, applications to
register the copyrights in the material unregistered computer software programs
identified on Schedule 1(c) (which shall include all such computer software
programs except the software licensed from Hughes Aircraft). The Company shall
provide to the Collateral Agent proof of the submission of such applications
promptly after such submission thereof, so that the Collateral Agent may record
its Lien in the United States Copyright Office against such applications. The
Company shall further advise the Collateral Agent of the issuance of any and all
registrations in respect thereof, along with the related registration numbers,
promptly upon the issuance of such registrations, so that the Collateral Agent
may record evidence of its lien in the United States Copyright Office against
such registrations.
6.12 Conforming Leasehold Interests; Matters Relating to Additional and Closing
Real Property Collateral.
102
<PAGE>
A. Notice of Property Acquisition. As promptly as practicable and in any
event no later than the date of acquisition by the Company or any of its
Subsidiaries (other than Excluded Foreign Subsidiaries or Foreign Subsidiaries
which are not required to be Foreign Subsidiary Guarantors hereunder) of any
interest in real property (whether fee or leased), the Company shall deliver
written notice to the Administrative Agent and the Collateral Agent of such
acquisition.
B. Conforming Leasehold Interests. If the Company or any of its
Subsidiaries (other than Excluded Foreign Subsidiaries and Foreign Subsidiaries
which are not required to be Foreign Subsidiary Guarantors hereunder) acquires
any Leasehold Property, the Company shall promptly notify the Administrative
Agent and the Collateral Agent and the Company shall, or shall cause such
Subsidiary to, use its reasonable best efforts (without requiring the Company or
such Subsidiary to relinquish any material rights or incur any material
obligations or to expend more than a nominal amount of money over and above the
reimbursement, if required, of the landlord's out-of-pocket costs, including
attorneys fees) to cause such Leasehold Property to be a Conforming Leasehold
Interest.
C. Additional Mortgages, Etc. From and after the Closing Date, in the
event that (i) the Company or any of its Subsidiaries (other than Excluded
Foreign Subsidiaries and Foreign Subsidiaries which are not required to be
Foreign Subsidiary Guarantors hereunder) acquires any fee interest in real
property, (ii) the Company or any of its Subsidiaries (other than Excluded
Foreign Subsidiaries and Foreign Subsidiaries which are not required to be
Foreign Subsidiary Guarantors hereunder) acquires any leasehold interest in any
real property (other than any leased real property (a) with respect to which the
aggregate payments under the term of the lease are less than $250,000 per annum,
(b) that does not contain any financial records not contained elsewhere, (c)
that does not have any personal property located thereon with an aggregate value
in excess of $1,000,000 and (d) that is not otherwise material to the operation
of the business of the Company or any of its Subsidiaries (each such property
meeting all of the foregoing requirements being an "Excluded Leased Asset"), or
(iii) at the time any Person becomes a Subsidiary Guarantor, such Person owns or
holds any fee interest in real property or any leasehold interest in real
property (other than an Excluded Leased Asset) (any such real property asset
described in the foregoing clauses (i), (ii) or (iii) being an "Additional
Mortgaged Property"), the Company or such Subsidiary shall deliver to the
Collateral Agent, as soon as practicable after such Person acquires such
Additional Mortgaged Property the following:
(i) Additional Mortgage and Assignment of Rents and Leases. A fully
executed and notarized Mortgage (an "Additional Mortgage"), fully executed
and notarized Assignment of Rents and Leases and fully executed Uniform
Commercial Code fixture filings and other financing statements, each in
proper form for recording in all appropriate places in all applicable
jurisdictions, encumbering the interest of such Loan Party in such
Additional Mortgaged Property;
(ii) Opinions of Counsel. (a) A favorable opinion of counsel to such
Loan Party, in form and substance, and from a counsel, reasonably
satisfactory to the Collateral Agent and its counsel, as to the due
authorization, execution and delivery by such Loan Party of such
Additional Mortgage and additional Assignment of Rents and Leases and
fixture filings and other financing statements and such other matters as
the Administrative Agent may reasonably request, and (b) if required by
the Administrative Agent, an opinion of counsel (which counsel shall be
reasonably satisfactory to the Administrative Agent) in the state in which
such Additional Mortgaged Property is located with respect to the
enforceability of the Additional Mortgage and Assignment of Rent and
Leases to be recorded in such state and such other matters (including
without limitation any matters governed by the laws of such state
regarding personal property security interests in respect
103
<PAGE>
of any Collateral) as the Collateral Agent may reasonably request, in each
case in form and substance reasonably satisfactory to the Administrative
Agent;
(iii) Landlord Consent and Estoppel; Recorded Leasehold Interest. In
the case of any Additional Mortgaged Property consisting of a Leasehold
Property, (a) a Landlord Consent and Estoppel and (b) evidence that such
Leasehold Property is a Recorded Leasehold Interest;
(iv) Title Insurance. (a) An ALTA standard form mortgagee title
insurance policy or an unconditional commitment therefor (an "Additional
Mortgage Policy") issued by the Title Company with respect to such
Additional Mortgaged Property, in an amount satisfactory to the Collateral
Agent, insuring fee simple title to, or a valid leasehold interest in,
such Additional Mortgaged Property vested in such Loan Party and insuring
the Collateral Agent that such Additional Mortgage creates a valid and
enforceable First Priority mortgage Lien on such Additional Mortgaged
Property, subject (unless a survey is delivered pursuant to clause (vi)
below) only to a standard survey exception limited to matters occurring
after the date of the most recent survey, which Additional Mortgage Policy
(1) shall include an endorsement for mechanics' liens, for future advances
under this Agreement and for any other matters reasonably requested by the
Collateral Agent and (2) shall provide for affirmative insurance and such
reinsurance as the Collateral Agent may reasonably request, all of the
foregoing in form and substance reasonably satisfactory to the Collateral
Agent; and (b) evidence satisfactory to the Administrative Agent that such
Loan Party has (i) delivered to the Title Company all certificates and
affidavits required by the Title Company in connection with the issuance
of the Additional Mortgage Policy and (ii) paid to the Title Company or to
the appropriate governmental authorities all expenses and premiums of the
Title Company in connection with the issuance of the Additional Mortgage
Policy and all recording and stamp taxes (including mortgage recording and
intangible taxes) payable in connection with recording the Additional
Mortgage in the appropriate real estate records;
(v) Title Report. If no Additional Mortgage Policy is required with
respect to such Additional Mortgaged Property, a title report issued by
the Title Company with respect thereto, dated not more than thirty (30)
days prior to the date such Additional Mortgage is to be recorded and
satisfactory in form and substance to the Collateral Agent;
(vi) Surveys and Appraisals. A survey and appraisal with respect to
such Additional Mortgaged Property dated a date, prepared by a Person and
in form and substance reasonably satisfactory to the Collateral Agent.
(vii) Copies of Documents Relating to Title Exceptions. Copies of
all recorded documents listed as exceptions to title or otherwise referred
to in the Additional Mortgage Policy or title report delivered pursuant to
clause (iv) or (v) above;
(viii) Matters Relating to Flood Hazard Properties. (a) Evidence,
which may be in the form of a letter from an insurance broker or a
municipal engineer, as to (1) whether such Additional Mortgaged Property
is a Flood Hazard Property and (2) if so, whether the community in which
such Flood Hazard Property is located is participating in the National
Flood Insurance Program, (b) if such Additional Mortgaged Property is a
Flood Hazard Property, such Loan Party's written acknowledgment of receipt
of written notification from the Collateral Agent (1) that such Additional
Mortgaged Property is a Flood Hazard Property and (2) as to whether the
community in which such Flood Hazard Property is located is participating
in the National Flood
104
<PAGE>
Insurance Program, and (c) in the event such Additional Mortgaged Property
is a Flood Hazard Property that is located in a community that
participates in the National Flood Insurance Program, evidence that the
Company has obtained flood insurance in respect of such Flood Hazard
Property to the extent required under the applicable regulations of the
Board of Governors of the Federal Reserve System; and
(ix) Environmental Audit. Reports and other information, in form,
scope and substance satisfactory to the Administrative Agent and the
Collateral Agent and prepared by environmental consultants satisfactory to
the Administrative Agent and the Collateral Agent, concerning any
environmental hazards or liabilities to which the Company or any of its
Subsidiaries may be subject with respect to such Additional Mortgaged
Property;
provided, that notwithstanding anything to the contrary contained in this
subsection 6.12C, neither the Company nor any of its Subsidiaries shall be
required to deliver any of the items (other than an Additional Mortgage and
Additional Mortgage Policy) set forth in this subsection 6.12C with respect to
(x) any property to the extent that the Administrative Agent or the Collateral
Agent has waived delivery of such items (which waiver the Administrative Agent
or Collateral Agent may grant or withhold in its sole discretion), and (y) any
property owned or leased by an Excluded Foreign Subsidiary or any other Foreign
Subsidiary of the Company that is not required to be a Foreign Subsidiary
Guarantor.
D. Closing Date Mortgaged Properties; Landlord Consents and Estoppel. The
Company shall, at its sole cost and expense, cause to be delivered to the
Collateral Agent (i) to the extent requested from time to time by the
Administrative Agent or the Collateral Agent, in respect of such Closing Date
Mortgaged Properties as may be designated by such Agent, the documents described
in subsection 6.12C(vi), (ii) to the extent requested from time to time by the
Administrative Agent or the Collateral Agent in respect of any Leasehold
Property of any Loan Party listed on Schedule 5.5B, any instrument, agreement or
other document (including, without limitation, a Mortgage) described in
subsection 6.12C in respect of Additional Mortgaged Properties, but only to the
extent obtainable with respect to each such Real Property Asset after using
reasonable best efforts, and (iii) on or prior to November 20, 1998, the items
required to have been delivered pursuant to subsection 4.1G which were waived by
the Administrative Agent, all such documents and items to be in form and
substance reasonably satisfactory to the Administrative Agent and the Collateral
Agent. In addition, the Company shall (a) cause to be made, executed and
delivered such adjustments, modifications and replacements to any documents
delivered pursuant to this subsection 6.12D or subsection 4.1G that may from
time to time be requested by either such Agent, and (b) cause all of the
Collateral Agent's costs and expenses (including attorneys' fees) related to
such deliveries, and title insurance costs, expenses and premiums, recording
fees, mortgage recording and similar taxes, and all related fees, costs and
expenses to be paid on or before November 20, 1998 with respect to the
deliveries under the preceding clause (iii), and on demand with respect to
deliveries under the other provisions of this subsection 6.12D.
6.13 Year 2000 Problems.
The Company shall (i) promptly advise the Administrative Agent of any
material (A) disruption or delay in the implementation of the Plan of
Correction, as the same may be updated from time to time, including any
determination by the Company, any senior manager of the Company or any
Subsidiary of the Company, or any consultant known to the Company or any
Subsidiary of the Company with respect to Year 2000 Problems ("Consultant") that
there is or will be a failure to achieve any of the objectives specifically
identified in subdivision (ii) of subsection 5.19, or (B) change in the written
Plan of Correction
105
<PAGE>
or Related implementation budget referred to in subdivision (v) of subsection
5.19, or any later version thereof furnished to the Administrative Agent; (ii)
afford to the Administrative Agent and its representatives, upon three (3) days'
notice to the Company, reasonable access to the Company's and its Subsidiaries'
properties, personnel, service providers, vendors and records for the purpose of
enabling the Administrative Agent to assess the adequacy of, and the record of
performance of the Company and its Subsidiaries with respect to, the Plan of
Correction, Related financial performance and conformity of actual performance
with Related implementation budgets; and (iii) periodically report to the
Administrative Agent, in such form as the Administrative Agent may reasonably
request, on (a) the progress of the Company and its Subsidiaries in implementing
the Plan of Correction, (b) the budget for, and actual financial performance
with respect to, implementation of the Plan of Correction and (c) the assessment
of the Company, any senior manager of the Company or any Subsidiary of the
Company, or any Consultant of the adequacy of the Plan of Correction or the
Related implementation budget.
6.14 ENR Transfer.
The Parent and the Company shall cause the ENR Transfer to be effected and
consummated pursuant to the documentation described in clause (viii) of the
definition of Transaction Documents and the Company shall pledge and deliver the
Capital Stock of ENR to the Collateral Agent pursuant to the Collateral
Documents and the Parent and the Company shall cause all conditions and
requirements under the Collateral Documents with respect to the pledging of
Capital Stock to be fulfilled to the satisfaction of the Collateral Agent, in
each such case, on or prior to November 20, 1998.
SECTION 7.
NEGATIVE COVENANTS
The Parent and the Company covenant and agree that, so long as any of the
Commitments hereunder shall remain in effect and until payment in full of all of
the Loans and other Obligations and the cancellation or expiration of all
Letters of Credit, unless the Requisite Lenders shall otherwise give prior
written consent, the Company shall perform, and shall cause each of its
Subsidiaries to perform, all covenants in this Section 7.
7.1 Indebtedness.
The Parent and the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or
otherwise become or remain directly or indirectly liable with respect to, any
Indebtedness or preferred stock, except:
(i) Each of the Loan Parties may become and remain liable with
respect to its respective Obligations;
(ii) The Company and its Subsidiaries, as applicable, may remain
liable with respect to Indebtedness described in Schedule 7.1 annexed
hereto, and, until the Closing Date, the Existing Debt; and the Company
may become and remain liable with respect to up to $4,500,000 of
Indebtedness under the note described in clause (i) of the definition of
"Permitted Acquisition";
(iii) The Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations permitted by subsection 7.4 and,
upon any matured obligations actually arising pursuant thereto, the
Indebtedness corresponding to the Contingent Obligations so
106
<PAGE>
extinguished;
(iv) The Company and its Subsidiaries may become and remain liable
with respect to Indebtedness under Capital Leases capitalized on the
consolidated balance sheet of the Company and its Subsidiaries and other
Indebtedness secured by Liens permitted under subsection 7.2A(iii);
provided, that the aggregate amount of all Indebtedness outstanding under
this clause (iv) (other than any such Indebtedness arising under Capital
Leases entered into as part of a sale and lease-back transaction permitted
by subsection 7.8) at any time shall not exceed $30,000,000; provided that
(a) no more than $2,500,000 of such Indebtedness may be used to finance
the acquisition of assets other than Permitted Testing Center Assets, and
(b) no more than $15,000,000 of such Indebtedness may be recourse to the
Company and its Subsidiaries (other than SPCs) or their respective assets;
provided, further, that any Liens securing such Indebtedness do not at any
time cover or encumber any assets or property other than the assets or
property financed by such Indebtedness;
(v) The Company may become and remain liable with respect to
Indebtedness to any of its Subsidiaries other than Excluded Foreign
Subsidiaries, any wholly-owned Subsidiary Guarantor that is a Domestic
Subsidiary may become and remain liable with respect to Indebtedness to
the Company or any other wholly-owned Subsidiary Guarantor that is a
Domestic Subsidiary, any Subsidiary of the Company which is not a
Subsidiary Guarantor may become and remain liable with respect to
Indebtedness to any other Subsidiary of the Company (other than an
Excluded Foreign Subsidiary) which is not a Subsidiary Guarantor, and any
Foreign Subsidiary may become and remain liable with respect to
Indebtedness owing to the Company or any other Subsidiary to the extent
such Investment is permitted by subsection 7.3(ix); provided that, in each
case, (a) all such intercompany Indebtedness shall be evidenced by
promissory notes which (other than in the case of any such promissory
notes issued to Subsidiaries which are not Subsidiary Guarantors) shall
have been pledged to the Collateral Agent pursuant to the Collateral
Documents, (b) all such intercompany Indebtedness owed by the Company to
any of its respective Subsidiaries shall be unsecured and subordinated in
right of payment to the payment in full of the Obligations pursuant to the
terms of the applicable promissory notes or an intercompany subordination
agreement that in any such case, are reasonably satisfactory to the
Administrative Agent, and (c) any payment by the Company or by any
Subsidiary of the Company under any guaranty of the Obligations shall
result in a pro tanto reduction of the amount of any intercompany
Indebtedness owed by the Company or by such Subsidiary to the Company or
to any of its Subsidiaries for whose benefit such payment is made;
(vi) The Company and its Subsidiaries may become and remain liable
with respect to Indebtedness under Interest Rate Agreements required under
subsection 6.10;
(vii) The Parent may become and remain liable with respect to the
Senior Discount Notes;
(viii) The Company may become and remain liable with respect to the
Senior Subordinated Notes;
(ix) Foreign Subsidiaries that are not Foreign Subsidiary Guarantors
may become and remain liable with respect to other Indebtedness so long as
(a) such Indebtedness is without recourse to the Loan Parties and their
respective assets, and (b) the amount of Indebtedness incurred by any such
Foreign Subsidiary does not exceed an amount equal to two times the total
107
<PAGE>
cash equity investment from time to time (but not excluding retained
earnings) contributed to or paid into such Foreign Subsidiary; and
(x) The Company and the Subsidiary Guarantors may become and remain
liable with respect to other Indebtedness in an aggregate principal amount
not to exceed at any time outstanding $5,000,000.
7.2 Liens and Related Matters.
A. Prohibition on Liens. The Parent and the Company shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or permit to exist any Lien on or with respect to any property or asset
of any kind (including any document or instrument in respect of goods or
accounts receivable) of the Company or any of its Subsidiaries, whether now
owned or hereafter acquired, or any income or profits therefrom, or file or
permit the filing of, or permit to remain in effect, any financing statement, or
other similar notice of any Lien with respect to any such property, asset,
income or profits under the Uniform Commercial Code of any state or under any
similar recording or notice statute, except (solely with respect to the Company
and its Subsidiaries):
(i) Permitted Encumbrances;
(ii) Liens described in Schedule 7.2A annexed hereto, and, until the
Closing Date, Liens securing Existing Debt;
(iii) Purchase money security interests (including mortgages,
conditional sales, Capital Leases and any other title retention or
deferred purchase devices) in real or tangible personal property of the
Company or any of its Subsidiaries acquired after the Closing Date and
existing or created at the time of acquisition thereof or within thirty
(30) days thereafter, and the renewal, extension and refunding of any such
security interest in an amount not exceeding the amount thereof remaining
unpaid immediately prior to such renewal, extension or refunding;
provided, that the Indebtedness secured by such Lien is permitted by
subsection 7.1(iv) or subsection 7.1(x); provided, further, that such
Liens do not at any time (including, without limitation, in connection
with any renewal, extension and refunding) cover or encumber any assets or
property other than the assets or property financed by such Indebtedness;
(iv) Liens on assets of the Company and its Subsidiaries not
otherwise permitted under this subsection 7.2A, securing obligations
(other than Indebtedness) in an aggregate amount not to exceed $2,500,000
at any time outstanding;
(v) Liens in favor of the Collateral Agent granted pursuant to the
Collateral Documents or granted in favor of any Agent or Lender pursuant
to subsection 10.4 hereof;
(vi) Liens securing Indebtedness of Excluded Foreign Subsidiaries
permitted under subsection 7.1(ix); provided, that such Liens do not at
any time cover or encumber any assets or property other than the assets or
property of an Excluded Foreign Subsidiary; and
(vii) At any time prior to the consummation of the ENR Merger, Liens
on Margin Stock.
108
<PAGE>
B. No Further Negative Pledges. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to an Asset Sale, neither the Parent, the
Company nor any of their respective Subsidiaries (other than Excluded Foreign
Subsidiaries and SPCs) shall enter into any agreement (other than the Loan
Documents and the Senior Discount Note Indenture and Senior Subordinated Note
Indenture, as each such indenture is in effect on the Closing Date) prohibiting
the creation or assumption of any Lien upon any of its properties or assets,
whether now owned or hereafter acquired.
C. No Restrictions on Subsidiary Distributions to the Company or Other
Subsidiaries. Except as otherwise provided herein or in the Senior Subordinated
Note Indenture or the Senior Discount Note Indenture, each as in effect on the
Closing Date, the Parent and the Company will not, and will not permit any of
its Subsidiaries (other than Excluded Foreign Subsidiaries and SPCs) to, create
or otherwise cause or suffer to exist or become effective any consensual
encumbrance, limitation or restriction of any kind on the ability of any
Subsidiary of the Company to (i) pay dividends or make any other distributions
on any of such Subsidiary's Capital Stock owned by the Company or any other
Subsidiary of the Company, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to the Company or any other Subsidiary of the Company, (iii) make
loans or advances to the Company or any other Subsidiary of the Company, or (iv)
transfer any of its property or assets to the Company or any other Subsidiary of
the Company.
7.3 Investments; Joint Ventures.
The Parent and the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, make or own any Investment in any
Person except:
(i) (a) The Parent may own all of the outstanding Capital Stock of
the Company, and (b) the Company and its Subsidiaries may (x) continue to
own the Investments owned by them as of the Closing Date in any
Subsidiaries of the Company, and (y) make and own additional Investments
in any Subsidiary which is in the Related Subsidiary Group of the Company
or such Subsidiary, as applicable, at the time each such additional
Investment is made, and (z) make and own Investments in any wholly-owned
Domestic Subsidiary that is a Subsidiary Guarantor;
(ii) The Company and its Subsidiaries may make and own intercompany
loans to the extent permitted by subsection 7.1(v);
(iii) The Company and its Subsidiaries may make and own Investments
in Cash Equivalents;
(iv) The Company and its Subsidiaries may make and own Consolidated
Capital Expenditures permitted by subsection 7.6D;
(v) The Company and its Subsidiaries may make and own Investments
contemplated by the ENR Merger Agreement, the ENR Transfer, the Shares
Offer to Purchase and the Debt Tender Offer;
(vi) The Company and its Subsidiaries may make loans to officers of
the Company and its Subsidiaries (a) in an aggregate amount not to exceed
$4,500,000 outstanding at any time solely for the purpose of reimbursing
such officers for the amount of income taxes payable by such
109
<PAGE>
officers in connection with shares of Capital Stock of the Parent issued
to such officers after October 1, 1998 and prior to the Closing Date;
provided that such shares are pledged to the Company or Subsidiary making
such loans, and such loans and shares are pledged to the Collateral Agent
pursuant to the Collateral Documents, and (b) in an additional aggregate
outstanding amount not to exceed $500,000 at any time;
(vii) The Company may make Investments in the Financial Services
Affiliate in aggregate amount not to exceed $3,000,000 so long as (x) no
creditor of the Financial Services Affiliate has or would have recourse to
the Company or any of its Subsidiaries, whether as a result of the
organizational structure of the Financial Services Affiliate, by
contractual obligation or operation of law or otherwise, and (y) the
Financial Services Program is in effect and in operation with respect to
new sales by ESP of its products;
(viii) The Company and its Subsidiaries may make and own Permitted
Acquisitions; and
(ix) The Company and its Subsidiaries may make (and thereafter
continue to own) other Investments in Foreign Subsidiaries, SPCs and joint
ventures:
(a) in Fiscal Year 1999, in an aggregate amount not to exceed
$15,000,000;
(b) in Fiscal Year 2000, in an aggregate amount not to exceed
the sum of (x) $10,000,000 plus (y) any amounts permitted to be
invested but not invested pursuant to clause (a) above;
(c) in Fiscal Year 2001, in an aggregate amount not to exceed
the sum of (x) the lesser of $10,000,000 and any amounts permitted
to be invested but not invested pursuant to clause (b) above plus
(y) if, and so long as, the Leverage Ratio is less than 3.0:1.0
after giving effect to each such Investment, $10,000,000; and
(d) thereafter, if, and so long as, the Leverage Ratio is less
than 3.0:1.0 after giving effect to each such Investment, an
aggregate amount not to exceed the excess of (x) $10,000,000 over
(y) the aggregate amount of Investments made pursuant to clause
(c)(y) above;
provided, in each case, that, no Default or Event of Default shall have
occurred and be continuing or result therefrom; and, provided, further,
that all Investments permitted under this Subsection 7.3(ix) made or owned
by the Company and its Subsidiaries in SPCs may not exceed $5,000,000 in
the aggregate at any time.
7.4 Contingent Obligations.
The Parent and the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create or become or remain liable with
respect to any Contingent Obligation, except:
(i) The Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of Letters of Credit;
the Subsidiary Guarantors may become and remain liable with respect to
Contingent Obligations arising under the guaranties and the performance
bonds and guaranties described on Schedule 7.4 annexed hereto; and the
Subsidiary Guarantors may become and remain liable with respect to
Contingent Obligations arising under the
110
<PAGE>
Senior Subordinated Note Indenture in respect of the Senior Subordinated
Notes;
(ii) The Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations of any such
Person incurred in connection with Asset Sales or other sales of assets;
(iii) The Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations under guarantees in the ordinary
course of business of the obligations of suppliers, landlords, customers,
franchisees and licensees of the Company and its Subsidiaries in an
aggregate amount not to exceed at any time $2,500,000;
(iv) The Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of unsecured guaranties
of any obligations (other than obligations in respect of any Indebtedness)
of the Company or any of its Subsidiaries permitted under this Agreement
in an aggregate amount not to exceed at any time $2,500,000; and
(v) The Company and its Subsidiaries may become and remain liable
with respect to other Contingent Obligations; provided, that the maximum
aggregate liability, contingent or otherwise, of the Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no
time exceed $2,500,000;
provided, however, that (x) neither the Company nor any of its Subsidiaries
shall incur any Contingent Obligations in respect of any obligations of any SPC,
and (y) neither the Company nor any of its Subsidiaries (other than an Excluded
Foreign Subsidiary) shall incur any Contingent Obligations in respect of any
obligations of any Excluded Foreign Subsidiary.
7.5 Restricted Payments.
The Parent and the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Payment; provided that, so long as no Default or
Event of Default has occurred and is continuing or would result therefrom, the
Company and its Subsidiaries may (i) make regularly scheduled payments of
interest in respect of any Subordinated Indebtedness in accordance with the
terms of, and only to the extent required by, and subject to the subordination
provisions contained in, the indenture or other agreement pursuant to which such
Subordinated Indebtedness was issued, as such indenture or other agreement may
be amended from time to time to the extent permitted under subsection 7.13B,
(ii) make Restricted Payments on the Closing Date in respect of the Existing
Senior Subordinated Notes to the extent contemplated by the Transaction
Documents, (iii) repurchase shares of, or options to purchase shares of, Capital
Stock of the Parent, the Company or any of its Subsidiaries from employees,
former employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such Capital Stock, provided,
that the aggregate amount of such repurchases shall not exceed $1,500,000 in any
calendar year or $5,000,000 in the aggregate from and after the Closing Date,
(iv) make Restricted Payments to any member of the Related Subsidiary Group of
the Company or such Subsidiary, as applicable, and the pro rata share to any
other Person owning Capital Stock of such Subsidiary, (v) make Restricted
Payments to the Parent (a) in an amount sufficient, but not to exceed $500,000
per Fiscal Year, to enable the Parent to pay necessary
111
<PAGE>
operating expenses and other reasonable administrative expenses, and (b) to
enable the Parent to pay foreign, federal, state or local tax liabilities, not
to exceed the amount of any tax liabilities that would otherwise be payable by
the Company and its Subsidiaries to the appropriate taxing authorities if they
filed separate tax returns to the extent that the Parent has an obligation to
pay such tax liabilities relating to the operations, assets or capital of the
Company and its Subsidiaries, provided, that any such payments described in this
clause (v) shall either be used by the Parent to pay the applicable liabilities
within thirty (30) days of receipt of such payment or refunded to the payor, and
(vi) on any date occurring on or after April 30, 2004, make Restricted Payments
to the Parent in an amount equal to the accrued but unpaid interest on the
Senior Discount Notes scheduled to be paid by the Parent on such date in cash;
provided that (a) no Default or Event of Default shall have occurred and be
continuing or result therefrom, (b) the Company shall be in Pro Forma Compliance
after giving effect to such Restricted Payment, assuming for such purpose that
(x) the maximum Leverage Ratios set forth in subsection 7.6C were each lower by
0.35x, (y) such Restricted Payment and the immediately preceding Restricted
Payment, if any, made pursuant to this clause (vi) are included as part of
Consolidated Fixed Charges for purposes of calculating the denominator of the
Fixed Charge Coverage Ratio, and (z) such Restricted Payment and the immediately
preceding Restricted Payment, if any, made pursuant to this clause (vi) are
included as part of Consolidated Interest Expense for purposes of calculating
the denominator of the Interest Coverage Ratio and (c) the Parent shall
forthwith use such Restricted Payment to pay such interest to the trustee for
the holders of the Senior Discount Notes.
7.6 Financial Covenants.
A. Minimum Interest Coverage Ratio. The ratio (the "Interest Coverage
Ratio") of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Interest
Expense for any four-Fiscal Quarter period ending during or at the end of any of
the periods set forth below (each applicable four-Fiscal Quarter period being a
"Calculation Period") shall not be less than the correlative ratio indicated
below:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Period During Which Minimum Interest
Calculation Period Ends Coverage Ratio
-----------------------------------------------------------
<S> <C>
10/1/98 through 12/31/98 2.00:1.00
-----------------------------------------------------------
1/1/99 through 12/31/99 2.00:1.00
-----------------------------------------------------------
1/1/00 through 12/31/00 2.25:1.00
-----------------------------------------------------------
1/1/01 through 12/31/01 2.50:1.00
-----------------------------------------------------------
1/1/02 through any time thereafter 3.00:1.00
-----------------------------------------------------------
</TABLE>
B. Minimum Fixed Charge Coverage Ratio. The ratio (the "Fixed Charge
Coverage Ratio") of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Fixed
Charges at the end of any Calculation Period shall not be less than the
correlative ratio indicated below:
112
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------
Minimum Fixed
Period During Which Charge
Calculation Period Ends Coverage Ratio
-----------------------------------------------------------
<S> <C>
1/1/99 through 12/31/00 1.00:1:00
---------------------------------------- ---------------
1/1/01 through 12/31/01 1.05:1.00
---------------------------------------- ---------------
1/1/02 through 12/31/03 1.10:1.00
---------------------------------------- ---------------
1/1/04 through any time thereafter 1.20:1.00
</TABLE>
C. Maximum Leverage Ratio. The ratio (the "Leverage Ratio") of (i)
Consolidated Total Debt as of the last day (any such day being a "Calculation
Date") of any Fiscal Quarter ending during any of the periods set forth below,
to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending
on such Calculation Date shall not exceed the correlative ratio indicated below:
<TABLE>
<CAPTION>
-------------------------------------------------------
Period During Which Maximum
Calculation Date Occurs Leverage Ratio
-------------------------------------------------------
<S> <C>
10/1/98 through 12/31/99 5.00:1.00
-------------------------------------------------------
1/1/00 through 12/31/00 4.00:1.00
-------------------------------------------------------
1/1/01 through 12/31/01 3.50:1.00
-------------------------------------------------------
1/1/02 through any time thereafter 3.00:1.00
-------------------------------------------------------
</TABLE>
D. Consolidated Capital Expenditures. The Company shall not, and shall not
permit its Subsidiaries to, make or incur Consolidated Capital Expenditures in
any Fiscal Year (or specified portion thereof) in an aggregate amount in excess
of the corresponding amount (the "Maximum Consolidated Capital Expenditures
Amount") set forth below opposite such Fiscal Year (or such portion thereof) as
indicated below; provided, that the Maximum Consolidated Capital Expenditures
Amount for any Fiscal Year shall be increased by an amount equal to 50% of the
excess, if any, of (i) the Maximum Consolidated Capital Expenditures Amount
(excluding, and without giving effect to, any increases thereto from any prior
carry over of amounts pursuant to this subsection) for the previous Fiscal Year
(or specified portion thereof) over (ii) the actual amount of Consolidated
Capital Expenditures for such previous Fiscal Year (or specified portion
thereof):
<TABLE>
<CAPTION>
-----------------------------------------------------------
Fiscal Year Maximum Consolidated
(or Portion Thereof) Capital Expenditures Amount
-----------------------------------------------------------
<S> <C>
1998 $15,000,000
-----------------------------------------------------------
1999 $13,000,000
-----------------------------------------------------------
2000 $7,000,000
-----------------------------------------------------------
-----------------------------------------------------------
</TABLE>
113
<PAGE>
<TABLE>
-----------------------------------------------------------
<S> <C>
2001 and thereafter $6,000,000
-----------------------------------------------------------
</TABLE>
In addition to the foregoing amounts, the Company and its Subsidiaries may make
or incur Consolidated Capital Expenditures in connection with (i) the State
Contract for the Northern Kentucky Emissions Testing Program, BP010138, awarded
in June 1998, in an aggregate amount not to exceed $5,700,000 (including,
without limitation, all amounts incurred or expended prior to the Closing Date),
which amounts shall not be subject to the foregoing proviso, and (ii) the
build-out of Permitted Testing Center Assets, commencing in Fiscal Year 1999, in
an aggregate amount not to exceed the sum of (x) $25,000,000 plus (y) if, and so
long as the Leverage Ratio is less than 3.0:1.0 after giving effect thereto,
$10,000,000, of which sum not more than $15,000,000 may be made or incurred in
any Fiscal Year, and which amounts shall not be subject to the foregoing
proviso. Notwithstanding anything to the contrary contained herein, the Company
and its Domestic Subsidiaries shall not make or incur Consolidated Capital
Expenditures in property, plant or equipment which is not located in the United
States of America.
E. Certain Calculations.
(i) With respect to any period during which any Permitted
Acquisition occurs or any business of any other Person is acquired by the
Company or any of its Subsidiaries as permitted pursuant to the terms
hereof, for purposes of determining compliance or Pro Forma Compliance
with the financial covenants set forth in this subsection 7.6,
Consolidated Adjusted EBITDA and Consolidated Interest Expense shall be
calculated with respect to such periods and such Permitted Acquisition or
business on a pro forma basis (including pro forma adjustments arising out
of events which are directly attributable to a specific transaction, are
factually supportable and are expected to have a continuing impact, in
each case, determined on a basis consistent with Article 11 of Regulation
S-X under the Securities Act, which pro forma adjustments shall be
certified by the chief financial officer of the Company) using the
historical financial statements of all entities or business so acquired or
to be acquired and the consolidated financial statements of the Company
and its Subsidiaries which shall be reformulated (a) as if such
acquisition, and any acquisitions which have been consummated during such
period, and any Indebtedness or other liabilities incurred in connection
with any such acquisition, had been consummated or incurred at the
beginning of such period (and assuming that such Indebtedness bears
interest during any portion of the applicable measurement period prior to
the relevant acquisition at the weighted average of the interest rates
applicable to outstanding Loans during such period), and (b) otherwise in
conformity with such procedures as may be agreed upon between the
Administrative Agent and the Company, all such calculations to be in form
and substance satisfactory to the Administrative Agent.
(ii) With respect to any period during which any Subsidiary of the
Company or any business of the Company or any of its Subsidiaries is sold
or otherwise disposed of, for purposes of determining compliance with the
financial covenants set forth in this subsection 7.6, Consolidated
Adjusted EBITDA and Consolidated Interest Expense shall be calculated with
respect to such periods and such Subsidiaries or businesses on a pro forma
basis (including pro forma adjustments arising out of events which are
directly attributable to a specific transaction, are factually supportable
and are expected to have a continuing impact, in each case, determined on
a basis consistent with Article 11 of Regulation S-X under the Securities
Act, which pro forma adjustments shall be certified by the chief financial
officer of the Company) using the consolidated financial statements of the
Company and its Subsidiaries which shall be reformulated (a) as if such
sale or disposition, and any sales or dispositions which have been
consummated during such period, and any Indebtedness or other liabilities
assumed by the acquirer thereof in connection
114
<PAGE>
with any such sale or disposition, had been consummated or assumed at the
beginning of such period, and (b) otherwise in conformity with such
procedures as may be agreed upon between the Administrative Agent and the
Company, all such calculations to be in form and substance satisfactory to
the Administrative Agent.
F. State Contract Terminations.
On each date of the expiration, termination, cancellation, rescission or
other material adverse amendment or modification of any State Contract, the
Company shall be in Pro Forma Compliance, assuming, for purposes of the
foregoing, that (i) such expiration, termination, cancellation, rescission or
other material amendment or modification took effect as of the beginning of the
most recently completed Calculation Period, (ii) the Permitted Testing Center
Assets attributable to such State Contract and no longer useful in connection
therewith were sold at the beginning of such period at prices proposed by the
Company and agreed upon by the Administrative Agent (or, absent such agreement,
their respective net book values), (iii) the reasonably estimated net cash
proceeds of such sales, and any other payments received by the Company or any
Subsidiary Guarantor from any applicable Governmental Authority in connection
with any such termination, were used to repay outstanding Term A Loans (and
thereafter Term B Loans), or any other Indebtedness permitted hereby that is
secured by such Indebtedness, as of the beginning of such period, and (iv) any
price increases which became effective during such period under any then State
Contract became effective as of the beginning of such period. As promptly as
practicable after the occurrence of any such expiration, cancellation,
termination, rescission or other material amendment or modification, but in any
event within thirty (30) days thereof, the Company shall deliver to the
Administrative Agent an Officer's Certificate of the chief financial officer of
the Company demonstrating in reasonable detail whether the Company is in such
Pro Forma Compliance.
7.7 Restriction on Fundamental Changes; Asset Sales.
The Parent and the Company shall not, and shall not permit any of its
Subsidiaries to, alter the corporate, capital or legal structure of the Parent,
the Company or any of its Subsidiaries, create any new Subsidiaries or enter
into any transaction of merger or consolidation (other than the ENR Merger), or
liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose
of all or any of its business or assets, whether now owned or hereafter
acquired, or (other than pursuant to the ENR Merger, the ENR Transfer, the
Shares Acquisition and the Debt Tender Offer) acquire by purchase or otherwise
all or a substantial part of the business or assets of, or Capital Stock or
other evidence of beneficial ownership of, any Person or any unit or division
thereof, except:
(i) Any Subsidiary of the Company may be merged with or into the
Company or any wholly-owned Subsidiary of its Related Subsidiary Group, or
be liquidated, wound up or dissolved, or all or any part of its business,
property or assets may be conveyed, sold, leased, transferred or otherwise
disposed of, in one transaction or a series of transactions, to the
Company or any wholly-owned Subsidiary of its Related Subsidiary Group;
provided that, in the case of such a merger involving the Company, the
Company shall be the continuing or surviving corporation, in the case of
any such merger involving a Domestic Subsidiary (but not the Company), a
Domestic Subsidiary shall be the continuing or surviving corporation and
in the case of any other such merger involving a Subsidiary Guarantor, a
wholly-owned Subsidiary Guarantor shall be the continuing or surviving
corporation;
115
<PAGE>
(ii) [RESERVED];
(iii) The Company and its Subsidiaries may acquire inventory,
equipment and other assets in the ordinary course of business;
(iv) The Company and its Subsidiaries may grant Liens permitted
pursuant to subsection 7.2A and may sell or otherwise dispose of assets in
transactions that do not constitute Asset Sales; provided that the
consideration received for such assets shall be in an amount at least
equal to the fair market value thereof (determined in good faith by the
board of directors of the Company) and no less than 80% thereof shall be
paid in cash;
(v) The Company and its Subsidiaries may make (a) Permitted Testing
Center Asset Sales, (b) Asset Sales of assets described in Schedule 7.7
annexed hereto in an aggregate amount not to exceed $5,000,000 for all
such sales, and (c) other Asset Sales of assets having a fair market value
(determined in good faith by the board of directors of the Company) not in
excess of $10,000,000 in the aggregate measured on a cumulative basis from
the Closing Date; provided that, in each such case, (x) the consideration
received for such assets shall be in an amount at least equal to the fair
market value thereof (determined in good faith by the board of directors
of the Company); (y) not less than 80% of the consideration received
therefor shall be cash; and (z) the proceeds of such Asset Sales shall be
applied as required by subsection 2.4B(iii)(a);
(vi) The Company and its Subsidiaries may make Asset Sales to any
Governmental Authority to the extent required by any State Contract as in
effect pursuant to this Agreement; provided that the proceeds of such
Asset Sales shall be applied to prepay Term Loans pursuant to subsection
2.4B(iii)(a);
(vii) The Company and its Subsidiaries may (a) enter into sale and
lease-back transactions permitted by subsection 7.8, (b) enter into
Permitted Acquisitions and (c) make Investments permitted by subsection
7.3(ix); and
(viii) The Company may create new Subsidiaries; provided that, (a)
concurrently with or prior to the formation of each such Subsidiary, the
Company or such Subsidiary, as applicable, shall deliver or cause to be
delivered each of the items and execute each of the documents, if any,
required pursuant to subsection 6.9, and (b) each newly formed Domestic
Subsidiary shall be a wholly-owned Subsidiary of the Company.
At any time prior to the consummation of the ENR Merger, the Company and its
Subsidiaries may make Asset Sales in respect of Margin Stock; provided that (x)
the consideration received for such assets shall be in an amount at least equal
to the fair market value thereof (determined in good faith by the board of
directors of the Company); (y) not less than 100% of the consideration received
therefor shall be Cash and cash and cash equivalents; and (z) the proceeds of
such Asset Sales shall be applied to repay Term Loans pursuant to subsection
2.4B(iii)(a).
7.8 Sales and Lease-Backs.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now
116
<PAGE>
owned or hereafter acquired, (i) which the Company or any of its Subsidiaries
has sold or transferred or is to sell or transfer to any other Person (other
than the Company or any of its Subsidiaries) or (ii) which the Company or any of
its Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by the Company or any of
its Subsidiaries to any Person (other than the Company or any of its
Subsidiaries) in connection with such lease, unless (v) the proceeds of such
sale are used to prepay Term Loans pursuant to subsection 2.4B(iii)(a), (w) the
Company shall be in Pro Forma Compliance after giving effect to such sale or
sale and leaseback transaction, (x) no Default or Event of Default has occurred
and is continuing or would result therefrom, (y) the aggregate fair market value
of all assets subject to such sale and lease-back transactions is not in excess
of $10,000,000 and (z) the sale price for each such sale shall be the fair
market value of the applicable asset or property and shall be paid in cash.
7.9 Sale or Discount of Receivables.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.
7.10 Transactions with Shareholders and Affiliates.
The Parent and the Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any holder of 5%
or more of any class of equity Securities of the Parent, the Company or such
Subsidiary or with any Affiliate of the Parent or the Company or of any such
Subsidiary or holder, on terms that are less favorable to the Parent, the
Company or that Subsidiary, as the case may be, than those that might be
obtained at the time from Persons who are not such a holder or Affiliate;
provided that the foregoing restriction shall not apply to (i) transactions
between the Company and any wholly-owned Subsidiary Guarantor, (ii) reasonable
and customary fees paid to members of the boards of directors of the Company and
its Subsidiaries, (iii) management fees paid by the Company to Alchemy in an
aggregate amount of up to $1,000,000 per year, plus reasonable out-of-pocket
expenses related thereto; provided that no more than $150,000 of such fees per
year may be paid during such times as any Default or Event of Default has
occurred and is continuing, (iv) loans and advances permitted hereby to officers
and employees of the Company and its Subsidiaries and (v) the consummation of
the transactions described in clause (i) of the definition of Permitted
Acquisitions.
7.11 Ownership of Subsidiary Stock.
The Company shall not:
(i) directly or indirectly sell, assign, pledge or otherwise
encumber or dispose of any shares of Capital Stock or other equity
Securities of any of its Subsidiaries, except as permitted under this
Agreement and the Collateral Documents or to qualify directors if required
by applicable law;
(ii) except as a result of a sale permitted hereby of all of the
outstanding Capital Stock of a Subsidiary Guarantor to a third-party,
permit any Capital Stock of any Subsidiary Guarantor that is a
wholly-owned Domestic Subsidiary to be directly or indirectly owned by any
Loan Party
117
<PAGE>
other than the Company or a Subsidiary Guarantor that is a wholly-owned
Domestic Subsidiary; provided that this clause shall not prevent Newmall
or Wellman UK from continuing to directly or indirectly, as applicable,
own (a) Capital Stock of Wellman US and its Subsidiaries (other than Stone
Rivet) immediately prior to the consummation of any of the Transactions,
or (b) until the date on which the ENR Transfer is required to have been
consummated pursuant to Section 6.14, Stone Rivet, ENR and their
respective Subsidiaries; or
(iii) permit any of its Subsidiaries directly or indirectly to sell,
assign, pledge or otherwise encumber or dispose of any shares of Capital
Stock or other equity Securities of any of its Subsidiaries (including
such Subsidiary), except as permitted under this Agreement and the
Collateral Documents, to the Company or another wholly owned Subsidiary of
the Company or to qualify directors if required by applicable law.
7.12 Conduct of Business.
A. The Company and Its Operating Subsidiaries. The Company shall not, and
shall not permit any of its Subsidiaries to, engage in any business other than
(i) the businesses engaged in by the Company and its Subsidiaries on the Closing
Date as described in the Information Memorandum and (ii) such other lines of
business as may be reasonably related thereto.
B. The Holding Companies. The Company shall not permit any Holding Company
to (i) incur, directly or indirectly, any Indebtedness other than the
Obligations under the Loan Documents to which any such Holding Company is a
party and its obligations under the Senior Subordinated Subsidiary Guaranty,
(ii) create or suffer to exist any Lien upon any property or assets now owned or
hereafter acquired by such Holding Company other than the Liens created under
the Collateral Documents to which such Holding Company is a party, (iii) engage
in any business or own any assets other than holding the Capital Stock of such
Holding Company's direct Subsidiaries; (iv) consolidate with or merge with or
into, or convey, transfer or lease all or substantially all its assets to, any
Person other than the Company or another Subsidiary Guarantor; or (v) sell or
otherwise dispose of any Capital Stock of any of such Holding Company's
Subsidiaries other than to the Company or a wholly-owned Domestic Subsidiary
which is a Subsidiary Guarantor.
7.13 Amendments or Waivers of Certain Agreements.
A. Amendments or Waivers of Certain Agreements and Documents. None of the
Parent, the Company nor any of its respective Subsidiaries shall terminate or
agree to any amendment, restatement, supplement or other modification to, or
waive any of its rights under, any (i) Transaction Document (other than the
Existing Indentures Amendments and the Loan Documents), (ii) Organizational
Certificate or Organizational Document, or (iii) State Contract, if such
termination, amendment, restatement, supplement, modification or waiver, in the
case of clauses (i) and (ii), would be materially adverse to the Company, any
Subsidiaries of the Company or the Lenders, and, in the case of clause (iii),
could reasonably be expected to have a Material Adverse Effect.
B. Amendments of Documents Relating to Indebtedness. The Parent and the
Company shall not, and shall not permit any of their respective Subsidiaries to,
amend or otherwise change the terms of the Ohio Debt or any Indebtedness under
the Senior Discount Note Related Documents or the Senior Subordinated Note
Related Documents, or make any payment consistent with an amendment thereof or
change thereto, if the effect of such amendment or change is to increase the
interest rate on such
118
<PAGE>
Indebtedness, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or condition
to an event of default with respect thereto (other than to eliminate any such
event of default or increase any grace period related thereto), change the
redemption, prepayment or defeasance provisions thereof, change the
subordination provisions thereof (or of any guaranty thereof), or change any
collateral therefor (other than to release such collateral), or if the effect of
such amendment or change, together with all other amendments or changes made, is
to increase materially the obligations of the obligor thereunder or to confer
any additional rights on the holders of such Indebtedness (or trustee or other
representative on their behalf) which would be adverse to the Parent, the
Company or the Lenders.
C. Preferred Stock. Neither the Company nor any Subsidiary of the Company
shall amend, restate, supplement or otherwise modify its Organizational
Certificate if the effect of such amendment, restatement, supplement or
modification is to provide for the issuance of any preferred stock of the
Company or of any of its Subsidiaries or the filing or amendment of any
certificate of designation with respect thereto.
7.14 Fiscal Year.
Neither the Company nor any of its Subsidiaries shall change its Fiscal
Year-end from December 31.
7.15 Parent Restrictions.
Notwithstanding anything to the contrary contained herein, the Parent
shall not (i) incur, directly or indirectly, any Indebtedness or any other
obligation or liability whatsoever other than the Indebtedness and obligations
under the Transaction Documents to which it is a party, (ii) create or suffer to
exist any Lien upon any property or assets now owned or hereafter acquired by it
other than the Liens created under the Collateral Documents to which it is a
party, (iii) engage in any business or activity or own any assets other than
holding the Capital Stock of the Company and performing its obligations under
the Transaction Documents; (iv) consolidate with or merge with or into, or
convey, transfer or lease all or substantially all its assets to, any Person;
(v) sell or otherwise dispose of any Capital Stock of any of its Subsidiaries;
(vi) create or acquire any Subsidiary or make or own any Investment in any
Person other than the Company; (vii) fail to hold itself out to the public as a
legal entity separate and distinct from any other Person; or (viii) issue or
sell any Capital Stock for cash unless all Equity Proceeds of such sale and
issuance are forthwith contributed to the Company and applied by the Company in
accordance with subsection 2.4B(iii).
7.16 Corporate Separateness.
The Company and its Subsidiaries on the one hand and the Parent on the
other hand shall (a) conduct their respective business solely in their own
respective names and through their own respective authorized officers and agents
so as not to mislead others as to their identity and all oral and written
communications, (b) abide by all corporate formalities and procedures (as
applicable) as required by this Agreement or the laws of their respective
jurisdictions of formation, including, without limitation, the maintenance of
current books and records, (c) not permit any of the financial statements of the
Company or any of its Subsidiaries or the Parent in any way to suggest that the
assets of the Company or any of its Subsidiaries are available to pay claims of
creditors of the Parent and shall ensure that the financial statements of the
Company and its Subsidiaries shall not be consolidated with the financial
statements of the Parent and that none of the assets of the Company and its
Subsidiaries will be consolidated or otherwise
119
<PAGE>
reflected on the financial statements of the Parent, (d) hold the Company or any
of its Subsidiaries out as having agreed to pay or become liable for the debts
or obligations of the Parent, (e) not operate or purport to operate as an
integrated, single economic unit with respect to each other and not seek or
obtain credit or incur any obligation to any third Person (other than
obligations under the Loan Documents and the Senior Subordinated Note Related
Documents) based upon the assets of the other, (f) not have any intercompany
claims between each other, (g) manage their own liabilities, obligations and
expenses separate and apart from the other and each shall provide for and pay
out of their own respective assets their own respective liabilities, obligations
and expenses, (h) maintain and continue to maintain an arm's length relationship
with the other, (i) keep correct and complete records, books of account,
financial statements, accounting records and bank accounts separate and apart
from those of the other, (j) not seek the dissolution or winding up in whole, or
in part, of the other, and (k) ensure that the funds and other assets of the
Parent will be identifiable and will not be commingled with those of the Company
or its Subsidiaries, and the assets and liabilities of the Parent shall and
shall continue to be readily distinguishable from the assets and liabilities of
the Company or its Subsidiaries. The foregoing provisions of this subsection
7.16 shall apply mutatis mutandi to the Company and the Subsidiary Guarantors on
the one hand and all Excluded Foreign Subsidiaries on the other hand.
7.17 Loaner Inventory.
The Company shall not, and shall not permit any of its Subsidiaries to,
loan any of their respective equipment or inventory to any Person other than a
member of its Related Subsidiary Group; provided that the Company and its
Subsidiaries may loan up to $2,500,000 of equipment and inventory (based on the
higher of cost and fair market value) to their respective customers for training
purposes in the ordinary course of business of the Company and its Subsidiaries
and in a manner consistent with past practices.
SECTION 8.
EVENTS OF DEFAULT
IF any of the following conditions or events ("Events of Default") shall
occur:
8.1 Failure to Make Payments When Due.
Failure by the Company to pay any installment of principal of any Loan
when due, whether at stated maturity, by acceleration, by notice of prepayment
or otherwise; failure by the Company to pay when due any amount payable to an
Issuing Bank in reimbursement of any drawing honored or payment made under a
Letter of Credit; or failure by the Company to pay any interest on any Loan or
any fee or any other amount due under this Agreement or any other Loan Document
within five (5) days after the date due; or
8.2 Default in Other Agreements.
(i) Failure of the Parent, the Company or any of its Subsidiaries to pay
when due (a) any principal of or interest on any Indebtedness (other than
Indebtedness referred to in subsection 8.1) in an individual principal amount of
$2,500,000 or more or any items of Indebtedness with an aggregate principal
amount of $5,000,000 or more or (b) any Contingent Obligation in an individual
principal amount of $2,500,000 or more or any Contingent Obligations with an
aggregate principal amount of $5,000,000 or more, in each case beyond the end of
any grace period provided therefor; or (ii) breach or default by the Company or
120
<PAGE>
any of its Subsidiaries with respect to any other term of (a) any evidence of
any Indebtedness in an individual principal amount of $2,500,000 or more or any
items of Indebtedness with an aggregate principal amount of $5,000,000 or more
or any Contingent Obligation in an individual principal amount of $2,500,000 or
more or any Contingent Obligations with an aggregate principal amount of
$5,000,000 or more or (b) any loan agreement, mortgage, indenture or other
agreement relating to such Indebtedness or Contingent Obligation(s), or the
occurrence of any other event, condition or circumstance in respect of any such
Indebtedness or Contingent Obligations if in any case under this clause (ii) the
effect of such breach or default or event, condition or circumstance is to
cause, or to permit the holder or holders of that Indebtedness or Contingent
Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that
Indebtedness or Contingent Obligation(s) to become or be declared due and
payable (or redeemable) prior to its stated maturity or the stated maturity of
any underlying obligation, as the case may be (upon the giving or receiving of
notice, lapse of time, both, or otherwise); or
8.3 Breach of Certain Covenants.
Failure of any Loan Party to perform or comply with any term or condition
contained in subsection 2.4, 2.5, 6.1, 6.2, 6.12 or Section 7 of this Agreement;
or
8.4 Breach of Warranty.
Any representation, warranty, certification or other statement made by the
Parent, the Company or any of its Subsidiaries in any Loan Document or in any
statement or certificate at any time given by the Parent, the Company or any of
its Subsidiaries in writing pursuant hereto or thereto or in connection herewith
or therewith shall be false in any material respect on the date as of which
made; or
8.5 Other Defaults Under Loan Documents.
Any Loan Party shall default in the performance of or compliance with any
term contained in this Agreement or any of the other Loan Documents, other than
any such term referred to in any other subsection of this Section 8, and such
default shall not have been remedied or waived within thirty (30) days after the
occurrence of such default; or
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.
(i) A court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Parent or the Company or any of their
respective Subsidiaries in an involuntary case under the Bankruptcy Code or
under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, which decree or order is not stayed; or any other similar
relief shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against the Parent or the Company or any of
their respective Subsidiaries under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over the Parent or the Company or any of their
respective Subsidiaries, or over all or a substantial part of its property,
shall have been entered; or there shall have occurred the involuntary
appointment of an interim receiver, trustee or other custodian of the Parent or
the Company or any of its Subsidiaries for all or a substantial part of its
property; or a warrant of attachment, execution or similar process shall have
been issued against any substantial part of the property of the Parent or the
Company or any of their respective Subsidiaries, and any such event described in
this clause
121
<PAGE>
(ii) shall continue for sixty (60) days unless dismissed, bonded or discharged;
or
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.
(i) the Parent or the Company or any of their respective Subsidiaries
shall have an order for relief entered with respect to it or commence a
voluntary case under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a receiver, trustee
or other custodian for all or a substantial part of its property; or the Parent
or the Company or any of their respective Subsidiaries shall make any assignment
for the benefit of creditors; or (ii) the Parent or the Company or any of their
respective Subsidiaries shall be unable, or shall fail generally, or shall admit
in writing its inability, to pay its debts as such debts become due; or the
Board of Directors of the Parent or the Company or any of their respective
Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise
authorize any action to approve any of the actions referred to in clause (i)
above or this clause (ii); or
8.8 Judgments and Attachments.
Any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $2,000,000 or (ii)
in the aggregate at any time an amount in excess of $3,000,000 (in either case
not adequately covered by insurance as to which a solvent and unaffiliated
insurance the Company has acknowledged coverage) shall be entered or filed
against the Parent, the Company or any of its Subsidiaries or any of their
respective assets and shall remain undischarged, unvacated, unbonded or unstayed
for a period of thirty (30) days (or in any event later than five days prior to
the date of any proposed sale thereunder); or
8.9 Dissolution.
Any order, judgment or decree shall be entered against the Parent, the
Company or any of its Subsidiaries decreeing the dissolution or split up of the
Company or that Subsidiary and such order shall remain undischarged or unstayed
for a period in excess of thirty (30) days; or
8.10 Employee Benefit Plans.
There shall occur one or more of the following: (i) ERISA Events which
individually or in the aggregate results in or could reasonably be expected to
result in a Material Adverse Effect; (ii) there shall exist an Unfunded Current
Liability, individually or in the aggregate for all Pension Plans (excluding for
purposes of such computation any Pension Plans with respect to which there is no
Unfunded Current Liability), which will have or could reasonably be expected to
result in a Material Adverse Effect; (iii) the Company of one of its ERISA
Affiliates shall have engaged in a transaction which is prohibited under Section
4975 of the Code of Section 406 of ERISA which could result in the imposition of
a liability which would have a Material Adverse Effect on the Company or any of
its ERISA Affiliates; or (iv) the Company or any of its ERISA Affiliates shall
fail to pay when due an amount which shall have become liable to pay to the
PBGC, any Pension or a trust established under Title IV of ERISA; or
8.11 Change in Control.
122
<PAGE>
(i) Prior to the consummation of Public Offerings of common stock of the
Parent resulting in Equity Proceeds to the Parent (and capital contributions to
the Company) of at least $35,000,000, (a) AIP shall at any time not own, or
Alchemy shall not at any time control (directly or indirectly), in the
aggregate, at least 45% of the combined voting power of the Parent's voting
Securities; (b) a majority of the members of the Board of Directors of the
Parent shall not be Continuing Directors; or (c) any Person (other than
Alchemy), including a "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act) which includes such Person, shall purchase or otherwise
acquire (or have the right to purchase or otherwise acquire), directly or
indirectly, beneficial ownership of Securities of the Parent (such person shall
be deemed to have "beneficial ownership" of all shares that any such person has
the right to purchase or otherwise acquire, whether such right is exercisable
immediately or only after the passage of time) and, as a result of such purchase
or acquisition (or such right to purchase or otherwise acquire), such Person
(together with its associates and Affiliates), shall directly or indirectly
beneficially own in the aggregate Securities representing more than 25% of the
combined voting power of the Parent's voting Securities; (ii) at any time
thereafter, (a) AIP shall own, or Alchemy shall control, directly or indirectly,
in the aggregate, a lesser percentage of the combined voting power of the
Parent's voting Securities than any other holder, including a "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) which includes
such holder, of such voting Securities; (b) a majority of the members of the
Board of Directors of the Parent shall not be Continuing Directors; or (c) any
Person (other than Alchemy), including a "group" (within the meaning of Sections
13(d) and 14(d)(2) of the Exchange Act) which includes such Person, shall
purchase or otherwise acquire (or have the right to purchase or otherwise
acquire), directly or indirectly, beneficial ownership of Securities of the
Parent and, as a result of such purchase or acquisition (or such right to
purchase or otherwise acquire), such Person (together with its associates and
Affiliates), shall directly or indirectly beneficially own in the aggregate
Securities representing more than 25% of the combined voting power of the
Parent's voting Securities (such person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to purchase or
otherwise acquire, whether such right is exercisable immediately or only after
the passage of time); or (iii) the Parent shall at any time fail to directly or
indirectly own and control 100% of all the issued and outstanding Capital Stock
of the Company (whether voting or non-voting, and whether common or preferred
stock, options or rights to acquire Capital Stock or otherwise); or
8.12 Invalidity of Guaranties.
At any time after the execution and delivery thereof, any Guaranty of the
Obligations of the Company for any reason, other than the satisfaction in full
of all Obligations, ceases to be in full force and effect or is declared to be
null and void, or any Loan Party denies in writing that it has any further
liability, including without limitation with respect to future advances by the
Lenders, under any Loan Document to which it is a party; or
8.13 Failure of Security.
Any Collateral Document shall, at any time, cease to be in full force and
effect (other than by reason of a release of Collateral thereunder in accordance
with the terms hereof or thereof, the satisfaction in full of the Obligations or
any other termination of such Collateral Document in accordance with the terms
hereof or thereof) or shall be declared null and void, or the validity or
enforceability thereof shall be contested in writing by any Loan Party, or the
Collateral Agent shall not have or shall cease to have a valid security interest
in any Collateral purported to be covered thereby, perfected and with the
priority required by the relevant Collateral Document, for any reason other than
the failure of the Collateral Agent, the Administrative Agent or any Lender to
take any action within its control, subject only to Liens permitted
123
<PAGE>
under the applicable Collateral Documents;
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit) and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by the Company, and the obligation of each Lender to make any Loan, the
obligation of the Issuing Bank to issue any Letter of Credit shall thereupon
terminate, and (ii) upon the occurrence and during the continuation of any other
Event of Default, the Administrative Agent shall, upon the written request of
the Requisite Lenders, by written notice to the Company, declare all or any
portion of the amounts described in clauses (a) through (c) above to be, and the
same shall forthwith become, immediately due and payable, and the obligation of
each Lender to make any Loan and the obligation of the Issuing Bank to issue any
Letter of Credit shall thereupon terminate; provided that the foregoing shall
not affect in any way the obligations of the Lenders under subsection 3.3C(i).
Any amounts described in clause (i)(b) above, when received by the
Administrative Agent or the Collateral Agent, shall be held by the Collateral
Agent pursuant to the terms of the Collateral Account Agreement and shall be
applied as therein provided.
Notwithstanding anything contained in the second preceding paragraph, if
at any time within sixty (60) days after an acceleration of the Loans pursuant
to such paragraph the Company shall pay all arrears of interest and all payments
on account of principal which shall have become due otherwise than as a result
of such acceleration (with interest on principal and, to the extent permitted by
law, on overdue interest, at the rates specified in this Agreement) and all
Defaults and Events of Default (other than non-payment of the principal of and
accrued interest on the Loans, in each case which is due and payable solely by
virtue of acceleration) shall be remedied or waived pursuant to subsection 10.6,
then the Requisite Lenders, by written notice to the Company, may at their
option rescind and annul such acceleration and its consequences; but such action
shall not affect any subsequent Default or Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to bind
the Lenders to a decision which may be made at the election of the Requisite
Lenders and are not intended to benefit the Company and do not grant the Company
the right to require the Lenders to rescind or annul any acceleration hereunder
or preclude the Agents or the Lenders from exercising any of the rights or
remedies available to them under any of the Loan Documents, even if the
conditions set forth in this paragraph are met.
SECTION 9.
AGENTS
9.1 Appointment.
A. CSFB is hereby appointed the Administrative Agent hereunder and under
the other Loan Documents. DLJ Capital is hereby appointed the Syndication Agent
hereunder and under the Loan Documents. CSFB is hereby appointed the Collateral
Agent hereunder and under the Collateral Documents. CSFB and DLJ Securities are
hereby appointed the Arrangers hereunder and under the Loan Documents. Each
Lender hereby authorizes each Agent to act as its agent in accordance with the
terms of
124
<PAGE>
this Agreement and the other Loan Documents. Each Agent agrees to act upon the
express conditions contained in this Agreement and the other Loan Documents, as
applicable. The provisions of this Section 9 are solely for the benefit of the
Agents and the Lenders and the Company shall have no rights as a third party
beneficiary of any of the provisions thereof. In performing its functions and
duties under this Agreement, each Agent shall act solely as an agent of the
Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for the Company or
any of its Subsidiaries. Upon the conclusion of the Initial Period, all
obligations of the Arrangers hereunder shall terminate and thereafter, the
Arrangers shall have no obligations or liabilities under any of the Loan
Documents.
B. Appointment of Supplemental Collateral Agents. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the enforcement
of any of the Loan Documents, or in case the Administrative Agent or the
Collateral Agent deems that by reason of any present or future law of any
jurisdiction the Administrative Agent or the Collateral Agent may not exercise
any of the rights, powers or remedies granted herein or in any of the other Loan
Documents or take any other action which may be desirable or necessary in
connection therewith, it may be necessary that the Administrative Agent or the
Collateral Agent appoint an additional individual or institution as a separate
trustee, co-trustee, collateral agent or collateral co-agent (any such
additional individual or institution being referred to herein individually as a
"Supplemental Collateral Agent" and collectively as "Supplemental Collateral
Agents").
In the event that the Administrative Agent or the Collateral Agent
appoints a Supplemental Collateral Agent with respect to any Collateral, (i)
each and every right, power, privilege or duty expressed or intended by this
Agreement or any of the other Loan Documents to be exercised by or vested in or
conveyed to the Administrative Agent or the Collateral Agent with respect to
such Collateral shall be exercisable by and vest in such Supplemental Collateral
Agent to the extent, and only to the extent, necessary to enable such
Supplemental Collateral Agent to exercise such rights, powers and privileges
with respect to such Collateral and to perform such duties with respect to such
Collateral, and every covenant and obligation contained in the Loan Documents
and necessary to the exercise or performance thereof by such Supplemental
Collateral Agent shall run to and be enforceable by either the Administrative
Agent or the Collateral Agent or such Supplemental Collateral Agent, and (ii)
the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to
the Administrative Agent or the Collateral Agent shall inure to the benefit of
such Supplemental Collateral Agent and all references therein to the
Administrative Agent or the Collateral Agent shall be deemed to be references to
the Administrative Agent or the Collateral Agent and/or such Supplemental
Collateral Agent, as the context may require.
Should any instrument in writing from the Company or any other Loan Party
be required by any Supplemental Collateral Agent so appointed by the
Administrative Agent or the Collateral Agent for more fully and certainly
vesting in and confirming to him or it such rights, powers, privileges and
duties, the Company shall, or shall cause such Loan Party to, execute,
acknowledge and deliver any and all such instruments promptly upon request by
the Administrative Agent or the Collateral Agent. In case any Supplemental
Collateral Agent, or a successor thereto, shall die, become incapable of acting,
resign or be removed, all the rights, powers, privileges and duties of such
Supplemental Collateral Agent, to the extent permitted by law, shall vest in and
be exercised by the Administrative Agent or the Collateral Agent until the
appointment of a new Supplemental Collateral Agent.
125
<PAGE>
9.2 Powers; General Immunity.
A. Duties Specified. Each Lender irrevocably authorizes each Agent to take
such action on such Lender's behalf and to exercise such powers hereunder and
under the other Loan Documents as are specifically delegated to such Agent by
the terms hereof and thereof, together with such powers as are reasonably
incidental thereto. Each Agent shall have only those duties and responsibilities
that are expressly specified in this Agreement and the other Loan Documents and
it may perform such duties by or through its agents or employees. No Agent shall
have, by reason of this Agreement or any of the other Loan Documents, a
fiduciary relationship in respect of any Lender; and nothing in this Agreement
or any of the other Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon any Agent any obligations in respect of
this Agreement or any of the other Loan Documents except as expressly set forth
herein or therein.
B. No Responsibility for Certain Matters. No Agent shall be responsible to
any Lender for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Loan Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports or certificates or any other
documents furnished by any Agent to the Lenders or by or on behalf of the
Company and/or its Subsidiaries to any Agent or any Lender in connection with
the Loan Documents and the transactions contemplated thereby or for the
financial condition or business affairs of the Company or any other Person
liable for the payment of any Obligations, nor shall any Agent be required to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained in any of the Loan
Documents or as to the use of the proceeds of the Loans or the use of the
Letters of Credit or as to the existence or possible existence of any Default or
Event of Default. Anything contained in this Agreement to the contrary
notwithstanding, the Administrative Agent shall not have any liability arising
from confirmations of the amount of outstanding Loans or the Total Utilization
of Revolving Loan Commitments or the component amounts thereof.
C. Exculpatory Provisions. Neither any Agent nor any of such Agent's
respective officers, directors, employees or agents shall be liable to the
Lenders for any action taken or omitted by such Agent under or in connection
with any of the Loan Documents except to the extent caused by such Agent's gross
negligence or willful misconduct. If any Agent shall request instructions from
the Lenders with respect to any act or action (including the failure to take an
action) in connection with this Agreement or any of the other Loan Documents,
such Agent shall be entitled to refrain from such act or taking such action
unless and until such Agent shall have received instructions from the Requisite
Lenders (or such other Lenders as may be required to give such instructions
under subsection 10.6). Without prejudice to the generality of the foregoing,
(i) such Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for the Company and
its Subsidiaries), accountants, experts and other professional advisors selected
by it; and (ii) no Lender shall have any right of action whatsoever against such
Agent as a result of such Agent acting or (where so instructed) refraining from
acting under this Agreement or any of the other Loan Documents in accordance
with the instructions of the Requisite Lenders (or such other Lenders as may be
required to give such instructions under subsection 10.6). Such Agent shall be
entitled to refrain from exercising any power, discretion or authority vested in
it under this Agreement or any of the other Loan Documents unless and until it
has obtained the instructions of the Requisite Lenders (or such other Lenders as
may be required to give such
126
<PAGE>
instructions under subsection 10.6).
D. Agents Entitled to Act as the Lender. The agency hereby created shall
in no way impair or affect any of the rights and powers of, or impose any duties
or obligations upon, any Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans and the Letters of Credit, each
Agent shall have the same rights and powers hereunder as any other Lender and
may exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" or "Lenders" or any similar
term shall, unless the context clearly otherwise indicates, include such Agent
in its individual capacity. Each Agent and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of banking, trust,
financial advisory or other business with the Company or any of its Affiliates
as if it were not performing the duties specified herein, and may accept fees
and other consideration from the Company and/or its Subsidiaries for services in
connection with this Agreement and otherwise without having to account for the
same to the Lenders.
9.3 Representations and Warranties; No Responsibility For Appraisal of
Creditworthiness.
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of the Company and its
Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of the Company and its Subsidiaries. No
Agent shall have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of the
Lenders or, except as expressly provided elsewhere in this Agreement to provide
any Lender with any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at any time or
times thereafter, and no Agent shall have any responsibility with respect to the
accuracy of or the completeness of any information provided to the lenders.
9.4 Right to Indemnity.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify each Agent, to the extent that such Agent shall not have been
reimbursed by the Company, for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
(including, without limitation, reasonable counsel fees and disbursements) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against such Agent in performing its duties hereunder or under
the other Loan Documents or otherwise in its capacity as such Agent in any way
relating to or arising out of this Agreement or the other Loan Documents;
provided that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. If any indemnity furnished to any Agent for any purpose
shall, in the opinion of such Agent, be insufficient or become impaired, such
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished.
9.5 Successor Administrative Agent and Swing Line Lender.
A. Successor Administrative Agent. The Administrative Agent may resign at
any time by giving thirty (30) days' prior written notice thereof to the Lenders
and the Company and shall so resign upon the written request of the Company,
provided, that the Company shall have the right to request such resignation of
the Administrative Agent only so long as (i) CSFB is then the Administrative
Agent and the
127
<PAGE>
Commitments of CSFB as Lender shall equal an amount less than 5% of the
aggregate Commitment of all Lenders, (ii) no Default or Event of Default shall
have occurred and be continuing, and (iii) Alchemy shall have directed the
Company to make such request and Alchemy shall own or control at least 51% of
the combined voting power of the voting Securities of each the Company, each
Holding Company, ESP and ENR. Upon any such notice of resignation, the Requisite
Lenders shall have the right, upon five (5) Business Days' notice to the
Company, to appoint a successor Administrative Agent. Upon the acceptance of any
appointment as the Administrative Agent hereunder by a successor Administrative
Agent, that successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring the
Administrative Agent and the retiring the Administrative Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring the Administrative Agent's resignation hereunder as the Administrative
Agent, the provisions of this Section 9 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative Agent
under this Agreement.
B. Successor Swing Line Lender. Any resignation of the Administrative
Agent pursuant to subsection 9.5A shall also constitute the resignation of CSFB
or its successor as the Swing Line Lender, and any successor Administrative
Agent appointed pursuant to subsection 9.5A shall, upon its acceptance of such
appointment, become the successor Swing Line Lender for all purposes hereunder.
In such event (i) the Company shall prepay any outstanding Swing Line Loans made
by the retiring Administrative Agent in its capacity as Swing Line Lender, (ii)
upon such prepayment, the retiring Administrative Agent and Swing Line Lender
shall surrender the Swing Line Note held by it to the Company for cancellation,
and (iii) the Company shall issue a new Swing Line Note to the successor
Administrative Agent and Swing Line Lender substantially in the form of Exhibit
V-B annexed hereto, in the principal amount of the Swing Line Loan Commitment
then in effect and with other appropriate insertions.
9.6 Collateral Documents; Successor Collateral Agent.
Each Lender hereby further authorizes the Collateral Agent to enter into
each Collateral Document as secured party on behalf of and for the benefit of
the Lenders and the other beneficiaries named therein and agrees to be bound by
the terms of each Collateral Document; provided that the Collateral Agent shall
not enter into or consent to any amendment, modification, termination or waiver
of any provision contained in any Collateral Document without the prior consent
of the Requisite Lenders (or, if required pursuant to subsection 10.6, all the
Lenders); provided further, however, that, without further written consent or
authorization from any Lender, the Collateral Agent may execute any documents or
instruments necessary to effect the release of any asset constituting Collateral
from the Lien of the applicable Collateral Document in the event that such asset
is sold or otherwise disposed of in a transaction effected in accordance with
subsection 7.7(iv), 7.7(v), 7.7(vi) or 7.7(vii) or to the extent otherwise
required by any Collateral Document. Anything contained in any of the Loan
Documents to the contrary notwithstanding, each Lender agrees that no Lender
shall have any right individually to realize upon any of the Collateral under
any Collateral Document (including without limitation through the exercise of a
right of set-off against call deposits of such Lender in which any funds on
deposit in the Collateral Account may from time to time be invested), it being
understood and agreed that all rights and remedies under the Collateral
Documents may be exercised solely by the Collateral Agent for the benefit of the
Lenders and the other beneficiaries named therein in accordance with the terms
thereof. The Collateral Agent may resign at any time, and a successor Collateral
Agent may be appointed, in accordance with subsection 9.5 as if such subsection
9.5 applied to the Collateral Agent in lieu of the Administrative Agent.
128
<PAGE>
SECTION 10.
MISCELLANEOUS
10.1 Assignments and Participations in Loans, Letters of Credit.
A. General. Subject to subsection 10.1B or 10.1C, as applicable, each
Lender shall have the right at any time to (i) sell, assign, transfer or
negotiate to any Eligible Assignee, or (ii) sell participations to any Person
in, all or any part of its Commitments (together with its Letters of Credit or
participations therein made or arising pursuant to its Revolving Loan
Commitment) or any Loan or Loans made by it or any other interest herein or in
any other Obligations owed to it; provided that no such sale, assignment,
transfer or participation shall, without the consent of the Company, require the
Company to file a registration statement with the Securities and Exchange
Commission or apply to qualify such sale, assignment, transfer or participation
under the securities laws of any state; provided further that no such sale,
assignment or transfer described in clause (i) above shall be effective unless
and until an Assignment Agreement effecting such sale, assignment or transfer
shall have been accepted by the Administrative Agent and recorded in the
Register as provided in subsection 10.1B(ii); provided, further that no such
sale, assignment, transfer or participation of any Letter of Credit or any
participation therein may be made separately from a sale, assignment, transfer
or participation of a corresponding interest in the Revolving Loan Commitment
and the Revolving Loans of the Lender effecting such sale, assignment, transfer
or participation. Except as otherwise provided in this subsection 10.1, no
Lender shall, as between the Company and such Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or any granting of participations in, all or any part of its
Commitments or the Loans, the Letters of Credit or participations therein or the
other Obligations owed to such Lender.
B. Assignments.
(i) Amounts and Terms of Assignments. Each Commitment, Loan, Letter
of Credit, or participation therein or other Obligation may (a) be
assigned in any amount to another Lender who is a Non-Defaulting Lender,
or to an Approved Fund or an Affiliate of the assigning Lender or another
Lender who, in either such case, is a Non-Defaulting Lender, with the
giving of notice to the Company and the Administrative Agent or (b) be
assigned in an aggregate amount of not less than $5,000,000 (or such
lesser amount as shall constitute the aggregate amount of the Commitments,
Loans, Letters of Credit, and participations therein and other Obligations
of the assigning Lender) to any other Eligible Assignee with the consent
of the Administrative Agent (such consent not to be unreasonably withheld)
and, so long as no Default or Event of Default shall have occurred and be
continuing, following consultation with the Company. To the extent of any
such assignment in accordance with either clause (a) or (b) above, the
assigning Lender shall be relieved of its obligations with respect to its
Commitments, Loans, Letters of Credit, or participations therein or other
Obligations or the portion thereof so assigned. The parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment Agreement,
together with a processing fee of $3,500 payable by the assigning Lender,
such certificates, documents or other evidence, if any, with respect to
United States federal income tax withholding matters as the assignee under
such Assignment Agreement may be required to deliver to the Administrative
Agent pursuant to subsection 2.7B(iii)(a) and, if requested by the
Administrative Agent, a completed administrative questionnaire in the
Administrative Agent's customary form with respect to the assignee under
such Assignment Agreement. Upon such execution, delivery, acceptance and
recordation, from
129
<PAGE>
and after the effective date specified in such Assignment Agreement, (y)
the assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and (z) the assigning Lender thereunder shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant to
such Assignment Agreement, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment
Agreement covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be
a party hereto); provided that, anything contained in any of the Loan
Documents to the contrary notwithstanding, if such Lender is the Issuing
Bank such Lender shall continue to have all rights and obligations of the
Issuing Bank with respect to outstanding Letters of Credit until the
cancellation or expiration of such Letters of Credit and the reimbursement
of any amounts drawn thereunder. The Commitments hereunder shall be
modified to reflect the Commitments of such assignee and any remaining
Commitments of such assigning Lender and, if any such assignment occurs
after the issuance of the Notes hereunder, the assigning Lender shall
surrender its applicable Notes and, upon such surrender, new Notes shall
be issued to the assignee and, if applicable, to the assigning Lender,
substantially in the form of Exhibit IV-A or B or Exhibit V-A annexed
hereto, as the case may be, with appropriate insertions, to reflect the
new Commitments and/or outstanding Term Loans of the assignee and the
assigning Lender.
(ii) Acceptance by the Administrative Agent; Recordation in
Register. Upon its receipt of an Assignment Agreement executed by an
assigning Lender and an assignee representing that it is an Eligible
Assignee, together with the processing fee referred to in subsection
10.1B(i) and any certificates, documents or other evidence with respect to
United States federal income tax withholding matters that such assignee
may be required to deliver to the Administrative Agent pursuant to
subsection 2.7B(iii), the Administrative Agent shall, if such Assignment
Agreement has been completed and is in substantially the form of Exhibit
XII hereto and if the Administrative Agent has consented to the assignment
evidenced thereby (to the extent such consent is required pursuant to
subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a
counterpart thereof as provided therein (which acceptance shall evidence
any required consent of the Administrative Agent to such assignment), (b)
record the information contained therein in the Register, and (c) give
prompt notice thereof to the Company. The Administrative Agent shall
maintain a copy of each Assignment Agreement delivered to and accepted by
it as provided in this subsection 10.1B(ii).
C. Participations. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
(i) effecting the extension of the final maturity of the Loan allocated to such
participation, (ii) effecting a reduction of the principal amount of or
affecting the rate of interest payable on any Loan or any fee allocated to such
participation, (iii) releasing all or substantially all of the Collateral, or
(iv) releasing all or substantially all of the Guarantors from their obligations
under the Guaranties, and all amounts payable by the Company hereunder. The
Company and each Lender hereby acknowledge and agree that, solely for purposes
of subsections 2.6D, 2.7, 3.6, 10.2, 10.3, 10.4 and 10.5, (a) any participation
will give rise to a direct obligation of the Company to the participant and (b)
the participant shall be considered to be a "Lender"; provided that the
aggregate amount payable to a Lender and its participants pursuant to
subsections 2.6D, 2.7, 3.6, 10.2 and 10.3 shall not exceed the amount that would
have been payable to such Lender as if such Lender had not sold such
participation.
130
<PAGE>
D. Assignments to Federal Reserve Banks. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
10.1, any Lender may assign and pledge all or any portion of its Loans, the
other Obligations owed to such Lender and its Notes to any Federal Reserve Bank
as collateral security pursuant to Regulation A of the Board of Governors of the
Federal Reserve System and any operating circular issued by such Federal Reserve
Bank; provided that (i) no Lender shall, as between the Company and such Lender,
be relieved of any of its obligations hereunder as a result of any such
assignment and pledge and (ii) in no event shall such Federal Reserve Bank be
considered to be a "Lender" or be entitled to require the assigning Lender to
take or omit to take any action hereunder.
E. Information. Each Lender may furnish any information concerning the
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 10.20.
F. Limitation. No assignee, participant or other transferee or any
Lender's rights shall be entitled to receive any greater payment under
subsection 2.7 than such Lender would have been entitled to receive with respect
to the rights transferred, unless such transfer is made with the Company's prior
written consent or at a time when the circumstances giving rise to such greater
payment did not exist.
10.2 Expenses.
Whether or not the transactions contemplated hereby shall be consummated,
the Company agrees to pay promptly (i) all the actual and reasonable costs and
out of pocket expenses of the Agents in connection with the preparation of the
Loan Documents; (ii) all the actual and reasonable costs of furnishing all
opinions by counsel for the Company (including without limitation any opinions
requested by the Lenders or Agents as to any legal matters arising hereunder)
and of the Company's performance of and compliance with all agreements and
conditions on its part to be performed or complied with under this Agreement and
the other Loan Documents including, without limitation, with respect to
confirming compliance with environmental and insurance requirements; (iii) the
reasonable fees, expenses and disbursements of counsel to the Agents (including
allocated costs of internal counsel) in connection with the negotiation,
preparation, execution and administration of the Loan Documents and the Loans
and any consents, amendments, waivers or other modifications hereto or thereto
and any other documents or matters requested by the Company; (iv) all other
actual and reasonable costs and expenses incurred by the Agents in connection
with the negotiation, preparation and execution of the Loan Documents and the
transactions contemplated hereby and thereby; and (v) after the occurrence of a
Default or Event of Default, all the respective costs and expenses, including
reasonable attorneys' fees (including allocated costs of internal counsel) and
costs of settlement, incurred by the Agents and the Lenders in enforcing any
Obligations of or in collecting any payments due from the Company hereunder or
under the other Loan Documents by reason of such Default or Event of Default or
in connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a "work-out" or pursuant to any
insolvency or bankruptcy proceedings.
10.3 Indemnity.
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated, the
Company agrees to defend, indemnify, pay and hold harmless the Agents and the
Lenders, and the officers, directors, employees, agents, attorneys and
affiliates of the Agents and the Lenders (collectively called the "Indemnitees")
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs,
131
<PAGE>
expenses and disbursements of any kind or nature whatsoever (including without
limitation the reasonable fees and disbursements of counsel for such
Indemnitees, and all such fees and disbursements, as well as other costs and
expenses, incurred by Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened by any Person,
whether or not any such Indemnitee shall be designated as a party or a potential
party thereto), whether direct, indirect or consequential and whether based on
any federal, state or foreign laws, statutes, rules or regulations (including
without limitation securities and commercial laws, statutes, rules or
regulations and Environmental Laws), on common law or equitable cause or on
contract or otherwise, that may be imposed on, incurred by, or asserted against
any such Indemnitee, in any manner relating to or arising out of this Agreement
or the other Loan Documents or the transactions contemplated hereby or thereby
(including without limitation the Lenders' agreement to make the Loans hereunder
or the use or intended use of the proceeds of any of the Loans or the issuance
of Letters of Credit hereunder or the use or intended use of any of the Letters
of Credit) or any Environmental Liabilities that arise from or relate to the
management, use, control, ownership, occupancy or operation of any Facility or
assets of any Loan Party or its subsidiaries (including without limitation, all
on-site and off-site activities involving Hazardous Materials), or the Release
or threatened Release of any Hazardous Materials (or allegations of the same) on
or from any of the Facilities or on or from any other property where Hazardous
Materials are or were (or are or were alleged to be) Released or threatened to
be Released in connection with any of the Facilities or the business of any of
the Loan Parties, their subsidiaries, or any predecessor in interest to the Loan
Parties or their subsidiaries (collectively called the "Indemnified
Liabilities"); provided that the Company shall not have any obligation to any
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent,
and only to the extent, of any particular liability, obligation, loss, damage,
penalty, claim, cost, expense or disbursement that arose from the gross
negligence or willful misconduct of that Indemnitee as determined by a final
judgment of a court of competent jurisdiction. To the extent that the
undertaking to defend, indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Company shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law to the payment and
satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any
of them.
10.4 Set-Off; Security Interest in Deposit Accounts.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence and during
the continuance of any Event of Default, each Lender is hereby authorized by the
Company at any time or from time to time, without notice to the Company or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured, but not including trust accounts) and any other
Indebtedness at any time held or owing by that Lender (at any office of that
Lender wherever located) to or for the credit or the account of the Company
against and on account of the obligations and liabilities of the Company to that
Lender under this Agreement, the Notes, the Letters of Credit and participations
therein, including, but not limited to, all claims of any nature or description
arising out of or connected with this Agreement, the Notes, the Letters of
Credit and participations therein or any other Loan Document, irrespective of
whether or not (i) that Lender shall have made any demand hereunder or (ii) the
principal of or the interest on the Loans or any amounts in respect of the
Letters of Credit or any other amounts due hereunder shall have become due and
payable pursuant to Section 8 and although said obligations and liabilities, or
any of them, may be contingent or unmatured. The Company hereby further grants
to the Administrative Agent and each Lender a security interest in all deposits
and accounts maintained with the Administrative Agent or such Lender as security
for the Obligations.
132
<PAGE>
10.5 Ratable Sharing.
The Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "Aggregate
Amounts Due" to such Lender) which is greater than the proportion received by
any other Lender in respect of the Aggregate Amounts Due to such other Lender,
then the Lender receiving such proportionately greater payment shall (i) notify
the Administrative Agent and each other Lender of the receipt of such payment
and (ii) apply a portion of such payment to purchase participations (which it
shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all the Lenders in proportion to the
Aggregate Amounts Due to them; provided that if all or part of such
proportionately greater payment received by such purchasing the Lender is
thereafter recovered from such Lender upon the bankruptcy, reorganization or
insolvency proceeding of the Company or otherwise, those purchases shall be
rescinded and the purchase prices paid for such participations shall be returned
to such purchasing Lender ratably to the extent of such recovery, but without
interest. The Company expressly consents to the foregoing arrangement and agrees
that any holder of a participation so purchased may exercise any and all rights
of banker's lien, set-off or counterclaim with respect to any and all monies
owing by the Company to that holder with respect thereto as fully as if that
holder were owed the amount of the participation held by that holder.
10.6 Amendments and Waivers.
A. No amendment, modification, termination or waiver of any provision of
this Agreement or of the Notes, or consent to any departure by the Company or
any other Loan Party therefrom, shall in any event be effective without the
written concurrence of the Requisite Lenders; provided that any such amendment,
modification, termination, waiver or consent which: (a) reduces the principal
amount of any of the Loans; (b) reduces the percentage specified in the
definition of the "Requisite Lenders" (it being understood that, with the
consent of the Requisite Lenders, additional extensions of credit pursuant to
this Agreement may be included in the definition of the "Requisite Lenders" on
substantially the same basis as the Term A Loans, Term A Loan Commitments, Term
B Loans, Term B Loan Commitments, Revolving Loans and Revolving Loan Commitments
are included on the Closing Date); (c) changes in any manner any provision of
this Agreement which, by its terms, expressly requires the approval or
concurrence of all the Lenders; (d) postpones the scheduled final maturity date
of any of the Loans; (e) postpones the date or reduces the amount of any
scheduled payment (but not prepayment) of principal of any of the Loans or of
any scheduled reduction of the Revolving Credit Commitments; (f) postpones the
date on which any interest or any fees are payable; (g) decreases the interest
rate borne by any of the Loans (other than any waiver of any increase in the
interest rate applicable to any of the Loans pursuant to subsection 2.2E) or the
amount of any fees payable hereunder; (h) increases the maximum duration of
Interest Periods permitted hereunder; (i) releases all or substantially all of
the Collateral; (j) except as required by any Guaranty, releases any of the
Guarantors from their obligations under the Guaranties; (k) reduces the amount
or postpones the due date of any amount payable in respect of, or extends the
required expiration
133
<PAGE>
date of, any Letter of Credit; (l) changes the obligations of the Lenders
relating to the purchase of participations in Letters of Credit in any manner
that could be adverse to any Issuing Bank; or (m) changes in any manner the
provisions contained in subsection 8.1 or this subsection 10.6; shall be
effective only if evidenced by a writing signed by or on behalf of all the
Lenders to whom Obligations are owed or who have Commitments outstanding being
directly affected by such amendment, modification, termination, waiver or
consent; provided further that no such amendment, modification, termination or
waiver of any such provision of any Collateral Document having the effect of
securing thereunder additional Indebtedness (other than Indebtedness comprising
Obligations and Hedge Agreements) by the Collateral shall be effective without
the written concurrence of Lenders having or holding more than 66-2/3% of the
sum of the aggregate Tranche A Term Loan Exposure of all Lenders plus the
aggregate Tranche B Term Loan Exposure of all Lenders plus the aggregate
Revolving Loan Exposure of all Lenders. In addition, (i) any amendment,
modification, termination or waiver of any of the provisions contained in
Section 4 shall be effective only if evidenced by a writing signed by or on
behalf of the Administrative Agent and the Requisite Lenders, (ii) no amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the Lender which is the holder of
that Note, (iii) no increase in the Commitments of any Lender over the amount
thereof then in effect shall be effective without the written concurrence of
that Lender, it being understood and agreed that in no event shall waivers or
modifications of conditions precedent, covenants, Defaults, Events of Default or
of a mandatory prepayment or a reduction of any or all of the Commitments be
deemed to constitute an increase of the Commitment of any Lender and that an
increase in the available portion of any Commitment of any Lender shall not be
deemed to constitute an increase in the Commitment of such Lender, (iv) no
amendment, modification, termination or waiver of any provision of subsection
2.1A(iv) or any other provision of this Agreement relating to the Swing Line
Loan Commitment or the Swing Line Loans shall be effective without the written
concurrence of the Swing Line Lender, (v) no amendment, modification,
termination or waiver of any provision of Section 3 relating to the rights or
obligations of the Issuing Bank shall be effective without the written
concurrence of the Issuing Bank with respect to any Letter of Credit then
outstanding, and (vi) no amendment, modification, termination or waiver of any
provision of Section 9 or of any other provision of this Agreement which, by its
terms, expressly requires the approval or concurrence of the Administrative
Agent shall be effective without the written concurrence of the Administrative
Agent. The Administrative Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender and no amendment, modification, termination or
waiver of any provision of subsection 2.4 which has the effect of changing any
voluntary or mandatory prepayments or Commitment reductions applicable to any
Class (the "Affected Class") in a manner that disproportionately disadvantages
such Class relative to the other Class shall be effective without the written
concurrence of the Requisite Class Lenders of the Affected Class (it being
understood and agreed that any amendment, modification, termination or waiver of
any such provision which only postpones or reduces any voluntary or mandatory
prepayment or Commitment reduction from those set forth in subsection 2.4 with
respect to one Class but not the other Classes shall be deemed to
disproportionately disadvantage such one Class but not to disproportionately
disadvantage such other Classes for purposes of this clause). Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given. No notice to or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent effected in accordance with this subsection 10.6 shall be binding
upon each Lender at the time outstanding, each future Lender and, if signed by
the Company, on the Company. Prior to or simultaneously with any request for any
amendment, waiver or other modification of subsection 7.6D that arises out of
the Company's or any of its Subsidiaries' making a bid for, or entering into, a
State Contract, the Company shall deliver to each Lender a reasonably detailed
summary of the material terms of such bid or contract.
134
<PAGE>
B. If, in connection with any proposed change, waiver, discharge or
termination to any of the provision of this Agreement as contemplated by the
proviso in the first sentence of this subsection 10.6, the consent of the
Requisite Lenders is obtained but consent of one or more of such other Lenders
whose consent is required is not obtained, then, so long as no Default shall
have occurred and be continuing, the Company may, so long as all non-consenting
Lenders are so treated, elect to terminate such Lender as a party to this
Agreement; provided that, concurrently with such termination, (i) the Company
shall pay that Lender all principal, interest and fees and other amounts due to
be paid to such Lender with respect to all periods through such date of
termination, (ii) another bank, financial institution or other entity
satisfactory to the Company and the Administrative Agent (or if the
Administrative Agent is also a Lender to be terminated, the successor
Administrative Agent) shall agree, as of such date, to become a Lender for all
purposes under this Agreement (whether by assignment or amendment) and to assume
all obligations of the Lender to be terminated as of such date, and (iii) all
documents and supporting materials necessary, in the judgment of the
Administrative Agent (or if the Administrative Agent is also a Lender to be
terminated, the successor Administrative Agent) to evidence the substitution of
such Lender shall have been received and approved by the Administrative Agent as
of such date.
10.7 Independence of Covenants.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another such covenant shall not avoid the occurrence of an
Default or Event of Default if such action is taken or condition exists.
10.8 Notices.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telecopied, telexed or sent by United States mail or
courier service and shall be deemed to have been given when delivered in person
or by courier service, upon receipt of telecopy or telex, or four Business Days
after depositing it in the United States mail, registered or certified, with
postage prepaid and properly addressed; provided that notices to the
Administrative Agent shall not be effective until received. For the purposes
hereof, the address of each party hereto shall be as set forth on Schedule 10.8
attached hereto, or such other address as shall be designated by such party in a
written notice delivered to the Administrative Agent and the Company.
10.9 Survival of Representations, Warranties and Agreements.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Company set forth in subsections 2.6D, 2.7,
3.5A, 3.6, 10.2, 10.3 and 10.4 and the agreements of the Lenders set forth in
subsections 9.2C, 9.4, 10.4, 10.5 and 10.20 shall survive the payment of the
Loans, the cancellation or expiration of the Letters of Credit and the
reimbursement of any amounts drawn or paid thereunder, and the termination of
this Agreement.
135
<PAGE>
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any Agent or any Lender in the exercise
of any power, right or privilege hereunder or under any other Loan Document
shall impair such power, right or privilege or be construed to be a waiver of
any default or acquiescence therein, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other power, right or privilege. All rights and remedies existing under
this Agreement and the other Loan Documents are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
10.11 Marshalling; Payments Set Aside.
Neither any Agent nor any Lender shall be under any obligation to marshal
any assets in favor of the Company or any other party or against or in payment
of any or all of the Obligations. To the extent that the Company makes a payment
or payments to the Administrative Agent or the Lenders (or to the Administrative
Agent or Collateral Agent for the benefit of the Lenders), or any Agent or the
Lenders enforce any security interests or exercise their rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, any other state or federal law, common
law or any equitable cause, then, to the extent of such recovery, the obligation
or part thereof originally intended to be satisfied, and all Liens, rights and
remedies therefor or Related thereto, shall be revived and continued in full
force and effect as if such payment or payments had not been made or such
enforcement or setoff had not occurred.
10.12 Severability.
In case any provision in or obligation under this Agreement or the Notes
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
10.13 Obligations Several; Independent Nature of the Lenders' Rights.
The obligations of the Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
the Lenders pursuant hereto or thereto, shall be deemed to constitute the
Lenders as a partnership, an association, a joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.
10.14 Maximum Amount.
A. It is the intention of the Company and the Lenders to conform strictly
to the usury and similar laws relating to interest from time to time in force,
and all agreements between the Loan Parties and their respective Subsidiaries
and the Lenders, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to the Lenders as interest
(whether or not designated as interest, and including any amount otherwise
136
<PAGE>
designated but deemed to constitute interest by a court of competent
jurisdiction) hereunder or under the other Loan Documents or in any other
agreement given to secure the Indebtedness or obligations of the Company to the
Lenders, or in any other document evidencing, securing or pertaining to the
Indebtedness evidenced hereby, exceed the maximum amount permissible under
applicable usury or such other laws (the "Maximum Amount"). If under any
circumstances whatsoever fulfillment of any provision hereof, or any of the
other Loan Documents, at the time performance of such provision shall be due,
shall involve exceeding the Maximum Amount, then, ipso facto, the obligation to
be fulfilled shall be reduced to the Maximum Amount. For the purposes of
calculating the actual amount of interest paid and/or payable hereunder in
respect of laws pertaining to usury or such other laws, all sums paid or agreed
to be paid to the holder hereof for the use, forbearance or detention of the
Indebtedness of the Company evidenced hereby, outstanding from time to time
shall, to the extent permitted by Applicable Law, be amortized, pro-rated,
allocated and spread from the date of disbursement of the proceeds of the Notes
until payment in full of all of such Indebtedness, so that the actual rate of
interest on account of such Indebtedness is uniform through the term hereof. The
terms and provisions of this subsection shall control and supersede every other
provision of all agreements between the Company or any endorser of the Notes and
the Lenders.
B. If under any circumstances any Lender shall ever receive an amount
which would exceed the Maximum Amount, such amount shall be deemed a payment in
reduction of the principal amount of the Loans and shall be treated as a
voluntary prepayment under subsection 2.4B(i) and shall be so applied in
accordance with subsection 2.4 hereof or if such excessive interest exceeds the
unpaid balance of the Loans and any other Indebtedness of the Company in favor
of such Lender, the excess shall be deemed to have been a payment made by
mistake and shall be refunded to the Company.
10.15 Headings.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
10.16 Applicable Law.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
10.17 Successors and Assigns.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Lenders (it being understood that
the Lenders' rights of assignment are subject to subsection 10.1). Neither the
Company's nor the Parent's rights or obligations hereunder nor any interest
therein may not be assigned or delegated by the Company or the Parent without
the prior written consent of all Lenders.
10.18 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE COMPANY OR THE PARENT ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND
137
<PAGE>
CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH OF THE
COMPANY AND THE PARENT, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
REQUESTED, TO THE COMPANY OR THE PARENT, AS APPLICABLE, AT ITS ADDRESS
PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE COMPANY OR THE PARENT,
AS APPLICABLE, IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST THE COMPANY
OR THE PARENT IN THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.18 RELATING TO
JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
10.19 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP OR OTHER RELATIONSHIP THAT IS BEING ESTABLISHED.
The scope of this waiver is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction, including, without limitation, contract claims, tort claims,
breach of duty claims and all other common law and statutory claims. Each party
hereto acknowledges that this waiver is a material inducement to enter into a
business relationship, that each has already relied on this waiver in entering
into this Agreement, and that each will continue to rely on this waiver in their
Related future dealings. Each party hereto further warrants and represents that
it has reviewed this waiver with its legal counsel and that it knowingly and
voluntarily waives its jury trial rights following consultation with legal
counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
138
<PAGE>
SPECIFICALLY REFERRING TO THIS SUBSECTION 10.19 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
10.20 Confidentiality.
Each Lender shall hold all non-public information obtained pursuant to the
requirements of this Agreement which has been identified as confidential by the
Company in accordance with such Lender's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
banking practices, it being understood and agreed by the Company that in any
event a Lender may make disclosures reasonably required by any bona fide
assignee, transferee or participant in connection with the contemplated
assignment or transfer by such Lender of any Loans or any participation therein
or as required or requested by any governmental agency or representative thereof
or pursuant to legal process; provided that nothing herein shall prevent any
Agent or any Lender from disclosing any such information (i) to the
Administrative Agent or any other Lender, (ii) any of its employees, directors
and officers who need to know such information in accordance with customary
banking or commercial lending practices and affiliates of Lenders, employees,
directors and officers of such affiliates, and agents, accountants, attorneys
and other professional advisors of Lenders who receive such information having
been made aware of the confidential nature thereof, (iii) upon the request or
demand of any Governmental Authority having jurisdiction over it, (iv) in
response to any order of any court or other Governmental Authority or as may
otherwise be required pursuant to any Applicable Laws, (v) if required to do so
in connection with any litigation or similar proceeding, (vi) which has been
publicly disclosed other than in breach of this subsection 10.20, (vii) to the
National Association of Insurance Commissioners or any securities exchange or
any similar organization, or any nationally recognized rating agency that
requires access to information about a Lender's investment portfolio in
connection with ratings issued with respect to such Lender or (viii) in
connection with the exercise of any remedy hereunder or under any other Loan
Document. In the event that any Lender discloses any information pursuant to
clauses (iv) or (v) of the preceding sentence, such Lender will, either before
or after such disclosure, give notice thereof to the Company if such Lender is
lawfully permitted to do so; and provided, further that in no event shall any
Lender be obligated or required to return any materials furnished by the Company
or any of its Subsidiaries.
10.21 Counterparts; Effectiveness.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
139
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
THE COMPANY: ENVIRONMENTAL SYSTEMS
PRODUCTS HOLDINGS INC.
By: /s/ David J. Langevin
-----------------------------
Name:
Title:
THE PARENT: ENVIROSYSTEMS CORP.
By: /s/ David J. Langevin
-----------------------------
Name:
Title:
140
<PAGE>
AGENTS AND LENDERS: CREDIT SUISSE FIRST BOSTON,
individually and as the Administrative
Agent, an Arranger and the Collateral
Agent
By: /s/ Robert Hetu
-----------------------------
Name: Robert Hetu
Title: Vice President
By: /s/ Gregory R. Perry
-----------------------------
Name: Gregory R. Perry
Title: Vice President
DLJ CAPITAL FUNDING, INC.,
individually and as the Syndication Agent
By:
-----------------------------
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION,
as an Arranger
By:
-----------------------------
Name:
Title:
141
<PAGE>
Reference: Environmental Systems Products Holdings, Inc.
Credit Agreement
GREEN TREE FINANCIAL SERVICING
CORPORATION
By: /s/ Christopher A. Gouskos
-----------------------------
Name: Christopher A. Gouskos
Title: Senior Vice President
142
<PAGE>
BHF-BANK AKTIENGESELLSCHAFT
By: /s/ Anthony Heyman
-----------------------------
Name: Anthony Heyman
Title: Assistant Vice President
By: /s/ Hans J. Scholz
-----------------------------
Name: Hans J. Scholz
Title: Assistant Vice President
143
<PAGE>
BALANCED HIGH-YIELD FUND II LTD.
C/O BHF-BANK AKTIENGESELLSCHAFT
ACTING THROUGH ITS NEW YORK
BRANCH, AS ATTORNEY IN FACT
By: /s/ Anthony Heyman
-----------------------------
Name: Anthony Heyman
Title: Assistant Vice President
By: /s/ Hans J. Scholz
-----------------------------
Name: Hans J. Scholz
Title: Assistant Vice President
144
<PAGE>
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Judith P. Greffin
-----------------------------
Name: JUDITH P. GREFFIN
Title: Authorized Signatory
By: /s/ Daniel C. Leimbach
-----------------------------
Name: DANIEL C. LEIMBACH
Title: Authorized Signatory
145
<PAGE>
OCTAGON LOAN TRUST
By: Octagon Credit Investors, as manager
By: /s/ Joyce C. DeLucca
-----------------------------
Name: Joyce C. DeLucca
Title: Managing Director
146
<PAGE>
OSPREY INVESTMENTS PORTFOLIO
By: Citibank, N.A., as Manager
By: /s/ Hans L. Christensen
-----------------------------
Name: Hans L. Christensen
Title: Vice President
147
<PAGE>
GCB INVESTMENT PORTFOLIO
By: Citibank, N.A.
By: /s/ Steven D. Kaufman
-----------------------------
Name: Steven D. Kaufman
Title: Vice President
148
<PAGE>
TORONTO DOMINION (NEW YORK), INC.
By: /s/ David G. Parker
-----------------------------
Name: DAVID G. PARKER
Title: VICE PRESIDENT
149
<PAGE>
CYPRESSTREE INVESTMENT MANAGEMENT
COMPANY, INC.
As: Attorney-in-Fact and on behalf of First
Allmerica Financial Life Insurance Company
as Portfolio Manager
By: /s/ Timothy M. Barns
-----------------------------
Name: TIMOTHY M. BARNS
Title: MANAGING DIRECTOR
150
<PAGE>
FIRST SOURCE FINANCIAL LLP,
By: First Source Financial, Inc., Its
Agent/Manager
By: /s/ David C. Wagner
-----------------------------
Name: David C. Wagner
Title: Vice President
151
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ A. Pasha Moghaddam
-----------------------------
Name: A. Pasha Moghaddam
Title: Vice President
152
<PAGE>
BANK OF AMERICA
By: /s/ Simona E. Simut
-----------------------------
Name: Simona E. Simut
Title: Vice President
153
<PAGE>
KZH ING-2 LLC
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
154
<PAGE>
KZH ING-3 LLC
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
155
<PAGE>
KZH SOLEIL LLC
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
156
<PAGE>
KZH SOLEIL-2 LLC
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
157
<PAGE>
KZH CYPRESSTREE-1 LLC
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
158
<PAGE>
KZH RIVERSIDE LLC
By: /s/ Virginia Conway
-----------------------------
Name: Virginia Conway
Title: Authorized Agent
159
<PAGE>
METROPOLITAN LIFE INSURANCE
COMPANY
By: /s/ James R. Dingler
-----------------------------
Name: James R. Dingler
Title: Director
160
<PAGE>
ROYAL BANK OF CANADA
By: /s/ [Illegible]
-----------------------------
Name: [Illegible]
Title: [Illegible]
161
<PAGE>
EXHIBIT 12.1
ENVIROTEST SYSTEMS CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
--------- ---------- ---------- --------- ---------
Income (loss) before income taxes........................ $ 3,586 $ (15,504) $ (19,426) $ (7,301) $ 7,878
--------- ---------- ---------- --------- ---------
Fixed charges:
Interest on indebtedness............................... 23,567 21,315 38,940 40,220 33,774
Portion of rents representative
of interest expense.................................. 1,486 1,602 1,028 1,511 1,440
--------- ---------- ---------- --------- ---------
Total fixed charges...................................... 25,053 22,917 39,968 41,731 35,214
--------- ---------- ---------- --------- ---------
Ratio computation:
Earnings............................................... 3,586 (15,504) (19,426) (7,301) 7,878
Fixed charges.......................................... 25,053 22,917 39,968 41,731 35,214
--------- ---------- ---------- --------- ---------
Earnings before fixed charges............................ 28,639 7,413 20,542 34,430 43,092
Fixed charges............................................ 25,053 22,917 39,968 41,731 35,214
--------- ---------- ---------- --------- ---------
Ratio of earnings (deficiency) to fixed charges.......... $ 3,586 $ (15,504) $ (19,426) $ (7,301) $ 7,878
--------- ---------- ---------- --------- ---------
--------- ---------- ---------- --------- ---------
</TABLE>
<PAGE>
EXHIBIT 12.1 (CONTINUED)
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income
taxes........................... $ (409) $ 1,372 $ 1,482 $ 3,554 $ 18,145 $ 7,517 $ 9,774
--------- --------- --------- --------- --------- ------ -------------
Fixed charges:
Interest on indebtedness........ 278 457 337 269 441 145 5,467
Portion of rents representative
of interest expense........... 303 298 293 311 440 283 561
--------- --------- --------- --------- --------- ------ -------------
Total fixed charges............... 581 755 630 580 881 428 6,028
--------- --------- --------- --------- --------- ------ -------------
Ratio computation:
Earnings........................ (409) 1,372 1,482 3,554 18,145 7,517 9,774
Fixed charges................... 581 755 630 580 881 428 6,028
--------- --------- --------- --------- --------- ------ -------------
Earnings before fixed charges..... 172 2,127 2,112 4,134 19,026 7,945 15,802
Fixed charges..................... 581 755 630 580 881 428 6,028
--------- --------- --------- --------- --------- ------ -------------
Ratio of earnings (deficiency) to
fixed charges................... $ (409) $ 1,372 $ 1,482 $ 3,554 $ 18,145 $ 7,517 $ 9,774
--------- --------- --------- --------- --------- ------ -------------
--------- --------- --------- --------- --------- ------ -------------
</TABLE>
<PAGE>
EXHIBIT 12.1 (CONTINUED)
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
---------------------------------------------------------
YEAR TWELVE MONTHS NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
Income (loss) before income taxes...................... $ (14,042) $ 13,091 $ 8,729
-------- -------- --------
Fixed charges:
Interest on indebtedness............................. 56,966 56,117 42,665
Portion of rents representative
of interest expense................................ 1,751 1,958 1,491
-------- -------- --------
Total fixed charges.................................... 58,717 58,075 44,156
-------- -------- --------
Ratio computation:
Earnings............................................. (14,042) 13,091 8,729
Fixed charges........................................ 58,717 58,075 44,156
-------- -------- --------
Earnings before fixed charges.......................... 44,675 71,166 52,885
Fixed charges.......................................... 58,717 58,075 44,156
-------- -------- --------
Ratio of earnings (deficiency) to fixed charges........ $ (14,042) $ 13,091 $ 8,729
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF ENVIRONMENTAL SYSTEMS PRODUCTS INC.
---------------------------------------------------
Newmall Ltd.
Incorporated under the laws of the United Kingdom
Wellman Overseas Ltd.
Incorporated under the laws of the United Kingdom
Wellman North America, Inc.
Incorporated under the laws of Delaware
Environmental Systems Products, Inc. ("ESP")
Incorporated under the laws of Delaware
ESP Abgas und Umweltanalysen GmbH
Incorporated under the laws of Germany
Environmental Systems Products de Mexico, S.A. de C.V.
Incorporated under the laws of Mexico
Envirotest Systems Corp.
Incorporated under the laws of Delaware
403564 BC LTD
Incorporated under the laws of British Columbia, Canada
(formerly Hamilton Test Systems BC LTD)
Envirotest Systems BC LTD
Incorporated under the laws of British Columbia, Canada
(formerly EBCO Automotive Testing LTD (EATH)
Envirotest Canada
Partnership registered under the laws of British Columbia, Canada
(formerly EBCO-Hamilton Partners)
Envirotest Holdings, Inc.
Incorporated under the laws of Delaware
408874 BC LTD
Incorporated under the laws of British Columbia, Canada
(formerly EBCO Automotive Testing LTD)
Envirotest Technologies, Inc. (ETI)
Incorporated under the laws of Delaware
<PAGE>
Envirotest Partners
Partnership registered under the laws of Pennsylvania
Remote Sensing Technologies, Inc.
Incorporated under the laws of Delaware
Envirotest Wisconsin, Inc. (EWI)
Incorporated under the laws of Delaware
ES Funding Corporation
Incorporated under the laws of Delaware
Envirotest Acquisitions Corp.
Incorporated under the laws of Delaware
Envirotest Systems Corp.
Incorporated under the laws of Washington State
Envirotest Illinois, Inc.
Incorporated under the laws of Delaware
Broomco (1612) Limited
Incorporated under the laws of the United Kingdom
Transervice Limited
Incorporated under the laws of the United Kingdom
Wellman Transport Equipment Group Limited
Incorporated under the laws of the United Kingdom
Winsford Lease Company Limited
Incorporated under the laws of the United Kingdom
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 13, 1998, relating
to the financial statements of Environmental Systems Products, Inc. and
Subsidiaries, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule for the three
years ended December 31, 1997 listed under Item 16(b) of this Registration
Statement when such schedule is read in conjunction with the financial
statements referred to in our report. The audits referred to in such report also
included this schedule. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Hartford, Connecticut
December 21, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 7, 1998,
relating to the financial statements of Envirotest Systems Corp., which appears
in such Prospectus. We also consent to the application of such report to the
Financial Statement Schedule for the three years ended September 30, 1998 listed
under Item 16(b) of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
San Jose, California
December 21, 1998
<PAGE>
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)_________
-----------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
-----------------
Environmental Systems Products Holdings, Inc.
(Exact name of obligor as specified in its charter)
Delaware 52-2096698
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
7 Kripes Road 06026
East Granby,Connecticut (Zip Code)
(Address of principal executive offices)
-----------------
13% Senior Subordinated Notes due 2008
(Title of the indenture securities)
- --------------------------------------------------------------------------------
<PAGE>
GENERAL
1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities of
the Trustee:
As of December 15, 1998
- --------------------------------------------------------------------------------
Col A. Col B.
- --------------------------------------------------------------------------------
Title of Class Amount Outstanding
- --------------------------------------------------------------------------------
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
Not Applicable
<PAGE>
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
Texas, N.A.; incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 22-21897.
<PAGE>
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to commence
business; incorporated herein by reference to Exhibit T-1.2 filed
with Form T-1 Statement, Registration No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise corporate
trust powers; incorporated herein by reference to Exhibit T-1.3
filed with Form T-1 Statement, Registration No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas, N.A.,
as amended to date; incorporated herein by reference to
Exhibit T-1.4 filed with Form T-1 Statement, Registration
No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of December 15, 1998 the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of December 15,
1998, U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 18,428,249.00 shares of $5 par value Common Stock as of December
15, 1998.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
In as much as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the Trustee
disclaims responsibility for the accuracy or completeness of such information.
--------------------
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee,
U.S Trust Company of Texas, N.A., a national banking association organized under
the laws of the United States of America, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
15th day of December, 1998.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ Gerard F. Ganey
-----------------------------
Gerard F. Ganey
Authorized Officer
<PAGE>
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Environmental
Systems Products Holdings Inc. 13% Senior Subordinated Notes due 2008, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities
and Exchange Commission upon request therefore.
U.S. Trust Company of Texas, N.A.
By: /s/ Gerard F. Ganey
-----------------------------
Gerard F. Ganey
Authorized Officer
<PAGE>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-005
Office of the Comptroller of the Currency
Federal Financial Institutions OMB Number: 1557-0081
Examination Council Expires March 31, 2001
- --------------------------------------------------------------------------------
(LOGO) (1)
Please Refer to Page I,
Table of Contents, for
The required disclosure
of estimated burden.
- --------------------------------------------------------------------------------
CONSOLIDATED REPORTS OF CONDITION
AND INCOME FOR A BANK WITH DOMESTIC
OFFICES ONLY AND TOTAL ASSETS OF LESS
THAN $100 MILLION - - FFIEC 033
REPORT AT THE CLOSE OF BUSINESS September 30, 1998
This report is required by law: 12 U.S.C. Section Section 324 (State member
banks); 12 U.S.C. Section Section 1817 (State nonmember banks); and 12 U.S.C.
Section Section 161 (National banks).
(19980930)
- -----------
(RCRI 9999)
This report form is to be filed by banks with domestic offices only. Banks with
branches and consolidated subsidiaries in U.S. territories and possessions, Edge
or Agreement subsidiaries, foreign branches, consolidated foreign subsidiaries,
or International Banking Facilities must file FFIEC 031.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National Banks.
I, Alfred B. Childs, SVP & Cashier
--------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and Income
(including the supporting schedules) have been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and are true
to the best of my knowledge and belief.
/s/ Alfred B. Childs
--------------------------------
Signature of Officer Authorized to Sign Report
October 21, 1998
- ------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: these instructions may in
some cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ William Goodwin
- ---------------------------
Director (Trustee)
/s/ Stuart M. Pearman
- ---------------------------
Director (Trustee)
/s/ J. T. Moore, Jr.
- ---------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
<PAGE>
Submission of Reports
Each bank must prepare its Reports of Condition and Income either:
(a) in electronic form and then file the computer data file directly with the
banking agencies' collection agent, Electronic Data Systems Corporation
(EDS), by modem or on computer diskette; or
(b) in hard-copy (paper form and arrange for another party to convert the
paper report to electronic form. That party (if other than EDS) must
transmit the bank's computer data file to EDS.
For electronic filing assistance, contact EDS Call Report Services, 2150 N.
Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571.
To fulfill the signature and attestation requirement for the Reports of
Condition and Income for this report date, attach this signature page to the
hard-copy record of the completed report that the bank places in its files.
- --------------------------------------------------------------------------------
FDIC Certificate Number _____________ US Trust Company of Texas, National
(RCRI 9050) Association
--------------------------------------
Legal Title of Bank (TEXT 9010)
Dallas
--------------------------------------
City (TEXT 9130)
TX 75201
--------------------------------------
State Abbrev.(TEXT 9200) Zip Code.
(TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
<PAGE>
U.S. Trust Company of Texas, N.A. Call Date: State #: 48-6797 FFIEC 033
2001 Ross Avenue, Suite 2700 09/30/98 Cert #: 33217 RC-2
Dallas, TX 75201 Vendor ID:
D --------------
Transit #: 11101765 9
--------------
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR September 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC - BALANCE SHEET
<TABLE>
<CAPTION>
C200
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions: RCON
a. Noninterest-bearing balances and currency and coin 0081 956 1.a
(1,2)
b. Interest bearing balances 0071 1,375 1.b
(3)
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 117,282 2.b
3. Federal funds sold (4) and securities purchased under
agreements to resell: 1350 5,000 3
4. Loans and lease financing receivables: RCON
a. Loans and leases, net of unearned income
(from Schedule RC-C) 2122 21,497 4.a
b. LESS: Allowance for loan and lease losses 3123 245 4.b
c. LESS: Allocated transfer risk reserve 3128 0 4.c
d. Loans and leases, net of unearned income, allowance,
and reserve (item 4.a minus 4.b and 4.c) RCON
2125 21,252 4.d
5. Trading assets 3545 0 5.
6. Premises and fixed assets (including capitalized leases) 2145 669 6.
7. Other real estate owned (from Schedule RC-M) 2150 0 7.
8. Investments in unconsolidated subsidiaries and
associated companies (from Schedule RC-M) 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding 2155 0 9.
10. Intangible assets (from Schedule RC-M) 2143 0 10.
11. Other assets (from Schedule RC-F) 2160 1,921 11.
12. Total assets (sum of items 1 through 11) 2170 148,455 12.
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Included time certificates of deposit not held for trading.
<PAGE>
U.S. Trust Company of Texas, N.A. Call Date: State #: 48-6797 FFIEC 033
2001 Ross Avenue, Suite 2700 09/30/98 Cert #: 33217 RC-1
Dallas, TX 75201 Vendor ID:
D --------------
Transit #: 11101765 10
--------------
SCHEDULE RC - CONTINUED
<TABLE>
<CAPTION>
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A RCON
and C from Schedule RC-E) RCON 2200 119,853 13.a
(1) Noninterest-bearing (1) 6631 10,673 13.a.1
(2) Interest-bearing 6636 109,180 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased(2) and securities sold under RCON
agreements to repurchase: 2800 0 14
15. a. Demand notes issued to the U.S. Treasury 2840 0 15.a
b. Trading liabilities 3548 0 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less 2332 1,000 16.a
b. With a remaining maturity of more than one year
through three years A547 2,000 16.b
c. With a remaining maturity of more than three years A548 1,000 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding 2920 0 18.
19. Subordinated notes and debentures 3200 0 19.
20. Other liabilities (from Schedule RC-G) 2930 2,493 20.
21. Total liabilities (sum of items 13 through 20) 2948 126,346 21.
22. Not applicable
EQUITY CAPITAL
RCON
23. Perpetual preferred stock and related surplus 3838 7,000 23.
24. Common stock 3230 500 24.
25. Surplus (exclude all surplus related to preferred stock) 3839 8,384 25.
26. a. Undivided profits and capital reserves 3632 5,261 26.a
b. Net unrealized holding gains (losses) on available-for-sale
securities 8434 964 26.b
27. Cumulative foreign currency translation adjustments
28. Total equity capital (sum of items 23 through 27) 3210 22,109 28.
29. Total liabilities and equity capital (sum of items 21 and 28) 2257 148,455 29.
</TABLE>
MEMORANDUM
<PAGE>
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
NUMBER
1. Indicate in the box at the right the number of the statement 6724 N/A M.1
below that best describes the most comprehensive level of
auditing work performed for the bank by independent external
auditors as of any date during 1997
- ----------------------------------------
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by certified public accounting firm which submits a
report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company (but
not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
