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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
----------- -----------
ENVIROTEST SYSTEMS CORP.
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-21454 06-0914220
-------- ------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification Number)
ENVIROTEST TECHNOLOGIES, INC.
-----------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-57384-01, 33-75406-01 36-2680300
-------- ----------- ----------- ----------
(State or other jurisdiction (Commission (IRS Employer
of incorporation File Number) Identification Number)
246 SOBRANTE WAY
SUNNYVALE, CALIFORNIA 94086
---------------------------
(Address of principal executive offices, including zip code, of registrants)
(408) 481-3900
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(Registrants' telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANTS (1) HAVE FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANTS WERE REQUIRED TO FILE SUCH REPORTS), AND (2) HAVE BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
---- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Class of Common Stock Outstanding at April 30, 1996
--------------------- -----------------------------
Class A Common Stock, $0.01 par value 13,204,396 shares
Class B Common Stock, $0.01 par value 1,389,749 shares
Class C Common Stock, $0.01 par value 2,026,111 shares
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ENVIROTEST SYSTEMS CORP.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets:
March 31, 1996 and September 30, 1995 4
Condensed Consolidated Statements of Operations:
three and six months ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows:
six months ended March 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 5. OTHER 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
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ENVIROTEST SYSTEMS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
--------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31,695 $ 17,079
Short-term investments -- 1,347
Current portion of settlement due from Commonwealth
of Pennsylvania 40,000 --
Contract receivables, net of allowance for doubtful
accounts of $405 and $354, respectively 6,665 8,208
Prepaid and other current assets 5,648 3,580
Deferred income taxes -- 1,376
-------- --------
Total current assets 84,008 31,590
Restricted cash 12,430 31,497
Property, plant and equipment, net of accumulated
depreciation of $32,006 and $24,739, respectively 191,021 173,507
Settlement due from Commonwealth of Pennsylvania 95,000 --
Assets under capital lease, net 46,356 27,138
Assets held for sale, net 22,549 5,209
Assets subject to settlement -- 149,629
Intangible assets, net of accumulated amortization of
$17,247 and $15,522, respectively 16,500 17,752
Deferred debt acquisition costs, net of accumulated
amortization of $4,501 and $3,378, respectively 13,467 13,412
Deferred charges, net of accumulated amortization of
$5,755 and $3,217, respectively 2,551 3,178
Deferred income taxes -- 4,100
Other assets 341 261
-------- --------
Total assets $484,223 $457,273
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,205 $ 12,742
Accrued interest 1,588 1,499
Current portion of long-term debt 3,373 --
Current portion of capital lease and long-term debt
obligation 3,785 1,485
Other current liabilities 29,381 14,094
-------- --------
Total current liabilities 41,332 29,820
Senior long-term debt, net of discount of $898 and
$989, respectively 199,102 199,011
Senior subordinated debt 125,000 125,000
Long-term debt 25,947 --
Capital lease and long-term debt obligation 60,595 62,895
Other long-term liabilities 4,916 2,502
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Total liabilities 456,892 419,228
Commitments and contingencies
Stockholders' equity:
Common stock 166 162
Additional paid-in capital 60,172 60,028
Retained deficit (27,273) (16,446)
Other stockholders' equity (5,734) (5,699)
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Total stockholders' equity 27,331 38,045
-------- --------
Total liabilities and stockholders' equity $484,223 $457,273
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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ENVIROTEST SYSTEMS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
March 31, March 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Contract revenues $ 30,024 $ 24,149 $ 58,208 $ 46,894
Costs of services 28,212 17,300 50,104 30,116
-------- -------- -------- --------
Gross profit 1,812 6,849 8,104 16,778
Selling, general and
administrative expenses 6,272 6,028 10,449 11,287
Consolidation expense 1,850 -- 1,850 --
Amortization expense 873 828 1,884 1,953
Gain on Pennsylvania settlement -- -- (15,307) --
-------- -------- -------- --------
Income (loss from operations (7,183) (7) 9,228 3,538
Other expense (income):
Interest expense 10,066 3,853 18,392 9,812
Other (12) 46 8 77
Interest income (2,740) (1,181) (3,835) (3,261)
Minority interest -- 285 -- 260
-------- -------- -------- --------
Income (loss) before
income taxes (14,497) (3,010) (5,337) (3,350)
Income tax expense (benefit) 1,918 (1,173) 5,490 (1,302)
-------- -------- -------- --------
Net income (loss) $(16,415) $ (1,837) $(10,827) $ (2,048)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per common and
common equivalent share $ (0.99) $ (0.12) $ (0.66) $ (0.13)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares
and common equivalent
shares 16,571 15,972 16,485 15,972
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per common
share-assuming full dilution $ (0.99) $ (0.12) $ (0.66) $ (0.13)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares
and common equivalent
shares 16,571 15,972 16,485 15,972
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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ENVIROTEST SYSTEMS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities $ 18,641 $ (3,851)
-------- ---------
Cash flows from investing activities:
Maturity of short-term investments 1,347 2,877
Payment for purchase of Systems Control, Inc.,
net of cash acquired (1,032) --
Purchases of property, plant, equipment and assets
under capital lease (38,917) (140,158)
Purchases of intangible assets -- (250)
-------- ---------
Net cash used in investing activities (38,602) (137,531)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt 17,000 --
Repayment of long-term debt (800) --
Decrease in restricted cash 19,067 --
Repayment of obligations under capital lease -- --
Capitalization of loan fees (855) (588)
Other 148 (259)
-------- ---------
Net cash provided by (used in) financing
activities 34,560 (847)
Effect of exchange rate on cash 17 75
-------- ---------
Net increase (decrease) in cash and cash equivalents 14,616 (142,154)
Cash and cash equivalents, beginning of period 17,079 180,215
-------- ---------
Cash and cash equivalents, end of period $ 31,695 $ 38,061
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
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ENVIROTEST SYSTEMS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
The accompanying condensed consolidated financial statements should be read
in conjunction with the Company's audited consolidated financial statements and
related footnotes included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1995, filed with the Securities and Exchange
Commission.
Operating results for the interim periods shown in this report are not
necessarily indicative of the results to be expected for the full fiscal year.
2. DEFERRED CHARGES
The Company incurs significant expenses associated with bringing new
emissions testing programs into operation, including staff recruiting and
training, public information and similar pre-operating costs. These expenses
are deferred and amortized over a twelve month period beginning with the
commencement of the emissions program. At March 31, 1996, the Company had
incurred and deferred approximately $2.6 million, net of accumulated
amortization, of such expenses relating to the Ohio and Wisconsin emissions
programs. The Company expects that its results of operations during any fiscal
period that includes the commencement of a program will be adversely impacted by
this accelerated amortization.
3. PENNSYLVANIA SETTLEMENT
The Company, the Commonwealth of Pennsylvania and the Pennsylvania
Department of Transportation entered into a General Release and Settlement
Agreement, dated December 15, 1995 (the "Settlement Agreement"), settling the
claims of the Company under its contract dated November 1993 to implement and
operate the Pennsylvania vehicle emissions testing program which was suspended
by action of the Pennsylvania General Assembly.
The Settlement Agreement requires the Commonwealth to pay the Company $145
million in four installments with interest at the rate of 6.0% accruing from
December 15, 1995. The first installment of $25,000,000 was paid on December
29, 1995. The last three installments of $40,000,000, plus interest, are due on
July 31, 1996, 1997 and 1998. In addition, the Commonwealth will pay the
Company (in July 1998) 50% of the amount by which the net proceeds from the sale
of the assets (as defined by the Agreement) are less than $55 million up to a
maximum of $15 million plus interest at 6% from December 15, 1995. Should the
net proceeds
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from the sale of the assets exceed $55 million, the Company will pay the
Commonwealth 75% of the amount by which the net proceeds exceed $55 million.
4. LONG-TERM DEBT
On December 29, 1995, the Company's wholly owned subsidiary, Envirotest
Wisconsin, Inc., issued $17,000,000 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 $230,000 and increasing to
approximately $340,000 with maturity on November 30, 2002. The Notes are
collateralized by all assets utilized in the Wisconsin program.
In January 1996, the Company acquired Systems Control, Inc., a Washington
Corporation (SCI-WA), the operator of the centralized emissions testing program
in the State of Washington. (See Note 5 below.) At the time of the
acquisition, SCI-WA had debt outstanding under its credit agreement. As of
March 31, 1996, the outstanding balance is $12.6 million and bears interest at
various rates with an effective rate of 8.9% at March 31 and is collateralized
by all real property of the vehicle emissions program in the State of
Washington. This agreement requires monthly payments of $243,450 (adjusted
annually for changes in interest rates) with a balloon payment at maturity on
December 31, 1999 of $4.5 million. This credit agreement requires a cash
collateral amount of $1.5 million as of March 31, 1996 decreasing to $0.6
million at maturity and requires certain covenants related to tangible net
worth, capital ratio, cash flow ratio and distributions of SCI-WA be maintained.
5. BUSINESS ACQUISITION
In January 1996, the Company purchased from Systems Control, Inc. ("SCI")
the stock of SCI-WA, a Washington company and operator of the State of
Washington centralized emissions testing program, all intellectual property of
SCI and an option to purchase SCI's Indiana subsidiary for $3.2 million. The
results of operations of SCI-WA have been included in consolidated results from
the date of acquisition.
The purchase cost of $3.2 million has been allocated as follows:
(millions)
Current assets $ 2.5
Fixed assets 15.5
Intellectual property 0.6
Other noncurrent assets 0.4
Current liabilities (2.5)
Long term debt (11.3)
Other non current liabilities (2.0)
----------
Total $ 3.2
----------
----------
The intellectual property will be amortized over a period of 12 years.
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6. CONSOLIDATION EXPENSE
The Company recorded a consolidation expense of $1.9 million representing
the costs associated with the closure of the Phoenix corporate headquarters and
other restructuring costs. In addition, the Company recorded an expense of $1.5
million (included with selling, general and administrative expense) representing
the estimated cost of relocating employees to the new corporate headquarters in
Sunnyvale, California.
7. INCOME TAXES
The deferred tax asset of $14.2 million has been fully reserved as of March 31,
1996. For the three month period ended March 31, 1996, the Company increased
the valuation allowance from $6.6 million to $14.2 million. The amount of the
deferred tax asset considered realizable, however, could change in the near term
if estimates of future taxable income are revised.
9
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ENVIROTEST SYSTEMS CORP.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company conducts its current operations directly and through its
principal wholly owned subsidiaries, Envirotest Technologies, Inc. ("ETI"),
Envirotest Wisconsin, Inc. and Systems Control, Inc., a Washington corporation.
The Company's British Columbia, Canada operations are conducted through a
British Columbia partnership, Ebco-Hamilton Partners ("EHP") which is wholly
owned by the Company (through its subsidiaries).
RESULTS OF OPERATIONS
Contract revenues increased to $30 million in fiscal second quarter 1996
from $24.1 million in fiscal second quarter 1995, an increase of $5.9 million or
24.5%. For the six months ended March 31, 1996, contract revenues were $58.2
million, and increase of $11.3 million, or 24.1%, over contract revenues of
$46.9 million for the corresponding period in fiscal 1995. The increase in
contract revenues in fiscal second quarter 1996 as compared to fiscal second
quarter 1995 is primarily due to additional revenues of approximately $3.8
million generated from new contracts with the State of Ohio, revenues of
approximately $1.6 million from the Washington State program acquired on January
30, 1996 and revenues of approximately $1.9 million primarily from volume
increases in the Connecticut program resulting from the deferral of volume from
last fiscal year. These increases were offset primarily by a decrease in
revenues in the British Columbia program of approximately $0.6 million due to an
employee strike during a portion of the period, a decrease in revenues in the
Illinois program of approximately $0.5 million attributable to the reduced test
fee under the January 1996 contract extension and a decrease in revenues of
approximately $1.3 million due to the previously disclosed reduction in the
Minnesota program test volume.
The increase in contract revenues for the six months ended March 31, 1996
resulted from additional revenues of approximately $13.9 million generated from
new or extended contracts with the states of Connecticut, Ohio and Colorado and
the acquisition of the Washington state program. These increases were offset
primarily by the decreases in revenues in the British Columbia, Illinois and
Minnesota programs discussed above and a decrease in revenues of the Maryland
program of $1.6 million which ceased operations as of December 31, 1994.
Gross profit decreased to $1.8 million in fiscal second quarter 1996 from
$6.8 million in fiscal second quarter 1995, a decrease of $5 million, or 73.5%.
This decrease is attributable to the decrease in contribution from the
Connecticut program and the higher cost associated with start-up of the
Wisconsin and Ohio programs, including the accelerated amortization of
deferred charges of $1.3 million, partially offset by the contribution of the
Washington state program.
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As a percentage of contract revenues, gross profit decreased to 6.0% in
fiscal second quarter 1996 from 28.4% in fiscal second quarter 1995, an absolute
decrease of 22.4%. This decrease was primarily attributable to the factors
noted above.
For the six months ended March 31, 1996, gross profit decreased to $8.1
million from $16.8 million for the corresponding period in fiscal 1995, a
decrease of $ 8.7 million or 51.8%. As a percentage of contract revenues, gross
profit decreased to 13.9% from 35.8% in the corresponding period in fiscal 1995,
an absolute decrease of 21.9%. The decrease in gross profit was attributable to
the factors noted above and the absence of contribution from the Maryland
program.
Selling, general and administrative ("SG&A") expenses increased to $6.3
million in fiscal second quarter 1996 from $6.0 million in fiscal second quarter
1995, an increase of $0.3 million or 5.0%. As a percentage of contract
revenues, SG&A expenses decreased to 20.9% in fiscal second quarter 1996 from
25.0% in fiscal second quarter 1995, an absolute decrease of 4.1%. The increase
in SG&A expenses is primarily due to relocation costs of $1.5 million
representing the estimated cost of consolidating the corporate headquarters to
Sunnyvale, California, offset by decreased marketing expenses and the absence of
costs associated with seeking a resolution of the Pennsylvania contractual
issues which were incurred during fiscal 1995. The decrease in SG&A as a
percentage of contract revenues is due to the increase in contract revenues, as
discussed above.
For the six months ended March 31, 1996, SG&A decreased to $10.4 million
from $11.3 million for the corresponding period in fiscal 1995, a decrease of
$0.9 million or 8.0%. As a percentage of contract revenues, SG&A expenses
decreased to 18.0% for the six months ended March 31, 1996 from 24.1% for the
corresponding period in 1995, an absolute decrease of 6.1%. These decreases
were primarily due to the reduction in marketing expenses and absence of costs
associated with resolution of Pennsylvania contractual issues, offset by the
consolidation expenses discussed above.
Consolidation expense was $1.9 million for the second quarter and six month
period ended March 31, 1996, representing the costs associated with the closure
of the Phoenix corporate headquarters and other restructuring costs.
Amortization expense increased to $0.9 million in fiscal second quarter
1996 from $0.8 million in fiscal second quarter 1995, an increase of $0.1
million. For the six months ended March 31, 1996, amortization expense
decreased to $1.9 million from $2.0 million for the corresponding period in
fiscal 1995.
Gain on Pennsylvania settlement for the six months ended March 31, 1996 was
$15.3 million, of which $7.1 million is attributable to amounts that were
previously expensed in fiscal year 1995 in connection with the Pennsylvania
dispute and now have been recovered as part of the Settlement Agreement with the
Commonwealth of Pennsylvania.
Loss from operations increased to $(7.2) million in fiscal second quarter
1996 from $(7,000) in fiscal second quarter 1995. The increase in loss is due
to the decrease in gross profit and consolidation expense, discussed above. For
the six months ended March 31, 1996, income from operations increased to $9.2
million from $3.5 million in the corresponding period of the prior year. For
the six months ended March 31, 1996, income from operations as a percentage of
contract revenues increased to 15.9% compared to 7.5% in the corresponding
period of the prior
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year, an absolute increase of 8.4%. The increase is due to the gain on
Pennsylvania settlement, the decrease in selling, general and administrative
expenses, offset by the reduction in the gross profit and consolidation expense,
as discussed above.
Interest expense increased to $10.1 million in fiscal second quarter 1996
from $3.9 million in fiscal second quarter 1995, an increase of $6.2 million.
For the six months ended March 31, 1996, interest expense increased to $18.4
million from $9.8 million in the corresponding period of the prior year. These
increases were primarily attributable to the interest expense on the capital
lease and long-term debt issued in June 1995 to finance the Company's emissions
testing network in Ohio, interest expense on the long-term debt issued in
December 1995 to finance the Company's emissions testing network in Wisconsin,
the interest expense on additional long-term debt assumed in January 1996 as
part of the purchase of the Washington State subsidiary of Systems Control, Inc.
and a decrease in capitalized interest as programs under implementation become
operational.
Interest income increased to $2.7 million in fiscal second quarter 1996
from $1.2 million in fiscal first quarter of 1995, an increase of $1.5 million.
For the six months ended March 31, 1996, interest income increased to $3.8
million compared to $3.3 million in the corresponding period of the prior year.
These increases were primarily attributable to the interest income on the funds
due from the Pennsylvania settlement, partially offset by decreased cash and
cash equivalent and short-term investments balances as funds are spent on
construction and equipment for new emissions testing facilities.
Income tax expense was $1.9 million in fiscal second quarter 1996 compared
to $(1.2) million in fiscal second quarter 1995. Income tax expense was $5.5
million for the six months ended March 31, 1996, compared to income tax benefit
of $(1.3) million for the corresponding period of the prior year. The benefit
was lower than the combined federal and state effective tax rate of
approximately 39% as a result of recording a valuation allowance of $7.6 million
to fully reserve the deferred tax asset.
Net loss was $(16.4) million in fiscal second quarter 1996 compared to
$(1.8) million in fiscal second quarter 1995, a decrease of $14.6 million. For
the six months ended March 31, 1996, net loss was $(10.8) million compared to
$(2.0) million for the corresponding period in fiscal 1995.
LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
Cash and cash equivalents, short-term investments and restricted cash decreased
to $44.1 million at March 31, 1996 from $49.9 million at September 30, 1995.
The decrease of $5.8 million was primarily a result of the expenditure of $38.9
million for property, plant and equipment primarily relating to the Ohio and
Wisconsin programs, cash used in operating activities of approximately $6.7
million and the purchase of the Washington State subsidiary of Systems Control,
Inc. for $3.2 million; partially offset by the $25.3 million received from the
Commonwealth of Pennsylvania and the proceeds of $17 million from the bonds
issued by the Company's wholly owned subsidiary, Envirotest Wisconsin, Inc. in
December, 1995.
Statement of Financial Accounting Standards No. 123 - Accounting for Stock-
Based Compensation will be effective for the first quarter of the Company's 1997
fiscal year. This statement introduces a fair-value based method of accounting
for stock-based compensation. It encourages, but does not require, companies
to recognize compensation expense for grants of
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stock, stock options and other equity instruments to employees based on the new
fair-value accounting rules. Companies that choose not to adopt the new
fair-value accounting rules will be required to disclose pro forma net income
and earnings per share under the new method. Management has not yet determined
which method it will adopt.
The Company's primary uses of cash are the funding of the Company's capital
expenditure requirements, payments on capital and operating leases, interest
payments and other working capital needs. The Company's capital and operating
leases currently require minimum lease payments of approximately $12.3 million
in 1996, increasing to approximately $14.8 million through 1999 and decreasing
thereafter as certain leases are scheduled to expire.
The Company's capital expenditures include maintenance capital expenditures
for existing facilities, and development and construction expenditures for
new emissions facilities. The Company's development and construction capital
expenditures are dependent on the number of contracts it is awarded, and are
only incurred after the contract has been signed. After signing a contract,
the Company may incur significant development and construction expenditures,
which the Company 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.
The Company's principal commitments at March 31, 1996 consist of capital
expenditure requirements for one facility still to be completed in the
Connecticut program. The Company expects the remaining total capital
expenditure requirements for the development of these facilities to be
approximately $1.5 million. The Company believes that its existing cash
resources, additional proceeds from the Settlement with the Commonwealth of
Pennsylvania, cash generated from operations and alternative financing sources,
including leasing alternatives, will be sufficient to complete implementation of
the Connecticut program and to meet its liquidity requirements for the
foreseeable future.
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ENVIROTEST SYSTEMS CORP.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Proponents of a proposed public initiative ("Proposed Initiative") to
substantially change the enhanced emissions program in Colorado have completed
certain of the required procedures to have the Proposed Initiative placed on the
November 1996 ballot. The Proposed Initiative is being contested in the
Colorado Supreme Court. If the court does not require alteration of the Proposed
Initiative, the proponents will be required to obtain 54,000 valid signatures by
August 5, 1996, in order to place the Proposed Initiative on the ballot. The
Proposed Initiative can be adopted by a majority of those voting in the November
election. The Proposed Initiative directs the Air Quality Control Commission
(the "Commission") to revise the current enhanced emissions program no later
than July 1, 1997. If the program has not been revised and submitted by
November 1, 1997 for the approvals required under the federal Clean Air Act, the
General Assembly would be required to revise the program by July 1, 1998. In
revising the program, the Commission would be required to contract with a
private independent contractor to conduct an objective study to evaluate
alternatives and identify the cost effective options for creating a program
which meets the requirements of the Proposed Initiative. The Proposed
Initiative would require that the program enhance consumer convenience and
provide consumer choice of inspection facilities, including enhanced emission
inspection centers, inspection-only facilities, inspection and readjustment
stations motor vehicle-fleet based facilities and new and used motor vehicle
dealer inspection facilities. The Commission would be required to select from
available technologies and programmatic approaches which provide choice to the
public. The Commission is required to achieve benefits, which using reasonable
scientific methods, are determined to be equal to or greater than the air
quality benefits which were calculated to result from the program in existence
as of January 1, 1996 and which will not jeopardize the ability to make
transportation conformity findings as required by federal law.
The Company's current contract with the State of Connecticut began
January 1, 1995, with enhanced testing scheduled to begin in April, 1995. Just
prior to the startup of enhanced testing the State decided to continue the old
testing procedure and phase in the enhanced testing. Subsequently, the State
decided to engage in negotiations regarding an enhanced test procedure that is
different from that originally required in the contract. During the course of
these negotiations, which are continuing, the State claimed that it was entitled
to be paid for the cost savings to the Company for not having performed the
original enhance test and not having completed construction on two facilities.
One facility was not completed because of the State's inability to provide the
requisite land required by the contract and the second was delayed due to an
inability to obtain zoning. After unsuccessful attempts to resolve this issue,
the Commissioner rendered a decision on February 9, 1996, that the Company owed
the State approximately $2.4 million plus other non-quantified amounts for 1995
and additional accruing amounts until the enhanced test is performed and the
facilities built. In accordance with the contract, the Company appealed the
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Commissioner's decision to binding arbitration by the American Arbitration
Association and is currently awaiting appointment of arbitrators
ITEM 5. OTHER
As previously reported, the Company's employees in its British Columbia
program are represented by a labor union under a collective bargaining agreement
that expired on August 31, 1995. Negotiations on a new collective agreement
ended in February 1996 when the employees began a strike. The Company's
proposal for a new collective agreement was not accepted by the employees, and
negotations between representatives of the union and the Company have resumed.
The Company is not able to predict the ultimate outcome of the negotiations.
15
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.103) Employment Agreement between F. Robert Miller and Envirotest
Systems Corp. dated January 26, 1996
(10.104) Amendment No. 3 to Contract L-90-5140 between the
Metropolitan Government of Nashville and Davidson County and
Envirotest Systems, Corp. dated December 19, 1995
(10.105) Amendment No. 6 dated December 21, 1995 to Professional
Services Agreement Number VI-1024 between The State of
Illinois Environmental Protection Agency and Envirotest
Technologies, Inc.
(11) Statement of Computation of Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused their report to be signed on their behalf by the
undersigned thereunto duly authorized.
ENVIROTEST SYSTEMS CORP.
------------------------
(Registrant)
ENVIROTEST TECHNOLOGIES, INC.
-----------------------------
(Registrant)
Date: May 14, 1996 /s/ F. ROBERT MILLER
--------------------
F. Robert Miller
President and Chief Executive Officer
Date: May 14, 1996 /s/RAJ MODI
--------------------
Raj Modi
Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
(Principal Financial Officer)
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ENVIROTEST SYSTEMS CORP.
EXHIBIT INDEX
EXHIBIT
NUMBER: PAGE NO.
- - ------- --------
(10.103) Employment Agreement between F. Robert Miller and Envirotest
Systems Corp. dated January 26, 1996
(10.104) Amendment No.3 to Contract L-90-5190 between the Metropolitan
Government of Nashville and Davidson County and Envirotest
Systems, Corp. dated December 19, 1995
(10.105) Amendment No. 6 dated December 21, 1995 to Professional
Services Agreement Number VI-1024 between The State of
Illinois Environmental Protection Agency and Envirotest
Technologies, Inc.
(11) Statement of Computation of Per Share Earnings
(27) Financial Data Schedule
18
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is dated effective as of
January 26, 1996 (the "Effective Date"), between Envirotest Systems Corp., a
Delaware corporation (the "Company"), and F. Robert Miller (the "Employee").
WHEREAS, the Board of Directors of the Company (the "Board") approved and
authorized the entry into this Agreement with the Employee;
WHEREAS, the parties desire to enter into this Agreement setting forth the
terms and conditions for the employment relationship of the Employee with the
Company.
NOW, THEREFORE, it is AGREED as follows:
1. EMPLOYMENT.
(a) The Employee shall serve as President and Chief Executive Officer
of the Company, faithfully and to the best of his ability, from the date hereof
through the Term (as defined below). In this capacity the Employee shall have
such duties and responsibilities as the Board shall designate that are
consistent with the Employee's position as President and Chief Executive Officer
of the Company, including the performance of duties with respect to any
subsidiaries of the Company. Employee shall perform such duties and
responsibilities in accordance with the practices and policies of the Company as
are in effect from time to time and in accordance with Employee's employment
arrangements with the Company. The Employee shall report directly to the Board
and Committees of the Board consisting solely of members of the Board.
(b) During the Term, the Employee shall devote his full business
time, energy and skill to the performance of his duties with the Company.
(c) During the Term, the Company agrees to nominate the Employee for
membership to the Board.
2. TERM. The initial term of employment under this Agreement shall be
for the period commencing on the Effective Date and ending on January 26, 1999;
PROVIDED, HOWEVER, that commencing on January 26, 1999 (and each January 26 in
every odd year thereafter) (each such date an "Ending Date"), the term of this
Agreement shall automatically be extended for two additional years unless, not
later than one year prior to an Ending Date (I.E., January 26, 1998 and each
January 26 in every subsequent even year), the Company or the Employee shall
give written notice not to extend this Agreement (such initial term and any
extensions thereof shall be referred to herein as the "Term"). If written
notice not to extend this Agreement is given by the Company pursuant to this
Section 2, the Company will be required, at Employee's option,
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<PAGE>
to elect under Section 11(b) to extend the Restricted Period (as defined in
Section 11(b)) for a period of at least one year.
3. BASE SALARY. The Company agrees to pay the Employee during the first
year of the Term, a base salary ("Base Salary") at an annual rate equal to
$300,000, payable in accordance with the regular payroll practices of the
Company, but not less frequently than monthly. For the second and third years
of the Term, and if the Term is extended for additional periods, then during
each such subsequent year, the Company shall pay a salary for the Employee's
services at a rate of the previous year's Base Salary under this Paragraph 3,
increased by the lesser of (i) five percent (5.0%) and (ii) the aggregate
monthly percentage increase in the Consumer Price Index for all Urban Consumers
(CPI-U) for the United States, All Items (1982-1984 = 100), published by the
U.S. Department of Labor, after taking into account any revisions, for the most
recent twelve months for which the Consumer Price Index data is published prior
to the first day of such year.
4. BONUS AGREEMENT. During the Term, the Employee shall be entitled to
participate in the Company's bonus and other compensation plans for the
Company's Employees of like classification. The Employee shall have the
opportunity to earn an annual target bonus ("Target Bonus") equal to 100% of his
Base Salary, measured against objective financial criteria to be determined by
the Board after consultation with Employee.
5. STOCK OPTIONS. The Company shall recommend to the Compensation
Committee of the Board, which administers the Company's stock option plan, that
as of the Effective Date, the Company grant to the Employee options with respect
to 400,000 shares of Company stock subject to the following terms: options with
respect to 200,000 of such shares shall be granted at an exercise price equal to
the closing Nasdaq National Market quotation on the most recent trading date
prior to the date of grant and options with respect to the remaining 200,000
shares shall be granted at the average closing market price for the five (5)
trading day period ending thirty (30) days after the date of the initial grant.
Such options shall vest PRO RATA according to the following schedule:
(i) 10% of such options shall vest on the six (6) month
anniversary of the date of grant;
(ii) an additional 23.33% of such options shall vest on the
twelve (12) month anniversary of the date of grant;
(iii) an additional 33.33% of such options shall vest on the
twenty four (24) month anniversary of the date of grant; and
(iv) an additional 33.33% of such options shall vest on the
thirty six (36) month anniversary of the date of grant.
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<PAGE>
Except as otherwise stated in this paragraph, the options shall expire, if
not exercised, on the tenth (10th) anniversary of the date of grant. If (i) the
Employee is terminated by the Company other than for Cause, (ii) the Employee
terminates his employment for Good Reason, (iii) the Employee's employment is
terminated by reason of the Employee's death or permanent disability, or (iv)
there occurs a Change of Control, all options granted prior to that date shall
vest and become immediately exercisable. If vested, the options may be
exercised for a 90 day period following Employee's termination of employment for
any reason other than for Cause, permanent disability or death. The options may
be exercised during the one year period following termination for death or
permanent disability. The options shall be forfeited upon a termination for
Cause. The Employee may, in his sole discretion, use shares acquired upon
exercise of an option to pay part or all of the exercise price and any federal,
state and local withholding tax requirements. Said options shall be granted
pursuant to and, to the extent not contrary to the terms of this Agreement,
shall be subject to all of the terms and conditions imposed upon stock options
granted under the Company's Stock Option Plan.
In addition to the foregoing described stock option grants, at the sole
discretion of the Compensation Committee of the Board, the Employee shall be
eligible for additional annual grants of stock options of up to 100,000.
6. PARTICIPATION IN RETIREMENT AND EMPLOYEE BENEFIT PLANS
(a) The Employee shall be entitled to participate in any plan of the
Company relating to stock purchases, pension, thrift, profit sharing, medical
coverage, education, or other retirement or employee benefits that the Company
has adopted or may adopt for the benefit of its executive employees generally.
The Company shall maintain a life insurance policy with a face value of $1.5
million on the Employee's life, the beneficiary of which shall be designated by
the Employee.
(b) AUTOMOBILE. During the Term, the Company shall furnish to the
Employee an automobile of the Employee's choice not to exceed a purchase price
of $60,000. The Company shall pay for all expenses associated with the use,
operation and enjoyment of the automobile (including insurance coverage but
exclusive of gasoline expense); and shall replace the automobile with a new one
on a schedule not less frequently than once every three (3) years.
(c) VACATIONS. The Employee shall be entitled to an annual paid
vacation in accordance with the Company's policy applicable to executive
officers generally. The timing of paid vacations shall be scheduled in a
reasonable manner by the Employee.
(d) PRIOR SERVICE CREDITED. For purposes of calculation of benefits
to which the Employee is entitled to pursuant to this section, services rendered
by the Employee at Systems Control, Inc., a Delaware corporation ("SCI"), prior
to the Effective Date, shall be credited to the Employee as if such services
were rendered to the Company; provided, however, that if such additional
benefits may not be paid under one or more plans or programs, such additional
benefits (or an amount in cash that is equivalent thereto) shall be payable
hereunder.
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<PAGE>
It is understood by the parties that this Subsection (d) has no applicability to
the Company's existing 401-K Plan.
7. TERMINATION.
(a) PERMANENT DISABILITY. In the event of the permanent disability
(as hereinafter defined) of the Employee during the Term, the Company shall have
the right, after Notice of Termination (as defined below) is given to the
Employee, to terminate his employment hereunder, effective upon the giving of
such notice. Upon such termination, the Company shall be discharged and
released from any further obligations under this Agreement, except for the
obligation to pay salary and other benefits earned but unpaid to the Date of
Termination (which payments shall be made (i) with respect to salary or bonus,
if any, on or before the later of the last day of the month which includes the
Date of Termination or the tenth day following the Date of Termination), or (ii)
with respect to other benefits, in accordance with the applicable Company plan
or program), and the vesting of the stock options as set forth in Section 5
above. Disability benefits due under applicable plans and programs of the
Company shall be determined under the provisions of such plans and programs.
For purposes of this Agreement, "permanent disability" shall be defined as any
physical or mental disability or incapacity which renders the Employee unable to
execute his duties hereunder for 180 consecutive days or an aggregate period of
more than 210 days in any twelve (12) month period.
(b) DEATH. In the event of the death of the Employee during the
Term, the salary to which the Employee is entitled pursuant to Section 3 hereof
shall continue to be paid through the end of the month in which death occurs,
any bonus payment to which the Employee is entitled pursuant to Section 4 shall
promptly be paid to the beneficiary so designated by the Employee by written
notice to the Company, or failing such designation, to his estate. The
Employee's designated beneficiary or personal representative, as the case may
be, shall accept the payments provided for in this Section 7(b) in full
discharge and release of the Company of and from any further obligations under
this Agreement, except for the obligation to pay salary and other benefits
earned but unpaid through the end of the month which includes the Date of
Termination (which payment shall be made (i) with respect to salary or bonus, if
any, on or before the later of the last day of the month of death or the tenth
day following death, or (ii) with respect to other benefits, in accordance with
the applicable Company plan or program), and the vesting of the stock options as
set forth in Section 5 above. Any other benefits due under applicable plans and
programs of the Company shall be determined under the provisions of such plans
and programs.
(c) CAUSE. Termination by the Company of the Employee's employment
for "Cause" shall mean termination upon (1) the wilful failure by the Employee
to materially perform his duties with the Company or to follow the instructions
of the Board (other than any such failure resulting from his incapacity due to
physical or mental illness), (2) the willful engaging by the Employee in conduct
that is materially injurious to the Company, monetarily or otherwise, (3) the
commission of any act of fraud, theft or dishonesty by the Employee against the
Company, (4) the conviction of the Employee of (or the pleading by the Employee
4
<PAGE>
of NOLO CONTENDERE to) any felony, fraud or embezzlement or (5) any willful
material breach by the Employee of the terms of this Agreement, unless any such
breach of this Agreement by Employee that is capable of being corrected is
corrected in all material respects within thirty (30) days following written
notification by the Company to the Employee that the Company intends to
terminate the employment of Employee hereunder by reason of a willful material
breach of this Agreement for Cause as specified in such written notice to
Employee.
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause without (1) advance written notice provided to the
Employee not less than fourteen (14) days prior to the Date of Termination
setting forth the Company's intention to consider terminating the Employee
including a statement of the Date of Termination and the specific detailed basis
for such consideration for Cause; (2) an opportunity of the Employee, together
with his counsel, to be heard before the Board during the fourteen (14) day
period ending on the Date of Termination; (3) a determination in accordance with
the provisions of the next to the last sentence of this Section 7(c) by members
of the Board that the actions of the Employee constituted Cause and that the
Employee's employment should accordingly be terminated for Cause; and (4) a
written determination provided by the Board setting forth the acts and omissions
that form the basis of such termination of employment. By determination of the
Board in accordance with the next to the last sentence of this Section 7(c), the
Company may suspend the Employee from his duties for a period of up to thirty
(30) days with full pay and benefits hereunder during the period of time in
which the Board is making a determination as to whether to terminate the
Employee for Cause. Any determination by the Board hereunder shall be made by
the affirmative vote of at least a two-thirds (2/3) majority of the members of
the Board (other than the Employee). Any purported termination of employment of
the Employee by the Company which does not meet each and every substantive and
procedural requirement of this Section 7 shall be treated for all purposes under
this Agreement as a termination of employment without Cause.
(d) GOOD REASON. "Good Reason" shall mean, without the express
written consent of the Employee, the occurrence of any of the following events
unless such events are fully corrected in all material respects by the Company
within thirty (30) days following written notification by the Employee to the
Company that he intends to terminate his employment hereunder for one of the
reasons set forth below:
(i) any material adverse alteration, reduction or
diminution in the Employee's titles or positions or duties or
responsibilities with the Company includinG but not limited to a
failure to elect Employee to the offices of President Chief Executive
Officer and as a member of the Board of the Company;
(ii) any reduction in the Employee's Base Salary;
(iii) the Company requiring the Employee to change the
location of his employment or office to a location more than 25 miles
outside of the Sunnyvale, California;
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<PAGE>
(iv) a material breach by the Company of any provision of
this Agreement;
(v) the failure for any reason of the Company to grant the
options described in Section 5 of this Agreement (exclusive of the
discretionary options) on the terms
set forth in this Agreement; and
(vi) occurrence of Change of Control.
(e) CHANGE OF CONTROL. As used in this Agreement, the term "Change
of Control" shall have the meaning as set forth in Exhibit I hereto.
(f) NOTICE OF TERMINATION. Any purported termination of the
Employee's employment by the Company or by him shall be communicated by Notice
of Termination to the other party hereto in accordance with Section 7.
(g) DATE OF TERMINATION. "Date of Termination" shall mean (1) if the
Employee's employment is terminated by his death, the date of his death; (2) if
the Employee's employment is terminated by reason of permanent disability, the
date Notice of Termination is given; (3) if the Employee's employment is
terminated (A) for Cause (except Cause as defined in Section 7(c)(5)), the date
specified in the Notice of Termination or (B) for Cause (as defined in Section
7(c)(5)) thirty (30) days after Notice of Termination is given (provided that
any such breach of this Agreement by the Employee that is capable of being
corrected is not corrected in all material respects during such thirty (30) day
period); (4) if the Employee's employment is terminated by the Employee for Good
Reason, thirty (30) days after Notice of Termination is given (provided that any
such breach of this Agreement by the Company is not corrected in all material
respects during such thirty (30) day period; and (5) if the Employee's
employment is terminated for any other reason, the date specified in the Notice
of Termination.
(h) COMPENSATION UPON TERMINATION WITHOUT CAUSE OR FOR GOOD REASON.
If the Employee's employment by the Company should be terminated (x) by the
Company other than for Cause or (y) by the Employee for Good Reason, the Company
shall pay to the Employee (1) on or within five days following his Date of
Termination, the amount of his Base Salary not previously paid through the Date
of Termination at the rate in effect at the time Notice of Termination is given,
plus, (2) on or within five days following the Date of Termination, an amount
equal to a PRO RATA portion (based on the number of months and partial months in
the year which shall have elapsed as of the Date of Termination) of that portion
of the Target Bonus that the Employee is reasonably likely to have received with
respect to the year of termination based on a good faith determination by the
Board (or a committee thereof) of the reasonable likelihood of achievement of
the objective goals or other financial criteria against which the Target Bonus
is measured pursuant to Section 4 of this Agreement, plus (3) on or within five
days following the Date of Termination, a lump sum payment equal to the product
of (A) one twelfth of the Employee's then Base Salary and (B) the number of
months remaining in the Term or 24 months, whichever is greater, plus (5) at the
time such payments are due, all
6
<PAGE>
other amounts to which he is entitled from the Company under any other
compensation plan. In addition, the Employee shall be entitled from the Company
to such benefits detailed in Section 6 of this Agreement for the remainder of
the Term or for 24 months, whichever is greater. Furthermore, the Company will
be required, at the Employee's option, to elect under Section 11(b) to extend
the Restricted Period (as defined in Section 11(b)) for a period of at least one
year, PROVIDED, HOWEVER, that if Employee makes such an election, all payments
under the first sentence of this Section 7(h) will be paid in equal monthly
installments (on or before the tenth day of each month) over the remainder of
the Term or 24 months, whichever is greater except that payments under this
Section 7(h)(5) will be paid in accordance with the applicable plan.
(i) COMPENSATION UPON TERMINATION FOR CAUSE OR WITHOUT GOOD REASON.
If the Employee's employment should be terminated (x) by the Company for Cause,
or (y) by the Employee without Good Reason, the Company shall pay to the
Employee, on or before the later of the last day of the month which includes the
Date of Termination or the tenth day following the Date of Termination, the
amount of his full Base Salary not previously paid through the Date of
Termination at the rate in effect at the time Notice of Termination is given,
plus, at the time such payments are due, all other amounts to which he is
entitled from the Company under any compensation plan and the Company will have
no further obligations pursuant to this Agreement except as provided under
Section 11(b) as applicable.
8. INTEREST ON LATE PAYMENTS DUE AFTER TERMINATION. In the event that
any required payments to the Employee under Sections 7(a), 7(b), 7(h), 7(i),
11(b), 12, 13(b) and 13(c) are not paid when due, the Company shall pay interest
from the due date to the date of payment of such amount at a rate of eight
percent (8.0%) per annum.
9. NO ASSIGNMENTS. This Agreement is personal to each of the parties
hereto. No party may assign or delegate any rights or obligations hereunder
without first obtaining the written consent of the other party hereto. However,
in the event of the death of the Employee, all rights to receive payments
hereunder shall become rights of the Employee's estate.
(a) At the request of Employee, the Company shall use its best
efforts to require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company and any successor to its business
and/or assets, which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Employee and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Employee should die while any amount would still be payable to him hereunder had
he continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this Agreement to his devisee, legatee
or other designee or, if there is no such designee, to his estate.
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10. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to Employee, at 679 University Avenue, Los Altos, California 94022
with a copy to Roger C. Siske, Esq., 8000 Sears Tower, Chicago, Illinois 60606
and to the Company at Envirotest Systems Corp.; 6903 Rockledge Road; Bethesda,
Maryland 20817; Attention: C. Michael Alston, Esq. (provided that all notices
to the Company shall also be directed to the attention of the Board with a copy
to the Secretary of the Company), or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
11. (a) CONFIDENTIALITY. The Employee acknowledges that in his
employment hereunder, and during prior periods of employment with the Company,
he has occupied and will continue to occupy a position of trust and confidence.
The Employee shall not, except as may be required to perform his duties
hereunder or as required by applicable law, without limitation in time or until
such information shall have become public other than by the Employee's
unauthorized disclosure, disclose to others or use, whether directly or
indirectly, any Confidential Information regarding the Company. "Confidential
Information" shall mean information about the Company, its subsidiaries and
affiliates, and their respective clients and customers that is not disclosed by
the Company for financial reporting purposes and that was learned by the
Employee in the course of his employment by the Company, including (without
limitation) any proprietary knowledge, trade secrets, data, formulae,
information and client and customer lists and all papers, resumes, and records
(including computer records) of the documents containing such Confidential
Information. The Employee acknowledges that such Confidential Information is
specialized, unique in nature and of great value to the Company, and that such
information gives the Company a competitive advantage. The Employee agrees to
deliver or return to the Company, at the Company's request at any time or upon
termination or expiration of his employment or as soon thereafter as possible,
all documents, computer tapes and disks, records, lists, data, drawings, prints,
notes and written information (and all copies thereof) furnished by the Company
or prepared by the Employee during the term of his employment by the Company.
(b) NON-COMPETITION. During (i) the period that the Employee is
employed by the Company hereunder, (ii) any period with respect to which the
Employee is entitled to benefits under Section 7(h) hereof, (iii) in the event
the Employee continues to be employed by the Company throughout the Term and at
the discretion of the Company (which discretion shall be exercised on or before
July 30 of the year prior to the year of the subject End Date), a period of up
to 24 months after the expiration of the subject Term, (iv) in the event of
termination for Cause or termination by the Employee without Good Reason and at
the discretion of the Company (which discretion shall be exercised at the time
of the termination for Cause and within five days after the Company has been
notified of Employee's termination without Good Reason), a period of 24 months
after such termination, and (v) in the event of termination without Cause or for
Good Reason, and the expiration of the period with respect to which Employee is
entitled to benefits under Section 7(h) thereof (the "Section 7(h) Period") and
otherwise at the discretion
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of the Company (which discretion shall be exercised on a date at least one year
prior to the expiration of the Section 7(h) Period) a period of up to 24 months
after the expiration of the Section 7(h) Period (the "Restricted Period"), the
Employee shall not, directly or indirectly, without the prior written consent of
the Company, provide consultative services or otherwise provide services to
(whether as an employee or a consultant, with or without pay), own, manage,
operate, join, control, participate in, or be connected with (as a stockholder,
partner, or otherwise), any business, individual, partner, firm, corporation, or
other entity that is then a competitor of the Company, including any entity
engaged in the business of providing vehicle emissions testing services or
services directly related thereto that comprise a material portion of the
Company's business or any other business that is definitely planned by or that
is under development by the Company or any of its affiliates during the
Employee's employment (if employee is currently employed) or at the time of the
Employee's Date of Termination (each such competitor a "Competitor of the
Company"); PROVIDED, HOWEVER, that (i) the "beneficial ownership" by the
Employee, either individually or as a member of a "group" (as such terms are
used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Regulation 13D under the Exchange Act) of not more than five percent
(5%) of the voting stock of any publicly held corporation, or (ii) beneficial
ownership (as such term is defined in Rule 13d-3 under the Exchange Act) by the
Employee, individually, together with individual beneficial ownership by members
of his immediate family of not more than four percent (4%) in aggregate of the
equity of SCI, shall not alone constitute a violation of this Agreement. To the
extent the Employee is made available by the Company to provide litigation
assistance and support to SCI pursuant to Section 6.8, "Litigation Support," of
the Stock Purchase Agreement between SCI and Envirotest Acquisition Co., he is
permitted to do so.
In the event the Company exercises its discretion to extend the
Restricted Period as set forth in clauses (b)(iii), b(iv), or b(v) of this
Section 11, or the Employee exercises his discretion to extend the Restricted
Period as set forth in Section 2 or 7(h), the Company shall pay to the Employee,
in consideration for the Employee's agreement under this Section 11(b) during
such extended Restricted Period, a monthly fee (due by the tenth day of each
month) equal to his Base Salary then in effect divided by 12 and such fringe
benefits detailed in Section 6 (to the extent such participation is allowable
under the terms of such plans). Such payments shall be in addition to all
rights and benefits of the Employee under this Agreement including but not
limited to those specified in Section 7(h) hereof, (it being understood that
there shall be no payments, under this Section 11(b) with respect to those
periods set forth in clauses (b)(i) and (b)(ii) above) PROVIDED, HOWEVER, that
if the Employee breaches the provisions of this Section 11(b) of the Agreement
the Company's obligations under the Agreement shall cease. Nothing in either
clause b(iv) above, Sections 5 or 7(i) shall be construed to otherwise limit any
rights and remedies that may be available to the Company with respect to a
termination by the Employee without Good Reason.
It is further expressly agreed that the Company will or would suffer
irreparable injury if the Employee were to compete with the company or any
subsidiary or affiliate of the Company in violation of this Agreement and that
the Company would by reason of such competition be entitled to injunctive relief
in a court of appropriate jurisdiction, and the
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Employee further consents and stipulates to the entry of such injunction relief
in such a court prohibiting the Employee from competing with the Company or any
subsidiary or affiliates of the Company in violation of this Agreement.
(c) NON-SOLICITATION OF CUSTOMERS AND SUPPLIERS. During the
Restricted Period, the Employees shall not, directly or indirectly, influence or
attempt to influence customers or suppliers of the Company or any of its
subsidiaries or affiliates, to divert their business to any Competitor of the
Company.
(d) NON-SOLICITATION OF EMPLOYEES. The Employee recognizes that he
possesses and will possess confidential information about other employees of the
Company relating to their education, experience, skills, abilities, compensation
and benefits, and inter-personal relationships with customers of the Company.
The Employee recognizes that the information he possesses and will possess about
these other employees is not generally known, is of substantial value to the
Company in developing its business and in securing and retaining customers, and
has been and will be acquired by him because of his business position with the
Company. The Employee agrees that, during the Restricted Period, he will not,
directly or indirectly, solicit or recruit any employee of the Company for the
purpose of being employed by him or by any Competitor of the Company on whose
behalf he is acting as an agent, representative or employee and that he will not
convey any such confidential information or trade secrets about other employees
of the Company to any other person.
(e) SURVIVAL OF PROVISIONS. The obligations contained in this
Section 11 shall survive the termination or expiration of the Employee's
employment with the Company and shall be fully enforceable thereafter. If it is
determined by a court of competent jurisdiction in any state that any
restriction in this Section 11 is excessive in duration or scope or is
unreasonable or unenforceable under the laws of that state, it is the intention
of the parties that such restriction may be modified or amended by the court to
render it enforceable to the maximum extent permitted by the law of that state.
12. GROSS-UP PAYMENT. (a) In the event any payment that is either
received by the Employee or paid by the Company on his behalf or any property or
loan forgiveness, or any other benefit provided to him under this Agreement or
under any other plan, arrangement or agreement with the Company or any other
person whose payments or benefits are treated as contingent on a change of
ownership or control of the Company (or in the ownership of a substantial
portion of the assets of the Company) or any person affiliated with the Company
or such person (but only if such payment or other benefit is in connection with
the Employee's employment by the Company) (collectively, the "Total Value") will
be subject to the excise tax (the "Excise Tax") imposed by section 4999 (or any
successor provision) of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall, subject to the limitations and requirements
specified in subsection (b) of this Section 12, pay to the Employee an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Employee, after deduction (i) of any Excise Tax imposed on the Total Value
and (ii) of any Excise Tax, federal,
10
<PAGE>
state, or local income, payroll, and/or other taxes imposed on the Gross-up
Payment, shall be equal to the Total Value.
(b) If the Employee determines that he is liable for the Excise Tax
with respect to a payment or other benefit described in subparagraph (a), such
Employee must promptly so notify the Company in writing; provided, however, that
no delay on the part of the Employee in notifying the Company shall relieve the
Company from any obligation hereunder unless (and then solely to the extent
that) the Company thereby is prejudiced. Upon receipt of such notice from the
Employee, the Company must, within 20 days thereafter, either (i) notify the
Employee, in writing, that the Company agrees with the Employee's determination
of Excise Tax liability, in which case the Company shall become obligated to
immediately pay to the Employee the Gross-Up Payment, or (ii) submit to the
Employee an opinion, prepared by counsel of the Company's choice which counsel
is reasonably satisfactory to the Employee, that the Employee is not liable for
the Excise Tax (the "Tax Opinion"). If the Tax Opinion is provided to the
Employee and the Employee nonetheless chooses not to contest the assertion of
the Excise Tax, the Company shall be relieved of its obligation to make the
Gross-Up Payment specified in subsection (a) of this Section 12. If the
Employee chooses to contest the assertion of the Excise Tax after receipt of the
Tax Opinion, he may do so with counsel of his choice that is reasonably
satisfactory to the Company, and the reasonable legal fees and expenses of such
contest shall be paid by the Company on a monthly basis, subject to the
Company's receipt of proper documentation therefor. If the Excise Tax is so
contested, then the Company shall pay to the Employee the Gross-Up Payment upon
the earlier of 10 days after (A) the entry of a final judgment, decree, or other
order by a court of competent jurisdiction that the Employee is liable for the
Excise Tax or (B) a mutual determination of the Employee and the Company not to
proceed further with the contest. The Company also shall reimburse the Employee
at that time for any penalties and interest attributable to any delay in payment
of the Excise Tax that results from a decision by the Employee not to pay the
Excise Tax liability based upon the Tax Opinion. If, pursuant to this
subsection (b), the Company is required to reimburse the Employee for legal fees
and expenses and/or for penalties and interest incurred by the Employee
("Reimbursement Payments"), then the Company also shall be required to pay to
the Employee an additional gross-up amount such that the net amount retained by
the Employee, after deduction of any Excise Tax, federal, state, or local
income, payroll, and/or other taxes imposed on the Reimbursement Payments and
gross-up amount, shall be equal to the amount of the Reimbursement Payments.
(c) If the IRS notifies the Employee in writing that the Excise Tax
will or may be assessed against such Employee, if the Company provides the
Employee with the Tax Opinion specified in subsection (b), and if the Employee
chooses to contest the assertion of the Excise Tax, then the Company shall
obtain and deliver to the Employee an irrevocable standby letter of credit (the
"Letter of Credit") issued by a bank acceptable to the Employee and the Company
in an amount equal to the amount of the Company's potential payment obligation
under subsection (b), computed as if the Excise Tax were paid to the IRS on the
date the Letter of Credit was obtained. Immediately upon the earlier of (i) a
determination (within the meaning of section 1313 of the Code) that the Employee
is not liable for the Excise Tax, or (ii) the
11
<PAGE>
Company's payment to the Employee of the full amount of its obligation under
subsection (b), the Employee shall mark the Letter of Credit "cancelled" and
return it to the Company. In lieu of such a Letter of Credit, the Company may
choose, under the circumstances described in the first sentence of this
subsection (c), to secure its obligations under subsection (b) by establishing
an appropriate escrow account with terms reasonably satisfactory to the
Employee, and by depositing therein the same amount as would be required for the
Letter of Credit.
(d) The obligations contained in this Section 12 shall survive the
termination or expiration of the Employee's employment with the Company and
shall be fully enforceable thereafter.
13. ATTORNEY'S FEES. (a) The Company shall reimburse the Employee for
all reasonable legal fees for the negotiation and execution of this Agreement up
to a maximum of $30,000, subject to the Company's receipt of proper
documentation therefor.
(b) If the Employee incurs reasonable legal or other fees and
expenses in an effort to establish entitlement to compensation and benefits
under this Agreement and prevails (after exhaustion of all available judicial
remedies by the parties), the Company shall reimburse the Employee for such
reasonable fees and expenses subject to and within ten days of the receipt by
the Company of proper documentation therefor.
(c) If the Employee incurs reasonable legal or other fees and
expenses in an effort to establish entitlement to compensation and benefits
under this Agreement and does not prevail and the arbitration panel described in
Section 17 decides that the Employee could reasonably believe that it was likely
that he would prevail and the action was brought in good faith, the Company
shall reimburse the Employee for such reasonable fees and expenses subject to
and within ten days of receipt by the Company of proper documentation therefor.
14. SECTION HEADINGS. The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity of unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instruments.
17. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators in the State of California in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
12
<PAGE>
having jurisdiction; PROVIDED, HOWEVER, that (i) the Employee shall be entitled
to seek specific performance of his right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement; and (ii) the Company shall be entitled to
seek specific performance as specified in section 11 of this Agreement.
18. MISCELLANEOUS. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Employee and such officer as may be specifically
designated by the Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California without regard to its
conflicts of law principles. All references to sections of the Exchange Act
shall be deemed also to refer to any successor provisions to such sections.
19. FULL SETTLEMENT. Except as set forth in this Agreement, the Company's
obligation to make the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any circumstances,
including without limitation, set-off, counterclaim, recoupment, defense or
other claim, right or action which the Company may have against the Employee or
others. In no event shall the Employee be obliged to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Employee under any of the provisions of this Agreement, nor shall the amount of
any payment hereunder be reduced, except as specifically provided herein, by any
compensation earned by the Employee as a result of employment by another
employer.
20. REPRESENTATION. The Employee represents and warrants to the Company
that he has the legal right to enter into this Agreement and to perform all of
the obligations on his part to be performed hereunder in accordance with its
terms and that, except with respect to his current employment agreement with
SCI, he is not a party to any agreement or understanding, written or oral, which
could prevent him from entering into this Agreement or performing all of his
obligations hereunder. In the event of a breach of such representation or
warranty or if there is any other legal impediment that prevents the Employee
from entering into this Agreement or performing all of his obligations
hereunder, the Company shall have the right to terminate this Agreement
immediately and shall have no further obligation to the Employee hereunder.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above
ENVIROTEST SYSTEMS CORP.
By: /s/ Chester C. Davenport
---------------------------------
Title
---------------------------------
F. ROBERT MILLER
/s/ F. Robert Miller
--------------------------------------
14
<PAGE>
EXHIBIT I
"Change of Control" means (i) any sale, transfer or other conveyance (other
than to the Company or a wholly owned Subsidiary of the Company), whether direct
or indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or a series of related transactions, if,
immediately after such transaction, any "person" or "group" becomes the
"beneficial owner," directly or indirectly, of more than 50% of the total voting
power entitled to vote in the election of directors, managers, or trustees of
the transferee, (ii) any "person" or "group" is or becomes the "beneficial
owner," directly or indirectly, of more than 50% of the total voting power of
the Voting Stock then outstanding, or (iii) during any period of 24 consecutive
months, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the Company was
approved by a vote of a majority of the directors then still in the 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 of the Company then in office.
For purposes of this definition, (i) the terms "person" and "group" shall
have the meanings used for purposes of Rules 13d and 13d-5 of the Exchange Act,
whether or not applicable; PROVIDED that no Excluded Person and no person or
group controlled by Excluded Persons shall be deemed to be a "person" or "group"
and (ii) the term "BENEFICIAL OWNER" shall have the meaning used in Rules 13d-3
and 13d-5 under the Exchange Act, whether or not applicable, except that a
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 or upon the occurrence of certain
events.
"Voting Stock" means Capital Stock of the Company having generally the
right to vote in the election of majority of the directors of the Company.
"Excluded Person" means any beneficial holder of 5% or more of any class of
common stock of the Company outstanding immediately prior to the consummation of
the initial underwritten public offering by the Company of 3,400,000 shares of
the Company's Class A Common Stock in April 1993.
<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 valuable consideration, the parties agree to amend
Contracts 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 ENVIROTEST SYSTEMS CORP.
OF NASHVILLE AND DAVIDSON COUNTY:
/S/ DIRECTOR OF HEALTH /s/ Chester C. Davenport
- - ----------------------------------- --------------------------------
DIRECTOR OF HEALTH PRESIDENT AND CHIEF
EXECUTIVE OFFICER
CHAIRMAN, METROPOLITAN BOARD OF HEALTH
APPROVED AS TO AVAILABILITY OF FUNDS:
/s/ Director of Finance
- - -----------------------------------
DIRECTOR OF FINANCE
APPROVED AS TO LEGALITY OF
FORM AND COMPOSITION:
/S/ METROPOLITAN ATTORNEY
- - ---------------------------
METROPOLITAN ATTORNEY
APPROVED AS TO PURCHASING
PROCEDURES:
/S/ PURCHASING AGENT
- - -----------------------------------
PURCHASING AGENT
/S/ METROPOLITAN COUNTY MAYOR
- - -----------------------------------
METROPOLITAN COUNTY MAYOR
ATTEST:
/S/ METROPOLITAN CLERK
- - -----------------------------------
METROPOLITAN CLERK
3
<PAGE>
STATE OF ILLINOIS
ENVIRONMENTAL PROTECTION AGENCY
AMENDMENT NUMBER 6 TO
PROFESSIONAL SERVICES AGREEMENT
In consideration of the execution of the Professional Services Agreement
Number VI-1024, executed November 5, 1990 (hereinafter, "Agreement") between the
Illinois Environmental Protection Agency (hereinafter, "Agency") and Systems
Control, Inc., successor elements of which are now operating pursuant to that
Agreement and doing business as Envirotest Technologies, Inc. (hereinafter,
"Contractor"), whose address is 2002 North Forbes Boulevard, Tucson, Arizona,
85745-1446, the parties hereto further agree as follows:
WITNESSETH:
WHEREAS, the Agency and the Contractor entered into the Agreement
hereinabove described, pursuant to which the Agency engaged the Contractor to
perform services in connection with the Illinois Vehicle Emissions Inspection
Law;
WHEREAS, the Agreement incorporates by reference 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 five (5)
Amendments subsequently entered into pursuant to the terms of the Agreement;
WHEREAS, the Agreement is due to expire on December 31, 1995, which is its
Normal Termination Date;
WHEREAS, the Parties are desirous of extending the Normal Termination Date
of said Agreement;
WHEREAS, it is in the best interest of the State to extend the Normal
Termination Date of the Agreement with the current Contractor in order to
continue operation of the Vehicle Emissions Test Program until such time as a
new enhanced vehicle emissions test program is implemented;
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 Agreement;
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
<PAGE>
1. Except as specifically agreed to hereinafter, all applicable current duties
and responsibilities of both the Agency and the Contractor under
Professional Services Agreement VI-1024 and incorporated documents which
are necessary for the continuation of the Illinois Program shall continue
in full force and effect from January 1, 1996 to June 30, 1997. June 30,
1997 is hereby declared to be the new Normal Termination Date of the
Agreement, replacing December 31, 1995. Any provisions of any document
which forms a part of the Agreement which conflicts with the agreements
contained herein are hereby modified or eliminated as necessary.
2. The Contract shall be amended to delete all references to the "hybrid" test
frequency schedule specified in Section 1.1(1) and Section 4.2.6 (A) of the
Scope. This schedule shall be replaced with the biennial frequency schedule
specified in the Vehicle Inspection Law of 1995 requiring emissions testing
in the third, fifth, seventh, etc. year of vehicle age. The transition to
the new biennial frequency schedule was initiated in July, 1994 and
completed in October, 1995.
3. The Contractor shall not conduct tamper checks. The Agency, however, will
continue to conduct tamper checks as required to fulfill its duties to
perform waiver inspections.
4. The Contractor shall perform idle exhaust emissions inspections in
accordance with 35 Ill. Adm. Code 240 Subpart D and the procedures
contained in Appendix A, attached to this Amendment Number 6 and made a
part hereof.
5. The use of a "Vehicle Emission Inspection Sticker" (Sticker) as provided
for in the Scope will be discontinued when the Contractor's current
supplies are exhausted, estimated to be in May, 1996. At that time, the
Sticker shall be replaced by a modified version of the current "Vehicle
Inspection Report" ("VIR"). The requirements of the modified VIR shall be
jointly developed by the Agency and the Contractor no later than February
15, 1996.
The second sentence of the introductory paragraph in Section 4.3.7(A) of
the Scope is therefore revised as follows:
Operators of vehicles passing the emission inspection shall
receive a Vehicle Inspection Report/Compliance Certificate (the
"VIR/Compliance Certificate") containing the information listed
below:
As of the date of execution of this Amendment Number 6, the content of
Section 4.3.7(B) and Table 4.3.7(B) of the Scope
2
<PAGE>
is deleted. Section 4.3.7(B) is to remain blank and designated as
"Reserved".
All other references in the Agreement to the "Sticker" shall be modified as
necessary in accordance with the intent hereof.
6. No later than 30 days from the date of execution of this Amendment Number
6, the Contractor shall submit to the Agency a revised and updated
Management Plan as described in Section 5.1. of the Scope.
7. No later than 30 days from the date of execution of this Amendment Number 6
the Contractor shall submit to the Agency, for Agency approval, a new
Implementation Schedule using the format contained in Section 6.1.2. of the
Scope. The implementation Schedule shall describe the Contractor's proposed
activities during the contract extension period, specifically including but
not limited to its schedule for implementing the evaporative system
integrity test ("gas cap only" test) referenced at Paragraph 25
hereinafter, the outstanding Engineering Modification Requests (EMRs)
referenced at Paragraph 9 hereinafter, and other requirements of this
Amendment Number 6. Failure to submit either the Management Plan described
at Paragraph 6 hereinabove or the Implementation Schedule described herein
shall result in damages being assessed in accordance with Section 6.9.11 of
the Scope, subject to the provisions of Section 7.6 of the Scope, if
applicable.
8. The current test network contains five (5) deactivated lanes. In order to
maximize efficiencies and provide the highest level of service to
motorists, the Agency and the Contractor hereby agree to activate two (2)
currently deactivated lanes: one (1) at Station #7, and one (1) at Station
#13; and, deactivate two (2) currently activated lanes. The two (2) lanes
to be deactivated will be determined by mutual agreement between the Agency
and the Contractor no later than February 1, 1996. Activation of the lanes
at Stations #7 and #13 will take place on March 5, 1996.
9. A new Section 4.10 is added to Part IV of the Scope as follows:
4.10 SYSTEM CHANGE PROCEDURES
The Agency and the Contractor shall develop and implement an improved
change control system designed to ensure effective and timely
resolution of System
3
<PAGE>
problems, deficiencies, bugs, as well as System enhancements requested
by the Agency or the Contractor.
The Contractor agrees that changes described in Engineering
Modification Requests (EMRs) assigned EMR log numbers prior to
December 13, 1995 shall be completed (including passing all necessary
acceptance tests) no later than March 1, 1996 for EMRs classified as
"deficiencies/bugs" (EMR Numbers 073, 077, 183, 216, 227, 230, 233,
237, 244, 247a, 248, 250, 261, 262, 263, 264, 267, 270, and 290), and
no later than April 1, 1996 for EMRs classified as "improvements/
enhancements" (EMR Numbers 222, 266, 269, 281, 282, 283, 284, 285,
288, and 289), with all required System documentation provided to the
Agency for approval no later than May 1, 1996.
All subsequent System changes shall be completed (including passing
all necessary acceptance tests and submission to the Agency of all
required System documentation, which shall include a written narrative
description of all changes made to the System) within 60 days of
acceptance of the change request by the Agency and Contractor (as
evidenced by the issuance of an EMR log number) and implemented within
90 days of acceptance. No changes shall be implemented without written
approval by the Agency Representative or his/her designee.
Alternative completion and implementation dates may be approved by the
Agency upon written request by the Contractor made prior to acceptance
of the change request. All completion and implementation dates shall
become part of the Implementation Schedule required by Paragraph 7 of
this Amendment Number 6.
All EMR requests shall be submitted in writing and jointly reviewed
and agreed to by the Agency and Contractor. Acceptance or denial of
the EMR request shall be made in writing by both parties, within 10
business days of the request.
10. The Contractor shall provide three (3) complete sets of its current,
updated system documentation to the Agency no later than May 1, 1996, and
within 30 days of any subsequent change thereafter. Failure to do so shall
result in damages being assessed in accordance with Section 6.9.11, subject
to the provisions of Section 7.6. of the Scope, if applicable.
11. The Contractor shall perform background reference checks of employee
applicants and perform covert audits of its
4
<PAGE>
employees in an effort to employ individuals of suitable qualifications and
integrity. In addition, the Contractor shall provide to the Agency on a
monthly basis, the following information: names and number of station
personnel hired each month, background reference checks conducted on each
new hire, the name of each employee terminated during the monthly reporting
period (with an indication for each termination as being voluntary or
involuntary), and the total number of employees terminated during the
monthly reporting period.
12. The penalty amounts or criteria contained in the following Sections in the
Scope for purposes of the contract extension period specified in this
Amendment Number 6 will remain at their 1995 levels: Sec. 6.9.4, Sec.
6.9.5, Sec. 6.9.6(A), Sec. 6.9.6(B), Sec. 6.9.7(b), Sec. 6.9.8(A), Sec.
6.9.8(B), Sec. 6.9.9, Sec. 6.9.10, Sec. 6.9.11., Sec. 6.9.13., and Sec.
6.9.15.
Additionally, as of the date of execution of this Amendment Number 6 the
language of Section 6.9.1.(A) is deleted and replaced with the following:
The revised Implementation Schedule to be provided by the Contractor
to the Agency as described in this Amendment Number 6 shall be
prepared insofar as possible using format specified at Section 6.1.2.
of the Scope, including setting forth major contractual milestones for
the agreements contained in this Amendment Number 6. Failure to meet
these milestones shall result in the Contractor being assessed damages
of $100 per day for each such milestone date not met, except that if
the Contractor fails to meet the implementation date of gas cap
testing, the penalty is hereby set at $1000 per day for each day
beyond the specified implementation date for gas cap testing. However,
in the event that the gas cap test equipment supplier fails to deliver
such test equipment as stated in the Implementation Schedule, then all
subsequent milestone dates shall be extended commensurate with such
delay. The Agency in its sole discretion may waive one or more of the
penalties described herein.
13. The following provisions of Part VIII of the Scope are revised:
SECTION 8.2.2. The definition of the variable "B" after the adjustment
formula contained in this section is amended by adding the following
sentence: "The product of 0.2 multiplied by B will be rounded to the
nearest whole cent." Also, the definition of the variable "V" after
the adjustment formula is amended as follows: "V
5
<PAGE>
is the monthly Base Volume of Tests which is 175,000."
SECTION 8.3. The first sentence of this section is replaced with the
following: "The Contractor is required to amortize or depreciate the
costs comprising its Fixed Cost Component over the period of the
Contract as determined from January 1, 1996 through June 30, 1997,
using the straight line amortization and depreciation method."
SECTION 8.4.1. The amount of the Fixed Cost Component contained in
this section is changed from $1.37 to $0.60.
SECTION 8.4.2. The amount of the Operating Cost Component contained in
this section is changed from $4.45 to $5.22.
14. On or before January 15, 1996 the Contractor shall provide the Agency with
a performance bond (the "Performance Bond") in a form approved by the
Agency which shall be executed by a bonding company which has been approved
by the Agency as surety. The Performance Bond shall be for an amount of one
million dollars ($1,000,000) covering the obligations of the Contractor to
the Agency under the Agreement as amended. The Performance Bond shall be
released upon the satisfactory completion by the Contractor, of all of its
obligations in accordance with the Agreement or at an earlier time if it is
determined by the Agency in writing to be in the best interest of the state
to do so. The Agency may in its sole discretion waive, in writing, this
Performance Bond requirement at the written request of the Contractor if
the Agency determines it is in the best interests of the State to do so.
15. In the event that during the term of the Agreement a party other than the
current Contractor or its agents, employees or subcontractors is granted
access to, or the use of, some or all of the inspection stations used by
the Contractor in performance of the Agreement, the Contractor shall afford
any and all necessary access to such parties. Notwithstanding the above,
the Contractor is required to retain the level of service stipulated in the
Agreement throughout its entire term.
16. The introductory section of Section 6.7, Paragraph A of the Scope is
revised to state that:
The Contractor shall be required to maintain within the State of
Illinois original or copies of all insurance
6
<PAGE>
policies and certificates of insurance that the Contractor is required
to secure, all subcontracts and all of its records relating to the
performance of the contract, including but not limited to such items
documenting:
* * *
17. The Contractor shall provide the Agency with a statement setting forth all
of its parent and subsidiary corporations. Such statement shall be updated
as necessary whenever a change in the Contractor's parent and/or subsidiary
corporations occurs.
18. The definition of a "Lane Closure Event" contained in the last sentence of
Section 5.2.3(B) of the Scope is revised as follows:
For the purpose of this section, excessive wait and a "Lane Closure
Event" shall be deemed to occur in any instance where a closed lane is
not opened when an average of five (5) or more vehicles are present at
remaining open lanes and the closure was the result of the lane(s) not
being staffed or the Contractor not performing in accordance with
Agency-approved, written operating procedures.
19. If the excessive waiting times at a station occur and the Contractor is not
subject to penalties under the "Lane Closure Event" definition of Paragraph
18 of this Amendment Number 6, the State agrees that the Contractor will
not be penalized under Sections 6.8.1. or 6.8.3. of the Scope as long as
the Contractor can demonstrate that the excessive wait times are caused
solely by the addition of the gas cap pressure test as required by this
Amendment Number 6.
20. Section 4.8 of the Scope is revised in accordance with Appendix B to this
Amendment Number 6.
21. The text of Section 4.1.2(I) of the Scope is deleted and replaced with the
following:
(I) Prepare and mail any and all warning notices.
The word "FIRST" is stricken from Section 4.9.3.2.(A)(3) of the Scope, and
Section 4.9.3.2(A)(4) of the Scope is hereby eliminated.
22. The text of Section 6.4.2(A) of the Scope of Services is revised to state
that if the Contractor's project manager is absent from its Illinois
headquarter offices for more than
7
<PAGE>
five (5) consecutive days, and if the Contractor does not provide the
Agency with the notification of appointment of a replacement, the
Contractor's designated alternate shall automatically assume the
responsibilities of the project manager until the return of the
Contractor's project manager or the designation (with the Agency's
approval) of a new project manager.
23. The text of Section 9.6 of the Scope is modified to reflect that the proper
title for the Illinois Program Manager is "Manager, Division of Vehicle
Inspection and Maintenance." All similar citations in the Agreement are
hereby changed as necessary.
24. The option to acquire assets contained in Section 7.2.2. of the Scope is
hereby eliminated.
25. The Scope is revised to include the requirements of Appendix C to this
Amendment Number 6.
26. Pursuant to Public Act 88-671, the Contractor certifies that neither it nor
any substantially-owned affiliated company is participating or shall
participate in an international boycott in violation of the provisions of
the U.S. Export Administration Act of 1979 or the regulations of the U.S.
Department of Commerce promulgated under that Act.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Number 6
this 29th day of December, 1995, and have agreed that it shall become a part of
the Professional Services Agreement Number VI-1024 as evidenced by the
signatures of their duly authorized representatives as affixed below.
INTRA-AGENCY CONCURRENCE:
/s/ Division Manager /s/ Fiscal Officer
- - -------------------------------- --------------------------------------
Division Manager Fiscal Officer
ENVIROTEST TECHNOLOGIES, INC. ILLINOIS ENVIRONMENTAL
PROTECTION AGENCY
By: /s/ Raj Modi By: /s/
- - -------------------------------- --------------------------------------
8
<PAGE>
APPENDIX A: DRAFT VERSION OF 35 ILL. ADM. CODE 276.201
Section 276.201 Exhaust Emission Test Procedures -
Steady-State Idle Test
a) 1) Steady-State Idle Test
The steady-state idle test consists of a first-chance idle mode test
followed, if necessary, by a second-chance test. The second-chance test
consists of a high idle preconditioned mode while in neutral or park,
followed immediately by a second-chance idle mode test.
2) Ford Motor Company and Honda Vehicles
The engines of 1981 through 1987 Ford Motor Company vehicles and 1984
through 1985 model year Honda Preludes must be shut off for not more than
ten seconds and restarted prior to initiating the idle mode of the second-
chance test. The probe shall be removed from the tailpipe or the sample
pump turned off if necessary to reduce analyzer fouling during the restart
procedure.
b) General Requirements
1) Initial tests (i.e., those occurring for the first time in a vehicle's
scheduled test cycle) shall be performed without repair or adjustment
at the inspection facility, prior to the test.
2) Tests involving measurement shall be performed with Agency-approved
equipment that has been calibrated according to the quality assurance
procedures contained in Section 276.602. [SECTION 276.602 IS NOT
AVAILABLE AT THIS TIME]
3) Vehicles with apparent leaks of fuel, oil, coolant, or exhaust shall
not be tested.
4) Vehicles with missing tail pipe sections which would prohibit full
insertion of an analyzer probe shall not be tested.
5) Vehicles shall be tested with their engines and emissions control
systems at normal operating temperatures and not overheating (as
indicated by gauge, temperature lamp, touch test on the radiator hose,
and/or boiling radiator).
9
<PAGE>
6) Vehicles shall be tested without any accessories in operation.
7) Vehicles shall be tested with their transmissions in neutral or park.
8) For vehicles with multiple tailpipes, separate test results from each
tailpipe shall be numerically averaged for each pollutant sampled
unless equipment capable of simultaneously sampling multiple tailpipes
is utilized.
c) General Test Requirements
1) The analysis of exhaust gas concentrations must begin ten seconds
after the applicable test mode begins.
2) Exhaust gas concentrations must be analyzed at a minimum rate of once
every 0.75 second.
3) The measured value for pass/fail determination is a simple running
average of the measurements taken over five seconds.
4) With the exception of those vehicles specified in paragraph (c)(5),
the tachometer must be attached to the vehicle in accordance with the
analyzer manufacturer's instructions.
5) Vehicles that cannot continuously meet the engine speed requirements
of paragraph (e)(1)(B) within 30 seconds of initiation of the first-
chance test shall be rejected upon verification by station supervisory
personnel, of the proper operation and placement of the tachometer. If
station supervisory personnel determine that the operation or
placement of the tachometer is faulty, immediate corrective action
shall be taken and the vehicle shall be retested in accordance with
paragraph (e).
6) If the engine speed falls outside the limits specified in (e)(1)(B),
(e)(2)(B), or (e)(2)(C), as applicable, for more than 5 seconds over
all the excursions, the mode timer resets to zero and resumes timing.
7) For vehicles whose design prevents the monitoring of the engine rpm
rate with a tachometer, the engine speed requirements of paragraphs
(e)(1)(B), (e)(2)(B), and (e)(2)(C) shall not apply. The
preconditioning mode of a second-chance idle test shall consist of
accelerating the vehicle's engine to an estimated rate of 2500 rpm
10
<PAGE>
for a period of 30 seconds prior to initiating a second-chance idle
mode test.
8) The sample probe must be inserted into the vehicle's tailpipe to a
minimum depth of 10 inches. If the vehicle's exhaust system prevents
insertion to this depth, a tailpipe extension must be used.
9) The measure concentration of CO plus CO2 must be greater than or equal
to six percent (6%) or the vehicle will be rejected.
10) Vehicles whose engine stalls at any time during the test sequence
shall be rejected.
d) Pass/Fail Determination
A pass or fail determination is made for each applicable test mode based on
a comparison of the test standards contained in 35 Ill. Adm. Code Section
240.124 with the measured value for hydrocarbons (HC) and carbon monoxide
(CO) as described in paragraph (c) of this section. A vehicle passes the
test mode if any pair of simultaneous measured values for HC and CO are
below or equal to the applicable test standards. A vehicle fails the test
mode if the values for either HC or CO, or both, in all simultaneous pairs
of values are above applicable standards.
e) Test Sequence
The steady-state idle test consists of a first-chance test and a second-
chance test. The first-chance test consists only of an idle mode. The
second-chance test consists of a preconditioning mode followed immediately
by an idle mode, and is performed only if the vehicle fails the first-
chance test.
1) First-Chance Test
A) The test timer starts when the conditions specified in paragraphs
(B) and (C) of this section are met.
B) The mode timer starts when the vehicle engine speed is between
350 and 1300 rpm. The minimum mode length is determined as
described under paragraph (e)(1)(C) of this Section. The maximum
mode length is 90 seconds elapsed time.
C) The pass/fail analysis begins after the elapsed time of ten
seconds. A pass or fail determination
11
<PAGE>
is made for the vehicle and the mode is terminated in accordance
with paragraphs (e)(1)(C)(i) through (iv) of this Section.
i) The vehicle passes the idle mode and the test
terminates on or before an elapsed time of 30 seconds,
if the measured values are less than or equal to the
applicable test standards as described in paragraph (d)
of this section.
ii) The pass/fail analysis shall continue beyond 30 seconds
as long as emission readings are declining based upon
comparison of the last 5 consecutive measured values.
The vehicle passes the idle mode and the test is
immediately terminated if, at any point between an
elapsed time of 30 seconds and 90 seconds, the measured
values are less than or equal to the applicable test
standards described in paragraph (d) of this section.
iii) The vehicle fails the first-chance test if the
provisions of paragraph (e)(1)(A), or (e)(1)(C)(i), or
(e)(1)(C)(ii) of this section are not met.
iv) The vehicle shall fail the first-chance test and the
second-chance test shall be omitted if no measured
values less than 1800 ppm HC are found by an elapsed
time of 30 seconds.
2) Second-Chance Test
A) If the vehicle fails the first-chance test, the test timer resets to
zero and a second-chance test is performed.
B) Preconditioning Mode
The mode timer starts when the engine speed is between 2200 and 2800
rpm, or between 1650 and 1950 rpm on specified vehicles equipped with
ZF 4-speed Automatic Transmissions. The mode continues for an elapsed
time of 30 seconds.
C) Idle Mode
The mode timer starts when the vehicle engine speed is between 350 and
1300 rpm. The minimum idle mode length is determined as described in
paragraph (e)(2)(D) of
12
<PAGE>
this Section. The maximum idle mode length is 60 seconds elapsed time.
D) The pass/fail analysis begins after an elapsed time of ten seconds. A
pass, fail, or rejection determination is made for the vehicle and the
idle mode is terminated in accordance with paragraphs (e)(2)(D)(i)
through (iii) of this Section.
i) The vehicle passes the idle test and the test terminates on or
before an elapsed time of 60 seconds if the measured values are
less than or equal to the applicable test standards as determined
by the procedure described in paragraph (d) of this section.
ii) The vehicle fails the idle test and the test terminates if the
provisions of paragraph (e)(2)(D)(i) are not met within an
elapsed time of 60 seconds.
13
<PAGE>
APPENDIX B: DATA PROCESSING REQUIREMENTS
GAS CAP TEST SUPPORT/REPORTING
SCIMIS II modifications will be required to adequately support gas cap pressure
testing. The System shall be modified to incorporate into each vehicle record,
the type of gas cap adapter required. The lane controller may prompt the lane
inspector, indicating the adapter required for the vehicle being tested. The
results of the pressure test may be manually entered into the system. Lane
operators shall enter fail results in cases where caps are missing.
Modifications shall be made as necessary to adequately document and report
results of gas cap tests. This shall include modifications to transaction table
records as appropriate to indicate test results and indication of the actual gas
cap adapter utilized to perform the test.
REPORTING FORMAT/MEDIA
To facilitate billing evaluation and processing, in addition to providing the
magnetic tape specified in Section 4.9.3.1., the Contractor shall provide the
Agency with System Access to the Billing File for a minimum of 15 business days
following creation of the file.
14
<PAGE>
APPENDIX C: GAS CAP PRESSURE TESTING
SUMMARY
Beginning on July 1, 1996, an evaporative system integrity test shall be
performed on all vehicles required to be equipped with evaporative controls at
the time of manufacture. The test shall consist of identification of missing,
defective or non-original (or equivalent) equipment, as well as a gas cap leak
test.
Gas cap leaks shall be determined through the measurement of leakage flow rate.
It is the intention of the Agency to develop and propose rules in early 1996 to
enable us to implement a gas cap pressure test.
The Agency assumes that to the extent possible, the Contractor will conduct the
gas cap test concurrently with the exhaust emission test. This will require the
removal of the cap prior to the start of the emissions test and the fitting of a
leak-tight cap on the filler neck to ensure that an "open" evaporative system
will not adversely impact exhaust results (vehicles falsely passing the exhaust
test due to a vacuum leak).
TEST PROCEDURES
1.0 LEAK FLOW GAS CAP TEST PROCEDURE
1) The gas cap shall be removed from the vehicle and connected to the cap
tester utilizing the adapter/fitting applicable to the vehicle being
tested. The gas cap shall be properly tightened onto the tester.
2) The gas cap tester shall be pressurized to 30 + or - 1 inches of water.
After pressure stability is achieved, the inspector shall initiate the test.
The tester shall measure the gas cap leak flow rate and simultaneously
compare this flow rate against the flow rate through the calibrated orifice.
3) At the conclusion of the test the gas cap shall be removed from the cap
tester and the gas cap shall be replaced on the vehicle, ensuring that it
is properly tightened.
1.1 PASS/FAIL DETERMINATION
1) If the gas cap is missing, or the cap will not fit on the applicable
adapter, the vehicle shall fail the gas cap integrity test.
2) If, during the course of the test, the gas cap flow rate exceeds the flow
rate through the calibrated orifice, the vehicle shall fail the gas cap
integrity test.
3) Gas caps failing the initial pressure test shall immediately receive a
second-chance test after verifying that the
15
<PAGE>
correct adapter is being used and that the gas cap is properly affixed.
1.2 RESULTS REPORTING
1) The results of pressure leak tests shall be collected and entered into the
test record.
2) Results for vehicles failing due to missing or mismatched gas caps shall be
collected and recorded on the test record.
3) The following results shall be recorded on the test record and printed on
the Vehicle Inspection Report provided to the motorist:
a) overall pass/fail result (pass/fail/inapplicable);
b) If tested, the adapter type used; and,
c) reason code for failing vehicles:
i) "M" if missing;
ii) "W" if wrong (mismatched); or,
iii) "L" if leaking (in excess of flow standard).
2.0 GAS CAP PRESSURE TEST STANDARDS
SECTION 240.172 EVAPORATIVE SYSTEM PRESSURE TEST STANDARDS
a) The vehicle shall be inspected utilizing an evaporative system pressure
test adopted by the Agency.
b) The vehicle shall fail the evaporative system pressure test if one or more
of the following occurs:
1) the gas cap is missing; or,
2) the gas cap is determined to be improper for the vehicle being tested.
c) The vehicle shall fail the evaporative system pressure test if the leakage
flow rate of gas cap exceeds 60 cc/min. @ 30 in. of water pressure, as
determined by comparing the leakage flow rate with the flow rate through a
calibrated master orifice of 0.0047 inches.
Note: The 60 cc/min. flow rate std. was proposed by Stant Inc. and is based
upon a 6X factoring of the 10 cc/min. production line std. As
discussed during the November 1995 I/M Test Committee meeting, this
flow rate std. is significantly more stringent than the 6 in. of water
pressure decay standard. At this time, little comparative test data
exists to determine the impact of the difference on failure rate and
pressure test credit. Conceptually, the 60 cc/min. std. should be
worth more than the 6 in. decay std. (assuming the more stringent
standard results in a significantly higher failure rate). This should
be verified prior to setting a standard.
16
<PAGE>
3.0 DEVELOPMENT TESTING
The Contractor shall conduct leak rate tests in early 1996 using testers set up
to identify different leak rates (e.g. 60, 100, 200, etc.). It is recommended
that this "developmental" testing be done on approximately 1000 vehicles for
each leak rate chosen. This testing program would also determine the rate of
missing and/or unmatched caps. No vehicles would be failed during this initial
period.
17
<PAGE>
ENVIROTEST SYSTEMS CORP.
EXHIBIT 11 - STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(Amounts in thousands, except per share amounts)
Earnings (loss) per share are computed using the weighted average number of
shares outstanding plus incremental shares issuable upon exercise of
outstanding options and warrants using the treasury stock method.
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
March 31, March 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME (LOSS)
Net Income (loss) $(16,415) $(1,837) $(10,827) $ (2,048)
--------- -------- --------- ---------
--------- -------- --------- ---------
EARNINGS (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE (b)
Weighted average number of shares outstanding 16,571 15,972 16,485 15,972
Net effect of dilutive stock options based on
the treasury method using the average
market price of common stock (a) 703 1,319 784 1,341
--------- -------- --------- -------
Common stock and common stock equivalents 17,274 17,291 17,269 17,313
--------- -------- --------- -------
--------- -------- --------- -------
Earnings (loss) per common and common
equivalent share (b) $ (0.95) $ (0.11) $ (0.63) $ (0.12)
--------- -------- --------- --------
--------- -------- --------- --------
EARNINGS (LOSS) PER COMMON SHARE-
ASSUMING FULL DILUTION (b)
Weighted average number of shares outstanding $ 16,571 $ 15,972 $ 16,485 $15,972
Net effect of dilutive stock options based on
the treasury method using the end of
period market price of common, if
higher than average (a) 703 1,319 784 1,341
--------- -------- --------- --------
Common stock and common stock equivalents 17,274 17,291 17,269 17,313
--------- -------- --------- --------
--------- -------- --------- --------
Earnings (loss) per common and common
equivalent share (b) $ (0.95) $ (0.11) $ (0.63) $ (0.12)
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
Notes:
(a) Common stock equivalents represent stock options and warrants.
(b) These calculations for the three and six months ended March 31, 1996 are
submitted in accordance with Regulation S-K Item 601(b)(11) although it is
contrary to paragraph 40 of APB Opinion No. 15 because it
produces an anti-dilutive result.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ENVIROTEST SYSTEMS CORP FORM 10-Q DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 31,695
<SECURITIES> 0
<RECEIVABLES> 46,665
<ALLOWANCES> 405
<INVENTORY> 0
<CURRENT-ASSETS> 84,008
<PP&E> 191,021
<DEPRECIATION> 32,006
<TOTAL-ASSETS> 484,223
<CURRENT-LIABILITIES> 41,332
<BONDS> 384,697
0
0
<COMMON> 166
<OTHER-SE> 27,165
<TOTAL-LIABILITY-AND-EQUITY> 484,223
<SALES> 58,208
<TOTAL-REVENUES> 58,208
<CGS> 50,104
<TOTAL-COSTS> 50,104
<OTHER-EXPENSES> (4,951)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,392
<INCOME-PRETAX> (5,337)
<INCOME-TAX> 5,490
<INCOME-CONTINUING> (10,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,827)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
