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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
Commission file number 0-21454
ENVIROTEST SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
Delaware 06-0914220
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Commission file numbers 33-57384-01 and 33-75406-01
ENVIROTEST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-2680300
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
246 Sobrante Way, Sunnyvale, California 94086
(Address of registrants' principal (zip code)
executive offices)
Registrants' telephone number, including area code: (408) 774-6300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Class A Common Stock, $.01 par value per share, of Envirotest Systems Corp.
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrants' knowledge, in any definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. / /
As of November 30, 1996, 13,204,396 shares of Envirotest Systems Corp.
Class A Common Stock were outstanding, and the aggregate market value (based
upon the last reported sale price on the NASDAQ National Market System on
December 22, 1996) of the shares of Class A Common Stock held by
non-affiliates was approximately $17,989,283 (for purposes of calculating
the preceding amount only, all directors and executive officers of the
registrant are assumed to be affiliates). As of such date, 1,389,749 shares
of Envirotest Systems Corp. Class B Common Stock were outstanding, all of
which were held by affiliates, and 2,026,111 shares of Envirotest Systems
Corp. Class C Common Stock (which do not have ordinary voting rights) were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Envirotest Systems Corp.'s definitive Proxy Statement for
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the 1997 annual meeting of its stockholders are incorporated by reference
into Part III of this report, and portions of Envirotest Systems Corp.'s
Registration Statement No. 33-57384 filed on January 25, 1993, Amendments No.
1, No. 2 and No. 3 thereto, filed on March 12, 1993, March 25, 1993 and March
30, 1993, Amendment No. 2 to Envirotest Systems Corp.'s Registration
Statement No. 33-75406 filed on March 8, 1994, Form 10-K for the year ended
September 30, 1993, 1994 and 1995 and Forms 10-Q for the quarterly periods
ended December 31, 1994, and 1995, March 31, 1993, 1994, 1995 and 1996 and
June 30, 1994, 1995 and 1996 are incorporated by reference into Part IV of
this report.
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TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
PART I
1. Business ............................................................. 1
2. Properties ........................................................... 29
3. Legal Proceedings .................................................... 30
4. Submission of Matters to a Vote of
Security Holders ................................................... 32
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters .................................... 33
6. Selected Financial Data .............................................. 34
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 37
8. Financial Statements and Supplementary Data .......................... 42
9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure ............................. 77
PART III
10. Directors and Executive Officers of the Registrant.................... 78
11. Executive Compensation ............................................... 78
12. Security Ownership of Certain Beneficial
Owners and Management .............................................. 78
13. Certain Relationships and Related Transactions ....................... 78
PART IV
14. Exhibits, Financial Statement Schedules, and
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Reports on Form 8-K ................................................ 78
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PART I
ITEM 1. BUSINESS
ORGANIZATION; ACQUISITION HISTORY
Envirotest Systems Corp., a Delaware Corporation was organized in 1990
for the purpose of acquiring Hamilton Test Systems, Inc. ("HTS") from United
Technologies Corporation in December 1990 . Envirotest Systems Corp.
acquired Envirotest Technologies, Inc., a Delaware corporation ("ETI"),
formerly Systems Control, Inc. ("SC"), in April 1992 from SD-Scicon Plc, a
British subsidiary of Electronic Data Systems . In March 1993, Envirotest
Systems Corp. was merged into HTS, and HTS' name was changed to "Envirotest
Systems Corp." (the "Company" or "Envirotest"). In January 1996, Envirotest
purchased the Washington State subsidiary of SC, all of SC's intellectual
property rights and an option to purchase SC's Indiana vehicle emissions
testing contract and related assets. Envirotest exercised the option in
June 1996.
The Company conducts its operations directly and through its principal
wholly owned subsidiary, ETI, and through Envirotest Wisconsin Inc. and
Systems Controls, Inc.(a Washington corporation). The Company's British
Columbia, Canada operations are conducted through a British Columbia
partnership, Ebco-Hamilton Partners ("EHP"), which is controlled by wholly
owned subsidiaries of the Company.
The Company's principal offices are located at 246 Sobrante Way,
Sunnyvale, California 94086 (telephone (408) 774-6300).
GENERAL
Envirotest is the leading provider of centralized vehicle emissions
testing programs for states and municipalities. These programs are
established in accordance with federal regulations to test motor vehicle
emissions for compliance with air pollution standards. As of December 1,
1996, the Company operated 14 of the 22 currently existing
contractor-operated centralized programs in North America, and in fiscal 1996
performed nearly 11 million of the approximately 16.6 million tests conducted
in these programs. Envirotest is the most experienced operator in the
industry, having performed more than 140 million tests since its inception in
1974. In addition, the Company is the only domestic provider of
contractor-operated centralized testing services outside the United States.
Envirotest provides governmental authorities an all-inclusive service
whereby it designs, constructs, and operates centralized vehicle emissions
programs. In a centralized program, vehicles are inspected in high volume,
test-only facilities, operated either by a private contractor or a
governmental authority. A program network generally consists of 6 or more
facilities, each of which contains multiple testing lanes. In a
decentralized program, vehicles are tested at numerous privately-owned
facilities, such as gas stations and repair shops, which typically also
perform emissions repair work. Some states have considered programs that
contain elements of both a centralized and decentralized program.
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The Company's services include: designing a network that provides
convenience to motorists; identifying and procuring adequate inspection
sites; constructing emissions facilities with multiple test lanes; designing
and installing a vehicle emissions inspection system and computer network to
collect and process emissions testing data; and managing and operating the
inspection program using sophisticated software and equipment developed by
the Company.
The Company enters into exclusive, long-term contracts that typically
have an initial term of five to ten years. These contracts may contain
options permitting the governmental authority to extend the contract on
similar terms and conditions for one or more extension periods of one to
three years each.
Envirotest believes that it will continue to be a leading provider of
centralized vehicle testing services because of the experience of its
management and its advanced software and systems integration capabilities.
SIGNIFICANT DEVELOPMENTS
On December 11, 1996, the Company sold its right to receive the two
remaining installment payments totaling $80 million in principal amount (the
"Receivable Assets") due under the General Release and Settlement Agreement
dated December 15, 1995 ("Settlement Agreement"), with the Commonwealth of
Pennsylvania for approximately $79,405,000. The Company retained the right
to receive accrued interest due on the date of closing of approximately
$1,749,000. The interest will be paid on July 31, 1997.
The transaction was effected through a sale of the Receivables Assets
from Envirotest Partners, a Pennsylvania general partnership owned by
Envirotest and ETI, to a newly formed wholly owned subsidiary of the Company,
ES Funding Corp. ("Funding"). Funding, in turn, transferred the Receivables
Assets to an affiliate of a Pennsylvania bank. Funding and Partners provided
certain representations in connection with the transaction, including
representations as to enforceability of the Settlement Agreement against the
Commonwealth, and agreed to repurchase the Receivables Assets if Partners
fails to comply with its obligations under the Settlement Agreement.
The Settlement Agreement requires the Company to use its best efforts to
dispose of the assets it acquired to perform emissions testing services in
Pennsylvania. If the net proceeds received by the Company from the sale of
the assets is less than $55 million, Pennsylvania is obligated to pay the
Company fifty percent of the difference up to $11 million no later than July
31, 1998. The amount of this contingent payment was reduced from $15 million
in an amendment to the Settlement Agreement that permitted the Company to
complete the sale transaction. The Company has retained its right to receive
proceeds upon the sale of the assets.
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In November of 1996, the Company was awarded a contract by the State of
Connecticut to assume responsibility for performing safety inspections of all
vehicles registered in the state for the first time and all vehicles 10 years
old or older undergoing a change of ownership. Under Connecticut law,
motorists are required to obtain a safety inspection of their vehicles upon a
change of ownership. Safety inspections will be performed at 11 of the
Company's stations in 15 specially equipped lanes. Approximately 160,000
vehicles are expected to receive safety inspections each year providing
annual revenues of approximately $2.1 million to the Company. The program
will commence in early 1997.
The Company signed a purchase agreement, dated August 26, 1996 (the
"Agreement"), with MARTA Technologies, Inc. ("MARTA"), a wholly-owned
subsidiary of The Allen Group Inc., to acquire the centralized emissions
testing programs operated by MARTA in the State of Maryland, Jacksonville,
Florida and Cincinnati, Ohio. The current term of the Maryland program
extends through April 1998, during which it is expected to generate revenues
of approximately $9 million. The Jacksonville program extends through March
1998 and is expected to generate annual revenues of $3 million. Effective
August 21, 1996, the Ohio Environmental Protection Agency suspended MARTA's
Cincinnati program, which is scheduled to run through 2005. The suspension
was subsequently found invalid by a court, and resolution of the matter is
pending. Consummation of the transaction contemplated by the Agreement is
subject to completion of due diligence and board approvals.
The Company purchased the Washington State subsidiary of SC, and all of
SC's intellectual property rights on January 30, 1996. The subsidiary has
operated the Washington State vehicle emissions testing program since 1982
and currently performs approximately 1.1 million tests annually. In June
1996, the Company acquired SC's contract with the State of Indiana to perform
vehicle emissions testing services and related program assets. The Indiana
contract has a ten-year term and is scheduled to test approximately 260,000
vehicles annually, starting in January 1997. In addition, all of the key
executives of SC have joined the Company including F. Robert Miller, formerly
President and Chief Executive Officer of SC, who has become President and
Chief Executive Officer of the Company.
INDUSTRY
HISTORY. The vehicle emissions testing industry developed in response
to the Clean Air Act of 1970 (the "Clean Air Act") and subsequent amendments
thereto. In 1974, Arizona became the first state to adopt a
contractor-operated centralized program when it awarded an emissions testing
contract to Envirotest. The Clean Air Act Amendments of 1977 required, for
the first time, the implementation of rudimentary inspection and maintenance
("I/M") programs in certain metropolitan areas and was responsible for the
implementation of I/M programs by the District of Columbia and most of the 35
states that currently have such programs. The 1990 Amendments of the Clean
Air Act classified U.S. metropolitan areas by the degree of air pollution and
required the U.S. Environmental Protection Agency ("EPA") to review and
revise its regulations on I/M
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programs. On November 5, 1992, the EPA adopted regulations (the
"Regulations") that required 179 metropolitan areas in 38 states and the
District of Columbia, with a total of approximately 87 million vehicles, to
have either a basic or enhanced I/M program in place by specified dates. The
number of areas requiring basic and enhanced I/M is continuously updated by
the EPA, and, in February 1995, the EPA published a report indicating that a
total of 179 areas required I/M, 84 areas with approximately 57 million
vehicles requiring enhanced testing programs and 95 areas with approximately
30 million vehicles requiring basic testing programs.
The initial emphasis of the Clean Air Act was to reduce air pollution by
requiring factories and other stationary sources of pollution to incorporate
anti-pollution technologies and by requiring automobile manufacturers to
equip vehicles with emissions control devices. An EPA study, however, has
found that, due to equipment deterioration and improper maintenance, an
average vehicle still emits two to four times the pollutants that it was
designed to emit. Vehicle emissions produce approximately 50% of the ozone
air pollution and nearly all of the carbon monoxide air pollution in
metropolitan areas. The EPA has estimated that enhanced I/M testing is
approximately 10 times more cost-effective in providing emission reductions
than the imposition of additional controls on stationary pollution sources,
and, as a result, has made it an integral part of the EPA's overall effort to
reduce air pollution by ensuring that vehicles meet emissions standards
throughout their useful lives.
Under the Clean Air Act as amended in 1990, and the Regulations, states
that have geographic areas with the worst nonattainment problems must adopt
I/M programs meeting at least the "low enhanced" performance standard and
whose performance, in combination with other air quality improvement programs,
will meet the overall Clean Air Act attainment requirements. This standard
establishes, among other things, the type of network and testing procedures
that must be utilized.
NETWORK TYPES. The EPA has allowed governmental authorities to determine
how best to establish and operate a network of emissions testing facilities,
with the result that two principal types of I/M programs have emerged:
centralized and decentralized. In a centralized I/M program, vehicles are
inspected in high-volume, multi-lane, highly automated test-only facilities,
operated either by private contractors or governmental authorities. These
facilities do not perform any repair work. In decentralized I/M programs,
vehicles are tested at licensed, privately owned facilities, such as gas
stations and repair shops, which typically also perform emissions repair
work. From time to time, some state officials have discussed a third type of
program (generally referred to as a "hybrid" program) containing both
centralized and decentralized components, generally requiring that a
significant percentage of the vehicle population obtain emissions testing in
test-only or centralized facilities, and allowing other vehicle owners the
option of obtaining testing at test-only facilities or at decentralized test
and repair facilities such as gas stations or repair shops.
In the preamble to the Regulations, the EPA stated that decentralized
programs, all of which currently allow emissions testing stations to also
perform repair work ("test-and-repair" programs), give rise to inherent
conflicts of interest that contribute to making them significantly less
effective
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than "test-only" programs. The only test-only programs in use are
provided through centralized networks, such as those operated by the Company.
In the past, the design of I/M programs, and the need for I/M testing
services, was largely driven by statutory and regulatory requirements that
dictated when and where a particular type of I/M program had to be
implemented. The Clean Air Act and the Regulations continue to require basic
and enhanced I/M programs in certain areas, and also establish the type of
network and testing procedures that must be adopted by affected states. The
existing statutory and regulatory requirements have, however, been
supplemented by additional legislative and regulatory enactments that give
states more flexibility in designing their I/M programs.
Today, the impetus for states to adopt centralized, test-only I/M
programs, utilizing the most sophisticated testing methods, is as much the
need to obtain the significant emissions reductions necessary for many states
to meet the health-based clean air standards established by EPA, as it is
specific statutory or regulatory I/M-related requirements. In general,
states may receive significantly greater emission reduction credits (used by
EPA to measure the efficacy of a particular pollution control mechanism
adopted by a state to achieve the applicable standards) for the adoption of a
centralized, test-only I/M system utilizing the most rigorous testing methods.
In November of 1996, EPA announced plans to change the current health
based standards for ozone and particulate pollution to better protect public
health. The proposed new standards would result in a significant increase in
the number of areas that would be classified as non-attainment areas for
these two pollutants. I/M programs will likely be required in many of these
new non-attainment areas to achieve the new standards. Many of the current
non-attainment areas which were able to demonstrate attainment with the use
of a low-enhanced or basic type I/M program may now have to upgrade to the
enhanced I/M programs to meet the new standards. Therefore, the Company
believes that the size of the market opportunities for both centralized and
decentralized enhanced and basic I/M programs will increase if these new more
strict ozone and particulate national ambient air quality standards are
adopted.
CURRENT MARKET SIZE. As of February 1995 (the date of the last EPA
publication containing information on the number of I/M programs), there were
44 I/M programs in operation in 33 states and the District of Columbia,
covering a total of 142 metropolitan areas and testing a total of
approximately 75 million vehicles. Of the currently existing I/M programs,
26 are centralized programs, testing approximately 30 million vehicles on an
annual or biennial basis, and 18 are decentralized programs, testing
approximately 45 million vehicles on an annual or biennial basis. The 1990
Amendments and Regulations require that I/M programs be implemented by
January 1, 1996 in 37 additional metropolitan areas, with a total of
approximately 12 million vehicles on an annual or biennial basis. While it
is possible that certain areas with rural populations may be relieved of the
requirement to implement an I/M program, the Company believes that the states
general desire to achieve the maximum emissions reduction credits possible in
the most efficient manner will be the principal factor influencing program
design decisions in the future.
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MARKET OVERVIEW. The following table identifies, as of December 1996,
the vehicle populations that are currently being tested in a centralized or
decentralized I/M program, the provider of centralized testing services, and
the vehicle populations that are subject to the basic and enhanced (including
low enhanced) testing requirements under the Regulations.
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<TABLE>
<CAPTION>
EPA Classification
Existing Network Data Under Regulations(a)
---------------------------------------- ---------------------
Decentralized Centralized Centralized Basic Enhanced
State Program Program Provider Areas Areas
- -------- ------------- ----------- ----------- ----- --------
(# vehicles, millions) (# vehicles, millions)
<S> <C> <C> <C> <C> <C>
Alaska 0.2 0.2
Arizona (opted up
to enhanced) 1.8 Gordon-Darby, Inc. 1.8
California 17.2 7.3 9.9
Colorado 1.8 Envirotest 0.6 1.5
Connecticut 2.0 Envirotest 2.0
Delaware 0.4 State Run 0.4
Florida
Broward/Pinellas 2.2 Gordon-Darby, Inc. 2.2
Dade/Palm Beach 1.9 Envirotest 1.9
Duval (b) 0.5 Marta 0.5
Georgia 1.0 2.0
Idaho 0.1 0.1
Illinois 4.5 Envirotest 4.7
Indiana 0.5 Envirotest 0.5
Kentucky 0.5 0.2
Louisville 0.4 Gordon-Darby, Inc.
Louisiana 0.5 0.2
Maine 0.6
Maryland (b) 1.4 Marta 1.4
Massachusetts 3.9 -- 3.9
Michigan 0.6
Minnesota 0.9 Envirotest 0.9
Missouri 1.2 1.2
Nevada 0.5 0.2 0.6
New Hampshire 0.2 0.6
New Jersey (hybrid
program) 1.0 3.8 State Run 4.8
New Mexico 0.5 0.5
New York 4.4 9.9
North Carolina 1.5 1.5
Ohio 3.5
Cuyahoga County 0.8 Envirotest
Cleveland-Akron 1.0 Envirotest
Dayton-Springfield 0.6 Envirotest
Cincinnati (b) 1.1 Marta
Oregon 0.7 State Run 0.8
Pennsylvania 3.2 5.9
Rhode Island 0.6 0.7
Tennessee
Nashville 0.6 Envirotest 0.6
Memphis 0.2 City Run 0.2
Texas 6.5 3.4 3.1
Utah 0.7 0.8
Vermont 0.1
Virginia 1.0 0.6 1.2
Washington State 1.6 Envirotest 1.6
Washington, D.C. 0.3 District Run 0.3
West Virginia 0.1
Wisconsin 0.9 Envirotest 0.9
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TOTAL 46.0 28.1 30.0 57.0
</TABLE>
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(a) The EPA classifies metropolitan areas as basic or enhanced. Information
is provided by state for convenience.
(b) Envirotest has entered into a purchase agreement to acquire the right
to operate each of these programs . The purchase agreement is subject
to completion of due diligence and board approvals.
MARKET GROWTH OPPORTUNITIES. The 1990 Amendments and the Regulations
have resulted in a substantial increase in the size of the market for
contractor-operated centralized testing programs. Since November 1992, 12
states have instituted or contracted for programs involving a total of 15 new
or upgraded existing emissions testing programs, covering approximately 14.1
million vehicles. The Company believes that the most significant growth in
contractor-operated centralized
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programs will occur in metropolitan areas that are required to implement
enhanced testing, especially the 9 states, containing an estimated 47.9
million vehicles, that have not enacted legislation or final I/M regulations
in response to the Regulations, or have enacted legislation for a
contractor-operated centralized program but have not yet announced the
selection of a contractor. This belief is based upon the greater
cost-effectiveness and efficiency of centralized programs over existing
decentralized programs, and the Regulations' use of centralized programs as a
standard for testing. The EPA has estimated that the average cost of an
enhanced test in a centralized program will be substantially less than that
in a decentralized program. In addition, recent efforts to allow states
greater flexibility in designing their programs have resulted in an increased
interest in I/M program ancillary services and on-road testing as states
examine various ways to tailor programs to meet the needs of their local
interests groups and achieve more pollution credits. An example of the
developments in this area is one state that recently selected a contractor to
design, build and operate a data handling system that would connect the
participants in its decentralized program to a central data system; perform a
quality assurance and control program on its decentralized operators; perform
field audits of the participating stations; establish and conduct a public
information program; perform inspector training and station and inspector
licensing; issue waivers, exemptions and extensions to motorists; and manage
the program. All of these services have been performed by the Company either
in its centralized testing or quality assurance programs. The Company
believes that other states will consider the addition of these types of
services and features as part of their future I/M programs.
Additional growth opportunities may result from expansion of existing
centralized programs and privatization of state-run programs in enhanced
areas.
PENDING PROGRAM SELECTION
The Company is currently engaged in negotiations with the State of
Illinois to implement and operate its centralized enhanced I/M program under
a long-term contract. The Company has operated the State's basic program since
May 1986. The Company believes that the negotiations will be completed
during the first quarter of calendar 1997.
EMISSIONS TESTING CONTRACTS
The Company conducts its business under exclusive, long-term contracts
with governmental authorities. Under these contracts, the Company provides
all services needed to design, install, operate, and maintain an I/M program.
These services include: designing a network that provides convenience to
motorists; identifying and procuring adequate inspection sites; constructing
inspection facilities with multiple test lanes; designing and installing a
computer network to provide emission testing data to the appropriate
governmental authority (and, if necessary, to allow access to vehicle
registration data); and operating and maintaining the program. Envirotest's
I/M contracts have an initial term that generally ranges from five to ten
years, and may contain options
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permitting the governmental authority to extend the contract under similar
terms and conditions for one or more extension periods of up to two year
periods under one contract (which can be renewed). A governmental authority
may negotiate renewals or extensions on terms different from those in the
initial contract or expand the program to include additional counties or
services.
The table below describes certain contract terms, operating data, and
fiscal 1996 revenue data for each of the Company's existing emissions
programs.
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<CAPTION>
Commencement Commencement of Stated Current Number of Number of Fiscal 1996
of Initial Current Expiration of Extension Facilities/ Paid Tests in Contract
State/Jurisdiction Contract Contract Current Term Options Lanes Fiscal 1996 Revenues
- ------------------ ------------ ---------------- ------------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Colorado 1/1/95 1/1/95 12/31/01 None 15/77 855,000 $19,878,000
Connecticut 1/1/83 1/1/95 6/30/02 None 25/87 1,212,290 16,472,000
Florida
- Dade County 4/1/91 4/1/91 3/31/98 Two 1-year 7/31 1,279,000 10,524,000
- Palm Beach County 4/1/91 4/1/91 3/31/98 Two 1-year 5/24 697,000 5,934,000
Illinois 5/1/86 1/1/96 6/30/97 None 22/92 1,552,247 12,013,000
Minnesota 7/1/91 7/1/91 6/30/98 None 9/38 961,625 7,407,000
Ohio 1/1/91 1/1/96 12/31/05 None 31/124 1,166,287 18,625,000
Tennessee 1/1/91 1/1/96 12/31/98 None 11/24 701,717 4,210,000
Wisconsin 4/1/84 12/1/95 11/30/02 None 12/44 744,124 8,682,000
Washington 1/2/82 6/1/93 12/31/99 None 20/84 776,852 6,157,000
British Columbia 9/1/92 9/1/92 8/31/99 None 12/42 646,752 10,147,000
------- ---------- ------------
Totals 169/667 10,592,894 $120,049,000
</TABLE>
In December of 1996, the Company was notified that it has been selected
by the City of Anchorage, Alaska to operate its decentralized I/M program
quality assurance and refuse services contract for 1997. This contract is
valued at approximately $270,000.
In November 1996, the Company was awarded a contract by the State of
Connecticut to assume responsibility for performing safety inspections of all
vehicles registered in the state for the first time and all vehicles 10 years
old or older undergoing a change of ownership. Under Connecticut law,
motorists are required to obtain a safety inspection of their vehicles upon a
change of ownership. Safety inspections will be performed at 11 of the
Company's stations in 15 specially equipped lanes. Approximately 160,000
vehicles are expected to receive safety inspections each year providing
annual revenues of $2.1 million to the Company. The program will commence in
early 1997.
For the fiscal year ended September 30, 1996, approximately 96% of the
Company's contract revenues were derived from its 11 emissions testing
contracts with governmental authorities. The Company's five largest
contracts generated approximately 62% of its total contract revenues during
the period, with Colorado accounting for 16%, Ohio for 15%, Connecticut for
13%, Illinois for 10%, and Dade County, Florida for 8%. The termination or
failure to renew any of the Company's significant emissions testing contracts
could have a material adverse effect on the
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Company's financial condition, business, or prospects.
At September 30, 1996, the Company had a revenue backlog of
approximately $660 million for its contracts which extend through 2006,
compared to approximately $724 million at September 30, 1995. Approximately
$140 million of the backlog is expected to be realized during fiscal 1997.
The Company's revenue backlog per contract is calculated by multiplying
(i) the average annual test volume, (ii) the fee per vehicle tested, and
(iii) the remaining number of years in the contract term, excluding optional
extension periods. No assurances can be given that the Company will be able
to fully realize all of its revenue backlog.
The Company believes that, as the incumbent operator in its existing
programs, it generally has a competitive advantage when the programs are
rebid, primarily because the Company has already incurred the costs of
establishing the program network and has gained valuable experience in
operating the program. Each of the Company's emission testing contracts that
allowed for renewal or extension (and as to which the initial term expired)
has been renewed or extended beyond its initial term. There can be no
assurance, however, that existing options to extend contract terms will be
exercised, or that the Company will be awarded a new contract when its
existing I/M contracts are rebid.
The Company's contracts generally set the fee the Company will receive
for each vehicle tested, which is established at the time the contract is
awarded. The Company's fee is based on a number of factors, including the
type of test performed under the program, the vehicle population of a test
area, the number of test lanes installed, and the cost of labor and real
estate. The governmental authority sets the frequency at which vehicles must
be tested, typically annually or biennially, and imposes penalties on
motorists for noncompliance, usually denial or suspension of vehicle
registration. A governmental entity may, during the term of a contract,
request that the Company change the scope of work specified in the contract.
These changes may include an expansion of the geographic area covered by the
contract or program enhancements, and generally result in the negotiation of
an additional fee to be paid to the Company.
Under most of the Company's contracts, the governmental authority has the
right, and in some cases may be obligated, to purchase the Company's program
facilities upon termination of the contract, at a price generally determined
by applying specified criteria set forth in the contract. This price is
usually based on fair market value or book value of, or actual cost to the
Company for, the program sites and facilities, and the Company believes that
such prices would provide the Company adequate consideration for the value of
the assets purchased. The Company's contracts also permit the governmental
authority to terminate the contract for cause, generally after specified
grace periods. Most of these contracts also expressly provide for
termination if the legislation authorizing the I/M program is repealed or if
sufficient funds for the program are not appropriated by the relevant
governmental authority. More than half of the Company's contracts also allow
the
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governmental authority to terminate the contract without cause, upon giving
advance written notice of not less than 30 days. The Company believes that
it is generally entitled, either under the express terms of the contract or
under applicable law, to equitable or reasonable compensation for certain
costs associated with the termination of the contract without cause.
In addition, under most of the Company's I/M contracts, the Company is
required to pay liquidated damages as a penalty for failure to meet specified
start-up dates or performance requirements, in many cases after a specified
grace period. Liquidated damages provisions are customary in emissions
testing contracts. Liquidated damages provisions require payments of up to
$10,000 a day for late system start-up, up to $5,000 per day for inaccurate
reports submitted by the Company, up to ten percent of the fee due to the
Company for the tests performed for submitting incomplete, incorrect, or
illegible reports, or up to $10,000 per day for failing to allow access to
the Company's program facility or emissions testing data. At least one
contract requires the Company to pay the state liquidated damages in the
amount of $1.0 million if the contract is terminated for cause. The Company
is also required to post performance bonds once the contract is awarded.
Those bonds, which range in amount from $100,000 to $1,500,000, protect the
governmental authority for the cost of replacing the existing operator if the
governmental authority terminates the contract for cause prior to expiration.
OTHER I/M PROGRAM CONTRACTS
QUALITY ASSURANCE SERVICES. Envirotest has provided quality assurance
services in the largest and most comprehensive decentralized test-and-repair
system in the United States. Under the contract, the Company employed more
than 15 inspectors to perform trimester audits at the more than 8,700 "smog"
stations. During the audit, the inspectors ensured that the equipment was
properly calibrated, the appropriate testing procedures followed, and the
required paperwork completed. The Company also certified testing personnel
and maintained a current list of the identity and station affiliation of
licensed mechanics. The contract commenced in July 1990 and ended at the end
of September 1996.
REFEREE SERVICES. The Company has a contract with the Municipality of
Anchorage to provide referee services. Under the referee program, the
Company resolves disputes between motorists and private garages, which
conduct emissions tests for the Municipality. This contract commenced in
January 1992, and has been renewed through December 1997.
REMOTE SENSING TECHNOLOGY. In July 1995, the Company's wholly-owned
subsidiary, Remote Sensing Technology, Inc. ("RST") entered into a three year
contract with the State of California to monitor vehicle emissions. RST uses
high speed, high resolution video camera technology and automatic license
plate recognition software to record emissions levels and vehicle
identification information on a color video image of passing vehicles without
the need to stop the vehicles. This technology is designed to measure, from
a road-side location, vehicle emissions from as many as 1,000 vehicles per
hour, and will supplement regular test lane programs. There
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has been increasing interest in this technology, and in the past year RST has
signed contracts to perform pilot programs in New York, Texas and Virginia.
CONTRACT AWARD PROCESS
PRE-BID MARKETING. The Company considers its participation in the
legislative and regulatory authorization process for emission testing
programs to be an important initial step in marketing its services. To
coordinate this effort, the Company's marketing staff divides the United
States into the Northeast, Midwest, Southeast and Western regions. Each
regional manager reports to Envirotest's Vice President of Marketing and is
responsible for monitoring the authorization process in each of the states
and municipalities within a particular region. With the help of legislative
consultants, the Company's marketing staff educates states and municipalities
on the environmental and operational benefits associated with
contractor-operated centralized programs, and attempts to build support for
adoption of such a program among environmental and health organizations as
well as other interested parties that might benefit from implementation of
the most effective I/M program. Once legislation authorizing a centralized
contractor-operated program is enacted, interested parties (including the
Company and its competitors) are often asked to assist the appropriate
governmental authority in drafting the technical aspects of a bid request.
This effort often includes reviewing bid criteria and recommending specified
test programs. Once drafted, the bid request is typically revised several
times as a result of input provided by potential bidders and other interested
members of the public. Generally, the bid request establishes several
convenience factors such as the maximum average waiting time and driving
distance to a testing station, and specifies the technical requirements of
the program.
BID REQUESTS. Typically, bid requests are solicited through either a
"request for proposals" ("RFP") or an "invitation to bid" ("ITB"). In the
more commonly used RFP process, bids are evaluated on the following criteria:
(i) the operating experience, reputation, and financial capability of the
bidder; (ii) the bidder's ability to install and operate a technically
sophisticated testing system in terms of both hardware and software;
(iii) the bidder's ability to integrate testing results with vehicle
registration information in state computer data systems; (iv) the bidder's
ability to provide additional services (such as safety inspections, enhanced
I/M diagnostic tests, and mobile testing); (v) the bidder's ability to meet
specified performance requirements; and (vi) price. Because several factors
are considered in the RFP process, the contract is not necessarily awarded to
the lowest qualified bidder. In the ITB process, the governmental authority
generally conducts a limited review of a bid to determine if it meets a
minimally acceptable technical standard, and generally awards the contract to
the lowest qualified bidder. To date, the Company knows of only four states
that have conducted bids through an ITB process, two of which awarded a
contract to the Company and a third was acquired by the Company. Although no
assurance can be given, the Company believes that the complexity of the
services required for enhanced programs under the Regulations generally will
discourage the use of ITBs in enhanced areas in the future.
BID PREPARATION PROCESS. The Company has developed a sophisticated
network
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optimization model that it uses to design the most efficient program
network for any given region and set of program parameters, which are
detailed in the bid request. These program parameters include: (i) the
expected number of vehicles to be tested annually; (ii) the amount of time
required to conduct an emissions test; (iii) the convenience factors to be
met, such as average waiting time and maximum driving distance to a testing
location; and (iv) the vehicle density of various geographical areas in the
program region. The Company's optimization model assists the Company in
designing a network that provides the greatest convenience and highest
vehicle throughput with the fewest number of testing locations.
As a part of the process of preparing a bid, the Company identifies
particular real estate parcels in a region that meet the criteria contained
in the network optimization model. The Company may secure options prior to
submitting its bid on certain parcels of real estate that it considers to be
important to the construction of an efficient program. The Company has also
developed a sophisticated costing model, which assists the Company in
predicting the engineering, development, construction, and operating costs of
a proposed program. In utilizing the costing model, the Company takes into
account the real estate, construction, labor, equipment, and other costs
which may be particular to a specific geographic region or program.
CONTRACTOR SELECTION. After bid proposals have been received, the
governmental authority will often invite several candidates to make oral
presentations discussing their proposals. The governmental authority then
selects one contractor (the "selected contractor"), and begins negotiating a
contract with respect to the program, usually after a public announcement of
the selection. The principal contract terms are contained in or derived from
the RFP and the proposal submitted by the bidder. The Company has entered
into all such contracts on terms substantially similar to those contained in
its bid, including a test fee no lower than that contained in the bid. There
can be no assurance, however, that the Company will enter into a contract
after becoming the selected contractor with respect to any program.
PROGRAM IMPLEMENTATION. Once the Company and the governmental authority
enter into a contract, the Company begins the process of purchasing or
leasing real estate, constructing the program facilities, and developing and
installing the necessary hardware and software. This process generally takes
six months to two years to complete, depending on the size of the network.
Approximately six months prior to the anticipated commencement of testing,
the Company begins a media campaign to educate the public about the new
program. At the same time, the Company will also begin to hire and train its
workers. Each program is implemented by a start-up team consisting of a
program manager, who is responsible for communicating with the governmental
authority and for managing the Company's operations under the contract,
station managers, who are responsible for the individual operation of each
station, and other support staff. Once implemented, the operation of the
program is also monitored by the Company's senior management on an ongoing
basis.
During the contract term, the Company discusses with the governmental
authority the
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exercise of extension options, if any, or the renewal of the
contract. Depending upon the program's enabling legislation, the
governmental authority may either extend the contract or commence a new
competitive bidding process.
SOFTWARE AND RELATED TESTING EQUIPMENT
The Company has developed sophisticated computer software and hardware
that is essential to the efficient operation of its I/M program facilities.
Central mainframe computers and various peripheral devices located at the
Company's program headquarters monitor each of the Company's inspection lanes
and process and permanently store complete vehicle test histories.
SOFTWARE. The Company believes that its ability to develop
program-specific software for the essential operations of a program are
important to the efficient operation of its testing facilities. The Company
has devoted significant efforts to its development of software systems, which
enable it to conduct highly automated tests and to achieve high throughput
rates. The Company's software has allowed it to automate most of the
important functions of the testing process, including setting the appropriate
emissions standards against which vehicles are tested (these standards vary
by manufacturer, model, and year). The Company's lane operators are prompted
with step-by-step instructions for performing the tests and processing the
results. The Company's expertise in this area is utilized to develop new
software systems for its enhanced programs.
The Company has also developed a system that provides the inspector with
a computer-generated image of the particular vehicle's engine. This image
highlights those areas where pollution control devices are installed in order
to facilitate the inspection of these devices. The system is highly
automated in order to minimize operator input error and can be easily
upgraded to include new operational test standards and procedures.
TESTING EQUIPMENT. Envirotest's computer-managed inspection systems
control the automated inspection of a motor vehicle, based upon identifying
characteristics such as make, model, year, and engine size. The inspection
process is usually divided into multiple test positions that are designed for
specialized functions and are serviced by computers, specialized test
equipment, and associated applications software. The Company also utilizes a
variety of data entry devices such as optical-code and bar-code readers, and
various test equipment such as dynamometers and emissions measurement
systems. The Company chooses from a number of equipment suppliers to meet
the requirements of a specific system design, depending on applicable
specifications and pricing.
Specialized hardware, software and engineering are combined to provide a
highly automated inspection system with a design and operational emphasis on
test data integrity and high-throughput operation. The Company acts as a
systems integrator and does not manufacture any hardware. However,
specialized hardware is designed and engineered as needed.
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ADDITIONAL GROWTH OPPORTUNITIES
The Company offers a variety of program enhancements, including on-road
testing, safety inspection, and vehicle registration services, although
presently there is only a limited market for these services. These program
enhancements offer governmental authorities and motorists the convenience of
multiple vehicle certification services at a single location. Once its
network of emissions testing facilities are in place, the Company is able to
offer these additional services for an additional fee without incurring
significant incremental capital expenditures. The Company anticipates that
the privatization of services traditionally provided by governmental
authorities will increase the market for these services.
ANCILLARY SERVICES. Recent efforts to allow states greater flexibility
in designing their programs has resulted in an increased interest in I/M
program ancillary services and on-road testing as states examine various ways
to add features to their programs and achieve more pollution credits. One
state has recently selected a contractor to design, build and operate a data
handling system that would connect the participants in its decentralized
program to a central data system; perform a quality assurance and control
program on its decentralized operators; perform field audits of the
participating stations; establish and conduct a public information program;
perform inspector training and station and inspector licensing; issue
waivers, exemptions and extensions to motorists; and manage the program. All
of these services are performed by the Company either in its centralized
testing or in quality assurance programs previously operated by the Company.
The Company believes there will be a desire on the part of other states to
consider these types of services and features as part of their I/M program.
ON-ROAD EMISSIONS TESTING: REMOTE SENSING DEVICES. The Regulations
require that programs in enhanced areas conduct on-road emissions tests,
using either remote sensing devices or roadside pullovers, to evaluate the
emissions of at least 0.5% of the vehicle fleet required to be tested or
20,000 vehicles, whichever is less. On-road emissions testing randomly tests
vehicles for compliance with emissions requirements, principally to deter
motorists from tampering with emissions control devices after passing the
mandatory test. The use of the remote sensing device is substantially less
expensive and less disruptive to the consumer than roadside pullovers. The
statutory timetable for implementation of on-road testing is the same as that
for implementation of enhanced I/M programs.
In 1991, Envirotest entered into a Development and Exclusive License
Agreement (the "License Agreement") with the University of Denver and two
University of Denver research scientists pursuant to which the Company
acquired the exclusive right to manufacture and market a remote sensing
device system ("RSD") used to monitor the carbon monoxide, carbon dioxide,
and hydrocarbons emitted from a moving vehicle. The RSD is designed to
measure from a roadside location vehicle emissions from as many as 1,000
vehicles per hour, and photographs the subject vehicle to record its license
plate number. RSD technology is intended to supplement, and not replace,
regular test lane programs, since it is only capable of identifying gross
tailpipe emitters.
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The Company is aware of at least one competitor that currently has in
development a product similar to RSD.
The Company is currently expanding its initial marketing of its RSD
technology, and signed contracts during fiscal 1996 to perform pilot study
programs in New York, Texas and Virginia. The system has been tested
successfully by a number of independent research scientists who have
concluded that it accurately and reliably detects emissions violations. In
addition, the Company is developing several testing enhancements that could
contribute to the commercial utility of the RSD system, some of which are
subject to pending patent applications. Also, the Company has conducted a
review of the fundamental technology of the RSD system and filed for patent
applications or protections that it believes will enhance its competitive
position.
In 1996, EPA issued draft guidance that provides for the possibility of
receiving substantial additional emission reduction credits for those states
that choose to implement significant remote sensing programs covering large
percentages of eligible vehicles. EPA is currently in the process of working
with interested states to help them translate this draft guidance into
specific RSD programs. The Company believes that the results of this effort,
as well as any additional credits that the EPA may assign to utilization of
this technology, will be the principal factors in determining the market for
remote sensing. The Company cannot predict the extent to which the EPA will
assign credits to remote sensing technology or the ultimate size of the
market for this technology.
The Company also believes that the EPA's policy of allowing states
greater flexibility in designing their I/M programs will result in increased
interest in the use of remote sensing technology.
DECENTRALIZED SERVICE PROVIDER. Recent changes to I/M program
legislation have resulted in increased interest in hybrid programs by the
states. Some of the concepts discussed by certain states would require that
vehicles with certain model years be directed to test-only stations, and that
those with different model years be allowed to go to decentralized test and
repair facilities which would be required to purchase new equipment and
submit to increased oversight on the part of the state. The Company has
considered entering the decentralized provider market. This could take any
one of several different forms, including forming a relationship with a third
party having a significant real estate presence in one or more jurisdictions
and operations that attract a significant number of vehicles. Because of its
experience in the vehicle testing business and its technological expertise,
the Company believes that it will have meaningful opportunities in the
decentralized market if it chooses to explore them.
SAFETY INSPECTION SERVICES. The Company believes it is a leader in
safety inspection technology, and currently offers fully-automated safety
inspection services at its testing facilities in Connecticut, and Florida.
The Company has recently signed a contract with the State of Connecticut
significantly expanding its safety inspection services in the State to an
estimated
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160,000 vehicles annually. In addition, the Company has designed
and currently maintains a state-of-the-art turnkey facility for inspection of
New York City taxicabs and limousines. The Company also inspects the taxicab
fleet in the City of Miami on behalf of Dade County. The Company believes
that its existing centralized testing infrastructure, as well as its
expertise in safety inspection testing equipment and procedures put it in a
favorable competitive position if centralized safety inspections are mandated
in the future in states in which it conducts centralized testing. The
National Highway Transportation Safety Administration has stated that it
favors the adoption of periodic safety inspections programs. The recent
award by Connecticut of a safety inspection contract to the Company
demonstrates growing interest on the part of states to be able to provide
their residents with the convenience of safety and emission testing services
in one location.
VEHICLE REGISTRATION SERVICES. The Company has the capability to offer
the convenience of vehicle registration during an emissions testing visit
through the use of its internally-developed software packages to access motor
vehicle records. Wisconsin and certain other states required bidders for
their I/M programs to include a proposal for conducting vehicle registration
services in the emission inspection lanes. Of these states, Wisconsin has
asked the Company to provide registration services at 12 facilities
commencing in the first quarter of calendar 1997. Although no assurances can
be given as to whether other states will include vehicle registration
services in their programs, the Company anticipates that there will be
increasing state interest in the performance of registration services in the
test lanes.
OPPORTUNITIES IN FOREIGN JURISDICTIONS. Although the Company's current
focus is on expansion in domestic markets, management believes that there may
be future opportunities for its services in foreign jurisdictions. The
Company currently operates Canada's only centralized I/M program through its
Canadian subsidiary, Ebco-Hamilton Partners. This program, which operates in
Vancouver, British Columbia, represented the most technologically advanced
emissions testing program in North America prior to the commencement of I/M
240 testing in the United States. The Company is also seeing an emerging
market for safety and BAR90 emission testing services in South and Central
America and Asia-Pacific, and is currently evaluating bid opportunities with
local joint venture partners in several of these areas. In addition, the
Company designed and sold to the Republic of Taiwan a turnkey test system
that is operated by the government to test passenger car and truck emissions.
In November 1994, the Company entered into a contract with Mexico City, Mexico
for the construction of an I/M 240 test lane. In December 1993, Envirotest
entered into a contract with the Government of India to provide four turnkey
heavy duty vehicle emissions and safety lanes in four different cities in the
country. The Company continues to actively monitor developments in mobile
source pollution regulation in foreign jurisdictions, although only a few
countries other than the United States have implemented centralized vehicle
emissions testing. There can be no assurance that foreign jurisdictions will
institute contractor-operated centralized I/M programs, or that the Company
will be awarded I/M contracts by any that may institute such programs.
INTELLECTUAL PROPERTY
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Envirotest has a number of patents, trademarks, and copyrights relating
to the computer hardware and software programs developed for use in its test
lanes. In addition, as mentioned above, the Company has entered into a
License Agreement under which it has the right to manufacture and market RSD,
and, in connection with the acquisition of SC's Washington program, purchased
the right to all intellectual property of SC. Although the Company believes
that its intellectual property rights are important to the marketing of its
services, it does not believe that they are material to its business.
PERSONNEL
As of November 30, 1996, the Company had 3,124 employees, of which
1,079 are full-time and 2,045 are part-time employees. None of the
Company's domestic employees is represented by a labor union. Of the 290
employees employed (through EHP) in the British Columbia program, 270 are
represented by a labor union under the terms of a collective bargaining
agreement that expires on August 31, 1999 (the termination date of the
Company's contract in British Columbia). The Company believes that its
employee relations are satisfactory.
COMPETITION
The market for contractor-operated I/M programs is highly competitive.
Generally, governmental entities consider a number of criteria in selecting a
contractor, including: the operating experience, reputation, and financial
capability of the bidder; the bidder's ability to install and operate a
technically sophisticated testing system in terms of both hardware and
software; the bidder's ability to integrate testing results with vehicle
registration information in state computer data systems; the bidder's ability
to provide supplemental services; the bidder's ability to meet specified
performance requirements; and price. The Company typically competes against
numerous bidders for new or renewal contracts. In addition, the Company also
potentially competes against decentralized program operators when a
governmental authority considers what type of I/M network to adopt.
The Company's principal domestic competitors include Gordon-Darby, Inc.
("Gordon-Darby") and MARTA. Gordon-Darby operates four programs, testing
approximately 3.9 million vehicles per year. MARTA has contracts to operate
three programs, testing approximately 3.0 million vehicles annually, and is
wholly owned by The Allen Group. The Company is engaged in negotiations with
MARTA to acquire its operating programs. The Company also competes with
several other domestic and foreign companies who choose to bid from time to
time on select programs. Also, the Company may compete with test providers in
decentralized markets depending upon the format of any particular program.
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GOVERNMENT REGULATION
The market for the Company's services is substantially dependent upon
state and federal legislation and regulations mandating air pollution
controls and vehicle emissions testing. The availability of new emissions
testing contracts depends largely on the manner by which governmental
authorities choose to implement emissions testing programs to comply with the
Clean Air Act and the regulations thereunder. Specifically, governmental
authorities may, with certain limitations, implement decentralized or state-
run programs, as opposed to centralized contractor-operated programs. State
legislatures and environmental protection and transportation agencies, the
Congress, and the EPA may adopt new, or modify existing laws, regulations,
and policies regarding a wide variety of matters that could, directly or
indirectly, adversely affect the emissions testing industry.
The motor vehicle I/M industry in the United States developed as a
result of the Clean Air Act of 1970, as amended, and EPA regulations
promulgated thereunder. The Clean Air Act has been the driving force behind
the Nation's effort to reduce ambient mobile and stationary source pollution.
THE CLEAN AIR ACT OF 1970. The Clean Air Act required EPA to establish
national ambient air quality standards ("NAAQS") for certain pollutants
(including ground level ozone pollution or "smog") to protect the public
health. Each state was required to develop and adopt a "State Implementation
Plan" or "SIP," to assure that all applicable NAAQS were achieved by the
statutory deadlines, and maintained thereafter. Under the Act, stationary
source polluters were required to incorporate antipollution technologies and
automobile manufacturers were required to equip motor vehicles with new
emissions control devices, in order to reduce the discharge of ambient
pollutants. Although not required by the Clean Air Act, a few states adopted
I/M programs in the early to mid- 1970s in order to ensure that vehicle
emission control devices continued properly to operate, in order to meet
applicable emissions standards. In 1974, Arizona became the first state to
adopt a contractor operated centralized program when it awarded its contract
to Hamilton Test Systems.
THE CLEAN AIR ACT AMENDMENTS OF 1977. The Clean Air Act was amended in
1977, after it had become clear that the NAAQS would not be achieved by the
statutory deadlines in all areas. These amendments required, for the first
time, the implementation of basic I/M programs in metropolitan areas that
could not demonstrate compliance with the applicable NAAQS by 1982. The 1977
Amendments required the implementation of I/M programs by the District of
Columbia and most of the 34 states that currently have such programs. States
were permitted to select the program network type, which historically have
been either centralized or decentralized, and to select the test procedures
to be utilized in the program from among three models approved by the EPA.
THE CLEAN AIR ACT AMENDMENTS OF 1990 AND REGULATIONS ADOPTED THEREUNDER.
By the
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late 1980's it again had become clear that the Clean Air Act's deadlines for
achieving NAAQS would not be met, and the Act was again amended in 1990.
These amendments emphasized the need for effective I/M programs. The 1990
amendments required the EPA to review, revise, and republish its guidance on
I/M programs. This resulted in a thorough review by the EPA of I/M testing
programs and procedures and their effectiveness in ensuring the proper,
continuous operation of vehicle emission control equipment, thus reducing
vehicle emissions. EPA promulgated final regulations governing I/M programs
on November 5, 1992 (the "Regulations").
The 1990 Amendments required, among other things, that the most
seriously polluted metropolitan areas in the United States achieve a 24%
reduction in total vehicle emissions by November 15, 1999. Many areas also
were required to adopt "enhanced" I/M programs.
Under the statute and EPA's Regulations, I/M programs are required in 179
geographic areas, 39 of which did not have any I/M program as of July 1995
(the last date for which EPA date is available). The 1990 Amendments create a
rating scale to indicate the degree of an area's failure to attain the
applicable NAAQS. For ozone, the classifications are "extreme," "severe,"
"serious," "moderate," and "marginal." Under the current ozone NAAQS, 95
non-attainment areas are required to implement programs that meet the "basic"
performance standard established by the Regulations. Programs that meet the
"enhanced" performance standard established by the Regulations will be
required in the 84 areas that: (i) have serious, severe or extreme ozone
non-attainment and urbanized area populations of 200,000 or more; (ii) have
moderate or serious carbon monoxide non-attainment with a design value
exceeding 12.7 parts per million and urbanized area populations of 200,000 or
more; and (iii) have a population of 100,000 or more in the Northeast Ozone
Transport Region (an area covering most of the northeastern United States
from Virginia to Maine).
In September 1995, the EPA adopted an amendment to the Regulations that
created a new "low enhanced" performance standard. The low enhanced standard
is intended to provide greater flexibility for those metropolitan areas that
do not need all the emissions reduction credits from a full enhanced I/M
program to meet the "reasonable further progress" and attainment
requirements. Emission reduction "credits" are used by the EPA to measure the
ability of a particular pollution control mechanism, such as I/M vehicle
testing or stationary-source technologies, to enable a state to meet the
overall air pollution reductions mandated by the 1990 Amendments. The EPA,
however, has maintained that significantly more credits will be awarded to
enhanced programs than to basic programs. To the extent that a state is able
to earn additional credits through a stricter I/M program, it will be
required to earn fewer credits through emissions reductions in other sources,
primarily stationary sources such as factories, thereby potentially
permitting industrial growth that might otherwise have been limited by the
Clean Air Act.
The low enhanced performance standard primarily differs from the high
enhanced
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standard in that it allows for idle testing of all covered vehicles. Under
the high enhanced standard, idle testing is allowable only for pre-1981
vehicles. Vehicle model years beginning with 1986 must meet the I/M 240 test
(described under "Test Procedures") or an equivalent enhanced test. (Vehicles
in model years 1981-1985 must meet two-speed testing under a high enhanced
system). Significantly, the low enhanced performance standard is based upon
a centralized testing network type, as is the high enhanced standard,
although a decentralized, test-and-repair system, with certain additional
features can qualify under the standard. EPA made clear in its September 18,
1995, final rule that the low enhanced standard was designed only for those
areas "which either do not have a major mobile source component to their air
pollution problem or which do not require I/M programs which achieve
substantial reductions in automotive emissions to achieve air quality goals."
NETWORK TYPE. The EPA's performance standards in the Regulations for
basic, low enhanced and enhanced programs were modeled on a centralized
test-only network conducting annual inspections. However, the Regulations
allow governmental entities a limited degree of latitude in designing
alternative programs. Both centralized and decentralized "test-only"
programs are presumed to achieve the applicable performance standards. A
program is defined by the Regulations to be "test-only" if it consists of
stations that only perform official I/M testing (which may include
safety-related inspections) and in which owners and employees of these
stations, or companies owning these stations, are contractually or legally
barred from engaging in motor vehicle repairs or service, motor vehicle parts
sales, and motor vehicle sale and leasing, either directly or indirectly, and
are barred from referring vehicle owners to particular providers of motor
vehicle repair services. A decentralized test and repair program is
permissible in basic areas. In enhanced areas, however, it is acceptable only
if the governmental authority can demonstrate to the EPA that the program,
with required improvements and all other emission reduction programs, is
sufficient to achieve the total amount of emission reductions that is
required to meet the "reasonable further progress and attainment" requirements
of the Clean Air Act. In the preamble to the Regulations, the EPA stated
that it could not accept any of the currently operating decentralized
test-and-repair programs as equally effective as centralized due to their
inherent flaws. (The Regulations also permit the use of a combination of
decentralized test-only and decentralized test-and-repair stations, subject
to the limitations described above applicable to decentralized
test-and-repair stations.)
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In that regard, the Regulations provide that, if a decentralized
test-and-repair program is implemented in either a basic or enhanced area,
the pollution credits awarded to the program will be assumed to be 50% less
for some test procedures, and 75% less for other test procedures, than for
the same tests conducted through centralized or decentralized test-only
programs. This reflects EPA's careful assessment of the inherent problems
associated with test-and-repair networks. However, these discounts for
test-and-repair programs were only rebuttable presumptions and could be
reduced if a state can demonstrate to the satisfaction of the EPA that its
test-and-repair system will exceed the 50% or 75% levels, as applicable,
based upon past performance with the specific test-type and inspection
standards employed.
In any case, EPA's more recent practice has been to depart from the
automatic imposition of these presumptive discounts and, instead consider
carefully all the relevant facts and circumstances in determining how a given
test and repair network is to be scored for air quality credit purposes.
In this respect, EPA's practice was subsequently codified in the
National Highway System Designation Act of 1995 (NHSDA). The NHSDA made two
important changes to EPA's authority regarding the establishment of I/M
programs. In particular, it provided that EPA may no longer require states
to adopt a test only, I/M 240 enhanced inspection and maintenance program as a
means of compliance with the Clean Air Act (although EPA is free to approve
such programs if a state chooses to adopt one). In addition, the NHSDA
provided that EPA may not automatically discount the air emission reduction
credit states receive if they adopt a decentralized, test-and-repair system.
However, the NHSDA affirmed that the burden of proof remains with the
states, and gave states only 120 days after enactment of the statute (in
November, 1995) to submit revisions to the I/M programs in their SIPs. As
part of these submissions, a state must make a good faith estimate of the
actual emissions reductions associated with the proposed I/M system. EPA must
approve proposed programs on an interim basis, granting the full emission
reductions credit claimed by a state, so long as such claims reflect a "good
faith" estimate of the reductions associated with the proposed program. EPA
must grant final approval to the program if, after the statutorily required
18-month interim approval period, the "data collected on the operation of the
state program demonstrates that the credits are appropriate and the revision
is otherwise in compliance with the Clean Air Act." According to EPA, ten
states and the District of Columbia submitted proposals under the NHSDA to
revise their I/M program requirements. These ten states were: Alaska,
California, Georgia, Massachusetts, New Jersey, New York, Pennsylvania,
Texas, Utah, and Virginia.
EPA issued for public comment proposed conditional interim rules in
October 1996, after receiving recommendations on a methodology for reviewing
the SIPS. This methodology includes both a quantitative and qualitative
evaluation of the effectiveness of the programs over both the short term and
long term operation of the programs.
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<PAGE>
TESTING PROCEDURES: NEW EMISSIONS TESTS IN ENHANCED AREAS. Today, three
principal types of EPA-approved tests are generally performed: idle,
two-speed idle, and loaded/idle. EPA and state audits have indicated that
the simple idle and the two-speed idle tests used in most I/M programs have
serious shortcomings. These styles of tests worked well for pre-1981,
non-computerized vehicles containing carburetors because typical emission
control problems involved "rich" airfield mixtures that affected idle as well
as cruising emissions. However, today's high tech vehicles are more
effectively tested with procedures that include cycles of acceleration,
deceleration, and cruising under loaded conditions.
The EPA's performance standard for high enhanced programs requires the
implementation of a new, more sophisticated emissions test, called the "I/M
240" transient test (or an equivalent enhanced test approved by EPA), which
is a shorter version of the test procedure used by the federal government to
certify new vehicle compliance with emissions control equipment design
standards. The I/M 240 test, so named because it is estimated to take 240
seconds to perform the test, is conducted on a dynamometer, a treadmill-type
device that simulates actual driving conditions, including periods of
acceleration and deceleration. The I/M 240 test measures tailpipe emissions
more accurately than existing tests. The test is required to be performed on
all 1986 and later model year vehicles for programs with annual testing, and
on all 1984 and later model year vehicles for programs with biennial testing.
The two-speed idle test is permitted to be utilized for 1981 to 1985 model
year vehicles, and the idle test is permitted to be utilized for 1968 to 1981
model year vehicles. Testing must be performed on all 1968 and newer model
year light duty vehicles and light duty trucks rated up to 8,500 pounds gross
vehicle weight.
The Regulations also require enhanced programs to use a pressure check
to identify evaporative emissions leaks in the fuel system and a "purge"
check to ensure that fuel vapors stored in the vehicle evaporative canister
are routed to the engine and burned as fuel. Historically, I/M programs have
been designed to reduce only emissions of volatile organic compounds and
carbon monoxide. The high-tech test procedures required by the EPA, which
are also designed to reduce the levels of nitrogen oxide released into the
air, reflect the EPA's stated belief that reducing these pollutants is
increasingly important to air quality.
To date, most emission testing has been conducted annually. The EPA has
stated, however, that if high-tech tests are used and certain other
conditions are met, it will permit, and is now encouraging states to adopt,
biennial testing in order to reduce the cost to the motorist.
The EPA has stated that it plans to continue to assess alternatives to
the I/M 240 test, some of which may be less costly, such as the Acceleration
Simulation Mode ("ASM") test cycle which is a compromise between previous
steady state load mode testing procedures and the I/M 240. It attempts to
simulate acceleration conditions by applying a higher load to the drive
wheels of
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<PAGE>
a vehicle which is intended to simulate the load or strain a vehicle would
experience while accelerating. However, the test is performed under constant
speed conditions of 15 or 25 miles per hour. It is, therefore, a less
accurate test procedure, but the equipment required to perform it is far less
expensive than the I/M 240 test; but is more expensive than that currently
used in decentralized facilities. In a centralized high volume testing
program, where one equipment set may test 20,000 or more vehicles per year,
the cost of the I/M 240 versus the ASM test equipment may amount to less than
$1.00 per test. In decentralized test-only or test-and-repair programs, the
cost differential between the two equipment sets can be substantial because
of the low volume of vehicles tested at these facilities (typically 1,000 per
year).
TESTING PROCEDURES: IN BASIC AREAS. Although the EPA has stated that
states classified by the EPA as basic I/M areas should consider utilizing the
high-tech tests, the performance standard for basic and low enhanced programs
allows states to use the idle test. Testing must be performed on all 1968
and later model year light duty vehicles. States implementing a basic or low
enhanced program are not required to utilize a purge or pressure test, but
they will be required to demonstrate that their programs do not result in an
increase in nitrogen oxide.
IMPLEMENTATION DEADLINES. Basic I/M programs were required to have been
implemented as quickly as possible, with full implementation of decentralized
programs by January 1, 1994 and centralized programs were required to have
been implemented by July 1, 1994. The Regulations mandated that all
requirements related to enhanced I/M programs be implemented by January 1,
1995 subject to certain exceptions allowing for the phase-in of I/M 240
testing. States required to adopt enhanced program were also required to
begin high-tech testing by January 1, 1995, at which time their programs had
to cover at least 30% of the vehicle model years subject to high-tech
testing. All affected vehicles were required to be tested using high-tech
testing by January 1, 1996. Because existing I/M contracts (including all of
the Company's contracts) typically cover only a specified scope of work,
which is almost always patterned on the state emissions testing law in place
at the time the contract was signed, existing I/M contracts that extend
beyond these deadlines for implementing stricter testing standards will have
to be renegotiated to provide for the necessary expansion of equipment and
services to meet the new testing standards.
States failing to submit I/M SIPs, or failing to implement I/M programs
by the prescribed deadlines, are subject to sanction under the Clean Air Act.
Eighteen months after missing a deadline, EPA can impose a construction ban or
withhold federal highway funding from a state. Delay in implementing I/M
programs could also affect states under the federal transportation conformity
rule. The Clean Air Act forbids the federal government from engaging in,
supporting, or providing financial assistance to any activity that does not
conform to an approved SIP. Under the transportation conformity rule,
federally funded highway or transit projects must be consistent with state
air pollution control plans before they can receive federal funding. To date,
the EPA has not exercised its ability to sanction states failing to
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<PAGE>
implement I/M programs by the prescribed deadlines. The EPA's stated policy
has been to offer the states additional flexibility in designing their
programs to meet their individual needs, while at the same time encouraging
states to develop effective I/M programs.
EPA'S PROPOSED DECISION TO ADOPT MORE STRINGENT NAAQS. As explained
above, the Clean Air Act's regulatory structure is largely built upon and
driven by the need to achieve and maintain the NAAQS established by EPA for
various pollutants. On November 27, 1996, EPA Administrator Browner signed
notices of a proposed decision that would make the NAAQS for ground level
ozone and particulate matter (PM) significantly more stringent. In
particular, EPA has proposed the following: (1) adding an annual fine
particulate matter standard (PM(2.5) standard) of 15 g/m(3) and a daily
PM(2.5) standard of 50 g/m(3) to the already existing PM(10) standards; (2)
changing the existing ozone ambient standard from a .12ppm, one-hour standard
to a .08 ppm, eight-hour standard based on a three-year average of the annual
third-highest daily eight-hour concentrations; and (3) establishing an
interim policy that would, for the most part, preserve existing standards
during the period following promulgation of the revised standards until those
standards are implemented.
If adopted, these proposed standards would put many additional areas of
the country into nonattainment with the Clean Air Act, and make it more
difficult for areas already classified as nonattainment to meet the NAAQS on
time. At this time estimates vary, but it appears that dozens of areas
classified as attainment or maintenance will be reclassified as nonattainment
if the new standards are adopted. Depending upon the seriousness of their
nonattainment, such areas would likely be required to adopt new measures to
reduce air emissions, such as inspection and maintenance programs.
EPA is under a court order to publish final regulations for PM by June
28, 1997, and EPA has explained that it will issue final regulations for
ozone and PM simultaneously. A public hearing likely will be held in early
January and the anticipated deadline for filing comments is February 18,
1997. Considerable public involvement is expected during the rulemaking
process. Efforts to enlist Congress in preventing the issuance of these
regulations also can be expected. There probably will be congressional
opposition to these proposals, but it is difficult to predict at this time
the breath or depth of this opposition. The Company is unable to predict
whether the regulations revising the NAAQS will be adopted in their current
form or whether any NAAQS regulations will be adopted.
While it is difficult to predict the definitive outcome of any
regulatory process, given the scope of the already existing
attainment-related control programs imposed on existing mobile and stationary
sources, as well as fuel-related regulations, it can reasonably be expected
that the new standards will prompt at least some additional areas to seriously
consider I/M programs, and areas that already have I/M programs to consider
tightening their testing regimes.
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<PAGE>
OZONE TRANSPORT ASSESSMENT GROUP. The Clean Air Act required certain
states to submit a plan for the attainment of the ozone NAAQS by November 15,
1994. Many states failed to meet this deadline. As a consequence, EPA
established an alternative planning process allowing the states until
mid-1997 to submit a final attainment plan, based on the results of a two
year assessment to be conducted by the affected states (generally those
located east of the Rocky Mountains) through the Ozone Transport Assessment
Group (OTAG). OTAG was to make recommendations to EPA by the close of 1996
regarding the levels of regional emission reductions needed to eliminate
ozone transport as an obstacle to attainment. It now appears that OTAG will
not meet this deadline, although it expects to make these recommendations
early in 1997.
EPA has determined to begin the process to require the affected states to
take action to obtain the necessary emission reductions. EPA plans to begin
this process in December 1996, and plans to issue a notice of proposed
rulemaking proposing an overall amount of NOx and VOC emission reductions
that each state must achieve. A final "SIP call" notice (indicating how the
SIPs of the affected states will be revised to secure the additional needed
emission reductions) is expected to be issued in summer, 1997.
RECENT CONGRESSIONAL ACTIVITY. Early in the last Congress, which
convened in January, 1995, more than two dozen bills were introduced in both
the House of Representatives and in the Senate that would have revised the
Clean Air Act, and many of these would have been more unfavorable than
current law with respect to the I/M program. These attempts failed, however,
and the Clean Air Act was not reopened in the 104th Congress. It is
impossible to predict at this time whether the 105th Congress will attempt to
revise the Clean Air Act.
The Company is subject to federal, state, local and foreign laws,
regulations and ordinances governing activities or operations that may have
adverse environmental effects. The Company also is generally subject to
environmental laws that impose liability for environmental contamination that
is or comes to be located on properties that are or have been owned or
operated by the Company. From time to time, the Company's operations have
resulted or may result in certain noncompliance with applicable requirements.
The Company believes that it currently conducts its operations in substantial
compliance with all such laws.
Certain sections of this Form 10-K, including "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", contain various forward looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which represent the
Company's expectations or beliefs concerning future events. The Company
cautions that these statements are further qualified by important factors
that could cause actual results to differ materially from those in the
forward looking statements. The forward looking statements include, without
limitation, statements regarding the commencement of operations for a
particular test site or of a particular program, the number of annual tests,
the types of I/M testing programs to be adopted by states, regulatory and
market changes, the growth in markets in which the Company
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<PAGE>
operates, the areas of potential growth that the Company has identified, the
value of contracts, renewals of contracts, expected realizations of backlog,
the success of RSD technology and its utilization in the future, the
Company's success in foreign jurisdictions, and the Company's success as a
decentralized service provider. The Company in the preparation of its
financial statements, also makes various estimates and assumptions that are
forward looking statements. See Note 2 to the "Notes to Consolidated
Financial Statements."
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<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning the executive
officers of the Company as of November 15, 1996:*
Current Position and
Name Age Business Experience
---- --- ----------------------
Chester C. Davenport... 56 Chairman of the Board of Directors since
September 1990; Managing Director of
Georgetown Partners Limited Partnership, a
merchant banking firm ("Georgetown
Partners"), since September 1988; Senior
partner in Washington, D.C. law firm of
Davenport and Seay from 1979 to 1987 and
from 1973 to 1976; Managing General
partner of First City Properties, an
investment partnership, from 1979 to 1985;
Assistant Secretary of Transportation for
Policy and International Affairs from 1977
to 1979.
F. Robert Miller...... 54 President, Chief Executive Officer and
director since 1996; President, Chief
Executive Officer and director of Systems
Control, Inc. and its predecessors from 1987
to 1995.
Raj Modi.............. 44 Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary since
January 1993; Controller from July 1992 to
January 1993; Controller of ETI from
December 1986 to July 1992.
C. Michael Alston..... 38 Vice President, General Counsel and
Secretary since September 1992; Executive
Vice President and General Counsel of
Horne Engineering Services, Inc., an
environmental engineering firm, from March
to September 1992; Attorney at Fulbright &
Jaworski, specializing in corporate and
securities law, from October 1985 to March
1992.
Lawrence H. Taylor..... 52 Vice President of Marketing since January
1994; divisional Vice President of
Marketing and Sales of the Company from
April 1992 to January 1994 and of ETI from
1989 to April 1992.
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<PAGE>
Laura E. Baker....... 42 Vice President of Corporate Communications
since January 1996; Vice President of
Corporate Communications of SC from
September 1994 to January 1996; Director
of Corporate Communications from April
1992 to September 1994; Manager of
Marketing Services of SC from 1985 to
April 1992.
Mark D. Frost......... 38 Vice President of Engineering since
January 1996; Vice President of
Engineering of SC from
September 1994 to January 1996; Director of
Engineering of SC from 1985 to September
1994.
Perry J. Ludy......... 46 Vice President of Operations since
February 1996; Vice President of SC from
December 1994 to February 1996; President
of U.S. Auto Glass, Inc. from December
1990 to December 1994.
Richard M. Tucker...... 49 Vice President of Program Development
since January 1996; Vice President of
Program Development of SC from March 1992
to January 1996; Director of International
Marketing of SC from August 1991 to March
1992.
James Burley.......... 48 Vice President of Administration since
July 1996; Human Resources Manager for the
Hughes Research Laboratories from January
1992 to July 1996; Manager of Human
Resources Administration for the Electron
Dynamics Division of Hughes Electronics
from July 1984 to January 1992.
* The employment contract of Ronald M. Lancaster, Executive Vice President,
expired on December 31, 1995, and he is no longer employed by the Company,
and John R. Wallauch, Vice President of Operations, is no longer employed by
the Company.
All officers are elected annually and serve at the discretion of the
Board of Directors.
ITEM 2. PROPERTIES
Envirotest designs, builds and equips its testing sites to meet each
program's specific
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<PAGE>
requirements. The Company's testing sites typically range from one to three
acres, depending on the number of testing lanes, specific equipment
requirements, and lot configuration. The Company currently owns 128 testing
stations and leases 48 testing stations totaling in excess of 871,000
square feet. Envirotest also maintains a program headquarters in each of the
states in which it operates. The Company's senior administrative and
marketing staff were relocated from Phoenix, Arizona to Sunnyvale, California
in January 1996, and occupy approximately 21,000 square feet of office space
that are leased by the Company. The Company's engineering staff occupies
40,000 square feet of leased space in Tucson. The Company also has corporate
offices of approximately 3,000 square feet of leased space in Bethesda,
Maryland.
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed, the Company's new contract with the state of
Connecticut began January 1, 1995, with enhanced testing scheduled to begin
on April 3, 1995. Just prior to the startup of enhanced testing,
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<PAGE>
the State decided to continue the old testing procedure and phase in the
enhanced testing. Additionally, the Company was unable to build two
facilities, one due to the State's inability to provide the land the contract
required and the other due to the inability to obtain zoning. The State
claimed that it was entitled to be paid for the cost savings to the Company
for not having performed the enhanced test and not having built the
facilities. The Company claimed additional costs incurred when the State
unilaterally changed the test. After unsuccessful settlement negotiations,
the Commissioner of Department of Motor Vehicles rendered a decision on
February 9, 1996 that the Company owed the State $2.4 million plus other non
quantified amounts for 1995 and additional accruing amounts until the
enhanced test was performed and the facilities built. In accordance with the
contract and to protect its rights, the Company appealed the Commissioner's
decision to binding arbitration at the American Arbitration Association. On
May 1, 1996, prior to the appointment of the arbitrators, the State filed a
complaint in the Superior Court at Hartford to enjoin the arbitration from
going forward claiming that the American Arbitration Association had no power
to administer hearings in this matter. The State has taken no further action
on this matter and no hearing date with regard to the State's complaint has
been scheduled.
The Company is a defendant in GRENDELL, ET AL. V. OHIO EPA, ET AL., a
taxpayers class action originally filed on October 3, 1996 in Geauga County
Court of Common Pleas, State of Ohio, and now pending in the U.S. District
Court sitting in Columbus, Ohio. Plaintiffs are political opponents to
Ohio's motor vehicle emission inspection program, known as "E Check," and
seek to enjoin the program and Envirotest's contracts as invalid and void
based on three Ohio constitutional provisions. Plaintiffs principally
challenge Envirotest's statutory right to compensation upon termination or
suspension of E Check by the Ohio legislature. They claim that such a right
"lends" the state's credit to a private company. They also claim that such
right creates a future obligation without a specific appropriation in the
state budget approved for the current biennium. Plaintiffs also challenge
the allocation of inspection fees between Envirotest and Ohio as evidence of
an impermissible "public-private" partnership.
On October 18, 1996, the court transferred the case to the Franklin
County Court of Common Pleas. The Company removed the matter to federal
court on the basis of diversity of citizenship. On December 13, 1996 the
Ohio EPA and Plaintiffs filed motions to dismiss or remand to return the case
to the Ohio state court. The Company believes that it has valid defenses to
the claims contained in the complaint and intends to defend the matter
vigorously.
The Company is a party to various other legal proceedings and claims in
the ordinary course of business. The Company does not believe that the
outcome of any pending matters will materially adversely affect its
consolidated financial position or results of operations.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on September 24, 1996, the
Company's shareholders approved the following:
a) Election of Richard L. Gelford, Edward Dugger, III, and Robert W.
Kasten, Jr., as the three Class A directors to serve for a term of
one year and until their successors are duly elected and qualified.
The results of the votes were 11,521,418 votes for the proposal and
663,411 votes withheld.
b) Election of Chester C. Davenport, Cleveland A. Christophe, Craig M.
Cogut and F. Robert Miller as the four Class B directors to serve
for a term of one year and until their successors are duly elected
and qualified. The results of the vote were 2,432,060 votes for the
proposal and none withheld.
c) Selection of Coopers & Lybrand L.L.P. as the Company's independent
public accountants for fiscal year 1996. The results of the vote
were 14,442,641 votes for the proposal, 73,783 votes against and
100,465 votes abstain.
d) An amendment to the Company's 1993 Stock Option Plan to increase the
number of shares of Class A Common Stock reserved for issuance
thereunder by 400,000. The results of the vote were 12,387,589 votes
for the proposal, 1,953,812 votes against and 101,915 votes abstain.
Under the Company's Articles of Incorporation, the holders of Class A
Common Stock of the Company are entitled to one vote for each share of Class
A Common Stock so held and holders of the Class B Common Stock are entitled
to 1.75 votes for each votes for each share of Class B Common Stock so held.
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<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Class A Common Stock, par value $0.01 per share (the "Class A Common
Stock") of Envirotest has traded on the NASDAQ National Market System under
the symbol ENVI since the Company's initial public offering on April 1, 1993.
At November 15, 1996, the Company estimates that it had 282 holders of record
of the Class A Common Stock. A substantial number of the outstanding shares
of the Company's Class A Common Stock are held in nominee name. On December
23, 1996, the last sales price of the Company's Class A Common Stock, as
reported by the NASDAQ National Market System, was $2.50.
The following table sets forth for fiscal 1996 and 1995 the range of
high and low sale prices for the Company's Class A Common Stock as reported
by NASDAQ for the periods indicated. The quotations are derived from data
supplied by NASDAQ Stock Market Inc., and represent prices between dealers
without retail markdowns or commissions and may not necessarily present
actual transactions.
Fiscal 1996 Dec. 31 Mar. 31 June 30 Sept. 30
- ----------- ------- ------- ------- --------
High $4.25 $4.00 $3.125 $3.875
Low $2.25 $2.50 $2.50 $1.625
Fiscal 1995 Dec. 31 Mar. 31 June 30 Sept. 30
- ----------- ------- ------- ------- --------
High $14.5 $6.875 $6.625 $6.375
Low $ 6.5 $4.5 $3.125 $3.0
There is no established public trading market for the Company's Class B
Common Stock, par value $0.01 per share (the "Class B Common Stock") or the
Company's Class C Common Stock, par value $0.01 per share (the "Class C
Common Stock"). The principal difference among the Company's three classes
of stock is voting rights. Each share of Class B Common Stock and Class C
Common Stock are convertible at any time at the option of the holder into an
equal number of shares of Class A Common Stock, subject to certain
limitations in the case of the Class C Common Stock. As of November 15,
1996, the number of record holders of Class B Common Stock was two, and the
number of record holders of Class C Common Stock was one.
The Company has never declared or paid cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable
future. The payment of cash dividends by the Company is restricted by the
terms of the Indentures governing the Company's 9 1/8% Senior Notes due 2001
and 9 5/8% Senior Subordinated Notes due 2003, respectively (in each case
under a formula based upon the consolidated net income of the Company plus
proceeds of equity offerings, and subject to the maintenance of a
consolidated fixed charge coverage ratio of at least 3.0 to 1.0).
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Item 6. SELECTED FINANCIAL DATA
The selected financial data at September 30, 1996, and 1995 and for the
periods ended September 30, 1996, 1995, and 1994, have been derived from, and
should be read in connection with, the audited Consolidated Financial
Statements of the Company, and related notes thereto, included in this
report. The selected consolidated financial data at September 30, 1994, 1993
and 1992 and for the period ended September 30, 1993 and 1992, have been
derived from audited consolidated financial statements of the Company.
The Company has never declared or paid cash dividends on its common stock.
Financial data at September 30, 1992 and for the fiscal year ended
September 30, 1992 and all subsequent financial data, reflect the ETI
acquisition on April 10, 1992.
The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this report.
34
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
THE COMPANY
-----------
(Amounts in thousands, Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
except per share and Ended September Ended September Ended September Ended September Ended September
other operating data) 30, 1996 30, 1995 30, 1994 30, 1993 30, 1992(a)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Contact revenues 124,472 $104,757 $96,395 $88,534 $53,301
Gross profit 22,323 31,660 44,343 39,043 23,898
Selling, general and
administrative expenses 21,782 24,911 19,104 13,297 6,319
Amortization expense 3,427 4,017 4,390 3,500 2,389
Reserve for surplus properties - 892 - - -
Non-recurring expense 1,850(e) - - - 2,500(b)
Gain on Pennsylvania settlement (15,307) -
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income 10,571 1,840 20,849 22,246 12,690
Interest (income) (8,943) (4,318) (6,671) (1,220) (212)
Interest expense 38,940 21,315 23,567 13,370 9,274
Other expense (income) - 63 (26) 446 141
Monthly interest(c) - 284 393 (1,754) (30)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income
taxes and extraordinary item (19,426) (15,504) 3,586 11,404 3,517
Income tax expenses (benefit) 5,638 (643) 1,412 4,651 (739)
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before (25,064) (14,861) 2,174 6,753 4,256
extraordinary item
Extraordinary item, net - - - (11,411) (1,752)
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $(25,064) $(14,861) $2,174 $(4,658) $2,504
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common and
common equivalent share:
Income (loss) before
extraordinary item $(1.51) $(0.93) $0.12 $0.40 $0.32
Net income (loss) $(1.51) $(0.93) $0.12 $(0.28) $0.19
Weighted average common shares
and common equivalent shares 16,552 16,059 17,546 16,714 13,357
Earnings (loss) per common
shares - assuming full dilution
Income (loss) before
extraordinary item $(1.51) $(0.93) $0.12 $0.40 $0.32
Net income (loss) $(1.51) $(0.93) $0.12 $(0.28) $0.19
Weighted average common shares
and common equivalent shares 16,552 16,059 17,546 16,718 13,357
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
(AT END OF PERIOD)
Total assets $480,784 $457,273 $418,205 $200,656 $144,485
Long-term debt 420,476 386,906 328,048 129,751 96,937
Stockholders' equity (deficit) 13,154 38,045 52,910 49,470 13,160
OTHER OPERATING DATA:
Number of facilities at end of 169 126 113 112 112
period
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY
-----------
(Amounts in thousands, Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
except per share and Ended September Ended September Ended September Ended September Ended September
other operating data) 30, 1996 30, 1995 30, 1994 30, 1993 30, 1992(a)
<S> <C> <C> <C> <C> <C>
Number of testing lanes at end 667 479 407 405 403
of period
Number of paid tests during 10,592,894 11,042,077 12,342,165 11,525,956 7,489,656(d)
period
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes results of operations of ETI from April 10, 1992 (date of
acquisition) to September 30, 1992.
(b) Relates to the cost of closing the headquarters office of ETI in California
in 1992.
(c) Represents the minority stockholder's proportionate share of the operating
income (loss) of Ebco-Hamilton Partners, which operates the British
Columbia program. The minority stockholder's interest was purchased by
the Company on July 24, 1995.
(d) The Company's fiscal 1992 annualized test volume was approximately 11.6
million. The difference between the actual paid tests and annualized paid
tests is due to the acquisition of ETI on April 10, 1992 and the
commencement of the British Columbia program on September 1, 1992.
(e) Relates to the cost of closing the headquarters office in Phoenix,
Arizona in fiscal year 1996.
36
<PAGE>
ITEM 7. 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
FISCAL YEAR ENDED SEPTEMBER 30, 1996 (FISCAL 1996) COMPARED TO FISCAL YEAR
ENDED SEPTEMBER 30, 1995 (FISCAL 1995)
Contract revenues increased to $124.5 million in fiscal 1996 from $104.8
million in fiscal 1995, an increase of $19.7 million or 18.8%. The increase
is primarily attributable to the increase in revenues of $13.0 million
generated from the new contracts with the State of Ohio, $6.4 million from
the Washington State program acquired on January 30, 1996, and $5.0 million
from the Colorado program which commenced in January 1995 and has been
operational for the full year during fiscal 1996, and $2.5 million from the
Connecticut program due to higher fees in the new program which commenced in
January 1995. These increases were partially offset by decreases in revenue
of $2.1 million in the British Columbia program due to an employee strike
during the period, $1.3 million in the Illinois program attributable to the
reduced test fee under the January 1996 contract extension, $2.0 million in
the Minnesota program due to legislature changes during fiscal 1995 exempting
vehicle model years emissions testing, and $1.6 million from the Maryland
program which ceased operations as of December 31, 1994. The Company is
currently engaged in negotiations with the government in British Columbia
pursuant to the terms of its contract to obtain an adjustment in the fees
to offset the loss in revenue experienced during the period of the strike.
Gross profit decreased to $22.3 million in fiscal 1996 from $31.7 million
in 1995, a decrease of $9.4 million, or 29.7%. As a percentage of contract
revenues, gross profit decreased to 17.9% in fiscal 1996 from 30.2% in fiscal
1995, an absolute decrease of 12.3% The decrease in gross profit resulted
from higher than anticipated costs associated with the new Wisconsin and Ohio
programs, decreased revenue in the Minnesota program discussed above and the
absence of contribution from the Maryland program.
37
<PAGE>
Selling, general and administrative ("SG&A") expenses decreased to $21.8
million in fiscal 1996 from $24.9 million in fiscal 1995, a decrease of $3.1
million or 12.5%. As a percentage of contract revenues, SG&A expenses
decreased to 17.5% in fiscal 1996 from 23.8% in fiscal 1995 , an absolute
decrease of 6.3%. The decrease in SG&A expenses is primarily due to decreased
marketing expenses and the absence of costs associated with seeking a
resolution of the Pennsylvania contractual issues which were incurred during
fiscal 1995. In addition, the decrease in SG&A as a percentage of
contract revenues is due to the increase in contract revenues discussed above.
Amortization expense decreased to $3.4 million in fiscal 1996 from $4.0
million in fiscal 1995, a decrease of $0.6 million. The decrease is
attributable to expiration of the Maryland program contract and full
amortization of certain other intangible assets.
Consolidation expense was $1.9 million for the fiscal 1996, primarily
representing the costs associated with the closing of the Phoenix Corporate
headquarters.
Gain on Pennsylvania settlement for fiscal 1996 was $15.3 million net of
certain related costs including the write down of related property, plant and
equipment. Gross proceeds were $156 million (including contingent payment up
to $11 million) in accordance with the settlement agreement with Commonwealth
of Pennsylvania.
Income from operations increased to $10.6 million in fiscal 1996 compared
to $1.8 million in fiscal 1995. Income from operations as a percentage of
contract revenues increased to 8.5% in fiscal 1996 compared to 1.7% in fiscal
1995, an absolute increase of 6.8%. 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 $38.9 million in fiscal 1996 from $21.3
million in fiscal l995, an increase of $17.6 million. The increase is
primarily attributable to a $13.0 million decrease in capitalized interest as
programs under implementation became operational, and $4.1 million 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 income increased to $8.9 million in fiscal 1996 from $4.3
million in fiscal 1995, an increase of $4.6 million. The increase is
primarily attributable to the interest income on the funds received and due
from the Pennsylvania settlement.
Minority interest represents the minority partner's proportionate share
of the income of the British Columbia program through July 1995 at which time
the Company, through its wholly owned subsidiary, Envirotest Holdings, Inc.,
purchased the third party interest in the program.
38
<PAGE>
Income tax expense was $5.6 million on the pretax loss of $19.4 million
in fiscal 1996 as the Company increased a valuation allowance by $12.8
million, to fully reserve the deferred tax asset. In fiscal 1995, income tax
benefit was $0.6 million on pre-tax loss of $15.5 million which was lower
than the combined federal and state effective tax rate of approximately 39%
as a result of increasing a valuation allowance by $5.4 million to reduce the
deferred tax asset to an amount estimated to be realized. The estimate on the
amount of deferred tax asset to be realized is reviewed quarterly and the
valuation allowance adjusted accordingly.
Net loss was $25.1 million in fiscal 1996 compared to $14.9 million
in fiscal 1995, an increase of $10.2 million.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 (FISCAL 1995) COMPARED TO FISCAL YEAR
ENDED SEPTEMBER 30, 1994 (FISCAL 1994)
Contract revenues increased to $104.8 million in fiscal 1995 from $96.4
million in fiscal 1994, an increase of $8.4 million or 8.7%. This increase
is primarily attributable to the contract revenues contributed by the
Company's Colorado vehicle emissions testing program of $15.3 million which
began operations in January 1995, offset by the decrease of revenue of $6.7
million from the Maryland program which ceased operations as of December 31,
1994.
Gross profit decreased to $31.7 million in fiscal 1995 from $44.3 million
in fiscal 1994, a decrease of $12.6 million or 28.4%. This decrease was
attributable to the decrease in contribution from the Connecticut program due
to higher costs associated with the start-up of the enhanced testing together
with accelerated amortization of deferred charges, the decrease in
contribution from the Maryland program and the absence of contribution from
the Colorado program due to higher than anticipated costs associated with
start-up of the program together with accelerated amortization of deferred
charges. As a percentage of contract revenues, gross profit decreased to
30.2% in fiscal 1995 from 46.0% in fiscal 1994, an absolute decrease of
15.8%. This decrease was primarily attributable to the factors noted above.
The Minnesota state legislature passed a bill, effective July 1995,
exempting vehicles five years and newer from vehicle emissions testing, an
approximate 33% reduction in anticipated test volume. The State negotiated
several changes to the contract with the Company which will result in a
reduction in operating expenses and a larger portion of the test fee
previously paid to the State being paid to the Company.
SG & A expenses increased to $24.9 million in fiscal 1995 from $19.1
million in fiscal 1994, an increase of $5.8 million or 30.4%. As a
percentage of contract revenues, SG & A expenses increased to 23.8% in fiscal
1995 from 19.8% in fiscal 1994, an absolute increase of 4.0%. The dollar
increase in fiscal 1995 was primarily due to incremental expenditures of $4.3
million associated with maintaining the Pennsylvania program assets during
the suspension of
39
<PAGE>
operations of the program and costs associated with negotiating a resolution.
These expenditures have been recovered as part of the settlement agreement
reached with the Commonwealth of Pennsylvania after the end of fiscal 1995
and will be reflected in the results of fiscal first quarter 1996. See
"Signficant Developments". Also, the Company incurred additional
administrative costs in order to support the expanded operations resulting
from recent program awards and certain reorganizational changes. The
increase as a percentage of contract revenues in fiscal 1995 was due to the
costs associated with seeking a resolution of the Pennsylvania contractual
issues coupled with the absence of revenues from that program.
Amortization expense decreased to $4.0 million in fiscal 1995 from $4.4
million in fiscal 1994, decrease of $0.4 million. The decrease was
attributable to the Maryland program.
Income from operations decreased to $1.8 million in fiscal 1995 from
$20.8 million in fiscal 1994, a decrease of $19.0 million or 91.3%. Income
from operations as a percentage of contract revenues decreased to 1.8% in
fiscal 1995 compared to 21.6% in fiscal 1994, an absolute decrease of 19.8%.
The decrease was due to the factors discussed above.
Interest expense decreased to $21.3 million in fiscal 1995 from $23.6
million in fiscal 1994, a decrease of $2.3 million. The decrease was
primarily attributable to the increase in capitalized interest expense of
$13.1 million for construction relating to new contracts, offset by increased
interest expense of $10.8 million on the Senior Notes issued in March 1994,
the capital lease and long-term debt issued in June 1995 to finance the
Company's emissions testing network in Ohio and fees for an expired credit
facility. Interest expense of $2.8 million recorded in fiscal 1995 relates
to the Pennsylvania program and was recovered as part of the settlement
agreement reached with the Commonwealth of Pennsylvania after the end of
fiscal 1995 and will be reflected in the results of fiscal first quarter
1996. See "Significant Developments".
Interest income decreased to $4.3 million in fiscal 1995 compared to $6.7
million in fiscal 1994, a decrease of $2.4 million. The decrease was
primarily attributable to decreased cash and cash equivalents and short-term
investments balances as funds are spent on construction and equipment for new
emissions testing facilities, partially offset by increased interest rates.
Minority interest represents the minority partner's proportionate share
of the income and losses of the British Columbia program through July 1995,
at which time the Company, through its wholly owned subsidiary, Envirotest
Holdings, Inc., purchased the third party interest in the program. This
expense amounted to $0.3 million for fiscal 1995 and $0.4 million for fiscal
1994.
Income tax benefit was $0.6 million on pre-tax loss of $15.5 million in
fiscal 1995. The benefit was lower than the combined federal and state
effective tax rate of approximately 39% as a result of increasing a valuation
allowance by $5.4 million to reduce the deferred tax asset to an amount
currently estimated to be realized. This estimate on the amount of deferred
tax asset to be realized is done quarterly and the valuation allowance
adjusted accordingly. Income tax expense
40
<PAGE>
was $1.4 million on pre-tax income of $3.6 million in fiscal 1994 based on a
combined federal and state effective tax rate of approximately 39.4%.
Net loss was $14.9 million in fiscal 1995 compared to a net profit of
$2.2 million in fiscal 1994, a decrease of $17.1 million.
The Company incurs significant deferred charges in bringing new emissions
testing programs into operation. These charges are amortized over the
initial twelve month period of operations of these new 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.
LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
Cash and cash equivalents, short-term investments and restricted cash
increased to $82.2 million at September 30, 1996 from $49.9 million at
September 30, 1995. The increase of $32.3 million was primarily a result of
the $69.5 million (including interest) received from the Commonwealth of
Pennsylvania, the proceeds of $17 million from the bonds issued by the
Company's wholly owned subsidiary, Envirotest Wisconsin, Inc., in December
1995 and proceeds of $14.3 million from the bonds issued by the Company in
June 1996 for the Indiana program; partially offset by the expenditure of
$49.7 million for property, plant and equipment primarily relating to the
Ohio, Wisconsin and Indiana programs, cash used in operating activities of
approximately $12.4 million, and the purchase of the Washington State
subsidiary of Systems Control; Inc. (including the assets of SC's Indiana
subsidiary).
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
$15.7 million in 1997, decreasing to approximately $14.3 million through 1999
and further decreasing thereafter as certain leases are scheduled to expire.
The Company's capital expenditures include maintenance capital
expenditures for existing
41
<PAGE>
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 September 30, 1996, consist of
capital expenditure requirements for the completion of implementation of the
Indiana program estimated at $5.7 million. Also, in fiscal 1997, the Company
intends to spend approximately $1.2 million on maintenance capital
expenditures.
The Company believes that its existing cash resources including
approximately $79.4 million received by the Company in December 1996 for the
sale of its right to receive the two remaining installments totalling $80
million under the settlement agreement with the Commonwealth of Pennsylvania,
(see "Significant Developments") cash generated from operations and
alternative financing sources, including leasing alternatives, will be
sufficient to complete implementation of the Indiana program and to meet its
liquidity requirements for the foreseeable future.
Accrued expenses and other current liabilities increased to $27.1
million at September 30, 1996 from $13.5 million at September 30, 1995. The
increase was primarily attributable to the accrual of Pennsylvania settlement
reserves totaling $10.1 million which represents reserves for claims and
closing expenses including legal expenses.
RECENT ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 123 - Accounting for
Stock-Based Compensation will be effective for 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 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. The Company has not yet determined which method it will adopt.
INFLATION AND INTEREST RATES
While the Company's business is not generally sensitive to inflation,
there can be no assurance that a high rate of inflation in the future would
have an adverse effect on the Company's results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
42
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Envirotest Systems Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Envirotest
Systems Corp. and its Subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended September 30, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Envirotest
Systems Corp. and its Subsidiaries as of September 30, 1996 and 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
San Jose, California
December 13, 1996
43
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
ASSETS 1996 1995
- ------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 53,104 $ 17,079
Short-term investments 7,991 1,347
Settlement due from Commonwealth of
Pennsylvania 80,000 --
Contract receivables, net of allowance for doubtful accounts
of $449 and $375, respectively 10,969 8,208
Prepaid expenses 2,131 1,967
Deferred income taxes -- 1,376
Other 4,301 1,613
-------- --------
Total current assets 158,496 31,590
Restricted cash 21,108 31,497
Property, plant and equipment, net 192,400 173,507
Assets held under capital leases, net 46,108 27,138
Assets held for sale, net 32,246 5,209
Assets subject to settlement -- 149,629
Intangible assets, net 14,927 17,752
Deferred debt acquisition costs, net of accumulated
amortization of $5,720 and $3,378, respectively 13,159 13,412
Deferred charges, net of accumulated amortization of $7,407
and $3,217, respectively 1,189 3,178
Deferred income taxes -- 4,100
Other 1,151 261
-------- --------
Total assets $480,784 $457,273
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
44
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and 1995
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 3,825 $ 12,742
Accrued interest 1,689 1,499
Accrued expenses and other current liabilities 27,080 13,499
Current portion of capital lease and long-term debt 4,740 1,485
Current portion of other long-term debt 3,880 --
Income taxes payable 674 595
-------- --------
Total current liabilities 41,888 29,820
Senior subordinated debt 125,000 125,000
Senior long-term debt, net of discount of $808 and $989,
respectively 199,192 199,011
Capital lease and long-term debt, net of current portion 58,155 62,895
Other long-term debt, net of current portion 38,129 --
Other 5,266 2,502
-------- --------
Total liabilities 467,630 419,228
-------- --------
Commitments and contingencies (Note 19).
Stockholders' equity:
Common stock, $0.01 per share par value; Class A Common
stock, 40,000,000 shares authorized, 13,204,396 and
12,883,571 shares issued and outstanding at September 30,
1996 and 1995, respectively; Class B Common stock,
5,000,000 shares authorized, 1,389,749 and 1,248,249 shares
issued and outstanding at September 30, 1996 and 1995,
respectively; Class C Common stock, 5,000,000 shares
authorized, 2,026,111 shares issued and outstanding 166 162
Additional paid-in capital 60,172 60,028
Cumulative currency adjustment (96) (121)
Accumulated deficit (41,510) (16,446)
-------- --------
18,732 43,623
Less predecessor carry-over basis (5,578) (5,578)
-------- --------
Total stockholders' equity 13,154 38,045
-------- --------
Total liabilities and stockholders' equity $480,784 $457,273
-------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
45
<PAGE>
ENVIROTEST SYSTEMS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1996, 1995 and 1994
(AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
1996 1995 1994
- ------------------------------------------------------------------------------
Contract revenues $ 124,472 $ 104,757 $ 96,395
Costs of services 102,149 73,097 52,052
----------- ----------- -----------
Gross profit 22,323 31,660 44,343
Operating costs and expenses:
General and administrative 18,619 18,683 13,883
Selling 3,163 6,228 5,221
Consolidation expense 1,850
Amortization 3,427 4,017 4,390
Reserve for surplus properties -- 892 --
Gain on Pennsylvania settlement (15,307) -- --
----------- ----------- -----------
Income from operations 10,571 1,840 20,849
Other expense (income):
Interest expense 38,940 21,315 23,567
Interest income (3,259) (4,255) (6,697)
Interest income from Pennsylvania
settlement (5,684) -- --
Minority interest -- 284 393
----------- ----------- -----------
Income (loss) before income taxes (19,426) (15,504) 3,586
Income tax expense (benefit) 5,638 (643) 1,412
----------- ----------- -----------
Net income (loss) $ (25,064) $ (14,861) $ 2,174
----------- ----------- -----------
Earnings (loss) per common and common
equivalent share $ (1.51) $ (0.93) $ 0.12
Weighted average common and common
equivalent shares 16,552,497 16,059,165 17,546,495
----------- ----------- -----------
Earnings (loss) per common share -
assuming full dilution $ (1.51) $ (0.93) $ 0.12
Weighted average common and common
equivalent shares 16,552,497 16,059,165 17,546,495
----------- ----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THE CONSOLIDATED FINANCIAL STATEMENTS.
46
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended September 30, 1996, 1995 and 1994
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Additional Cumulative Predecessor
Common Stock Paid-In Currency Accumulated Carry-over
Shares Amount Capital Adjustment Deficit Basis Total
------ ------ ---------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1993 15,891,178 $159 $58,852 $(204) $(3,759) $(5,578) $49,470
Appreciation in warrant value (564) (564)
Exercise of warrants 80,598 1 1,692 1,693
Foreign currency translation
adjustment 137 137
Net income 2,174 2,174
---------- ---- -------- ----- ------- ------- -------
Balances, September 30, 1994 15,971,776 160 59,980 (67) (1,585) (5,578) 52,910
Issuance of common stock
upon exercise of stock
options 186,155 2 48 50
Foreign currency translation
adjustment (54) (54)
Net loss (14,861) (14,861)
---------- ---- ------- ----- -------- -------- -------
Balances, September 30, 1995 16,157,931 162 60,028 (121) (16,446) (5,578) 38,045
Issuance of common stock
upon exercise of stock
options 462,325 4 144 148
Foreign currency translation
adjustment 25 25
Net loss (25,064) (25,064)
---------- ---- ------- ----- -------- -------- -------
Balances, September 30, 1996 16,620,256 $166 $60,172 $(96) $(41,510) $(5,578) $13,154
---------- ---- ------- ----- -------- -------- -------
---------- ---- ------- ----- -------- -------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
47
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended September 30, 1996, 1995 and 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(25,064) $(14,861) $2,174
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 24,538 16,800 10,612
Amortization of loan discount and
deferred debt acquisition costs 2,516 3,384 1,578
Reserve for surplus properties -- 892 --
Minority interest in net income
of consolidated subsidiary -- 284 393
Gain on sale of property, plant
and equipment and assets held for
sale (114) -- --
Gain on Pennsylvania settlement (15,307) -- --
Deferred taxes 5,476 (863) 681
Other 18 584 --
Changes in assets and liabilities:
Contract receivables (2,511) (11) (686)
Prepaid and other current assets (1,793) (493) (1,507)
Deferred charges (2,200) (5,034) (2,099)
Other long-term assets (813) 514 727
Accounts payable 470 (4,212) 6,492
Accrued interest 190 (5,536) 1,120
Accrued expenses and other
current liabilities 1,358 2,222 1,239
Advances from customers -- -- (712)
Income taxes payable 79 (369) 446
Other long-term liabilities 731 1,178 (159)
-------- ------- -------
Net cash provided by (used in)
operating activities $(12,426) $(5,521) $20,299
-------- ------- -------
-------- ------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
48
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended September 30, 1996, 1995 and 1994
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from investing activities:
(Purchase) maturity of short-term
investments $(6,644) $23,199 $(24,546)
Purchases of property, plant and
equipment (49,724) (118,895) (69,350)
Proceeds from sale of property,
plant and equipment 3,835 2,656 --
Proceeds from Pennsylvania settlement 65,000 -- --
Proceeds from sale of Pennsylvania
assets 2,362 -- --
Pennsylvania assets subject to
settlement -- (88,963) --
Payment for purchase of Systems
Control, Inc., net of cash acquired (2,560) -- --
Purchase of minority interest in
consolidated subsidiary -- (1,247) --
Purchase of intangible assets -- -- (6,068)
Other -- 6 (5)
------- -------- --------
Net cash provided by (used in)
investing activities 12,269 (183,244) (99,969)
------- -------- --------
Cash flows from financing activities:
Repayment of senior long-term debt (2,457) -- --
Repayment of capital lease obligations (1,485) (4,751) (469)
Capitalization of loan fees (1,765) (2,749) (9,609)
Proceeds from debt offering 31,345 -- --
Proceeds from issuance of common stock 148 50 --
Proceeds from borrowings of senior
long-term debt -- -- 198,732
Proceeds from capital lease and
long-term debt -- 64,380 --
Decrease (increase) in restricted cash 10,389 (31,497) --
------- -------- --------
Net cash provided by financing activities 36,175 25,433 188,654
------- -------- --------
Effect of exchange rate on cash and
cash equivalents 7 196 137
------- -------- --------
Net increase (decrease) in cash and
cash equivalents 36,025 (163,136) 109,121
Cash and cash equivalents, beginning
of year 17,079 180,215 71,094
------- -------- --------
Cash and cash equivalents, end of year $53,104 17,079 180,215
------- -------- --------
</TABLE>
Supplemental cash flow information:
Cash paid for interest and income taxes for the years ended September 30,
1996, 1995 and 1994 was as follows:
<TABLE>
<S> <C> <C> <C>
Interest net of capitalized interest $38,751 $26,851 $21,184
Income taxes 245 332 299
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
49
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Envirotest Systems Corp. ("Envirotest" or the "Company") markets, installs
and operates centralized vehicle emissions testing programs under contracts
entered into with state and municipal governments within the United States
and a program in British Columbia, Canada. The Company also offers states and
municipalities services in a variety of sophisticated data management and
vehicle identification capabilities.
The Company's services include: designing a network that provides convenience
to motorists, identifying and procuring adequate inspection systems;
constructing emission facilities with multiple test lanes; designing and
installing a vehicle emissions inspection sites and computer network to
collect and process emissions testing data; and managing and operating the
inspection program using computer software and equipment developed by the
Company.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Envirotest
Systems Corp. and all of its domestic and foreign subsidiary companies. All
material intercompany balances and transactions have been eliminated.
Minority interest in equity of subsidiary represents the minority partner's
proportionate share of the equity of Ebco-Hamilton Partners ("EHP"). At
September 30, 1994, the Company owned 50.0000006% of EHP. On July 24, 1995,
the Company, through its wholly owned subsidiary, Envirotest Holdings Inc.,
purchased the third party interest in Ebco-Hamilton Partners ("EHP"), the
partnership which operates the Company's British Columbia, Canada centralized
vehicle emissions testing program. The purchase price of $1,200 was paid in
cash. The acquisition was accounted for as a purchase. The results of the
acquired interest in EHP have been combined with the results of the Company
since the date of acquisition.
50
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
In January 1996, the Company purchased from Systems Control, Inc. ("SC")
Systems Control, Inc., a State of Washington corporation, and operator of the
State of Washington centralized emissions testing program, intellectual
property of SC and an option to purchase the stock or assets of SC's Indiana
subsidiary. The option was exercised in June 1996 and the Company acquired
the contract with the State of Indiana to operate its centralized emissions
testing contract and the related assets. The total purchase price was
$4,700. If the acquisitions had occurred on October 1, 1995, the Company's
results of operations for the year ended September 30, 1996 would not have
been materially different.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to
be cash equivalents. Cash and cash equivalents are stated at cost which
approximates market value. Included in the Company's cash and cash
equivalents are approximately $52,500 and $16,500 primarily in commercial
paper invested through registered broker/dealers at September 30, 1996 and
1995, respectively. The Company intends to hold these investments until
maturity.
51
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
SHORT-TERM INVESTMENTS Short-term investments have an initial maturity of
greater than three months and are carried at cost which approximates market
value. Short term investments of $7,991 as of September 30, 1996, consisted
of commercial papers having the highest rating obtainable from either Moody's
Investor Service, Inc. or Standard & Poor's Corporation Inc. with maturity
dates ranging from December 1996 through February 1997. Short term
investments of $1,347 as of September 30, 1995 consisted of certificates of
deposit with a financial institution, which collateralize letters of credit.
CONTRACT RECEIVABLES
The Company's contract revenues and receivables consist of uncollateralized
amounts due from state, municipal and foreign governments.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. Research
and development expense for the periods ended September 30, 1996, 1995, and
1994 were approximately $44, $33 and $245 respectively, and are included in
general and administrative expenses.
RESTRICTED CASH Restricted cash of $21,108 at September 30, 1996 primarily
consisted of cash collaterals provided to banks for the Company's financing
and performance bonds related to the emissions testing contracts with state
governments. Included in this amount is $6,438, $2,137, $1,700, and $600 cash
collaterals required under credit agreements for the financing of Ohio,
Indiana, Wisconsin, and Washington programs, respectively. Also, $8,651 in
proceeds from bonds issued by the Indiana Development Finance Authority for
the Indiana program which is under construction are being held in trust
pending use of the fund.
PROPERTY, PLANT, EQUIPMENT AND CAPITAL LEASE
Property, plant and equipment are recorded at cost. The capital lease is
recorded at the present value of the future lease principal payments.
Depreciation and amortization are provided on the straight-line method over
the estimated useful lives of the assets as follows:
52
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Buildings and site improvements 30 years
Machinery and equipment 2-10 years
Leasehold improvements Lease term
Buildings and site improvements are depreciated on a straight line basis over
the estimated useful life, generally 30 years. Quarterly, the Company
prepares an analysis to compare the estimated book value of the buildings,
site improvements and land at the estimated completion date of individual
contracts (assuming certain renewals, if any) to the estimated residual
value. Adjustments to depreciable lives are made accordingly.
It is possible, given the political, legislative and competitive environment
in which the Company operates, that the estimates discussed above could
change and may result in accelerated depreciation charges. Also, the actual
values realized on disposal could differ from the amounts used in estimating
the residual values of these properties.
Interest costs relating to the acquisition and construction of major projects
are capitalized and depreciated over the estimated useful lives of the
related assets. Interest expense capitalized for the years ended September
30, 1996, 1995 and 1994 was $981, $14,027 and $1,533, respectively.
The cost of maintenance and repairs is charged to expense in the year
incurred. Expenditures which increase the useful lives of property and
equipment are capitalized.
When items are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts and any gain or loss is included in income.
INTANGIBLE ASSETS
Intangible assets are amortized on a straight-line basis over their estimated
useful lives as follows:
Goodwill 12 years
Government contracts 12 years
Computer software 5 years
License agreement 10-17 years
Covenants not-to-compete 5 years
53
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Beneficial ground lease 12 years
Copyrights 12 years
It is the Company's policy to re-evaluate the estimated useful life of each
of its intangible assets on a quarterly basis and may adjust the estimated
useful life accordingly. It is possible, given the political, legislative
and competitive environment in which the Company operates, that the estimates
discussed above could change and may result in accelerated amortization
charges.
DEFERRED DEBT ACQUISITION COSTS
Costs associated with obtaining long-term debt financing have been
capitalized and are amortized over the repayment term of the related debt.
DEFERRED CHARGES
Significant expenses incurred in bringing new emissions testing programs into
operation including, staff recruitment, staff training, public information
and similar pre-operating costs are deferred and amortized over a
twelve-month period commencing with the start of the program operations.
CONTRACT REVENUES
For vehicle emissions inspection contracts, revenue is based upon the fees
that are collectible for the tests that have been performed.
The Company's contract revenues from five major customers, which individually
account for in excess of 10% of the Company's total contract revenue, were
$20,300, $18,700, $17,000, $16,500 and $12,000 for the year ended September
30, 1996; $16,500, $15,300, $14,500, $13,300 and $12,300 for the year ended
September 30, 1995; and $16,100, $13,600, $13,500, $13,400, and $10,300 for
the year ended September 30, 1994.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the expected future
tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in
which the differences are
54
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
expected to reverse. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The Company has determined that the local currency of its international
subsidiary is the functional currency. In accordance with Statement of
Financial Accounting Standard No. 52, "Foreign Currency Translation", the
assets and liabilities denominated in foreign currency are translated into
U.S. dollars at the current rate of exchange existing at period-end and
revenues and expenses are translated at average monthly exchange rates.
Related translation adjustments are reported as a separate component of
stockholders' equity, whereas, gains or losses resulting from foreign
currency transactions are included in results of operations.
NET INCOME (LOSS) PER COMMON SHARE
Income (loss) per share is based upon the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
Common stock equivalents are included in the per share calculation where the
effect of their inclusion would be dilutive. The treasury method is used in
computing incremental common stock equivalents which would result from
exercise of outstanding dilutive stock options and warrants.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, other receivables and
accrued liabilities are a reasonable estimate of their fair value due to
their short term nature. The estimated values of the Company's long term debt
and are based on interest rates at September 30, for issues with similar
remaining maturities.
The estimated fair value amounts of the Company's financial instruments have
been determined by the Company, using appropriate market information and
valuation methodologies. Considerable judgment is required to develop the
estimates of fair value, thus, the estimates provided herein are not
necessarily indicative of the amounts that could be realized in a current
market exchange.
The Company calculates the fair value of financial instruments and includes
this additional information in the notes to financial statements when the
fair value is different than the book
55
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
value of those financial instruments. When the fair value is equal to the
book value no additional disclosure is made. The Company uses quoted market
prices whenever available to calculate these fair values. When quoted market
prices are not available, the Company uses standard pricing models for
various types of financial instruments which take into account the present
value of estimated future cash flows. The effect of using different market
assumptions and/or estimation methodologies may be material to the estimated
fair value amounts.
RECENT PRONOUNCEMENTS
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation (SFAS No. 123),"
which establishes a fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those
companies who elect not to adopt the new method of accounting. While the
Company studies the impact of the pronouncement, it continues to account for
employees' stock options under Accounting Principles Board(APB) Opinion No.
25, "Accounting for Stock Issued to Employees." SFAS No. 123 will be
effective for the Company's 1997 fiscal year.
CONCENTRATIONS OF CREDIT RISK As of September 30, 1996, the Company's cash
and cash equivalents and short-term investments, which consist principally of
demand deposits and commercial paper, were on deposit with a number of
commercial banks and an investment house. In addition, receivables include
$80,000 due from the Commonwealth of Pennsylvania. (See Note 6.) The Company
maintains allowances for potential credit losses and such losses have been
within management's expectations. Financial instruments that potentially
subject the Company to concentrations of credit risk principally comprise,
cash and cash equivalents, short-term investments, accounts receivable
(including amounts due from governments due on settlement of contract issues)
and long-term debt.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at September 30,
1996 and 1995:
1996 1995
-------- -------
Property, plant and equipment:
Land $30,805 $24,828
56
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Buildings and site improvements 96,945 82,334
Machinery and equipment 90,300 53,539
Leasehold improvements 3,792 4,147
-------- --------
221,842 164,848
Construction in progress 10,787 33,398
-------- --------
232,629 198,246
Less accumulated depreciation (40,229) (24,739)
-------- --------
$192,400 $173,507
-------- --------
4. ASSETS HELD UNDER CAPITAL LEASES:
Assets held under capital leases consisted of the following at September 30,
1996 and 1995:
1996 1995
------- -------
Land $ 5,667 $ 3,185
Buildings and site improvements 41,545 6,503
------- -------
47,212 9,688
Construction in progress - 17,504
------- -------
47,212 27,192
Less accumulated amortization (1,104) (54)
------- -------
$46,108 $27,138
------- -------
At September 30, 1995, construction in progress includes $2,467 for land and
$15,037 for buildings and site improvements which are leased assets under
construction, respectively.
5. ASSETS HELD FOR SALE:
Assets held for sale represent property, plant and equipment at testing sites
formerly operated under the Maryland program which terminated December 31,
1994, and 74 sites in Pennsylvania. These properties are currently being
marketed for sale.
At September 30, 1996 and 1995, an estimated loss on sale of properties of
$109,495 and $892 has been recognized. The estimated loss is based on
management's estimates of the amounts
57
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
expected to be realized on the sale of these assets, net of disposal costs.
The amounts the Company will ultimately realize may differ materially from
the amounts assumed in arriving at the estimated loss. $109,402 of the loss
relates to the write down of the Pennsylvania assets. This amount has been
included in the calculation of the Gain on Pennsylvania Settlement (see Note
6).
58
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Assets held for sale consisted of the following at September 30, 1996 and 1995:
1996 1995
------- ------
Land, buildings and site improvements $30,773 $5,440
Machinery and equipment 2,074 593
------- ------
32,847 6,033
Less accumulated depreciation (601) (824)
------- ------
$32,246 $5,209
------- ------
6. GAIN ON PENNSYLVANIA SETTLEMENT:
Legislation adopted by the Commonwealth of Pennsylvania General Assembly
directed the Pennsylvania Department of Transportation ("PennDOT") to delay
implementation of the Pennsylvania emissions testing program until March 31,
1995, and to design and submit to the federal Environmental Protection Agency
by March 1, 1995, an alternative emissions testing program that consisted of
decentralized test-and-repair facilities or a hybrid of decentralized
test-and-repair and centralized test-only components and that complied with
federal law. On February 28, 1995, the Governor announced an indefinite
suspension of the implementation of any program until the Commonwealth
receives clarification regarding the elements of a testing program that the
federal EPA would find acceptable.
On December 15, 1995, the Company entered into a General Release and
Settlement Agreement ("Agreement") with The Commonwealth of Pennsylvania
which resolves the issues related to the Company's contract with PennDOT.
Under the terms of the Agreement, the Company was paid $25,000 on December
29, 1995 and $40,000 on July 31, 1996 and will be paid $40,000 on each of
July 1997, and 1998 plus interest at 6% from December 15, 1995. In addition,
the Company will sell the assets and retain the proceeds and the Commonwealth
will pay the Company (in July
59
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1998) 50% of the amount by which the net proceeds from the sale of the
assets (as defined by the Agreement, as amended December 1996) are less than
$55,000 up to a maximum of $11,000 plus interest at 6% from December 15,
1995. Should the net proceeds from the sale of the assets exceed $55,000,
the Company will pay the Commonwealth 75% of the amount by which the net
proceeds exceed $55,000. The Company is of the opinion that sufficient
reserves have been recognized and that upon final disposition of properties
no additional loss will be recognized.
The gain on the Pennsylvania Settlement has been calculated as follows:
Proceeds (excluding contingent payment) $145,000
Property, plant and equipment write down (109,402)
Other assets write down (7,732)
Additional reserves (12,559)
--------
$15,307
On December 11, 1996, the Company sold its right to receive the two remaining
installment payments totaling $80,000 in principal amount under the Agreement
for approximately $79,405. The Company retained the right to receive
accrued interest of approximately $1,749 payable on July 31, 1997.
The transaction was effected through a sale of the Receivables Assets from
Envirotest Partners, a Pennsylvania general partnership owned by Envirotest
and ETI, to a newly formed wholly owned subsidiary of the Company, ES Funding
Corp. ("Funding"). Funding, in turn, transferred the Receivables Assets to
an affiliate of a Pennsylvania bank. Funding and Envirotest Partners
provided certain representations in connection with the transaction,
including representations as to enforceability of the Agreement against the
Commonwealth, and agreed to repurchase the Receivables Assets if Envirotest
Partners fails to comply with its obligations under the Agreement.
60
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
7. INTANGIBLE ASSETS:
Intangible assets consisted of the following at September 30, 1996 and 1995:
1996 1995
------- -------
Government contracts $21,921 $21,294
Covenants not-to-compete 3,988 3,988
Computer software 2,521 2,521
Goodwill 2,415 2,415
License agreement 1,903 1,903
Copyrights 1,000 1,000
Beneficial ground lease - 153
------- -------
33,748 33,274
Less accumulated amortization (18,821) (15,522)
------- -------
$14,927 $17,752
------- -------
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:
Accrued expenses and other current liabilities consisted of the following at
September 30, 1996 and 1995:
1996 1995
------- -------
Accrued employee-related expenses $ 5,693 $ 5,134
Accrued real and personal property taxes 2,238 2,077
Pennsylvania settlement and reserves 10,123 -
Accrued interest 1,689 1,499
Corporation relocation reserve 1,500 -
Deferred revenue of Washington program 1,499 -
Other 4,338 4,789
------- -------
$27,080 $13,499
------- -------
Pennsylvania settlement reserves represents reserves for claims related to
construction contract and closing costs of the program.
61
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
9. SENIOR SUBORDINATED DEBT:
Senior subordinated debt consisted of the following at September 30, 1996 and
1995:
1996 1995
-------- --------
Senior Subordinated Notes, due April 1, 2003;
interest at 9 5/8%, payable semi-annually $125,000 $125,000
-------- --------
The Senior Subordinated Notes ("Notes") are not redeemable by the Company
prior to April 1998. Thereafter, the Notes will be redeemable at any time at
the option of the Company, in whole or in part, at the redemption prices
beginning at 103.609% of the principal amount for the period beginning April
1, 1998 and declining ratably to 100% of the principal amount on or after
April 1, 2001 plus accrued or unpaid interest to the date of redemption.
The Notes are unsecured obligations of the Company, subordinated in right of
payment to all Senior Debt (as defined). The Notes carry various covenants,
including a limitation on payment of dividends, incurrence of additional
indebtedness and issuance of disqualified stock (as defined).
As of September 30, 1996 and 1995, the fair value of the Notes, which is
determined based on quoted market price, was $101,875 and $62,500,
respectively.
10. SENIOR LONG-TERM DEBT:
Senior long-term debt consisted of the following at September 30, 1996 and
1995:
1996 1995
-------- --------
Senior Long-Term Notes, due March 15, 2001;
interest at 9 1/8 % (net of discount of $808 and
$989, respectively) $199,192 $199,011
-------- --------
The Senior Notes are not redeemable by the Company prior to March 15, 1998.
Thereafter, the Senior Notes will be redeemable at any time at the option of
the Company, in whole or in part, at
62
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
redemption prices beginning at 103.083% of the principal amount for the
period beginning March 15, 1998 and declining ratably to 100% of the
principal amount on or after March 15, 2000 plus accrued or unpaid interest
to the date of redemption.
The Senior Notes are senior unsecured obligations of the Company, senior in
right of payment to the 9 5/8% Senior Subordinated Notes of the Company. The
Senior Notes carry various covenants, including a limitation on payment of
dividends, incurrence of additional indebtedness and issuance of disqualified
stock (as defined).
As of September 30, 1996 and 1995, the fair value of the Senior Notes, which
is determined based on quoted market price, was $184,000 and $140,000,
respectively.
11. OTHER LONG TERM DEBT
On December 29, 1995, the Company's wholly owned subsidiary, Envirotest
Wisconsin, Inc., issued $17,000 principal amount of notes (the "Notes").
The Notes bear interest at the rate of 7.53% per annum with monthly payments,
including interest, beginning at approximately $230 and increasing to
approximately $340 with maturity on November 30, 2002. The Notes are
collateralized by all assets utilized in the Wisconsin program. At September
30, 1996, the unpaid principal balance is $16,010.
In January 1996, the Company acquired Systems Control, Inc., a Washington
corporation (SC-WA), the operator of the centralized emissions testing
program in the State of Washington. At the time of the acquisition, SC-WA
had debt outstanding under a credit agreement. As of September 30, 1996,
the outstanding balance is $11,654 and bears interest at various rates with
an effective rate of 8.64% at September 30, 1996 and is collateralized by all
real property of the vehicle emissions program in the State of Washington.
This agreement requires monthly payments of approximately $240 with a balloon
payment at maturity on December 31, 1999 of $4,500. This credit agreement
requires a cash collateral amount of $600 as of September 30, 1996 and
through maturity and requires certain covenants related to tangible net
worth, capital ratio, cash flow ratio and distributions of SC-WA be
maintained.
In June 1996, the Company issued $14,345 principal amount of notes for the
Indiana program. The notes bear interest at the rate of 7.82% per annum with
quarterly payments, including
63
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
interest of approximately $540 and mature in 2006. Principal payments begin
June 1997. The notes are collateralized by all assets utilized in the
Indiana program.
The other long-term debt matures as follows:
1997 $3,880
1998 5,289
1999 5,779
2000 9,441
2001 4,510
Thereafter 13,110
-------
Total principal payments 42,009
Less current portion (3,880)
-------
$38,129
-------
-------
12. STOCK OPTIONS:
The Company has adopted a Stock Option Plan (the "Plan") providing for the
grant of options to purchase shares of Class A Common Stock to certain
employees of the Company and its subsidiaries and to Outside Directors (as
defined) on an annual, nondiscretionary basis. The Plan provides for the
grant of options intended to qualify as Incentive Stock Options ("ISOs") as
defined by Section 422 of the Internal Revenue Code and options that do not
qualify as ISOs ("NQSOs"). The exercise price per share for all ISOs
generally may not be less than 100% of the fair market value on the date of
grant. The exercise price per share for NQSOs may be less than, equal to or
greater than the fair market value on the date of grant, but not less than
par value, except that the exercise price for NQSOs granted to Outside
Directors shall be the fair market value on the date of grant. Under the
Plan, such options are exercisable according to a vesting schedule pursuant
to the terms of each Option Agreement. Unless earlier terminated by the
Board of Directors, the Plan will terminate in January 2003, 10 years after
its effective date.
In 1993, pursuant to an agreement for consulting services, a director and
principal stockholder of the Company was granted options to purchase 50,000
shares of Class A Common Stock at an exercise price of $9.75 per share and
50,000 shares at an exercise price of $14.00 per share. Options to purchase
25,000 shares of each of the foregoing options (an aggregate of 50,000)
64
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
vested upon grant, with the remaining options vesting in September 1994. The
unexercised options expire August 31, 1998.
The following table summarizes the status of, and changes in, options granted
during the years ended September 30, 1996, 1995 and 1994:
Shares Under Option Price Per
Option Share
------------ ----------------
Outstanding at October 1, 1993 2,451,305 $0.27 - $16.00
Granted 396,000 $16.00 - $22.00
Exercised - -
Canceled (125,000) $16.00
--------- ---------------
Outstanding at September 30, 1994 2,722,305 $0.27 - $22.00
Granted 457,500 $6.13
Exercised (186,155) $0.27
Canceled and expired (787,000) $15.88 - $22.00
Reissued 454,000 $6.13
--------- ---------------
Outstanding at September 30, 1995 2,660,650 $0.27 - $20.00
Granted 400,000 $2.75 - $2.80
Exercised (462,325) $0.27 - $0.48
Canceled (185,000) $0.27 - $16.00
--------- ---------------
Outstanding at September 30, 1996 2,413,325 $0.27 - $20.00
--------- ---------------
Options exercisable at:
September 30, 1994 1,939,305
September 30, 1995 1,664,150
September 30, 1996 1,505,950
13. STOCKHOLDERS' EQUITY:
Envirotest Systems Corp. was incorporated on August 20, 1990 for the purpose
of purchasing Hamilton Test Systems, Inc. ("HTS"), a wholly owned subsidiary
of United Technologies Corporation (the "Prior Parent"). At the time of the
HTS acquisition, a subsidiary of the Prior Parent had an equity interest in
Envirotest of approximately 23.6% of the outstanding stock.
65
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Generally Accepted Accounting Principles require that a portion of the equity
participation in Envirotest by the Prior Parent be valued using the
carry-over basis of its equity interest in HTS prior to the acquisition.
Accordingly, a portion of HTS' assets were recorded at the book value of the
Prior Parent. The effect of the predecessor carry-over basis ($5,578) is
reflected as a component of stockholders' equity.
Payment of cash dividends is restricted by the terms of the Indenture
covering the Senior Subordinated Notes (under a formula based upon the
consolidated net income of the Company plus proceeds of equity offerings, and
subject to the maintenance of a certain consolidated fixed charge coverage
ratio).
14. INCOME TAXES:
Income (loss) before income taxes and income tax expense (benefit) for the
years ended September 30, 1996, 1995 and 1994 are shown below:
1996 1995 1994
-------- -------- ------
Income (loss) before income taxes:
Domestic operations $(18,938) $(16,105) $3,165
Foreign operations (488) 601 421
-------- -------- ------
Total (19,426) (15,504) 3,586
-------- -------- ------
Income tax:
Domestic operations:
Current 162 350 592
Deferred 5,161 (1,159) 515
-------- -------- ------
Total domestic 5,323 (809) 1,107
-------- -------- ------
Foreign operations:
Current 152
Deferred 315 166 153
-------- -------- ------
Total foreign 315 166 305
-------- -------- ------
Total $5,638 $(643) $1,412
-------- -------- ------
-------- -------- ------
66
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The Company's tax expense (benefit) differs from the expense (benefit)
calculated using the statutory federal income tax rate for the following
reasons:
1996 1995 1994
------- ------- ------
Tax expense (benefit) at statutory
federal income tax rate $(6,605) $(5,271) $1,219
Increase (decrease) resulting from:
Goodwill amortization 66 66 66
Nondeductible expenses 179 172 70
Adjustments of the valuation allowance 13,044 5,400 895
State income taxes, net of federal
tax benefit (837) (1,162) (1,021)
Foreign taxes, net of federal
tax benefit (52) 152 138
Other (157) - 45
------ ------ ------
Total income tax expense (benefit) $5,638 $ (643) $1,412
------ ------ ------
The components of deferred tax balances as of September 30, 1996 and 1995 are
as follows:
1996 1995
------ ------
Deferred taxes:
Accrued vacation pay $551 $607
Charitable contributions 372 351
Other liabilities 3,007 1,659
Pennsylvania settlement reserves 2,972 ---
Net operating loss carryforwards 20,268 15,840
Difference between financial reporting
and tax bases of fixed
and intangible assets (7,718) (6,369)
Valuation allowance (19,452) (6,612)
------- ------
Net deferred taxes $0 $5,476
------- ------
67
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The net change in the valuation allowance for the deferred tax assets of the
Company is as follows:
1996 1995
------ ------
Beginning balance $6,612 $1,212
Adjustment of valuation allowance
due to a reassessment of the
realizability of deferred tax assets 12,840 5,400
------- ------
Ending balance $19,452 $6,612
------- ------
------- ------
At September 30, 1996 the Company had federal net operating loss
carryforwards for federal tax purposes of approximately $46,418. The amounts
expire between 2006 and 2011. The state loss carryforwards vary in amount
and expiration date depending upon the jurisdiction.
15. DEFINED CONTRIBUTION PLAN AND SUPPLEMENTAL RETIREMENT PLAN:
The Company has adopted a defined contribution 401(k) plan (the "Plan")
covering substantially all of its employees. Eligible employees may
contribute up to 16% of base compensation to the Plan. The Company has an
optional matching program where the Company can match 50% of the employee's
first 6% of contribution. Company-matched contributions vest in full after
three years of an employee's credited service to the Company. The Company
also has an option to make additional profit-sharing contributions equal to
2% of the base salary of each Plan participant. Defined contribution expense
for the Company was approximately $696, $586 and $578, for the years ended
September 30, 1996, 1995 and 1994, respectively.
The Company has supplemental employee retirement plans covering six of its
key employees or former employees. The plan benefits for each employee range
from $13 to $100 per year commencing at age 65 for a period of ten years
payable in equal monthly installments. The plans also provide death and
disability benefits in the event of the death or total disability of an
employee while employed by the Company. The Company's policy is to fund the
plan through certain life insurance policies or through the general
unrestricted assets of the Company. Supplemental retirement expense for the
Company was approximately $119, $511 and $118, for the years ended September
30, 1996, 1995 and 1994, respectively.
68
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ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
16. RELATED PARTY TRANSACTIONS:
In 1993, the Company entered into a three-year agreement for consulting
services with a director and principal stockholder of the Company. The
agreement provides for a base consulting fee of $240 plus expenses annually
for the first year and $120 annually thereafter, as well as the grant of
options. For the years ended September 30, 1996, 1995 and 1994, the Company
expensed $120, $122 and $247, respectively, under this agreement.
As the Company has previously disclosed in its periodic reports filed with
the Securities and Exchange Commission under the Securities and Exchange Act
of 1934, the facilities and assets utilized by the Company in the Cuyahoga
County, Ohio I/M testing program (the "Ohio Assets") and the Tennessee I/M
testing program (the "Tennessee Assets") were leased to the Company pursuant
to separate Sale and leaseback Agreements with Kane Partners, L.P. ("Kane
Partners"). Richard Gelfond, a director of the Company, is Vice President of
the General Partner of Kane Partners and holds a 25% limited partnership
interest in Kane Partners. Chester C. Davenport, Chairman of the Company,
holds a 25% limited partnership interest in Kane Partners. In November 1992,
Kane Partners acquired the underlying leasehold property and the related
rights and obligations from the original lessors of the Ohio and Tennessee
Assets.
The statute and regulations governing Ohio's new I/M 240 test program require
that the land and buildings be owned by a third party having no affiliation
with the operator of the program. The Ohio program is divided into four
separate zones, three of which were subject to competitive bid and, when
awarded, complied with this requirement. The fourth zone, Cuyahoga County,
was subject to an existing contract held by Envirotest at the time contracts
for the other zones were awarded by the State (two of which were awarded to
the Company). As a condition to entering into a new 10 year contract with
Envirotest to conduct I/M 240 vehicle inspections in Cuyahoga County, Ohio
(and not submitting this zone to a competitive bid), the State of Ohio
required Envirotest to comply with its new I/M legislation and caused Kane
Partners to divest its ownership interest in the Ohio Assets. Accordingly,
the third party developer utilized approximately $10,000 of the net proceeds
of the Authority offering described in Note 17 to acquire ownership of the
Ohio Assets that will be utilized in the new Cuyahoga County, Ohio program to
be operated by the Company. As a result, the land and buildings utilized by
the Company under its three Ohio I/M 240 program contracts will be owned by
the developer and leased to the Company.
69
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
In connection with the negotiations related to the Ohio Assets, the Company
agreed to purchase from Kane Partners the Tennessee Assets for $1,800 and one
Ohio test site that will not be utilized in the new test program for $300,
for an aggregate purchase price of $2,100. Although Tennessee Assets and
Ohio Assets have been subject to separate sale and leaseback agreements, the
assets have served as functional security for a financing provided to the
Company in 1990 and were held by Kane Partners since 1992 for the same
purpose. Kane Partners utilized a portion of the aggregate proceeds received
by it from the sale of the Ohio Assets and Tennessee Assets to retire certain
debt obligations held by Chemical Venture Partners and Apollo Advisors, L.P.,
affiliates of which are directors of the Company and beneficially own
approximately 14% and 17%, respectively, of the Company's outstanding Class A
Common Stock. These debt obligations were incurred by Kane Partners in
connection with its initial acquisition of the Ohio Assets and Tennessee
Assets.
In connection with the evaluation and approval of the acquisition of the Ohio
Assets and the Tennessee Assets, and as required by the Senior Notes debt
covenants, a committee of disinterested directors of the Company retained an
independent financial advisor which rendered an opinion stating that (i) the
purchase price paid for the Ohio Assets and Tennessee Assets (collectively,
the "Purchase Price") was fair to the public shareholders of the Company from
a financial point of view, and (ii) the Purchase Price was fair and
reasonable to the Company from a financial point of view and was on financial
terms which are at least as favorable as financial terms which could be
obtained by the Company in a comparable transaction made on an arm's length
basis with persons who are not related persons.
As discussed in Note 17, the Company leased land and facilities in Ohio and
Nashville, Tennessee from Kane Partners during 1994 and 1995. Total lease
expenses under these leases were approximately $1,567 and $2,084 for the
years ended September 30, 1995 and 1994, respectively.
17. CAPITAL LEASE AND LONG-TERM DEBT OBLIGATION:
On June 30, 1995, the Ohio Air Quality Development Authority (Authority)
issued $64,380 of bonds with a 8.1% interest rate to finance the costs of the
acquisition, construction, renovation and equipping of the Company's
emissions testing network in Ohio. The bonds are subject to mandatory sinking
fund redemption and are due December 31, 2005. The land and buildings are
70
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
owned by a developer (the "Developer") and leased to the Company pursuant to
a capital lease. The equipment is owned by the Company. The Developer and
the Company separately have entered into loan agreements with the Authority
under which the payments will provide for timely payment of principal and
interest on the bonds. The Developer and the Company have entered into a
master lease agreement pursuant to which the developer will lease the land
and buildings to the Company. The proceeds are held in trust pending use
of the funds and the unexpended proceeds are reflected on the Company's
balance sheet as restricted cash.
Pursuant to the master lease and loan agreements, all revenues from the
operation of the Ohio emissions testing network are paid into certain
accounts held by the Trustee pursuant to a cash management services
agreement. The excess of revenues from operations over the amount required
to be paid monthly to the Authority under the loan agreements and to the Ohio
Environmental Protection Agency per the contracts will be available to the
Company. The bonds are collateralized by all Ohio program assets.
The future minimum annual payments under the master lease and Company loan
agreement for fiscal years ending September 30, are as follows:
1997 $10,430
1998 9,623
1999 9,617
2000 9,638
2001 9,636
Thereafter 40,894
-------
Total minimum payments 89,838
Amount representing interest (26,943)
-------
Present value of minimum payments 62,895
Less current portion (4,740)
-------
$58,155
-------
71
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
18. OPERATING LEASES:
The Company is obligated under noncancelable operating leases for the
building sites in Vancouver, British Columbia. The Vancouver lease runs for
seven years ending August 31, 1999, with monthly payments averaging
approximately $300. The Company has the option to renew this lease for an
additional seven year period.
As of September 30, 1996, approximate future minimum lease commitments under
noncancelable operating leases are as follows:
1997 $5,225
1998 5,068
1999 4,643
2000 922
2001 711
Thereafter 615
-------
$17,184
-------
Rental expense for the years ended September 30, 1996, 1995 and 1994 was
approximately $4,112, $6,406 and $5,944, respectively, net of sublease income
of approximately $289 and $40 for 1996 and 1995, respectively.
19. COMMITMENTS AND CONTINGENCIES:
The Company's principal commitments at September 30, 1996 consisted of
construction contracts of approximately $4,900 of which $1,800 has already
been incurred for the Indiana program.
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<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The Company has several performance bonds on its long-term contracts. These
bonds are required by the contracts and vendor agreements in the event the
Company cannot perform and complete the contracts and agreements. In
addition, a bank holds a letter of credit in the amount of $2,400 guaranteed
by the Company in connection with its performance obligations in respect of
the Washington State contract. In the opinion of management, the Company
will be able to fulfill the requirements of the long-term contracts and
leases.
The State of Connecticut has made certain claims stating that the Company
owes the State $2,400 plus accruing amounts for certain cost savings in the
start up of the enhanced testing program in Connecticut. The Company cannot
predict the outcome of this complaint. However, the Company believes that it
has sufficient defense against these claims.
In October 1996, a class action lawsuit was filed asserting the 10 year
contract between Ohio Environmental Protection Agency (OEPA) and the Company
is unconstitutional and, thus, void. The complaint does not request money
damages, except for attorney fees and costs, but seeks to have the Ohio motor
vehicle emission inspection program and the Company's contract enjoined and
declared unconstitutional. Subsequently, the Company filed its motion to
intervene as an additional party defendant in order to protect its interest
in the contract challenged by the plaintiffs' action. The Company believes
that it has valid defenses to the claims contained in the complaint and
intends to defend the matter vigorously.
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<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
The Company is a party to various other legal proceedings and claims in the
ordinary course of business. Although the claims cannot be estimated, in the
opinion of management, the resolution of these matters will not have a
material adverse effect on the Company's consolidated financial position and
results of operations.
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of the Company's quarterly results of operations
for the years ended September 30, 1996 and 1995:
1996 QUARTERS ENDED
DEC. 31 MAR. 31 JUN. 30 SEP. 30
- -----------------------------------------------------------------------------
Total contract revenues $28,184 $30,024 $32,556 $33,708
Gross profit 6,292 1,812 7,416 6,803
Net income (loss) 5,588 (16,415) (6,337) (7,900)
Earnings (loss) per common and
common equivalent share $0.32 $(0.99) $(0.38) $(0.46)
Earnings (loss) per common share -
assuming full dilution $0.32 $(0.99) $(0.38) $(0.46)
1995 QUARTERS ENDED
DEC. 31 MAR. 31 JUN. 30 SEP. 30
- -----------------------------------------------------------------------------
Total contract revenues $22,745 $24,149 $29,066 $28,797
Gross profit 9,929 6,849 8,133 6,749
Net loss (211) (1,837) (2,409) (10,404)
Loss per common and common
equivalent share $(0.01) $(0.12) $(0.15) $(0.64)
Loss per common share -
assuming full dilution $(0.01) $(0.12) $(0.15) $(0.64)
21. FOREIGN OPERATIONS:
The Company's contract revenues from its foreign subsidiary, which is located
in Vancouver, British Columbia, Canada were approximately $10,147, $12,285 and
$13,450 for the years ended
74
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
September 30, 1996, 1995 and 1994, respectively, and were earned from a
single customer. Identifiable assets of the foreign subsidiary totaled
approximately $6,913, $5,686 and $6,221 at September 30, 1996, 1995 and 1994,
respectively. The foreign subsidiary had a gross profit of approximately
$572, $1,875 and $2,464 for the years ended September 30, 1996, 1995 and
1994, respectively.
22. SUMMARIZED SEPARATE FINANCIAL INFORMATION:
The Company's consolidated subsidiaries, Envirotest Technologies, Inc.
("ETI"), Remote Sensing Technology, Inc. and Envirotest Partners ("Partners")
are guarantors of the Senior Notes and Notes. The total assets, net equity
and net income of all the subsidiaries not guaranteeing the Senior Notes and
Notes are less than ten percent of the respective amounts reported in the
consolidated financial statements. As required by Rule 3-10(a) of Regulation
S-X, this footnote sets forth the summarized financial information of the
guarantor subsidiaries as of September 30, 1996 and 1995 and for the years
ended September 30, 1996, 1995 and 1994.
In accordance with Staff Accounting Bulletin No. 73, the summarized financial
information reflects the push down of the Company's debt, related interest
expense and allocable debt issue costs associated with the Company's
acquisition of ETI. In addition, as required by Staff Accounting Bulletin
No. 55, the summarized financial information reflects all of the expenses
that the Company incurred on the guarantors' behalf. Except for interest
expense, certain general and administrative expenses and income taxes,
expenses are separately identifiable and therefore, charged directly to the
guarantors. Interest expense is allocated based on the amount of debt
related to the acquisition of ETI; common general and administrative expenses
are allocated based on management's assessment of the actual costs associated
with the guarantors' operations; and income tax expense is provided in the
guarantors' financial data on a separate return basis. Management believes
that the methods used to allocate expenses to the guarantors are reasonable.
75
<PAGE>
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
COMBINED SUMMARIZED BALANCE SHEET DATA
SEPTEMBER 30, 1996 AND 1995
1996 1995
- ---------------------------------------------------------------------------
ASSETS
Current assets $ 8,193 $ 5,886
Non-current assets 129,046 250,961
-------- --------
Total assets $137,239 $256,847
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Due to parent $ 18,535 $144,596
Other current liabilities 8,191 10,242
-------- --------
Total current liabilities 26,726 154,838
Non-current liabilities 84,459 80,074
Stockholders' equity 26,054 21,935
-------- --------
Total liabilities and stockholders' equity $137,239 $256,847
-------- --------
COMBINED SUMMARIZED STATEMENTS OF OPERATIONS DATA
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
1996 1995 1994
- ------------------------------------------------------------------------------
Contract revenues $30,743 $45,047 $52,317
Gross profit 20,530 24,379 30,216
Net income 4,114 4,948 10,726
76
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
77
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors is incorporated by reference to the
Company's definitive proxy statement for its 1997 Annual Meeting of
Stockholders (the "1997 Proxy Statement"). Information regarding executive
officers of the Company, included herein under the caption, "Executive
Officers of the Company" in Part I, Item 1 herein, is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)1 FINANCIAL STATEMENTS
ENVIROTEST SYSTEMS CORP.
Consolidated Balance Sheets at September 30, 1996 and 1995.
Consolidated Statements of Operations for the years ended September 30,
1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the years ended
September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the years ended September 30,
1996, 1995 and
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<PAGE>
1994.
Notes to Consolidated Financial Statements
Report of Independent Accountants.
(a)2 FINANCIAL STATEMENTS SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
Schedules other than that listed above are omitted because they are not
required or are not applicable, or because the information is furnished
elsewhere in the financial statements or the notes thereto.
(a)3 EXHIBITS
3.1 Restated Certificate of Incorporation of Envirotest Systems Corp.
(f)
3.2 First Amended and Restated Bylaws of Envirotest Systems Corp. (j)
3.4 Restated Certificate of Incorporation of Envirotest Technologies,
Inc. (j)
3.5 Restated Bylaws of Envirotest Technologies, Inc. (g)
3.6 Second Amended and Restated Bylaws of Envirotest Systems Corp.
4.1 Indenture, dated as of April 1, 1993, by and among Envirotest
Systems Corp., as issuer, Envirotest Technologies, Inc., as
guarantor, and First Trust National Association, as trustee,
governing the 9 5/8% Senior Subordinated Notes due 2003 of
Envirotest Systems Corp. (f)
4.2 Indenture, dated as of March 15, 1994, by and among Envirotest
Systems Corp., as issuer, Envirotest Technologies, Inc., as
guarantor and First Trust National Association, as trustee,
governing the 9 1/8% Senior Notes due 2001 of Envirotest Systems
Corp. (h)
4.3 First Supplemental Indenture, dated as of March 16, 1994, by and
among Envirotest Systems Corp., as issuer, Envirotest Technologies,
Inc., Remote Sensing Technologies, Inc. and Envirotest Partners, as
guarantors, and First Trust National Association, as trustee,
governing the 9 5/8% Senior Subordinated Notes due 2003 of
Envirotest Systems Corp. (h)
4.4 Second Supplemental Indenture, dated as of May 28, 1994, by and
among Envirotest Systems Corp., as issuer, Envirotest
Technologies, Inc., Remote Sensing
79
<PAGE>
Technologies, Inc. and Envirotest Partners, as guarantors, and First
Trust National Association, as trustee, governing the 9 5/8%
Senior Subordinated Notes due 2003 of Envirotest Systems Corp. (j)
4.5 First Supplemental Indenture, dated as of March 15, 1994, by and among
Envirotest Systems Corp., as issuer, Envirotest Technologies, Inc.,
Remote Sensing Technologies, Inc. and Envirotest Partners, as
guarantors, and First Trust National Association, as trustee, governing
the 9 1/8% Senior Notes due 2001 of Envirotest Systems Corp. (j)
4.6 Third Supplemental Indenture, dated as of January 30, 1996, by and
among Envirotest Systems Corp., Envirotest Technologies, Inc., Remote
Sensing Technologies, Inc., Envirotest Partners, Envirotest Acquisition
Co., Systems Control, Inc., as guarantors, and First Trust National
Association, as trustee, governing the 9 5/8% Senior Subordinated Notes
due 2003 of Envirotest Systems Corp. (p)
4.7 Second Supplemental Indenture dated as of January 30, 1996 by and
among, Envirotest Systems Corp., Envirotest Technologies, Inc., Remote
Sensing Technologies, Inc., Envirotest Partners, Envirotest Acquisition
Co., Systems Control, Inc., as guarantors, and First Trust National
Association, as trustee governing the 9 1/8% Senior Notes due, 2001 of
Envirotest Systems Corp. (p)
4.8 Trust Indenture between Indiana Finance Authority and Old National
Trust Company, dated June 1, 1996. (p)
10.1 Amended and Restated Stockholders' Agreement, dated as of
April 10, 1992, by and among Envirotest Systems Corp., Georgetown
Partners Limited Partnership, Gnitrow Ltd., Equico Capital
Corporation, Amoco Venture Capital Company, UNC Ventures II, L.P.,
UNC Ventures, Inc., MESBIC Ventures, Inc., Internationale
Nederlanden (U.S.) Finance Corporation, Skopbank, Apollo Investment
Fund, L.P., Chemical Equity Associates, and each of the individuals
listed on the Schedule of Security holders attached thereto. (a)
10.2 Amendment No. 1 to Amended and Restated Stockholders'
Agreement, dated as of November 10, 1992, by and among Envirotest
Systems Corp. and the Management Stockholders signatory thereto. (a)
10.3 Stock Purchase Agreement, dated January 23, 1992, by and between
Envirotest Systems Corp. and SD-Scicon plc. (a)
10.4 Sale and Leaseback Agreement, dated as of December 14, 1990,
by and between
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<PAGE>
Hamilton Test Systems Ohio, Inc., as Lessor, and
Hamilton Test Systems, Inc., as Lessee. (a)
10.5 Amendment No. 1 to Sale and Leaseback Agreement, dated as of
December 14, 1990, by and between Hamilton Test Systems Ohio, Inc.,
as Lessor, and Hamilton Test Systems, Inc., as Lessee. (a)
10.6 Lease Supplement No. 1, dated December 21, 1990, by and between
Hamilton Test Systems Ohio, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.7 Lease Supplement No. 1, dated February 4, 1991, by and between
Hamilton Test Systems Ohio, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.8 Lease Supplement No. 2, dated March 28, 1991, by and between
Hamilton Test Systems Ohio, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.9 Amendment No. 2 to Sale and Leaseback Agreement, dated as of
July 12, 1991, by and between Hamilton Test Systems Ohio, Inc., as
Lessor, and Hamilton Test Systems, Inc., as Lessee. (a)
10.10 Amendment No. 3 to Sale and Leaseback Agreement, dated as of
April 10, 1992, by and between Hamilton Test Systems Ohio, Inc., as
Lessor, and Hamilton Test Systems, Inc., as Lessee. (a)
10.11 Amendment No. 4 to Sale and Leaseback Agreement, dated as of
November 17, 1992, by and between Kane Partners, L.P., as Lessor,
and Hamilton Test Systems, Inc., as Lessee. (a)
10.12 Sale and Leaseback Agreement, dated as of December 14, 1990,
by and between Hamilton Test Systems Nashville, Inc., as Lessor,
and Hamilton Test Systems, Inc., as Lessee. (a)
10.13 Lease Supplement No. 1, dated February 4, 1991, by and between
Hamilton Test Systems Nashville, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.14 Lease Supplement No. 2, dated March 11, 1991, by and between
Hamilton Test Systems Nashville, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.15 Amendment No. 1 to Sale and Leaseback Agreement, dated as of
July 12, 1991, by and between Hamilton Test Systems Nashville,
Inc., as Lessor, and Hamilton Test Systems, Inc., as Lessee. (a)
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<PAGE>
10.16 Lease Supplement No. 3, dated March 28, 1991, by and between
Hamilton Test Systems Nashville, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.17 Lease Termination, dated as of August , 1991, by and between
Hamilton Test Systems Nashville, Inc., as Lessor, and Hamilton Test
Systems, Inc., as Lessee. (a)
10.18 Amendment No. 2 to Sale and Leaseback Agreement, dated as of
April 10, 1992, by and between Hamilton Test Systems Nashville,
Inc., as Lessor, and Hamilton Test Systems, Inc., as Lessee. (a)
10.19 Supplementary Agreement dated as of July 12, 1991, by and
between Hamilton Test Systems Nashville, Inc., as Lessor, and
Hamilton Test Systems, Inc., as Lessee. (a)
10.20 Ebco-Hamilton Partnership Agreement, dated for reference
August 30, 1991, by and among Ebco Automotive Testing Holdings,
Ltd., Hamilton Test Systems (BC) Ltd., Ebco-Hamilton Test Systems
Ltd., Ebco Industries Ltd. and Hamilton Test Systems, Inc. (a)
10.21 Management Agreement, dated for reference August 30, 1991, by
and between Hamilton Test Systems, Inc. and Ebco-Hamilton Partners.
(a)
10.22 Form of Lease entered into by Ebco-Hamilton Partners and
Intrawest Development Corporation for real estate and improvements
used for program facilities in the British Columbia I/M program.
(a)
10.23 Development and Exclusive License Agreement, dated May 15,
1991, by and among Colorado Seminary (d/b/a the University of
Denver), Systems Control, Inc., Sun Electric Corporation, Donald H.
Stedman, Ph.D and Gary A. Bishop, Ph.D. (a)
10.28 Employment Agreement, dated as of July 1, 1992, by and between
Hamilton Test Systems, Inc. and Ronald M. Lancaster. (a)
10.30 Employment Agreement, dated as of January 1, 1993, by and
between Envirotest Systems Corp. and Chester C. Davenport. (c)
10.32 Supplemental Retirement Plan Agreement, dated as of
September 1, 1991, by and between Hamilton Test Systems, Inc. and
Sylvia C. Edmonds. (a)
10.34 Envirotest Systems Corp. Stock Option Plan, dated as of
January 21, 1993. (d)
10.35 Motor Vehicle Emissions Inspection Maintenance Program
Agreement, dated for
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<PAGE>
reference April 15, 1991, by and between Her
Majesty the Queen in Right of the Province of British Columbia and
Ebco-Hamilton Test Systems Ltd., and Guaranteed by Hamilton Test
Systems, Inc. (a)
10.36 Request for Proposal for the Design, Construction and
Operation of a Motor Vehicle Emissions, Inspection, and Maintenance
Program for the Lower Mainland of British Columbia, dated
September 28, 1990, as revised March 29, 1991. (a)
10.37 Technical Proposal, consisting of Volume IV Design/Operational
Proposal and Volume IV Appendices, submitted by Hamilton Test
Systems, Inc. in cooperation with the Ebco Group, dated
November 30, 1990. (a)
10.38 Motor Vehicle Emissions Inspection and Maintenance Program
Assignment and Assumption Agreement, dated for reference August 30,
1991, by and between Her Majesty the Queen in Right of the Province
of British Columbia and Ebco-Hamilton Test Systems Ltd., as
Assignor, and Ebco-Hamilton Test Systems Ltd., Ebco Automotive
Testing Holdings Ltd. and Hamilton Test Systems (B.C.) Ltd.,
carrying on business as Ebco-Hamilton Partners, as Assignee. (a)
10.39 Guarantee Agreement, dated for reference August 30, 1991, by
and between Hamilton Test Systems, Inc., as Guarantor, and the
Queen in Right of the Province of British Columbia. (a)
10.40 Motor Vehicle Emissions Inspection and Maintenance Program
Amendment No. 1, dated for reference May 15, 1991, by and between
Her Majesty the Queen in Right of the Province of British Columbia
and Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing
Holdings Ltd. and Hamilton Test Systems (B.C.) Ltd., carrying on
business as Ebco-Hamilton Partners. (a)
10.41 Motor Vehicle Emissions Inspection and Maintenance Program
Amendment No. 2, dated for reference May 31, 1991, by and between
Her Majesty the Queen in Right of the Province of British Columbia
and Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing
Holdings Ltd. and Hamilton Test Systems (B.C.) Ltd., carrying on
business as Ebco-Hamilton Partners. (a)
10.42 Motor Vehicle Emissions Inspection and Maintenance Program
Amendment No. 3, dated for reference December 13, 1991, by and
between Her Majesty the Queen in Right of the Province of British
Columbia and Ebco-Hamilton Test Systems Ltd., Ebco Automotive
Testing Holdings Ltd. and Hamilton Test Systems (B.C.) Ltd.,
carrying on business as Ebco-Hamilton Partners. (a)
10.43 Motor Vehicle Emissions Inspection and Maintenance Program
Amendment No. 4,
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<PAGE>
dated for reference April 1, 1992, by and between
Her Majesty the Queen in Right of the Province of British Columbia
and Ebco-Hamilton Test Systems Ltd., Ebco Automotive Testing
Holdings Ltd. and Hamilton Test Systems (B.C.) Ltd., carrying on
business as Ebco-Hamilton Partners. (a)
10.44 Contract for the Establishment and Operation of Motor Vehicle
Inspection Program Facilities for the State of Connecticut, dated
as of December 31, 1987, by and between the State of Connecticut
and Hamilton Test Systems, Inc. (a)
10.45 Extension and Modification of Contract between the State of
Connecticut and Hamilton Test Systems, Inc. for the Establishment
and Operation of Motor Vehicle Inspection Program Facilities Dated
December 31, 1987, dated as of May 20, 1992, by and between the
State of Connecticut and Hamilton Test Systems, Inc. (a)
10.46 Change Order to Contract between the State of Connecticut and
Hamilton Test Systems, Inc. for the Establishment and Operation of
Motor Vehicle Inspection Program Facilities Dated December 31,
1987, as Modified by an Extension and Modification Agreement
Effective May 20, 1992, dated as of July 30, 1992, by and between
the State of Connecticut and Hamilton Test Systems, Inc. (a)
10.47 Contract for Motor Vehicle Inspection Program (for Zone
3 -- Palm Beach County), dated as of January 31, 1990, by and
between the State of Florida, the Department of Highway Safety and
Motor Vehicle, and Systems Control, Inc. (Contract No. MO169). (a)
10.48 Request for Proposal No. 3646-89 for the Establishment and
Operation of the Motor Vehicle Inspection Program issued by the
State of Florida. (a)
10.49 Proposal to the Florida Department of Highway Safety and Motor
Vehicles in response to RFP 3646-89 submitted by Systems Control,
Inc. for Zones 3 and 5. (a)
10.50 Amendment No. 1 to the Motor Vehicle Inspection Program
Contract No. MO169, dated February 1, 1990, by and between the
State of Florida, the Department of Highway Safety and Motor
Vehicles, and Systems Control, Inc. (a)
10.51 Contract for Motor Vehicle Inspection Program (for Zone
5 -- Dade County), dated as of January 31, 1990, by and between the
State of Florida, the Department of Highway Safety and Motor
Vehicle, and Systems Control, Inc. (Contract No. MO171). (a)
10.52 Amendment No. 1 to the Motor Vehicle Inspection Program
Contract No. MO171, dated February 1, 1990, by and between the
State of Florida, the Department of
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<PAGE>
Highway Safety and Motor
Vehicle, and Systems Control, Inc. (a)
10.53 Professional Services Agreement, dated October 31, 1990, by
and between the Illinois Environmental Protection Agency and
Systems Control, Inc. (Agency Agreement No. VI-1024). (a)
10.54 Illinois Environmental Protection Agency's Scope of Services
for the Extension of the Vehicle Emission Test Program, dated
October 31, 1990. (a)
10.55 License Agreement, dated October 31, 1990, by and between the
Illinois Environmental Protection Agency and Systems Control, Inc.
(a)
10.56 Technical Proposal for the Extension of the Illinois Vehicle
Emission Test Program submitted by Systems Control, Inc. (a)
10.57 Amendment No. 1 to Professional Services Agreement Number
VI-1024, dated April 8, 1991, by and between the Illinois
Environmental Protection Agency and Systems Control, Inc. (a)
10.58 Amendment No. 2 to Professional Services Agreement Number
VI-1024, dated May 1, 1991, by and between the Illinois
Environmental Protection Agency and Systems Control, Inc. (a)
10.59 Contract-VI-1, dated July 31, 1985, by and between the
Illinois Environmental Protection Agency and Systems Control, Inc.
(a)
10.60 Request for Proposal for the Illinois Motor Vehicle Emissions
Inspection Program, dated January 1985. (a)
10.61 Contract No. DOT-MDE-92-001 for Establishment and Operation of
a Vehicle Emissions Inspection Program, dated as of January 1,
1992, by and between the State of Maryland (the Department of
Transportation, the Motor Vehicle Administration and the Department
of the Environment) and Systems Control, Inc. (a)
10.62 Invitation for Bids for Contract DOT-MDE-88-001, dated May 9,
1988. (a)
10.63 Technical Offer submitted by Systems Control, Inc. to the
State of Maryland, dated June 27, 1988. (a)
10.64 Systems Control, Inc.'s letter to the State of Maryland, dated
June 26, 1991. (a)
85
<PAGE>
10.65 General Conditions of the Contract for the Establishment and
Operation of Motor Vehicle Inspection/Maintenance Program for the
State of Minnesota, dated as of July 18, 1990, by and between the
State of Minnesota, acting through the Pollution Control Agency,
and Systems Control, Inc., doing business in Minnesota as Systems
Control Vehicle Testing, Inc. (a)
10.66 Request for Proposal for the Establishment and Operation of
Motor Vehicle Inspection/Maintenance Program for the State of
Minnesota Pollution Control Agency, dated November 20, 1989. (a)
10.67 Proposal submitted by Systems Control, Inc. to the State of
Minnesota Pollution Control Agency in response to the Request for
Proposal. (a)
10.68 Amendment No. 1 to the General Conditions of the Contract for
the Establishment and Operation of Motor Vehicle
Inspection/Maintenance Program for the State of Minnesota, dated as
of June 17, 1991, by and between the State of Minnesota, acting
through the Pollution Control Agency, and Systems Control, Inc.,
doing business in Minnesota as Systems Control Vehicle Testing,
Inc. (a)
10.69 Amendment No. 2 to the General Conditions of the Contract for
the Establishment and Operation of Motor Vehicle
Inspection/Maintenance Program for the State of Minnesota, dated as
of May 15, 1992, by and between the State of Minnesota, acting
through the Pollution Control Agency, and Systems Control, Inc.,
doing business in Minnesota as Systems Control Vehicle Testing,
Inc. (a)
10.70 Term Contract for Establishment and Performance of a Vehicular
Tailpipe Emissions Inspection Program for Cuyahoga County, dated
December 28, 1989, by and between the State of Ohio, the Ohio
Environmental Protection Agency (through the Department of
Administrative Services), and Hamilton Test System, Inc. (Term
Contract No. 680138-GS). (a)
10.71 Ohio Environmental Protection Agency Invitation to Bid for a
Vehicular Emissions Inspection Program for Cuyahoga County (Bid
No.: 680138-GS). (a)
10.72 Letter dated July 5, 1990 from the Ohio Environmental
Protection Agency to Hamilton Test Systems, Inc. (a)
10.73 Contract for Operation of Vehicle Inspection and Maintenance
Program, dated July 1990, by and between the Metropolitan
Government of Nashville and Davidson County and Hamilton Test
Systems, Inc. (a)
10.74 Terms and Specifications to Establish and Operate a Vehicle
Inspection and
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<PAGE>
Maintenance Program for Nashville and Davidson
County. (a)
10.75 Proposal submitted by Hamilton Test Systems, Inc. to the
Metropolitan Government of Nashville and Davidson County. (a)
10.76 Extension of the Contract for the Continued Operation of Motor
Vehicle Emissions Inspection and Maintenance Program Facilities for
the State of Wisconsin, dated as of August 1, 1988, by and between
the State of Wisconsin, the Department of Transportation, and
Hamilton Test Systems, Inc. (a)
10.77 Supplemental Agreement No. 5, dated as of March 23, 1989, by
and between the State of Wisconsin, the Department of
Transportation, and Hamilton Test Systems, Inc. (a)
10.78 Extension and Modification of the Contract for the Continued
Operation of Motor Vehicle Emissions Inspection and Maintenance
Program Facilities for the State of Wisconsin, dated as of
September 1, 1992, by and between the State of Wisconsin, the
Department of Transportation, and Hamilton Test Systems, Inc. (a)
10.79 Contract, dated September 30, 1992, by and between Hamilton
Test Systems, Inc. and the Environmental Protection Agency. (b)
10.80 Amendment No. 1 to Employment Agreement, dated as of
January 1, 1993, by and between Hamilton Test Systems, Inc. and
Ronald M. Lancaster. (c)
10.83 Stockholders' Agreement, dated as of March 30, 1993, by and
among Chester C. Davenport, Sylvia C. Edmonds, Georgetown Partners
Limited Partnership, Chemical Equity Associates, A California
Limited Partnership, TSG Ventures Inc., and the New Class B
Holders. (e)
10.84 Amendment No. 2 to Amended and Restated Stockholders'
Agreement, dated as of March 30, 1993, by and among Envirotest
Systems Corp., Georgetown Partners Limited Partnership,
Kane Partners, L.P., TSG Ventures Inc. (f/k/a/ Equico Capital
Corporation), Amoco Venture Capital Company, UNC Ventures II, L.P.,
UNC Ventures, Inc., MESBIC Ventures, Inc., Internationale
Nederlanden (U.S.) Finance Corporation, Skopbank, Apollo Investment
Fund, L.P., Chemical Equity Associates, and each of the individuals
listed on the Schedule of Securityholders attached thereto. (e)
10.85 Amendment No. 4 to Sale and Leaseback Agreement, dated as of
March 30, 1993, by and between Kane Partners, L.P., as Lessor, and
Hamilton Test Systems, Inc., as Lessee (relating to Tennessee
property). (e)
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10.86 Amendment No. 5 to Sale and Leaseback Agreement, dated as of
March 30, 1993, by and between Kane Partners, L.P., as Lessor, and
Hamilton Test Systems, Inc., as Lessee (relating to Ohio property).
(e)
10.87 Agreement for Consulting Services, dated as of September 1,
1993, by and between Envirotest Systems Corp. and Cheviot Capital
Advisors Inc. (f)
10.88 Contract for Centralized Emissions Inspection Facilities,
dated November 11, 1993, by and between the Commonwealth of
Pennsylvania, Department of Transportation, and Envirotest/Synterra
Partners. (f)
10.89 Request for Proposal for Pennsylvania's Centralized Vehicle
Inspection/Maintenance (I/M) Program, RFP Number 111142, dated June
21, 1993. (f)
10.90 An Agreement between the Colorado Department of Health, the
Colorado Department of Revenue and Envirotest Systems Corp., dated
February 22, 1994. (g)
10.91 Contract between the State of Connecticut and Envirotest
Systems Corporation for the Establishment and Operation of the
Motor Vehicle Inspection Program Facilities for the State of
Connecticut dated April 15, 1994. (h)
10.92 Contract Between the Department of Environment and
Conservation State of Tennessee and Envirotest Systems Corporation
Dated May 12, 1994. (i)
10.93 State of Ohio Environmental Protection Agency, Contract for
Services with Envirotest Systems Corp., dated October 1994, for
Montgomery, Clark and Greene Counties. (k)
10.94 State of Ohio Environmental Protection Agency, Contract for
Services with Envirotest Systems Corp., dated October 1994, for
Summit, Portage, Medina, Lake, Lorain and Geauga Counties. (k)
10.95 Agreement between the Wisconsin Department of Transportation
and Envirotest Systems Corp. for the establishment and Operation of
Motor Vehicle Emissions Inspection Facilities for the State of
Wisconsin, dated January, 1995. (k)
10.96 Employment Agreement, dated as of February 1, 1995 between
Envirotest Systems Corp. and Ralph E. Reins. (k)
88
<PAGE>
10.97 State of Ohio Environmental Protection Agency, Contract for
Services with Envirotest Systems Corp., dated April 25, 1995, for
Cuyahoga County. (l)
10.98 Separation, Release and Waiver Agreement, dated as of May 24,
1995 by and between the Company and William J. Beckham, Jr. (m)
10.99 Agreement with State of California, dated June 1995. (m)
10.100 General Release and Settlement Agreement, dated December 15,
1995 between Envirotest, the Commonwealth of Pennsylvania and the
Pennsylvania Department of Transportation. (n)
10.101 Release of Claim and Dismissal of Litigation before the
Commonwealth Court of the Commonwealth of Pennsylvania, dated
December 18, 1995. (n)
10.102 Contract between Bureau of Automotive Repairs for the State of
California and Remote Sensing Technologies, Inc., dated July
13, 1995. (n)
10.103 Employment Agreement between F. Robert Miller and Envirotest
Systems Corp. dated January 26, 1996. (o)
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. (o)
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. (o)
10.106 Agreement between Indiana Department of Environmental Management
and Envirotest Systems Corp. dated June 26, 1996. (p)
10.107 Loan Agreement between Envirotest Systems Corp. and Indiana
Development Finance Authority, dated June 1, 1996. (p)
10.108 Employment Agreement between C. Michael Alston and Envirotest Systems
Corp., effective January 1, 1996.
10.109 Employment Agreement between Raj Modi and Envirotest Systems Corp.,
effective January 1, 1996.
10.110 Employment Agreement between Lawrence Taylor and Envirotest
Systems Corp.,
89
<PAGE>
effective January 1, 1996.
10.111 Contract between State of Washington and Envirotest Systems Corp.
10.112 Purchase and Sale Agreement between ES Funding Corporation
and Envirotest Partners, dated November 26, 1996.
10.113 Liquidity Loan Agreement among The Liquidity Lenders, Market Street
Capital Corp., Envirotest Partners and PNC Bank, National
Association, dated November 26, 1996.
10.114 Receivables Purchase Agreement among Market Street Capital Corp., ES
Funding Corporation and PNC Bank, National Association, dated
November 26, 1996.
11. Statement of Computation of Per Share Earnings.
21. Subsidiaries of Envirotest Systems Corp. and Envirotest
Technologies, Inc.
23. Consent of Independent Accountants regarding incorporation by
reference to Registration Statement on Form S-8.
(a) Incorporated by reference to the similarly numbered Exhibits to the
Registrant's Registration Statement on Form S-1 (No. 33-57384)
filed on January 25, 1993.
(b) Incorporated by reference to the similarly numbered Exhibits to
Amendment No. 1 to the Registrant's Registration Statement on
Form S-1 (No. 33-57384) filed on March 12, 1993.
(c) Incorporated by reference to the similarly numbered Exhibits to
Amendment No. 2 to the Registrant's Registration Statement on
Form S-1 (No. 33-57384) filed on March 25, 1993.
(d) Incorporated by reference to the similarly numbered Exhibits to
Amendment No. 3 to the Registrant's Registration Statement on
Form S-1 (No. 33-57384) filed on March 30, 1993.
(e) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1993.
(f) Incorporated by reference to the similarly numbered Exhibits to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed on December 29, 1993.
(g) Incorporated by reference to the similarly numbered Exhibits to
Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 (No. 33-75406) filed on March 8, 1994.
(h) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1994.
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<PAGE>
(i) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1994.
(j) Incorporated by reference to the similarly numbered Exhibits to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, filed on December 29, 1994.
(k) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended December 31,1994.
(l) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1995.
(m) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995.
(n) Incorporated by reference to the similarly numbered Exhibits to the
Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed on December 29, 1995.
(o) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly report on Form 10-Q for the quarterly
period ended March 31, 1996.
(p) Incorporated by reference to the similarly numbered Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996.
(b) REPORTS ON FORM 8-K
The registrant filed no reports on Form 8-K during fiscal 1996.
91
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrants have duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Bethesda, State of Maryland, on the 24th day of
December, 1996.
ENVIROTEST TECHNOLOGIES, INC. ENVIROTEST SYSTEMS CORP.
By: /s/ Chester C. Davenport By: /s/ Chester C. Davenport
--------------------------- ---------------------------
Chester C. Davenport Chester C. Davenport
Chairman of the Board of Directors Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrants and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- -----
/s/ Chester C. Davenport
- ------------------------- Chairman of the Board December 24, 1996
(Chester C. Davenport) of Directors
/s/ F. Robert Miller
- ------------------------- President, Chief Operating December 23, 1996
(F. Robert Miller) Officer, Director
/s/ Raj Modi
- ------------------------- Vice President, Chief December 24, 1996
(Raj Modi) Financial Officer,
Treasurer and Assistant
Secretary (Principal
Financial and Accounting
Officer)
- -------------------------
(Richard L. Gelfond) Vice Chairman of the December ___, 1996
Board of Directors
/s/ Cleveland Christophe
- -------------------------- Director December 23, 1996
(Cleveland A. Christophe)
- -------------------------- Director December ___, 1996
(Edward Dugger III)
- -------------------------- Director December ___, 1996
(Craig M. Cogut)
92
<PAGE>
/s/ Robert W. Kasten Jr.
- ------------------------- Director December 23, 1996
(Robert W. Kasten, Jr.)
93
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Director and Stockholders
Envirotest Systems Corp.
Our report on the consolidated financial statements of Envirotest Systems
Corp. is included on page 43 of this Form 10-K. In connection with our
audits of the financial statements, we have also audited the related
financial statement schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
San Jose California
December 13, 1996
94
<PAGE>
ENVIROTEST SYSTEMS CORP.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Beginning Costs and Other Balance at
Classification of Period Expense Accounts Deductions End of Period
<S> <C> <C> <C> <C> <C>
SEPTEMBER 30, 1996
Allowance for
doubtful accounts $375 $74 -- -- $449
SEPTEMBER 30, 1995
Allowance for
doubtful accounts $354 $21 -- -- $375
SEPTEMBER 30, 1994
Allowance for
doubtful accounts $250 $104 -- -- $354
</TABLE>
95
<PAGE>
SECOND AMENDED AND RESTATED BYLAWS
OF
ENVIROTEST SYSTEMS CORP.
a Delaware corporation
(the "Company")
(As adopted on March 26, 1993,
amended on November 22, 1994, and further
amended in September 1996)
<PAGE>
TABLE OF CONTENTS
I. OFFICES. . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office. . . . . . . . . . . . . . . 1
1.2. Additional Offices . . . . . . . . . . . . . . 1
II. STOCKHOLDERS MEETINGS. . . . . . . . . . . . . . . . 1
2.1. Annual Meetings. . . . . . . . . . . . . . . . 1
2.2. Special Meetings . . . . . . . . . . . . . . . 1
2.3. Notices. . . . . . . . . . . . . . . . . . . . 1
2.4. Quorum . . . . . . . . . . . . . . . . . . . . 2
2.5. Voting of Shares . . . . . . . . . . . . . . . 2
2.5.1. Voting Lists. . . . . . . . . . . . . . 2
2.5.2. Votes Per Share . . . . . . . . . . . . 2
2.5.3. Proxies . . . . . . . . . . . . . . . . 3
2.5.4. Required Vote . . . . . . . . . . . . . 3
2.6. Consents in Lieu of Meeting. . . . . . . . . . 3
III. DIRECTORS. . . . . . . . . . . . . . . . . . . . . . 3
3.1. Purpose. . . . . . . . . . . . . . . . . . . . 3
3.2. Number . . . . . . . . . . . . . . . . . . . . 4
3.3. Election . . . . . . . . . . . . . . . . . . . 4
3.4. Vacancies. . . . . . . . . . . . . . . . . . . 4
3.5. Compensation . . . . . . . . . . . . . . . . . 4
IV. BOARD MEETINGS . . . . . . . . . . . . . . . . . . . 4
4.1. Annual Meetings. . . . . . . . . . . . . . . . 4
4.2. Regular Meetings . . . . . . . . . . . . . . . 4
4.3. Special Meetings . . . . . . . . . . . . . . . 4
4.4. Quorum, Required Vote. . . . . . . . . . . . . 5
4.5. Consent In Lieu of Meeting . . . . . . . . . . 5
V. COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . 5
5.1. Establishment; Standing Committees . . . . . . 5
5.1.1. Audit Committee . . . . . . . . . . . . 5
5.1.2. Compensation Committee. . . . . . . . . 6
5.2. Available Powers . . . . . . . . . . . . . . . 6
5.3. Unavailable Powers . . . . . . . . . . . . . . 6
5.4. Alternate Members. . . . . . . . . . . . . . . 6
5.5. Procedures . . . . . . . . . . . . . . . . . . 7
VI. OFFICERS . . . . . . . . . . . . . . . . . . . . . . 7
6.1. Elected Officers . . . . . . . . . . . . . . . 7
6.1.1. Chairman of the Board . . . . . . . . . 7
6.1.2. President . . . . . . . . . . . . . . . 7
6.1.3. Vice Presidents . . . . . . . . . . . . 8
6.1.4. Secretary . . . . . . . . . . . . . . . 8
6.1.5. Assistant Secretaries . . . . . . . . . 8
6.1.6. Treasurer . . . . . . . . . . . . . . . 8
6.1.7. Assistant Treasurers. . . . . . . . . . 9
6.2. Election . . . . . . . . . . . . . . . . . . . 9
6.3. Appointed Officers . . . . . . . . . . . . . . 9
<PAGE>
6.4. Multiple Officeholders, Stockholder and
Director Officers. . . . . . . . . . . . . . . 9
6.5. Compensation, Vacancies. . . . . . . . . . . . 9
6.6. Additional Powers and Duties . . . . . . . . . 9
6.7. Removal. . . . . . . . . . . . . . . . . . . . 10
VII. SHARE CERTIFICATES . . . . . . . . . . . . . . . . . 10
7.1. Entitlement to Certificates. . . . . . . . . . 10
7.2. Multiple Classes of Stock. . . . . . . . . . . 10
7.3. Signatures . . . . . . . . . . . . . . . . . . 10
7.4. Issuance and Payment . . . . . . . . . . . . . 10
7.5. Lost Certificates. . . . . . . . . . . . . . . 11
7.6. Transfer of Stock. . . . . . . . . . . . . . . 11
7.7. Registered Stockholders. . . . . . . . . . . . 11
VIII. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . 11
8.1. General. . . . . . . . . . . . . . . . . . . . 11
8.2. Actions by or in the Right of the Company. . . 12
8.3. Board Determinations . . . . . . . . . . . . . 12
8.4. Advancement of Expenses. . . . . . . . . . . . 13
8.5. Nonexclusive . . . . . . . . . . . . . . . . . 13
8.6. Insurance. . . . . . . . . . . . . . . . . . . 13
8.7. Certain Definitions. . . . . . . . . . . . . . 13
8.8. Change in Governing Law. . . . . . . . . . . . 14
IX. INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS. . . 14
9.1. Validity . . . . . . . . . . . . . . . . . . . 14
9.2. Disclosure, Approval . . . . . . . . . . . . . 14
9.3. Nonexclusive . . . . . . . . . . . . . . . . . 15
X. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . 15
10.1. Place of Meetings . . . . . . . . . . . . . . 15
10.2. Fixing Record Dates . . . . . . . . . . . . . 15
10.3. Means of Giving Notice. . . . . . . . . . . . 16
10.4. Waiver of Notice. . . . . . . . . . . . . . . 17
10.5. Attendance via Communications Equipment . . . 17
10.6. Dividends . . . . . . . . . . . . . . . . . . 17
10.7. Reserves. . . . . . . . . . . . . . . . . . . 17
10.8. Reports to Stockholders . . . . . . . . . . . 17
10.9. Contracts and Negotiable Instruments. . . . . 17
10.10. Fiscal Year . . . . . . . . . . . . . . . . . 18
10.11. Seal. . . . . . . . . . . . . . . . . . . . . 18
10.12. Books and Records . . . . . . . . . . . . . . 18
10.13. Resignation . . . . . . . . . . . . . . . . . 18
10.14. Surety Bonds. . . . . . . . . . . . . . . . . 18
10.15. Proxies in Respect of Securities of Other
Corporations. . . . . . . . . . . . . . . . . 19
10.16. Amendments. . . . . . . . . . . . . . . . . . 19
-ii-
<PAGE>
RESTATED BYLAWS
ARTICLE I.
OFFICES
Section 1.1. REGISTERED OFFICE. The registered office of the
Company within the State of Delaware shall be located at either (i) the
principal place of business of the Company in the State of Delaware or (ii)
the office of the corporation or individual acting as the Company's
registered agent in Delaware.
Section 1.2. ADDITIONAL OFFICES. The Company may, in addition to
its registered office in the State of Delaware, have such other offices and
places of business, both within and without the State of Delaware, as the
Board of Directors of the Company (the "Board") may from time to time
determine or as the business and affairs of the Company may require.
ARTICLE II.
STOCKHOLDERS MEETINGS
Section 2.1. ANNUAL MEETINGS. Annual meetings of stockholders
shall be held at a place and time on any weekday which is not a holiday as
shall be designated by the Board and stated in the notice of the meeting, at
which the stockholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by law
or by the certificate of incorporation, (i) may be called by the chairman of
the board or the president and (ii) shall be called by the president or
secretary at the request in writing of a majority of the Board or
stockholders owning capital stock of the Company representing forty percent
(40%) of the votes of all capital stock of the Company entitled to vote
thereat. Such request of the Board or the stockholders shall state the
purpose or purposes of the proposed meeting.
Section 2.3. NOTICES. Written notice of each stockholders'
meeting stating the place, date and hour of the meeting shall be given to
each stockholder entitled to vote thereat by or at the direction of the
officer calling such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting. If said notice is for a stockholders
meeting other than an annual meeting, it shall in addition state the purpose
or purposes for which said meeting is called, and the business transacted at
such meeting shall be limited to the matters so stated in said notice and any
matters reasonably related thereto.
<PAGE>
Section 2.4. QUORUM. The presence at a stockholders' meeting of
the holders, present in person or represented by proxy, of capital stock of
the Company representing a majority of the votes of all capital stock of the
Company entitled to vote thereat shall constitute a quorum at such meeting
for the transaction of business except as otherwise provided by law, the
certificate of incorporation or these Bylaws. If a quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present or represented. At such reconvened meeting at which a quorum shall
be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is
for more than thirty (30) days, or if after the adjournment a new record date
is fixed for the reconvened meeting, a notice of said meeting shall be given
to each stockholder entitled to vote at said meeting. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave
less than a quorum.
Section 2.5. VOTING OF SHARES.
Section 2.5.1. VOTING LISTS. The officer or agent who has
charge of the stock ledger of the Company shall prepare, at least ten (10)
days before every meeting of stockholders, a complete list of the
stockholders entitled to vote thereat arranged in alphabetical order and
showing the address and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours for a
period of at least ten (10) days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The original stock transfer
books shall be prima facie evidence as to who are the stockholders entitled
to examine such list or transfer books or to vote at any meeting of
stockholders. Failure to comply with the requirements of this section shall
not affect the validity of any action taken at said meeting.
Section 2.5.2. VOTES PER SHARE. Each outstanding share of
capital stock shall be entitled to vote in accordance with the provisions for
voting included in the certificate of incorporation. In determining the
number of shares of stock required by law, by the certificate of
incorporation or by these Bylaws to be represented for any purpose, or to
determine the outcome of any matter submitted to stockholders for approval or
consent, the
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number of shares represented or voted shall be weighted in accordance with
the provisions of the certificate of incorporation regarding voting powers of
each class of stock. Any reference in these Bylaws to a majority or a
particular percentage of the voting stock or a majority or a particular
percentage of the stock voting shall be deemed to refer to a majority or a
particular percentage, respectively, of the voting power of such stock.
Issues shall be determined by a class vote only when a class vote is required
by law or the certificate of incorporation.
Section 2.5.3. PROXIES. Every stockholder entitled to vote
at a meeting or to express consent or dissent without a meeting or a
stockholder's duly authorized attorney-in-fact may authorize another person
or persons to act for him by proxy. Each proxy shall be in writing, executed
by the stockholder giving the proxy or by his duly authorized attorney. No
proxy shall be voted on or after three (3) years from its date, unless the
proxy provides for a longer period. Unless and until voted, every proxy
shall be revocable at the pleasure of the person who executed it, or his
legal representatives or assigns, except in those cases where an irrevocable
proxy permitted by statute has been given.
Section 2.5.4. REQUIRED VOTE. When a quorum is present at
any meeting, the vote of the holders, present in person or represented by
proxy, of capital stock of the Company representing a majority of the votes
of all capital stock of the Company entitled to vote thereat shall decide any
question brought before such meeting, unless the question is one upon which,
by express provision of law or the certificate of incorporation or these
Bylaws, a different vote is required, in which case such express provision
shall govern and control the decision of such question.
Section 2.6. CONSENTS IN LIEU OF MEETING. Any action required to
be or which may be taken at any meeting of stockholders may be taken without
a meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock representing not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt, written
notice of the action taken by means of any such consent which is other than
unanimous shall be given to those stockholders who have not consented in
writing.
ARTICLE III.
DIRECTORS
Section 3.1. PURPOSE. The business of the Company shall be
managed by or under the direction of the Board, which may exercise
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all such powers of the Company and do all such lawful acts and things as are
not by law, the certificate of incorporation or these Bylaws directed or
required to be exercised or done by the stockholders. Directors need not be
stockholders or residents of the State of Delaware.
Section 3.2. NUMBER. The number of directors constituting the
entire Board shall be nine. The term "entire Board" as used in these Bylaws
means the total number of directors that the Company would have if there were
no vacancies.
Section 3.3. ELECTION. Directors shall be elected in accordance
with the provisions of the certificate of incorporation, and each director
shall hold office until his successor has been duly elected and qualified.
Section 3.4. VACANCIES. Vacancies and newly-created
directorships resulting from any increase in the authorized number of
directors shall be filled in accordance with the provisions of the
certificate of incorporation. No decrease in the size of the Board shall
serve to shorten the term of an incumbent director.
Section 3.5. COMPENSATION. Unless otherwise restricted by the
certificate of incorporation or these Bylaws, the Board shall have the
authority to fix the compensation of directors. The directors may be
reimbursed their expenses, if any, of attendance at each meeting of the Board
and may be paid either a fixed sum for attendance at each meeting of the
Board or a stated salary as director, or both. No such payment shall
preclude any director from serving the Company in any other capacity and
receiving compensation therefor. Members of committees of the Board may be
allowed like compensation for attending committee meetings.
ARTICLE IV.
BOARD MEETINGS
Section 4.1. ANNUAL MEETINGS. The Board shall meet as soon as
practicable after the adjournment of each annual stockholders' meeting at the
place of the stockholders' meeting. No notice to the directors shall be
necessary to legally convene this meeting, provided a quorum is present.
Section 4.2. REGULAR MEETINGS. Regularly scheduled, periodic
meetings of the Board may be held without notice at such times and places as
shall from time to time be determined by resolution of the Board and
communicated to all directors.
Section 4.3. SPECIAL MEETINGS. Special meetings of the Board (i)
may be called by the chairman of the board or president
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and (ii) shall be called by the president or secretary on the written request
of two directors or the sole director, as the case may be. Notice of each
special meeting of the Board shall be given, either personally or as
hereinafter provided, to each director at least 24 hours before the meeting
if such notice is delivered personally or by means of telephone, telegram,
telex or facsimile transmission and delivery, two days before the meeting if
such notice is delivered by a recognized express delivery service, and three
days before the meeting if such notice is delivered through the United States
mail. Any and all business may be transacted at a special meeting which may
be transacted at a regular meeting of the Board. Except as may be otherwise
expressly provided by law, the certificate of incorporation or these Bylaws,
neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice or waiver of notice of such meeting.
Section 4.4. QUORUM, REQUIRED VOTE. A majority of the directors
shall constitute a quorum for the transaction of business at any meeting of
the Board, and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the Board, except as may be
otherwise specifically provided by law, the certificate of incorporation or
these Bylaws. If a quorum shall not be present at any meeting, a majority of
the directors present may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.
Section 4.5. CONSENT IN LIEU OF MEETING. Unless otherwise
restricted by the certificate of incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board or any
committee thereof may be taken without a meeting, if all members of the Board
or committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or
committee.
ARTICLE V.
COMMITTEES OF DIRECTORS
Section 5.1. ESTABLISHMENT; STANDING COMMITTEES. The Board may
by resolution establish, name or dissolve one or more committees, each
committee to consist of one or more of the directors. Each committee shall
keep regular minutes of its meetings and report the same to the Board when
required. There shall exist the following standing committees, which
committees shall have and may exercise the following powers and authority:
Section 5.1.1. AUDIT COMMITTEE. The Audit Committee shall,
from time to time, meet to review and monitor the financial
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and cost accounting practices and procedures of the Company and its
subsidiaries and to report its findings and recommendations to the Board for
final action. The Audit Committee shall not be empowered to approve any
corporate action, of whatever kind or nature, and the recommendations of the
Audit Committee shall not be binding on the Board, except when, pursuant to
the provisions of Section 5.2 of these Bylaws, such power and authority have
been specifically delegated to such committee by the Board by resolution. In
addition to the foregoing, the specific duties of the Audit Committee shall
be determined by the Board by resolution.
Section 5.1.2. COMPENSATION COMMITTEE. The Compensation
Committee shall, from time to time, meet to review the various compensation
plans, policies and practices of the Company and its subsidiaries and to
report its findings and recommendations to the Board for final action. The
Compensation Committee shall not be empowered to approve any corporate
action, of whatever kind or nature, and the recommendations of the
Compensation Committee shall not be binding on the Board, except when,
pursuant to the provisions of Section 5.2 of these Bylaws, such power and
authority have been specifically delegated to such committee by the Board by
resolution. In addition to the foregoing, the specific duties of the
Compensation Committee shall be determined by the Board of Directors by
resolution.
Section 5.2. AVAILABLE POWERS. Any committee established
pursuant to Section 5.1 of these Bylaws, including the Audit Committee and
the Compensation Committee, but only to the extent provided in the resolution
of the Board establishing such committee or otherwise delegating specific
power and authority to such committee and as limited by law, the certificate
of incorporation and these Bylaws, shall have and may exercise all the powers
and authority of the Board in the management of the business and affairs of
the Company, and may authorize the seal of the Company to be affixed to all
papers which may require it.
Section 5.3. UNAVAILABLE POWERS. No committee of the Board shall
have the power or authority to amend the certificate of incorporation; adopt
an agreement of merger or consolidation; recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Company's property
and assets, a dissolution of the Company or a revocation of such a
dissolution; amend the Bylaws of the Company; or, unless the resolution
establishing such committee or the certificate of incorporation expressly so
provides, declare a dividend, authorize the issuance of stock or adopt a
certificate of ownership and merger.
Section 5.4. ALTERNATE MEMBERS. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a
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committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
Section 5.5. PROCEDURES. Time, place and notice, if any, of
meetings of a committee shall be determined by such committee. At meetings
of a committee, a majority of the number of members designated by the Board
shall constitute a quorum for the transaction of business. The act of a
majority of the members present at any meeting at which a quorum is present
shall be the act of the committee, except as otherwise specifically provided
by law, the certificate of incorporation or these Bylaws. If a quorum is not
present at a meeting of a committee, the members present may adjourn the
meeting from time to time, without notice other than an announcement at the
meeting, until a quorum is present.
ARTICLE VI.
OFFICERS
Section 6.1. ELECTED OFFICERS. The Board shall elect a chairman
of the board, a president, a treasurer and a secretary (collectively, the
"Required Officers") having the respective duties enumerated below and may
elect such other officers having the titles and duties set forth below which
are not reserved for the Required Officers or such other titles and duties as
the Board may by resolution from time to time establish:
Section 6.1.1. CHAIRMAN OF THE BOARD. The chairman of the
board, or in his absence, the president, shall preside when present at all
meetings of the stockholders and the Board. The chairman of the board shall
advise and counsel the president and other officers and shall exercise such
powers and perform such duties as shall be assigned to or required of him
from time to time by the Board or these Bylaws. The chairman of the board
may execute bonds, mortgages and other contracts requiring a seal under the
seal of the Company, except where required or permitted by law to be
otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the Board to some other officer or
agent of the Company. The chairman of the board may delegate all or any of
his powers or duties to the president, if and to the extent deemed by the
chairman of the board to be desirable or appropriate.
Section 6.1.2. PRESIDENT. The president shall be the chief
executive officer of the Company, shall have general and active management of
the business of the Company and shall see that all orders and resolutions of
the Board are carried into effect.
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In the absence of the chairman of the board or in the event of his inability
or refusal to act, the president shall perform the duties and exercise the
powers of the chairman of the board.
Section 6.1.3. VICE PRESIDENTS. In the absence of the
president or in the event of his inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated by the Board, or in the absence of any
designation, then in the order of their election or appointment) shall
perform the duties of the president, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the president. The
vice presidents shall perform such other duties and have such other powers as
the Board may from time to time prescribe.
Section 6.1.4. SECRETARY. The secretary shall attend all
meetings of the stockholders, the Board and (as required) committees of the
Board and shall record all the proceedings of such meetings in books to be
kept for that purpose. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board and shall
perform such other duties as may be prescribed by the Board or the president.
He shall have custody of the corporate seal of the Company and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it, and when so affixed, it may be attested by his signature or by
the signature of such assistant secretary. The Board may give general
authority to any other officer to affix the seal of the Company and to attest
the affixing thereof by his signature.
Section 6.1.5. ASSISTANT SECRETARIES. The assistant
secretary, or if there be more than one, the assistant secretaries in the
order determined by the Board (or if there be no such determination, then in
the order of their election or appointment) shall, in the absence of the
secretary or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the secretary and shall perform such other
duties and have such other powers as the Board may from time to time
prescribe.
Section 6.1.6. TREASURER. Unless the Board by resolution
otherwise provides, the treasurer shall be the chief accounting and financial
officer of the Company. The Treasurer shall have the custody of the
corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall
deposit all moneys and other valuable effects in the name and to the credit
of the Company in such depositories as may be designated by the Board. He
shall disburse the funds of the Company as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the
president and the Board, at its regular meetings, or when the
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Board so requires, an account of all his transactions as treasurer and of the
financial condition of the Company.
Section 6.1.7. ASSISTANT TREASURERS. The assistant
treasurer, or if there shall be more than one, the assistant treasurers in
the order determined by the Board (or if there be no such determination, then
in the order of their election or appointment) shall, in the absence of the
treasurer or in the event of his inability or refusal to act, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the Board may from time to time
prescribe.
Section 6.2. ELECTION. All elected officers shall serve until
their successors are duly elected and qualified or until their earlier death,
disqualification, retirement, resignation or removal from office.
Section 6.3. APPOINTED OFFICERS. The Board may also appoint or
delegate the power to appoint such other officers, assistant officers and
agents, and may also remove such officers and agents or delegate the power to
remove same, as it shall from time to time deem necessary, and the titles and
duties of such appointed officers may be as described in Section 6.1 for
elected officers; provided that the officers and any officer possessing
authority over or responsibility for any functions of the Board shall be
elected officers.
Section 6.4. MULTIPLE OFFICEHOLDERS, STOCKHOLDER AND DIRECTOR
OFFICERS. Any number of offices may be held by the same person, unless the
certificate of incorporation or these Bylaws otherwise provide. Officers
need not be stockholders or residents of the State of Delaware. Officers,
such as the chairman of the board, possessing authority over or
responsibility for any function of the Board must be directors.
Section 6.5. COMPENSATION, VACANCIES. The compensation of
elected officers shall be set by the Board. The Board shall also fill any
vacancy in an elected office. The compensation of appointed officers and the
filling of vacancies in appointed offices may be delegated by the Board to
the same extent as permitted by these Bylaws for the initial filling of such
offices.
Section 6.6. ADDITIONAL POWERS AND DUTIES. In addition to the
foregoing especially enumerated powers and duties, the several elected and
appointed officers of the Company shall perform such other duties and
exercise such further powers as may be provided by law, the certificate of
incorporation or these Bylaws or as the Board may from time to time determine
or as may be assigned to them by any competent committee or superior officer.
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Section 6.7. REMOVAL. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board.
ARTICLE VII.
SHARE CERTIFICATES
Section 7.1. ENTITLEMENT TO CERTIFICATES. Every holder of the
capital stock of the Company, unless and to the extent the Board by resolution
provides that any or all classes or series of stock shall be uncertificated,
shall be entitled to have a certificate, in such form as is approved by the
Board and conforms with applicable law, certifying the number of shares owned
by him.
Section 7.2. MULTIPLE CLASSES OF STOCK. If the Company shall be
authorized to issue more than one class of capital stock or more than one
series of any class, a statement of the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualification, limitations or restrictions of
such preferences and/or rights shall, unless the Board shall by resolution
provide that such class or series of stock shall be uncertificated, be set
forth in full or summarized on the face or back of the certificate which the
Company shall issue to represent such class or series of stock; provided
that, to the extent allowed by law, in lieu of such statement, the face or
back of such certificate may state that the Company will furnish a copy of
such statement without charge to each requesting stockholder.
Section 7.3. SIGNATURES. Each certificate representing capital
stock of the Company shall be signed by or in the name of the Company by (1)
the chairman of the board, the president or a vice president; and (2) the
treasurer, an assistant treasurer, the secretary or an assistant secretary of
the Company. The signatures of the officers of the Company may be
facsimiles. In case any officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to hold such office
before such certificate is issued, it may be issued by the Company with the
same effect as if he held such office on the date of issue.
Section 7.4. ISSUANCE AND PAYMENT. Subject to the provisions of
the law, the certificate of incorporation or these Bylaws, shares may be
issued for such consideration and to such persons as the Board may determine
from time to time. Shares may not be issued until the full amount of the
consideration has been paid, unless upon the face or back of each certificate
issued to represent any partly paid shares of capital stock there shall have
been set forth the total amount of the consideration to be paid
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therefor and the amount paid thereon up to and including the time said
certificate is issued.
Section 7.5. LOST CERTIFICATES. The Board may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, the Board
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require and/or to give the Company a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Company with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 7.6. TRANSFER OF STOCK. Upon surrender to the Company or
its transfer agent, if any, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer and of the payment of all taxes applicable to the transfer of said
shares, the Company shall be obligated to issue a new certificate to the
person entitled thereto, cancel the old certificate and record the
transaction upon its books; provided, however, that the Company shall not be
so obligated unless such transfer was made in compliance with applicable
state and federal securities laws.
Section 7.7. REGISTERED STOCKHOLDERS. The Company shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, vote and be held liable for
calls and assessments and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any person
other than such registered owner, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. GENERAL. The Company shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Company), by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, trustee, employee or agent of or in any other
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capacity with another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not,
of itself, create a presumption that the person did not act in good faith and
in a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, have reasonable cause to believe that his conduct was unlawful.
Section 8.2. ACTIONS BY OR IN THE RIGHT OF THE COMPANY. The
Company shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or
in the right of the Company to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, trustee, employee or agent of or in any other capacity with another
corporation, partnership, joint venture or trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 8.3. BOARD DETERMINATIONS. Any indemnification under
sections 8.1 and 8.2 (unless ordered by a court) shall be made by the Company
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in sections 8.1 and 8.2. Such determination shall be made (1) by the Board
of Directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is
not obtainable, or, even if obtainable a quorum of
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disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by the stockholders.
Section 8.4. ADVANCEMENT OF EXPENSES. Expenses incurred by a
director, officer, employee or agent of the Company in defending a civil or
criminal action, suit or proceeding shall (in the case of any action, suit or
proceeding against a director of the Corporation) or may (in the case of any
pending or threatened action, suit or proceeding against an officer, employee
or agent) be paid by the Company in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director, officer, employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company as authorized by law or in this section.
Section 8.5. NONEXCLUSIVE. The indemnification and advancement
of expenses provided by, or granted pursuant to, this section shall not be
deemed exclusive of any other rights to which any director, officer, employee
or agent of the Company seeking indemnification or advancement of expenses
may be entitled under any other Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent of the
Company and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 8.6. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising out
of his status as such, whether or not the Company would have the power to
indemnify him against such liability under the provisions of the statutes,
the Certificate of Incorporation or this section.
Section 8.7. CERTAIN DEFINITIONS. For purposes of this section,
(a) references to "the Company" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other
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enterprise, shall stand in the same position under the provisions of this
section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued; (b) references to "other enterprises" shall include employee
benefit plans; (c) references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and (d)
references to "serving at the request of the Company" shall include any service
as a director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to any employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Company" as referred to in this section.
Section 8.8. CHANGE IN GOVERNING LAW. In the event of any
amendment or addition to Section 145 of the General Corporation Law of the
State of Delaware or the addition of any other section to such law which
shall limit indemnification rights thereunder, the Company shall, to the
extent permitted by the General Corporation Law of the State of Delaware,
indemnify to the fullest extent authorized or permitted hereunder, any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of
the corporation), by reason of the fact that he is or was a director,
officer, employee or agent of the Company or is or was serving at the request
of the Company as a director, officer, employee, trustee or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
ARTICLE IX.
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 9.1. VALIDITY. Any contract or other transaction between
the Company and any of its directors, officers or stockholders (or any
corporation or firm in which any of them are directly or indirectly
interested) shall be valid for all purposes notwithstanding the presence of
such director, officer or stockholder at the meeting authorizing such
contract or transaction, or his participation or vote in such meeting or
authorization.
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Section 9.2. DISCLOSURE, APPROVAL. The foregoing shall, however,
apply only if the material facts of the relationship or the interest of each
such director, officer or stockholder is known or disclosed:
(1) to the Board and it nevertheless in good faith
authorizes or ratifies the contract or transaction by a majority
of the directors present, each such interested director to be
counted in determining whether a quorum is present but not in
calculating the majority necessary to carry the vote; or
(2) to the stockholders and they nevertheless in good
faith authorize or ratify the contract or transaction by a majority
of the shares present, each such interested person to be counted
for quorum and voting purposes.
Section 9.3. NONEXCLUSIVE. This provision shall not be
construed to invalidate any contract or transaction which would be valid in
the absence of this provision.
ARTICLE X.
MISCELLANEOUS
Section 10.1. PLACE OF MEETINGS. All stockholders, directors
and committee meetings shall be held at such place or places, within or
without the State of Delaware, as shall be designated from time to time by
the Board or such committee and stated in the notices thereof. If no such
place is so designated, said meetings shall be held at the principal business
office of the Company.
Section 10.2. FIXING RECORD DATES.
(a) In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board, and which record date shall not be more than
sixty (60) nor less than ten (10) days prior to any such action. If no
record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of
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the meeting; provided, however, that the Board may fix a new record date for
the adjourned meeting.
(b) In order that the Company may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is otherwise required, shall be
the first date on which a signed written consent setting forth the action
taken or proposed to be taken is delivered to the Company by delivery to its
registered office in the State of Delaware, its principal place of business,
or an officer or agent of the Company having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Company's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the
Board and prior action by the Board is required, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board adopts the resolution taking such prior action.
(c) In order that the Company may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is
fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board adopts the
resolution relating thereto.
Section 10.3. MEANS OF GIVING NOTICE. Whenever under law, the
certificate of incorporation or these Bylaws, notice is required to be given
to any director or stockholder, such notice may be given in writing and
delivered personally, through the United States mail, by a recognized express
delivery service (such as Federal Express) or by means of telegram, telex or
facsimile transmission, addressed to such director or stockholder at his
address or telex or facsimile transmission number, as the case may be,
appearing on the records of the Company, with postage and fees thereon
prepaid. Such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail or
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with an express delivery service or when transmitted, as the case may be.
Notice of any meeting of the Board may be given to a director by telephone and
shall be deemed to be given when actually received by the director.
Section 10.4. WAIVER OF NOTICE. Whenever any notice is
required to be given under law, the certificate of incorporation or these
bylaws, a written waiver of such notice, signed before or after the date of
such meeting by the person or persons entitled to said notice, shall be
deemed equivalent to such required notice. All such waivers shall be filed
with the corporate records. Attendance at a meeting shall constitute a
waiver of notice of such meeting, except where a person attends for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 10.5. ATTENDANCE VIA COMMUNICATIONS EQUIPMENT. Unless
otherwise restricted by law, the certificate of incorporation or these
Bylaws, members of the Board, any committee thereof or the stockholders may
hold a meeting by means of conference telephone or other communications
equipment by means of which all persons participating in the meeting can
effectively communicate with each other. Such participation in a meeting
shall constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 10.6. DIVIDENDS. Dividends on the capital stock of the
Company, paid in cash, property, or securities of the Company, as limited by
applicable law and applicable provisions of the certificate of incorporation,
may be declared by the Board at any regular or special meeting.
Section 10.7. RESERVES. Before payment of any dividend, there
may be set aside out of any funds of the Company available for dividends such
sum or sums as the Board from time to time, in its absolute discretion, think
proper as a reserve or reserves to meet contingencies, for equalizing
dividends, for repairing or maintaining any property of the Company, or for
such other purpose as the Board shall determine to be in the best interest of
the Company; and the Board may modify or abolish any such reserve in the
manner in which it was created.
Section 10.8. REPORTS TO STOCKHOLDERS. The Board shall present
at each annual meeting of stockholders, and at any special meeting of
stockholders when called for by vote of the stockholders, a statement of the
business and condition of the Company.
Section 10.9. CONTRACTS AND NEGOTIABLE INSTRUMENTS. Except as
otherwise provided by law or these Bylaws, any contract or other
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instrument relative to the business of the Company may be executed and delivered
in the name of the Company and on its behalf by the chairman of the board or
the president; and the Board may authorize any other officer or agent of the
Company to enter into any contract or execute and deliver any contract in the
name and on behalf of the Company, and such authority may be general or
confined to specific instances as the Board may by resolution determine. All
bills, notes, checks or other instruments for the payment of money shall be
signed or countersigned by such officer, officers, agent or agents and in
such manner as are permitted by these Bylaws and/or as, from time to time,
may be prescribed by resolution (whether general or special) of the Board.
Unless authorized so to do by these Bylaws or by the Board, no officer, agent
or employee shall have any power or authority to bind the Company by any
contract or engagement, or to pledge its credit, or to render it liable
pecuniarily for any purpose or to any amount.
Section 10.10. FISCAL YEAR. The fiscal year of the Company
shall be the twelve-month period ending on September 30.
Section 10.11. SEAL. The seal of the Company shall be in such
form as shall from time to time be adopted by the Board. The seal may be
used by causing it or a facsimile thereof to be impressed, affixed or
otherwise reproduced.
Section 10.12. BOOKS AND RECORDS. The Company shall keep
correct and complete books and records of account and shall keep minutes of
the proceedings of its stockholders, Board and committees and shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names
and addresses of all stockholders and the number and class of the shares held
by each.
Section 10.13. RESIGNATION. Any director, committee member,
officer or agent may resign by giving written notice to the chairman of the
board, the president or the secretary. The resignation shall take effect at
the time specified therein, or immediately if no time is specified. Unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 10.14. SURETY BONDS. Such officers and agents of the
Company (if any) as the president or the Board may direct, from time to time,
shall be bonded for the faithful performance of their duties and for the
restoration to the Company, in case of their death, resignation, retirement,
disqualification or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in their possession or under their
control belonging to the Company, in such amounts and by such surety
companies as the president or the Board may determine. The premiums on such
bonds
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shall be paid by the Company, and the bonds so furnished shall be in the custody
of the Secretary.
Section 10.15. PROXIES IN RESPECT OF SECURITIES OF OTHER
CORPORATIONS. The chairman of the board, the president, any vice president
or the secretary may from time to time appoint an attorney or attorneys or an
agent or agents for the Company to exercise, in the name and on behalf of the
Company, the powers and rights which the Company may have as the holder of
stock or other securities in any other corporation to vote or consent in
respect of such stock or other securities, and the chairman of the board, the
president, any vice president or the secretary may instruct the person or
persons so appointed as to the manner of exercising such powers and rights;
and the chairman of the board, the president, any vice president or the
secretary may execute or cause to be executed, in the name and on behalf of
the Company and under its corporate seal or otherwise, all such written
proxies or other instruments as he may deem necessary or proper in order that
the Company may exercise such powers and rights.
Section 10.16. AMENDMENTS. These Bylaws may be altered,
amended, repealed or replaced by the Board when such power is conferred upon
the Board by the certificate of incorporation, at any regular meeting of the
Board, or at any special meeting of the Board if notice of such alteration,
amendment, repeal or replacement is contained in the notice of such special
meeting. If the power to adopt, amend, repeal or replace these Bylaws is
conferred upon the Board by the certificate of incorporation, the power of
the stockholders to so adopt, amend, repeal or replace these Bylaws shall not
be divested or limited thereby, except as provided in the certificate of
incorporation.
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EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1996, by and between
ENVIROTEST SYSTEMS CORP., a Delaware corporation with an office at 246 Sobrante
Way, Sunnyvale, California 94086 (hereinafter referred to as the "Company"), and
C. MICHAEL ALSTON, an individual residing at 9706 Mill Race Estate Drive,
Vienna, Virginia 22182 (hereinafter referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee, and
the Employee desires to be employed by the Company, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Company shall employ the Employee, and the Employee shall
serve the Company, upon the terms and conditions hereinafter set forth.
(b) The employment of the Employee by the Company hereunder shall
commence as of the date hereof and, unless sooner terminated in the manner as
herein provided, shall terminate on the third anniversary hereof (the "Term");
PROVIDED, HOWEVER, that the Term shall automatically be extended for two (2)
years on the terms and conditions provided herein unless either party shall give
the other party no less than 90 days' written notice prior to the expiration of
the applicable term of employment.
2. DUTIES. During the Term, the Employee shall serve as Vice President
and General Counsel of the Company, faithfully and to the best of his ability,
and perform such duties and have such responsibilities and authority as are
consistent with (i) his position and status as Vice President and General
Counsel of the Company and (ii) the practices and policies of the Company
generally applicable to executive employment arrangements. The Employee shall
report directly to the President and Chief Executive Officer of the Company.
3. SALARY. During the first year of the Term of his employment
hereunder, the Company shall pay to the Employee a salary for his services at
a rate of $210,000 per annum, payable in accordance with the regular payroll
practices of the Company. For the second and third years of the Term, and if
the Term is extended for an additional period as provided in Paragraph 1(b)
of this Agreement, then during each subsequent year after the first year of
the Term the
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Company shall pay a salary for the Employee's service at a rate of the
previous year's salary for the immediately preceding year, increased by the
greater of (i) five percent (5.0%) or (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 additional year.
4. BONUS ARRANGEMENT; STOCK OPTIONS.
(a) In addition to the salary provided for in Paragraph 3 of this
Agreement, the Employee is eligible to participate in the Company's bonus and
other compensation plans for the Company's employees of like classification
during the term of employment hereunder. The Employee shall not be eligible for
payment under such a plan if his employment is terminated for cause.
(b) In the event that a "change of control" of the Company occurs
during the Term, one hundred percent (100%) of all options granted to the
Employee prior to the date on which such change of control occurs shall vest
upon such change of control and may be exercised by the Employee at any time
during the ninety (90) day period commencing upon the date such change of
control occurs. Change of control shall have the meaning set forth in Exhibit I
hereto.
5. EMPLOYEE BENEFITS AND PERQUISITES. During the Term, the Company will
provide to the Employee the following benefits and/or perquisites:
(a) The Employee shall be a participant in all benefit programs
provided for the Company's management executives of like classification,
including, but not limited to, insurance, retirement, tax-deferred plans, health
and other benefit plans (including the Medical Reimbursement Program) for which
he qualifies.
(b) The Employee shall be entitled to receive fringe benefits and
perquisites (other than the above-mentioned employee benefit plans and programs)
in the aggregate substantially equivalent to those provided to the Company's
management executives of like classification, including vacation time and
reasonable sick leave.
(c) The Employee shall be entitled to an insurance policy on his life
in the amount of $1 million for a beneficiary named by the Employee.
(d) During the Term, the Company shall furnish to the Employee an
automobile of the Company's reasonable choice. 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).
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6. PERMANENT DISABILITY. In the event of the permanent disability (as
hereinafter defined) of the Employee during the Term, the Company shall have the
right, upon written notice 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 pursuant
to Paragraph 8(b) of this Agreement. 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 Paragraph 6, "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.
7. DEATH. In the event of the death of the Employee during the Term, the
salary and other benefits to which the Employee is entitled pursuant to
Paragraph 8(b) hereof shall 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 shall have the right to name, from time to time, any one
person as beneficiary hereunder or, with the consent of the Board, he may make
other forms of designation of beneficiary or beneficiaries. The Employee's
designated beneficiary or personal representative, as the case may be, shall
accept the payments provided for in this Paragraph 7 in full discharge and
release of the Company of and from any further obligations under this Agreement.
Any other benefits due under applicable plans and programs of the Company shall
be determined under the provisions of such plans and programs.
8. TERMINATION AND EXPIRATION OF EMPLOYMENT.
(a) The Employee's employment hereunder may be terminated by the
Company for "cause" at any time. Termination of employment for "cause" shall
mean termination upon (1) the willful 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 of NOLO
CONTENDERE to) any felony, fraud or embezzlement or (5) any willful breach by
the Employee of the terms of this Agreement, unless any such breach of this
Agreement by the 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 breach of this Agreement for cause as
specified in such written notice to the Employee.
If the Employee is terminated for "cause," the Company shall have no
further obligations under this Agreement, except for the obligation to pay all
salary and other benefits earned but unpaid to the date of termination, and all
options granted to the Employee and not exercised prior to the date of such
termination shall be extinguished on the date of such termination.
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(b) If (i) the Company terminates the employment of the Employee
during the Term other than for "cause" (as defined in Paragraph 8(a) of this
Agreement), or (ii) during the Term there is a change in control of the
Company and the successor entity (or purchaser) does not accept an assignment
of this Agreement, or (iii) the terms of the Employee's employment are
materially adversely changed or his duties and responsibilities are
materially diminished, following a change of control or otherwise (including,
by way of example and not by limitation, by reason of the Employee ceasing to
be a Vice President and General Counsel of the Company), whereupon, in the
case of this clause (iii), the Employee shall have the right to consider his
employment hereunder to have been terminated by the Company by giving written
notice to the Company within 10 business days after the date on which the
Employee believes that such adverse change has occurred, the action(s)
constituting such adverse change or diminution, and the fact that he is
terminating this Agreement pursuant to this Paragraph 8(b)(iii), then (A) the
Company shall retain Employee and Employee agrees to serve as a consultant to
the Company for the longer of the remainder of the Term or twenty-four (24)
months ("Consulting Period"); (B) the Employee's options shall vest as set
forth in Section 4(b) above; (C) the Employee shall be entitled to continue
to receive (1) on the same schedule as was in existence prior to such
termination, payment of his base salary and all other benefits to which he is
entitled for the Consulting Period and (2) the pro rata portion of any bonus
earned by the Employee for the fiscal year in which the termination occurred;
and (D) if the Employee has relocated to California, then all expenses that
would have been permitted by the Company's Relocation Policy for relocation
of the Employee and his family to a location on the East Coast of the United
States of the Employee's choosing.
9. CONFIDENTIALITY; INJUNCTIVE RELIEF.
(a) Recognizing that the knowledge, information and relationship
with customers, suppliers and agents, and the knowledge of the Company's
business methods, systems, plans and policies which he may hereafter receive
or obtain as an employee of the Company, are valuable and unique assets of
the Company, the Employee agrees that, during and after the Term, he shall
not (otherwise than pursuant to his duties hereunder) disclose, without the
prior written approval of the Board, any such knowledge or information
pertaining to the Company, its business, personnel or policies, to any
person, firm, corporation or other entity, for any reason or purpose
whatsoever. The provisions of this Paragraph 9(a) shall not apply to
(i) information which is or shall become generally known to the public or the
trade, or information which is or shall become available in trade or other
publications (except by reason of the Employee's breach of his obligations
hereunder) and (ii) information which the Employee is required to disclose by
law or by a governmental entity or by an order of a court of competent
jurisdiction or pursuant to a subpoena from such a court or agency. If the
Employee is required by law or a court order to disclose such information, he
shall notify the Company of such requirement and provide the Company an
opportunity to contest such law or court order.
(b) The Employee acknowledges that the services to be rendered by him
are of a special, unique and extraordinary character and, in connection with
such services, he will have access to confidential information vital to the
Company's business. By reason of this, the
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Employee consents and agrees that if he violates any of the provisions of
this Agreement with respect to confidentiality, the Company would sustain
irreparable harm and, therefore, in addition to any other remedies which the
Company may have under this Agreement or otherwise, the Company shall be
entitled to apply to any court of competent jurisdiction for an injunction
restraining the Employee from committing or continuing any such violation of
this Agreement, and the Employee shall not object to any such application.
10. REPRESENTATION, WARRANTY AND COVENANT OF THE EMPLOYEE. The Employee
represents, warrants and covenants to the Company that he is not and will not
during the Term become a party to any agreement, contract or understanding,
whether employment or otherwise, which would in any way restrict or prohibit him
from undertaking or performing his employment in accordance with the terms and
conditions of this Agreement.
11. REPRESENTATION AND WARRANTY OF THE COMPANY. The Company represents
and warrants that this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with the terms herein set
forth, except to the extent that the enforceability of this Agreement may be
affected by bankruptcy, insolvency, reorganization, moratorium, or similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or equity).
12. DEDUCTIONS AND WITHHOLDING. The Employee agrees that the Company
shall withhold from any and all payments required to be made to the Employee
pursuant to this Agreement, all federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes and/or regulations from time to time in effect.
13. ENTIRE AGREEMENT. This Agreement, together with the other agreements
specifically referred to herein, sets forth the entire agreement and
understanding of the parties, and cancels and supersedes any and all prior
agreements and understandings (whether written or oral) between the parties
hereto, with respect to the employment of the Employee by the Company, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, to the other party
hereto at his or its address as set forth at the beginning of this Agreement.
Either party may change the address to which notices, requests, demands and
other communications hereunder shall be sent by sending written notice of such
change of address to the other party.
15. ASSIGNABILITY, BINDING EFFECT AND SURVIVAL. This Agreement shall
inure to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of the Employee, and
shall inure to the benefit of and be binding upon the Company
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and its successors and assigns. Notwithstanding the foregoing, the
obligations of the Employee may not be delegated and, except as expressly
provided in Paragraph 7 hereof relating to the designation of beneficiaries,
the Employee may not assign, transfer, pledge, encumber, hypothecate or
otherwise dispose of this Agreement, or any of his rights hereunder, and any
such attempted delegation or disposition shall be null and void and without
effect. The provisions of Paragraphs 6, 7, 8, 9, 21 and 22 hereof shall
survive termination of this Agreement.
16. AMENDMENT. This Agreement shall not be altered, modified, amended or
terminated except by written instrument signed by each of the parties hereto.
Waiver by either party hereto of any breach hereunder by the other party shall
not operate as a waiver of any other breach, whether similar to or different
from the breach waived.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
18. PARAGRAPH HEADINGS. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
19. SEVERABILITY. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
20. ARBITRATION. The parties agree that any disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to the Employee's employment with
the Company, the termination of that employment or any other dispute by and
between the parties or their successors or assigns, will be submitted to binding
arbitration in Los Angeles, California according to the rules and procedures of
the American Arbitration Association and California Code of Civil Procedure
Section 1283.05. The parties agree that each will bear his or its own
attorney's fees and costs in connection with any such arbitration and each party
will pay half of any costs associated with the arbitration. This arbitration
obligation extends to any and all claims that may arise by and between the
parties or their successors, assigns or affiliates, and expressly extends to,
without limitation, claims or causes of action for wrongful termination,
impairment of ability to compete in the open labor market, breach of an express
or implied contract, breach of any collective bargaining agreement, breach of
the covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the California
Constitution, the United States Constitution, and applicable state and federal
fair employment laws, federal equal employment opportunity laws, and federal and
state labor statutes and regulations,
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including, but not limited to, the Civil Rights Act of 1964, as amended, the
Fair Labor Standards Act, as amended, the Americans With Disabilities Act of
1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement
Income Security Act of 1974, as amended, and the Age Discrimination in
Employment Act of 1967.
21. CONSULTING SERVICES.
(a) For a period of one (1) year after the Employee ceases to be
employed by the Company (the "Additional Consulting Period"), at the discretion
of the Company (which discretion should be exercised within 30 days following
the end of the Term), the Company may elect to retain Employee and Employee
agrees to serve as a consultant to the Company. During the Additional
Consulting Period, Employee shall be available to provide such consulting
services to the Company as the Company may reasonably desire.
(b) During the Additional Consulting Period, if the Company has
elected to retain the Employee to serve as a consultant to the Company, the
Employee shall receive consulting fees in an amount equal to Employee's base
salary then in effect, less any appropriate deductions, that shall be paid in
accordance with the Company's ordinary payroll practices.
22. NONCOMPETITION. During (i) the Term of this Agreement, (ii) the
Consulting Period, if any, under Paragraph 8(b) hereof, and (iii) the Additional
Consulting Period, if the Company has elected to retain the Employee to serve as
a consultant to the Company, the Employee shall not, directly or indirectly,
without the prior written consent of the Company, provide consultation 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
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 shall not alone constitute a violation of this Agreement.
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 Employee further consents and
stipulates to the entry of such injunctive relief in such a court prohibiting
the Employee from
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<PAGE>
competing with the Company or any subsidiary or affiliates of the Company in
violation of this Agreement.
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and
year first above written.
ENVIROTEST SYSTEMS CORP.
By: /s/ Chester C. Davenport
------------------------------------
Its: Chairman of the Board of Directors
/s/ C. Michael Alston
---------------------------------------
C. Michael Alston, Individually
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<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 the Capital Stock of the Company having generally the
right to vote in the election for a 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>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1996, by and between
ENVIROTEST SYSTEMS CORP., a Delaware corporation with an office at 246 Sobrante
Way, Sunnyvale, California 94086 (hereinafter referred to as the "Company"), and
RAJ G. MODI, an individual residing at 7121 Placita Sin Codicia, Tuscon, Arizona
85718 (hereinafter referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee, and
the Employee desires to be employed by the Company, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Company shall employ the Employee, and the Employee shall
serve the Company, upon the terms and conditions hereinafter set forth.
(b) The employment of the Employee by the Company hereunder shall
commence as of the date hereof and, unless sooner terminated in the manner as
herein provided, shall terminate on the third anniversary hereof (the "Term");
PROVIDED, HOWEVER, that the Term shall automatically be extended for two (2)
years on the terms and conditions provided herein unless either party shall give
the other party no less than 90 days' written notice prior to the expiration of
the applicable term of employment.
2. DUTIES. During the Term, the Employee shall serve as Vice President,
Chief Financial Officer, Treasurer and Assistant Secretary of the Company,
faithfully and to the best of his ability, and perform such duties and have such
responsibilities and authority as are consistent with (i) his position and
status as Vice President, Chief Financial Officer, Treasurer and Assistant
Secretary of the Company and (ii) the practices and policies of the Company
generally applicable to executive employment arrangements. The Employee shall
report directly to the President and Chief Executive Officer of the Company.
3. SALARY. During the first year of the Term of his employment
hereunder, the Company shall pay to the Employee a salary for his services at a
rate of $210,000 per annum, payable in accordance with the regular payroll
practices of the Company. For the second and third years of the Term, and if
the Term is extended for an
<PAGE>
additional period as provided in Paragraph 1(b) of this Agreement, then during
each subsequent year after the first year of the Term the Company shall pay a
salary for the Employee's service at a rate of the previous year's salary for
the immediately preceding year, increased by the greater of (i) five percent
(5.0%) or (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 additional year.
4. BONUS ARRANGEMENT; STOCK OPTIONS.
(a) In addition to any payments under the Company's relocation
policy, the Employee will be paid a one-time moving bonus of $35,000 in
connection with his relocation from Phoenix to Sunnyvale.
(b) In addition to the salary provided for in Paragraph 3 of this
Agreement, the Employee is eligible to participate in the Company's bonus and
other compensation plans for the Company's employees of like classification
during the term of employment hereunder. Employee shall not be eligible for
payment under such a plan if his employment is terminated for cause.
(c) In the event that a "change of control" of the Company occurs
during the Term, one hundred percent (100%) of all options granted to the
Employee prior to the date on which such change of control occurs shall vest
upon such change of control and may be exercised by the Employee at any time
during the ninety (90) day period commencing upon the date such change of
control occurs. Change of control shall have the meaning set forth in Exhibit I
hereto.
5. EMPLOYEE BENEFITS AND PERQUISITES. During the Term, the Company will
provide to the Employee the following benefits and/or perquisites:
(a) The Employee shall be a participant in all benefit programs
provided for the Company's management executives of like classification,
including, but not limited to, insurance, retirement, tax-deferred plans, health
and other benefit plans (including the Medical Reimbursement Program) for which
he qualifies.
(b) The Employee shall be entitled to receive fringe benefits and
perquisites (other than the above-mentioned employee benefit plans and programs)
in the aggregate substantially equivalent to those provided to the Company's
management executives of like classification, including vacation time and
reasonable sick leave.
-2-
<PAGE>
(c) The Employee shall be entitled to an insurance policy on his life
in the amount of $1 million for a beneficiary named by the Employee.
(d) During the Term, the Company shall furnish to the Employee an
automobile of the Company's reasonable choice. 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).
(e) The Employee shall be entitled to relocation expenses in
accordance with the Company's Relocation Policy. It is understood that, at the
Company's request, the Employee will be relocating to the Company's headquarters
in Sunnyvale, California. If this Agreement is not extended for at least one
additional term (other than by termination of the Employee's employment pursuant
to Paragraph 8(a) of this Agreement) and the Employee's next employer is not
willing to pay for the Employee's relocation to his new location of employment,
the Company shall pay such reasonable relocation expenses of the Employee in
accordance with the Company's Relocation Policy.
6. PERMANENT DISABILITY. In the event of the permanent disability (as
hereinafter defined) of the Employee during the Term, the Company shall have the
right, upon written notice 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 pursuant
to Paragraph 8(b) of this Agreement. 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 Paragraph 6, "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.
7. DEATH. In the event of the death of the Employee during the Term, the
salary and other benefits to which the Employee is entitled pursuant to
Paragraph 8(b) hereof shall 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 shall have the right to name, from time to time, any one
person as beneficiary hereunder or, with the consent of the Board, he may make
other forms of designation of beneficiary or beneficiaries. The Employee's
designated beneficiary or personal representative, as the case may be, shall
accept the payments provided for in this Paragraph 7 in full discharge and
release of the Company of and from any further obligations under this Agreement.
Any other benefits due under applicable plans and programs of the Company shall
be determined under the provisions of such plans and programs.
-3-
<PAGE>
8. TERMINATION AND EXPIRATION OF EMPLOYMENT.
(a) The Employee's employment hereunder may be terminated by the
Company for "cause" at any time. Termination of employment for cause shall mean
termination upon (1) the willful 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 of NOLO
CONTENDERE to) any felony, fraud or embezzlement or (5) any willful breach by
the Employee of the terms of this Agreement, unless any such breach of this
Agreement by the 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 breach of this Agreement for cause as
specified in such written notice to Employee.
If the Employee is terminated for "cause," the Company shall have no
further obligations under this Agreement, except for the obligation to pay all
salary and other benefits earned but unpaid to the date of termination, and all
options granted to the Employee and not exercised prior to the date of such
termination shall be extinguished on the date of such termination.
(b) If (i) the Company terminates the employment of the Employee
during the Term other than for "cause" (as defined in Paragraph 8(a) of this
Agreement), or (ii) during the Term there is a change in control of the Company
and the successor entity (or purchaser) does not accept an assignment of this
Agreement, or (iii) the terms of the Employee's employment are materially
adversely changed or his duties and responsibilities are materially diminished,
following a change of control or otherwise (including, by way of example and not
by limitation, by reason of the Employee ceasing to be a Vice President and
Chief Financial Officer of the Company), whereupon, in the case of this clause
(iii), the Employee shall have the right to consider his employment hereunder to
have been terminated by the Company by giving written notice to the Company
within 10 business days after the date on which the Employee believes that such
adverse change has occurred, the action(s) constituting such adverse change or
diminution, and the fact that he is terminating this Agreement pursuant to this
Paragraph 8(b)(iii), then (A) the Company shall retain Employee and Employee
agrees to serve as a consultant to the Company for the longer of the remainder
of the Term or twenty-four (24) months ("Consulting Period"); (B) the Employee's
options shall vest as set forth in Section 4(b) above; and (C) the Employee
shall be entitled to continue to receive (1) on the same schedule as was in
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<PAGE>
existence prior to such termination, payment of his base salary and all other
benefits to which he is entitled for the Consulting Period and (2) the pro rata
portion of any bonus earned by the Employee for the fiscal year in which the
termination occurred.
9. CONFIDENTIALITY; INJUNCTIVE RELIEF.
(a) Recognizing that the knowledge, information and relationship with
customers, suppliers and agents, and the knowledge of the Company's business
methods, systems, plans and policies which he may hereafter receive or obtain as
an employee of the Company, are valuable and unique assets of the Company, the
Employee agrees that, during and after the Term, he shall not (otherwise than
pursuant to his duties hereunder) disclose, without the prior written approval
of the Board, any such knowledge or information pertaining to the Company, its
business, personnel or policies, to any person, firm, corporation or other
entity, for any reason or purpose whatsoever. The provisions of this
Paragraph 9(a) shall not apply to (i) information which is or shall become
generally known to the public or the trade, or information which is or shall
become available in trade or other publications (except by reason of the
Employee's breach of his obligations hereunder) and (ii) information which
the Employee is required to disclose by law or by a governmental entity or
by an order of a court of competent jurisdiction or pursuant to a subpoena
from such a court or agency. If the Employee is required by law or a court
order to disclose such information, he shall notify the Company of such
requirement and provide the Company an opportunity to contest such law or court
order.
(b) The Employee acknowledges that the services to be rendered by him
are of a special, unique and extraordinary character and, in connection with
such services, he will have access to confidential information vital to the
Company's business. By reason of this, the Employee consents and agrees that if
he violates any of the provisions of this Agreement with respect to
confidentiality, the Company would sustain irreparable harm and, therefore, in
addition to any other remedies which the Company may have under this Agreement
or otherwise, the Company shall be entitled to apply to any court of competent
jurisdiction for an injunction restraining the Employee from committing or
continuing any such violation of this Agreement, and the Employee shall not
object to any such application.
10. REPRESENTATION, WARRANTY AND COVENANT OF THE EMPLOYEE. The Employee
represents, warrants and covenants to the Company that he is not and will not
during the Term become a party to any agreement, contract or understanding,
whether employment or otherwise, which would in any way restrict or prohibit him
from undertaking or performing his employment in accordance with the terms and
conditions of this Agreement.
-5-
<PAGE>
11. REPRESENTATION AND WARRANTY OF THE COMPANY. The Company represents
and warrants that this Agreement constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with the terms herein set
forth, except to the extent that the enforceability of this Agreement may be
affected by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or equity).
12. DEDUCTIONS AND WITHHOLDING. The Employee agrees that the Company
shall withhold from any and all payments required to be made to the Employee
pursuant to this Agreement, all federal, state, local and/or other taxes which
the Company determines are required to be withheld in accordance with applicable
statutes and/or regulations from time to time in effect.
13. ENTIRE AGREEMENT. This Agreement, together with the other agreements
specifically referred to herein, sets forth the entire agreement and
understanding of the parties, and cancels and supersedes any and all prior
agreements and understandings (whether written or oral) between the parties
hereto, with respect to the employment of the Employee by the Company, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, to the other party
hereto at his or its address as set forth at the beginning of this Agreement.
Either party may change the address to which notices, requests, demands and
other communications hereunder shall be sent by sending written notice of such
change of address to the other party.
15. ASSIGNABILITY, BINDING EFFECT AND SURVIVAL. This Agreement shall
inure to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of the Employee, and shall
inure to the benefit of and be binding upon the Company and its successors and
assigns. Notwithstanding the foregoing, the obligations of the Employee may not
be delegated and, except as expressly provided in Paragraph 7 hereof relating to
the designation of beneficiaries, the Employee may not assign, transfer, pledge,
encumber, hypothecate or otherwise dispose of this Agreement, or any of his
rights hereunder, and any such attempted delegation or disposition shall be null
and void and without effect. The provisions of Paragraphs 6, 7, 8, 9, 21 and 22
hereof shall survive termination of this Agreement.
16. AMENDMENT. This Agreement shall not be altered, modified, amended or
terminated except by written instrument signed by each of the parties hereto.
Waiver
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<PAGE>
by either party hereto of any breach hereunder by the other party shall not
operate as a waiver of any other breach, whether similar to or different from
the breach waived.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
18. PARAGRAPH HEADINGS. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
19. SEVERABILITY. If any provision of this Agreement or the application
of any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
20. ARBITRATION. The parties agree that any disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to the Employee's employment with
the Company, the termination of that employment or any other dispute by and
between the parties or their successors or assigns, will be submitted to binding
arbitration in Los Angeles, California according to the rules and procedures of
the American Arbitration Association and California Code of Civil Procedure
Section 1283.05. The parties agree that each will bear his or its own
attorney's fees and costs in connection with any such arbitration and each party
will pay half of any costs associated with the arbitration. This arbitration
obligation extends to any and all claims that may arise by and between the
parties or their successors, assigns or affiliates, and expressly extends to,
without limitation, claims or causes of action for wrongful termination,
impairment of ability to compete in the open labor market, breach of an express
or implied contract, breach of any collective bargaining agreement, breach of
the covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the California
Constitution, the United States Constitution, and applicable state and federal
fair employment laws, federal equal employment opportunity laws, and federal and
state labor statutes and regulations, including, but not limited to, the Civil
Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the
Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as
amended, the Employee Retirement Income Security Act of 1974, as amended, and
the Age Discrimination in Employment Act of 1967.
-7-
<PAGE>
21. CONSULTING SERVICES.
(a) For a period of one (1) year after the Employee ceases to be
employed by the Company (the "Additional Consulting Period"), at the discretion
of the Company (which discretion should be exercised within 30 days following
the end of the Term), the Company may elect to retain Employee and Employee
agrees to serve as a consultant to the Company. During the Additional
Consulting Period, Employee shall be available to provide such consulting
services to the Company as the Company may reasonably desire.
(b) During the Additional Consulting Period, if the Company has
elected to retain the Employee to serve as a consultant to the Company, the
Employee shall receive consulting fees in an amount equal to Employee's base
salary then in effect, less any appropriate deductions, that shall be paid in
accordance with the Company's ordinary payroll practices.
22. NONCOMPETITION. During (i) the Term of this Agreement, (ii) the
Consulting Period, if any, under Paragraph 8(b) hereof, and (iii) the Additional
Consulting Period, if the Company has elected to retain the Employee to serve as
a consultant to the Company, the Employee shall not, directly or indirectly,
without the prior written consent of the Company, provide consultation 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
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 shall not alone constitute a violation of this Agreement.
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 Employee further consents and
stipulates to the entry of such injunctive relief
-8-
<PAGE>
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.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and
year first above written.
ENVIROTEST SYSTEMS CORP.
By: /s/ Chester C. Davenport
------------------------------------
Its: Chairman of the Board of Directors
/s/ Raj G. Modi
-----------------------------------------
Raj G. Modi, Individually
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<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 the Capital Stock of the Company having generally the
right to vote in the election for a 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>
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of January, 1996, by and between
ENVIROTEST SYSTEMS CORP., a Delaware corporation with an office at 246
Sobrante Way, Sunnyvale, California 94086 (hereinafter referred to as the
"Company"), and LARRY TAYLOR, an individual residing at 5072 Placita Diaz,
Tucson, Arizona 85718 (hereinafter referred to as the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Employee, and
the Employee desires to be employed by the Company, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter contained, the parties hereby agree as follows:
1. EMPLOYMENT AND TERM.
(a) The Company shall employ the Employee, and the Employee shall
serve the Company, upon the terms and conditions hereinafter set forth.
(b) The employment of the Employee by the Company hereunder shall
commence as of the date hereof and, unless sooner terminated in the manner as
herein provided, shall terminate on the third anniversary hereof (the
"Term"); PROVIDED, HOWEVER, that the Term shall automatically be extended for
two (2) years on the terms and conditions provided herein unless either party
shall give the other party no less than 90 days' written notice prior to the
expiration of the applicable term of employment.
2. DUTIES. During the Term, the Employee shall serve as Vice President
- - Marketing of the Company, faithfully and to the best of his ability, and
perform such duties and have such responsibilities and authority as are
consistent with (i) his position and status as Vice President -Marketing of
the Company and (ii) the practices and policies of the Company generally
applicable to executive employment arrangements. The Employee shall report
directly to the President and Chief Executive Officer of the Company.
3. SALARY. During the first year of the Term of his employment
hereunder, the Company shall pay to the Employee a salary for his services at
a rate of $182,000 per annum, payable in accordance with the regular payroll
practices of the Company. For the second and third years of the Term, and if
the Term is extended for an additional period as provided in Paragraph 1(b)
of this Agreement, then during each subsequent year after the first year of
the Term the Company shall pay a salary for the Employee's service at a rate
of the previous year's salary for the immediately preceding year, increased
by the greater of (i) five percent (5.0%) or (ii) the aggregate
<PAGE>
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 additional year.
4. BONUS ARRANGEMENT; STOCK OPTIONS.
(a) In addition to the salary provided for in Paragraph 3 of this
Agreement, the Employee is eligible to participate in the Company's bonus and
other compensation plans for the Company's employees of like classification
during the term of employment hereunder. Employee shall not be eligible for
payment under such a plan if his employment is terminated for cause.
(b) In the event that a "change of control" of the Company occurs
during the Term, one hundred percent (100%) of all options granted to the
Employee prior to the date on which such change of control occurs shall vest
upon such change of control and may be exercised by the Employee at any time
during the ninety (90) day period commencing upon the date such change of
control occurs. Change of control shall have the meaning set forth in
Exhibit I hereto.
5. EMPLOYEE BENEFITS AND PERQUISITES. During the Term, the Company
will provide to the Employee the following benefits and/or perquisites:
(a) The Employee shall be a participant in all benefit programs
provided for the Company's management executives of like classification,
including, but not limited to, insurance, retirement, tax-deferred plans,
health and other benefit plans (including the Medical Reimbursement Program)
for which he qualifies.
(b) The Employee shall be entitled to receive fringe benefits and
perquisites (other than the above-mentioned employee benefit plans and
programs) in the aggregate substantially equivalent to those provided to the
Company's management executives of like classification, including vacation
time and reasonable sick leave.
(c) The Employee shall be entitled to an insurance policy on his
life in the amount of $1 million for a beneficiary named by the Employee.
(d) During the Term, the Company shall furnish to the Employee an
automobile of the Company's reasonable choice. 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).
(e) It is understood that, at the Company's request, the Employee
will be relocating to the Company's headquarters in Sunnyvale, California.
It is understood and agreed by the Company that the Employee because of his
family's preference to remain in Arizona does not intend to relocate his
family to Sunnyvale. In lieu of the standard relocation package it is agreed
-2-
<PAGE>
that the Company will pay the Employee a relocation grant of money equal to
the estimated cost of relocation per the Company's standard relocation policy
for an employee of Mr. Taylor's position of Vice President. It will then be
Mr. Taylor's responsibility to secure and fund living accommodations in the
Sunnyvale area. Attachment I provides the agreed upon estimate of relocation
costs which Mr. Taylor would likely incur if he were to relocate his primary
residence from Arizona to the Sunnyvale area. It is agreed that this total
amount of money will be paid to Mr. Taylor in three equal annual installments
effective with the date of the agreement. In the event of the death or
termination under Paragraph 8(b) of this agreement or departure because of
permanent disability per Paragraph 6 of this agreement it is agreed that Mr.
Taylor or his estate will receive the agreed upon total of the estimated
relocation costs.
6. PERMANENT DISABILITY. In the event of the permanent disability (as
hereinafter defined) of the Employee during the Term, the Company shall have
the right, upon written notice 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 pursuant to Paragraph 8(b) of this Agreement. 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
Paragraph 6, "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.
7. DEATH. In the event of the death of the Employee during the Term,
the salary and other benefits to which the Employee is entitled pursuant to
Paragraph 8(b) hereof shall 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 shall have the right to name, from time to time,
any one person as beneficiary hereunder or, with the consent of the Board, he
may make other forms of designation of beneficiary or beneficiaries. The
Employee's designated beneficiary or personal representative, as the case may
be, shall accept the payments provided for in this Paragraph 7 in full
discharge and release of the Company of and from any further obligations
under this Agreement. Any other benefits due under applicable plans and
programs of the Company shall be determined under the provisions of such
plans and programs.
8. TERMINATION AND EXPIRATION OF EMPLOYMENT.
(a) The Employee's employment hereunder may be terminated by the
Company for "cause" at any time. Termination of employment for "cause" shall
mean termination upon (1) the willful 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 of NOLO CONTENDERE to) any felony, fraud or embezzlement or
(5) any
-3-
<PAGE>
willful breach by the Employee of the terms of this Agreement, unless any
such breach of this Agreement by the 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 the Employee hereunder by
reason of a willful breach of this Agreement for cause as specified in such
written notice to the Employee.
If the Employee is terminated for "cause," the Company shall have no
further obligations under this Agreement, except for the obligation to pay
all salary and other benefits earned but unpaid to the date of termination,
and all options granted to the Employee and not exercised prior to the date
of such termination shall be extinguished on the date of such termination.
(b) If (i) the Company terminates the employment of the Employee
during the Term other than for "cause" (as defined in Paragraph 8(a) of this
Agreement), or (ii) during the Term there is a change in control of the
Company and the successor entity (or purchaser) does not accept an assignment
of this Agreement, or (iii) the terms of the Employee's employment are
materially adversely changed or his duties and responsibilities are
materially diminished, following a change of control or otherwise (including,
by way of example and not by limitation, by reason of the Employee ceasing to
be a Vice President-Marketing of the Company), whereupon, in the case of this
clause (iii), the Employee shall have the right to consider his employment
hereunder to have been terminated by the Company by giving written notice to
the Company within 10 business days after the date on which the Employee
believes that such adverse change has occurred, the action(s) constituting
such adverse change or diminution, and the fact that he is terminating this
Agreement pursuant to this Paragraph 8(b)(iii), then (A) the Company shall
retain Employee and Employee agrees to serve as a consultant to the Company
for the longer of the remainder of the term or eighteen (18) months
("Consulting Period"); (B) the Employee's options shall vest as set forth in
Section 4(b) above; and (C) the Employee shall be entitled to continue to
receive (1) on the same schedule as was in existence prior to such
termination, payment of his base salary and all other benefits to which he is
entitled for the Consulting Period and (2) the pro rata portion of any bonus
earned by the Employee for the fiscal year in which the termination occurred.
9. CONFIDENTIALITY; INJUNCTIVE RELIEF.
(a) Recognizing that the knowledge, information and relationship
with customers, suppliers and agents, and the knowledge of the Company's
business methods, systems, plans and policies which he may hereafter receive
or obtain as an employee of the Company, are valuable and unique assets of
the Company, the Employee agrees that, during and after the Term, he shall
not (otherwise than pursuant to his duties hereunder) disclose, without the
prior written approval of the Board, any such knowledge or information
pertaining to the Company, its business, personnel or policies, to any
person, firm, corporation or other entity, for any reason or purpose
whatsoever. The provisions of this Paragraph 9(a) shall not apply to (i)
information which is or shall become generally known to the public or the
trade, or information which is or shall become available in trade or other
publications (except by reason of the Employee's breach of his obligations
hereunder) and (ii) information which the Employee is required to disclose by
law or by a governmental entity
-4-
<PAGE>
or by an order of a court of competent jurisdiction or pursuant to a subpoena
from such a court or agency. If the Employee is required by law or a court
order to disclose such information, he shall notify the Company of such
requirement and provide the Company an opportunity to contest such law or
court order.
(b) The Employee acknowledges that the services to be rendered by
him are of a special, unique and extraordinary character and, in connection
with such services, he will have access to confidential information vital to
the Company's business. By reason of this, the Employee consents and agrees
that if he violates any of the provisions of this Agreement with respect to
confidentiality, the Company would sustain irreparable harm and, therefore,
in addition to any other remedies which the Company may have under this
Agreement or otherwise, the Company shall be entitled to apply to any court
of competent jurisdiction for an injunction restraining the Employee from
committing or continuing any such violation of this Agreement, and the
Employee shall not object to any such application.
10. REPRESENTATION, WARRANTY AND COVENANT OF THE EMPLOYEE. The
Employee represents, warrants and covenants to the Company that he is not and
will not during the Term become a party to any agreement, contract or
understanding, whether employment or otherwise, which would in any way
restrict or prohibit him from undertaking or performing his employment in
accordance with the terms and conditions of this Agreement.
11. REPRESENTATION AND WARRANTY OF THE COMPANY. The Company
represents and warrants that this Agreement constitutes a valid and legally
binding obligation of the Company, enforceable in accordance with the terms
herein set forth, except to the extent that the enforceability of this
Agreement may be affected by bankruptcy, insolvency, reorganization,
moratorium, or similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding at law
or equity).
12. DEDUCTIONS AND WITHHOLDING. The Employee agrees that the Company
shall withhold from any and all payments required to be made to the Employee
pursuant to this Agreement, all federal, state, local and/or other taxes
which the Company determines are required to be withheld in accordance with
applicable statutes and/or regulations from time to time in effect.
13. ENTIRE AGREEMENT. This Agreement, together with the other
agreements specifically referred to herein, sets forth the entire agreement
and understanding of the parties, and cancels and supersedes any and all
prior agreements and understandings (whether written or oral) between the
parties hereto, with respect to the employment of the Employee by the
Company, and no statement, representation, warranty or covenant has been made
by either party with respect thereto except as expressly set forth herein.
14. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt
-5-
<PAGE>
requested, to the other party hereto at his or its address as set forth at
the beginning of this Agreement. Either party may change the address to which
notices, requests, demands and other communications hereunder shall be sent
by sending written notice of such change of address to the other party.
15. ASSIGNABILITY, BINDING EFFECT AND SURVIVAL. This Agreement shall
inure to the benefit of and shall be binding upon the heirs, executors,
administrators, successors and legal representatives of the Employee, and
shall inure to the benefit of and be binding upon the Company and its
successors and assigns. Notwithstanding the foregoing, the obligations of
the Employee may not be delegated and, except as expressly provided in
Paragraph 7 hereof relating to the designation of beneficiaries, the Employee
may not assign, transfer, pledge, encumber, hypothecate or otherwise dispose
of this Agreement, or any of his rights hereunder, and any such attempted
delegation or disposition shall be null and void and without effect. The
provisions of Paragraphs 6, 7, 8, 9, 21 and 22 hereof shall survive
termination of this Agreement.
16. AMENDMENT. This Agreement shall not be altered, modified, amended
or terminated except by written instrument signed by each of the parties
hereto. Waiver by either party hereto of any breach hereunder by the other
party shall not operate as a waiver of any other breach, whether similar to
or different from the breach waived.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW.
18. PARAGRAPH HEADINGS. The paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
19. SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the
application of such provision to such person or circumstances other than
those to which it is so determined to be invalid and unenforceable, shall not
be affected thereby, and each provision hereof shall be validated and shall
be enforced to the fullest extent permitted by law.
20. ARBITRATION. The parties agree that any disputes that may arise in
connection with, arising out of or relating to this Agreement, or any dispute
that relates in any way, in whole or in part, to the Employee's employment
with the Company, the termination of that employment or any other dispute by
and between the parties or their successors or assigns, will be submitted to
binding arbitration in Los Angeles, California according to the rules and
procedures of the American Arbitration Association and California Code of
Civil Procedure Section 1283.05. The parties agree that each will bear his
or its own attorney's fees and costs in connection with any such arbitration
and each party will pay half of any costs associated with the arbitration.
This arbitration obligation
-6-
<PAGE>
extends to any and all claims that may arise by and between the parties or
their successors, assigns or affiliates, and expressly extends to, without
limitation, claims or causes of action for wrongful termination, impairment
of ability to compete in the open labor market, breach of an express or
implied contract, breach of any collective bargaining agreement, breach of
the covenant of good faith and fair dealing, breach of fiduciary duty, fraud,
misrepresentation, defamation, slander, infliction of emotional distress,
disability, loss of future earnings, and claims under the California
Constitution, the United States Constitution, and applicable state and
federal fair employment laws, federal equal employment opportunity laws, and
federal and state labor statutes and regulations, including, but not limited
to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act,
as amended, the Americans With Disabilities Act of 1990, the Rehabilitation
Act of 1973, as amended, the Employee Retirement Income Security Act of 1974,
as amended, and the Age Discrimination in Employment Act of 1967.
21. CONSULTING SERVICES.
(a) For a period of one (1) year after the Employee ceases to be
employed by the Company (the "Additional Consulting Period"), at the
discretion of the Company (which discretion should be exercised within 30
days following the end of the Term), the Company may elect to retain Employee
and Employee agrees to serve as a consultant to the Company. During the
Additional Consulting Period, Employee shall be available to provide such
consulting services to the Company as the Company may reasonably desire.
(b) During the Additional Consulting Period, if the Company has elected
to retain the Employee to serve as a consultant to the Company, the Employee
shall receive consulting fees in an amount equal to Employee's base salary
then in effect, less any appropriate deductions, that shall be paid in
accordance with the Company's ordinary payroll practices.
22. NONCOMPETITION. During (i) the Term of this Agreement, (ii) the
Consulting Period, if any, under Paragraph 8(b) hereof, and (iii) the
Additional Consulting Period, if the Company has elected to retain the
Employee to serve as a consultant to the Company, the Employee shall not,
directly or indirectly, without the prior written consent of the Company,
provide consultation 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 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
-7-
<PAGE>
Regulation 13D under the Exchange Act) of not more than five percent (5%) of
the voting stock of any publicly held corporation shall not alone constitute
a violation of this Agreement.
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 Employee
further consents and stipulates to the entry of such injunctive 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.
IN WITNESS WHEREOF, the parties hereto set their hands as of the day and
year first above written.
ENVIROTEST SYSTEMS CORP.
By: /s/ Chester C. Davenport
-------------------------------------
Its: Chairman of the Board of Directors
/s/ Larry Taylor
------------------------------------------
Larry Taylor, Individually
-8-
<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 the Capital Stock of the Company having generally
the right to vote in the election for a 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>
ATTACHMENT I
L. TAYLOR
ESTIMATED COST OF RELOCATION
Projected sale price of Tucson house based on current market and
real estate agent input = $525,000
HOME SALE COSTS
Commission @ 6% = $31,500
Other Sale Expenses @ 1% of sell price = $5,250
NEW HOUSE PURCHASE COSTS
Assume purchase cost of $600,000
Assume 20% down payment; mortgage amount = $480,000
Loan Fee (2%) = $9,600 (Not subject to gross up)
Assume other purchase costs @ 1% of purchase price = $6,000
FURNITURE/VEHICLE MOVE
= $10,000
60 DAY TEMPORARY LIVING
2 months apartment rental @ $2,500 = $5,000
Meals @ $30 day x 3 (use $75 total) = $4,500
AIRFARE TO SAN JOSE
($114x3) = $542
HOUSE HUNTING TRIPS (2)
Airfare ($238 RDTP x 4) = $952
Hotel and meal expense for 2 total 10 days - $1,850
TOTAL EXPENSES SUBJECT TO GROSS UP = $65,052
GROSS UP @ 35% = $ 100,080
ADD LOAN FEE OF 9,600
ADD 1 MONTH SALARY 15,000
=========
$ 124,680
<PAGE>
REVISION 1
INVITATION FOR BID/CONTRACT
NUMBER 99-92
FOR
VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
NOTE: THIS IS A COMPLETE REVISION OF CONTRACT BID DOCUMENT
DISCARD PREVIOUS DOCUMENT DATED MARCH 20, 1992
REVISED BID OPENING DATE 4 JUNE 1992 TIME 2:00 P.M.
-------------------------------------
CONTRACT ADMINISTRATOR
William W. Griffin
Phone: (206)753-1046
/S/
------------------------------------
SIGNATURE DATE
<PAGE>
ALTERATION OF INVITATION TO BID 99-92
VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
NOTE:The following clauses contained herein are deleted as not applicable to
this Invitation to Bid/Contract.
SECTION I DEFINITIONS:
4.Conditional
9.Convenience
10.Political Subdivision
13.Recovered Material Content Products
SECTION III 1E RESPONSIBILITIES (LAST SENTENCE ONLY)
SECTION IV STANDARD TERMS & CONDITIONS:
17.Liens, Claims and Encumbrances
18.Delivery
19.Inspection and Rejection
20.Title and Risk of Loss
22.Identification
23.Charges for Handling
24.Invoicing
25.Payment
26.Quality Standards
28B.Rights Reserved (sub paragraph 4 only)
29.Supplier Registration
37.Minority & Womens Business Enterprises (MWBE)
38.Established Business
Supplement to SECTION II SCOPE OF CONTRACT, Paragraph 1B, Estimated Usage:
The State does not guarantee that the Contractor(s) will conduct a certain
number of paid inspections.
Bidders wishing to estimate their paid inspections may obtain magnetic data
tapes containing current vehicle registration information. The requestor and
user of information obtained from these tapes agrees that the State will not
be held liable for their accuracy or usefulness as the basis for projecting
paid inspections or adjusting any contract provision.
To obtain these tapes or for further information contact Curtis Carpenter of
the Department of Ecology at (206) 459-6225. Additional vehicle registration
data may be purchased. For further information, contact Jack Lince of the
Department of Licensing at (206) 753-7379.
<PAGE>
TABLE OF CONTENTS
Page
SECTION I
DEFINITIONS
1. BID.................................................... 1
A. Equal............................................. 1
B. Alternate......................................... 1
2. BIDDER................................................. 1
3. CONTRACT............................................... 1
4. CONDITIONAL............................................ 1
5. CONTRACTOR............................................. 1
6. CONTRACT ADMINISTRATOR................................. 2
7. CONTRACTOR'S REPRESENTATIVE............................ 2
8. CONTRACT DOCUMENTS..................................... 2
9. CONVENIENCE............................................ 2
10. POLITICAL SUBDIVISION.................................. 2
11. MANDATORY.............................................. 2
12. PURCHASER.............................................. 2
13. RECOVERED MATERIAL CONTENT PRODUCTS.................... 2
14. STATE AGENCY........................................... 3
SECTION II
SCOPE OF CONTRACT
1. MATERIALS, EQUIPMENT OR SERVICES....................... 1
A. Scope and Intent.................................. 1
B. Estimated Usage................................... 1
C. Misrepresentation................................. 1
2. PURCHASER.............................................. 1
A. Authorized Agency................................. 1
3. TERM OF CONTRACT....................................... 1
4. CONTRACT EXTENSION..................................... 1
5. PREBID CONFERENCE...................................... 1
6. BID RECEIPT AND OPENING................................ 2
SECTION III
INSTRUCTIONS TO BIDDERS
1. PREPARATION OF BID..................................... 1
A. Due Date and Time................................. 1
B. Format............................................ 1
C. Prices............................................ 1
D. Identification.................................... 1
E. Responsibilities.................................. 1
2. INQUIRIES.............................................. 2
3. WITHDRAWAL OR MODIFICATION OF BID...................... 2
A. Prior to submittal................................ 2
B. After submittal................................... 2
C. After bid opening................................. 2
4. CONTRACT FORMATION..................................... 2
5. AWARD RESULTS.......................................... 2
6. MINIMUM ORDER REQUIREMENTS............................. 2
<PAGE>
SECTION IV
STANDARD TERMS AND CONDITIONS
1. ENTIRE AGREEMENT....................................... 1
2. CONFLICT AND SEVERABILITY.............................. 1
A. Conflict.......................................... 1
B. Severability...................................... 1
3. ANTITRUST.............................................. 1
4. NONDISCRIMINATION AND AFFIRMATIVE ACTION............... 1
5. WORKERS RIGHT TO KNOW.................................. 1
6. GIFTS AND GRATUITIES................................... 2
7. RIGHTS AND REMEDIES.................................... 2
8. IN STATE PREFERENCE-RECIPROCITY........................ 2
9. PROTESTS............................................... 2
10. SAVE HARMLESS.......................................... 3
11. PERSONAL LIABILITY..................................... 3
12. SUPERVISION AND COORDINATION........................... 3
13. ADVERTISING............................................ 3
14. SUBCONTRACTS/ASSIGNMENT................................ 4
15. TAXES, FEES AND LICENSES............................... 4
A. Taxes............................................. 4
B. Fees/Licenses..................................... 4
16. WARRANTIES............................................. 4
A. Product........................................... 4
B. Price............................................. 4
17. LIENS, CLAIMS AND ENCUMBRANCES......................... 4
18. DELIVERY............................................... 4
A. Time.............................................. 4
B. Terms............................................. 5
C. Location.......................................... 5
D. Unauthorized...................................... 5
19. INSPECTION AND REJECTION............................... 5
20. TITLE AND RISK OF LOSS................................. 5
21. PERFORMANCE............................................ 5
22. IDENTIFICATION......................................... 5
23. CHARGES FOR HANDLING................................... 6
24. INVOICING.............................................. 6
25. PAYMENT................................................ 6
26. QUALITY STANDARDS...................................... 6
27. DETERMINATION OF RESPONSIBILITY........................ 6
28. AWARD FACTORS.......................................... 7
A. Criteria.......................................... 7
B. Rights Reserved................................... 7
29. SUPPLIER REGISTRATION.................................. 7
30. CHANGES................................................ 7
31. ADDITIONS OR DELETIONS................................. 7
32. CONTRACT SUSPENSION.................................... 7
33. TERMINATION............................................ 8
A. Termination for Convenience....................... 8
B. Termination for Breach............................ 8
C. Termination by Mutual Agreement................... 8
34. DEFAULT AND REMEDIES................................... 8
A. Events............................................ 8
B. Remedies.......................................... 8
<PAGE>
35. LEGAL FEES............................................. 9
36. FORCE MAJEURE.......................................... 9
A. Definition........................................ 9
B. Notification...................................... 9
C. Rights Reserved................................... 9
37. MINORITY AND WOMEN'S BUSINESS ENTERPRISES (MWBE)....... 9
38. ESTABLISHED BUSINESS.................................. 10
SECTION V
SPECIAL TERMS AND CONDITIONS
1. BID GUARANTEE.......................................... 1
2. PERFORMANCE GUARANTEE.................................. 1
A. Form.............................................. 1
B. Amount............................................ 1
C. Noncompliance..................................... 1
3. INSURANCE.............................................. 1
A. General Requirements.............................. 1
B. Specific Requirements............................. 2
4. MATERIALS AND WORKMANSHIP.............................. 3
5. EVALUATION CONFERENCE.................................. 3
6. PROPRIETARY DATA....................................... 3
7. RETENTION OF RECORDS................................... 3
8. OSHA AND WISHA REQUIREMENTS............................ 3
9. CONTRACTOR'S REPRESENTATIVE............................ 4
A. Designation....................................... 4
B. Responsibility.................................... 4
C. Availability...................................... 4
10. ESTIMATED USAGE........................................ 4
11. PROCUREMENT OF RECOVERED MATERIALS..................... 4
12. BID EVALUATION......................................... 4
13. AWARD.................................................. 5
14. COST AND PRICING DATA, SUPPORTING INFORMATION.......... 6
15. PRICING AND ADJUSTMENTS................................ 6
16. OPTION TO ACQUIRE ASSETS............................... 7
SECTION VI
SPECIFICATIONS
1.0 SCOPE....................................................... 1
2.0 PURPOSE..................................................... 1
3.0 DEFINITIONS................................................. 3
4.0 CONTRACT REQUIREMENTS....................................... 3
4.1 GENERAL SCOPE OF WORK....................................... 3
4.2 PROGRAM SCHEDULE............................................ 3
4.3 AUDITS...................................................... 4
5.0 TECHNICAL SPECIFICATIONS.................................... 5
5.1 INSPECTION STATION LOCATIONS AND NUMBER OF LANES............ 5
5.2 VEHICLE INSPECTION FEES..................................... 5
5.3 VEHICLE EMISSION INSPECTION STATION REQUIREMENTS............ 6
5.4 INSPECTION PROCEDURES....................................... 9
5.5 OPERATIONS................................................. 10
5.6 DATA AND DOCUMENTATION REQUIREMENTS........................ 14
6.0 PROGRAM ADMINISTRATION REQUIREMENTS........................ 16
6.1 COLLECTION FEES DEPOSITS,ESCROW ACCOUNT.................... 16
<PAGE>
6.2 ACCOUNTABILITY FOR FORMS................................... 17
6.3 CHANGES.................................................... 17
6.4 LIQUIDATION DAMAGES AND PAYMENT ADJUSTMENTS................ 18
6.5 CONFLICT OF INTEREST....................................... 20
APPENDIX A CHAPTER RCW MOTOR VEHICLE EMISSION CONTROL.............. 1-6
APPENDIX B CHAPTER 173-422 WAC MOTOR VEHICLE EMISSION
INSPECTION.............................................. 1-9
APPENDIX C DRAFT REGULATION REVISIONS ............................ 1-14
APPENDIX D ZONE LOCATION MAPS...................................... 1-5
APPENDIX E ESCROW INSTRUCTION AND AGREEMENT FORM................... 1-2
APPENDIX F LIQUIDATED DAMAGES CALCULATION EXAMPLE.................... 1
APPENDIX G EPA HIGH-TECH I/M TESTS, MARCH 1992 DRAFT ............. 1-39
APPENDIX H FORM SF351, BID BOND...................................... 1
APPENDIX I FORM SF352, PAYMENT AND PERFORMANCE BOND.................. 1
SECTION VII
OFFER AND CONTRACT AWARD
SECTION VIII
ATTACHMENTS
SECTION IX
NO BID RESPONSE
<PAGE>
SECTION I
DEFINITIONS
<PAGE>
SECTION I
DEFINITIONS
As used in this document, the following definitions shall apply:
1. BID
An offer to provide goods and/or services to the State in response to a
formal solicitation.
A.Equal An offer to provide goods and/or services which equal or exceed the
quality, performance and use of the goods and/or services specified as
standard.
B.Alternate An offer to provide goods and/or services which deviate with
respect to features, performance or use from the goods and/or services
specified as standard.
2. BIDDER
An individual, company, corporation, firm or combination thereof submitting a
bid to the State of Washington.
3. CONTRACT
An agreement, or mutual assent, between two or more competent parties with
the elements of the agreement being offered, acceptance and consideration.
DELETED 4. CONDITIONAL
State agencies are mandated to utilize this contract for all acquisitions of
materials, equipment or services designated herein except when the following
exists:
A.The purchaser is within existing delegated authorities and an agency has
completed the competitive acquisition process required by State statutes and
determined that materials, equipment or services of equal quality or
performance are available at a lower total acquisition cost. Total
acquisition cost(s) shall include: price, delivery, service, administration,
maintenance, terms of payment, etc. In the solicitation of pricing from other
firms, it is considered unethical to "auction' the contract price in an
effort to force a firm to meet or beat that price.
B.State agencies have completed the competitive acquisition process required
by state statutes and have determined that materials, equipment or services
of equal quality or performance are available at a lower total acquisition
cost. Total
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acquisition cost(s) shall include: price, delivery, service,
administration, maintenance, terms of payment, etc.
C.The minimum order quantity specified in the contract exceeds the
agency(ies) needs and would result in stockpiling of material at the agency
level.
5. CONTRACTOR
An individual, company, corporation, firm or combination thereof with whom
the State of Washington develops a contract for the procurement of goods
and/or services.
6.CONTRACT ADMINISTRATOR
An individual designated by the State of Washington. Department of General
Administration, Office of State Procurement to act on behalf of the state to
develop and administer contracts within the limits established by law.
7.CONTRACTOR'S REPRESENTATIVE
An individual, or individuals, designated by the Contractor to act on its
behalf and with the authority to legally bind the Contractor concerning the
terms and conditions set forth in bid and contract documents.
8.CONTRACT DOCUMENTS
Documents which comprise an entire agreement.
DELETED
9.CONVENIENCE
This contract is established strictly for the convenience of state agencies
and/or Political Subdivisions and any purchase against this agreement is at
their discretion.
DELETED
10.POLITICAL SUBDIVISION
Any unit of local government in receipt of state funds; e.g., cities,
counties, school districts, special purpose districts, local service
districts, authorized to purchase under state agency contracts by virtue of
interlocal agreement(s) entered into pursuant to Chapter 39.34 RCW and by the
terms of a specific contract.
11.MANDATORY
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State agencies are mandated to utilize this contract for all acquisitions of
materials, equipment or services designated herein. This section does not
apply to acquisitions by Political Subdivisions. Reference Section II,
Paragraph 1B (Items Included).
12.PURCHASER
Purchaser shall mean any state agency(ies) and/or Political Subdivision(s)
indicated as authorized contract users.
DELETED
13.RECOVERED MATERIAL CONTENT PRODUCTS
(1) "Post Consumer waste" which is:
(a)Paper, paperboard, and fibrous wastes from buildings such as retail
stores, office buildings, [and] homes after the wastes have passed through
their end-usage as a consumer item, including: Used corrugated boxes, old
newspapers, old magazines, mixed waste paper, tabulating cards, and used
cordage; and
(b)All paper, paperboard, and fibrous wastes that enter and are collected
from municipal solid waste; and
(2)"Secondary waste" including manufacturing and other wastes such as:
(a)Dry paper and paperboard waste generated after completion of the
papermaking process, that is, those manufacturing operations up to and
including the cutting and trimming of the paper machine reel into smaller
rolls or rough sheets including: Envelope cuttings, bindery trimmings, and
other paper and paperboard waste resulting from printing, cutting, forming,
and other converting operations; bag, box and carton manufacturing wastes;
and butt rolls, mill wrappers, and rejected unused stock;
(b)Finished paper and paperboard from obsolete inventories of paper and
paperboard manufacturers, merchants, wholesalers, dealers, printers,
converters, or others;
(c)Wastes generated by the conversion of goods made from fibrous material,
that is, waste rope from cordage manufacture, textile mill waste, and
cuttings; and
(d)Fibers recovered from waste water which otherwise would enter the waste
stream. [1988 c 175 Section 1; 1988(1 Section 1)]
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14.STATE AGENCY
Agency shall include: state institutions, colleges, community colleges and
universities, the offices of the elective state officers, The Supreme Court,
the Court of Appeals, the administrative and other departments of state
government, and the offices of all appointive officers of the state,
excluding the legislature.
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SECTION II
SCOPE OF CONTRACT
<PAGE>
SECTION II
SCOPE OF CONTRACT
MATERIALS, EQUIPMENT OR SERVICES
A.Scope and Intent The Office of State Procurement, Purchasing and Contract
Administration (the state) pursuant to RCW Chapter 43.19 as authorized agent
for State Of Washington, herewith solicits bids for: Establishing and
operation of motor vehicle emission inspection facilities.
B.Estimated Usage 640,000 to 1,020.000 inspections per year. (Reference
Section V, Paragraph 10)
C.Misrepresentation Contractor shall not misrepresent the scope of this
contract to Purchasers. Only goods and services stated herein may be
purchased against this contract. Misrepresentation may be cause for contract
termination.
2.PURCHASER
A.Authorized Agency: Department of Ecology is authorized to utilize this
contract, and such use is designated as mandatory as defined in Section 1.
3.TERM OF CONTRACT
Contract term shall be for a period from date of award through the 31st Day
of December, 1999.
4.CONTRACT EXTENSION
The state reserves the right to extend this contract for additional contract
terms or portions thereof. Contract extensions shall be subject to mutual
agreement. Total contract period with extensions shall not exceed ten (10)
years. Contractor shall respond within fifteen (15) calendar days following
receipt of Office of State Procurement's request for extension.
5.PREBID CONFERENCE
A conference to address contractual requirements will be held at the time and
location indicated below. If marked as mandatory, attendance by a
representative or authorized agent of the company intending to submit a bid
is required in order for the bid submitted to be considered responsive. If
marked as optional, prospective bidders are encouraged to be present. If
changes are
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required as a result of the conference, written bid addenda will
be issued.
Note:Assistance for handicapped, blind or hearing impaired persons who wish
to attend is available with prearrangement with the Office of State
Procurement. Contact the Contract Administrator identified on the face page
of this document.
Pre-bid: Date: Tuesday, 14 April 1992
Time: 9:00 A.M.
Location:
Office of State Procurement
Room 216
General Administration Bldg.,
Corner of 11th and Columbia
Olympia, Washington 98504-1017
Attendance: Optional [ ] Mandatory [X]
REVISED 6. BID RECEIPT AND OPENING: Submit signed original and
two copies of complete bid response. Bid must be received and
officially time stamped before bid opening date and time at the:
Office of State Procurement
Rm 21 6p General Administration Bldg
Corner of 11th and Columbia
Olympia, WA 98504-1017
Bid opening: Date Thursday June 4, 1992
Time 2:00 P.M.
Prior to receipt by the Office of State Procurement, the state will not be
responsible for mis-direction or delivery of bid documents.
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SECTION III
INSTRUCTIONS TO BIDDERS
<PAGE>
SECTION III
INSTRUCTIONS TO BIDDERS
1.PREPARATION OF BID
A. Due Date and Time Original, signed, sealed bids
must be received at the specified location on or before the date and time
indicated in Section II, paragraph 6 "Bid Receipt and Opening" at which time
they will be opened publicly and read aloud. Late bids will be returned
unopened.
B. Format Bids shall be submitted on the forms provided
in this document, portions of which may be copied. Bids must be typewritten
or in ink and signed in ink by the bidder's authorized representative.
Incomplete bids will be rejected unless such omissions do not materially
affect the bid itself. Telegraphic bids or mailgrams will only be considered
when approved in advance by the Contract Administrator. Telex or facsimile
bids will not be accepted unless the document submitted has an original
signature by an authorized representative of bidder in an ink color
contrasting with document.
C. Prices Bidders shall extend unit pricing as required.
In the event of an error in the extension of prices, the unit price shall
prevail. Bid prices shall be inclusive of all associated costs and shall
remain firm for ninety calendar days after bid opening date.
D. Identification Bid(s) must be submitted in a sealed
envelope with the Invitation for Bid (IFB) number, the Contract
Administrator's name, bid opening date and time clearly indicated on the
label provided by the state for this purpose. The envelope must also bear the
bidder's name and address~, preferably in the upper left hand corner. In the
event a label was not provided with the bid, all of the above information
should be written/typed on the outside of the envelope.
E. Responsibilities
Bidders shall:
- - Examine and understand this entire document and seek clarification from the
Contract Administrator if required pursuant to WAC 236-48-013 and WAC
236-48-081. Negligence in preparing a bid does not constitute the right of
withdrawal after bid opening.
- - Become familiar with and abide by current federal laws, state and local
statutes, regulations and ordinances which could impact pricing or
performance.
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- - Visit delivery and service location(s) as required. Become familiar with
and verify any environmental factors which may impact current or future
pricing for this requirement.
- - Respond to this IFB by submission of a bid or by the return of Section IX,
of this document, the "No Bid Response". Failure to respond to three (3)
successive IFB'S will result in removal of supplier's name from the bid
mailing list.
DELETED
SENTENCE
ONLY - Bid only contractual requirements that are in place and available at
time of bid submittal.
2.INQUIRIES
All questions related to this IFB shall be directed to the Contract
Administrator. Inquiries shall be in writing and shall reference the
appropriate section and paragraph number of this document. Questions received
less than ten (10) calendar days prior to bid opening may not be considered.
Only questions answered by formal written addenda shall be binding. Oral
interpretations shall be without legal effect.
3.WITHDRAWAL OR MODIFICATION OF BID
A.Prior to submittal Bid changes or modifications shall be initialed in ink
by an authorized company representative.
B.After submittal At any time prior to the specified bid due date and time,
bidder may withdraw the bid if such a request is submitted in writing. Bid
modifications must be submitted in writing prior to bid opening date and
time.
C.After bid opening No bid shall be altered or amended. The Director or
designee, may allow a bid to be withdrawn if bidder demonstrates that they
miscalculated bid prices.
4.CONTRACT FORMATION
Your bid response to this IFB is an offer to contract with the state. A bid
response becomes a contract when officially accepted by the state as
evidenced by return of a countersigned Section VII, "Offer and Contract
Award."
5.AWARD RESULTS
All bids submitted become the property of the state and are a matter of
public record.
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Bids are read aloud at the time of the bid opening, including but not limited
to, required bid attachments and total prices. This does not in any way
determine award of the contract to the lowest responsible and responsive
bidder.
A copy of the contract award notice will be furnished to bidders who include
a self-addressed stamped envelope with their bid. Additional information may
be obtained by attending the public bid opening or via review of the contract
file after award. Bid results will not be given over the phone.
6.MINIMUM ORDER REQUIREMENTS
Where applicable, bidder shall indicate minimum order requirements. Failure
to establish a minimum order shall waive all future rights of bidder to do
so. The state reserves the right to accept or reject bids with minimum
orders.
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SECTION IV
STANDARD TERMS AND CONDITIONS
<PAGE>
SECTION IV
STANDARD TERMS AND CONDITIONS
1. ENTIRE AGREEMENT
This document, including all addenda and subsequently issued change notices,
comprises the entire agreement between the State of Washington and the
Contractor and shall be governed by the laws of the State Of Washington
incorporated herein by reference. The venue for legal action shall be the
Superior Court for the State Of Washington, County of Thurston. The state
reserves the right to reject bids which propose alternate or additional terms
and conditions.
2. CONFLICT AND SEVERABILITY
A.Conflict In the event of conflict between contract documents and
applicable laws, codes, ordinances or regulations, the most stringent or
legally binding requirement shall govern and be considered a part of this
contract to afford the state maximum benefits.
B.Severability Any provision of this document found to be prohibited by law
shall be ineffective to she extent of such prohibition without invalidating
the remainder of the document.
3. ANTITRUST
The state maintains that, in actual practice, overcharges resulting from
antitrust violations are borne by the purchaser. Therefore, the Contractor
hereby assigns to the state any and all claims for such overcharges except
overcharges which result from antitrust violations commencing after the price
is established under this contract and which are not passed on to the state
under an escalation clause.
4.NONDISCRIMINATION AND AFFIRMATIVE ACTION
Acceptance of this contract binds the contractor to the terms and conditions
of Section 601, Title VI, Civil Rights Act of 1964, as may be amended:
In that "No person in the United States shall, on the grounds of race, color,
national origin, sex or age, be excluded from participation in, be denied the
benefits of, or be subject to discrimination under any program or activity
receiving Federal financial assistance." In addition, "No otherwise qualified
handicapped individual in the United States shall, solely by reason
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of his handicap, be excluded from the participation in, be denied the
benefits of, or be subjected to discrimination under any program or activity
receiving Federal financial assistance."
Unless exempted by Presidential Executive Order #11246, as may be amended or
replaced and applicable regulations thereunder, Contractor shall not
discriminate against any employee or applicant for employment.
5.WORKERS RIGHT TO KNOW
Recently passed "right to know" legislation required the Department of Labor
and Industries to establish a program to make employers and employees more
aware of the hazardous substances in their work environment. WAC 296-62-054
requires among other things that all manufacturers/distributors of hazardous
substances, including any of the items listed on this bid/quote/contract bid
and subsequent award must include with each delivery completed Material
Safety Data Sheets (MSDS) for each hazardous material. Additionally, each
container of hazardous material must be appropriately labeled with:
- - The identity of the hazardous material.
- - Appropriate hazardous warnings, and
- - Name and address of the chemical manufacturer, importer or other
responsible party.
Appropriate fines may be levied by Labor and Industries against employers for
noncompliance and agencies may withhold payment pending receipt of a legible
copy of the MSDS. It should be noted that OSHA Form 20 is not acceptable in
lieu of this requirement unless it is modified to include appropriate
information relative to "carcinogenic ingredients" and "routes of entry" of
the product(s) in question.
6.GIFTS AND GRATUITIES
In accordance with RCW 43.19.1937 and 1939, it is unlawful for any person to
directly or indirectly offer, give or accept gifts, gratuities, loans, trips,
favors, special discounts, services, or anything of economic value in
conjunction with state business practices.
7.RIGHTS AND REMEDIES
In the event of any claim for default or breach of contract, no provision in
this document or in the bidders offer shall be construed, expressly or by
implication, as a waiver by the state of any existing or future right and/or
remedy available by law. Failure of the state to insist upon the strict
performance of any term or condition of the contract or to exercise or delay
the exercise of any right or remedy provided in the contract or by law,
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or the acceptance of (or payment for) materials equipment or services, shall
not release the Contractor from any responsibilities or obligations imposed
by this contract or by law, and shall not be deemed a waiver of any right of
the state to insist upon the strict performance of the contract.
8.INSTATE PREFERENCE-RECIPROCITY
Pursuant to RCW 43.19.702 the Department of General Administration has
established a schedule of penalties applicable against firms submitting bids
from states which grant a preference to their own in-state businesses. The
penalties are listed below and apply only to bids received from the following
states:
Alaska............. 5% Montana............ 3%
Arkansas........... 3% New Mexico......... 5%
Hawaii............. 3% Ohio............... 5%
Louisiana.......... 7% Oklahoma........... 5%
Massachusetts...... 2% South Carolina..... 2%
West Virginia...... 2%
In determining the lowest responsible bidder, the Contract Administrator will
add an amount equal to the above percentage to each applicable bid submitted.
In no event shall such increase be paid to a contractor whose bid is accepted.
9.PROTESTS
Protests shall be filed and resolved in accordance with Washington
Administrative Code (WAC) 23 6-48-141 through 143. Protests filed prior to
award are to be addressed to the Contract Administrator in charge of the bid.
Protests filed after the award, and in accordance with above referenced WAC.
are to be addressed to the Assistant Director, Office of State Procurement.
10. SAVE HARMLESS
Contractor shall indemnify, defend and save harmless the state from any and
all claims, demands, suits, actions, proceedings, losses. costs and damages
of every kind and description, including any attorneys' fees and/or
litigation expenses, which may be brought or made against or incurred by the
state on account of losses of or damage to any property or for injuries to or
death of any person,
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caused by, arising out of, or contributed to, in whole or in part, by reasons
of any act, omission, professional error, fault, mistake or negligence of
Contractor, Contractor's employees, agents, representatives or
subcontractors, their employees, agents or representatives in connection with
or incidental to the performance of this agreement, or arising out of
Worker's Compensation claims, Unemployment Compensation' claims or
Unemployment Disability Compensation claims of employees of Contractor and/or
subcontractors or claim under similar such laws or obligations. Contractor
also agrees to protect and save harmless the purchaser against all claims,
suits or proceeding for patent, trademark, copyright, or franchise
infringement arising from the purchase, installation, or use of goods and
services ordered, and to assume all expenses and damages arising from such
claims, suits or proceedings. Contractor's obligation under this Section to
indemnify, defend and save harmless shall not be eliminated or reduced by any
alleged concurrent or sole negligence of the state or its agencies,
employees, and officers.
Contractor shall pay all attorney's fees and expenses incurred by the state
in establishing and enforcing the state's rights under this paragraph,
whether or not suit was instituted.
11. PERSONAL LIABILITY
It is agreed by and between the parties hereto that in no event shall any
official, officer, employee or agent of the State of Washington be in any way
personally liable or responsible for any covenant or agreement herein
contained whether expressed or implied, nor for any statement or
representation made herein or in any connection with this agreement.
12. SUPERVISION AND COORDINATION
Contractor shall:
- -Competently and efficiently supervise and direct the implementation and
completion of all contract requirements specified herein.
- -Designate in its bid to the state, a representative(s) with the authority to
legally commit Contractors firm. All communications given or received from
the Contractor's representative shall be binding or the Contractor. Reference
Section VIII, "Attachments".
- -Promote and offer to Purchasers only those materials, equipment and/or
services as stated herein and allowed for by contractual requirements.
Violation of this condition will be grounds for contract termination (Ref.
Section II, Paragraph 1.c).
13.ADVERTISING
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Contractor shall not advertise or publish information concerning this
contract in any form or media without prior written consent from the Contract
Administrator.
14. SUBCONTRACTS/ASSIGNMENT
Contractor shall not on subcontract or assign the operation of vehicle
inspection stations without the prior written consent of the Contract
Administrator. The Contractor shall be responsible to ensure that all
requirements of the contract shall flow down to any and all subcontractors.
15. TAXES. FEES AND LICENSES
A.Taxes Contractor shall pay for and maintain in current status any and all
taxes which are necessary for contract performance. Unless otherwise
indicated, the purchaser agrees to pay all State Of Washington sales or use
taxes. No charge by Contractor shall be made for federal excise taxes and the
purchaser agrees to furnish Contractor with an exemption certificate, where
appropriate. Sales tax shall not be included in bid pricing submitted.
B.Fees/Licenses Prior to bid opening the Contractor shall pay for and
maintain in a current status, any license fees, assessments, permit charges,
etc., which are necessary for contract performance. It is the contractor's
sole responsibility to monitor and determine any changes or the enactment of
any subsequent regulations for said fees, assessments or charges and to
immediately comply with said changes or regulations during the entire term of
this contract.
16.WARRANTIES
A.Product Contractor warrants that all materials, equipment and/or services
provided under this contract shall be fit for the purpose(s) for which
intended, for merchantability, and shall conform to the requirements and
specifications herein. Acceptance of any service and inspection incidental
thereto by the state, shall not alter or affect the obligations of the
Contractor or the rights of the state.
B.Price Contractor warrants that payments to be retained by the contractor do
not exceed those charged by the Contractor to any other customer purchasing
the same services under similar conditions and in like or similar quantities.
DELETED
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17.LIENS, CLAIMS AND ENCUMBRANCES
All materials, equipment or services shall be free of all liens, claims, or
encumbrances of any kind and if the state requests, a formal release of same
shall be delivered to the state.
DELETED
18.DELIVERY
A.Time Delivery must be made during normal work hours and within time frames
proposed by Bidder herein and subsequently accepted by the state. Failure to
comply may subject Contractor to nondelivery assessment charges and/or
liquidated damages as appropriate. The state reserves the right to refuse
shipment when delivered after normal working hours. Contractor shall verify
specific working hours of individual agencies and so instruct carrier(s) to
deliver accordingly. The acceptance by the purchaser of late performance with
or without objection or reservation shall not waive the right to claim damage
for such breach nor constitute a waiver of the requirements for the timely
performance of and' obligation remaining to be performed by Contractor.
B.Terms Unless otherwise specified, all goods are to be shipped FOB
Destination freight prepaid and included. Where specific authorization is
granted to ship goods FOB shipping point, Contractor agrees to prepay all
shipping charges, route as instructed or if instructions are not provided,
route by cheapest common carrier. Each invoice for shipping charges shall
contain the original or a copy of the freight bill indicating that the
payment for shipping has been made. The purchaser reserves the right to
refuse COD shipments.
C.Location All deliveries are to be made to the applicable delivery location
in accordance with ICC rules or as indicated in purchase order. When
applicable, Contractor shall take necessary actions to safeguard items during
inclement weather.
D.Unauthorized In no case shall Contractor initiate performance prior to
receipt of written or verbal authorization from authorized purchaser(s).
Expenses incurred otherwise shall be borne solely by the Contractor.
DELETED
19. INSPECTION AND REJECTION
The Purchaser's inspection of all materials and equipment upon delivery
is for the sole purpose of identification. Such inspection shall not be
construed as final acceptance or as acceptance of the materials or equipment
if materials or equipment do not conform to contractual requirements. If
there are any apparent defects in the materials or equipment at the time of
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delivery, the Purchaser will promptly notify the Contractor thereof. Without
limiting any other rights, the Purchaser and/or the state at its option, may
require the Contractor to:
- - Repair or replace, at Contractor's expense, any or all of the damaged
goods,
- - Refund the price of any or all of the damaged goods, or
- - Accept the return of any or all of the damaged goods.
DELETED
20. TITLE AND RISK OF LOSS
Regardless of FOB point, Contractor agrees to bear all risks of loss, injury
or destruction of goods and materials ordered herein which occur prior to
delivery and acceptance. Such loss, injury or destruction shall not release
Contractor from any obligation hereunder.
21. PERFORMANCE
Acceptance by the purchaser of unsatisfactory performance with or without
objection or reservation shall not waive the right to claim damage for breach
nor constitute a waiver of requirements for satisfactory performance of any
obligation remaining to be performed by Contractor.
DELETED
22. IDENTIFICATION
All invoices, packing lists, packages, instruction manuals, correspondence,
shipping notices, shipping containers and other written documents affecting
this contract shall be identified by the applicable purchase order or field
order number. Packing lists shall be enclosed with each shipment, indicating
the contents therein.
DELETED
23. CHARGES FOR HANDLING
No charges will be allowed for handling which includes but is not limited to
packing, wrapping, bags, containers or reels, unless otherwise stated herein.
DELETED
24. INVOICING
Contractor shall provide an original and two (2) copies of invoices. Each
invoice shall be submitted as required by the
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contract and shall reference the contract and field order or purchase order
number. Invoices shall be properly annotated with applicable prompt payment
discount(s).
DELETED
25. PAYMENT
Payment will be made by the state agency or political subdivision indicated
on ordering document. Any bid that requires payment in less than thirty (30)
calendar days need not be considered. Prompt payment discount periods of
thirty (30) calendar days or more will be considered in determining the
apparent lowest responsible and responsive bid. Invoices will not be
processed for payment nor will the period of cash discount commence until
receipt of a properly completed invoice and until all invoiced items are
received and satisfactory performance of Contractor has been attained. If an
adjustment in payment is necessary due to damage or dispute, the cash
discount period shall commence on the date final approval for payment is
authorized. Under "Chapter 39.76 RCW", if purchaser fails to make timely
payment(s), Contractor may invoice for 1 % per month on the amount overdue or
a minimum of $ 1.00. Payment will not be considered late if a check or
warrant is mailed within the time specified. If no terms are specified, net
30 days will automatically apply. Payment(s) made in accordance with contract
terms shall fully compensate the Contractor for all risk, loss, damages or
expense of whatever nature and acceptance of payment shall constitute a
waiver of all claims submitted by Contractor.
DELETED
26. QUALITY STANDARDS
Product or service specifications herein are intended solely to clearly
describe type and quality and not to be restrictive. Trade reference
specifications describe the type product thus far found to best meet agency
functional requirements and provide the most economical use life under agency
use situations. So as not to misrepresent the requirements herein, brands
other than those specified will therefore be considered on the basis of
whether at least equal in quality/performance. Failure to submit with bid
complete documentation sufficient to establish products bid as at least equal
will be complete grounds for rejection. By submitting bid, bidder expressly
warrants product bid as at least equal to bid in quality and performance. The
state's acceptance of a product bid as an "equal" is conditioned on the
state's inspection and testing after receipt. If, in the sole judgment of the
state, the item is determined not to be an equal, the bid may be rejected or
the product returned at bidder's expense and/or the contract cancelled
without any liability whatsoever to the state. Any bid containing a brand
which is not of equal quality, performance or use specified must be
represented as an "alternate" and not as an "equal":
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failure to do so shall be sufficient reason to consider the bid nonresponsive.
27. DETERMINATION OF RESPONSIBILITY
During bid evaluation, the state reserves the right to make reasonable
inquiry to determine the responsibility of any bidder. Requests may include.
but not be limited to, financial statements, credit ratings, references,
record of past performance, on-site inspection of bidder's or bidder's
subcontractor's facilities. Failure to respond to said request(s) will be
sufficient reason to consider the bid nonresponsive.
28. AWARD FACTORS
A.Criteria State contracts shall be awarded to the lowest responsible and
responsive bidder subject to the preferences provided by law. Award criteria
shall include all items as stated in RCW 43.19.1911 and WAC 236-48-093 and
the contractual requirements provided herein.
B.Rights Reserved
The state reserves the right to:
1.Waive any informalities.
2.Reject any or all bids, or portions thereof, WAC 236-48-094 allows the
state to "accept any portion of the items bid" unless the bidder stipulates
all or nothing on the bid.
3.Reissue an IFB or negotiate as the best interests of the state may require
whenever there is reason to believe that prices or terms are not the best
obtainable.
DELETED ITEM 4 ONLY
4.Award on an all or none consolidated basis taking into consideration
reduction in administrative costs as well as unit bid prices.
DELETED
29. SUPPLIER REGISTRATION
Prior to award of a contract, any unregistered bidder may be required to
complete a Supplier Registration Packet for placement on the state's supplier
list.
30. CHANGES
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No alteration in any of the terms, conditions, or contractual requirements
herein shall be effective without the written consent of the Contract
Administrator as evidenced by issuance by the state of a contract change
notice.
31. ADDITIONS OR DELETIONS
The state reserves the right to add or delete items, agencies or locations as
determined to be in the best interest of the state. Added items, agencies or
locations will be related to those on contract and additions or deletions
will not represent a significant increase or decrease in size or scope of the
contract. Such additions or deletions will be by mutual agreement, will be at
prices consistent with the original bid price margins, and will be evidenced
by issuance of a written contract change notice from the Contract
Administrator.
32. CONTRACT SUSPENSION
The state may at any time and without cause, suspend the contract or any
portion thereof, for a period of not more than thirty (30) calendar days, by
written notice to the Contractor. Contractor shall resume performance within
fifteen (15) calendar days of written notice from the state. If suspension is
issued prior to the contractor commencing the operation of vehicle inspection
stations, an extension may be granted to the required starting date of
operations equal to the period of suspension.
33.TERMINATION
A.Termination for Convenience The state may terminate this contract, in
whole or in part at any time and for any reason by giving a thirty (30)
calendar days written termination notice to Contractor. Termination charges,
when applicable, shall be computed in the following manner: (1) a sum
computed and substantiated in accordance with standard accounting practices
for those reasonable costs incurred by Contractor prior to the date of
termination, for orderly phase out of performance as requested by the state
in order to minimize the costs of the termination; and (2) a reasonable
profit for such work performed; however, the state shall not be liable to the
Contractor for any anticipated profits on the terminated portion of the
contract, or claims of unabsorbed overhead or other fixed costs. In no event
shall the state become liable to pay any sum in excess of the price of this
contract for the terminated services.
B.Termination for Breach Except in the case of delay or failure
resulting from circumstances beyond the control and without
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the fault or negligence of the Contractor or of the Contractor's suppliers or
subcontractors, the state shall be entitled, by written or oral notice, to
cancel this contract in its entirety or in part, for breach of any of the
terms herein, and to have all other rights against Contractor by reason of
Contractor's breach as provided by law and paragraph 34 below.
A breach shall mean any one or more of the following events: (1) Contractor
fails to perform the services by the date required or by such later date as
may be agreed to in a written amendment to the contract signed by the state;
(2) Contractor breaches any warranty, or fails to perform or comply with any
term or agreement in the contract; (3) Contractor makes any general
assignment for the benefit of creditors; (4) in the state's sole opinion,
Contractor becomes insolvent or in an unsound financial condition so as to
endanger performance hereunder; (5) Contractor becomes the subject of any
proceeding under any law relating to bankruptcy, insolvency or reorganization
or relief from debtors; or (6) any receiver, trustee or similar official is
appointed for Contractor or any of Contractor's property. If it is
subsequently found that Contractor was not in breach, the rights and
obligations of the parties shall be the same as if a Notice of Termination
had been issued pursuant to subparagraph 33.A.
C.Termination by Mutual Agreement The state or the Contractor may
terminate this contract in whole or in part, at any time, by mutual agreement
with a thirty (30) calendar days written notice from one party to the other.
34.DEFAULT AND REMEDIES
A.Events Any of the following events shall constitute cause for the state to
declare Contractor in default of the contract:
1.Nonperformance of contractual requirements.
2.A material breach of any term or condition of this contract.
The state shall issue a written notice of default providing a period in which
Contractor shall have an opportunity to cure. Time allowed for cure shall not
diminish or eliminate Contractor's liability for liquidated or other damages.
B.Remedies If the default remains, after Contractor has been provided the
opportunity to cure, the state may do one or more of the following:
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1.Exercise any remedy provided by law.
2.Terminate this contract and any related contracts or portions thereof.
3.Impose liquidated damages.
4.Suspend contractor from receiving future Invitations for Bid.
35. LEGAL FEES
The Contractor covenants and agrees that in the event suit is instituted by
the purchaser for any default on the part of the Contractor, and the
Contractor is adjudged by a court of competent jurisdiction to be in default,
he shall pay to the purchaser all costs. expenses expended or incurred by the
purchaser in connection therewith, and reasonable attorneys fees.
36. FORCE MAJEURE
A.Definition Except for payment of sums due, neither party shall be liable to
the other or deemed in default under this contract if and to the extent that
such party's performance of this contract is prevented by reason of force
majeure. The term "force majeure" means an occurrence that is beyond the
control of the party affected and could not have been avoided by exercising
reasonable diligence. Force majeure shall include acts of God, war, riots,
strikes, fire, floods, epidemics, or other similar occurrences.
B.Notification If either party is delayed by force majeure, said party shall
provide written notification within forty-eight (48) hours. The notification
shall provide evidence of the force majeure to the satisfaction of the other
party. Such delay shall cease as soon as practicable and written
notification of same shall be provided. The time of completion shall be
extended by contract modification for a period of time equal to the time that
the results or effects of such delay prevented the delayed party from
performing in accordance with this contract.
C.Rights Reserved The state reserves the right to cancel the contract and/or
purchase materials, equipment or services from the best available source
during the time of force majeure, and Contractor shall have no recourse
against the state.
DELETED
37. MINORITY AND WOMEN'S BUSINESS ENTERPRISES (MWBE)
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MWBE requirements are set forth in Section VIII, "Attachments" to this
Invitation for Bid and are hereby incorporated into the terms and conditions
of this contract. Bidders are encouraged to contact the Office of Minority
and Women's Business Enterprises (OMWBE) to obtain information on certified
MWBE firms for potential subcontracting arrangements. Participation goals
may also be met by entering into a Business Partnership Plan (B.P.P).
Information on setting up a B.P.P. is available from OMWBE, Telephone (206)
753-9693.
DELETED
38.ESTABLISHED BUSINESS
To be considered responsive, bidder must, at the time of bid opening, or
prior to that time if required by law, be an established business firm with
all required licenses, bonding, facilities, equipment and trained personnel
necessary to perform the work as specified in the bid solicitation.
The state reserves the right to require proof of said requirements within 10
calendar days from the date of request.
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SECTION V
SPECIAL TERMS AND CONDITIONS
<PAGE>
SECTION V
SPECIAL TERMS AND CONDITIONS
1. BID GUARANTEE (See Form at Appendix H)
All bids submitted for this contract must be accompanied by a surety bid bond
or escrow agreement on a form furnished by the state or a certified or
cashier's check or money order payable to State of Washington in an amount
not less than $ 25,000.00 per zone. The escrow agreement or certified or
cashier's check is to be with a bank or savings and loan institution
regulated by the State Of Washington. Bid guarantees will be returned to all
bidders at time of contract award with exception of contractor(s) of whom a
performance guarantee is required in which case the Bid Guarantee will be
returned upon receipt of same.
2. PERFORMANCE GUARANTEE (See Form at Appendix l)
A.Form Within fifteen (15) calendar days after receipt of notice of award,
the Contractor shall furnish the state with a performance guarantee. Said
guarantee shall be in the form of a(n):
1.Bond on a form furnished by the state and completed by an approved surety
or;
2.Escrow agreement on a form furnished by the state or;
3.Irrevocable letter of credit or:
4.Certified check or;
5.Cashier's check.
Bidder is to indicate in Section VIII, Attachment 1 the form of performance
guarantee they intend to provide.
NOTE: Certified or cashier's checks are held by the state and do not yield
interest payable to the contractor.
B.Amount The performance guarantee shall be for an amount which is not less
than $100,000.00 per station and shall be conditioned upon the faithful
performance of six months of inspections by the Contractor after which time
it will be discontinued and replaced by the Escrow Account balance required
at Section VI paragraph 6.1.
C.Noncompliance Failure to provide the required guarantee will result in
contract cancellation.
DELETED D ONLY
D. Discontinuance Based on Contractor performance
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during the initial contract term, the state reserves the right to
continue/discontinue performance guarantee requirements in subsequent
extensions. Delivery, timely correct invoices, problem resolvement, etc.
will be prime consideration.
3.INSURANCE
A.General Requirements Contractor shall, at his own expense, obtain and keep
in force insurance as follows until completion of the contract. Within
fifteen (15) calendar days of receipt of notice of award, the Contractor
shall furnish evidence in the form of a Certificate of Insurance satisfactory
to the state that insurance in the following kinds and minimum amounts has
been secured. Failure to provide proof of insurance as required will result
in contract cancellation.
B. Specific Requirements
1.Workers' Compensation Coverage The Contractor will at all times comply
with all applicable workers' compensation, occupational disease, and
occupational health and safety laws, statutes, and regulations to the full
extent applicable. The state will not be held responsible in any way for
claims filed by the Contractor or his employees for services performed under
the terms of this contract.
2.Public Liability Insurance The Contractor shall at all times during the
term of this contract, carry and maintain general public liability insurance,
including contractual liability, against claims for bodily injury, personal
injury, death or property damage occurring or arising out of services
provided under this Contract. This insurance shall cover such claims as may
be caused by any act, omission, or negligence of the Contractor or its
officers, agents. representatives. assigns, or servants. The limits of
liability insurance shall not be less than as follows:
Each Occurrence $1,000,000
General Aggregate Limits 2,000,000
(other than products-completed operations)
Products-Completed Operations Limit 2,000,000
Personal and Advertising Injury Limit 1,000,000
Fire Damage Limit (at any fire) 50,000
Medical Expense Limit (at any person) 5,000
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3.Automobile Liability In the event that services delivered pursuant to this
contract involve the use of vehicles or the transportation of clients,
automobile liability insurance shall be required. If Contractor-owned
personal vehicles are used, a Business Automobile Policy covering at a
minimum Code 2 "owned autos only" must be secured. If Contractor employee's
vehicles are used, the Contractor must also include the Business Automobile
Policy Code 9, coverage for "no-owned autos." The minimum limits for
automobile liability are:
$1,000,000 per occurrence, using a Combined Single Limit for bodily injury
and property damage Comprehensive Liability Insurance shall be combined
Comprehensive General and Automobile, Public Bodily Injury, Personal Injury
and Property Damage Liability Insurance. The coverage provided shall protect
against claims for personal injury; bodily injury, including illness, disease
and death; and property damage caused an occurrence arising out of or in
consequence of the performance of this service by the Contractor or
subcontractor or anyone employed by either.
4.Additional Provisions Above insurance policy shall include the following
provisions:
A.Additional Insured The State of Washington and all authorized contract
users shall be specifically named as an additional insured on all policies.
All policies shall be primary over any other valid and collectable insurance.
B.Material Changes A forty-five (45) calendar day written notice shall be
given to the State prior to termination of or any material change to the
policy(ies) as it relates to this contract; provided that thirty (30)
calendar day written notice shall be given for surplus line insurance
cancellation for nonpayment of premiums, such notice shall not be less than
ten (10) calendar days prior to such date.
C.Identification Policy must reference the state's bid/contract number.
D.Insurance Carrier Rating The insurance required above shall be issued by an
insurance company authorized to do business within the state of Washington.
Insurance is to be placed with a carrier that has a Best's rating of A-7 or
better. Any exception must be approved by the Risk Manager for the State of
Washington, by submitting a copy of the contract and evidence of insurance
before contract commencement.
E.Excess Coverage The limits of all insurance required to be provided the
Contractor shall be no less than the minimum amounts specified. However,
coverage in the amounts of these minimum
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limits shall not be construed to relieve the Contractor from liability in
excess of such limits.
4. MATERIALS AND WORKMANSHIP
The Contractor shall be required to furnish all materials, equipment and/or
services necessary to perform contractual requirements. Materials and
workmanship in the construction of equipment for this contract shall conform
to all codes, regulations and requirements for such equipment, specifications
contained herein, and the normal uses for which intended. Materials shall be
manufactured in accordance with the best commercial practices and standards
for this type of equipment.
5. EVALUATION CONFERENCE
To aid in the evaluation process, after bid opening the state may require
individual bidders to appear at a date, time and place determined by the
state for the purpose of conducting discussions to determine whether both
parties have a full and complete understanding of the nature and scope of
contractual requirements. In no manner shall such action be construed as
negotiations or an indication of the state's intention to award.
6. PROPRIETARY DATA
Any document(s) or information which the bidder believes is exempt from
public disclosure (RCW 42.17.310) shall be clearly identified by bidder and
placed in a separate envelope marked with bid number, bidder's name, and the
words "Proprietary Data" along with a statement of the basis for such claim
of exemption. The state's sole responsibility shall be limited to maintaining
the above data in a secure area and to notify bidder of any request(s) for
disclosure within a period of five (5) years from date of award. Failure to
so label such materials or failure to provide a timely response after notice
of request for public disclosure has been given shall be deemed a waiver by
the bidder of any claim that such materials are, in fact, so exempt.
7.RETENTION OF RECORDS
Contractor shall retain all records relating to this contract for a period of
three (3) years following the date of final payment or completion of any
required audit, whichever is earlier. Any authorized representative of the
state or federal government (where federal funds are involved) shall have
access to and the right to examine, audit, excerpt, and transcribe all said
records within a reasonable time.
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8.OSHA AND WISHA REQUIREMENTS
Contractor agrees to comply with conditions of the Federal Occupational
Safety and Health Acts of 1970 (OSHA) as may be amended, and, if it has a
workplace within the state of Washington, the Washington industrial Safety
and Health Act of 1973 (WISHA), as may be amended, and the standards and
regulations issued thereunder and certifies that all items furnished and
purchased under this order will conform to and comply with said standards and
regulations. Contractor further agrees to indemnify and hold harmless
purchaser from all damages assessed against purchaser as a result of
Contractor's failure to comply with the acts and standards thereunder and for
the failure of the items furnished under this order to so comply.
9.CONTRACTOR'S REPRESENTATIVE
A.Designation Bidder shall provide names, addresses, and phone numbers of
primary and alternate representatives as required in Did documents. Reference
Section VIII, "Attachments".
B.Responsibility Contractor's representative shall function as the primary
point of contact, shall ensure supervision and coordination and shall take
corrective action as necessary to meet contractual requirements.
C.Availability Contractor's representative, or designee, shall be available
at all times during normal working hours throughout the term of the contract.
10.ESTIMATED USAGE
Estimated usage data as stated herein shall not bind the state to the
purchase of said quantities. Usage estimates are based strictly upon past
historical data and may not reflect future requirements. (Ref. Section Il,
Paragraph 1 b).
11.PROCUREMENT OF RECOVERED MATERIALS
This Invitation for Bid has been determined EXEMPT from the provisions of WAC
236.48.096 regarding preference for products with recovered material content
for reasons including inadequate competition, economics, environmental
constraints, quality or availability.
12.BID EVALUATION
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To be considered responsive, bidder must, at the time of the bid opening have
the necessary resources, experience and expertise to accomplish the complete
scope and tasks identified herein.
Determination of responsiveness will be based on an evaluation of the bidders
attachments submitted which must be sufficient in themselves to clearly
establish the bidders capability without need for subsequent clarification.
The state reserves the right to reject any bid which is unsupported or
unclear as to responsiveness and to reject outright any bid submittal taking
material exception to the specifications herein.
Each bid submitted must be supported by the following:
1.Attachment 1 & 2, Bid Information and Price Sheets.
2.Identification/description of proposed facility locations including
documents evidencing ownership or option to buy or lease. (Reference
Specifications para. 4.1, 5.1 and 5.3.3)
3.A time phased, detailed schedule delineating critical tasks to be
accomplished including all necessary governmental permits and approvals
needed prior to the start of inspections. (Reference Specifications para.
4.1. 5.5.2 and 5.6.5)
4.Identification of the qualifications of management personnel and financial
resources available for the performance of this contract.
5.A list of contracts of similar size and scope satisfactorily
completed/currently being performed by the bidder, parent company or
subsidiary. Identify government organization, description of work, period of
performance, dollar magnitude, name and telephone number of government
contract administrator. The list may be supplemented with information
regarding any specialized experience and technical competence of the bidder's
personnel in the performance of Emission Inspection or other programs of
similar complexity of scheduling and technical aspects.
6.A bid bond in the amount of $25,000 per zone conditioned upon bidder
execution of contract and commencing performance on the scheduled start date.
Bid bond will be returned upon receipt of Contractor's performance bond.
13.AWARD
Award(s) is/are projected to be made within 30 days of bid opening. Award(s)
will be made to the responsive bidder(s) offering the lowest overall bid
pricing on a zone by zone basis. Any all or none or other bid conditioned on
the award of more
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then one zone will be rejected. Bids must set forth the amount of money to be
retained by the bidder from the inspection fee in each paid inspection volume
category over each twelve month end of the contract. The state anticipates
declining bid pricing based on incremental cost savings to the contractor
through increased business volume. Consideration will therefore be given to
volume in the calculation of lowest overall bid.
Calculation of lowest bid for a zone will be done using the following
weighted value formulae. The sum of the bid for each Paid Inspection Per
Twelve Months category times the multipliers indicated below:
Zones I Paid Inspections Per Twelve Months
- ------------------------------------------
0 - 50,000 X 1.00
50,001 - 60,000 X 0.20
60,001 - 70,000 X 0.17
70,001 - 80,000 X 0.14
80,001 - 90,000 X 0.12
over 90,000 X 0.10
Zones II Paid Inspections Per Twelve Months
- -------------------------------------------
0 - 300.000 X 1.00
300,001 - 340,000 X 0.13
340,001 - 380,000 X 0.12
380,001 - 420,000 X 0.11
420,001 - 460,000 X 0.10
over 460,000 X 0.09
Zones III Paid Inspections Per Twelve Months
- --------------------------------------------
0 - 200,000 X 1.00
200.001 - 230,000 X 0.15
230,001 - 260,000 X 0.13
260,001 - 290,000 X 0.11
290,001 - 320,000 X 0.10
over 320,000 X 0.09
Zones IV Paid Inspections Per Twelve Months
- -------------------------------------------
0 - 40,000 X 1.00
40,001 - 45,000 X 0.13
45,001 - 50,000 X 0.11
50,001 - 55,000 X 0.10
55,001 - 60,000 X 0.09
over 60,000 X 0.08
Zones V Paid Inspections Per Twelve Months
- ------------------------------------------
0 - 50,000 X 1.00
50,001 - 60,000 X 0.20
60,001 - 70,000 X 0.17
70,001 - 80,000 X 0.14
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80,001 - 90,000 X 0.12
over 90,000 X 0.10
14.COST AND PRICING DATA, SUPPORTING INFORMATION
In support of initial bid pricing and subsequent contract price adjustments,
bidder is to provide, with their bid, separate cost and pricing data for each
major cost element of the highest per inspection bid price for each zone bid.
Breakdowns must include identification of dollar amount and percent of total
bid price for at least the following:
Fixed Costs
Direct Labor Costs
General and Administrative Costs
Contingencies/Other Casts
Profit
For each cost element state nature of expenses and basis of allocation.
Separately identify projected salary schedule of lane operators and provide a
detailed functional timeline for a typical contract vehicle emission
inspection as specified herein.
Failure to provide such supporting information may result in bid rejection.
Additionally, the state, prior to award, may request
clarification/verification of cost and pricing data submitted. Bidders who
intend to declare such data proprietary, ie. exempt from public disclosure,
must comply with Para. V 6 Proprietary Data.
15.PRICING AND ADJUSTMENTS
Pricing, ie. portions of inspection fee retained at each volume category,
shall remain firm through 28 February 1994. These amounts may be increased,
if requested, annually thereafter by an amount needed to compensate the
contractor for any direct labor employee compensation increases incurred
during the past year or longer contract period. Contractor must provide a
minimum of 30 day advance notice on any request with complete documentation
of any on-going direct labor cost increases incurred. Acceptance will be at
the discretion of the contract administrator and shall not produce a higher
profit margin than that identified on the contractor's original bid cost and
pricing data breakdown. Any direct labor cost increase shall not exceed the
annual average percentage increase for the comparable period. Seattle-Tacoma
consumer price index for urban wage earners and clerical workers, all items
(CPl-W), compiled by the Bureau of Labor Statistics and the Department of
Labor. Additionally, the total increase in the portions of the inspection fee
retained shall not exceed an annual cap of 3%. For purposes of establishing
the initial
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contract base index figure from which future calculations will be
made the 1 982-84 base rate index for 1992 annual average, released in
February 1993 will be used. If the Bureau of Labor Statistics ceases to
publish the index the contractor and the state shall agree on a substitute
index.
All approved price adjustments for direct labor compensation increases shall
remain unchanged for at least 365 calendar days thereafter. For price
adjustments due to program changes, see Paragraph VI 6.3 Changes.
16.OPTION TO ACQUIRE ASSETS
In the event of termination of the contract for contractor breach,
termination by mutual agreement, or within One Hundred and Eighty Days of the
scheduled December 31, 1999 expiration or subsequent extension; the state
shall have the option to acquire the contractors inspection station land and
buildings, in whole or in part. The state may exercise this option only if it
is the intention of the state to continue the operation of an inspection
program by the state or through a successor contractor(s).
If the state has exercised its option for any or all inspection stations,
then within thirty (30) days of the effective date of termination or on the
scheduled expiration date the contractor shall:
1.Convey, transfer and assign to the state or the state's assignee all land
and buildings located in the State of Washington, owned and used by the
contractor as contract emission inspection stations.
2.Convey, transfer and assign to the state or the state's assignee all
buildings owned and used by the contractor as contract emission inspection
stations which are located on land being leased by the contractor.
3.Assign to the state or its assignee all leases and all rights to renew such
leases under which the contractor is the lessee of land or buildings used as
emission inspection stations in the performance of the contract.
On receipt of the assets, the state or its assignee shall:
1.Pay to the contractor the fair market value of land and buildings conveyed
as determined by the median value determined by three (3) licensed appraisers
selected by the state.
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2.Assume all of the obligations of the contractor under all leases assigned.
Contractor acknowledges that it shall remain liable for all claims,
liabilities and judgments resulting from or arising out of its prior
operation of the inspection stations and the contract.
Both parties agree to execute such documents as may be reasonably necessary
to effect to the transactions above. Additionally, the contractor agrees to
cooperate with the state and/or successor contractor(s) in affecting an
orderly transfer of operation of the inspection facilities to the successor
contractor(s). Though equipment, supplies and tools are excluded from the
above transactions the contractor, state and/or successor contractor(s) may
independently conduct separate negotiations to acquire such additional
assets.
The performance by the state of its obligations set forth above shall
constitute full satisfaction of all claims of the contractor against the
state arising from the state's exercise of its option. The contractor agrees
to provide in any contract agreement, assignment or other conveyance to be
executed by it and to retain in any contract, agreement, assignment or other
conveyance previously executed by it, upon renewal thereof for the purchase
of land or buildings for use in the performance of this contract, the right
of the contractor, without qualification, to convey, transfer or assign to
the state any of the contractor's rights and obligations under such contract
agreement, assignment or conveyance. Copies of all leases executed by the
contractor in its performance of the contract shall be furnished to the
contract administrator.
SECTION VI
SPECIFICATIONS
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SECTION VI - SPECIFICATIONS
1.0 SCOPE
These specifications are for the establishment and operation of motor vehicle
emission inspection stations for the State of Washington. THE REQUIREMENTS
OF CHAPTER 70.120 RCW AND WAC 173-422 EFFECTIVE JUNE 1, 1993 ARE INCORPORATED
INTO THE CONTRACT REQUIREMENTS BY REFERENCE. (See Appendices A,B,C for
current versions and proposed revisions)
2.0 PURPOSE
To assist in the reduction of motor vehicle related air pollution within
noncompliance areas designated by the Washington State Department of Ecology.
3.dEFINITIONS
The following definitions apply to this contract bid.
Audit
A. Fiscal: Means an audit of all receipts, payments, forms and other
records pertinent to the receipt and disbursement of State funds.
B Performance: Means an audit of Contractor's performance in complying
with all contract provisions including all applicable regulations.
C. Financial: An audit of books and records pertinent to the Contractors
balance sheet and profit and loss statement for the period of performance
under this agreement.
Average Number Waiting (ANW): The sum of the number of vehicles waiting to be
inspected, (either on the property or on the street), counted at ten minute
intervals over a period of 30 consecutive minutes, divided by four.
Average Inspection Frequency (AIF): The number of inspections completed over
a 30 minute period divided by 30.
Average Waiting Time (AWT): The result of the average number waiting (ANW)
divided by average testing frequency (ATF).
CO: Means carbon monoxide.
CO2: Means carbon dioxide.
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Emission Standard: Means the highest concentration of hydrocarbons (HC) or
carbon monoxide (CO) in the exhaust of a motor vehicle measured according to
test procedures adopted by the State that will permit a certificate of
compliance to be issued.
HC:Means concentration of hydrocarbons measured as n-hexane
Inspection Fee: Means the amount of money that a vehicle operator will be
charged for an emission inspection by the Contractor.
Sample Gas: Means the portion of the motor vehicle exhaust gases that is
analyzed for comparison with the emission standards.
Shop Drawing: Means readable plans or sketches of proposed site and
operation(s) (documents must be capable of being legibly reproduced on an
engineering drawing reproduction machine).
Total Available Lane Time: Means the product of 30 minutes multiplied by the
number of operable inspection lanes.
Utilization Factor: Means the stun of the time each lane was operated
divided by the stun of the total available lane time.
Vehicle Emission Inspection Station: Means a facility authorized to issue a
certificate of compliance or a certificate of acceptance.
4.0 CONTRACT REQUIREMENTS
The Contractor shall furnish necessary personnel, facilities, equipment and
otherwise do all things necessary to complete the contract. The bidder must
propose his methodology and resources to accomplish these tasks.
4.1 GENERAL SCOPE OF WORK
Task I - Design/Remodel Facilities: The bidder must propose
location and number of lanes per station for each station bid. Only those
bids that provide documentation evidencing an option to buy or lease, or
currently lease or own the station site will be acceptable.
Task 2 - Acquire Site(s) and install Inspection Stations:
The Contractor shall acquire and prepare site(s) for the installation of the
inspection station(s). The Contractor must obtain all necessary local,
state, federal government approvals. In the event the Contractor is unable to
obtain such approvals a suitable substitute location(s) must be bound by the
Contractor that are acceptable to the State.
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Task 3 - Install Inspection Test Equipment: The Contractor
shall install all necessary equipment at the inspection station(s).
Task 4 - Operate Vehicle Inspection Stations: The Contractor
shall be responsible for the complete operation and maintenance of the
vehicle inspection station(s).
Task 5 - Submit Documentation and Test Data: The Contractor
shall submit documentation and data for all inspections completed at the
vehicle emission inspection station(s) to the State.
Task 6 - Collect Fees: The Contractor shall be responsible
for the collection and accounting of fees for all paid inspections completed
at the vehicle emission inspection station(s).
4.2 PROGRAM SCHEDULE
All inspection stations shall be fully operational by 9 a.m. June 1, 1993.
4.3 AUDITS
4.3.1 The Contractor shall allow unannounced State audits at the inspection
station including:
a.Performance, including testing, calibration, data handling; and
b.Fiscal and administrative procedures at any time during station(s)
operating hours; and
c.Training, operations and procedures manuals; and
d.All records including:calibration and maintenance log
4.3.2 Contractor must maintain his records of this contract operate within
the State of Washington to enable easy access to all audit activity
authorized by State statutes and this contract.
4.3.3 Checks and audits during station non-operating hours may be conducted
by mutual consent.
4.3.4 State personnel may perform routine equipment checks during operating
hours without the aid of Contractor personnel.
4.3.5 The State shall be entitled to conduct a complete financial audit in
connection with negotiations with respect to a contract extension or other
contract change.
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5.0 TECHNICAL SPECIFICATIONS
5.1 INSPECTION STATION LOCATIONS AND NUMBER OF LANES
Contracts will be let for the following number of stations:
Zone Stations
---- --------
l 2
2 8
3 6
4 l
5 2
The bidder shall identify a specific property for each station bid. The
stations bid must be no closer than three miles from each other, conveniently
located to readily serve the public and approximately equally distributed
throughout a zone. Geographical boundaries of each zone or station locations
are indicated in Appendix D.
The number of inspection lanes at a station must be three or more and in any
zone the average number of lanes per station must be four or more.
No contract will be let for less than the above number of stations in a zone.
However, the state may elect to reject one or more bids and call for rebids
or enter into negotiations for any number of stations.
5.2 VEHICLE INSPECTION FEES
The Contractor shall, for an inspection fee established by Ecology, inspect
any gasoline or diesel powered motor vehicle. The Contractor will retain an
amount from the inspection fee equal to the amount bid and remit the balance
to the State. The Contractor shall inspect without charge to the vehicle
operator any vehicle registered to the State of Washington or its political
subdivisions and a vehicle presented for the first reinspection when the
initial inspection was conducted by another Contractor. A credit for the
Contractor's portion of the regular inspection fees shall be applied to the
amount due the State's General Fund for all inspections of these vehicles
conducted without charge. This amount may be increased or decreased due to
escalation/deescalation and/or material program changes. (see Sections V 15
and VI 6.3) Full payment for the contract services shall be solely from the
portion of the inspection fees retained by the Contractor.
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The State will not guarantee the Contractor a minimum number of paid
inspections and the number of inspections performed will not be used as a
basis for adjusting the portion of the inspection fee retained. However, the
State does agree to enter into good faith negotiations to amend the contract
if any program changes by the State have a significant impact on the
Contractor(s) cost and/or revenue.
5.3 VEHICLE EMISSION INSPECTION STATION REQUIREMENTS
5.3.1 Station Site Requirements
1. Permits and Land Use Requirements: The Contractor must obtain all permits
necessary for the establishment of the station and conform to all zoning and
land use requirements.
2. Parking: Two parking spaces reserved for visitors per inspection lane
shall be provided at each station.
3. Waiting Area: There shall be a paved waiting lane at least 12 feet wide
for each inspection lane. The average length of the waiting lanes at each
inspection station must be at least 150 feet.
5.3.2 Inspection Station Requirements
The Contractor shall construct vehicle emission inspection station(s) in
accordance with all local, state and federal government requirements
including:
1.Testing and Data Handling Equipment: The testing and data
handling equipment installed at each vehicle emission
inspection station shall meet the requirements of WAC
173-422. If these requirements conflict with or prevents
the use of BAR 90 level analyzers these provisions will not
apply to the contract. BAR 90 level analyzers are required.
In addition to the requirements of WAC 173-422 the
Contractor shall at no additional cost to the State:
A. design and operate the testing and data system to
print information on inspection forms provided by the State
only if the analyzer readings returned to less than 10 ppm HC within 30
seconds following completion of testing the previous vehicle.
B. design and install the dynamometer needed to conduct transient testing in
one lane at each station. (except in Zone 4)
C. design and install the equipment needed to conduct transient testing in
addition to the regular inspections in one lane of a station in each Zone.
(except Zones l and 4)
D. design and operate computerized test equipment which can connect directly
with the onboard diagnostic system on 1994 and later model gasoline vehicles
under 8500 GVWR.
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2.Signs: Each station shall have a sign that reads "State Motor Vehicle
Emission Inspection Station." Letters shall not be smaller than 6 inches
high. Signs for traffic control and visitor information must also be
provided. All signs must meet any State and local code requirements.
3.Government Codes: The station shall conform to all applicable state and
local code requirements including, but not limited to: planning and building
codes, carbon monoxide levels, ventilation, safety and fire regulations.
4.Inspection Lanes: Each lane must accommodate a vehicle with a height of
fourteen feet and a width of eight feet.
5.Equipment Environment: Adequate protection must be provided
for the testing and data handling equipment to allow for operations within
specifications in all weather conditions. Any component of the testing and
data handling equipment which affect the test results shall not be subject to
temperatures beyond its manufacturers specifications for such equipment.
6.Backup Personnel and Equipment: Adequate back up personnel and equipment
shall be available to ensure compliance with waiting time and staffing
requirements.
7.Carbon Monoxide Levels: Each station shall have equipment that continuously
monitors and records carbon monoxide levels in covered testing areas. The
equipment shall be so designed as to trigger automatically positive
ventilation at 50 ppm and an audible warning when carbon monoxide reaches 250
ppm. The monitoring equipment shall be located so that measured carbon
monoxide levels are representative of those to which lane operators are
exposed.
The lane doors may be closed while vehicle tests are being conducted only if
a system which removes exhaust products from the vehicle is in use when the
lane door is closed.
If carbon monoxide levels reach 250 ppm, for longer than 30 seconds, no
further vehicles will be allowed to enter the station until carbon monoxide
levels fall below 250 ppm.
8.Office: The station office shall provide the following:
A.A public restroom.
B.Local public telephone service.
C.Response to customer inquiries and complaints in person and over the
telephone during business hours. A recorded message may be used during
operating hours only if it does not exceed 60 seconds and instructs the
caller on how to call station personnel. Two telephone lines must be
reserved for incoming public calls at all times.
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<PAGE>
D.Ecology public information materials.
E.Certificates of acceptance.
9.Electric Power Outlets: Each station shall provide electric power outlets
in each inspection lane and at an external location suitable for use by
Ecology personnel to diagnosis vehicles that have failed an inspection
conducted by the Contractor using state equipment. These electric power
outlets shall be on a separate 15 ampere circuit.
5.3.3 Shop Drawings
In response to this Invitation to Bid, the bidder must submit a typical
schematic shop drawing of each site and inspection station and an artist's
conception of building and site. Detailed construction plans and blueprints
are not required.
5.3.4 State Sales Tax
The Contractor shall pay State retail sales taxes on all purchases of
materials equipment and supplies used or consumed in the performance of the
contract.
5.4 INSPECTION PROCEDURES
5.4.1 General Requirements
The emission standards, test procedures, and vehicle inspection data handling
procedures, established in WAC 173-422 as presently written or as may be
amended shall be used by the Contractor with these exceptions:
1. The maximum opacity readings of gasoline vehicles during the test need
only be obtained if the vehicle exhaust is noticeable as the vehicle enters
the inspection lane. These vehicles will not be failed for exceeding the
opacity standards until the Contractor is notified to do so by the State.
2. Checks of the vehicle's onboard diagnostic system will be included in the
inspection of 1994 and later model gasoline vehicles. Computerized test
equipment which connects directly with the vehicle's onboard diagnostic
system must be used to collect this information. Any problem detected shall
be considered as indicating the emission control systems are not operating
properly and the vehicle will have failed the inspection.
3. Transient exhaust testing shall be conducted using equipment and
procedures acceptable to the Environmental Protection Agency. (See Appendix G
for the current EPA requirements)
4. The opacity test readings of both diesel and gasoline vehicles and the
pass or fail result must be determined, printed and recorded using an
automated system.
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5. All gasoline vehicles under 8500 GVWR except constant four wheel drive
vehicles shall be tested using the Loaded Test sequence.Vehicles which appear
to be unsafe to test may be rejected and no fee collected. The Contractor may
use the initial idle mode procedures of the two speed test sequence prior to
the loaded mode of the loaded test sequence instead of the idle mode
following the loaded mode if the vehicle passes the initial idle mode.
6. No vehicle shall fail the inspection due to an missing or inoperative"
primary emission control component" or incorrect replacement engine until
June 1, 1995 or 24 months following the start date which ever is later.
However the results of the equipment check shall be recorded on the
inspection form provided the vehicle operator and included in the monthly
report as of the start date.
5.4.2 Emission Standards Variations
The emissions standards established in WAC 173-422 are subject to change in
the number and types of vehicle classifications and emission levels. The
Contractor should design their data handling system to be able to
accommodate, without additional cost to the State, changes of the emission
standards during the contract period and to allow the classes of vehicles for
which emission standards are set to vary up to ten.
5.4.3 Certificates of Acceptance
The Contractor is required to visually inspect the vehicle to verify to the
extent possible that the stated repairs have been made and that any emission
control equipment installed by the vehicle manufacturer or an aftermarket
replacement which is acceptable to the state of California or the U.S.
Environmental Protection Agency is installed and operative. On 1994 and newer
model gasoline vehicles this inspection shall include a check of the
vehicle's onboard diagnostic system.
The Contractor personnel inspecting vehicles before a certificate of
acceptance is issued must be able to pass the examination required to become
an Ecology authorized emission specialist annually. These personnel must be
available at each inspection station during all operating hours.
5.5 OPERATIONS
5.5.1 Hours of Operation
The stations shall be open to the public Monday through Saturday.
The required hours of operation shall be from 9 a.m. to 6 p.m. Monday,
Tuesday, Thursday and Friday, 9 a.m. to 8 p.m. Wednesday and 9 a.m. to 2 p.m.
on Saturday.
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<PAGE>
Vehicles waiting to be inspected at closing time shall be inspected.
The inspection stations may close on legal holidays as established by State
Statute RCW 1.16.050; with the exception that the day immediately preceding
Christmas Day will be observed as a holiday in lieu of the day immediately
following Thanksgiving Day.
The observed holidays could therefore be:
Sunday
New Years Day January 1
Martin Luther King Day 3rd Monday in January
President's Day 3rd Monday in February
Memorial Day Last Monday in May
Independence Day July 4
Labor Day First Monday in September
Veteran's Day November 11
Thanksgiving Day 4th Thursday in November
Christmas December 24, 25
Whenever any legal holiday, other than Sunday, falls upon a Sunday, the
following Monday shall be the legal holiday. Whenever any legal holiday
falls upon a Saturday, the preceding Friday shall be the legal holiday.
5.5.2 Training/Procedures
The Contractor shall adequately train their personnel to perform their
required tasks. This training shall include, but need not be limited to, the
following:
1.The causes and effects of air pollution,
2.The purpose,function and goal of the inspection program,
3.Inspection regulations and procedures,
4.The rationale for each portion of the inspection procedure,
5.The function of each emission control system,its configuration and its
proper inspection (Note that only a visual check that would detect missing,
disconnected or otherwise inoperative emission control equipment or incorrect
replacement engines is required. No engine components are to be removed or
disconnected.)
6.The operation,calibration,and maintenance of the test equipment
7.Quality control procedures and their purpose
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<PAGE>
8.Public relations
9.Safety and health issues related to the inspection process
10.Emergency procedures including first aid and CPR
Before a trainee can conduct an inspection without assistance, the trainee
must pass (a minimum of 80% correct responses) a written test covering all
aspects of the training and demonstrate the ability to conduct ten proper
inspections without assistance. Ecology shall be notified of any scheduled
training and may elect to monitor or participate in any portion of the
training. Also at any time a Ecology Representative may conduct either a
written or hands on test to determine if an inspector is truly qualified.
A copy of the training manual must be submitted for approval to the
Department of Ecology at least one month prior to public inspections and all
procedure changes thereafter shall be noted in the training manual and the
revisions forwarded to the Department of Ecology.
While any Contractor personnel trained to conduct inspections may do,
equipment check, that detect missing,disconnected or inoperative mission
control equipment or an incorrect replacement engine must be verified by a
member of the Contractor staff qualified to issue an certificate of
acceptance.
5.5.3 Interface with Auto Repair Industry
Ecology shall be responsible for all contact with automotive repair
businesses. The Contractor shall refer all inquiries regarding repairs and
repair business performance to the Department of Ecology, with the following
exception: In each zone the Contractor shall track the performance of each
Ecology authorized emission specialist as measured by the percentage of
successful reinspection over the previous six months. When the number of
reinspection in a zone indicate repair work by ten or more specialists exceed
12 each during the previous six months the Contractor shall print a list of
these specialists. The list shall include information provided by Ecology;
the specialist's name and their employer's name, address and phone number.
This list shall be accessible to the public at each inspection station in
that zone without assistance from the station staff.This listing shall be
updated monthly and any alterations or notations made only with Ecology's
approval.
5.5.4 Consumer Comments
Forms for the consumer to register comments regarding the operation of the
inspection station must be available to each driver. A sign with lettering at
least one inch high stating this fact must be readable by the vehicle
operator. Any specific complaints shall be responded to in writing and
resolved by the
VI-10
<PAGE>
Contractor if possible. The Contractor shall respond within five (5) working
days with a copy to Ecology.
A complaint file with response and any action taken must be maintained by the
Contractor within the state of Washington. This file must be available for
inspection by the State during normal business hours.
5.5.5 Contractor Personnel Attire
Whenever the contractor personnel are in contact with the public, uniform
dress and name tags shall be required by the Contractor.
5.5.6 Safety
Contractor to comply with all local, state and federal safety standards.
5.5.7 Cooperation with the Department of Ecology
The Contractor will be required to cooperate with Ecology by;
1.distributing or allowing the distribution of materials related to motor
vehicle emissions to the motorist. These materials may include notices,
survey forms, and public education material,
2.providing storage for Ecology audit gases and test equipment at the
station,
3.allowing Ecology staff to meet at a station vehicle owners with their
vehicles to diagnosis using state equipment what caused -these vehicles to
have failed an inspection conducted by the Contractor (Ecology staff may
choose any inspection lane or external location to diagnosis vehicles),
4.providing refunds (from the State's portion of the fee collected) to any
customer at Ecology's written direction without additional charge to the
State,
5.devising a means of testing any vehicle that is missing some portion of the
exhaust pipe beyond the muffler when so directed by an Ecology
representative,
6.retaining all inspection information as it is collected in an automated
database for at least 30 months. This real time database shall be available
via four active direct dial access to Ecology.
7.issuing a temporary certificate of acceptance when authorized to do so by
an Ecology representative. The Contractor shall complete and maintain on file
for 45 days an temporary extension form provided by Ecology. After 45 days
these forms shall be mailed to Ecology if the customer has not returned for a
reinspection,
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<PAGE>
8.allowing meetings between station personnel and an Ecology representative,
9.obtaining listing of the inspection station telephone number in both the
white and yellow pages of the telephone company directory of the primary area
served by that inspection station, and listed as "Washington State Motor
Vehicle Emission Inspection Station,"
10.providing any required material to Ecology's office in Olympia at the
Contractor's expense unless other arrangements are agreed to by Ecology,
11.transmitting electronically on a realtime basis the Washington license
number of vehicles meeting the inspection requirements to Ecology or the
Department of Licensing automated data base in Thurston County. This data
submittal must in a data structure( data type and format) approved by Ecology
or the Department of Licensing,
12.conduct transient exhaust testing in addition-to any steady state loaded
test conducted in a lane equipped to do so except when all lanes at that
station are staffed to inspect vehicles,and
13.include the transient test readings in the monthly data report with the
corresponding regular steady state loaded test readings provided the vehicle
operator.
5.5.8 Gratuities
The Contractor shall not extend any loan, gratuity or gift of money in any
form whatsoever to an employee of the State, nor rent or purchase any
equipment or materials from an employee of the State. Prior to operation of
the inspection station(s) and annually thereafter, the Contractor shall
execute and furnish the Contract Administrator an affidavit certifying
compliance with this contract provision.
5.6 DATA AND DOCUMENTATION REQUIREMENTS
5.6.1 Monthly Activity Report
The Contractor will submit monthly activity reports to the Contract
Administrator with a copy to Ecology. These activity reports shall outline
the Contractor's activities for the month previous, any delays, problems,
differences of interpretation, and resolution of any past problems.The first
activity report shall be submitted one month after the contract is awarded
and each month thereafter.
5.6.2 Monthly Operations Report
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<PAGE>
Commencing with the operation of the inspection station(s), the Contractor
will submit monthly reports within 10 working days of the end of the month to
Ecology. The following information shall be reported for each inspection
station and for each inspection lane separately for gasoline and diesel
vehicles.The data storage system should be designed to retrieve and summarize
this information.
1.Total initial inspections made
2.Total vehicles passing initial inspection
3.Total vehicles failing initial inspection
4.Total reinspections made
5.Total vehicles passing reinspection
6.Total vehicles failing reinspection
7.Total vehicles issued certificates of acceptance
8.Total vehicles failing the equipment check and number for each cause
9.Total lane and station down time
10.Total paid inspections
11.Total inspections
5.6.3 Inspection Data Reporting Requirements
The Contractor shall electronically submit to Ecology all collected
inspection data daily at a time and location approved by Ecology.
The Contractor shall also, upon request,furnish to Ecology all inspection
data collected during a given time period on ASCII formatted(1600 bpi) 9
track magnetic tape(s).
The data structure (data type and record format) of all data submittal, and
the equipment used to transmit the data used by the Contractor must either be
those to be established by Ecology or expressly preapproved by Ecology. Each
data submittal must include the number of each data record item transmitted.
All costs of these data submittal shall be the sole responsibility of the
Contractor.
5.6.4 Retention of Certificates
A copy of all certificates issued shall be retained by the contractor for at
least twelve months.
5.6.5 Acceptance Testing
The Contractor will propose acceptance testing procedures to demonstrate that
the inspection, testing and data handling equipment can meet all operational
requirements and all bid specifications at each station. The proposed
procedures shall be provided to Ecology within 120 days of contract award.
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<PAGE>
The procedures shall include a description of the inspection and test methods
to be employed in demonstrating specified performance for each item of
equipment. The procedure will also include checklists indicating acceptable
or unacceptable test results or inspections needed to demonstrate compliance
with design specifications.
The Contractor must be prepared to conduct acceptance tests 45 days prior to
the scheduled start date at one inspection station in each zone and at all
stations 15 days prior to the scheduled start date. Ecology must have
expressly approved the final acceptance test procedures and agreed to the
proposed dates before acceptance testing begins.
6.0 PROGRAM ADMINISTRATION REQUIREMENTS
6.1 COLLECTION FEES DEPOSITS ESCROW ACCOUNT
The Contractor is accountable and responsible for the collection of all
inspection fees.
All fees collected in excess of the approved contract price are due the State
and will be deposited daily into a federally insured financial institution.
No later than Friday of each week, all fees due the State from the
Contractor, resulting from all inspections conducted through the previous
Sunday, shall be transferred to the State Treasurer's Concentration Account
via wire transfer. Details on how to process a wire transfer will be provided
to the Contractor by Ecology.
For the first six months inspection fees are collected, whenever an amount is
transferred to the State Treasurer an equal amount shall be deposited in a
joint escrow account with a bank or saving and loan institution of their
choice, provided that it is regulated by the State of Washington. The Escrow
Agreement is to be executed on State form 05P - FL. 786,1 - 3l - 90 "ESCROW
INSTRUCTIONS AND AGREEMENT."(See Appendix E )
The sums deposited therein shall remain in escrow for the duration of the
contract and may be withdrawn at any time by the State for failure of the
Contractor to submit residual payments on time or meet other contractual
obligations including interest at one percent per month on any balance due,
if the contractor is over thirty days late in transferring funds. In The
event of termination for breach, all funds in the account will be withdrawn
by the State to partially compensate the State for the costs of obtaining a
replacement Contractor(s) including any increase in the portion of the
inspection fee to be retained by the Contractor(s). Additionally such
withdrawal shall not limit the States' right to any other remedy provided in
the contract or by law. The Contract Administrator shall approve total
withdrawal
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<PAGE>
of the account upon termination or completion of the contract if
all obligations of the Contractor both financial and otherwise have been
satisfied.
The State shall have the right to audit the Contractor's records and
recordkeeping system and procedures to substantiate that the Contractor has
properly collected and accounted for the proper amount. The Contractor shall
be required to furnish copies of relevant reports, financial statements, and
other information which may be reasonably requested by the State in carrying
out said audits. If as the result of an audit any discrepancies are found,
the Contractor shall be provided adequate time to respond
to said discrepancies.
6.2 ACCOUNTABILITY FOR FORMS
Pre-numbered vehicle emission inspection forms will be furnished by Ecology
without charge. For audit purposes, all of the forms must be accounted for
including voided and damaged forms. The Contractor may be required to accept
shipment of up to 100,000 inspection forms per station at any one time.The
Contractor is solely responsible for the disposal or recycling of forms or
copies of forms no longer required. The Contractor may be required to
increase the amount of funds transferred to the State Treasurer by $500 for
each stolen,missing or unaccounted form not reported missing when the
shipping carton containing the forms is opened by the Contractor. The
Contractor operating procedures shall require the shipping cartons to be
opened only in the presence of at least two of Contractors staff.
6.3 CHANGES
The state may at any time direct the Contractor to commence amended
performance. In such event, the Contractor or the State may be entitled to an
equitable adjustment in the contract price to reflect the changes costs,
fixed and variable,of amended performance. The Contractor shall not however
delay implementing amended performance pending agreement on any price
adjustment.
The state shall have the right to request detailed cost and pricing data to
audit the Contractor's books and records to verify the appropriateness of any
additional compensation due the Contractor. Material changes in inspection
procedures, contract provisions,and any changes in contract pricing shall be
documented in writing by issuance of a contract change notice by the contract
administrator.
6.4 LIQUIDATED DAMAGES AND PAYMENT ADJUSTMENTS
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Any of the following occurrences will result in damage to the State:
(1) Failure to commence inspections on the scheduled start date.(2) Failure
to provide inspections after station open; (3) Questionable inspections; (4)
Excessive waiting times; (5) Failure to meet minimum staffing levels. The
amount of such damages will be difficult to calculate. Therefore, by
submitting a bid in response to this document, the Contractor agrees that, it
shall be entitled to reduced or no compensation, or pay liquidated damages,
as set forth below. It is agreed that such reduced compensation or liquidated
damages are a reasonable estimation of the actual damages to the State which
will result from the events specified, and shall not be viewed in any sense
as a penalty.
6.4.1 Failure to Meet Implementation Date
The State at any time may in writing demand adequate assurance that the
scheduled start date will be met at all inspection stations in a zone.
Should acceptable assurance not be forthcoming in a reasonable period of
time, the State may declare the contract in breach, and terminate the
contract. In such event, the Contractor shall remain liable to the State for
any damages it incurs as a result of such breach. Alternately the State may
elect to require the Contractor to pay liquidated damages to the State in the
amount of $1,000 for each working day after the scheduled start date for each
station for which it has not been notified in writing is ready to provide
inspection services pending satisfactory completion of acceptance testing.
The Contractor shall not however be required to pay liquidated damages for
delays beyond their reasonable control that are attributable solely to
extraordinary delays in obtaining local government approvals that were
unforeseen/unavoidable by the Contractor. In the event the Contractor
provides written notice and explanation of such delay and the State
subsequently deems the Contractor is due relief from liquidated damages an
extension of the inspection program scheduled start date will be granted
equal to the actual number of days attributable to the local government
delay. Such relief/extension will not be granted for normal time frames of
local jurisdictions for routine processing and approvals. An extension may
also be granted for any delay by the State in the award of contract(s) beyond
30 days from date of bid opening. Contractor(s) shall not be provided lost
revenue compensation for any extension period(s) granted.
The Contractor is required to provide monthly progress reports and immediate
written notice if the scheduled start date will not be met and submit a date
by which the Contractor will be ready to conduct inspections at all of its
inspections stations in a zone.
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Once the Contractor notifies the State the scheduled start date will be
missed, or when the State has reason to believe the scheduled start date may
be missed,the State reserves the right to establish a new start date for any
zone until after the satisfactory completion of the acceptance testing of all
the Contractors stations in that zone. The Contractor agrees not to hold the
State liable for any revenue lost because of the new start dates.
6.4.2 Failure to Provide Inspections after Inspection Station
Opening:
After the inspection station is open to the public, the Contractor shall pay
liquidated damages at $125 for each whole hour the inspection station could
not provide inspections of gasoline powered vehicles during the required
operating hours.
6.4.3 Incorrect or Questionable Inspections
It is the Contractor's responsibility to correct any incorrect inspection
report. If an incorrect inspection report results in an additional
inspection being performed, no additional payment will be collected from the
vehicle operator.
The Contractor will adjust the next weekly transfer of funds to the State
Treasurer by the following amounts when Ecology notifies the Contract in
writing that questionable inspections have been performed.
1.Analyzer Audit Failure:If Ecology audits determine that an analyzer exceeds
the tolerances for accuracy, drift,repeatability, response time, flow
restriction, or interference, all inspections performed since the last
Ecology audit or verified multipoint calibration (whichever is most recent)
will be considered questionable.
The Contractor shall pay liquidated damages to the State in the amount of
$250.00 for each Ecology analyzer audit failure.
2.Invalid Lanes: Payment will not be allowed for inspections performed at an
invalid lane. An invalid lane is a inspection location that at the time of
inspection: 1) Has not been formally accepted by Ecology during contract
acceptance testing; 2) Has been ordered closed in writing by an Ecology
representative for miscalibration or malfunction; 3) Has not undergone the
calibration requirements specified in WAC 173-422.
3.Incorrect Inspection Procedure: If the inspection was not performed
according to WAC 173-422 payment will not be allowed.
6.4.4 Excessive Waiting Time:
Waiting time is a measure of the Contractor's ability to serve the public.
The average waiting time shall not exceed 15 minutes
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whether vehicles are the inspection station or on the public street. The
Contractor shall be considered in violation of the contract whenever the
average waiting time exceeded 15 minutes, or if the line of waiting vehicles
extend onto the public street for more than 10 minutes, unless the Contractor
can document all lanes were operational and fully staffed during the 30
minute data collection period.
The payment to the Contractor for inspections conducted during each violation
of the 15 minute waiting time standard will be prorated using the utilization
factor determined by Ecology for that 30 minute data collection period. (See
example calculations, Appendix F )
The Contractor will adjust the next weekly transfer of funds to the State
taking into account notice of violations and the prorated payments. These
payment adjustments apply only to waiting time violations of which any of the
Contractor personnel at the inspection station are notified in writing by an
Ecology representative that day.
6.4.5 Minimum Staffing Level:
During certain times and days of the month demand for inspections will be
much than at other times. Historically there has been increased demand for
inspections during the last week of the month. To ensure prompt service to
the public, the State may require that each inspection lane at an inspection
station be operational and individually staffed during any period. Each
period shall not be less than four hours and the total of these periods will
not exceed 48 hours at an inspection station in any month.
Thirty days advance written notice of required full staff periods will be
provided by the State to the Contractor. Note: The office is required to be
staffed at all times, whether a required full staff period or not. To the
extent possible, maintenance should not be scheduled during full staffing
periods.
The payment to the Contractor for inspections conducted during a required
full staff period, will be prorated (on the basis that the sum of all lanes
is equal to 1.00) if at any time during this period less than full staffing
is detected in any lane or the office. Not staffing the office will be
considered a violation at any time equivalent to not staffing a lane during a
required full staff period. If less than full staffing is detected, it will
be presumed to have existed since the station was required to be fully
staffed, or the end of the last observation by an Ecology representative,
whichever is later. If the Contractor can demonstrate personnel to
individually staff each lane and the office were at the station and
inspections were being conducted
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in all lanes during a period in question, then the required staffing
requirements will be considered met for that period.
The Contractor will adjust the next transfer of funds to the State Treasurer
taking into account the notice of violations and the prorated payments.These
payment adjustments apply only to time periods of which any of the Contractor
personnel at the inspection station are notified in writing by an Ecology
representative of a staffing violation.
6.5 CONFLICT OF INTEREST
The successful bidder shall submit to the Contract Administrator a signed
affidavit that they have no financial interests in any automotive repair
business in the State of Washington nor will they become engaged in any such
enterprise during the life of the contract.
No other business shall be conducted by the Contractor or other party on the
station property. The contractor shall not allow automotive repair at the
station or at any property owned or controlled the Contractor by the public,
the Contractor, or any third party without Ecology approval unless minor
emergency service is needed.
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SECTION VI
APPENDIX A
<PAGE>
CHAPTER 70.120 RCW
MOTOR VEHICLE EMISSION CONTROL
<TABLE>
<C> <S>
Sections
70.120.010 Definitions.
70.120.020 Programs.
70.120.070 Vehicle inspections--Failed--Certificate of acceptance.
70.120.080 Vehicle inspections--Fleets.
70.120.100 Vehicle inspections--Complaints.
70.120.120 Rules.
70.120.130 Authority.
70.120.150 Vehicles emission standards--Designation of noncompliance
areas and emission contributing areas.
70.120.160 Noncompliance areas--Annual review.
70.120.170 Motor vehicles inspections
required--Fees--Results--Certificate of compliance.
70.120.180 Studies.
70.120.190 Used vehicles.
70.120.200 Engine conformance.
70.120.210 Clean-fuel performance and clean-fuel vehicle emissions
specifications.
70.120.220 Clean fuel--Biennial report to legislature.
70.120.901 Captions not law.
70.120.902 Effective date--1989 c 240.
</TABLE>
RCW 70.120.010 DEFINITIONS. Unless the context clearly requires
otherwise, the definitions in this section apply throughout this chapter.
(1) "Department" means the department of ecology.
(2) "Director" means the director of the department of ecology.
(3) "Fleet" means a group of fifteen or more motor vehicles registered
in the same name and whose owner has been assigned a fleet identifier code by
the department of licensing.
(4) "Motor vehicle" means any self-propelled vehicle required to be
licensed pursuant to chapter 46.16 RCW.
(5) "Motor vehicle dealer" means a motor vehicle dealer, as defined in
RCW 46.70.011, that is licensed pursuant to chapter 46.70 RCW.
(6) "Person" means an individual, firm, public or private corporation,
association, partnership, political subdivision of the state, municipality,
or governmental agency.
(7) The terms "air contaminant," "air pollution," "air quality
standard," "ambient air," "emission," and "emission standard" have he
meanings given them in RCW 70.94.030. [1991 c 199 Section 201; 1979 ex.s. c
163 Section 1.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199; See RCW
70.94 through 70.94.906.
SEVERABILITY--1979 EX.S. C 163: "If any provision of this act or its
application to any person or circumstance is held invalid, the remainder of
the act or the application of the
<PAGE>
provision to other persons or circumstances is not affected."
[1979 ex.s. c 163 S 19.]
RCW 70.120.020 PROGRAMS. (EFFECTIVE UNTIL JANUARY 1, 1993.) (1) The
department shall conduct the following programs in a manner that will enhance
the successful implementation of the air pollution control system established
for motor vehicles by this chapter:
(a) A voluntary motor vehicle emissions inspection program;
(b) A public educational program regarding the health effects of air
pollution emitted by motor vehicles; the purpose, operation, and effect of
emission control devices and systems; and the effect that proper maintenance
of motor vehicle engines has on fuel economy and air pollution emission; and
(c) A public notification program identifying the geographic areas of
the state that are designated as being noncompliance areas and emission
contributing areas and describing the requirements imposed under this chapter
for those areas.
(2)(a) The department, the superintendent of public instruction, and the
state board for community college education shall develop cooperatively,
after consultation with automotive trades joint apprenticeship committees
approved in accordance with RCW 49.04.040, a program for granting
certificates of instruction to persons who successfully complete a course of
study, under general requirements established by the director, in the
maintenance of motor vehicle engines, the use of engine and exhaust analysis
equipment, and the repair and maintenance of emission control devices. The
director may establish and implement procedures for granting certification to
persons who successfully complete other training programs or who have
received certification from private organizations which meet the requirements
established in this subsection.
(b) The department shall make available to the public a list of those
persons who have received certificates of instruction under subsection (2)(a)
of this section. [1989 c 240 Section 5; 1979 ex.s. c 163 Section 2.]
SEVERABILITY--1979 EX.S. C 163: Sec note following RCW 70.120.010.
RCW 70.120.020 PROGRAMS. (EFFECTIVE JANUARY 1, 1993.) (1) The
department shall conduct a public educational program regarding the health
effects of air pollution emitted by motor vehicles; the purpose, operation,
and effect of emission control devices and systems; and the effect that
proper maintenance of motor vehicle engines has on fuel economy and air
pollution emission and a public notification program identifying the
geographic areas of the state that are designated as being noncompliance
areas and emission contributing areas and describing the requirements imposed
under this chapter for those areas.
(2)(a) The department shall grant certificates of instruction to persons
who successfully complete a course of study, under general requirements
established by the director, in the maintenance of motor vehicle engines, the
use of engine and
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exhaust analysis equipment, and the repair and maintenance of emission
control devices. The director may establish and implement procedures for
granting certification to persons who successfully complete other training
programs or who have received certification from public and private
organizations which meet the requirements established in this subsection,
including programs on clean fuel technology and maintenance.
(b) The department shall make available to the public a list of those
persons who have received certificates of instruction under subsection (2)(a)
of this section. [1991 c 199 Section 202; 1989 c 240 Section 5; 1979 ex.s. c
163 Section 2.]
INTENT--1991 C 199: "(1) It is the intent of the legislature that the
state take advantage of the best emission control systems available on new
motor vehicles. The department shall conduct a study to determine if
requiring new vehicles sold in the state to meet California vehicle emission
standards will provide a significant benefit to attainment of ambient air
quality standards in this state. The department shall report the findings of
its study and its recommendations to the appropriate standing committees of
the legislature. The department shall not adopt the California vehicle
emission standards unless authorized by the legislature.
(2) In the event that California vehicle emission standards are adopted,
the department shall not include a program for in-use testing and recall of
vehicles required to meet California emission standards." [1991 c 199 Section
229.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
SEVERABILITY--1979 EX.S. C 163: See note following RCW 70.120.010.
RCW 70.120.070 VEHICLE INSPECTIONS--FAILED--CERTIFICATE OF ACCEPTANCE.
(EFFECTIVE UNTIL JANUARY 1, 1993.) (1) Any person:
(a) Whose motor vehicle is tested pursuant to this chapter and fails to
comply with the emission standards established for the vehicle; and
(b) Who, following such a test, expends more than fifty dollars on a
1980 or earlier model year motor vehicle or expends more than one hundred
fifty dollars on a 1981 or later model year motor vehicle for repairs solely
devoted to meeting the emission standards and that are performed by a
certified emission specialist authorized by RCW 70.120.020(2)(a); and
(c) Whose vehicle fails a retest, may be issued a certificate of
acceptance if (i) the vehicle has been in use for more than five years or
fifty thousand miles, and (ii) any component of the vehicle installed by the
manufacturer for the purpose of reducing emissions, or its appropriate
replacement, is installed and operative.
(d) To receive the certificate, the person must document compliance with
(b) and (c) of this subsection to the satisfaction of the department.
(2) Persons who fail the initial tests shall be provided with
information regarding the availability of federal warranties
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<PAGE>
and certified emission specialists.
[1989 c 240 Section 6; 1980 c 176 Section 4; 1979 ex.s. c 163 Section 7.]
SEVERABILITY--1979 EX.S. C 163: See note following RCW 70.120.010.
RCW 70.120.070 VEHICLE INSPECTIONS--FAILED--CERTIFICATE OF ACCEPTANCE.
(EFFECTIVE JANUARY 1. 1993.) (1) Any person:
(a) Whose motor vehicle is tested pursuant to this chapter and fails to
comply with the emission standards established for the vehicle; and
(b) Who, following such a test, expends more than one hundred dollars on
a 1980 or earlier model year motor vehicle or expends more than one hundred
fifty dollars on a 1981 or later model year motor vehicle for repairs solely
devoted to meeting the emission standards and that are performed by a
certified emission specialist authorized by RCW 70.120.020(2)(a); and
(c) Whose vehicle fails a retest, may be issued a certificate of
acceptance if (i) the vehicle has been in use for more than five years or
fifty thousand miles, and (ii) any component of the vehicle installed by the
manufacturer for the purpose of reducing emissions, or its appropriate
replacement, is installed and operative.
To receive the certificate, the person must document compliance with (b)
and (c) of this subsection to the satisfaction of the department.
Should any provision of (b) of this subsection be disapproved by the
administrator of the United States environmental protection agency. all
vehicles shall be required to expend at least four hundred fifty dollars to
qualify for a certificate of acceptance.
(2) Persons who fail the initial tests shall be provided with
information regarding the availability of federal warranties and certified
emission specialists. [1991 c 199 Section 203; 1989 c 240 Section 6; 1980 c
176 Section 4; 1979 ex.s. c 163 Section 7.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
SEVERABILITY--1979 ex.s. c 163: See note following RCW
70.120.010.
RCW 70.120.080 VEHICLE INSPECTIONS--FLEETS. (EFFECTIVE UNTIL JANUARY 1,
1993.) The director may authorize an owner or lessee of a fleet of motor
vehicles, or the owner's or lessees agent, to inspect the vehicles in the
fleet and issue certificates of compliance for the vehicles in the fleet if
the director determines that: (1) The directors emission and inspection
standards will be complied with; and (2) certificates will be issued only to
vehicles in the fleet and only when appropriate. [1979 ex.s. c 163 Section
8.]
SEVERABILITY--1979 EX.S. C 163: See note following RCW 70.120.010.
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<PAGE>
RCW 70.120.080 VEHICLE INSPECTIONS--FLEETS. (Effective January 1,
1993.) The director may authorize an owner or lessee of a fleet of motor
vehicles, or the owner's or lessee's agent, to inspect the vehicles in the
fleet and issue certificates of compliance for the vehicles in the fleet if
the director determines that: (1) The director's inspection procedures will
be complied with; and (2) certificates will be issued only to vehicles in the
fleet that meet emission and equipment standards adopted under RCW 70.120.150
and only when appropriate.
In addition, the director may authorize an owner or lessee of one or
more diesel motor vehicles with a gross vehicle weight rating in excess of
eight thousand five hundred pounds, or the owner's or lessee's agent, to
inspect the vehicles and issue certificates of compliance for the vehicles.
The inspections shall be conducted in compliance with inspection procedures
adopted by the department and certificates of compliance shall only be issued
to vehicles that meet emission and equipment standards adopted under RCW
70.120.150.
The director shall establish by rule the fee for fleet or diesel
inspections provided for in this section. The fee shall be set at an amount
necessary to offset the department's cost to administer the fleet and diesel
inspection program authorized by this section.
Owners, leaseholders, or their agents conducting inspections under this
section shall pay only the fee established in this section and not be subject
to fees under RCW 70.120.170(4). [1991 c 199 Section 205; 1979 ex.s. c 163
Section 8.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
SEVERABILITY--1979 EX.S. C 163: See note following RCA 70.120.010.
RCW 70.120.100 VEHICLE INSPECTION--COMPLAINTS. The department shall
investigate complaints received regarding the operation of emission testing
stations and shall require corrections or modifications in those operations
when deemed necessary.
The department shall also review complaints received regarding the
maintenance or repairs secured by owners of motor vehicles for the purpose of
complying with the requirements of this chapter. When possible, the
department shall assist such owners in determining the merits of the
complaints. [1979 ex.s. c 163 Section 10.]
SEVERABILITY--1979 EX.S. C 163: See note following RCW 70.120.010.
RCW 70.120.120 RULES. (EFFECTIVE UNTIL JANUARY 1, 1993.) The director
shall adopt rules implementing and enforcing this chapter and RCW
46.16.015(2)(g) in accordance with chapter 34.05 RCW. Notwithstanding the
provisions of chapter 34.05 RCW, any rule implementing and enforcing RCW
70.120.150(5) may not be adopted until it has been submitted to the standing
committees on ecology of the house of representatives and senate for review
and
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<PAGE>
approval. The standing committees shall take into account when
considering proposed modifications of emission contributing boundaries, as
provided for in RCW 70.120.150(5), alternative plans for traffic rerouting
and traffic bans that may have been prepared by local municipal corporations
for the purpose of satisfying federal emission guidelines. [1989 c 240
Section 8; 1979 ex.s. c 163 Section 13.]
SEVERABILITY--1979 EX.S. C 163: See note following RCW 70.120.010.
RCW 70.120.120 RULES. (EFFECTIVE JANUARY 1, 1993.) The director shall
adopt rules implementing and enforcing this chapter in accordance with
chapter 34.05 RCW. The department shall take into account when considering
proposed modifications of emission contributing boundaries, as provided for
in RCW 70. 120. 150(6), alternative transportation control and motor vehicle
emission reduction measures that are required by local municipal corporations
for the purpose of satisfying federal emission guidelines. [1991 c 199
Section 206; 1989 c 240 Section 8; 1979 ex.s. c 163 Section 13.]
FINDING 1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94 906.
SEVERABILITY--1979 EX.S. C 163: See note following RCW
70.120.010.
RCW 70.120.130 AUTHORITY. The authority granted by this chapter to the
director and the department for controlling vehicle emissions is
supplementary to the department's authority to control air pollution pursuant
to chapter 70.94 RCW. [1979 ex.s. c 163 Section 14.]
SEVERABILITY-1979 EX.S. C 163: See note following RCW 70. 120.010.
RCW 70.120.150 VEHICLE EMISSION STANDARDS--DESIGNATION OF NONCOMPLIANCE
AREAS AND EMISSION CONTRIBUTING AREAS. (EFFECTIVE UNTIL JANUARY 1 1993.) The
director:
(1) Shall adopt motor vehicle emission standards to ensure that no less
than seventy percent of the vehicles tested comply with the standards.
(2) Shall designate a geographic area as being a "noncompliance area"
for motor vehicle emissions if (a) the department's analysis of the data,
recorded for a period of no less than one year, at the monitoring sites
indicates that the standard has or will probably be exceeded, and (b) the
department determines that the primary source of the contaminant being
monitored at the sites is motor vehicle emissions.
(3) Shall reevaluate noncompliance areas if the United States
environmental protection agency modifies the relevant air quality standards,
and shall discontinue the program if compliance is indicated and if the
department determines that the area would continue to be in compliance after
the program is
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<PAGE>
discontinued. The director shall notify persons residing in
noncompliance areas of the reevaluation.
(4) Shall analyze information regarding the motor vehicle traffic in a
noncompliance area to determine the smallest land area within whose
boundaries are present registered motor vehicles that contribute
significantly to the violation of motor vehicle-related air quality standards
in the noncompliance area. The director shall declare the area to be an
"emission contributing area." An emission contributing area established for
a carbon monoxide or oxides of nitrogen noncompliance area must contain the
noncompliance area within its boundaries. An emission contributing area
established for an ozone noncompliance area located in this state need not
contain the ozone noncompliance area within its boundaries if it can be
proven that vehicles registered in the area contribute significantly to
violations of the ozone air quality standard in he noncompliance area. An
emission contributing area may be established in this state for violations of
federal air quality standards for ozone in an adjacent state if (a) the
United States environmental protection agency designates an area to be a
"nonattainment area for ozone" under the provisions of the federal Clean Air
Act (42 U.S.C. 7401 et. seq.), (b) the nonattainment area encompasses
portions of both Washington and the adjacent state, and (c) it can be proven
that vehicles registered in this state contribute significantly to the
violation of the federal air quality standards for ozone in the adjacent
state's portion of the nonattainment area.
(5) Shall designate areas as being noncompliance areas or emission
contributing areas, and shall establish the boundaries of such areas by rule.
The director may also modify boundaries. In establishing the external
boundaries of an emission contributing area, the director shall use the
boundaries established for ZIP code service areas by the United States postal
service.
(6) May make grants to units of government in support of planning
efforts to reduce motor vehicle emissions n areas where emission control
inspections are not required. [1989 c 240 Section 2.]
RCW 70.120.150 VEHICLE EMISSION AND EQUIPMENT STANDARDS --DESIGNATION
OF NONCOMPLIANCE AREAS AND EMISSION CONTRIBUTING AREAS. (EFFECTIVE JANUARY
1, 1993.) The director:
(1) Shall adopt motor vehicle emission and equipment standards to:
Ensure that no less than seventy percent of the vehicles tested, comply with
the standards on the first inspection conducted, meet federal clean air act
requirements, and protect human health and the environment.
(2) Shall adopt rules implementing the smoke opacity testing requirement
for diesel vehicles that ensure that such test is objective and repeatable
and that properly maintained engines that otherwise would meet the applicable
federal emission standards, as measured by the new engine certification test,
would not fail the smoke opacity test.
(3) Shall designate a geographic area as being a noncompliance area' for
motor vehicle emissions if (a) the
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<PAGE>
department's analysis of emission and ambient air quality data, covering a
period of no less than one year, indicates that the standard has or will
probably be exceeded, and (b) the department determines that the primary
source of the air contaminant is motor vehicle emissions.
(4) Shall reevaluate noncompliance areas if the United States
environmental protection agency modifies the relevant air quality standards,
and shall discontinue the program if compliance is indicated and if the
department determines that the area would continue to be in compliance after
the program is discontinued. The director shall notify persons residing in
noncompliance areas of the reevaluation.
(5) Shall analyze information regarding the motor vehicle traffic in a
noncompliance area to determine the smallest land area within whose
boundaries are present registered motor vehicles that contribute
significantly to the violation of motor vehicle-related air quality standards
in the noncompliance area. The director shall declare the area to be an
"emission contributing area." An emission contributing area established for a
carbon monoxide or oxides of nitrogen noncompliance area must contain the
noncompliance area within its boundaries. An emission contributing area
established for an ozone noncompliance area located in this state need not
contain the ozone noncompliance area within its boundaries if it can be
proven that vehicles registered in the area contribute significantly to
violations of the ozone air quality standard in the noncompliance area. An
emission contributing area may be established in this state for violations of
federal air quality standards for ozone in an adjacent state if (a) the
United States environmental protection agency designates an area to be a
"nonattainment area for ozone" under the provisions of the federal Clean Air
Act (42 U.S.C. 7401 et. seq.), and (b) it can be proven that vehicles
registered in this state contribute significantly to the violation of the
federal air quality standards for ozone in the adjacent state's nonattainment
area.
(6) Shall, after consultation with the appropriate local government
entities, designate areas as being noncompliance areas or emission
contributing areas, and shall establish the boundaries of such areas by rule.
The director may also modify boundaries. In establishing the external
boundaries of an emission contributing area, the director shall use the
boundaries established for ZIP code service areas by the United States postal
service.
(7) May make grants to units of government in support of planning
efforts to reduce motor vehicle emissions. [1991 c 199 Section 207; 1989 c
240 Section 2.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
RCW 70.120.160 NONCOMPLIANCE AREA--ANNUAL REVIEW. (1) The director
shall review annually the air quality and forecasted air quality of each area
in the state designated as a noncompliance area for motor vehicle emissions.
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(2) An area shall no longer be designated as a noncompliance area if the
director determines that:
(a) Air quality standards for contaminants derived from motor vehicle
emissions are no longer being violated in the noncompliance area; and
(b) The standards would not be violated if the emission inspection
system in the emission contributing area was discontinued and the
requirements of RCW 46.16-.015 no longer applied. [1989 c 240 Section 3.]
RCW 70.120.170 MOTOR VEHICLE INSPECTIONS
REQUIRED--FEES--RESULTS--CERTIFICATE OF COMPLIANCE. (EFFECTIVE UNTIL JANUARY
1, 1993.) (1) The department shall administer a system for biennial
inspection of emissions of all motor vehicles registered within the
boundaries of each emission contributing area. Persons residing within the
boundaries of an emission contributing area shall register their motor
vehicle within that area, unless business reasons require registration
outside the area. Requests for exemption from inspection for business reasons
shall be reviewed and approved by the director.
(2) The director shall:
(a) Adopt procedures for conducting emission tests for motor vehicles.
The tests shall include idle and high revolution per minute tests.
(b) Adopt criteria for calibrating emission testing equipment.
Electronic equipment used to test for emissions standards provided for in
this chapter shall be properly calibrated. The department shall examine
frequently the calibration of the emission testing equipment used at the
stations.
(c) Authorize, through contracts, the establishment and operation of
inspection stations for conducting the vehicle emission tests authorized in
this chapter. No person contracted to inspect motor vehicles may perform for
compensation repairs on any vehicles. No public body may establish or
operate contracted inspection stations. Any contracts must be let in
accordance with the procedures established for competitive bids in chapter
43.19 RCW.
(3) Subsection (2)(c) of this section does not apply to volunteer motor
vehicle inspections under RCW 70.120.020(1)(a) if the inspections are
conducted for the following purposes:
(a) Auditing;
(b) Contractor evaluation;
(c) Collection of data for establishing calibration and performance
standards; or
(d) Public information and education.
(4) (a) The director shall establish by rule the fee to be charged for
emission inspections. The inspection fee shall be a standard fee applicable
state-wide or throughout an emission contributing area and shall be no
greater than eighteen dollars. Surplus moneys collected from fees over the
amount due the contractor shall be paid to the state and deposited in the
general fund. Fees shall he set at the minimum whole dollar amount required
to (i) compensate the contractor, and (ii) offset
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the general fund appropriation to the department to cover the administrative
costs of the motor vehicle emission inspection program.
(b) Before each inspection, a person whose motor vehicle is to be
inspected shall pay to the inspection station the fee established under this
section. The person whose motor vehicle is inspected shall receive the
results of the inspection test. If the inspected vehicles emissions comply
with the standards established by the director, the person shall receive a
dated certificate of compliance. If the inspected vehicle's emissions do not
comply with those standards, one retest of the vehicles emission shall he
afforded without charge.
(5) All units of local government and agencies of the state with motor
vehicles garaged or regularly operated in an emissions contributing area
shall test the emissions of those vehicles biennially to ensure that the
vehicle's emissions comply with the emission standards established by the
director. A report of the results of the tests shall he submitted to the
department. [1989 c 240 Section 4.]
RCW 70.120.170 MOTOR VEHICLE EMISSION
INSPECTIONS--FEES--CERTIFICATE OF COMPLIANCE--STATE AND LOCAL AGENCY
VEHICLES. (EFFECTIVE JANUARY 1, 1993.) (1) The department shall administer a
system for emission inspections of all motor vehicles registered within the
boundaries of each emission contributing area. Under such system a motor
vehicle shall be inspected biennially except where an annual program would be
required to meet federal law and prevent federal sanctions. In addition,
motor vehicles shall be inspected at each change of registered owner of a
licensed vehicle.
(2) The director shall:
(a) Adopt procedures for conducting emission inspections of motor
vehicles. The inspections may include idle and high revolution per minute
emission tests. The emission test for diesel vehicles shall consist solely of
a smoke opacity test.
(b) Adopt criteria for calibrating emission testing equipment.
Electronic equipment used to test for emissions standards provided for in
this chapter shall be properly calibrated. The department shall examine
frequently the calibration of the emission testing equipment used at the
stations.
(c) Authorize, through contracts, the establishment and operation of
inspection stations for conducting vehicle emission inspections authorized in
this chapter. No person contracted to inspect motor vehicles may perform for
compensation repairs on any vehicles. No public body may establish or operate
contracted inspection stations. Any contracts must be let in accordance with
the procedures established for competitive bids in chapter 43.19 RCW.
(3) Subsection (2)(c) of this section does not apply to volunteer motor
vehicle inspections under RCW 70.120.020(1) if the inspections are conducted
for the following purposes:
(a) Auditing;
(b) Contractor evaluation;
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(c) Collection of data for establishing calibration and performance
standards; or
(d) Public information and education.
(4)(a) The director shall establish by rule the fee to be charged for
emission inspections. The inspection fee shall be a standard fee applicable
state-wide or throughout an emission contributing area and shall be no
greater than eighteen dollars. Surplus moneys collected from fees over the
amount due the contractor shall be paid to the state and deposited in the
general fund. Fees shall be set at the minimum whole dollar amount required
to (i) compensate the contractor or inspection facility owner, and (ii)
offset the general fund appropriation to the department to cover the
administrative costs of the motor vehicle emission inspection program.
(b) Before each inspection, a person whose motor vehicle is to be
inspected shall pay to the inspection station the fee established under this
section. The person whose motor vehicle is inspected shall receive the
results of the inspection. If the inspected vehicle complies with the
standards established by the director, the person shall receive a dated
certificate of compliance. If the inspected vehicle does not comply with
those standards, one reinspection of the vehicle shall be afforded without
charge.
(5) All units of local government and agencies of the state with motor
vehicles garaged or regularly operated in an emissions contributing area
shall test the emissions of those vehicles annually to ensure that the
vehicles emissions comply with the emission standards established by the
director. All state agencies outside of emission contributing areas with more
than twenty motor vehicles housed at a single facility or contiguous
facilities shall test the emissions of those vehicles annually to ensure that
the vehicles' emissions comply with standards established by the director. A
report of the results of the tests shall be submitted to the department.
[1991 c 199 Section 208:1989 c 240 Section 4.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
RCW 70.120.180 STUDIES. (1) The department shall identify expected
carbon monoxide emission trends over the next five years after January 1,
1990, without the motor vehicle emission program and report to the
appropriate standing committees of the legislature by January 1, 1991.
(2) The department shall examine available testing data to determine
vehicle subpopulations and incremental emission increases associated with
subpopulations failing the emission test. This information shall be reported
to the appropriate standing committees of the legislature by January 1, 1992.
[1989 c 240 Section 10.]
RCW 70.120.190 USED VEHICLES. (1) Motor vehicle dealers selling a used
vehicle not under a new vehicle warranty shall
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include a notice in each vehicle purchase order form that reads as follows:
"The owner of a vehicle may be required to spend up to (a dollar amount
established under RCW 70.120.070) for repairs if the vehicle does not meet
the vehicle emission standards under this chapter. Unless expressly
warranted by the motor vehicle dealer, the dealer is not warranting that this
vehicle will pass any emission tests required by federal or state law."
(2) The signature of the purchaser on the notice required under
subsection (1) of this section shall constitute a valid disclaimer of any
implied warranty by the dealer as to a vehicle's compliance with any emission
standards.
(3) The disclosure requirement of subsection (1) of this section applies
to all motor vehicle dealers located in counties where state emission
inspections are required. [1991 c 199 Section 210.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
RCW 70.120.200 ENGINE CONFORMANCE. Engine manufacturers shall certify
that new engines conform with current exhaust emission standards of the
federal environmental protection agency. [1991 c 199 Section 211.]
FINDING 1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
RCW 70.120.210 CLEAN-FUEL PERFORMANCE AND CLEAN-FUEL VEHICLE EMISSIONS
SPECIFICATIONS. By July 1, 1992, the department shall develop, in cooperation
with the departments of general administration and transportation, and the
state energy office, aggressive clean-fuel performance and clean-fuel vehicle
emissions specifications including clean-fuel vehicle conversion equipment.
To the extent possible, such specifications shall be equivalent for all fuel
types. In developing such specifications the department shall consider the
requirements of the clean air act and the findings of the environmental
protection agency, other states, the American petroleum institute, the gas
research institute, and the motor vehicles manufacturers association. [1991 c
199 Section 212.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
Clean-fuel grants: RCW 70.94.960.
RCW 70.120.220 CLEAN FUEL--BIENNIAL REPORT TO LEGISLATURE. The
department, in cooperation with the departments of general administration and
transportation, the utilities and transportation commission, and the state
energy office, shall biennially prepare a report to the legislature starting
July 1, 1992, on:
VI-A12
<PAGE>
(1) Progress of clean fuel and clean-fuel vehicle programs in reducing
automotive emissions;
(2) Recommendations for enhancing clean-fuel distribution systems;
(3) Efforts of the state, units of local government, and the private
sector to evaluate and utilize "clean fuel" or "clean-fuel vehicles"; and
(4) Recommendations for changes in the existing program to make it more
effective and, if warranted, for expansion of the program. [1991 c 199
Section 215.]
FINDING--1991 C 199: See note following RCW 70.94.011.
EFFECTIVE DATES--SEVERABILITY--CAPTIONS NOT LAW--1991 C 199: See RCW
70.94.904 through 70.94.906.
RCW 70.120.901 CAPTIONS NOT LAW. Section headings as used in this act
do not constitute any part of law. [1989 c 240 Section 11.]
RCW 70.120.902 EFFECTIVE DATE--1989 C 240. This act shall take effect
January 1, 1990. [1989 c 240 Section 14.]
VI-A13
<PAGE>
SECTION VI
APPENDIX B
<PAGE>
CHAPTER 173-422 WAC
MOTOR VEHICLE EMISSION INSPECTION
<TABLE>
<C> <C>
WAC
173-422-010 Purpose.
173-422-020 Definitions.
173-422-030 Vehicle emission inspection requirement.
173-422-035 Registration requirements.
173-422-040 Noncompliance areas.
173-422-050 Emission contributing areas.
173-422-060 Emission standards.
173-422-070 Test procedures.
173-422-080 Vehicle inspection data handling procedures.
173-422-090 Exhaust analyzer specifications.
173-422-100 Testing equipment maintenance and calibration.
173-422-110 Data system requirements.
173-422-120 Quality assurance.
173-422-130 Inspection fees.
173-422-140 Inspection forms and certificates.
173-422-145 Fraudulent certificates of compliance/acceptance.
173-422-150 Inspection personnel requirements.
173-422-160 Fleet and government vehicle testing requirements.
173-422-170 Exemptions.
173-422-175 Fraudulent exemptions.
173-422-180 Air quality standards.
173-422-190 Emission specialist certification.
173-422-195 Listing of certified emission specialists.
</TABLE>
WAC 173-422-010 PURPOSE. This chapter implements the Washington Clean
Air Act. chapter 70.94 RCW, as supplemented by the motor vehicle emission
inspection provisions codified as chapter 70.120 RCW.
Motor vehicles are the primary emitters of carbon monoxide and emit
significant quantities of hydrocarbons and oxides of nitrogen. Emission
controls required by the federal government are designed to reduce motor
vehicle related air pollution. However, the effectiveness of these controls
is substantially reduced through deterioration, maladjustment and tampering.
Motor vehicle emission inspection serves to identify high polluting vehicles
and to reduce emissions, when such can be accomplished at reasonable cost.
These rules establish the emission standards, testing procedures, and
associated activities necessary to implement a program of air pollution
prevention and control involving motor vehicle emission inspections.
[Statutory Authority: RCW 70-.120.120, 43.21A.080, 70.94.331 and
70.94.141(1). 83- 23-115 (Order DE 83-31), Section 173-422-010, filed
11/23/83, effective 1/2/84. Statutory Authority: RCW 70.120.120. 80-03-070
(Order DE 79-35), Section 173-422-010, filed 2/28/80.]
VI-B1
<PAGE>
WAC 173-422-020 DEFINITIONS. Unless a different meaning is clearly
indicated by context, the following definitions will apply:
(1) "Accuracy" means the degree of correctness by which the true value
of a measured sample is determined.
(2) "Calibration gases" mean a blend of hydrocarbon (propane), carbon
monoxide (CO), and carbon dioxide using nitrogen as carrier gas. The
concentrations are to be traceable to within two percent of NBS standards.
(3) "Certificate of acceptance" means an official form, issued by
someone authorized by the department, which certifies that all of the
following conditions have been met: The recipient's vehicle initially failed
to comply with applicable emission standards, the recipient has provided
original receipts proving that more than fifty dollars or one hundred fifty
dollars on a 1981 or later model motor vehicle were spent after the first
test and before the final test on repairs performed by a "certiFied emission
specialist" solely to meet emission standards, the vehicle on final
reinspection again failed to meet such standards, and the repair information
section of the test report has been completed and the vehicle has been in use
for more than five years or fifty thousand miles, and any component of the
vehicle installed by the manufacturer for the purpose of reducing emissions,
or its appropriate replacement, is installed and operative.
(4) "Certificate of compliance" means an official form, issued by
someone authorized by the department, which certifies that the recipients
vehicle on inspection complied with applicable emission standards.
(5) "Certified emission specialist" means an individual who has been
issued a certificate of instruction by the department as authorized in RCW
70.120.020(2)(a) and has maintained the certification by meeting requirements
old WAC 173-422-190(2).
(6) "Dealer" means a motor vehicle dealer, as defined in RCW 46.70.011,
that is licensed pursuant to chapter 46.70 RCW.
(7) "Department" means the department of ecology.
(8) "Drift" means the change in the reading of the analyzer to a given
sample over a period of time with no adjustment to the analyzer having been
made between the initial and final measurements.
(9) "Emission contributing area" means a land area within whose
boundaries are registered motor vehicles that contribute significantly to the
violation of motor vehicle related air quality standards in a noncompliance
area. (The inspection program implemented by this chapter applies only to
vehicles registered in emission contributing areas.)
(10) "Farm vehicle" means any vehicle other than a farm tractor or farm
implement which is designed and/or used primarily in agricultural pursuits on
firms for the purpose of transporting machinery, equipment, implements, farm
products, supplies, and/or farm labor thereon and is only incidentally
operated on or moved along public highways for the purpose of going from one
farm to another.
VI-B2
<PAGE>
(11) "Fleet" means a group of twenty-five or more motor vehicles owned
or leased concurrently by one person.
(12) "Gaseous fuel" means liquefied petroleum gases and natural gases in
liquefied or gaseous forms.
(13) "Gross vehicle weight (GVW)" means the manufacturer stated gross
vehicle weight rating.
(14) "HC and CO emissions" means the concentration of hydrocarbons
(measured as n-hexane) and carbon monoxide in the engine exhaust.
(15) "Motor vehicle" means any self-propelled vehicle required to be
licensed pursuant to chapter 46.16 RCW.
(16) "Motorcycle" means every motor vehicle having a saddle for the use
of the rider and designed to travel on not more than three wheels in contact
with the ground, but excluding a farm tractor.
(17) "NBS" means National Bureau of Standards.
(18) "Noncompliance area" means a land area within whose boundaries any
air quality standard for any air contaminant from the emissions of motor
vehicles will probably be exceeded.
(19) "PPM" means parts per million by volume.
(20) "Repeatability" means the ability of an analyzer to report the same
value for successive measurements of the same sample.
(21) "Response" means how quickly there is a change in reading following
a change in concentration at the sample probe inlet.
(22) "Sensitivity" means the smallest change in the value of a measured
sample that can be detected by the analyzer.
(23) "Zero calibration gases" means air or nitrogen in which total
impurities do not exceed 0.01 percent. [Statutory Authority: Chapter 70.120
RCW. 90-06-062, Section 173-422-020. filed 3/6/90. effective 4/6/90.
Statutory Authority: RCW 70.120.120, 43.21A.080. 70.94.331 and 70.94.141(1).
83-23-115 (Order DE 83-31). Section 173-422-020, filed 11/23/83, effective
1/2/84. Statutory Authority: RCW 70.120.120. 80-03-070 (Order DE 79-35),
Section 173-422-020, filed 2/28/80.]
WAC 173-422-030 VEHICLE EMISSION INSPECTION REQUIREMENT. All motor
vehicles, not specifically exempted by WAC 173-422-170, which are registered
or reregistered within the boundaries of an emission contributing area, as
specified in WAC 173-422-050, are subject to the vehicle emission inspection
requirements of this chapter. Neither the department of licensing nor its
agents may issue or renew a motor vehicle license for any vehicle registered
in an emission contributing area, as that area is established under RCW
70.120.040, unless the application for issuance or renewal is: (1)
Accompanied by a valid certificate of compliance issued pursuant to RCW
70.120.060, 70.120.080, or 70.120.090 or a valid certificate of acceptance
issued pursuant to RCW 70.120.070; or (2) exempted from this requirement
pursuant to RCW 46.16.015(2). The certificates must have a date of validation
which is within ninety days of the date of application for the vehicle
license or license renewal. Certificates for fleet vehicles may have a date
of validation which is within twelve
VI-B3
<PAGE>
months of the assigned license renewal date. [Statutory Authority:
RCW 70.120.120, 43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115
(Order DE 83-31), Section 173-422-030, filed 11/23/83, effective 1/2/84.
Statutory Authority: RCW 70.120.120. 80-03-070 (Order DE 79 35),
Section 173-422-030, filed 2/28/80.]
WAC 173-422-035 REGISTRATION REQUIREMENTS. (1) Persons residing in
emission contributing areas as defined under WAC 173-422-050 shall register
their motor vehicles within that area, unless business reasons require
registration outside of the area.
(2) Any person who violates this section is subject to a civil penalty
not to exceed one hundred dollars.
(3) Any civil penalty imposed by the department hereunder shall be
appealable to the pollution control hearings board as provided for in chapter
43.21 B RCW. [Statutory Authority: Chapter 70.120 RCW. 90-06-062. Section
173-422-035, filed 3/6/90, effective 4/6/90.]
WAC 173-422-040 NONCOMPLIANCE AREAS. The following areas are designated
noncompliance areas for the air contaminants specified: Carbon monoxide
(1) The city of Seattle.
(2) The city of Bellevue.
(3) The city of Spokane.
(4) The city of Tacoma.
(5) The city of Vancouver.
(6) The city of Yakima.
(7) The city of Everett. [Statutory Authority: Chapter 70.120 RCW.
90-06-062. Section 173-422-040,filed 3/6/90, effective 4/6/90. Statutory
Authority: RCW 70.120.120, 43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115
(Order DE 83-31), Section 173-422-040, filed 11/23/83, effective 1/2/84.
Statutory Authority: RCW 70.120-.120. 82-02-027 (Order DE 81-32), Section
173-422-040, filed 12/31/81: 80-03-070 (Order DE 79-35), Section 173-422-040,
filed 2/28/80.]
WAC 173-422-050 EMISSION CONTRIBUTING AREAS. Emission contributing areas
within which the motor vehicle emission inspection program applies are
designated by the following United States Postal Service ZIP codes as of the
effective dates set forth below:
(1) Puget Sound Region (effective January 1, 1982)
98004 98039
98005 98040
98006 98041
98007 98043
98008 98046
98009 98052
98011 98053
98012 98055
98020 98056
98021 98057
VI-B4
<PAGE>
98027 98062
98028 98063
98033 98072
98034 98073
98036 98083
98037 98101 thru 98199,
inclusive except 98110
(2) Spokane Region (effective July 1, 1985)
99201 99207
99202 99208
99203 99212
99204 99216
99205 99218
99206
[Statutory Authority: RCW 70.120.120. 84-09-087 (Order DE 84-7), Section
173-422-050, filed 4/18/84. Statutory Authority: RCW 70.120.120, 43.21A.080,
70.94.331 and 70.94.141(1). 83-23-115 (Order DE 83-31), Section 173-422-050,
filed 11/23/83, effective 1/2/84. Statutory Authority: RCW 70.120.120.
82-02-027 (Order DE 81-32), Section 173-422-050, filed 12/31/81: 80-03-070
(Order DE 79-35), Section 173-422-050, filed 2/28/80.]
WAC 173-422-060 EMISSION STANDARDS. Motor vehicles subject to this
chapter shall meet the following emission standards prior to receiving a
certificate of compliance.
STANDARDS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Model
Year CO(%) HC (ppm)
- -------------------------------------------------------------------------------
<S> <C> <C>
68-74 6.0 1000
75 and 3.0 600
later
</TABLE>
Except 1981 and later model vehicles manufactured with a catalytic converter
the standards are:
1.2 220
[Statutory Authority: Chapter 70.120 RCW. 90-06-062, Section 173-422-060,
filed 3/6/90, effective 4/6/90. Statutory Authority: RCW 70.120.120,
43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115 (Order DE 83-31), Section
173-22-060, filed 11/23/83, effective 1/2/84. Statutory Authority: RCW
70.120.120. 82-02-027 (Order DE 81-32), Section 173-422-060, filed 12/31/81;
80-03-070 (Order DE 79-35), Section 173-422-060, filed 2/28/80.]
VI-B5
<PAGE>
WAC 173-422-070 TEST PROCEDURES. All persons certified by, or under
contract to, the department to conduct motor vehicle emission inspections
shall use the following test procedures. Variations to the procedures
specified may be used if approved by the department after receipt of evidence
that such changes will not interfere with the validity of the test.
(1) A two-speed (idle and 2500 rpm) test with the transmission in
neutral or park shall be used to measure vehicle exhaust emissions for carbon
monoxide, hydrocarbons, and carbon dioxide. A vehicle with an automatic
transmission may be tested in drive for the idle test if the idle rpm in
neutral or park exceeds 1200 rpm. However, the idle rpm as tested cannot
exceed 1200 rpm unless allowed to do so by the vehicle manufacturers
specifications.
(2) The engine shall be at normal operating temperature during the
emission test with all accessories off.
(3) Any vehicle causing an unsafe condition, such as the continuous
leaking of any fluid onto the floor, may be rejected from the inspection
site.
(4) Vehicles shall be approximately level during the test.
(5) Vehicles with more than one exhaust pipe shall be tested by sampling
each tail pipe and averaging the results, unless the exhaust pipes originate
from a common point in the exhaust system. Simultaneous sampling from
multiple exhaust pipes may also be used.
(6) The following steps shall be taken to prevent excessive dilution.
The exhaust sample probe must be inserted at least ten inches into the tail
pipe. If this is not possible, an extension boot shall be used. The exhaust
emission test results shall not be recorded if the carbon dioxide
concentration does not meet or exceed five percent.
(7) If the engine stalls during the test, the engine shall be restarted
and one additional attempt will be made to complete the test.
(8) If a vehicle is capable of being operated with either gasoline or
gaseous fuels, the vehicle shall be tested using the fuel it is operating on
when it enters the testing facility.
(9) If a multiple range analyzer is used, the exhaust analyzer range
shall be selected so that the standard for the vehicles being tested is
between twenty-five percent and seventy-five percent of full scale if
possible.
(10) Before testing a 1981 and later model Ford Motor Company vehicle
with a gross vehicle weight of 8500 pounds or less, or a 1984 85 Honda
Prelude, the engine shill be turned off and then restarted.
(11) Increase the engine speed to 2500 +300 rpm.
(12) Insert the probe into the tailpipe. After at least thirty seconds
record the exhaust emissions averaged over the last five seconds.
(13) Slowly reduce the engine speed to idle (less than 1200 rpm). After
at least thirty seconds or when the readings have stabilized at a level
meeting the emission standards record the exhaust emissions averaged over the
last five seconds.
VI-B6
<PAGE>
(14) When readings from multiple exhaust pipes are averaged, steps 10,
11, 12, and 13 shall be repeated for all exhaust pipes. [Statutory Authority:
Chapter 70.120 RCW. 90-06-062, Section 173-422-070, filed 3/6/90, effective
4/6/90. Statutory Authority: RCW 70.120.120, 43.21A.080, 70.94.331 and
70.94.141(1). 83-23-115 (Order DE 83-31), Section 173-422-070, filed
11/23/83, effective 1/2/84. Statutory Authority: RCW 70.120.120. 82-02-027
(Order DE 81-32). Section 173422-070, filed 12/31/81, 80-03-070 (Order DE
79-35), Section 173-422-070, filed 2/28/80.]
WAC 173-422-080 VEHICLE INSPECTION DATA HANDLING PROCEDURES. All
persons under contract to the state to conduct motor vehicle emission
inspections shall use the following data handling procedures.
(1) The comparison of the test results with the state's emission
standards shall be automated.
(2) The emission test results, the comparison with the states emission
standards, and certificates of compliance shall be automatically printed.
(3) The required vehicle identification data shall be entered and
validated before the emission test is started.
(4) Vehicle identification data flagged as incorrect by the established
validation checks shall be corrected before the emission test is started.
(5) The emission test results shall be automatically printed.
(6) All required data shall be automatically printed on the vehicle
inspection reports and stored on bulk storage devices.
(7) In the case of data handling equipment problems, the vehicle
emission test reports and certificates of compliance may be manually
completed, but all the data is required to be included on the bulk storage
devices submitted to the department. [Statutory Authority: RCW 70.120.120.
43.21A.080. 70.94.331 and 70.94.141(1). 83-23-115 (Order DE 83-31). Section
173-422-080, filed 11/23/83, effective 1/2/84. Statutory Authority: RCW
70.120.120. 82-02-027 (Order DE 81-32). Section 173-422-080, filed 12/31/81;
(80-03-070 (Order DE 79-35). Section 173-422-080, filed 2/28/80.]
WAC 173-422-090 EXHAUST ANALYZER SPECIFICATIONS. Only exhaust analyzers
meeting the following specifications at the time of certification testing may
be used for certification testing. Any person authorized by the department
to certify vehicles is solely responsible for insuring that the testing
equipment is operating within the following specifications at the time of
certification testing.
(1) Accuracy: The readings or the printed test results of the exhaust
analyzers compared to the true value of a measured sample shall have the
following accuracy tolerances.
HC - Measured as n - hexane
200 to 220 ppm +/-15 ppm
0 to 1000 ppm +/-30 ppm
1000 to 2000 ppm +/-100 ppm
VI-B7
<PAGE>
CO
1.0 to 1.2% +/-0.1%
0 to 5%; +/-0.2%
5 to 10% +/-0.5%
CO2:
4 to 6% +/-1%
(2) Calibration: The analyzer shall have the capability of being
calibrated electronically and by gas.
(3) Drift: The drift of the zero reading or any calibration reading of
each analyzer shall not exceed 15 ppm HC 0.1% CO or 0.5% CO2 in one hour.
(4) Flow restriction indicator: The analyzer shall be operated within
manufacturer's specifications for sample flow. The sampling system shall be
equipped with a visual and/or audible warning that sample flow is not within
operating requirements.
(5) Interference effects: Sampling the following concentrations of
noninterest gases shall not cause the HC reading to change +/-10 ppm: 15% CO2 in
N2, 10% CO in N2, 3000 ppm NO in N2, 10% O2 in N2, and 3% H2O vapor in air.
Sampling the following concentrations of noninterest gases shall not
cause the CO2 reading to change +/-0.05%: 15% CO2 in N2, 1600 ppm HC in N2, 3000
ppm NO in N2, 10% 02 in N2, and 3% H2O vapor in air.
Sampling the following concentrations of noninterest gases shall not
cause the CO: reading to change +/-0.05%: 1600 ppm HC in N2, 10% CO in N2, 3000
ppm NO in N2, 10% 02 in N2, and 3% H2O vapor in air.
(6) Repeatability: The repeatability of the exhaust analyzers used shall
be within 10 ppm HC. 0.05% CO and 0.2% CO2 during five successive measurements
of the same sample.
(7) Response: The response of the exhaust analyzers shall be at least
ninety-five percent of the final value within fifteen seconds.
(8) Sensitivity: The sensitivity of each analyzer shall be equal to or
less than 10 ppm HC, 0.05% CO and 0.2% CO2.
(9) Range of measurement: The analyzer shall have a range equal to or
greater than 0-2000 ppm HC (n-Hexane), 0 to 10% CO, and 0 to 6% CO2.
[Statutory Authority: Chapter 70.120 RCW. 90-06-062. Section 173-422-090,
filed 3/6/90, effective 4/6/90. Statutory Authority: RCW 70.120.120,
43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115 (Order DE 83-31), Section
173-422-090, filed 11/23/83, effective 1/2/84. Statutory Authority: RCW
70.120.120. 82-02-027 (Order DE 81-32). Section 173-422-090, filed 12/31/81,
80-03-070 (Order DE 79-35), Section 173-422-090, filed 2/28/80.]
WAC 173-422-100 TESTING EQUIPMENT MAINTENANCE AND CALIBRATION. (1)
Unless alternative procedures have been approved or required by the
department all equipment used in the inspection shall be calibrated and
maintained according to the manufacturer's specifications and
recommendations. Complete logs as approved by the department shall be kept
for maintenance, repair, and calibration.
VI-B8
<PAGE>
(2) The following procedures shall be followed by all testing facilities
unless equivalent procedures have been approved by the department. Exhaust
analyzers and all electronic components that could affect the gas
concentration results shall be warmed up for at least thirty minutes prior to
performing any test on equipment calibration, span, or zero checks:
(a) Each test. Before each test can start, the exhaust analyzer readings
must be less than 10 ppm HC, 0.1% CO and 0.5% CO2. If during a test the
sampling system flow restriction indicator becomes activated, the test shall
bc stopped and restarted after the necessary repairs to the analyzer have
been completed.
(b) Hourly check. The exhaust analyzer shall not be used to test
vehicles unless within an hour prior to the test it was spanned with a
calibration gas. The following procedure shall be used:
(i) Adjust the exhaust analyzer to zero using ambient air or zero
calibration gas.
(ii) Adjust the exhaust analyzer using the electronic span.
(iii) Check the calibration of the exhaust analyzer using a calibration
gas of approximately twenty to forty percent of each range.
(iv) Adjust and repair as necessary to insure the accuracy specified in
WAC 173-422-090.
(c) Weekly check. The exhaust analyzer shall not be used to test
vehicles unless a multipoint calibration has been performed within the last
seven days. The following procedure shall be used:
(i) Adjust the exhaust analyzer to zero using ambient air or zero
calibration gas.
(ii) Adjust the exhaust analyzer using the electronic span.
(iii) Check the calibration of the exhaust analyzer using calibration
gases of approximately twenty, forty, sixty, and eighty percent for each
range. (CO2 must be present at concentrations of at least 2.0%.)
(iv) Adjust and repair as necessary to insure the accuracy specified in
WAC 173-422-090 at each calibration point.
(v) Check the calibration of the exhaust analyzer using a calibration
gas with a CO concentration of 1.2 to 2.4%, a HC concentration of 150 to 300
ppm measured as n-hexane, and a CO2 concentration of 4.0 to 6.0%.
(vi) Adjust and repair as necessary to insure the accuracy of the
exhaust analyzer is within .05% CO and 6 ppm HC.
(d) Repair check. A multipoint calibration as specified in (c) of this
subsection shall be performed before the analyzer is used for certification
testing following the replacement of an optical or electronic component that
can cause a variation in the analyzer reading.
The manufacturer's recommended procedures to determine any change in the
correction factor from the propane calibration gas to n-hexane readings shall
be followed.
(e) Leak check. The exhaust analyzer shall not be used to test vehicles
unless within one week prior to the testing, CO readings have been taken
while introducing calibration gas
VI-B9
<PAGE>
through the calibration port and through the probe. Discrepancies of over 3%
in the readings shall require repair of leaks. No analyzer adjustments shall
be permitted during this check. Other leak check procedures may be used if it
can be shown to the department's satisfaction that the method identifies
leaks as well as the method in this subsection.
[Statutory Authority: Chapter 70.120 RCW. 90-06-062, Section 173-422-100, filed
3/6/90, effective 4/6/90. Statutory Authority: RCW 70.120.120, 43.21A.080,
70.94.331 and 70.94.141(1). 83-23-115 (Order DE 83-31), Section 173-422-100
filed 11/23/83, effective 1/2/84. Statutory Authority: RCW 70.120.120.
82-02-027 (Order DE 81-32), Section 173-422- 100, filed 12/31/81; 80-03-070
(Order DE 79-35), Section 173-422-100, filed 2/28/80.]
WAC 173-422-110 DATA SYSTEM REQUIREMENTS. The data system shall consist
of the following units:
(1) Vehicle identification terminal. The vehicle identification terminal
shall have a standard typewriter for-matted keyboard with a visual display to
verify data entered. The data entered shall be transferred to the
programmable processor on command.
(2) Programmable processor. The programmable processor shall perform the
following functions:
(a) Accept and validate vehicle and test data required in WAC
173-422-140 from the vehicle identification terminal, exhaust analyzer, or
other sources. Indicate on the vehicle identification terminal any data
entered that does not meet the validation criteria.
(b) Convert analog emission measurements to digital information for each
analyzer range.
(c) Verify that there is no excessive dilution of the exhaust sample by
determining the carbon dioxide concentration and provide carbon dioxide
output signal to printer and bulk storage device.
(d) Compare test results to the state's emissions standards. Test
results shall be determined by averaging five consecutive readings taken at
one second intervals, at fifteen seconds after the probe has been inserted
into the tail pipe. The results shall be considered stable and recorded if
the five readings do not vary more than ten percent of their average or 30
ppm HC, or 0.2% CO, or 1% CO2 from their average, whichever is greater. If
stability has not occurred before thirty seconds of testing, the thirty
second reading along with four other consecutive readings shall be averaged
and recorded as the result.
(e) Outputs vehicle and test data and established standards for report
printout.
(f) Outputs vehicle and test data for storage on bulk storage devices.
(3) Report printer. The report printer shall print the vehicle
inspection report and the certificate of compliance. The forms used shall be
provided or approved by the department.
(4) Bulk storage devices. All data from the vehicle inspection report
and the certificate of compliance shall be
VI-B10
<PAGE>
written on the bulk storage devices at the same time the printed report(s)
are produced.
The data handling system shall be so designed to prevent any data
changes on the bulk storage devices that would eliminate or alter the
original entry.
Inspection shall be redone if errors result in an incorrect vehicle
inspection report.
To insure that the bulk storage devices are compatible with the state's
data processing equipment, all bulk storage devices and data handling methods
used by the contractor shall be expressly approved by the department.
[Statutory Authority: RCW 70.120.120. 82-02-027 (Order DE 81-32), Section
173-422-110, filed 12/31/81; 80-03-070 (Order DE 79-35), Section 173-422-110,
filed 2/28/80.]
WAC 173-422-120 QUALITY ASSURANCE. The department, or its designee, will
monitor the operation of each authorized emission testing facility with
unannounced, unscheduled inspections to check the calibration and maintenance
of the exhaust analyzers, test procedures, and records.
Vehicle inspection reports and fiscal reports submitted Dy inspection
station operators will be checked for completeness and accuracy. The
department or its designee shall have the right to audit contractor's and
subcontractor's records.
The department (or its designee) may conduct unidentified surveillance.
The department (or its designee) may require that the use of an exhaust
analyzer be suspended due to a malfunction or incorrect calibration of the
analyzer. [Statutory Authority: RCW 70.120.120, 43.21A.080. 70.94.331 and
70.94.141(1). 83-23-115 (Order DE 83-31). Section 173-422-120, filed
11/23/83, effective 1/2/84. Statutory Authority: RCW 70.120.120. 80-03-070
(Order DE 79-35). Section 173-422-120, filed 2/28/80.]
WAC 173-422-130 INSPECTION FEES. The fee for the first emission test on
each vehicle applicable to a vehicle license year shall be sixteen dollars.
If the vehicle fails, one retest will be provided free of charge at any
inspection station operated under contract to the state, provided that the
retest is applicable to the same vehicle license year. Any additional
retests of a failed vehicle applicable to the same vehicle license year will
require the payment of sixteen dollars.
Inspection station operators shall forward to the state treasurer within
ten working days, the amount of fees due to the state for inspections
conducted during the previous month.
The department or its designee shall have the right to audit any
inspection station operator's or contractor's records and procedures to
substantiate that the operator or contractor is properly collecting and
accounting for such fees. [Statutory Authority: Chapter 70.120 RCW.
90-06-062 Section 173-422-130, filed 3/6/90, effective 4/6/90. Statutory
Authority: RCW 90-06-062, 70.120.040(7). 87-02-051. (Order DE 86-32),
Section 173-422-130, filed 1/7/87, effective 4/1/87. Statutory Authority:
RCW 70.120.120.
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<PAGE>
82-02-027 (Order DE 81-32). Section 173-422-130, filed
12/31/81; 80-03-070 (Order DE 79-35), Section 173-422-130, filed 2/28/80.]
WAC 173-422-140 INSPECTION FORMS AND CERTIFICATES. All inspection
stations shall use inspection forms and certificates provided or approved by
the department. Additional information or materials may be provided to the
vehicle operator only if approved by the department.
(1) Vehicle inspection report: The driver of each vehicle tested shall
be given a vehicle inspection report on a form to be provided or approved by
the department. The inspection station operator shall record the following
information.
(a) Station number (lane number).
(b) Date and time of test.
(c) Who conducted the test (name or identification number).
(d) Vehicle identification number (VIN).
(e) Odometer reading in thousands of miles.
(g) Vehicle model year.
(h) Make of the vehicle.
(i) Whether or not the vehicle was manufactured with a catalytic
converter (1981 and later model vehicles only).
(j) Gross vehicle weight class.
(k) Emission test results.
(i) Applicable standards.
(m) Whether the vehicle has passed or failed the appropriate emission
standards.
(n) The engine speed while the emission readings were taken.
(o) Carbon dioxide reading.
(p) First test or retest.
(q) If available at a retest, the identification number of an ecology
authorized emission specialist who repaired the vehicle following the first
test.
(2) Certificate of compliance: The driver of a vehicle meeting the
appropriate emission standards shall be issued a certificate of compliance.
(3) Certificate of acceptance: If a vehicle has failed to pass the
emission test applicable to any vehicle license year, the vehicle owner may
request a certificate of acceptance. If the vehicle has been in use for more
than five years or fifty thousand miles, and any component of the vehicle
installed by the manufacturer for the purpose of reducing emissions, or its
appropriate replacement, is installed and operative. To receive the
certificate of acceptance the vehicle owner must provide original receipts
totalling at least fifty dollars, for 1980 and earlier model year vehicles or
at least one hundred fifty dollars for 1981 and later model year vehicles,
dated on or between the date of the first test and the final retest, for
costs of repairs performed by a "certified emission specialist" solely
devoted to meeting the emission standards.
(4) Form storage: Copies of each certificate of compliance/ acceptance,
and all vehicle inspection reports shall be kept on file by the contractor
and be available for the department's review for one year after they are
issued. This requirement includes forms that are voided for any reason.
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<PAGE>
(5) Reporting: The inspection station operator shall forward to the
department within ten working days after the end of each month (a) an
approved storage device containing all data collected from each inspection
conducted that month, and (b) a copy of all certificates of acceptance issued
that month along with the related vehicle inspection reports and repair
and/or parts receipts.
Before the storage device is forwarded to the department, a backup bulk
storage device shall be in the possession of the contractor. The backup bulk
storage device shall be retained for one year and be available to the
department upon request. [Statutory Authority: Chapter 70.120 RCW. 90-06-062.
Section 173-422-140, filed 3/6/90, effective 4/6/90. Statutory Authority: RCW
70.120.120, 43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115 (Order DE
83-31), Section 173-422-140, filed 11/23/83, effective 1/2/84. Statutory
Authority: RCW 70.120.120. 82-02-027 (Order DE 81-32), Section 173-422-140,
filed 12/31/81, 80-03-070 (Order DE 79-35). Section 173-422-140, filed
2/28/80.]
WAC 173-422-145 FRAUDULENT CERTIFICATES OF COMPLIANCE/ ACCEPTANCE.
(1)(a) Obtaining or attempting to obtain a certificate of compliance by (i)
providing false information or (ii) any fraudulent means; or
(b) Obtaining or attempting to obtain a certificate of acceptance (i)
through the use of receipts or other documentation containing false
information, or (ii) any fraudulent means shall be construed as a violation
of these rules implementing chapter 70.94 RCW as supplemented by chapter
70.120 RCW.
(2) Any person who commits such violation or who aids or abets another
in committing the same shall be subject to a civil penalty not to exceed two
hundred fifty dollars for each violation.
(3) For the purposes of this section the term "expended" refers to the
net actual cost to the vehicle owner in the purchase of repairs or parts
derived after the amount of any rebate, discount or cash-return has been
subtracted.
(4) Any civil penalty imposed by the department hereunder shall be
appealable to the pollution control hearing board as provided for in chapter
43.21B RCW. [Statutory Authority: Chapter 70.120 RCW. 90-06-062, Section
173-422-145, filed 3/6/90, effective 4/6/90. Statutory Authority: RCW
70.120.120. 43.21A.080, 70-.94.331 and 70.94.141(1). 83-23-115 (Order DE
83-31), Section 173-422-145, filed 11/23/83, effective 1/2/84.]
WAC 173-422-150 INSPECTION PERSONNEL REQUIREMENTS. (1) Training. All
inspection personnel must successfully complete a training course approved by
the department.
(2) Inspection personnel identification. Whenever inspection personnel
are in contact with the public they shall wear identification tags visible to
the motorist. [Statutory Authority: RCW 70.120.120. 80-03-070 (Order DE
79-35), Section 173-422-150, filed 2/28/80.]
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<PAGE>
WAC 173-422-160 FLEET AND GOVERNMENT VEHICLE TESTING REQUIREMENTS.
Self-inspection of vehicles by a fleet or government agency operator may be
authorized by the department. The department may also authorize emission
inspection of fleet vehicles by an automotive service or testing facility
engaged for such activity. Authorizations to conduct emission tests and issue
certificates of compliance under this section are limited to vehicles within
the fleet or fleets requesting such authorization. Any person or facility
conducting fleet tests under authorization of this section must meet all
requirements of this section.
(1) The exhaust analyzers used for certification testing shall meet the
specifications in WAC 173-422-090 except for those that pertain to CO2. (CO2
does not need to be measured.)
(2) All persons engaged in testing of fleet vehicles must comply with
all provisions of this chapter except WAC 173-422-080, 173-422-100
(2)(b)(iii) and (iv) and (c)(iii) and (iv), 173-422-110, 173-422-130,
173-422-140, and 173-422-150. The checks specified in WAC 173-422-100 (2)(c)
except (c)(iii) and (iv), in addition to being required weekly, shall be
performed after each relocation of the analyzer.
(3) All persons conducting tests for the purpose of issuing certificates
for fleets shall be ecology certified emission specialists.
(4) The department will provide test forms upon request. Legibly
completed forms with appropriate signature(s) will constitute certificates of
compliance for licensing purposes. Any person conducting testing under this
section shall forward to the department within ten working days after the end
of each month, a copy of each certificate of compliance issued during that
month. Copies of each certificate of compliance shall be retained by the
person issuing the certificate for at least two years from date of issuance.
Alternative arrangements for providing and storing this information using
automated data storage devices may be required by the department after one
years' notice.
Forms must be purchased from the department in advance of issuance
through payment of sixteen dollars to the department for each certificate
requested. Refunds or credit may be given for unused certificates returned to
the department.
Payment for fleet forms is waived for government fleets.
Test forms provided under this section are official documents. Persons
receiving the forms from the department are accountable for each form
provided.
Voided forms must be handled the same as certificates of compliance. One
copy shall be sent to the department within ten days after the end of the
month in which the form was voided and one copy shall be retained by the
person accountable for the forms for at least two years after date of
voiding. Refunds will not be made for voided forms.
(5) All persons authorized to conduct fleet or government vehicle
inspections under this section shall be subject to performance audits and
compliance inspections by the department, during normal business hours.
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<PAGE>
(6) Fleet vehicles may be inspected any time between their scheduled
license renewals.
(7) Certificates of acceptance may not be issued under this section.
[Statutory Authority: Chapter 70.120.RCW. 90-06-062, Section 173-422-160,
filed 3/6/90, effective 4/6/90. Statutory Authority: RCW 70.120.120,
43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115 (Order DE 83-31), Section
173-422-160, filed 11/23/83, effective 1/2/84. Statutory Authority: RCW
70.120.120. 82-02-027 (Order DE 81-32), Section 173-422-160, filed 12/31/81;
80-03-070 (Order DE 79-35), Section 173-422-160, filed 2/28/80.]
WAC 173-422-170 EXEMPTIONS. The following motor vehicles are exempt from
the inspection requirement:
(1) Vehicles proportionally registered pursuant to chapter 46.85 RCW.
(2) Vehicles whose model year is 1967 or earlier.
(3) New motor vehicles whose equitable or legal title has never been
transferred to a person who in good faith purchases the vehicle for purposes
other than resale; this does not exempt motor vehicles that are or have been
leased.
(4) Motor vehicles that use propulsion units powered exclusively by
electricity.
(5) Motor-driven cycles as defined by RCW 46.04.332.
(6) Motor vehicles powered by diesel engines or two-cycle engines.
(7) Farm vehicles as defined by RCW 46.04.181.
(8) Vehicles exempted from licensing pursuant to RCW 46.16.010.
(9) Mopeds as defined by RCW 46.04.304.
(10) Vehicles garaged and operated out of the emission contributing
area.
(11) Vehicles registered with the state but not for highway use.
(12) Used vehicles whose licenses have expired or will expire within
thirty days when sold by a Washington licensed motor vehicle dealer.
(13) Motor vehicles fueled exclusively by propane, compressed natural
gas, or liquid petroleum gas. [Statutory Authority: Chapter 70. 120 RCW.
90-06-062, Section 173-422-170, filed 3/6/90, effective 4/6/90. Statutory
Authority: RCW 70.120.120, 43.21A.080, 70.94.331 and 70.94.141(1). 83-23-115
(Order DE 83-31), Section 173-422-170, filed 11/23/83, effective 1/2/84.
Statutory-Authority: RCW. 70.120.120. 82-02-027 (Order DE 81 82). Section
173.422.170, filed 12/31/81: 80-03-070 (Order DE 79-35), Section 173-422-170,
filed 2/28/80.]
WAC 173-422-175 FRAUDULENT EXEMPTIONS. (1) Obtaining or attempting to
obtain an exemption from mission inspection requirements by false statements,
or failure to comply with the exemption procedures established to implement
WAC 173-422-170, shall be construed as a violation of these rules
implementing chapter 70.94 RCW as supplemented by chapter 70.120 RCW.
(2) Any person who commits such violation or who aids or abets another
in committing the same shall be subject to a civil
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<PAGE>
penalty not to exceed two hundred fifty dollars for each violation.
(3) Any civil penalty imposed by the department hereunder shall be
appealable to the pollution control board as provided for in chapter 43.21B
RCW. [Statutory Authority: RCW 70.120.120, 43.21A.080, 70.94-.331 and
70.94.141(1). 83-23-115 (Order DE 83-31), Section 173-422-175. filed
11/23/83, effective l/2/84.]
WAC 173-422-180 AIR QUALITY STANDARDS. The air quality standards set
forth in chapter 173-415 WAC are the air quality standards applicable to the
establishment of noncompliance areas pursuant to this chapter. [Statutory
Authority: RCW 70.120.120. 80-03-070 (Order DE 79-35), Section 173-422-180,
filed 2/28/80.]
WAC 173-422-190 EMISSION SPECIALIST CERTIFICATION. (1) To become a
certified emission specialist an individual shall:
(a) Pass a course of study, approved by the department, on motor vehicle
maintenance, engine and exhaust analysis equipment usage, and emission
control system repair and maintenance; and
(b) Agree in writing to meet the requirements of subsection (2) of this
section.
(2) To maintain certification, a certified emission specialist shall:
(a) Successfully complete a department approved course on emission
repair within the second year after the date of certification. and within
each second year thereafter:
(b) Sign, including the specialist identification number, all receipts
for tune-up and emission repairs or adjustments performed;
(c) Record on all receipts the vehicle's emission readings after the
work is completed when an exhaust analyzer is available:
(d) Not tamper with emission control systems, including adjusting an
engine outside of the manufacturer's specifications (chapter 173-421 WAC):
(e) Not obtain or attempt to obtain a certificate of -acceptance (repair
waiver) by providing false information or by any fraudulent means (WAC
173-422-145); and
(f) Not aid or abet any individual in committing a violation of chapter
173-421 WAC or WAC 173-422-145.
(3) The certification of a certified emission specialist may be revoked
for a first violation of chapter 173-422 WAC or WAC 173-422-145, for a
period-of no more than one year, and may be permanently revoked for a second
violation of chapter 173-421 WAC or WAC 173-422-145.
The certification of a certified emission specialist may be temporarily
revoked for violation of subsection (2) of this section and may be
permanently revoked for continued willful violation of subsection (2) of this
section.
A certified emission specialist whose certification is revoked
permanently or temporarily may appeal to the pollution control hearings board
as provided for in RCW 43.21B.310.
(4) A certified emission specialist whose certification has been
temporarily revoked may reapply for certification twelve
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<PAGE>
months after the date of revocation by applying to the department and meeting
all requirements of subsection (1) of this section. An application for
certification by a permanently revoked certified emission specialist will be
denied. [Statutory Authority: Chapter 70.120 RCW. 90-06-062,
Section 173-422-190, filed 3/6/90, effective 4/6/90.]
WAC 173-422-195 LISTING OF CERTIFIED EMISSIONS SPECIALISTS. (1) A list
of certified emission specialists will be available to the public.
Specialists will be listed under their employer's shop name when the shop is
approved for listing. The list will be updated by the department at least
once every six months.
(2) The employer's name and address will be listed by the department,
when the employer agrees in writing to:
(a) Use a properly maintained and correctly calibrated exhaust analyzer
as a final check for all tune-up and emission repairs or adjustments;
(b) Have all tune-up and emission repairs or adjustments performed by a
certified emission specialist;
(c) Require any person performing tune-up and emission repairs or
adjustments to sign the customer's receipt for tune-up and emission repairs
or adjustments and to record the vehicle's emission readings on the receipt
after the work is completed;
(d) Require that all employees not aid or abet any person to tamper with
emission control systems, including adjusting a vehicle outside of the
manufacturer's specifications (chapter 173-421 WAC); and
(e) Require that all employees not aid or abet any person to obtain a
fraudulent certificate of compliance (repair waiver) (WAC 173-422-145).
(3) An employer may be removed from the certified emission specialist
list for a first violation of chapter 173-421 WAC or WAC 173-422-145 for a
period of no more than one year and may be permanently removed after a second
violation of chapter 173-421 WAC or WAC 173-422-145.
An employer may be temporarily removed from the certified emission
specialist list when failing to comply with the requirements of subsection
(2) of this section and may be permanently revoked for continued and willful
violation of subsection (2) of this section.
(4) An employer who has been temporarily removed from the certified
emission specialist list may reapply for listing twelve months after the date
of removal from the listing by applying to the department and meeting all
requirements of subsection (2) of this section. An application for listing
from an employer permanently removed from the certified emission specialist
list will be denied.
(5) An employer who is removed from a certified emission specialist list
or denied listing in a certified emission specialist list may appeal to the
pollution control hearings board as provided for in RCW 43.21B.310.
(6) A certified emission specialist whose employer is not listed may
request to be placed on a separate list available to the public. The
employer's name will not be listed. The
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<PAGE>
specialist may specify an address and phone number to be included in the list.
(7)(a) An employer approved for listing, may display the state certified
emission specialist sign available from the department. Any employer
advertising or providing of information to the public based on the
department's certification of a certified emission specialist must be able to
be discontinued immediately upon revocation of the employer's listing or
certification of the certified emission specialist.
(b) An employer violating (a) of this subsection shall be subject to a
civil penalty not to exceed two hundred fifty dollars for each violation.
(c) A civil penalty imposed by the department may be appealed to the
pollution control hearings board as provided for in RCW 43.21B.310.
[Statutory Authority: Chapter 70.120 RCW. 90-06-062. Section 173-422-195,
filed 3/6/90, effective 4/6/90]
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<PAGE>
SECTION VI
APPENDIX C
<PAGE>
PROPOSED REGULATION REVISIONS April 21, 1992
WAC 173-422-010 PURPOSE. This chapter implements the Washington Clean
Air Act, chapter 70.94 RCW, as supplemented by the motor vehicle emission
inspection provisions codified as chapter 70.120 RCW.
Gasoline motor vehicles are the primary emitters of carbon monoxide and
emit significant quantities of hydrocarbons and oxides of nitrogen. Diesel
motor vehicles are emitters primarily of particulates, hydrocarbons, and
oxides of nitrogen. Emission controls required by the federal government are
designed to reduce motor vehicle related air pollution. However, the
effectiveness of these controls is substantially reduced through
deterioration, maladjustment and tampering. Motor vehicle emission
inspection serves to identify high polluting vehicles and vehicles with
tampered or missing emission controls and to reduce their emissions, when
such reduction can be accomplished at reasonable cost. These rules establish
the emission standards, testing procedures, and associated activities
necessary to implement a program of air pollution prevention and control ()
resulting from motor vehicle emission inspections.
AMENDATORY SECTION (Amending WSR 90-06-062, filed 3/6/90, effective 4/6/90
WAC 173-422-020 DEFINITIONS. Unless a different meaning is clearly
indicated by context, the following definitions will apply:
(1) "Accuracy" means the degree of correctness by which the true value
of a measured sample is determined.
(2) "Calibration gases" mean a blend of hydrocarbon (propane), carbon
monoxide (CO), and carbon dioxide using nitrogen as carrier gas. The
concentrations are to be traceable to within two percent of NBS standards.
(3) "Certificate of acceptance" means an official form, issued by
someone authorized by the department, which certifies that all of the
following conditions have been met: The recipient's vehicle initially failed
(()) the emission (()) inspection, the recipient has provided original
receipts proving that more than (()) one hundred dollars or one hundred fifty
dollars on a 1981 or later model motor vehicle were sent after the first (())
inspection, and before the final (()) inspection on repairs performed by a
"certified emission specialist" solely to (()) reduce emissions (()), the
vehicle on final reinspection again failed to meet such standards, and the
repair information section of the test report has been completed and the
vehicle has been in use for more than five years or fifty thousand miles and
any component of the vehicle installed by the manufacturer for
<PAGE>
the purpose of reducing emissions, or its appropriate replacement, is
installed and operative.
(4) "Certificate of compliance" means an official form, issued by
someone authorized by the department, which certifies that the recipient's
vehicle on inspection complied with applicable emission inspection standards.
(5) "Certified emission specialist" means an individual who has been
issued a certificate of instruction by the department as authorized in RCW
70.120.020 (2)(a) and has maintained the certification by meeting
requirements of WAC 173-422-190(2).
(6) "Dealer" means a motor vehicle dealer, as defined in RCW 46.70.011,
that is licensed pursuant to chapter 46.70 RCW.
(7) "Department" means the department of ecology.
(8) "Drift" means the change in the reading o the analyzer to a given
sample over a period of time with no adjustment to the analyzer having been
made between the initial and final measurements.
(9) "Emission contributing area" means a land area within whose
boundaries are registered motor vehicles that contribute significantly to the
violation of motor vehicle related air quality standards in a noncompliance
area. (The inspection program implemented by this chapter applies only to
vehicles registered in emission contributing areas.)
(10) "Farm vehicle" means any vehicle other than a farm tractor or farm
implement which is designed and/or used primarily in agricultural pursuits on
farms for the purpose of transporting machinery, equipment, implements, farm
products, supplies, and/or farm labor thereon and is only incidentally
operated on or moved along public highways for the purpose of going from one
farm to another.
(11) "Fleet" means a group of fifteen or more motor vehicles owned or
leased concurrently by one owner assigned a fleet identifier code by the
department of licensing.
(12) "Gross vehicle weight rating (GVWR)" means the
manufacturer stated gross vehicle weight rating.
(13) "HC and CO emissions" means the concentration of hydrocarbons
(measured as n-nexane) and carbon monoxide in the engine exhaust.
(14) "Motor vehicle" means any self-propelled vehicle required to
be licensed pursuant to chapter 46.16 RCW.
(15) "Motorcycle" means every motor vehicle having a saddle for
the use of the rider and designed to travel on not more than three wheels in
contact with the ground, but excluding a farm tractor.
(16) "NBS" means National Bureau of Standards.
(17) "Noncompliance area" means a land area within whose
boundaries any air quality standard for any air contaminant from the
omissions of motor vehicles will probably be exceeded.
<PAGE>
(()) (18) "PPM" means parts per million by volume.
(19) "Primary emission control components" means the components of the
vehicle installed by the manufacturer for the purpose of requiring emissions
or its replacement which is acceptable to the United States Environmental
Protection Agency. These components are the catalytic converter or thermal
reactor, the air injection system components, the thermostatic air cleaner,
the exhaust gas recirculation system components, the evaporative emission
system components including the gas cap, the positive crankcase ventilation
system components, and the components that control the air/fuel mixture or
ignition timing.
(20) "Repeatability" means the ability of an analyzer to report the same
value for successive measurements of the same sample.
(21) "Response" means how quickly there is a change in reading following
a change in concentration at the sample probe inlet.
(22) "Sensitivity" means the smallest change in the value of a measured
sample that can be detected by the analyzer.
(23) "Zero calibration gases" means air or nitrogen in which total
impurities do not exceed 0.01 percent.
AMENDATORY Section (Amending Order DE 83-31, filed 11/23/83), effective
1/2/84)
WAC 173-422-030 VEHICLE EMISSION INSPECTION REQUIREMENT. All motor
vehicles, not specifically exempted by WAC 173-422-170, which are registered
or reregistered within the boundaries of an emission contributing area, as
specified in WAC 173-422-050, are subject to the vehicle emission inspection
requirements of this chapter. Neither the department of licensing nor its
agents may change the registered owner or may issue or renew a motor vehicle
license for any vehicle registered in an emission contributing area, as that
area is established under RCW 70.120.040, unless the application for issuance
or renewal is: (1) Accompanied by a valid certificate of compliance issued
pursuant to RCW 70.120.060, 70.120.080, or 70.120.090 or a valid certificate
of acceptance issued pursuant to RCW 70.120.070; or (2) exempted from this
requirement pursuant to RCW 46.16.015(2). The certificates must have a date
or validation which is within (()) six months of the date of application for
the vehicle license (()), license renewal or registered owner change.
Certificates for fleet or owner tested vehicles may have a date of validation
which is within twelve months of the assigned license renewal date.
AMENDATORY Section (Amending WSR 90-06-062, filed 3/6/90, effective 4/6/90)
WAC 173-422-035 REGISTRATION REQUIREMENTS. (1) Persons residing in
emission contributing areas as defined under WAC 173-
<PAGE>
422-050 shall register their motor vehicles within that area (()).
(2) Any person who violates this section is subject to a civil penalty
not to exceed (()) two hundred fifty dollars for each violation.
(3) Any civil penalty imposed by the department hereunder shall be
appealable to the pollution control hearings board as provided for in chapter
43.218 RCW.
AMENDATORY Section (Amending Order DE 83-31, filed 11/23/83, effective
1/2/84)
WAC 173-422-040 NONCOMPLIANCE AREAS. The following areas are
designated noncompliance areas for the air contaminants specified: Carbon
monoxide
(1) The City of Seattle.
(2) The City of Bellevue.
(3) The City of Spokane.
(4) The City of Tacoma.
(5) The City of Vancouver
(6) ((
(7))) The City of Everett.
AMENDATORY Section (Amending Order DE 84-7, filed 4/18/84)
WAC 173-422-050 EMISSION CONTRIBUTING AREAS. Emission contributing
areas within which the motor vehicle emission inspection program applies are
designated by the following United States Postal Service Zip Codes as of
((the effective dates)) January 1, 1992 set forth below:
(1) Puget Sound Region ((()
<PAGE>
98001 98035 98072
98002 98036 98073
98003 98037 98083
98004 98038 98101 thru 98199,
98005 98039 inclusive except 98110
98006 98040 98201 thru 98208
98007 98041 98258
98008 98042 98270
98009 98043 98271
98011 98046 98275
98012 98047 98290
98020 98052 98327
98021 98053 98332
98023 98054 98335
98025 98055 98338
98026 98056 98344
98027 98057 98352
98028 98058 98354
98031 98059 98371 thru 98374
98032 98062 98387
98033 98063 98388
98034 98064 98390
98071 98401 thru 98499
(2) Spokane Region ((()))
99001 99202
99005 99203
99014 99204
99016 99205
99019 99206
99021 99207
99025 99208
99027 99212
99037 99216
99201 99218
(3) Vancouver Region
98607
98660 thru 98668
98671
98682-86
AMENDATORY Section (Amending Order WSR 90-06-062, filed 3/6/90, effective
4/6/90)
WAC 173-422-060 GASOLINE VEHICLE EMISSION STANDARDS. Gasoline motor
vehicles subject to this chapter shall:
<PAGE>
(1) With the exception of vehicles whose model year is 1980 or earlier,
have the "primary emission control components" installed operative and have
an engine that is or was available from the vehicle manufacturer for use with
that vehicle or a vehicle of the same or newer model year with the same
chassis; and
(2) Meet the following exhaust emission standards prior to receiving a
certificate of compliance.
EXHAUST EMISSION STANDARDS
(())
Model Year CO(%) HC (ppm) Opacity (%)
68-74 6.0 ((1000) 900 30
((75 and
later)) 75-80 3.0 600 30
81-93 (0-8500 GVWR) 1.2 220 30
81-93 (Greater 3.0 400 30
than 8500 GVWR
94-99 0.5 100 30
(())
NEW SECTION
WAC 173-422-065 DIESEL VEHICLE EXHAUST EMISSION STANDARDS. Diesel motor
vehicles subject to this chapter shall meet following opacity standards using
the test procedures specified in WAC 173-422-075.
Model Year Opacity (%)
1968 - 1973 70
1974 - 1991 60
1992 and later 40
Vehicles tested at locations above 1000 feet altitude will be allowed an
additional 10% opacity.
AMENDATORY SECTION (Amending WSR 90-06-062, filed 3/6/90, effective 4/6/90)
WAC 173-422-070 (()) GASOLINE VEHICLE INSPECTION PROCEDURES. All
persons certified by, or under contract to, the department to conduct motor
vehicle emission inspections shall use the following (()) procedures.
Variations to the procedures specified may be (()) established by
<PAGE>
the department (()) for all or certain vehicles.
(1) The vehicle exhaust emissions of carbon monoxide, hydrocarbons, and
carbon dioxide shall be measured using either two-speed (idle and 2500 rpms)
test with the transmission in neutral or park (()) or a loaded test with the
transmission in drive or in third gear unless the engine speed does not equal
or exceed 2500 rpm then second gear shall be used for the loaded mode and in
park or neutral for the idle mode. A vehicle with an automatic transmission
may be tested in drive for the idle (()) mode if the idle rpm in neutral or
park exceeds ((1100 rpm. However, the idle rpm as tested cannot exceed (())
1100 rpm unless allowed to do so by the vehicle manufacturer's
specifications.
(2) The engine shall be at normal operating temperature during the
emission test with all accessories off.
(3) Any vehicle causing an unsafe condition, such as the continuous
leaking of any fluid onto the floor, may be rejected from the inspection
site.
(4) Vehicles shall be approximately level during the test.
(5) Vehicles with more than one exhaust pipe shall be tested by
sampling (()) one exhaust pipe (()) if the exhaust pipes originate from a
common point in the exhaust system (()) or simultaneously sampling each(())
each exhaust pipe (()).
(6) The following steps shall be taken to prevent excessive dilution.
The exhaust sample probe must be inserted at least ten inches into the tail
pipe. If this is not possible, an extension boot shall be used. The exhaust
emission test results shall not be recorded if the sum of the carbon monoxide
and the carbon monoxide concentration does not (()) equal or exceed (()) six
percent.
(7) If the engine stalls during the test, the exhaust sample probe
shall be removed, the engine (()) restarted, and one additional attempt (())
made to complete the test after reinserting the exhaust sample probe.
(8) ((.
(9) )) Two speed test sequence.
(a) Insert the exhaust sample probe.
<PAGE>
(b) The pass/fail analysis shall begin after an elapsed time of ten
seconds. A pass determination shall be made for the vehicle the idle mode
terminated if:
(i) The vehicle shall pass the idle mode test and this mode terminated
if, prior to an elapsed time of thirty seconds, exhaust gas concentrations
are less than or equal to 100 ppm HC and 0.5 percent CO.
(ii) The vehicle shall pass the idle mode test and this mode terminated
if, at any time between an elapsed time of thirty seconds and ninety seconds,
the exhaust gas concentrations are less than or equal to the applicable
emission standards.
(c) Increase the engine speed to 2500 + 300 rpm.
(d) The pass/fail analysis shall begin after an elapsed time of ten
seconds. A pass or fail determination shall be made for the vehicle and the
2500 rpm mode terminated for vehicles that passed the idle mode test as
follows:
(i) The vehicle shall pass the 2500 rpm mode test and this mode
terminated if, at any time between an elapsed time of thirty seconds and one
hundred eighty seconds, the exhaust gas concentrations are less than or equal
to the applicable emission standards.
(ii) The vehicle shall pass the 2500 rpm mode test and this mode
terminated if, at any time between an elapsed time of thirty seconds and one
hundred eighty seconds, the exhaust gas concentrations are less than or equal
to the applicable emission standards.
(e) A pass or fail determination shall be made for vehicles that failed
the idle mode test and the 2500 rpm mode test terminated at the end of an
elapsed time of one hundred eighty seconds.
(f) If the vehicle fails the initial idle mode test and passed the
high-speed mode test, a second idle test will be conducted.
(9) Loaded test sequence.
(a) Insert the exhaust sample probe.
(b) The test shall start when the dynamometer speed is within the
following limits:
engine cylinders speed (mph) brake horsepower
4 or less 22-25 2.8-4.1
5-6 29-32 6.8-8.4
7 or more 32-35 8.4-10.8
If the dynamometer speed falls outside the limits for more than five seconds
in one excursion, or fifteen seconds over all excursions, the test shall be
restarted.
(c) The pass/fail analysis shall begin after an elapsed time of ten
seconds. A pass determination shall be made for the loaded mode and this
mode terminated if at any point between an elapsed time of thirty seconds and
ninety seconds, the exhaust
<PAGE>
gas concentrations are less than or equal to the applicable emission
standards.
(d) The idle mode shall start when the dynamometer speed is zero and
the vehicle engine speed is less than 1100 rpm. If engine speed exceeds 1100
rpm the idle mode test shall be restarted.
(e) The pass/fail analysis shall begin after an elapsed time of ten
seconds. A pass determination shall be made for the vehicle and the idle
mode terminated if:
(i) Prior to an elapsed time of thirty seconds, exhaust gas
concentrations are less than or equal to 100 ppm HC and 0.5 percent CO.
(ii) At any time between an elapsed time of thirty seconds and ninety
seconds, exhaust gas concentrations are less than or equal to the applicable
emission standards.
(10) Before (()) failing a 1981-1986 model year Ford Motor Company
vehicle with a gross vehicle weight of 8500 pounds or less, or a 1984-85
model year Honda Prelude, the engine shall be (()) shut off for ten seconds
and then restarted and the failing mode repeated.
((
.))
NEW SECTION
WAC 173-422-422-075 DIESEL VEHICLE INSPECTION PROCEDURE. Diesel
vehicles shall be tested using the following procedure:
(1) with the transmission in neutral move the accelerator pedal from
normal idle as rapidly as possible to the full power position, and held in
this position for three seconds unless the engine reaches the maximum speed
allowed by the vehicle manufacturer as indicated by the vehicle's tachometer
then the accelerator pedal shall be immediately released.
(2) Fully release the accelerator pedal so that the engine decelerates
to normal idle.
(3) Measure the smoke opacity with an opacity meter continuously during
the test.
(4) Repeat the above steps ten times or until three successive maximum
opacity measurements meet the standard established in WAC 173-422-065.
<PAGE>
AMENDATORY SECTION (Amending W5R 90-06-062, filed 3/6/90, effective 4/6/90)
WAC 173-422-090 EXHAUST GAS ANALYZER SPECIFICATIONS. Only exhaust gas
analyzers meeting the following specifications at the time of certification
testing may be used for certification testing. Any person authorized by the
department to certify vehicles is solely responsible for insuring that the
testing equipment is operating within the following specifications at the
time of certification testing.
(1) Accuracy: The readings or the printed test results of the exhaust
analyzers compared to the true value of a measured sample shall have the
following accuracy tolerances.
((
EG
__
%))
HC - Measured as n - hexane
0 to 400 ppm +12 ppm
401 to 1000 ppm +30 ppm
1001 to 2000 ppm +80 ppm
CO
0 - 2.00 +0/06
2.01 - 5.00 +0.15
5.01 - 9.99 +0.40
CO2
0 - 4.0 +0.6
4.1 - 14.0 +0.5
(2) Calibration: The analyzer shall have the capability of being
calibrated electronically and by gas.
(3) Drift: The drift of the zero reading or any calibration reading of
each analyzer shall not exceed 15 ppm HC, 0.1% CO or 0.5% CO2, in one hour.
(4) Flow restriction indicator: The analyzer shall be operated within
manufacturer's specifications for sample flow. The sampling system shall be
equipped with a visual and/or audible warning that sample flow is not within
operating requirements.
(5) Interference effects: Sampling the following concentrations of
noninterest gases shall not cause the HC
<PAGE>
reading to change +10 ppm: 15% CO in N, 10% CO in N, 3000 ppm NO in N, 10% 0,
in N, and 3% HO vapor in air.
Sampling the following concentrations of noninterest gases shall not
cause the CO reading to change +/-0.05%: 15% CO in N, 1600 ppm HC in N, 3000
ppm MO in N, 10% 0 in N, and 3% HO vapor in air.
Sampling the following concentrations of noninterest gases shall not
cause the CO reading to change ((+/-0.5%)) +0.20%: 1600 ppm HC in N, 10% CO in
N, 3000 ppm NO in N, 10% 0 in N, and 3% HC vapor in air.
(6) Repeatability: The repeatability of the exhaust analyzers used
shall be within (()) the following tolerances during five successive
measurements of the same sample ((v)):
<PAGE>
HC,PPM 0-400 8
as hexane 401-1000 15
1001-2000 30
CO. % 0-2.00 0.03
2.01-5.00 0.08
5.01-9.99 0.15
CO. % 0-14.0 0.3
(7) Response: The response of the exhaust analyzers shall be at
least ninety percent of the final value within (()) eight seconds.
(8) Sensitivity: The sensibility of each analyzer shall be equal to
or less than 10 ppm HC, 0.05% CO and 0.2% CO2.
(9) Range of measurement: The analyzer shall have a range equal to
or greater than 0-2000 ppm HC (n-Hexane), 0 to 10% CO, and 0 to 6% CO2.
NEW SECTION
WAC 73-422-095 EXHAUST OPACITY TESTING EQUIPMENT. The exhaust opacity
measurement shall be conducted using an opacity meter approved by the
department.
The opacity meter shall:
(1) Be a light extinction type opacity meter, contain both an optical
detection unit and a control/indicator unit.
(2) Provide for full flow, end-of-line, and continuous measurement of
exhaust opacity.
(3) Have an accuracy of plus or minus one opacity percent digit.
(4) Have a reading linearity of one opacity percent digit from 0-100
percent opacity.
(5) Have a drift of less than plus or minus one percent per use.
(6) Have a response time of less than 0.140 seconds for a change from
0-95 percent of full scale.
(7) Have a warm-up time of less than one minute,
(8) Have a operating temperature range from 32DEG. -120DEG. F.
AMENDATORY SECTION (AMENDING WSR 90-06-062), Filed 3/6/90, effective
4/6/90)
WAC 173-422-100 TESTING EQUIPMENT MAINTENANCE AND CALIBRATION.
(1) Unless alternative procedures have been approved or required by the
department all equipment used in the inspection shall be calibrated and
maintained according to the manufacturer's specification and recommendations.
Complete logs as approved by the Department shall be kept for maintenance,
repair, and calibration.
(2) The following procedures shall be followed by all testing facilities
unless equivalent procedures have been approved by the department. Exhaust
analyzers and all electronic
<PAGE>
components that could affect the gas concentration results shall be warmed up
for at least thirty minutes prior to performing any test on equipment,
calibration, span, or zero checks:
(a) Each test. Before each test can start, the zero span setting must be
checked on the opacity meter and the exhaust gas analyzer readings must be
less than 10 ppm HC, 0.1% CO and 0.5% CO(2). If during a test the sampling
system flow restriction indicator becomes activated, the test shall be
stopped and restarted after the necessary repairs to the analyzer have been
completed.
(b) Hourly check. The exhaust analyzer shall not be used to test
vehicles unless within an hour prior to the test it was spanned with
calibration gas. The following procedure shall be used:
(i) Adjust the exhaust analyzer to zero using ambient air or zero
calibration gas.
(ii) Adjust the exhaust analyzer using the electronic span.
(iii) Check the calibration of the exhaust analyzer using a calibration
gas of approximately twenty to forty percent of each range.
(iv) Adjust and repair as necessary to insure the accuracy specified in
WAC 173-422-090.
(c) Weekly check. The exhaust analyzer shall not be used to test
vehicles unless a multi-point calibration has been performed within the last
seven days. The following procedure shall be used:
(i) Adjust the exhaust analyzer to zero using ambient air or zero
calibration gas.
(ii) Adjust the exhaust analyzer using the electronic span.
(iii) Check the calibration of the exhaust analyzer using calibration
gases of approximately twenty, forty, sixty, and eighty percent for each
range. (C0(2) must be present at concentrations of at least 2.0%.)
(iv) Adjust and repair as necessary to insure the accuracy specified in
WAC 173-422-090 at each calibration point.
(v) Check the calibration of the exhaust analyzer using a calibration
gas with a CO concentration of 1.2 to 2.4%, a HC concentration of 150 to 300
ppm measured as n-hexane, and a CO2 concentration of 4.0 to 6.0%.
(vi) Adjust and repair as necessary to insure the accuracy of the
exhaust analyzer is within .05% CO and 6 ppm HC.
(d) Repair check. A multipoint calibration as specified in (c) of this
subsection shall be performed before the analyzer is used for certification
testing following the replacement of an optical or electronic component that
can cause a variation in the analyzer reading.
The manufacturer's recommended procedures to determine any change in the
correction factor from the propane calibration gas to n-hexane readings shall
be followed.
(e) Leak check. The exhaust analyzer shall not be used to test vehicles
unless within one week prior to the testing, CO readings have been taken
while introducing calibration gas through the calibration port and through
the probe. Discrepancies of over 3% in the readings shall require repair of
leaks. No
<PAGE>
analyzer adjustments shall be permitted during this check. Other leak check
procedures may be used if it can be shown to the department's satisfaction
that the method identifies leaks as well as the method in this subsection.
AMENDATORY SECTION (Amending Order DE 83-31, filed 11/23/83, effective
1/2/84)
WAC 173-422-120 QUALITY ASSURANCE. The Department, or its designee, may
monitor the operation of each authorized emission inspection facility with
unidentified or unannounced and unscheduled inspections to check the
calibration and maintenance of the exhaust analyzers, test procedures, and
records.
The department (or its designee) may immediately require the
suspension of vehicle inspections in all or part by the inspection facility
if violations this chapter are found during an inspection at the inspection
facility.
AMENDATORY SECTION (Amending WSR 90-06-062, filed 3/6/90, effective 4/6/90)
WAC 173-422-130 INSPECTION FEES. At an inspection facility operated
under contract to the state, the fee for the first emission inspection
on each vehicle applicable to a vehicle license year shall be sixteen
dollars. If the vehicle fails, one reinspection will be provided free
of charge at any inspection station operated under contract to the, provided
that the reinspection is applicable to the same vehicle license year.
Any additional reinspection of a failed vehicle applicable to the same
vehicle license year require the payment of sixteen dollars.
Inspection station operators shall forward to the state treasurer within
ten working days, the amount of fees due to the state for inspections
conducted during the previous month.
The department or its designee shall have the right to audit any
inspection station operator's or contractor's records and procedures to
substantiate that the operator or contractor is properly collecting and
accounting for such fees.
AMENDATORY SECTION (Amending WSR 90-06-062, filed 3/6/90, effective 4/6/90)
WAC 173-422-140 INSPECTION FORMS AND CERTIFICATES. All inspection
facilities shall use inspection forms and certificates provided or approved
by the department.
(1) Vehicle inspection report: The driver of each vehicle inspected
shall be given a vehicle inspection report on a form to be provided or
approved by the department. The
<PAGE>
inspection station operator shall record the following information.
(a) Station number (lane number).
(b) Date and time or test.
(c) Who conducted the test (name of identification number).
(d) Vehicle identification number (VIN).
(e) Odometer reading in thousands of miles.
(f) Vehicle license number.
(g) Vehicle model year.
(h) Make of the vehicle.
(i) Manufacturer's gross vehicle weight rating (GVWR).
(j) Emission test results.
(k) Applicable standards.
(l) Whether the vehicle has passed or failed the appropriate
emission standards.
(m) What component of the vehicle installed by the manufacturer for
the purpose of reducing emissions, or its appropriate replacement is missing
or inoperative. (Gasoline vehicles only.)
(n) The engine speed while the emission readings were taken. (Gasoline
vehicles only.) RPM
(o) Carbon dioxide reading. (Gasoline vehicles only.)
(p) First inspection or reinspection.
(q) If available at reinspection the identification number of an
ecology "Certified emission specialist who repaired the vehicle following
the first inspection.
(2) Certificate of compliance: The driver of a vehicle meet the
appropriate inspection standards shall be in certificate of compliance.
(3) Certificate of acceptance: If a vehicle has failed to the emission
inspection, the vehicle owner may request a certificate of acceptance,
the vehicle has been in use for more than five years or fifty thousands
miles, and any component of the vehicle installed by the manufacturer for the
purpose of reducing emissions, or its appropriate replacement is installed
and operative. To receive the certificate of acceptance the vehicle owner
must provide original receipts totalling at least one hundred dollars,
for 1980 and earlier model year vehicles or at least one hundred fifty
dollars for 1981 and later model year vehicles, dated on or between the date
of the first test and to final retest, for costs on or between the date of
the first test and the final retest, for costs of repair performed by a
"certified emission specialist" solely devoted to meeting the emission
standards.
(4) Form storage: Copies of each certificate of compliance acceptance,
and all vehicle inspection reports shall be kept on file by the contractor
and be available for the department's review for two years after they are
issued. This requirement include forms that are voided for any reason.
<PAGE>
(5) Reporting: The inspection station operator shall forward the
department within ten working days after the end of each month an approved
storage device containing all data collected from inspection conducted that
month, and (b) a copy of all certificates acceptance issued that month along
with the related vehicle inspection reports and repair and/or parts receipts.
Before the storage device is forwarded to the department, backup bulk
storage device shall be in the possession of the contractor. The backup bulk
storage device shall be retained for two years and be available to the
department upon requests.
AMENDATORY SECTION (Amending WSR 90-06-062, filed 3/6/90, effective
4/6/90)
WAC 173-22-160 FLEET AND DIESEL OWNER VEHICLE TESTING REQUIREMENTS.
The department may authorize emission inspections by fleet
operator including government agencies and the owner's of diesel motor
vehicles with a gross vehicle weight rating in excess of 8500 pounds or by an
automotive service or testing facility engaged by the vehicle owner for such
activity. Authorizations to conduct emission tests and issue certificates of
compliance under this section are limited to authorized fleet vehicles
or diesel vehicles with a gross vehicle weight rating in excess of 8500
pounds.
(1) The exhaust analyzers used for certification testing of gasoline
fleet vehicles shall meet the specifications in WAC 173-422-09.
(2) All person engaged in testing of gasoline fleet or diesel vehicles
must comply with all applicable provisions of this chapter except WAC
173-422-100 (2) (b) (iii) and (iv) and (c) (iii) and (iv) (()). The checks
specified in WAC 173-422-100 (2) (c) except (c) (iii) and (iv), in addition
to being required weekly, shall be performed after each relocation of the
analyzer.
(3) All persons conducting tests for the purpose of issuing certificates
for fleet(s) or diesel vehicles shall be ecology certified emission
specialists.
(4) The department will provide test forms upon request legibly
completed forms with appropriate signature (s) will constitute
certificates of compliance for licensing purposes. Any person conducting
testing under this section shall forward to the department within ten working
days after the end of each month, a copy of each certificate of compliance
issued during that month. Copies of each certificate of compliance shall be
retained by the person issuing the certificate for at least two years from
date of issuance. Alternative arrangements for providing and/or
<PAGE>
storing this information using automated data storage devices may be approved
or required by the department (after one years notice).
Forms must be purchased from the department in advance to issuance
through payment of sixteen dollars to the department for each certificate
requested. Refunds or credit may be given for unused certificates returned to
the department. Payment for fleet forms is waived for government fleets.
Test forms provided under this section are official documents.
Persons receiving the forms from the department are accountable for each
form provided.
Voided forms must be handled the same as certificates of compliance. One
copy shall be sent to the department within ten days after the end of the
month in which the form was voided and one copy shall be retained by the
person accountable for the forms for at least two years after the date of
voiding. Refunds will not be made for voided forms.
(5) All persons authorized to conduct fleet or government vehicle
inspections under this section shall be subject to performance audits and
compliance inspections by the department, during normal business hours.
(6) Fleet vehicles may be inspected any time between their scheduled
license renewals.
(7) Certificates of acceptance may not be issued under this section.
AMENDATORY SECTION (Amending WSR 90-06-062, filed 3/6/90, effective
4/6/90)
WAC 173-422-170 EXEMPTIONS. The following motor vehicles are exempt from
the inspection requirement:
(1) Vehicles proportionally registered pursuant to chapter 46.85 RCW.
(2) Vehicles whose model year is 1967 or earlier.
(3) New motor vehicles whose equitable or legal title has never been
transferred to a person who in good faith purchases the vehicle for purposes
other than resale; this does exempt motor vehicles that are or have been
leased.
(4) Motor vehicles that use propulsion units powered exclusively by
electricity.
(5) Motor-driven cycles as defined by RCW 46.04.181.
(6) Farm vehicles as defined by RCW 46.04.332.
(7) Vehicles exempted from licensing pursuant to RCW 46.16.010.
(8) Mopeds as defined by RCW 46.04.304.
(9) Vehicles garaged and operated out of the emission
contributing area.
(10) Vehicles registered with the state but not for highway use.
<PAGE>
(11) Used vehicles whose licenses have expired or will expire
within thirty days when sold by a Washington licensed motor vehicle dealer.
(12) Motor vehicles fueled by propane compressed natural
gas, or liquid petroleum gas and so recognized by the department of
licensing.
(13) Motor vehicles whose manufacturer or engine manufacturer
provides information that the vehicle cannot meet emission standards because
of its design. In lieu of exempting these vehicles alternative standards
and/or inspection procedures may be established.
REPEALER
The following sections of the Washington Administrative Code are
repealed:
WAC 173-422-080 VEHICLE INSPECTION DATA HANDLING PROCEDURES.
WAC 173-422-110 DATA SYSTEM REQUIREMENTS.
WAC 173-422-150 INSPECTION PERSONNEL REQUIREMENTS.
WAC 173-422-180 AIR QUALITY STANDARDS.
<PAGE>
SECTION VI
APPENDIX D
<PAGE>
ZONE I VEHICLE EMISSION INSPECTION STATION LOCATIONS
Number of Stations = 2
map
Map of area identifying Zone I. Zone I is identified by including
Marysville, Lake Stevens, Everett, Mukilleo, Snohomish.
<PAGE>
ZONE II-VEHICLE EMISSION INSPECTION STATION LOCATIONS
Number of Stations = 8
map
Map of area identifying Zone II. Zone II is identified by including Edmonds,
Lynnewood, Mt. Lake Terrace, Millcreek, Bothell, Woodinville, Kirkland,
Redmond, Bellevue, Issaquoh, and Renton
<PAGE>
ZONE III-VEHICLE EMISSION INSPECTION STATION LOCATIONS
Number of Stations = 6
map
Map of area identifying Zone III. Zone III is identified by including Gig
Harbor, Tacoma, Federal Way, Kent, Maple Valley, Auburn, Pacific, Sumner,
Puyallup, Graham, Spanaway, Fort Lewis, Dupont, and Steilacoom.
<PAGE>
ZONE IV-VEHICLE EMISSION INSPECTION STATION LOCATIONS
Number of Stations = 1
map
Map of area identifying Zone IV. Zone IV is identified by including
Vancouver, Comas, and Washougal.
<PAGE>
ZONE V-VEHICLE EMISSION INSPECTION STATION LOCATIONS
Number of Stations = 2
map
Map of area identifying Zone V. Zone V is identified by including Spokane,
Otis Richards, Liberty Lake, Green Acres, and Veradale.
<PAGE>
SECTION VI
APPENDIX E
WASHINGTON STATE CONTRACT NO.
----
ESCROW NO.
----
Escrow Instructions and Agreement
Department of General Administration
Office of State Procurement
216 General Administration Building-AX-22
Olympia, Washington 98504-0622
TO:
----------------------------------------------------
(Bank or Savings and Loan Institution)
---------------------------------------------------
(Branch)
--------------------------------------------------
(Mailing Address)
--------------------------------------------------
(City, State, Zip)
The undersigned, _________________________ (Contractor), has been directed by
the Department of General Administration, Office of State Procurement (OSP) to
establish and escrow account with a bank or saving and loan institution of their
choice, provided that it is regulated by the State of Washington. The purpose of
this escrow agreement is to guarantee that all provisions of the above
referenced Washington State contract are satisfactorily performed by the
Contractor. The following are the terms, conditions, and instructional for this
escrow agreement, which is the only form which will be accepted by OSP.
1. The monies to be deposited shall be used by you to purchase certificate(s)
of time deposit or other interest bearing securities agreed upon by you and
the Contractor, provided they shall be in a form which shall allow you
alone to reconvert them into money, if you are required to do so by OSP as
provided in paragraph 5 below.
2. When and as interest accrues and is paid, you shall collect such interest
and forward it to the Contractor at its address designated below; unless
with your consent, you are otherwise directed in writing by the Contractor.
3. Other than accrued interest you are not authorized to deliver to the
Contractor all or any part of the certificate(s) of time deposit or other
interest-bearing securities or monies held by you pursuant to this
agreement except in accordance with written instructions from OSP by the
Contract Administrator assigned to the administration of the above
referenced Washington State Contract. Compliance with such instructions
shall relieve you of any further liability related thereto.
4. The expiration date of the above referenced contract underlying this
agreement is ________________. OSP shall advise you in writing of any
change in the contract expiration data including additional contract terms
and you will be authorized to reinvest the monies held hereunder
accordingly.
5. In the event the OSP Contract Administrator orders you to do so in writing
and not withstanding any other provisions of this agreement, you shall,
within thirty-five (35) calendar days of receipt of such order, reconvert
into money the certificate(s) of time deposit or other interest-bearing
securities held by you pursuant to this agreement and return such money and
any unpaid accrued interest to OSP.
6. Payment of all fees for your servIces shall be the sole responsibility of
the Contractor end shall not be deducted from any monies placed with you
pursuant to this agreement until and unless the OSP Contract Administrator
directs the release to the Contractor of the monies held hereunder;
whereupon
<PAGE>
you shall be granted a first lien upon such monies released end shall be
entitled to reimburse yourself for the entire amount of your fees.
<PAGE>
7. If you are made a party to any litigation with respect to the monies held
by you hereunder, or if the conditions of this agreement are not promptly
fulfilled, or if you are required to render any services not provided for
in these instructions, or if there is any assignment of the interests of
this escrow or any modification hereof, you shall be entitled to reasonable
compensation for such extraordinary services from the Contractor and
reimbursement from the Contractor for all costs and expenses, including
attorney fees occasioned by such default, delay, controversy or litigation.
8. Should you at any time and for any reason desire to be relieved of your
obligations as escrow holder hereunder, you shall give written notice to
OSP and Contractor. OSP and Contractor shall, within twenty (20) calendar
days of the receipt of such notice, jointly appoint a successor escrow
holder and instruct you to deliver all monies held hereunder to said
successor. If you are not notified of the appointment of the successor
escrow holder within that twenty (20) calendar days, you may return the
sub)ect matter hereof to OSP and upon so doing, OSP and Contractor absolve
you from all further charges and obligations in connection with this
escrow.
9. This agreement shall not be binding until executed by the Contractor and
you and accepted by OSP at which time copies of this agreement will be sent
to you and the Contractor.
10. This instrument contains the entire agreement between you, the Contractor
and OSP with respect to this escrow and you are not a party to nor bound by
any instrument or agreement other than this. You shall not be required to
take notice of any default or any other matter, nor be bound by nor
required to give notice or demand, nor required to take any action whatever
except as herein expressly provided. You shall not be liable for any loss
or damage not caused by your own negligence or willful misconduct.
11. The foregoing provisions shall be binding upon the assigns, successors,
personal representatives and heirs of the parties hereto.
The undersigned have read and hereby approve the instructions as given above
governing the administration of this escrow and do hereby execute this agreement
on this _______ day of ___________, 19___.
- ------------------------------- --------------------------------------
(Contractor) (Bank or Savings and Loan Institution
By Escrow Account #
------------------------------- ------------------------
(Signature) (Title)
Uniform Business Identifier By
(Taxpayer I.D.) -------------------- -----------------------
- ---------------------------------- ----------------------------------
(Mailing Address) (Mailing Address)
- ---------------------------------- -----------------------------------
(City, State, Zip) (City, State, Zip)
Telephone
------------------------
The above escrow instructions and agreement received and accepted this
day of , 19 .
Office of State Procurement
<PAGE>
By
------------------------------------
Telephone: ( )
------------------
<PAGE>
SECTION VI
APPENDIX F
<PAGE>
EXAMPLE OF EXCESSIVE WAITING TIME LIQUIDATED DAMAGE CALCULATIONS
Average Number (AWN) = Sum of Vehicles Waiting for Inspections at 0,10,20,30
minutes/4
0 minutes 10:07 a.m.: 50 cars waiting
10 minutes 10:17 a.m.: 46 cars waiting
20 minutes 10:27 a.m.: 42 cars waiting ANM = 50 + 46 + 42 +42 = 45 vehicles
30 minutes 10:37 a.m.: 42 cars waiting
Average Inspection Frequency (AIF) = Inspections Done During the 30 Minutes
---------------------------------------
30 Minutes
72 Vehicles Inspected from 10:07 - 10:37 = 2.4 Vehicles per minute
----------------------------------------
30 Minutes
Average Waiting Time = Average Number Waiting (ANW)
----------------------------------
Average Inspection Frequency (AIF)
Average Waiting Time = 45 vehicles = 18.75 Minutes
-----------------------------
2.4 Vehicles per minute
Lane 1 closed 10:09-10:11
Lane 2 closed 10:15-10:20
Were Lanes Operational and Fully Staffed? No
Therefore, Average Waiting Time of 18.75 minutes is a violation
Utilization Factor = Sum of Time Each Lane Operated
-------------------------------
Total Available Lane Time
Total Available Lane Time = 30 Minutes x Number of Lanes
Example: Lanes 2,3,4,6 30 Minutes each
Lane 1 28 Minutes = 28+30+30+30+25+30 = .96
-----------------
Lane 5 25 Minutes 180
Payment = Utilization x Contractor x No. of Paid Inspections
Factor Payment During the 30 Minute Period
.96 x $9.00 x 62 = $535.68
(100% Payment = $558.00)
<PAGE>
SECTION VI
APPENDIX G
<PAGE>
United States March 1992
Environmental Protection Agency
Air
EPA HIGH-TECH I/M Tests: Background
Materials for Developing an RFP
Draft
NOTE: All references to evaporative system testing and the following
portions of this document do not apply to the Invitation to Bid/Contract:
Sections III, IV, V except for 2
Section VI except for 1, 2, 7 (pass/fail not determined), 8
1J, 5, 6 of Section VII
5, 6 of Section VIII
Section IX.
<PAGE>
Table of Contents
Page
I. Introduction.........................................................1
II. General Requirements.................................................1
III. Number of Transient Test Lanes.......................................2
IV. Vehicle Standards....................................................5
V. Test Procedures......................................................8
VI. Data Collection/Calculations........................................11
VII. Equipment Specifications............................................16
VIII. Quality Assurance Requirements......................................28
IX. Technical Proposal Evaluation.......................................37
X. References..........................................................39
<PAGE>
I. Introduction
A draft of this document was originally developed for use by Kentucky's
Jefferson County Air Pollution Control Distract to assist in the preparation of
a Request for Proposal (RFP) for a vehicle Inspection and Maintenance (I/M)
program consisting of transient emission testing, transient purge testing and
evaporative system pressure testing. Although Kentucky is only required to
implement a basic I/M program under the terms of the current Clean Air Act, in
its particulars, the Louisville program resembles EPA's currently recommended
enhanced I/M program design.
This document was written in RFP style, with references to "the contractor"
and "the state" as appropriate. Some of the provisions discussed here are
tailored to the specific needs of Louisville, Kentucky and may not fit with
other states' needs. EPA's intention is not to recommend specific RFP language,
but rather to provide information to states so that they can develop their own
RFPs and include specific details on procedures, quality control and other
essential program features. Much of the data used in this report was based on
the best information available at the time of drafting, but states should be
aware that EPA's test programs are continuing to be refined. EPA intends to
update estimates of fast-pass and fast-fail rates, overall failure rates, and
other test-related information. In addition, EPA will be refining test
procedure algorithms to maximize the effectiveness of the tests. For those
states needing to move ahead with program development, however, these estimates
provide a sound basis for drafting an RFP.
II. General Requirements
The transient dynamometer test will be the IM240 described in EPA Report
No. EPA-AA-TSS-91-1.
The transient testing system must operate accurately and relIably during
all ambient and climatic conditions in which the facility accepts any vehicle
for testing. In addition, the transient dynamometer facilities shall comply
with QSHA, State, and County background pollution concentration levels and noise
levels. The contractor is also responsible for maintaining ambient background
pollution concentration levels below those required by the Quality Assurance
program.
The contractor shall provide a safe, convenient, and comfortable waiting
area for public use during vehicle testing.
III. Number of Transient Test Lanes
The contractor is responsible for determining the actual number of vehicles
subject to transient testing, by model year, and making
<PAGE>
appropriate assumptions for the numbers of reset and fast-pass vehicles, as a
prerequisite to designing a sufficient number of transient lanes to accommodate
actual test volume. The network shall be designed so that the average customer
wait time conforms with those specified in the RFP (i.e., no longer than a 15
minute wait to begin testing, except for the last 3 days of each month).
Furthermore, stations should be sited so that a specified majority of motorists
are within a specified distance of a testing site (i.e., such that 80% of all
motorists are within 5 miles of a test facility, and 95% are within 12 miles of
a test facility) . Once in place, if the number of test lanes or facilities is
not adequate to test the number of vehicles in the model year categories
specified in the winning contract, the contractor will be responsible for
implementing corrective action, such as improving efficiency, constructing
additional test lanes, facilities, and the like.
The state will provide an estimate of the number of vehicles by model year,
but the contractor is responsible for providing facilities to test the actual
number of vehicles in the model years specifIed. As an additional reference on
throughput, EPA has an on-going test program in Hammond, Indiana that is
conducting transient IM24O tests, evaporative integrity (pressure) tests, and
evaporative purge tests on in-use vehicles. Bidders may contact EPA to review
this data. for reference purposes, EPA has provided a preliminary failure-rate
analysis of the data collected. The failure rates are listed by model year, and
on an overall basis for selected cut points, and combinations of cutpoints.
Table 1 provides this information for light-duty vehicles, and Table 2 covers
light-duty trucks. At some cutpoints for the older model years (e.g., 1983 and
1984), the model-year failure rate was quite high for the sample. It is
expected that such high model-year failure rates would drop significantly after
the first inspection cycle because the repairs needed to pass a transient I/M
test are expected to be durable (as opposed to the short-term repairs often
encountered in idle-test based programs, such as temporary idle adjustments,
etc.). Bidders should consider, however, the effect that the waiver cost limit
may have on the expected decrease in overall retest volume. Bidders may use the
information in Tables 1 and 2 as a guide, but may not use it to absolve
themselves from the responsibility to provide sufficient facilities to meet the
terms of the RFP.
-2-
<PAGE>
Table 1
LDV Lane IM240 Failure Rates
<TABLE>
<CAPTION>
INDIVIDUAL CUTPOINTS 1983 1984 1985 1986 1987 1988 1989 1990 1991 All
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.8 HC 35.8 32.7 24.3 14.7 7.9 4.6 1.2 0.7 0.0 15.3
1.2 HC 23.9 19.5 14.2 7.5 4.5 2.2 1.0 0.4 0.0 9.1
1.6 HC 16.6 11.7 8.3 4.9 2.9 1.7 0.9 0.2 0.0 5.8
2.0 HC 11.6 6.8 5.9 2.3 2.4 1.2 0.7 0.2 0.0 3.8
15 CO 30.6 27.2 18.2 10.9 5.7 3.7 3.3 1.3 0.0 12.6
20 CO 20.7 18.3 12.7 7.8 4.5 2.4 1.2 0.6 0.0 8.5
30 CO 13.6 13.2 6.9 3.4 3.5 1.2 0.9 0.2 0.0 5.3
1.5 NOx 62.4 54.6 39.4 30.0 21.4 13.1 7.3 3.7 0.0 28.8
2.0 NOx 44.5 37.1 25.0 17.4 10.8 4.1 2.4 0.9 0.0 17.6
2.5 NOx 33.4 23.9 15.5 9.9 5.3 1.7 1.0 0.2 0.0 11.1
3.0 NOx 25.0 14.3 10.0 6.4 4.1 0.5 0.9 0.2 0.0 7.4
3.5 NOx 18.3 10.2 6.1 4.6 2.6 0.2 0.3 0.2 0.0 5.1
4.0 NOx 13.4 7.2 4.9 2.4 1.8 0.2 0.2 0.0 0.0 3.6
Purge Only 7.4 7.4 5.2 4.8 3.6 2.9 3.5 1.9 0.0 4.6
Pressure Only 9.0 4.2 5.9 3.5 5.2 2.4 3.0 3.7 3.3 4.5
Fail Both Purge and Pressure 1.5 0.8 0.8 0.5 0.6 0.3 0.0 0.4 0.0 0.6
Fail Purge/Pressure/Both 17.9 12.4 11.9 8.8 9.4 5.6 6.5 6.0 3.3 9.7
Sample Size 464 657 639 614 509 589 577 536 30 4615
<CAPTION>
COMBINED CUTPOINTS
- ------------------
HC/CO/NOx 1983 1984 1985 1986 1987 1988 1989 1990 1991 All
Purge/Pressure/Both ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
0.8/15/2/5 65.1 54.8 44.8 28.7 20.8 12.6 10.4 7.6 3.3 30.5
1.2/20/3.0 52.4 41.7 34.7 21.3 17.5 8.7 8.1 6.7 3.3 23.7
1.6/30/3.5 44.4 33 25 16.1 15.1 7.3 7.5 6.3 3.3 19.1
2.0/30/3.5 42.7 31.7 24.1 15.1 15.1 7.3 7.5 6.3 3.3 18.4
1983-87: 1.2/20/3.0
1988+: 0.8/15/2.5 52.4 41.7 34.7 21.3 17.5 12.6 10.4 7.6 3.3 24.6
1983-87: 1.6/30/3.5
1988+: 1.2/20/3.0 44.4 33 25 16.1 15.1 8.7 8.1 6.7 3.3 19.4
1983-87: 2.0/30/3.5
1988+: 0.8/15/2.5 42.7 31.7 24.1 15.1 15.1 12.6 10.4 7.6 3.3 19.6
-3-
<PAGE>
<CAPTION>
INDIVIDUAL CUTPOINTS 1983 1984 1985 1986 1987 1988 1989 1990 1991 All
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
1983-87: 2.0/30/3.5 8.7 8.1 6.7 3.3 18.7
1988+: 1.2/20/3.0 42.7 31.7 24.1 15.1 15.1
1983-87: 2.0/30/3.5
1988+: 1.6/30/3.5 42.7 31.7 24.1 15.1 15.1 7.3 7.5 6.3 3.3 18.4
</TABLE>
-4-
<PAGE>
Table 2
LDV Lane IM240 Failure Rates
<TABLE>
<CAPTION>
INDIVIDUAL CUTPOINTS 1983 1984 1985 1986 1987 1988 1989 1990 1991 All
- -------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0.8 HC 100.0 36.8 43.8 37.9 22.2 0.0 6.3 6.0 0.0 18.1
1.2 HC 50.0 21.5 25.0 20.7 2.8 0.0 3.1 0.0 0.0 7.7
1.6 HC 50.0 10.5 18.8 10.3 2.8 0.0 0.0 0.0 0.0 4.5
2.0 HC 50.0 5.3 12.5 3.4 2.8 0.0 0.0 0.0 0.0 2.7
15 CO 50.0 26.3 31.3 13.8 13.9 3.0 0.0 0.0 0.0 9.5
20 CO 50.0 15.8 25.0 10.3 5.6 0.0 0.0 0.0 0.0 5.9
30 CO 0.0 5.3 6.3 10.3 2.8 0.0 0.0 0.0 0.0 2.7
2.0 NOx 100.00 68.4 50.0 48.3 25.0 6.1 6.3 6.0 0.0 23.9
2.5 NOx 100.0 47.4 50.0 44.8 11.1 3.0 0.0 0.0 0.0 16.7
3.0 NOx 100.0 36.8 37.5 37.9 8.3 3.0 0.0 0.0 0.0 13.5
3.5 NOx 100.0 36.8 25.0 24.1 8.3 3.0 0.0 0.0 0.0 10.8
4.0 NOx 50.0 26.3 12.5 10.3 5.6 3.0 0.0 0.0 0.0 6.3
Purge Only 0.0 15.8 6.3 3.4 2.8 6.1 3.1 0.0 0.0 4.1
Pressure Only 0.0 0.0 0.0 0.0 2.8 0.0 0.0 4.0 0.0 1.4
Fail Both Purge and Pressure 0.0 5.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5
Fail Purge/Pressure/Both 0.0 21.1 6.3 3.4 5.6 6.1 3.1 4.0 0.0 6.0
Sample Size 2 19 16 29 36 33 32 50 5 222
<CAPTION>
COMBINED CUTPOINTS
- ------------------
HC/CO/NOx 1983 1984 1985 1986 1987 1988 1989 1990 1991 All
Purge/Pressure/Both ----- ---- ---- ---- ---- ---- ---- ---- ---- -----
0.8/15/2/5 100.0 73.7 56.3 62.1 33.3 12.1 9.4 10.0 0.0 30.2
1.2/20/3.0 100.0 63.2 43.8 37.9 22.2 9.1 6.3 4.0 0.0 21.2
1.6/30/3.5 50.0 52.6 25.0 24.1 16.7 9.1 3.1 4.0 0.0 15.3
1983-87: 1.2/20/3.5 100.0 63.2 43.8 37.9 22.2 12.1 9.4 10.0 0.0 23.4
-5-
<PAGE>
<CAPTION>
COMBINED CUTPOINTS
- ------------------
HC/CO/NOx 1983 1984 1985 1986 1987 1988 1989 1990 1991 All
Purge/Pressure/Both ----- ---- ---- ---- ---- ---- ---- ---- ---- -----
1988+: 0.8/15/3.0 .0
1983-87: 1.6/30/4.0 50.0 52.6 25.0 24.1 16.7 9.1 6.3 4.0 0.0 15.8
1988+: 1.2/20/3.5
1983-87: 1.6/30/4.0 50.0 52.6 25.0 24.1 16.7 12.1 9.4 10.0 0.0 18.0
1988+: 0.8/15/3.0
</TABLE>
-6-
<PAGE>
Additionally, when using only hydrocarbon (HC) and carbon monoxide (CO)
failure criteria a preliminary EPA analysis estimated that slightly under 50% of
the 1984 and newer vehicles tested would meet a fast-pass exhaust emission
criteria of 1.1 gpm HC and 5 gpm CO by second 93 in the IM24O (i.e., Bag 1).
The contractor should be aware, however, that a small portion of fast-pass purge
vehicles may need to be operated until second 190.
As experience is gained on the throughput capabilities, failure rates,
fast-pass rates, and fast-fail rates, the state may elect (at no cost to itself)
to increase the model years covered, or tighten the standards to take advantage
of the improved network efficiency, thereby increasing the number of transient
tests to be conducted for a fixed number of existing transient test lanes. If,
subsequently, the average wait time exceeds specifications, the state may elect
to readjust the model year coverage downward, with the understanding that such
coverage shall not fall below the range originally specified in the contract.
IV. Vehicle Standards
The contractor shall make provisions to allow for a phase in of emissIon
standards, as well as potential future changes in the numerical levels of the
following standards at no cost to the state. Potential future standards would
be limited to one set of changes per year. Implementation of the initial
phase-in standards will be at the discretion of the state at the time of program
implementation. Implementation of intermediate phase-in standards will be
limited to once per quarter during the first year and a half of implementing
pass/fail standards on the transient test.
1. Exhaust Standards
All 1984 and later model year light-duty vehicles and light-duty trucks
(EPA classes LDT1 and LDT2) exceeding the gram per mile (gpm) limits listed in
Table 3 on the IM240 transient driving cycle shall fail the exhaust portion of
the test. The phase-in standards shall apply for at least one calendar year
from program implementation. However, the contractor shall make provisions that
will allow the state to exercise (at no cost) alternate phase-in standards
necessary to arrive at the final standards specified with a minimum disruption
to the public. If needed, as determined by the state, the contractor shall also
provide for phase-in and final standards for light-duty trucks with test weights
above and below a value selected by the state
-7-
<PAGE>
(e.g., LDT1 and LDT2) . The state shall be able to implement standards below
the final standards specified (at no cost to the state); however, the contractor
is not obligated to exceed the maximum throughput of the specified final
standards if the state Implements lower standards.
-8-
<PAGE>
Table 3
Overall Emission Test Standards
<TABLE>
<CAPTION>
Phase-In Final Standards
Standards
LDV LDT LDV LDT
------ ----- ----- -----
<S> <C> <C> <C> <C>
NEWEST 4 MY
HC 1.2 gpm 1.2 gpm 0.8 gpm 0.8 gpm
CO 20.0 gpm 20.0 gpm 15.0 gpm 15.0 gpm
NOx 3.0 gpm 3.5 gpm 2.5 gpm 3.0 gpm
OTHER MYS
HC 2.0 gpm 2.0 gpm 0.8 gpm 0.8 gpm
CO 30.0 gpm 30.0 gpm 15.0 gpm 15.0 gpm
NOx 3.5 gpm 4.0 gpm 2.5 gpm 3.0 gpm
</TABLE>
2. Purge Standards
Vehicles with an evaporative purge rate measuring less than one liter over
the transIent dynamometer test shall fail the evaporative purge test.
Additionally, vehicles with a missing or obviously damaged canister shall be
failed for a malfunctioning canister.
3. Integrity Standards
Vehicles which cannot maintain a pressure of 8 inches of water for 2
minutes (or equivalent as demonstrated by an acceptable alternative procedure)
shall fail the evaporative integrity test. Additionally, vehicles shall fail
the evaporative integrity test if the canister is missing or obviously damaged,
if evaporative hoses are missing or obviously disconnected, or if the gas cap is
missing. If it is determined that a vehicle's gas cap appeared to be
insufficiently tightened after it has failed the integrity test, the gas cap
shall be properly (not excessively) tightened, and the test shall be repeated.
-9-
<PAGE>
4. Retest Standards
Standards for retest vehicles shall be the same as the initial test
standards. Retest vehicles shall be retested against all standards (i.e.,
exhaust, purge, and integrity) regardless of the initial failure category.
5. Fast-Pass Standards
The contractor shall make provisions that would allow the implementation of
fast-pass routines (at no cost to the state) to increase lane throughput.
Before implementing any fast-pass routines that are proposed by the contractor,
the contractor shall obtain authorization from the state to implement such
proposals. Exhaust fast-pass routines will likely be based on the level of
emissions in Bag 1 (see Section V), the level during certain modes of the
driving circle, or a combination of the two that is below a projected level.
The contractor may also choose to store second-by-second readings from each
vehicle which, upon analysis of the data base created by these readings, might
allow a vehicle to meet a fast-pass criteria before the end of Bag 1. Purge
fast-pass routines will likely be based on the measured purge flow exceeding the
minimum purge level by some point In the driving cycle. Integrity fast-pass
routines will likely be based on minimum parameters developed for the integrity
test.
At the state's discretion, the implementation of a fast-pass routine may
quickly pass all cars meeting the criteria, or may only quickly pass cars
meeting the criteria when there is a backup of vehicles waiting for a test.
6. Fast-Fail Standards
The contractor shall make provisions that would allow the implementation of
fast-fail routines (at no cost to the state) to increase lane throughput.
Before implementing any fast-fail routines that are proposed by the contractor,
the contractor shall obtain authorization from the state to implement such
proposals. Exhaust fast-fail routines will likely be based on the level of
emissions in Bag 1, the level during certain modes of the driving cycle, or a
combination of the two exceeding a pre-selected level. It is also likely that
any fast-fail routine will use an initial portion of the transient cycle for
vehicle preconditioning before making a fail decision on some other portion of
the cycle. Purge fast-fail routines will likely be based on a measured purge
flow significantly below the minimum purge level by some point in the driving
cycle, or obviously disconnected purge hoses. In the case of low purge flow, a
-10-
<PAGE>
vehicle shall not be failed for purge flow until after 190 seconds of the
IM240, unless the contractor makes provisions for fast-fail test duration by
manufacturer. Integrity fast-fail routines will likely be based upon minimum
parameters developed for the integrity test, such as failure to achieve initial
evaporative system test pressure. Obviously disconnected evaporative system
hoses, a missing canister, or a missing gas cap shall be used to place a vehicle
in the fast-failing category.
At the state's discretion, the implementation of a fast-fail routine may
quickly fail all cars meeting the criteria, or may only quickly fail cars
meeting the criteria when there is a backup of vehicles waiting for a test.
7. Special Considerations
Some vehicles may be difficult to test on the transient driving cycle or
using the purge or vapor-integrity tests. The state will develop procedures as
necessary for such vehicles utilizing equipment provided by the contractor. The
contractor shall implement such procedures and develop any necessary software at
no cost to the state. The contractor may propose to the state, at any time,
procedures to minimize the number cars needing specIal consideration; however,
all such special procedures shall require state approval prior to
implementation.
V. Test Procedures
The contractor shall develop and maintain written, up-to-date procedures
for conducting the required tests.
1. Vehicle Prep
- Prior to the dynamometer procedure, the following shall occur:
- All accessories shall be turned off.
- Vehicle Information shall be determined, so that the proper inertia
and power absorption can be automatically selected, and so that test
data and test status (i.e., initial, retest, etc) can be properly
stored for the vehicle.
- The vehicle shall be checked for a missing gas cap. The tightness of
the gas cap may also be checked. If
-11-
<PAGE>
loose, the cap shall be properly (not excessively) tightened, and the
owner shall be informed of the air pollution impact of a loose gas
cap, and advised that they can do their part to help clean the air by
properly tightening the gas cap after refueling.
- The evaporative purge measurement system shall be pneumatically
attached to the vehicle.
- The vehicle shall be checked for a missing or obviously damaged
evaporative canister, or obviously disconnected evaporative system
hoses.
- Preparation equipment for the evaporative integrity analysis system
may also be pneumatically attached. However, the preparation equipment
shall not interfere with the proper operation of the vehicle's
evaporative system.
2. Dynamometer Procedure
The dynamometer procedure shall Include the following events:
- Maneuvering the vehicle onto the dynamometer. Note: the transient
driving cycle shall be conducted with the hood up.
- Automatically restraining the vehicle.
- Automatically positioning the cooling system, and activating it.
- Sampling the background concentrations for a minimum of 15 seconds
prior to the beginning of the transient driving cycle.
- Checking vehicle/dynamometer alignment, and drying wet-tires with the
preselected load and inertia weight.
- Allowing the vehicle to idle with a vehicle speed of zero for a
minimum of 10 seconds.
- Beginning the transient emission test driving cycle.
-12-
<PAGE>
- Sampling the emissions over the driving cycle.
- Integrating the exhaust emission concentration (not voltages) over the
specified test modes.
- Recording the evaporative purge results.
- Sampling the background concentrations at the conclusion of the
driving cycle.
- Deactivating the cooling system, and automatically stowing the cooling
system.
- Automatically removing vehicle restraints, and maneuvering the vehicle
off the dynamometer.
3. Evaporative System Purge Test Procedures
The purge test procedure shall consist of measuring the totalized
purge flow (in standard liters) occurring in the vehicle's evaporative system
during the transient dynamometer emission test. The purge flow measurement
system shall be connected to the purge portion of the evaporative system in
series between the canister and the engine, preferably near the canister.
4. Evaporative System Integrity Test Procedures
The evaporative system integrity analysis system shall determine the
ability of a vehicle's evaporatIve system to maintain pressure above 9 inches
of water for 2 minutes after being pressurized to 14 (PLUS/MINUS .5) inches
of water. All components and lines of the evaporative system between the
evaporative canister and the gas cap that primarily convey or control fuel
vapor, or separate liquid from vapor shall be checked (components conveying
or controlling liquid fuel are not included). Although alternative
procedures may be used to increase throughput (subject to the contract
equipment specifications), the existing procedure includes:
Connecting the test equipment to the fuel tank canister hose at the
canister end. Although not part of the current procedure, it is
recommended that the gas cap be checked to determine if it is secured
properly during vehicle check-in, and if not, to properly (not excessively)
tighten to cap. The tightness of the cap could also be checked before the
-13-
<PAGE>
system is pressurized at the lane Integrity-checkIng station. For
vehicles with obviously loose caps, the owner shall be Informed of the air
pollution Impact of a loose gas cap, and advised that they can do their
part to help clean the air by properly tightening the gas cap after
refueling.
- Pressurizing the system to 14 (+/-O.5) inches of water (without
exceeding 26 inches of water system pressure)
- Closing off the pressure source, and sealing the evaporative system.
- Monitoring the pressure decay in the system for up to 2 minutes.
- Removing the gas cap after integrity is established to monitor for a
sudden drop in system pressure.
-14-
<PAGE>
- On failed vehicles only, if the gas cap appears loose when checking
for fuel tank pressure, and it has not been previously checked for
tightness, the cap shall be properly (not excessively) tightened, and
the test shall be repeated.
- For vehicles that pass the repeated test after the the gas cap is
properly tightened, the owner shall be informed of the air pollution
impact of a loose gas cap, and advised that they can do their part to
help clean the air by properly tightening the gas cap after refueling.
(INFO BETWEEN PAGE 10 AND 12 MISSING)
average emission index (grams second) values need to be stored.
4. Consumer Report
The contractor shall provide the consumer with a report clearly indicating
the pass, fall status, the test scores, and whether the test was an initial test
or a retest. Additionally, the consumer report shall provide information on any
applicable warranty coverage, and include an inspector's signature block. The
specific language on warranty shall conform to EPA I/M regulations and 40 CFR
Section 85 Subpart W on warranty statements for the model year of the vehicle at
the time of I/M testing. Required changes to the warranty statement shall be at
no cost to the state. (NOTE: Because the Clean Air Act of 1990 changed the
period of the performance warranty and of the defect warranty for 1995 and later
vehicles, the contractor may need to make provisions to give the consumer a
different warranty statement depending on the model year of the vehicle, and
final EPA guidance.)
The contractor shall provide the consumer with a "retest" report that
includes all of the information in the initial test report, but is clearly
distinguishable from the initial test report. Additionally, the retest report
shall provide information on the change in fuel economy (in an acceptable form
to the state and EPA with appropriate caveats based on state and EPA guidance)
and the pounds of emissions reduced per 10,000 miles of driving from the
required repairs. The state may (at no cost) choose to delay printing of the
fuel economy and emission reduction information upon initial start up pending
analysis of data collected. The state may also choose to highlight the
-15-
<PAGE>
emissions reduction with a short spirited statement on the report.
-16-
<PAGE>
5. Mechanic's Vehicle Report
Anyone seeking to repair an individual vehicle shall be able to obtain from
the contractor the vehicle's modal test values, bag values, and the
corresponding average values for passing vehicles of the same model year,
manufacturer, and engine family. For the evaporative system tests, the
contractor shall include information on the type of failure (i.e., integrity or
purge), and for integrity tests, the reason for failure (e.g., failed to hold
pressure, missing canister, disconnected hoses, etc.). In addition, the
contractor shall also make available in a manner similar to the modal
information, On-Board Diagnostic (OBD) codes/information, and any tampered
components/systems identified, if such information becomes part of the
inspection process.
The contractor shall also make available the information in the mechanic's
report to the repair industry by electronic means. The electronic access shall
be convenient and standardized. The contractor shall consider BAR 90 access
methods, emerging Society of Automotive Engineering (SAE) standards, AIAG/ANSI
data interchange protocols, and the repair industry's needs and equipment in
selecting a convenient and cost effective (to the repair industry) data exchange
protocol. The contractor may propose to provide read-only access to data
provided to the state, if the access is limited to the test data (requires
review and approval by the state), if the access to system is convenient, and if
the access equipment is cost effective to the repair industry. The contractor
shall be responsible for determining and keeping up with demand for data by
electronic means.
6. Service Center Feedback Report
The contractor shall provide a monthly feedback report to each service
center that submits more than five vehicles per month for retesting. The
feedback report shall be designed and modified as necessary to assist the repair
industry in effectively evaluatIng their progress in improving emission repairs.
Control chart analysis and input from the repair industry is highly recommended.
The following shall be included as a minimum.
- Number of vehicles submitted for retest
- Number of vehicles submitted for retest that failed retest
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- Number of vehicles submitted for retest that received waivers
- detest failure rate
- Retest waiver rate
- Number of vehicles that failed multiple retests
- Multiple retest rate
- Contribution of service center to air quality (i.e., total tons, or
pounds, of pollution reduced from repairs to vehicles submitted for
retest during a given reporting period). The contribution of repairs
to vehicles submitted for retest shall be broken out by the following
categories, and shall include all pollutants:
- All repairs
- Repairs to complying vehicles
- Repairs to passing vehicles
- Repairs to waived vehicles
- Repairs to failed vehicles
- Contribution of service center to energy savings (i.e., fuel economy
improvements or savings due to repairs on vehicles submitted for
retest during reporting period) The contribution of repairs to
vehicles submitted for retest shall be broken out by the following
categories, and for each initial failure type (e.g., NOx failure
repairs, CO failure repairs, etc.).
- All repairs
- Repairs to complying vehicles
- Repairs to passing vehicles
- Repairs to waived vehicles
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- Repairs to failed vehicles
- Lost revenue repair rate (i.e., the number of vehicles that failed the
retest that were repaired elsewhere relative to the number of vehicles
that originally failed the retest).
The contractor shall make available to the state electronically,
service center information on all providers submitting vehicles for retest.
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7. Calculations
Emissions shall be calculated in grams/mile for the composite test; Bags 1
and 2; and Modes 1 through 9.
The pre-test background concentrations shall be used to adjust the
integrated exhaust concentrations as specified in 40 CFR Section 86.144-9O,
and as specified in the "Integration" requirements included in Section
VII(4)(C) of this document. Pre- and post-test ambient background
concentration levels shall be averaged to determine Quality Assurance
background validity. All adjusted exhaust emission concentrations shall be
converted to mass values using the constants and equations contained in 40
CFR Section 86.144. The mass value shall be divided by the appropriate
measured distance traveled to obtain grams per mile (gpm). The composite
test value shall be calculated to determine pass/fail status as follows:
239
SUMMATION grams of emissions
Pass/Fail (gpm) = sec=0
-----------------------------
239
SUMMATION miles traveled
sec=0
An example of a "Bag 2 Accel 2" modal calculation (mode 7) would be:
187
SUMMATION grams of emissions
Mode 7 (gpm) = sec=156
-----------------------------
187
SUMMATION miles traveled
sec=156
8. Dynamometer Settings
The contractor shall be responsible for maintaining and updating (at no
cost to the state) look-up tables (or an equivalent) for road load absorption
settings and inertia weight selections. The updating shall include adding model
years and categories, as necessary to reflect the I/M test fleet. EPA will
provide (likely on a yearly basis) a listing horse power values (at 50 mph)
and/or coast-down times (55 mph to 45 mph), and consolidated vehicle test
weights categorized by model year, vehicle market name (e.g., Chevrolet, Buick,
Geo, etc.), vehicle identity label (historically referred to as the car "line,"
e.g.,
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Celebrity, Le Sabre, Metro, etc.), and power plant displacement
or number of cylinders/displacement.
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A. Road Load Setting
The contractor shall convert the EPA-supplied test track (i.e., actual)
road load horse power values (or coast-down times) to indicated dynamometer
power absorption settings based on the procedures specified in 40 CFR Section
86.118-78, and as specified in the dynamometer equipment specifications.
B. Inertia Weight Selection
The inertia weight selections should not need any modification to be used
directly.
C. Default Settings
In some cases, a vehicle may not be in the standard look-up table for power
absorption and inertia settings. In those rare cases, and until the look-up
table is updated, the contractor may use a default setting based on the number
of cylinders in the vehicle's engine. A record of the number of vehicles tested
with a default setting, the type of setting, and the facility shall be
maintained and available to the state. EPA will likely provide the default
settings, which will likely be in the form of the following table. The default
table shall be designed to be updated.
Table 5
Possible Default Settings
<TABLE>
<CAPTION>
Actual
Number of Road Load Test
Cylinders Horsepower Weight
--------- ---------- -------
<S> <C> <C>
3 8.3 2000
4 9.4 2500
5 10.3 3000
6 10.3 3000
8 LDV 11.2 3500
8 LDT 12.0 4000
10 LDV 11.2 3500
10 LDT 12.7 4500
12 LDV 12.0 4000
12 LDT 13.4 5000
</TABLE>
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VII. Equipment Specifications
1. Dynamometer Specifications
The dynamometer shall accommodate all LDT's and LDV's up to 8500 pounds
curb weight. The dynamometer system shall incorporate automatic features
that will select the proper road load horsepower and inertia simulation based
on the vehicle parameters entered into the test system (or already in the
vehicle test record) at the time of vehicle check-in. The contractor may
propose a non-automatic system, if the contractor also describes a Quality
Assurance method providing equivalent or better assurance of correct
selections, and equivalent or better lane throughput.
A. Power Absorption
Range and Absorption Curve - The range of power absorption at 50 mph
shall be 4 to at least 30 horsepower. The speed versus horsepower absorption
curve shall follow equation [VII-1] between 5 and 60 mph. The absorption
shall be adjustable across the specified range at 50 mph in 0.1 horsepower
increments. The accuracy of the power absorber shall be +/-0.25 horsepower.
[VII-1] F = A + { (B) * (velocity) } + { (C) * (velocity)(2)
Parasitic Losses - The selection of the power absorption for each
test shall account for parasitic losses in the dynamometer system, such as
tire losses, bearing friction, etc. The power setting selected, in
combination with the proper inertia test weight for an individual vehicle,
shall result in a dynamometer coast-down time (with the test vehicle on the
dynamometer) that is within 1 second of the 55 mph to 45 mph coast-down time
calculated by equation [VII-2] (in English units) using the procedures in 40
CFR Section 86.118-78 (also see Quality Assurance requirements for periodic
calibration).
[VII-2] Coast-down Time =
(0.06073) * (Inertia Weight Selected)
- -------------------------------------
ARLHP
where ARLHP = track road load horse power represented by power absorption
selection
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B. Inertia Simulation
The dynamometer shall be equipped with mechanical inertia weights
providing test inertias of 2000 to 5500 pounds, varying by 500 pound
increments. It is acceptable to use a base dynamometer inertia of 2000
pounds with three inertia flywheels of 500 pounds, 1000 pounds, and 2000
pounds to provide the specified test weights. The proper inertia weight for
any test vehicle must be selectable. The actual inertia weights/flywheels
operating during the test must be identified in the Quality Assurance
process. Electric inertia simulation, or a combination of electric and
mechanical simulation may be used, provided that the performance of the
electrically simulated inertia complies with the specifications for
electrical Inertia simulation in EPA's "Specifications for Electric Chassis
Dynamometers," RFP No. C100081T1.
C. Inertia Weight Selection
For dynamometer systems employing mechanical inertia flywheels, the
test system shall be equipped with a method, independent from the flywheel
selection system, that identifies which inertia weight flywheels are actually
rotating during the test. For systems employing electrical inertia
simulation, an algorithm identifying the actual inertia weight curing the
test shall be used.
D. Rolls
The dynamometer shall he equipped with twin coupled rolls. Either
8.6 inch (PLUS/MINUS 0.04%) diameter rolls or 20.0 inch (PLUS/MINUS 0.04%)
diameter rolls may be used. The dynamometer rolls accommodate an inside
track width of 36 inches and an outside track width of 108 inches. The roll
size, surface finish, and hardness shall be such that tire slippage on the
first acceleration of the IM24O is minimized under all weather conditions;
that the specified accuracy of the distance measurement is maintained; and
that tire wear and noise are minimized.
E. Test Distance/Vehicle Speed
The test system shall measure the distance traveled for each phase
or the IM240, and shall also measure the equivalent vehicle speed (i.e., roll
speed). The measurement of the actual roll distance for each bag shall be
accurate to within PLUS/MINUS 0.01 mile. The measurement of the roll speed
shall he accurate to within PLUS/MINUS 0.1 mph.
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F. Vehicle Restraint
The test system shall provIde for automatic vehicle restraints,
upon operator initiation, that do not require an
operator to 'tie-down' the test vehicle. The restraint system shall allow
unobstructed vehicle ingress and egress, shall be capable of safely
restraining the vehicle under all operating conditions, and shall not damage
the vehicle. Operation of the system shall also not damage I/M vehicles, and
shall not impart any adverse vertical or horizontal force. Idler rollers may
be use in compliance with these requirements. At the conclusion of the test,
operator initiation shall cause the restraint system to be stowed in a manner
that allows the vehicle to be quickly and safely removed from the
dynamometer.
G. Vehicle Cooling
The test system shall provide for a method to prevent over heating
of the vehicle in a manner similar or equivalent to that specified in 40 CFR
Section 86.135-9O(b). The cooling method shall direct air to the radiator of
the test vehicle (typical cooling air speed for such equipment is equivalent
to approximately 20 MPH). Care shall be taken to avoid improper cooling of
the catalytic convertor. Positioning of the cooling system shall be
accomplished quickly and effortlessly through automatic means.
H. System Calibration
The system shall provide for the automatic computation and
recording of each dynamometer coast-down check performed (see Quality
Assurance procedures). The clock used to check the coast-down time shall be
accurate to the nearest 0.01 seconds when totalizing 1000 seconds.
I. Operator Controls
The operator shall have a control console or pendant that can be
conveniently operated from the driver's seat of the test vehicle. The
control pendant shall allow the test vehicle to be easily and quickly
maneuvered onto and off of the dynamometer without damaging the vehicle or
the console. The pendant shall provide for the operator to:
activate and deactivate the automatic vehicle restraint system
activate and deactivate the positioning of the vehicle cooling system
(if automatic)
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automatically over-ride the cooling system control
initiate the transient driving cycle and analysis system sampling, if
not automatic (i.e., part of the overall driving cycle)
observe the video driver's trace
observe and verify the test vehicle identification parameters (e.g.,
manufacturer and model); and the selected inertia weight and the power
absorption setting
observe indicated horsepower, and vehicle speed
observe test time and coast-down time (if not part of video driver's
aide)
activate a "test abort" control
J. Four-Wheel Drive
The contractor shall include as a separate cost option (which the
state may exercise) the ability to test four-wheel drive vehicles.
Part-Time Four-Wheel Drive - In general, part-time four-wheel drive
vehicles shall be tested in the two-wheel drive mode by the normal testing
procedure.
Full-Time Four-Wheel Drive - The contractor shall include separate
cost options for one test lane in the I/M network capable of testing
full-time four-wheel drive vehicles, and for at least one test lane at each
facility capable of testing full-time four-wheel drive vehicles. The method
for testing full-time four-wheel drive vehicles shall allow vehicles with
different wheel base lengths to be tested, shall allow the application of
correct vehicle loading for the IM240 driving cycle, and shall not damage the
four-wheel drive system. At a minimum, if front and rear wheel absorbing
units are used, they shall maintain speed synchronization to the same
tolerances specified in EPA's RFP No. C1000881T1.
2. Driver's Aid
The driver's aid shall be a video-type driver's aid (VDA).
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A. Speed-Time Trace
The speed versus time trace for the transient dynamometer test shall
conform to the IM240 driving cycle in EPA Report No. EPA-AA-TSS-91-1.
However, provisions shall be made such that alternative driving schedules
(not to exceed four minutes in length) may be conveniently substituted at the
state's request (at no cost to the state).
B. Shift Schedules
EPA's standard shift schedules and procedures shall be used for the
transient driving cycle. When testing vehicles equipped with automatic
transmissions, the inspector shall use the highest gear selectable (i.e.,
overdrive, or - when not equipped with overdrive - drive), and shall be
allowed to shift automatically. Manual transmissions shall be shifted by the
following schedule. Shift marks and gear selection shall be located on the
driver's trace. Only shift marks applicable to the number of gears in the
transmission need to be used (i.e., all shift marks may appear on the trace).
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Table 6
IM240 Shift Schedule
Shift Approximate
and Speed Cycle Time
Sequence (mph) (sec)
-------- ------ ------------
1 - 2 15 9.3
2 - 3 25 47.0
Declutch 15 87.9
1 - 2 15 101.5
2 - 3 25 105.5
3 - 2 ~17.2 119.0
2 - 3 25 145.8
3 - 4 40 163.6
4 - 5 45 167.0
5 - 6 50 180.0
Declutch 15 234.0
3. Constant Volume Sampler
A Constant Volume Sampling (CVS) system of the Critical Flow Venturi
(CFV) type shall be used to collect vehicle exhaust samples. The CVS system
and components shall generally conform to the specifications in 40 CFR
Section 86.109-90 with the following provisions.
A. Mixing Tee
The dilution mixing tee shall be moved to the vehicle tailpipe exit as
in Section 86.109-30(a)(2)(iv). The contractor is responsible to insure that
the design(s) used collects all of the sample from the variety of exhaust
systems in the fleet, and does not cause static pressure variations in the
tailpipe of more than +5 inches of water (1.2 kPa). The mixing tee shall
have a device for positively locating the tee relative to the tailpipe with
respect to distance from the tailpipe, and with respect to positioning the
exhaust stream from the tailpipe(s) in the center of the mixing tee flow
area. The locating device, or the size of the entrance to the tee shall be
such that if a vehicle moves laterally from one extreme position on the
dynamometer to the other extreme, that mixing tee will collect all of the
exhaust sample. The design of the mixing tee will be evaluated with back to
back testing of several vehicles over a range of adverse conditions with a
positive connection to the tailpipe (i.e., the
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mixing tee will be effectively moved downstream, as in typical FTP testing,
for these qualification tests).
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B. Dual Exhaust
As indicated above, the contractor is responsible to insure that the
design of the sampling system used collects all of the sample from the
variety of exhaust systems in the fleet. This responsibility includes dual
exhaust systems. In particular, for dual exhaust systems the design used
shall insure that each leg of the sample collection system maintains equal
flow. The contractor may be required to demonstrate (i.e., measure) that
each leg has equal flow (+ 10%) during acceptance testing. In addition, the
CVS shall be sized such that the entrance flow velocity of each mixing tee is
sufficient to entrain all of the vehicle's exhaust. The design of the dual
exhaust system will be evaluated with back to back testing of several
vehicles over a range of adverse conditions with a positive connection to the
tailpipe (i.e., the mixing tee will be effectively moved downstream, as in
typical FTP testing, for these qualification tests).
C. Background Sample
The background sample probe or probes shall collect a background sample
near the entrance to the mixing tee. At least three equally spaced locations
around the mixing tee shall be used to sample the background.
D. Integrated Sample
A continuous dilute sample shall be provided for integration by the
analytical instruments in a manner similar to the method for collecting bag
samples as described in Section 86.109.
E. Bag Sample
The CVS system shall also provide for periodically collecting vehicle
exhaust in sample bags (at least Bag 1 and Bag 2) simultaneously with the
measurement of an integrated sample to conduct Quality Assurance
verifications of the integration system.
F. Leak Check
A method to check the vacuum portion of the sample system for leaks
shall be provided. The method shall be such that it can be easily performed
each time the system integrity is violated (e.g., changing a filter).
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<PAGE>
G. CVS Flow Size
The CVS system shall be sized in a manner that prevents condensation in
the dilute sample over the range of ambient conditions to be encountered
during testing. Historically, this has dictated a 700 ACFM system over the
more traditional 350 ACFM system. The range of ambient conditions may
dictate heated sample lines. The contractor may also choose to use the
smaller sized CVS and heated lines to eliminate condensation and to increase
measured concentrations for better resolution (however, the 700 ACFM system
does reduce the dynamic range of the measured concentrations). Should the
contractor choose to use heated sample lines, the sample line and components
(e.g., filters, etc.) shall be heated to a minimum of 120 F, shall be
monitored and assurance of proper operation shall be covered in the Quality
Assurance program.
H. Sample Probe
The sample probe shall be designed such that a continuously proportioned
volume of sample is collected for analysis. The system shall have a method
for determining if the sample collection system has deteriorated or
malfunctioned such that a proportional sample is not being collected. A
simple manometer to measure pressure drop across the probe has been used for
this function.
I. CVS Compressor
The CVS compressor unit shall be designed to maintain choke flow in the
main CVS venturi with an adequate margin, while minimizing down time and
maintenance.
J. Materials
All materials in contact with exhaust gas shall be unaffected by and
shall not affect the sample (i.e., the materials shall not react with the
sample, and neither shall they taint the sample as a result of outgassing).
Acceptable materials include stainless steel, teflon, and Tedlar.-Registered
Trademark-
4. Emission Analysis System
Upon operator initiation, the emission analysis system shall
automatically sample, integrate, and record the specified emission values for
HC, CO, CO(2), and NOx. Such initiation may occur automatically upon
initiation of the transient cycle, and a
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quality control check has been made to insure that the vehicle is in the
proper window to begin the transient test.
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The emission analysis system shall automatically determine the pass/fail
status, and print a consumer report.
A. Analytical Instruments
The analytical instruments shall comply with the methods of detection
and the specifications listed below. The instrument ranges specified are
based on a 700 ACFM CVS. Use of a different size CVS shall require adjusted
ranges with appropriate documentation. Bidders may propose alternative
detection methods (e.g., FTIR - Fourier Transform Infrared) provided
sufficient engineering information and documentation is provided that will
allow an evaluation of the ability of the alternative method to meet the
overall accuracy, analytical performance, and integration requirements. The
bidder may provide a separate cost proposal as an option for the case of
alternative detection methods.
General Requirements - Performance of the analytical instruments with
respect to accuracy and precision, drift, interferences, noise, etc. shall be
similar to instruments used for testing under 40 CFR Section 86 Subparts B,
D, and N. In particular, the analytical instruments are required to operate
within the stated environment, and meet or exceed the Quality Assurance
requirements throughout the lifetime of the contract.
Total Hydrocarbon Analysis - Total hydrocarbon analysis shall be
determined by a flame ionization detector (FID). The analyzer calibration
curve shall cover the range of 2 ppmC to 2,000 ppmC. The calibration curve
must comply with the Quality Assurance specifications for calibration curve
generation.
Carbon Monoxide Analysis - CO analysis shall be determined by
Non-Dispersive Infrared (NDIR) . The CO analysis shall cover the range of 10
ppm to 10,000 ppm (1%). In order to meet the calibration curve requirements,
two CO analyzer may be required - one from 0 to 1000 or 2000 ppm, and one
from 0 to 1% CO. The calibration curve requirements and the Quality
Assurance specifications apply to both analyzers.
Carbon Dioxide Analysis - CO2 analysis shall be determined by
Non-Dispersive Infrared (NDIR) . The CO analysis shall cover the range of
200 ppm to 40,000 ppm (4%) The calibration curve must comply with the Quality
Assurance specifications for calibration curve generation.
Oxides of Nitrogen Analysis - NOx analysis shall be determined by
chemiluminescence (CL). The NOx measurement shall
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be the sum of nitrogen oxide (NO) and nitrogen dioxide (NO2). The NOx
analysis shall cover the range of 1 ppm to 500 ppm. The calibration curve
must comply with the Quality Assurance specifications for calibration curve
generation.
B. System Response Requirements
The governing requirement for system response is the ability of the
integration system to measure vehicle emissions to within +5% of that
measured from a bag sample simultaneously collected over the same integration
period, on both clean and dirty vehicles. Historically, continuously
integrated emission analyzers have been required to have a response time of
1.5 seconds or less to 90% of a step change, where a step change was 60% of
full scale or better. System response times between a step change at the
probe and reading 90% of the change have generally been less than 4 - 10
seconds. Systems proposed that exceed these historical values shall provide
an engineering explanation as to why the slower system response of the
integrated system will compare to the bag reading within the specified 5%.
C. Integration Requirements
The analyzer voltage responses shall be sampled at 5 Hertz, and the 5
Hertz voltage levels shall be averaged over 1 second intervals. The
one-second average voltage levels shall be converted to concentrations by the
analyzer calibration curves. The pre-test background concentration (as
calculated using methods established in Section 86.144) shall be subtracted
from the measured concentrations (also as specified in Section 86.144). The
corrected concentrations shall be integrated over the specified bag or mode
interval. The grams of emissions per bag or mode shall be determined using
the specified equations to combine the integrated concentrations (over the
specified bag or mode interval) with the CVS flow integrated over the same
interval.
If multiple analyzers are used for any constituent (e.g., CO), the
integration system shall simultaneously integrate both analyzers. The
integrated values for the lower range analyzer shall be used for the official
values, unless the emissions exceed the low range scale by a cumulative
amount of 5 seconds (the cumulative amount shall be a variable that can be
changed as experience dictates). If the duration of the emission
concentrations exceed the cumulative time value, only values from the higher
range analyzer shall be used for computing official values. Additionally,
background concentration levels shall be read by both analyzers, and the
background reading used shall be
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the measurement made by the analyzer used to determine the official
integrated test values (as specified above).
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D. System Design
Materials - All materials in contact with exhaust gas shall be
unaffected by and shall not affect the sample (i.e., the materials shall not
react with the sample, and neither shall they taint the sample as a result of
outgassing) Acceptable materials include stainless steel, teflon, and
Tedlar.-Registered Trademark-
Bag Ports - All analysis systems shall have provisions for reading a
small volume sample bag, such as daily cross check bags, or integrator
checking bags. A portable pump for sampling such bags is permitted.
System Filters - The sample system shall have an easily replaceable
filter element to prevent particulate matter from reducing the reliability of
the analytical system. The filter element shall provide for reliable sealing
after filter element changes. If the sample line is heated, the filter
system shall also be heated.
E. Gases
Calibration Gases - Gases used to generate and check calibration curves
shall be traceable to NIST Standard Reference Materials (SRM) or CertifIed
Reference Materials (CRM) to within 1% by "Gas Comparison" methods.
Span Gases - Gases used to for up-scale span adjustment, cross-check
bags, or checks, and for mid-scale span checks shall be traceable to NIST SRM
or CRM to within at least 2% by Gas Comparison methods.
Zero Gases - The impurities in zero grade gases shall be known, and
shall not exceed 1 ppmC, 2 ppm CO, 400 ppm CO(2), and 0.3 ppm nitric oxide.
Zero grade air shall be used for the FID zero gas. Zero grade nitrogen shall
be used for CO, CO(2), and NOx zero gas.
FID Fuel - The fuel for the FID shall consist of a mixture of 40% (+/-2%)
hydrogen, and the balance nitrogen. The FID oxidizer shall be zero grade
air, which can consist of artificial air containing 18 to 21 mole percent of
oxygen.
5. Evaporative Purge Analysis System
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The evaporative purge analysis system shall measure the instantaneous
purge flow (in standard liters/minute) during the transient dynameter cycle,
and shall compute the totalized flow (in standard liters) over the cycle.
The purge flow measurement system shall be connected to the purge portion of
the evaporative system in series between the canister and the engine,
preferably near the canister. The purge flow meter (and/or system) shall
comply with the following requirements.
- - Flow Rate 0 to 50 liters/minute
- - Totalized Flow 0 to 200 liters
- - Response Time 1 second to 90% of step change
- - Accuracy 1% of full scale (rate and total)
- - Calibration Gas Air
The process for monitoring the vehicle purge flow, entering it into the
data base, and making a pass/fail decision shall be automatic, and not
require operator intervention. The test sequence shall be automatically
initiated when the transient driving cycle test is initiated. The only
operator intervention allowed includes identifying the vehicle, and
pneumatically connecting or disconnecting the test equipment to the vehicle
and, if necessary, activating an abort sequence.
The system shall have sufficient adapters to connect in a leak-tight
manner with the variety of evaporative systems and hose deterioration
conditions in the vehicle fleet. To the extent possible, the purge
measurement system should identify leaks at the connection to the evaporative
system.
6. Evaporative System Integrity Analysis System
The evaporative system integrity analysis system shall determine the
ability of a vehicle's evaporative system to maintain a system pressure above
8 inches of water for up to 2 minutes after being pressurized to 14 (+0.5)
inches of water. All components and lines of the evaporative system between
the evaporative canister and the gas cap (including the gas cap) that
primarily convey or control fuel vapor shall be checked (components conveying
or controlling liquid fuel are not included). Pressure gauges used for this
test shall have an accuracy of 0.3 inches of water (2% of 15) or better.
Nitrogen (N2), or an equivalent non-toxic, non-greenhouse, inert gas
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(other than Helium), shall be used for pressurizing the evaporative system.
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The process for filling the evaporative system, monitoring for
compliance, entering it into the data base, and making a pass/fail decision
shall be automatic, and not require operator intervention. The only operator
intervention allowed includes identifying the vehicle, pneumatically
connecting or disconnecting the test equipment to the vehicle, initiating the
test sequence and, if necessary, activating an abort sequence.
The process of filling the evaporative system shall not over-pressurize
the evaporative system. In general, the pressure in the evaporative system
shall not exceed 26 inches of water during the filling process.
The system shall have sufficient adapters to connect in a leak-tight
manner with the variety of evaporative systems and hose deterioration
conditions in the vehicle fleet. To the extent possible, the integrity
system should identify leaks at the connection to the evaporative system.
The evaporative system integrity analysis system shall be equipped with
an abort system that positively shuts off and relieves pressure to the
vehicle. The abort system shall be capable of being activated quickly and
conveniently by the operator should the need arise.
Bidders may propose an alternative procedure to evaluate the integrity
of the evaporative system for the purpose of increasing throughput. Such
alternatives shall fully describe the process, and shall include engineering
rationale and calculations documenting how the alternative procedure provides
an equivalent or better evaluation of the evaporative system's integrity than
the specified two minute pressure decay method. An alternative integrity
checking procedure may also be proposed as an optional procedure. In that
case, the bidder shall indicate the effect that the optional procedure has on
the required number of test lanes and facilities, as well as effects on cost.
VIII. Quality Assurance Requirements
The contractor is required to develop, maintain, and update a written
Quality Assurance plan. The Quality Assurance plan shall be designed and
implemented in such a manner that it will identify when the level of accurate
tests conducted in the program drops below 95% in any one reporting period.
A test is not considered accurate if the actual test results differ from the
true values by more than an absolute value of 10% when the true values are
above 0.6 times the standard. No specific accuracy requirement is specified
for true values below 0.6 times
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the standard; however, it is expected that the inherent performance of the
analysis systems will maintain reasonable accuracy in this range. Test
quality not meeting this Quality assurance goal will require corrective
action by the contractor at the contractor's expense.
As a minimum, the contractor shall include the following Quality
Assurance procedures, or equivalent, as part of the implemented QA
procedures. However, including the specific procedures listed, does not by
itself relieve the contractor from the responsibility to meet the overall
Quality Assurance goal stated above.
As indicated below, there are two types of assurance procedures; those
done upon installation and on a periodic basis thereafter, and those done
during each test (Test Assurance Procedures). For those done on a periodic
basis, the contractor shall begin with a period at least as stringent as
indicated, however, the contractor may (with concurrence of the Project
Officer) implement procedures that adjust the frequency of the periodic
checks, if based on collected data measuring the system's performance. To
assure the overall health of the system, the contractor shall maintain
"control charts" of the performance of key parameters in the system. When
key parameters approach control chart limits, the contractor shall closely
monitor such systems and take such actions as are necessary to prevent such
systems from exceeding control chart limits. If any key parameter exceeds
the control chart limits, the contractor shall take corrective action to
bring the system into compliance with the accuracy and Quality Assurance
specifications. Such control charts shall be available to the Project
Officer upon request.
In addition to the Quality Assurance checks specified below, the
contractor is expected to develop routine maintenance procedures (e.g.,
periodically lubricate dynamometer bearings) to assure reliability of the
testing system over the life of the contract.
1. Dynamometer
A. Periodic
Calibration - Once per week, the calibration of each dynamometer shall
be checked by a dynamometer coast-down procedure comparable to EPA National
Vehicle and Fuel Emission Lab (NVFEL - formerly the Motor Vehicle Emission
Lab (MVEL)) procedure TF-302A or 40 CFR Section 86.118-78. Each prime
inertia
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weight flywheel (i.e., base dynamometer, base plus 500 pound inertia weight
(IW), base plus 1000 pound IW, and base plus 2000 pound IW) shall be checked
with at least 2 horsepower settings within the normal range of the inertia
weight. The coast-down procedure shall use a vehicle off dyno type method
(i.e., if a vehicle is used to motor the dynamometer to the beginning
coast-down speed, the vehicle shall be lifted off the dynamometer rolls
before the coast-down test begins), or equivalent. If the difference between
the measured coast-down time and the theoretical coast-down time is greater
than +1 second, a flag shall be set, and corrective action shall be taken to
bring the dynamometer into calibration.
Roll Speed - On a daily basis, the roll speed and roll counts shall be
checked by an independent means (e.g., photo tachometer, etc). Deviations of
greater than +0.2 mph or a comparable tolerance in roll counts shall require
corrective action. Alternatively, a redundant roll speed transducer may be
used for comparison. Accuracy of redundant systems shall be checked monthly.
B. Test Assurance Procedures
Power Absorption - For each test, the measured horsepower shall be
integrated from 55 seconds to 81 seconds (divided by 26 seconds), and
compared with the theoretical road load horsepower (for the vehicle selected)
integrated over the same portion of the cycle. The same procedure shall be
used to integrate the horsepower between 189 seconds to 201 seconds (divided
by 12 seconds). If the absolute difference between the theoretical
horsepower and the measured horsepower exceeds 0.5 hp, a flag shall be set
indicating an invalid test.
The comparison to the theoretical horsepower of the vehicle selected
will be an indication of whether the correct horsepower was selected.
Deviations between the two points and from the horsepower selected, will
provide an indication of the health of the dynamometer horsepower calibration
curve.
Distance Traveled - The total number of dynamometer roll revolutions
during each Bag shall be measured, and used to calculate the distance
traveled. If the absolute difference between the distance calculated from
the measured roll revolutions and the theoretical distance for the composite
test, and for each Bag, exceeds 0.02 miles, a flag shall be set and
corrective action shall be taken to bring the speed and distance measurIng
system into compliance.
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<PAGE>
Inertia Weight Selection- The mass of the actual inertia weights
operating (or electrically simulated) during the test cycle shall be compared
to the Inertia weight for the vehicle under test. If the operating weights
differ from the vehicle specification by more than 100 pounds, a flag shall
be set, and the test voided.
2. Driver's Aid
A. Periodic - Not applicable.
B. Test Assurance Procedures
Driver's Trace - All excursions in the transient driving cycle shall be
evaluated by the procedures defined in 40 CFR Section 86.115-8(b) (1) and
Section 86.115(c), except that a speed tolerance of 4 mph instead of 2 mph
shall be used. Excursions exceeding these limits shall set a flag.
3. Constant Volume Sampler
A. Periodic
Flow Calibration - The CVS flow calibration shall be checked every day
by a procedure that identifies deviations in flow from the true value.
Deviations greater than +4% shall require corrective action. A procedure
comparable to SPA NVFEL Test Procedure No. 210 with a Critical Flow Orifice
may be used. Alternative procedures will require engineering justification.
Cleaning Flow Passage - The sample probe shall be checked and cleaned
(if necessary to maintain proportional ample) at least once per month. Once
per year, the CVS venturi passages shall be checked and cleaned, if
necessary.
Probe Flow - The indicator Identifying the presence of proportional
probe flow shall be checked on a daily basis. Lack of proportional flow shall
require corrective action.
B. Test Assurance Procedures
Flow Volume - The CVS flow measured by the integrator or each Bag and
each Mode shall be compared to an historically derived nominal value for each
Bag and Mode. Deviations greater than 2% shall set a flag, indicating a void
test.
4. Analysis System
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<PAGE>
A. Periodic
Calibration Checks - Upon initial operation, calibration curves shall be
generated for each analyzer. The calibration curve shall consider the entire
range of the analyzer as one curve. At least 6 calibration points plus zero
shall be used in the lower portion of the range corresponding to an
approximate IM240 emission level of 0 to 2 gpm HC, 0 to 30 gpm CO, 0 to 3 gpm
NOx, and 0 to 400 gpm CO(2). For the case where both a low range analyzer and
a high range analyzer are used (e.g., CO), the high range analyzer shall use
at least 6 calibration points plus zero in the lower portion of the high
range scale corresponding to approximately 100% of the full-scale value of
the low range analyzer. For all analyzers, at least 6 calibration points
shall also be used in the area of the maximum nonlinearity of non-linear
instruments, or the upper one third of the linear instruments. Between the
range defined by the emission level and the range defined by linearity, an
additional 6 calibration points shall be used. Gas dividers may be used to
obtain the intermediate points for the general range classifications
specified. The calibration curves generated shall be a polynomial of no
greater order than 4th order, and shall fit the data within 0.5% at each
calibration point. (For reference, see EPA NVFEL procedure No. 204A)
For all calibration curves, curve checks, span adjustments, and span
checks, etc., the zero gas shall be considered a down-scale reference gas,
and the analyzer zero shall be set at the trace concentration value of the
specific zero gas used.
For the emission-specified range, experience with a 700 ACFM CVS has
indicated that appropriate emission levels at the defined ranges are
approximately 0 to 100 ppmC HC, 0 to 500 ppm CO, 0 to 50 ppm NOx, and 0 to
0.7% CO(2).
The basic curve shall be checked monthly by the same procedure used to
generate the curve, and to the same tolerances.
On a daily basis prior to vehicle testing, the curve for each analyzer
shall be checked by adjusting the analyzer to correctly read a zero gas and
an up-scale span gas, and then by correctly reading a mid-scale span gas
within 2% of point. If the analyzer does not read the mid-scale span point
within 2%, the system shall lock out. The up-scale span gas shall correspond
to the average emission concentration over the test equivalent to
approximately 2 gpm HC, 30 gpm CO, 3 gpm NOx, or 400 gpm CO(2). The mid-scale
point shall be approximately one half of the up-scale point.
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<PAGE>
Also on a daily basis and after the up-scale span check, each analyzer
in a given facility shall analyze a sample bag filled with a random
concentration corresponding to approximately 0.5 to 3 times the cutpoint (in
gpm) for the constituent. The value of the random sample may be determined
by a gas blender. The deviation in analysis from the sample bag
concentration for each analyzer shall be recorded and compared to the
historical mean and standard deviation for the analyzers at the facility and
at all facilities. Any reading exceeding 3 sigma shall cause the analyzer to
be placed out of service.
During the performance of the contract, the contractor may propose to
modify the calibration frequencies based on the performance of the system, a
control chart analysis, or other pertinent information. Should performance
deteriorate as a result of the modification, the state can direct
reinstatement of the specified frequencies.
FID Check - Upon initial operation, and after maintenance to the
detector, each Flame Ionization Detector (FID) shall be checked, and adjusted
if necessary, for proper peaking and characterization by the procedures
described in SAE Paper No. 770141. Additionally, every month, the response
of each FID to a methane concentration of approximately 50 ppm CH(4) shall be
checked. If the response is outside of the range of 1.10 to 1.20, corrective
action shall be taken to bring the FID response within this range. The
response shall be computed by the following formula:
FID response in ppmC
Ratio of Methane Response = ----------------------
ppm CH(4) in Cylinder
Spanning Frequency - The zero and up-scale span points shall be checked
(and adjusted If necessary) at 2 hour intervals following the daily mid-scale
curve check. f the zero or the up-scale span points drift by more than 2%
from the previous check (except for the first check of the day), a system
flag shall be set and corrective action shall be taken to bring the system
into compliance.
During the performance of the contract, the contractor may propose to
modify the spanning frequencies based on the performance of the system, a
control chart analysis, or other pertinent information. Should performance
deteriorate as a
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<PAGE>
result of the modification, the Project Officer can direct reinstatement of
the specified frequencies.
Spanning Limit Checks - The tolerance on the adjustment of the up-scale
span point is 0.4% of point. A software algoritin to perform the span
adjustment and subsequent calibration curve adjustment shall be used.
However, software up-scale span adjustments greater than +10% shall cause a
flag to be set requiring system maintenance.
Integrator Checks - Once per week in each test lane, emissions from a
randomly selected vehicle with official test value greater than 60% of the
standard (determined retrospectively) shall be simultaneously sampled by the
normal integration method and by the bag method. The data from each method
shall be put into a historical data base for determining normal and deviant
performance for each test lane, facility, and all facilities combined.
Specific deviations exceeding 5% shall require corrective action.
Interferences - CO and CO(2) analyzers shall be checked for water
interference prior to initial service, and on a yearly basis thereafter. The
specifications and procedures used shall generally comply with either
86.122-78 or 86 .321-79.
NOx Convertor Checks - The convertor efficiency of the NO2 to NO
convertor shall be checked on a weekly basis. The check shall generally
conform to 86.123-78 or EPA NOEL Form 305-01. Equivalent methods are
acceptable, but are subject to approval by the Administrator.
NO/NOx Flow Balance - The flow balance between the NO and NOx test modes
shall be checked weekly. The check may be combined with the NOx convertor
check as illustrated in EPA NVFEL Form 305-01.
B. Test Assurance Procedures
System Artifacts (Hang-up) - A comparison shall be made between the
background HC reading, the HC reading measured though the CVS sample probe,
and the zero gas before each test. Deviations from the zero gas greater than
10 ppmC shall set a flag.
Ambient Background - The average of the pre-test and post-test ambient
background level shall be compared to the permissible levels of 10 ppmC HC,
20 ppm CO, and 1 ppm NOx. If the permissible levels are exceeded, the test
shall be voided,
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<PAGE>
and the contractor shall take corrective action to lower the ambient
background concentration levels, including, if necessary correcting building
ventilation.
5. Evaporative Purge Analysis System Flow Checks
On a daily basis, each flow meter used to measure purge flow shall be
checked with simulated purge flow (e.g., auxiliary pneumatic pump) against a
reference flow measuring device with performance specification equal to or
better than those specified for the purge meter. The check shall include a
mid-scale rate check, and a totalized flow check between 10 to 20 liters.
Deviations greater than +5% shall require corrective action. On a monthly
basis, the calibration of purge meters shall be checked for proper rate and
totalized flow with three equally spaced points across the specified ranges.
Deviations exceeding the specified accuracy shall require corrective action.
6. Evaporative System Integrity Analysis System Check
Relevant parameters of the evaporative system integrity analysis
system shall be checked on a daily basis, or on a periodic basis consistent
with good engineering practice as indicated by the various Quality Assurance
requirements. At a minimum, systems that monitor pressure leak down shall be
checked for integrity. If, after the canister end is capped and is
pressurized to 14 inches of water, the pressure loses more than 0.1 inches of
water over 5 minutes, corrective action shall be taken. On a weekly basis,
pressure measurement devices shall be checked against a reference device
equal to or better than the specified performance requirements. Deviations
exceeding the performance specifications shall require corrective action.
7. Overall System Performance
A. Periodic
Emission Levels - The contractor shall monitor the average, median, 10th
percentile and 90th percentile of the composite emissions (HC, CO, CO(2), and
NOx) measured over a defined period for each test lane. The defined period
shall be selected and adjusted, if necessary, (and if the state concurs) to
assure that a reasonably random sample of vehicles was tested in each lane.
Initially, the defined period shall be weekly. Differences in the weekly
average (or defined period average) of greater than +/-10% by any one lane from
the facility-average or combined facility-average, or by any one facility
from the combined facility-average shall require an investigation to
determine
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<PAGE>
whether the single lane or facility has a systematic error. Where it can be
determined that the averages from one facility (or facilIties) are offset
from the average of the other facilities based on the mix of vehicles tested,
the +10% limit shall be compared to the expected offset. If systematic
errors are found, such errors shall be corrected.
Pass/Fail Status - The contractor shall monitor the average number of
passing vehicles, and the average number of failing vehicles over a defined
period for each test lane. The defined period shall be selected and adjusted,
if necessary, (and if the state concurs) to assure that a reasonably random
sample of vehicles was tested In each lane. Initially, the defined period
shall be weekly. Differences in the weekly average (or defined period
average) of greater than +15% by any one lane from the facility-average or
combined facility-average, or by any one facility from the combined
facility-average shall require an investigation to determine whether the
single lane or facility has a systematIc error. Where it can be determined
that the averages from one facility (or facilities) are offset from he
average of the other facilities based on the mix of vehicles tested, the +15%
limit shall be compared to the expected offset. If systematic errors are
found, such errors shall be corrected.
B. Test Assurance Procedures
Fuel economy - For each test, the health of the overall analysis system
shall be evaluated by checking the test vehicle's fuel economy for
reasonableness, relative to upper and lower limits for the test inertia and
horsepower selected. For each inertia selection, the contractor shall
determine the upper fuel economy limit (with state concurrence) using the
lowest horsepower setting typically selected for the inertia weight, along
with statistical data, est experience, engineering judgement, and possibly
EPA guidance. A similar process for the lower fuel economy limit shall be
used with the highest horsepower setting typically selected for the inertia
weight. For test inertia selections where the range of horsepower settings
is greater than 5 horsepower, at least two sets of upper and lower fuel
economy limits shall be determined and appropriately used for the selected
test inertia. The upper and lower limits shall be variables that can be
changed (at no cost to the state) if needed to improve the usefulness of this
Quality Assurance Check to flag questionable test results. Flagged tests
shall require an Investigation to determine if there is an equipment problem.
Flagged tests with fuel economy results in excess of 1.5 times the upper
limit shall require an immediate
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<PAGE>
shut down of the test lane to determine the cause of the out-of-limit
condition.
8. Control Charts
The contractor shall prepare and use control charts of key system
parameters as necessary to determine, forecast, and maintain performance of
each test lane, each facility, and all facilities combined within the
contract specifications. At a minimum, the contractor shall prepare and
maintain control charts for the parameters specified below. However,
including the specific control charts listed does not by itself relieve the
contractor from the responsibility to meet the overall Quality Assurance goal
stated above. Quality control charts shall be made available to the state
within 24 hours of a request.
A. Control Charts for Individual Test Lanes
In general, control charts for Individual test lanes shall Include
parameters that will allow the cause for abnormal performance of a test lane
to be pinpointed to individual systems or components. Test lane control
charts shall include at a minimum:
- - Overall number of flags set
- - Number of specific flags set
- - Level of difference between theoretical or selected values and measured
values for each flag parameter
- - Level of difference between theoretical and measured coast-down times
- - Level of difference between theoretical and measured CVS flow
- - Level of up-scale span change from last up-scale span (not required if
software corrections are tracked)
- - Level of mathematical or software correction to the calibration curve as
a result of an up-scale span change (if used)
- - Level of difference between the analyzer response to the daily
cross-check bag, and the bag concentration
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<PAGE>
- - Level of difference between the integrated measurements and the bag
measurements
- - Level of the FID CH4 response ratio
- - Level of the ambient background concentrations
- - The average, median, 10th percentile and 90th percentile of the
composite emissions (HC, CO, CO(2), and NOx) measured over the defined
periodIc basis
- - Average number of passing vehicles, and average number of failing
vehicles over the defined periodic basis
B. Control Charts for Individual Facilities
Control charts for IndivIdual facilities shall consist of
facility-averages of the test lane control charts for each test lane at the
facility.
C. Combined Control Charts for All Facilities
Combined control charts for all of the facilities shall consist of an
average of the facility-average control charts for each facility.
D. Quality Control Statement
Every three months after commissioning, the contractor shall make a
written statement to the state on the precision and accuracy of the tests
conducted during the three month period. The analysis supporting the
statement shall be included, and may use control charts and/or other Quality
Assurance measures as necessary.
IX. Technical Proposal Evaluation
For a technical proposal to be eligible for the zone of competition, it
must provide sufficient information to describe how the bidder plans to meet
each and every required specification of this RFP. If the RFP Evaluation
Committee determines that the elements of the bid proposal (i.e., processes,
equipment, etc.) can achieve the transient testing specifications, the
technical proposal will be considered in the zone of competition. After
determination that a technical proposal is within the zone of competition, it
will be evaluated by the following criteria. For evaluation purposes, it is
recommended that the technical proposal follow the general
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<PAGE>
outline of the transient test portion of the RFP, or at least clearly
identify what portions of the transient test requirements are being addressed.
1. Throughput Capability
The transient test system will be evaluated based on the ability of the
system to meet the required number of tests versus the number of test lanes
proposed, as well as the number of lanes per facility and number of
facilities. In the case where two bids are comparable in capacity, the bid
with the potential/flexibility to Increase the number of vehicles tested will
be scored higher.
2. Quality Assurance Program Design
The proposed QA plan will be reviewed to evaluate the ability of the
plan to maintain accurate and reliable measurements over the lifetime of the
contract. The bid should provide sufficient Information to allow the
Evaluation Committee to judge the bidder's commitments. The bid should also
include an organization chart of QA functions and responsibilities.
3. Designed-in Flexibility
In many cases, the RFP calls for change in the specified limits,
standards, etc. within the program. Bids will be reviewed based on the
flexibility designed-in to the transient testing program to change and
implement such parameters, as well as the inherent flexibility in the system
to accept future changes should they become necessary.
5. Method of Testing/Equipment Selected
The equipment and processes proposed will be evaluated relative to their
inherent accuracy capabilities, minimum operator intervention needed (e.g.,
degree of automation), and creativity used to increase throughput.
6. Durability of Equipment/Maintenance
The transient testing system and the equipment selected will be
evaluated on the inherent durability of the system components, and the
methods proposed to minimize downtime, and maintain accurate results over the
lifetime of the contract.
X. References
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<PAGE>
1) Title 40 of the Code of Federal Regulations (CFR) Part 86 Subparts B, D,
and N, and Part 85 Subpart W
2) EPA NVFEL (formerly MVEL) Quality Assurance Procedures No. 204A, 210,
302A, and Data Form 305-01
3) SAE Recommended Practice J1094a, Constant Volume Sampler System for
Exhaust Emissions Measurement
4) SAE Recommended Practice J1151-June83, Methane Measurement Using Gas
Chromatography
5) Statistical Design and Analysis of Engineering Experiments, C. Ipson,
and N.J. Sheth, McGraw-Hill, 1973, Section 3.1. 3, and Section 13.2
including example 13.10
6) EPA Public Work Shop Proceedings. Specifications and Design Criteria for
Electric Chassis Dynamometers, Volumes I, II, and III, November 30, 1990
7) Specifications for Electric Chassis Dynamometers, EPA RFP No. C100081T1
8) EPA Memorandum, Calibration and Maintenance Services, From D. W. Perkins
to J. D. Carpenter, May 23, 1987.
9) EPA Report No. EPA-AA-TSS-91-1
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<PAGE>
SECTION VI
APPENDIX H
<PAGE>
- ---------------------------------------------- ------------------------
Form S.F. 351 State of Washington DATE BOND
(Rev. 7/78) BID BOND EXECUTED
- ---------------------------------------------- ------------------------
See Instructions to Bidders NOTE: Type or Print in ink
- ----------------------------------------------------------------------------
PRINCIPAL (Legal name and business address) TYPE OF
ORGANIZATION
(Check
one)
/ /Individual
/ /Partnership
/ /Joint Venture
/ /Corporation
- ----------------------------------------------------------------------------
SURETY(IES) (Name(s) and business address(es)) SUM AMOUNT OF BOND
(Amount not to
exceed)
Dollars
- ----------------------------------------------------------------------------
$ % of Bid
Price
- ----------------------------------------------------------------------------
BID IDENTIFICATION
- ----------------------------------------------------------------------------
Bid Date Invitation For / / Materials/Supplies/Equipment / /
No. Construction / / Services
- ----------------------------------------------------------------------------
<PAGE>
WE, the Principal and Surety(ies), are firmly bound and obligated to the
State of Washington in the above sum amount on conditions set forth below,
for the payment of which we bind ourselves, our heirs, executors,
administrators, and successors, jointly and severally.
THE CONDITION OF THIS OBLIGATION IS SUCH, that the Principal has submitted
the bid identified above.
THE ABOVE OBLIGATION shall be void and of no effect if the Principal, upon
acceptance of the bid identified above, within the period specified therein
for acceptance (sixty [60] days if no period is specified), shall execute
such further contractual documents and give bond(s) as may be required by the
terms of the bid as accepted within the time specified (ten [10] days if no
period is specified) after receipt of the forms by him. Furthermore, in the
event of failure to execute additional contractual documents and give
bond(s), the above obligation shall be null and void if the Principal pays
the State of Washington for any cost of procuring the work which exceeds the
amount of his bid.
IN WITNESS WHEREOF, the Principal and Surety(ies) have executed this bond and
have affixed their signatures and seals on the date set forth above.
- -----------------------------------------------------------------------------
1. NAME OF PRINCIPAL AND Phone No. Signature
TITLE
L. S.
- ------------------------------------------------------------
2.
Phone No. Signature (Corporate
Seal)
- -----------------------------------------------------------------------------
NAME AND ADDRESS OF SURETY A Liability Limit
L. S.
- ------------------------------------------------------------
1. NAME AND TITLE Phone No. Signature (Corporate
(Attorney in Fact) Seal)
- ------------------------------------------------------------
2. NAME AND TITLE Phone No. Signature
- -----------------------------------------------------------------------------
NAME AND ADDRESS OF SURETY B Liability Limit
L. S.
- ------------------------------------------------------------
1. NAME AND TITLE Phone No. Signature (Corporate
(Attorney in Fact) Seal)
- ------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------
2. NAME AND TITLE Phone No. Signature
- -----------------------------------------------------------------------------
<PAGE>
SECTION VI
APPENDIX I
<PAGE>
- -------------------------------------------------------------------------------
Form S.F. 352 State of DATE BOND EXECUTED
Washington
(Rev. 4/89) PAYMENT AND
PERFORMANCE BOND
- --------------------------------------------------------
See Instructions to Bidders NOTE: Type or Print in ink
- -------------------------------------------------------------------------------
PRINCIPAL (Legal name and business address) TYPE OF
ORGANIZATION
(Check
one)
/ /Individual
/ /Partnership
/ /Joint Venture
/ /Corporation
- -------------------------------------------------------------------------------
SURETY(IES) (Name(s) and business address(es)) CONTRACT CONTRACT
DATE NO.
-------------------------
SUM AMOUNT OF BOND
------------------
------------------
-----Dollars
($
)
- -------------------------------------------------------------------------------
WE, the Principal and Surety(ies), in accordance with the Revised Code of
Washington are firmly bound and obligated to the State of Washington in the
above sum amount on conditions set forth below and in Contract Bid #
for payment of which we bind ourselves, our heirs, executors,
administrators, and successors, jointly and severally.
THE CONDITION OF THIS OBLIGATION IS SUCH, that the Principal entered into the
contract/bid identified above.
THE ABOVE OBLIGATION shall be void and of no effect if the Principal performs
and fulfills all the provisions of such contract and any extensions of
modifications thereof that may by the State of Washington, and faithfully
pays all laborers, mechanics and subcontractors and materialmen, and all
persons who shall supply such person or persons, or subcontractors, with
materials and supplies for carrying on of such work, and shall indemnify the
State of Washington against any loss or damage directly due to the failure to
the Principal to faithfully perform the contract identified above.
IN WITNESS WHEREOF, the Principal and Surety(ies) have executed this payment
and performance bond and have affixed their signatures and seals on the date
set forth above.
<PAGE>
- -------------------------------------------------------------------------------
1. NAME OF PRINCIPAL AND Phone No. Signature
TITLE
L. S.
- -----------------------------------------------------------
2. Phone No. Signature (Corporate
Seal)
- -----------------------------------------------------------
NAME AND ADDRESS OF SURETY A Liability Limit
L. S.
- -----------------------------------------------------------
1. NAME AND TITLE Phone No. Signature
(Attorney in Fact) (Corporate
Seal)
- -----------------------------------------------------------
2. NAME AND TITLE Phone No. Signature
- -------------------------------------------------------------------------------
NAME AND ADDRESS OF SURETY B Liability Limit
L. S.
- -----------------------------------------------------------
1. NAME AND TITLE Phone No. Signature (Corporate
(Attorney in Fact) Seal)
- -----------------------------------------------------------
2. NAME AND TITLE Phone No. Signature
- -------------------------------------------------------------------------------
<PAGE>
SECTION VII
OFFER AND CONTRACT AWARD
<PAGE>
SECTION VII
OFFER AND CONTRACT AWARD
---------------------------
OFFER
(FOR BIDDER USE ONLY
------------------------
The undersigned hereby offers and agrees to furnish materials, equipment
and/or services in compliance with all terms, conditions and specifications
herein. Submittal of this document with authorized signature(s) constitutes
complete understanding and compliance with said terms and conditions and
verified that all goods, facilities and/or personnel are available and
established at the time of bid submittal.
By:
- ----------------------------------------- -----------------------
- -------------------------- (Company Name)
(Typed or Printed Name)
- ----------------------------------------- -----------------------
- -------------------------- (Address)
(Title)
- ----------------------------------------- -----------------------
- -------------------------- (City) (State) (Zip)
(Bidder's Signature) (Date)
----------------------------------
CONTRACT AWARD
(For State of Washington Use Only)
A contract is hereby awarded between the above company and the State of
Washington, Office of State Procurement, Purchasing and Contract
Administration, to be effective ,
------------------
19 . This is a Partial/total award for .
---------------------------
Authorized Signatures
<PAGE>
------------------------------
- -------------------------------
(Contract Administrator) (Date)
------------------------------
- -------------------------------
(Purchasing Manager) (Date)
------------------------------
- -------------------------------
<PAGE>
BID DOCUMENT CHECKLIST
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
This checklist is provided for bidder's convenience only and identifies the
Bid documents that must be submitted with each package in order to be
considered responsive:
Please submit a signed original and two copies of complete Bid Response.
Bid Documents too be returned Completed
- ---------------------------------------
A. Section VII, entitled: Offer and Contract Award
--------------
B. 1. Section VIII, Attachment entitled: Bid Information
--------------
2. Section VIII, Attachment entitled: Price Sheet(s)
--------------
3. Section VIII, Attachment entitled: Supplemental Information
--------------
4. Section VIII, Attachment entitled: Site Locations
--------------
5. Section VIII, Attachment entitled: Time Schedule
--------------
6. Section VIII, Attachment entitled: Resources Available
--------------
7. Section VIII, Attachment entitled: References
C. Section IX, - No Bid Response (When Applicable)
--------------
NOTE: ANY BID PACKAGES RECEIVED WITHOUT THE ABOVE DOCUMENTS WILL BE
DEEMED NONRESPONSIVE AND WILL NOT BE CONSIDERED FOR AWARD.
<PAGE>
SECTION VIII
ATTACHMENTS
<PAGE>
SECTION VIII ATTACHMENT 1
BID INFORMATION
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Bidder shall complete the following:
1. Bid Guarantee in the amount of $ 25,000 per zone attached.
2. Performance Guarantee in the amount of $ 100,000 per station
will be forwarded within fifteen (15) calendar days of
Contract Award.
Bidder to check form of guarantee to be used (See Section V):
____ Performance Bond
____ Escrow agreement
____ Irrevocable letter of credit
____ Certified check
____ Cashiers check
3. Authorized Representative: (See Section V)
Name: ________________
Telephone: (___)_______________
4. Federal Tax Identification
Number:__________________________________________________
5. FAX Number: (___)_________________
Bidder's Company Name______________________
<PAGE>
SECTION VIII ATTACHMENT 2
PRICE SHEET
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
ZONE I (PORTIONS OF SNOHOMISH COUNTY)
ENTER YOUR BID (AMOUNT TO BE RETAINED BY CONTRACTOR) ON THIS ATTACHMENT
$ __________ for each paid test until number of paid tests in a calendar year
exceeds 50,000
$ __________ for each paid test beyond 50,000 but before 60,001 in each
calendar year
$ __________ for each paid test beyond 60,000 but before 70,001 in each
calendar year
$ __________ for each paid test beyond 70,000 but before 80,001 in each
calendar year
$ __________ for each paid test beyond 80,000 but before 90,001 in each
calendar year
$ __________ for each paid test beyond 90,000 in each calendar year
Firm Name: _____________________________________________________
*****************************************************************
ZONE II (PORTIONS OF KING & SNOHOMISH COUNTIES)
ENTER YOUR BID (AMOUNT TO BE RETAINED BY CONTRACTOR) ON THIS
ATTACHMENT
$ ________ for each paid test until number of paid tests in a calendar year
exceeds 300,000
<PAGE>
$ _________ for each paid test beyond 300,000 but before 340,001 in each
calendar year
$ ________ for each paid test beyond 340,000 but before 380,001 in each
calendar year
$ __________ for each paid test beyond 380,000 but before 420,001 in each
calendar year
$ _________ for each paid test beyond 420,000 but before 460,001 in each
calendar year
$ __________ for each paid test beyond 460,000 in each calendar year
Firm Name: ______________________________________________________
Bidder's Company Name_________________________________
<PAGE>
SECTION VIII ATTACHMENT 2
PRICE SHEET
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
ZONE III (PORTIONS OF PIERCE & KING COUNTIES)
ENTER YOUR BID (AMOUNT TO BE RETAINED BY CONTRACTOR) ON THIS ATTACHMENT
$ __________ for each paid test until number of paid tests in a calendar year
exceeds 200,000
$ _________ for each paid test beyond 200,000 but before 230,001 in each
calendar year
$ _________ for each laid test beyond 230,000 but before 260,001 in each
calendar year
$ __________ for each paid test beyond 260,000 but before 290,001 in each
calendar year
$ _________ for each paid test beyond 290,000 but before 320,001 in each
calendar year
$ __________ for each paid test beyond 320,000 in each calendar year
Firm Name: ______________________________________________________
*****************************************************************
ZONE IV (CLARK COUNTY)
ENTER YOUR BID (AMOUNT TO BE RETAINED BY CONTRACTOR) ON THIS ATTACHMENT
$__________ for each paid test until number of paid tests in a calendar year
exceeds 40,000
<PAGE>
$ _________ for each paid test beyond 40,000 but before 45,001 in each
calendar year
$ _________ for each paid test beyond 45,000 but before 50,001 in each
calendar year
$ __________ for each paid test beyond 50,000 but before 55,001 in each
calendar year
$ __________ for each paid test beyond 55,000 but before 60,001 in each
calendar year
$ __________ for each paid test beyond 60,000 in each calendar year
Firm Name: ______________________________________________________
Bidder's Company Name_________________________________
<PAGE>
SECTION VIII ATTACHMENT 2
PRICE SHEET
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
ZONE V (SPOKANE COUNTY)
ENTER YOUR BID (AMOUNT TO BE RETAINED BY CONTRACTOR) ON THIS ATTACHMENT
$ ___________ for each paid test until number of paid tests in a calendar
year exceeds 50,000
$ __________ for each paid test beyond 50,000 but before 60,001 in each
calendar year
$ __________ for each paid test beyond 60,000 but before 70,001 in each
calendar year
$ __________ for each paid test beyond 70,000 but before 80,001 in each
calendar year
$ __________ for each paid test beyond 80,000 but before 90,001 in each
calendar year
$ __________ for each paid test beyond 90,000 in each calendar year
Firm Name: _____________________________________________________
Bidder's Company Name________________________________
<PAGE>
SECTION VIII ATTACHMENT 3
SUPPLEMENTAL INFORMATION
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Bidders shall complete the following required information. Where additional
space is needed and/or where specifically requested, submit an attached
letter.
Paragraph
Reference Bid Requirements
Section IV Identify any subcontractors who will perform services
in fulfillment of contract
para. 14 requirements and nature of services performed:
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Section II AGENCY USERS LOCATIONS The following agencies have
para. 2A been identified as users of this contract.
Agency Name Location Contact Person Phone
Dept. of Ecology PO Box 47600 John C. Raymond (206) 459-6261
Air Quality Program Olympia, WA Vehicle Emission
98504-7600 Control Coordinator
<PAGE>
SECTION VIII ATTACHMENT 4
SITE LOCATIONS
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Identify/describe all proposed facility locations including documents
evidencing ownership or option to buy or lease. Reference Specification par.
4.1, 5.1 and 5.3.3); Special Terms & Conditions, para. 12)
<PAGE>
SECTION VIII ATTACHMENT 5
TIME SCHEDULE
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Provide a time phased, detailed schedule delineating critical tasks to be
accomplished including all necessary governmental permits and approvals
needed prior to the start of inspections on June 1, 1993. (Reference
Specifications para. 4.1. 5.5. and 6.1); Special Terms and Conditions, para
12.
<PAGE>
SECTION VIII ATTACHMENT 6
RESOURCES AVAILABLE
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Identify management personnel qualifications and company financial resources
available for the performance of this contract (Reference Special Terms &
Conditions para. 12)
<PAGE>
SECTION VIII ATTACHMENT 7
REFERENCES
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Provide a list of contracts of similar size and scope satisfactorily
completed/currently being performed by the bidder, parent company or
subsidiary. (Identify government organization. description of work, period of
performance, dollar magnitude, name and telephone number of government
contract administrator. (Reference Special Terms and Conditions para. 12)
<PAGE>
NO BID RESPONSE
INVITATION FOR BID NO. 99-92
TITLE: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
COMMODITY BID LIST NO. 9776-VO1
BID OPENING DATE: June 4, 1992
Instructions: Complete the following information, fold as indicated, staple
and return as addressed on the reverse side so
as to be received at the Office of State Procurement by date and time of bid
opening. Notice of "No Bid" in any other form (Postcard, letter, etc.) is not
acceptable.
- -------------------------------------Fold--------------------------------------
_____ We are unable to submit a bid response at this time
but desire that you retain our firm on your bid list
for the commodity in question.
_____ We are unable to supply the above commodity. Please
remove our name from this commodity bid list.
Completion of this form shall constitute a "no bid" response.
- ------------------------------------Fold---------------------------------------
Supplier#___________________
Company Name______________________
Address_________________________
City, State, Zip________________
Signature__________________
Revised 4/91
<PAGE>
SECTION IX
NO BID RESPONSE
<PAGE>
STATE OF WASHINGTON
DEPARTMENT OF GENERAL ADMINISTRATION
OFFICE OF STATE PROCUREMENT
CONTRACT CHANGE NOTICE NO. 2
CONTRACT EXTENSION
CONTRACT NUMBER: 20OA-89
COMMODITY CODE: 9776
CONTRACT TITLE: Vehicle Exhaust Emission Testing
FOR USE BY: Department of Ecology
TERM: January 1, 1993 through May 31, 1993
CONTRACTOR: Vehicle Test Technology, Inc. CONTACT: MickiPhillips
1715 114th Ave SE, Ste 220 General Manager (new)
Bellevue, WA 98004 PHONE: (206) 451-3847
FAX: (206) 455-5916
FED. I.D. NO: 36-3087021
SUPPLIER NO.: 444
USE DESIGNATION:
MANDATORY:
The Department of Ecology is mandated to utilize this contract for all
acquisitions of materials, equipment or services designated herein.
Estimated Contract Value: $2,600,000.00/5 mos.
Contract Pricing: See Attached Section VIII, Attachment 1,
Price Sheets
Contract Administrator: Charles Van Hall (New)
Phone: (206) 753-1040
SCAN: 234-1040
Ecology Contact: John C. Raymond, Vehicle Emission Control
Coordinator
Phone: (206) 459-6261
<PAGE>
PURPOSE: Five month extension to allow sufficient start up time for
replacement contract 99-92. Note change of contractor contact
person and state contract administrator. Contractor to
provide new Certificate of Insurance. In all other respects,
contract remains unchanged.
REFERENCE: Office of State Procurement extension request letter dated
April 16, 1992, Griffin/Carroll; VTTI response dated May 7,
1992, signed by Leo Carroll.
<PAGE>
SECTION VIII ATTACHMENT 1
PRICE SHEET
INVITATION FOR BID NO. 200-89
TITLE: VEHICLE EXHAUST EMISSION TEST
CONTINUATION SHEET
SEATTLE AREA BID
ENTER YOUR BID ON THIS ATTACHMENT
$ 12.45 for each paid test until number of paid tests in a calendar year
exceeds 300,000
$ 12.35 for each paid test beyond 300,000 but before 320,001 in each
calendar year
$ 12.25 for each paid test beyond 320,000 but before 340,001 in each
calendar year
$ 12.15 for each paid test beyond 340,000 but before 360,001 in each
calendar year
$ 11.00 for each paid test beyond 360,000 but before 400,001 in each
calendar year
$ 10.00 for each paid test beyond 400,000 in each calendar year
Firm Name: Vehicle Test Technology, Inc.
NOTE: You must also attach all supporting information required by Section
VI, paragraph 7.2, Bid Attachments.
<PAGE>
SECTION VIII ATTACHMENT 1
PRICE SHEET
INVITATION FOR BID NO. 200-89
TITLE: VEHICLE EXHAUST EMISSION TEST
CONTINUATION SHEET
SPOKANE AREA BID
ENTER YOUR BID ON THIS ATTACHMENT
$ 12.40 for each paid test until number of paid tests in a calendar year
exceeds 50,000
$ 7.00 for each paid test beyond 50,000 but before 60,001 in each calendar
year
$ 7.00 for each paid test beyond 60,000 but before 70,001 in each calendar
year
$ 5.00 for each paid test beyond 70,000 but before 80,001 in each calendar
year
$ 0 for each paid test beyond 80,000 but before 100,001 in each
calendar year
$ 0 for each paid test beyond 100,000 in each calendar year
Firm Name: Vehicle Test Technology, Inc.
NOTE: You must also attach all supporting information required by Section
VI, Paragraph 7.2, Bid Attachments.
<PAGE>
STATE OF WASHINGTON
DEPARTMENT OF GENERAL ADMINISTRATION
OFFICE OF STATE PROCUREMENT
CONTRACT NO: 99-92
CONTRACT CHANGE NOTICE NO. 2
CHANGE
EFFECTIVE DATE: APRIL 6, 1993
PURPOSE: Change operational commencement date for Zone 3,
Contractor Name and Address Change and Identify new
Contract Administrator and Contractor contact.
COMMODITY CODE: 9776
CONTRACT TITLE: Vehicle Exhaust Emission Inspection Program
FOR USE BY: Department of Ecology
TERM: July 6, 1992 THROUGH December 31, 1999
CONTRACTOR: SC Systems Control CONTACT: Michael B. Gallagher
8656 154th Ave NE Project Manager
Redmond, Washington 98052 PHONE: (206) 883-3900
FAX: (206) 881-8823
FED ID: 36-3087021
SUPPLIER: 444
USE DESIGNATION:
1. MANDATORY:
State Agencies: State agencies are mandated to utilize this
contract for all acquisitions of materials, equipment or services
designated herein.
PARTICIPATION:
CURRENT: $0 MBE $0 WBE $0 OTHER $7,500,000 EXEMPT
CONTRACT ADMINISTRATOR: Charles D. Van Hall, C.P.M.
PHONE: (206) 753-1040
SCAN: 234-1040
SPECIAL CONDITIONS:
Zone 3, except North Auburn, shall be operational on Sunday, August 1, 1993,
<PAGE>
with operations commencing on Monday, August 2, 1993. All other terms and
conditions remain unchanged, except that full staffing of all Zone 3 and the
Des Moines and Renton stations from Zone 2, will be required until the North
Auburn Station or its replacement is operational. See Contract Award
Summary.
<PAGE>
STATE OF WASHINGTON
DEPARTMENT OF GENERAL ADMINISTRATION
OFFICE OF STATE PROCUREMENT
CONTRACT NO: 99-92
CONTRACT CHANGE NOTICE NO. 3
CHANGE
EFFECTIVE DATE: JUNE 1, 1993
PURPOSE: Change operational commencement date for Diesel
Inspections and approve the use 1M24O Lane at the Fife
location.
COMMODITY CODE: 9776
CONTRACT TITLE: Vehicle Exhaust Emission Inspection Program
FOR USE BY: Department of Ecology
TERM: July 6, 1992 THROUGH December 31, 1999
CONTRACTOR: SC Systems Control CONTACT: Michael Gallagher,
PM
8656 14th Ave NE PHONE: (206) 883-3900
Redmond, Washington 98052 FAX: (206) 881-8823
FED. I.D. NO.: 36-3087021
SUPPLIER NO.: 444
USE DESIGNATION:
1. MANDATORY:
State Agencies: State agencies are mandated to utilize this contract
for all acquisitions of materials, equipment or services designated
herein.
PARTICIPATION:
CURRENT: $0 MBE $0 WBE $0 OTHER $7,500,000 EXEMPT
CONTRACT ADMINISTRATOR: Charles D. Van Hall, C.P.M.
PHONE: (206) 753-1040
SCAN: 234-1040
SPECIAL CONDITIONS:
l. This change notice is to confirm the delay of diesel inspection from June
1, 1993 to August 2, 1993. Delay is based on the following information:
The result of Contractor's failure to demonstrate at the April 12,
1993 Marysville Station its capability to perform diesel
inspections to the satisfaction on the state.
<PAGE>
The concern by DOE that both SC and DOE should focus their efforts
on dealing with the startup challenges due to the many changes in
the testing of gas vehicles and to ensure a smooth startup.
2. This change notice is also to provide written approval to SC to use the
IM240 lane at the Fife motor vehicle emission inspection station for an EPA
research project. The results of the project will be shared with DOE for the
benefit of the state. No consideration is due the contractor nor the state
as a result of this project.
<PAGE>
CHANGE NOTICE NUMBER 4
EFFECTIVE DATE: 1 APRIL, 1994
Contract Number: 99-92
Purpose: Line Item Additions
Contract Title: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Commodity Code: 9776
For Use By: Department of Ecology
Term: July 6, 1992 Through: December 31, 1999
Contractor: SC Systems Control CONTACT: Michael B. Gallagher
8656 154th Avenue NE PHONE: (206) 883-3900
Redmond, WA 98052 FED. I.D. NO.: 36-3087021
SUPPLIER NO: 444
FAX NO.: (206) 881-8823
USE DESIGNATION:
MANDATORY:
Department of Ecology is mandated to utilize this contract for all
acquisitions of materials, equipment or services designated herein.
CURRENT MWBE PARTICIPATION: $ 7,500,000 OTHER-100% EXEMPT
Contract Administrator: C. Van Hall, C.P.M.
Phone: (206) 753-1040
SCAN 234-1040
Special Conditions:
In accordance with Contract Section IV, Paragraph 31, entitled Additions and
Deletions the contractor has proposed, the state has accepted the following
modifications:
<PAGE>
Contract Change Notice No. 4
Contract No. 99-92
Page 2
1. To cover software development cost of $11,104 for a reporting systems to
improve customer waiting time. $11,104 and will be deducted from the weekly
payments. This payment subject to approval by the state of the reporting
formats.
2. To pay reimbursable capital and operational costs at the new Vancouver
station, including the IM 240 and reduce interest charges the state will pay
the capital costs of $2,651.212 plus interest over a twelve month period
starting June 3, 1994.
Payment of item 2 capital costs will be through a weekly payment of $50,985.
Operational costs will be paid by an increase in the test fee of $0.49 per
test, state wide until contract termination beginning when the new Vancouver
station opens.
3. This line item is to confirm that the costs associated with the Teller
Machine at the New Vancouver Station will not be a part of this change
notice.
4. To cover the additional $275,496 SC management, personnel and direct
operating costs for the existing Vancouver Station as the result of the
state's under estimation of testing capacity by the state in the Vancouver
Zone. Reimbursement will be on the following schedule:
$275.496 divided by 11 months of added costs, times 5 months of added labor
already performed, that will be deducted in two payments. The first on June
3, 1994 in the amount of $62,613. The second on June 10, 1994 in the amount
of $62,612. The balance of $150.271 will be paid in weekly installments of
$6,261,29 until Nov. 30, 1994.
5. To cover the additional remodeling costs for the North Seattle Station.
Remodeling is limited to the addition of a cash out office at the cost of
$8,558. Payment to be made by deduction from the weekly payment.
6. To cover the costs of operating additional equipment at North Seattle
Station. Existing current personnel costs of $55,598 covering the period
1/2/94 through 5/31/94 are to be deducted from the weekly payment. Since the
May 94 payment is an estimate the last payment may be adjusted with written
approval by the contract administrator. Effective 6/1/94, the personnel
costs for the increased capacity at North Seattle will be paid by an increase
in the test fee of $ .22 per test, state wide until contract termination.
7. To cover the costs of adding IM 240 at the Redmond Station. The one time
cost of $126,626.00 is to be deducted from the weekly payments.
8. To cover the $236,459.00 of additional expansion costs at the Vancouver
and North Seattle Stations. Payment to be deducted weekly as follows:
April 1, 1994 through May 6, 1994 $38,000.00 per week, with a final payment of
<PAGE>
$8,459.00 deducted on May 13, 1994.
<PAGE>
Contract Change Notice No. 4
Contract No. 99-92
Page 3
Weekly payments can not exceed those authorized by change notice. Copies of
all payment documents showing deductions from the weekly payment will be sent
to the contract administrator. Documents supporting this change notice
number 4 are as follows:
Line items 1, 5 and 7: Three SC Letters all dated April 5, 1994 and one
dated April 12, 1994. For line item l only SC letter dated May 24, 1994
applies.
Line item 2 SC FAX proposal dated April 4, 1994 that identify program costs
increase beginning June 1, 1994 followed up with SC FAX May 24, 1994.
Line item 3: SC FAX proposal dated April 4, 1994 and SC FAX May 24, 1994.
Line item 4: SC FAX proposal dated April 4, 1994 and SC FAX May 24, 1994.
Line item 6: SC FAX proposal dated April 4, 1994 and SC FAX May 24, 1994.
Line item 8: SC letter dated March 22, 1994, SC FAX dated March 31, 1994,
and SC proposed payment schedule dated April l, 1994.
The above are based negotiation/clarification meetings between OSP, Ecology
and SC dated January 14, 1994, March 12, 1994 and April 6, 1994 held at the
Department of Ecology. The state reserves the right to audit supporting
documentation provided by the contractor.
All other contract terms, conditions, provisions and pricing remains
unchanged.
<PAGE>
CHANGE NOTICE NUMBER 5
EFFECTIVE DATE: AUGUST 3, 1994
CONTRACT NUMBER: 99-92
Purpose: Adjust Line item #2 of Contract Change Number 4
Contract Title: VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
Commodity Code: 9776
For Use By: Department of Ecology
Term: July 6, 1992 Through: December 31, 1999
Term Worth $ 7,500,000 Other - 100% Exempt
Contractor: SC Systems Control CONTACT: Michael B.Gallagher
8656 154th Avenue NE PHONE: 206 883 3900
Redmond, Washington 98052 FAX: 206 881 8823
FED.I.D. NO: 36-3087021
SUPPLIER NO: 444
Contract Pricing: See Award Summary and subsequent change notices.
Contract Administrator: C. Van Hall, C.P.M.
Phone: (206) 753-1040
FAX: (206) 586-2426
Special Conditions:
1. Change contract change number 4, item number 2 to read as follows:
To pay reimbursable capital and operational costs at the new Vancouver
station, including the IM 240 and reduce interest charges the state will pay
the capital costs of $2,651,212 plus interest starting June 3, 1994. However
due to delay in the new stations opening date, by the contractor, weekly
payments and interest shall stop on August 3, 1994 and then shall recommence
on Friday April 7, 1995.
Except for the period of August 3, 1994 through April 7, 1995, payments of
item 2 capital costs will be through a weekly payment of $50,985.
Operational costs will be paid by an increase in the test fee of $0.49 per
test, state wide until contract termination beginning when the new Vancouver
station opens.
All other terms, conditions and provisions of this contract remain unchanged.
<PAGE>
STATE OF WASHINGTON
CURRENT CONTRACT INFORMATION
Reference Date: November 18, 1994
Contract Number: 09992 Revises Contract Number: 99-92
Contract Title: Vehicle Exhaust Emission Inspection Program
Purpose: Establish payment schedule for costs associated with New
Vancouver Station and the additional Expansion Costs at
Existing Vancouver Station.
Commodity Code: 9776
For Use By: Department of Ecology Exclusions: None
Term: July 6, 1992 Through December 31, 1999
Term Worth: $ 7,500,000
Contractor: SC Systems Control CONTACT: Micki Phillips
8656 154th Avenue NE PHONE: 206 883 3900
Redmond, WA 98052 FAX: 206 881 8823
FED. I.D. NO.: 36 3087021
SUPPLIER NO.: 444
Contract Pricing: See Attachment
Contract Administrator: Charles V. Hall
Phone Number: (206) 753-1040
Participation:
Current: Exempt 100%
Note:
I. This contract is exempt from RCW 43.19.1905.
II. This contract is designated as "Mandatory Use."
III. This Current Contract Information follows Contract Change Notice
Number 5. Therefore no Contract Change Notice Number 6 will be
issued.
IV. Reference SC Letters Dated October 11, 1994, November 3, 8 and 9.
V. All information herein is subject to audit by the state in
accordance with original contract/bid provisions.
VI. Current Contract Information will be made available via FAX ON
DEMAND Contact the Contract Administrator.
<PAGE>
ATTACHMENT
VEHICLE EXHAUST EMISSION INSPECTION PROGRAM
CONTRACT 99-92
ZONE 4
Additional Station in Vancouver with seven IM 240 compatible lanes including
four lanes with elector-mechanical dynamometers. Contractor is authorized to
recover costs through an increase in the cost per test for the entire
statewide program. The state reserves the right to advance pay any capital
costs, thereby reducing the additional cost per test for the entire statewide
program.
The following summary assumes a startup date of May 1, 1995, an earlier or
later start up date must be approved, in writing, by the Contract
Administrator as authorized by the Department of Ecology Air Program Manager:
1. CAPITAL COSTS
Land 497,000
Construction 1,712,000 .32
Equipment 194,000 .04
Deferred Startup & Other 43,000 .01
Corporate G&A @ 16% 311,840 .06
--------- ----
SUBTOTAL (excluding Land) 2,260,840 .43
FEE @ 15% 413,840 .08
Interest 511,680 .10
--------- ----
--------- ----
TOTAL VANCOUVER CAPITAL COSTS 3,186,196 .60
2. OPERATIONS COSTS
Labor 597,000 .11
Payroll Burden Rate @ 23% 137,310 .03
--------- ----
SUBTOTAL 734,310 .14
Overhead @ 55% 403,871 .08
--------- ----
SUBTOTAL 1,138,181 .22
Other Operating Costs 595,000 .11
--------- ----
SUBTOTAL LABOR & OTHER 1,733,181 .33
Corporate G&A @ 16% 277,309 .05
--------- ----
SUBTOTAL 2,010,489 .38
Fee & 15% 301,573 .06
Land Interest 212,477 .04
<PAGE>
--------- ----
TOTAL OPERATIONS COSTS 2,524,540 .48
--------- ----
--------- ----
3. TOTAL COSTS 5,710,736 1.08
--------- ----
--------- ----
Less State Payments
(see contract change #4) (460,755) (.09)
Less ECS Savings
(See November 8, 1994
letter from SC) (574,033) (.11)
4. NET COSTS 4,675,948 .88
--------- ----
--------- ----
Additional cost per test for the entire program beginning 5/1/95 is $0.88.
Land cost is not included in the overall total cost but are recovered by the
sale of the property at the end of the program as provided for in the bid.
The only cost associated with land is the financing costs and fee.
5. ADDITIONAL EXPANSION COSTS
TOTAL ESTIMATE
1/94 TO 4/95
PERSONNEL
Labor 142,679
Payroll Burden Rate @ 23% 32,816
-------
SUBTOTAL 175,495
Overhead @ 55% 96,522
-------
SUBTOTAL 272,017
OTHER EXPENSES & COSTS
Other Direct Costs Sub-total 1,357
-------
Total Personal & Other 273,374
Corporate G & A @ 16% 43,740
-------
SUBTOTAL 317,114
Profit 15% 47,567
-------
SUBTOTAL 364,681
<PAGE>
Less $ Change Number 4 item Number 4
Payment of $275,496. (275,496)
6. TOTAL $89,185
Payment of $89,185 to be made by deduction of $4,053.86 from the weekly
payments to the state starting 12/2/94 and continuing through 4/28/95 for a
total of 22 weeks.
<PAGE>
STATE OF WASHINGTON
CONTRACT INFORMATION
Reference Date: June 1, 1995
Contract Number: 09992
Contract Title: Vehicle Exhaust Emission Inspection Program
Purpose: Reduce Capitol Costs Associated with Construction of the
New Vancouver Vehicle Emission Station by paying the
Contractor as noted on Attachment A Cost Summary.
Commodity Code: 9776
For Use By: Department of Ecology
Term: July 6, 1992 Through December 31, 1999
Term Worth: $7,500,000
Contractor: SC Systems Control CONTACT: Micki Phillips
8656 154th Avenue NE PHONE: (206) 883-3900
Redmond, WA 98052 FAX: (206) 881-8823
FED. I.D. NO.: 36 3087021
SUPPLIER NO.: 11
Contract Pricing: See Original Bid on File at OSP
Contract Administrator: Charles Van Hall, C.P.M.
Phone Number: (360) 902-7425
Participation:
Current: Exempt 100%
Note:
1. See Attachment A: Cost Summary
2. The state will affirm costs on attachment A by an audit by September 1,
1995 at the Contractor's Offices. Audit to be conducted by Contract
Administrator and Ecology Program Personal.
Washington State Department of General Administration
Office of State Procurement, PO Box 41017, Olympia, WA 98504-1017
<PAGE>
Attachment A: Cost Summary
Contract 09992
Additional Station in Vancouver:
CAPITAL COSTS
Land 497,000
Construction 1,712,000 0.32
Equipment 194,000 0.04
Deferred Startup & Other 43,000 0.01
Corporate G&A @ 16% 311,840 0.06
SUBTOTAL (excluding land) 2,260,840 0.43
Fee @ 15% 413,676 0.08
Interest 241,836 0.05
TOTAL VANCOUVER CAPITAL COSTS 2,916,352 0.55
OPERATIONS COSTS
Labor 597,000 0.11
Payroll Burden Rate @ 23% 137,310 0.03
SUBTOTAL 734,310 0.14
Overhead @ 55% 403,871 0.08
SUBTOTAL 1,138,161 0.22
Other Operating Costs 595,000 0.11
SUBTOTAL LABOR AND OTHER 1,733,181 0.33
Corporate G & A 16% 277,309 0.05
SUBTOTAL 2,010,489 0.38
Fee @ 15% 301,575 0.06
Land Interest 212,477 0.04
TOTAL OPERATIONS COSTS 2,524,540 0.48
<PAGE>
TOTAL COSTS 5,440,892 1.03
Less Payments (460,755) (0.09)
Less Payment authorized by this document: (1,200,000) (0.23)
Less ECS Savings (574,033) (0.11)
NET COSTS 3,206,104 0.60
Additional costs per test for the entire
program beginning 7/1/95 0.60
<PAGE>
STATE OF WASHINGTON
CURRENT CONTRACT INFORMATION
Reference Date: July 26, 1995
Contract Number: 09992
Contract Title: Vehicle Exhaust Emission Inspection Program
Purpose: Authorization to develop a method to provide a passed
test report to certain vehicle owners. Authorize Greeter
Program. Accept Contractor's Irrevocable Letter of
Credit. Payment of Inspection Forms.
Commodity Code: 9776
For Use By: Department of Ecology
Term: July 6, 1992 Through December 31, 1999
Term Worth: $7,500,000
Contractor: SC Systems Control CONTACT: Micki Phillips
8656 154th Avenue NE PHONE: (206) 883-3900
Redmond, WA 98052 FAX: (206) 881-8823
FED. I.D. NO.: 36 3087021
SUPPLIER NO.: 11
Contract Pricing: See Original Bid on File at OSP
Contract Administrator: Charles Van Hall, C.P.M.
Phone Number: (360) 902-7425
Participation:
Current: Exempt 100%
Note:
1. Authorize an idle test for 1984 through 1987 model year BMW, Volvo, and
Peugeot Diesel Vehicles. These vehicles will not be subject to a snap
idle test. Contractor will not charge a test fee to these vehicle
owners. However, Contractor is still authorized to deduct from the
weekly transfer of funds, its portion of the test fee for each of these
special tests. Contractor to identify the number of these special tests
and their cost by zone with each transfer. This authorization, is
temporary in accordance with Department of Ecology's Air Program memos
of June 19, 1995 and June 27, 1995.
2. Authorize Greeter Program. Greeters will be positioned at the entrances
to the North Seattle, Bellevue, and Kirkland Test Stations during the
last three testing days of the each month and on the first two testing
days of
<PAGE>
the following month. Greeter will turn away those motorists
whose vehicle do not need the test, to answer motorists questions, and
give out contractor provided maps and directions to stations which have
shorter waiting lines. The procedure for the program is outlined in
Contractor's Letter of May 4, 1995 to the Contract Administrator and Air
Program's FAX of June 27, 1995. Total Additional Transfer to cover the
cost of this Program shall not exceed $3000.00 per month and may be
canceled at anytime by the state by providing 30 days written notice.
Contractor to provide the state a written evaluation of the benefits
found from the use of greeters by May 1, 1996.
3. Accept Contractor's Irrevocable Letter of Credit that will replace the
current escrow account. Acceptance of the Letter of Credit reduces the
Contractor's portion of the test fee by $0.05 or a minimum amount of
$260,000.00 over the life of the program. The $260,000.00 minimum will
be tracked by the contractor. Reference Contractor Letter of May 12,
1995. Effective date to be upon receipt by the contract administrator
of the bank notification. Contract Administrator to advise by Change
Notice.
4. Contractor to pay for inspection forms. The state will continue to
design and order the inspection forms. The contractor will continue to
take delivery and provide storage for the inspection forms. The
contractor is authorized to deduct from the weekly transfer the funds
the payment for the form order.
<PAGE>
STATE OF WASHINGTON
CURRENT CONTRACT INFORMATION
Reference Date: July 26, 1995
Contract Number: 09992
Contract Title: Vehicle Exhaust Emission Inspection Program
Purpose: Authorization to develop a method to provide a passed
test report to certain vehicle owners. Authorize Greeter
Program. Accept Contractor's Irrevocable Letter of
Credit. Payment of Inspection Forms.
Commodity Code: 9776
For Use By: Department of Ecology
Term: July 6, 1992 Through December 31, 1999
Term Worth: $7,500,000
Contractor: SC Systems Control CONTACT: Micki Phillips
8656 154th Avenue NE PHONE: (206) 883-3900
Redmond, WA 98052 FAX: (206) 881-8823
FED. I.D. NO.: 36 3087021
SUPPLIER NO.: 11
Contract Pricing: See Original Bid on File at OSP
Contract Administrator: Charles Van Hall, C.P.M.
Phone Number: (360) 902-7425
Participation:
Current: Exempt 100%
Note:
1. Authorize an idle test for 1984 through 1987 model year BMW, Volvo, and
Peugeot Diesel Vehicles. These vehicles will not be subject to a snap
idle test. Contractor will not charge a test fee to these vehicle
owners. However, Contractor is still authorized to deduct from the
weekly transfer of funds, its portion of the test fee for each of these
special tests. Contractor to identify the number of these special tests
and their cost by zone with each transfer. This authorization is
temporary in accordance with Department of Ecology's Air Program memos
of June 19, 1995 and June 27, 1995.
2. Authorize Greeter Program. Greeters will be positioned at the entrances
to the North Seattle, Bellevue, and Kirkland Test Stations during the
last three
<PAGE>
testing days of the each month and on the first two testing
days of the following month. Greeter will turn away those motorists
whose vehicle do not need the test, to answer motorists questions, and
give out contractor provided maps and directions to stations which have
shorter waiting lines. The procedure for the program is outlined in
Contractor's Letter of May 4, 1995 to the Contract Administrator and Air
Program's FAX of June 27, 1995. Total Additional Transfer to cover the
cost of this Program shall not exceed $3000.00 per month and may be
canceled at anytime by the state by providing 30 days written notice.
Contractor to provide the state a written evaluation of the benefits
found from the use of greeters by May 1, 1996.
3. Accept Contractor's Irrevocable Letter of Credit that will replace the
current escrow account. Acceptance of the Letter of Credit reduces the
Contractor's portion of the test fee by $0.05 or a minimum amount of
$260,000.00 over the life of the program. The $260,000.00 minimum will
be tracked by the contractor. Reference Contractor Letter of May 12,
1995. Effective date to be upon receipt by the contract administrator
of the bank notification. Contract Administrator to advise by Change
Notice.
4. Contractor to pay for inspection forms. The state will continue to
design and order the inspection forms. The contractor will continue to
take delivery and provide storage for the inspection forms. The
contractor is authorized to deduct from the weekly transfer the funds
the payment for the form order.
<PAGE>
STATE OF WASHINGTON
CURRENT CONTRACT INFORMATION
Reference Date: November 1, 1995
Contract Number: 09992
Contract Title: Vehicle Exhaust Emission Inspection Program
Purpose: Authorization to perform a trial ASM test in Spokane
Region only
Commodity Code: 9776
For Use By: Department of Ecology
Term: July 6, 1992 Through December 31, 1999
Term Worth: $7,500,000
Contractor: SC Systems Control CONTACT: Micki Phillips
8656 154th Avenue NE PHONE: (206) 883-3900
Redmond, WA 98052 FAX: (206) 881-8823
FED. I.D. NO.: 36 3087021
SUPPLIER NO.: 11
Contract Pricing: See Original Bid on File at OSP
Contract Administrator: Charles Van Hall, C.P.M.
Phone Number: (360) 902-7425
Participation:
Current: Exempt 100%
<PAGE>
Note:
Cost Summary for ASM Upgrade for Spokane:
Capital Costs: Price QTY Total
- -------------- ----- ---- -------
Lane Equipment (a) 1,900 8 $ 15,200
Station Equipment (b) 2,040 2 4,080
Fan & Misc. Parts (c) 1,200 7 8,400
Installation Labor 270 8 2,160
Engineering design
documentation (d) 30,600 1 30,600
Software Design 72,650 1 72,650
Subtotal 133,090
Corporate G&A 16% 21,294
Subtotal 154,384
Profit 15% 23,158
Interest (10%) 3,567
Total Capital Cost $181,109
The $181,109 may be deducted by SC from the weekly payment to the state at
the rate of $18,110.90 per week for 10 weeks.
1. Deduction to begin upon completion of work and as approved by the
Ecology Air Program manager. SC must also provide the program manager a
detailed invoice of work performed, to be used by Ecology to assist it
in obtaining Federal Funding for this ASM testing project.
Operating costs for Six hours per Day for One Lane is $191.00 and may be
deducted by SC from the weekly payment to the state. Operating cost
covers two inspectors per lane to operate the ASM test. Testing not to
extend beyond May 31, 1996 without written authorization from the state.
(a) SCAMP III upgrade modifications for NOx channel
(b) NOx cal gas station modification requirements
(c) Engine cooling fan
(d) Redesign of SCAMP for NOx, modification and testing of first lane,
training and documentation on test and new calibration procedure.
2. Contract 09992 is amended as noted above. All other terms, conditions
and contract provisions remain unchanged.
<PAGE>
Envirotest Systems Corporation
Spokane ASM Upgrade
Invoice
Proposal Actual
-------- ------
Capital Costs:
Lane Equipment $15,200 $20,802
Station Equipment 4,080 3,852
Fans & Misc. 8,400 5,868
Installation 2,160 4,280
Engineering Design 30,600 26,900
Software Design 72,650 72,650
_________________ _________________
133,090 134,352
Corporate G & A 21,294 21,496
------- -------
154,384 155,848
Profit 23,158 23,377
Interest 3,567 3,567
------- -------
Total Capital Costs $181,109 182,793
------- -------
------- -------
Proposal Amount 181,109
Less installation @ $270 x 6 lanes (1,620)
-------
Amount Due 179,489*
Inspections 2,000 @ $7.27 each 14,540(A)
-------
Total Costs $194,029
-------
-------
(A) Amount previously paid by State
* Weekly payment of $17,948.90 for 10 weeks
<PAGE>
State of Washington
Current Contract Information
Effective Date: July 1, 1996
Contract Number: 09992
Contract Title: Vehicle Exhaust Emission Inspection Program
Purpose: Cost of Living Adjustment
Commodity Code: 9776
For Use By: Washington State Department of Ecology
Term: July 6, 1992 Through: December 31, 1999
Term Worth: $7,500,000
Contractor: Envirotest Systems Corp. CONTACT: Micki Phillips
(Formally SC) PHONE: (206) 883-3900
8656 l54th Avenue NE FAX: (206) 881-8823
Redmond, WA 98052 FED. I.D. NO.: 36 3087021
SUPPLIER NO.: 11
Order placement address: Same
Ordering procedures: Contact the Contract Administrator
Payment Address: Same
Contract Pricing: All statewide tests are increased by $0.08
(eight u.s. cents) to cover the cost of wage
increases for contractor employees.
Contract Administrator: Charles Van Hall, C.P.M.
Phone Number: (360) 902-7425
Fax Machine number: (360) 586-2426.
E-Mail: [email protected]
Participation:
Current: $ MBE none $ WBE none $ OTHER none EXEMPT $7,500,000
MBE % none WBE % none Exempt 100%
<PAGE>
Currant Contract Information
Contract No. 09992
Page 2
Note:
I. This contract is subject to RCW 43.19.1905 which authorizes state
agencies to purchase materials, supplies, services, and equipment of
equal quantity and quality to those on state contract from non-contract
suppliers provided that an agency notifies the Office of State
Procurement contract administrator that the pricing is less costly for
such goods or services than the price from the state contractor.
If the non-contract supplier's pricing is less, the state contractor
shall be given the opportunity to at least meet the non-contractor's
price. If the state contractor cannot meet the price, then the state
shall purchase the item(s) from the non-contract supplier.
If a lower price can be identified on a repeated basis, the state
reserves the right to re-negotiate the pricing structure of this
agreement. In the event such negotiations fail, the state reserves the
right to delete such item(s) from the contract.
II. This contract is designated as "Mandatory Use" per the contract
definitions. If definitions are not attached to this document, they can
be obtained by calling (360) 902-7413.
III. Attachments
<PAGE>
OFFICE OF STATE PROCUREMENT
PERFORMANCE REPORT
To OSP Customers:
Please take a moment to let us know how our services have measured up to your
expectations on this contract. Please copy this form locally as needed and
forward to the Office of State Procurement Purchasing Manager. For any
comments marked unacceptable, please explain in remarks block.
Procurement services provided: Excellent Good Acceptable Unacceptable
- - Timeliness of contract actions
- - Professionalism and courtesy of staff
- - Services provided met customer needs
- - Knowledge of procurement rules and regulations
- - Responsiveness/problem resolution
- - Timely and effective communications
Comments: ________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
Agency: ______________________ Prepared by: _________________________
Title: _________________________________
Contract No.: __________________ Date: __________________________________
Contract Title: _________________ Phone: _________________________________
___________________________________________________________________
SEND TO:
Purchasing Manager
Office of State Procurement
PO Box 41017
Olympia, Washington 98504-1017
<PAGE>
STATE OF WASHINGTON
DEPARTMENT OF ECOLOGY
P.O. Box 47600
Olympia, Washington 98504-7600
(360) 407-6000
TDD Only (Hearing impaired) (360) 407-6006
May 28, 1996
Ms. Melanie Phillips
General Manager
Envirotest Systems Corp.
8656 154th Avenue NE
Redmond, Washington 98052
Dear Ms. Phillips:
Thank you for the successful completion of the trial Acceleration Simulation
Mode (ASM) testing in Spokane. This letter is your authorization to deduct
$17,948.90 from the weekly payment to the state for ten weeks for the upgrade
of the Spokane Emission Check stations to conduct ASM testing.
I greatly appreciate the effort Envirotest made to ensure that we will be
able to quickly implement ASM testing, once it becomes an official test.
Sincerely,
Joseph R. Williams
Program Manager
Air Quality Program
JRW:crp
cc: Chuck Van Hall, General Administration
Glenn Miles, Spokane Regional Transportation Council
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LIQUIDITY LOAN AGREEMENT
among
THE LIQUIDITY LENDERS
FROM TIME TO TIME PARTY HERETO,
MARKET STREET CAPITAL CORP.
ENVIROTEST PARTNERS
and
PNC BANK, NATIONAL ASSOCIATION,
as Administrator and Liquidity Agent
Dated as of November 26, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Certain Defined Terms................................................. 2
2. Making of Liquidity Loans............................................. 9
3. Register; Information Regarding Liquidity Lenders..................... 14
4. Distribution of Payments.............................................. 14
5. Representations and Warranties........................................ 17
6. The Liquidity Agent and the Administrator............................. 20
7. Rights of the Issuer and the Administrator............................ 24
8. Obligations of the Liquidity Lenders, Including Confidentiality....... 24
9. Assignability and Purchase Limit...................................... 24
10. Liquidity Termination Date; Extension of Liquidity Termination Date... 26
11. Miscellaneous......................................................... 27
Exhibit A: Form of Assignment of Liquidity Commitment
<PAGE>
LIQUIDITY LOAN AGREEMENT
The Liquidity Loan Agreement (this "Agreement") is entered into as
of November 26, 1996 among PNC BANK, NATIONAL ASSOCIATION, a national banking
corporation (in its individual capacity, "PNC") and each of the parties who
has executed as an "Assignee" an Assignment of Liquidity Commitment in the
form of Exhibit A hereto (each, an "Assignment")(PNC and each such other
Assignee being referred to collectively as the "Liquidity Lenders" and
individually as a "Liquidity Lender"), PNC BANK, NATIONAL ASSOCIATION, as
agent for the Liquidity Lenders under this Agreement (In such capacity,
together with its successors and permitted assigns in such capacity, the
"Liquidity Agent"), MARKET STREET CAPITAL CORP., a Delaware corporation
(together with its successors and permitted assigns, the "Issuer"),
Envirotest partners (formerly known as Envirotest/Synterra Partners), a
Pennsylvania partnership (the "Seller") and PNC BANK, NATIONAL ASSOCIATION,
as the Administrator for the Issuer in such capacity, together with its
successors and permitted assigns in such capacity, the "Administrator").
PRELIMINARY STATEMENTS
(1) Reference is made to (i) Purchase and Sale Agreement dated as
of November 26, 1996 (as amended, restated, supplemented or otherwise
modified from time to time in accordance with the provisions thereof and in
effect, the "Receivables Sale Agreement"), among the Seller and ES Funding
Corporation, a Delaware corporation (the "Seller Sub"), and (ii) that certain
Receivable Purchase Agreement dated as a November 26, 1996 (as amended,
restated, supplemented or otherwise modified from time to time in accordance
with the provisions thereof and in effect, the "Receivables Purchase
Agreement") among the Issuer, the Administrator, the Liquidity Agent and the
Seller Sub, copies of which have been delivered to each Liquidity Lender.
(2) The Issuer has purchased from the Seller Sub all of the Seller
Sub's rights (including, but not limited to, all of the Seller Sub's right,
title and interest in and to the right to receive payment of the Settlement
Receivable Assets, but not its obligations, (the "Purchased Interest") under
(i) the Settlement Agreement and (ii) the Receivables Sale Agreement. The
Administrator may in the future determine from time to time to have the
Issuer fund all or a portion of such purchase with the proceeds of Liquidity
Loans made by the Liquidity Lenders hereunder. The Issuer therefore hereby
pledges to the Liquidity Agent, for the benefit of the Liquidity Lenders, as
security for the Liquidity Loans, a security interest in the Purchased
Interest. The Issuer may fund its acquisition of the Purchased Interest
through the issuance of commercial paper notes (the "Notes"), through loans
or other extensions of credit from various banks and other financial
institutions, or by borrowing from the Liquidity Lenders hereunder.
<PAGE>
(3) Each Liquidity Lender, by becoming a party hereto agrees to
make Liquidity Loans to the Issuer on the terms and conditions set forth in
this Agreement (its "Liquidity Commitment") when requested by the
Administrator.
NOW, THEREFORE, the parties agree as follows:
1. Certain Defined Terms.
(a) As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Administration Account" means the special account (account number
1002420425) of the Issuer maintained at the office of PNC at 249 Fifth
Ave., Pittsburgh, Pennsylvania 15222-2707, or such other account as may
be so designated in writing by the Administrator to the Seller.
"Administrator" has the meaning set forth in the preamble.
"Affiliate" means, as to any Person, any other Person that,
directly or indirectly, is in control of, is controlled by or is under
common control with such Person or is a director or officer of such
Person, except that with respect to the Issuer, Affiliate shall mean the
holder(s) of its capital stock.
"Agent-Related Person" has the meaning specified in Section 6(c).
"Agreement" has the meaning set forth in the preamble.
"Alternate Rate" for any Interest Period means an interest rate per
annum equal to (i) .25% per annum above the Eurodollar Rate on the
amount of such Liquidity Loan for the first ten (10) Business Days
during which such Liquidity Loan remains outstanding and (ii) .75% per
annum above the Eurodollar Rate on such outstanding amount thereafter;
provided, however, that in the case of any Interest Period on or prior
to the first day on which the Administrator shall have been notified by
the Issuer or other Program Support Provider that the introduction of or
any change in or in the interpretation of any law or regulation makes it
unlawful, or any central bank or other Governmental Authority asserts
that it is unlawful, for the Issuer or such other Program Support
Provider to fund any Capital (based on the Eurodollar Rate) as set forth
above (and the Issuer or such other Program Support Provider shall not
have
4
<PAGE>
subsequently notified the Administrator that such circumstance no longer
exit) the "Alternate Rate" for each such Interest Period shall be an
interest rate per annum equal to the Base Rate in effect on each day of
such Interest Period.
"Assignment" has the meaning set forth in the preamble.
"Attorney Costs" means and includes all fees and disbursements of
any law firm or other external counsel, the allocated cost of internal
legal services and all disbursements of internal counsel.
"Bankruptcy Code" means the United States Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, et seq.), as amended from time to time.
Base Rate" means for any day, a fluctuating interest rate per annum
as shall be in effect from time to time, which rate shall be at all
times equal to the higher of:
(a) the rate of interest in effect for such day as publicly
announced from time to time by PNC in Pittsburgh, Pennsylvania as
its reference rate," which is a rate set by PNC based upon various
factors, including PNC's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such
announced rate; and
(b) 0.50% per annum above the latest Federal Funds Rate.
"Borrowing" means as the context may require the Liquidity Loans
made, or requested to be made, by all Liquidity Lenders on the same
Business Day pursuant to the related Borrowing Notice in accordance with
Section 2(a).
"Borrowing Notice" has the meaning set forth in Section 2(a).
"Business Day" means any day on which (i) banks are not authorized
or required to close in New York City or Pittsburgh, Pennsylvania and
(ii) if this definition of "Business Day" is utilized in connection with
the Eurodollar Rate, dealings are carried out in the London interbank
market.
"Capital" means the purchase price paid by the Issuer to the Seller
Sub in respect of the Purchased Interest pursuant to the Receivables
Purchase Agreement, as reduced from time to time by collections on the
Purchased Interest
5
<PAGE>
distributed and applied on account of such Capital; provided, that if
such Capital shall have been reduced by any distribution and thereafter
all or a portion of such distribution is rescinded or must otherwise be
returned for any reason, such Capital shall be increased by the amount
of such rescinded or returned distribution, as though it had not been
made.
"Collateral Interest" has the meaning set forth in Section 2(b).
"Commercial Paper Account" has the meaning set forth in the
Depositary Agreement dated as of December 15, 1995, between the Issuer
and PNC, as depositary, as amended, supplemented or otherwise modified
and in effect from time to time.
"CP Rate" means, for any fixed period to the extent the Issuer
funds Capital for such Fixed Period by issuing Notes, a rate per annum
equal to the sum of (i) the rate (or if more than one rate, the weighted
average of the rates) at which Notes of the Issuer having a term equal
to such Fixed Period and to be issued to fund such Capital may be sold
by any placement agent or commercial paper dealer selected by the
Administrator on behalf of the Issuer, as agreed between each such agent
or dealer and the Administrator; provided, that if the rate (or rates)
as agreed between any such agent or dealer and the Administrator with
regard to any Fixed Period for such Capital is a discount rate (or
rates), then such rate shall be the rate (or if more than one rate, the
weighted average of the rates) resulting from converting such discount
rate (or rates) to an interest-bearing equivalent rate per annum, plus
(ii) the commissions and charges charged by such placement agent or
commercial paper dealer with respect to such Notes.
Discount" means (a) with respect to the Issuer's cost of funding
the Capital from time to time:
(i) with respect to the Capital for any Fixed Period to the
extent such Capital is funded on the first day of such Fixed Period
through the issuance of Notes,
CPR x C x ED ; and
360
(ii) with respect to the Capital for any Fixed Period to the
extent such Capital is not funded on the first day of such Fixed
Period through the issuance of Notes,
6
<PAGE>
AR x C x ED
360
where:
AR = the Alternate Rate for the Capital for such Fixed Period
C = the Capital during such Fixed Period
CPR = the CP Rate for the Capital for such Fixed Period
ED = the actual number of days during such Fixed Period
and (b) with respect to the interest accruing in respect of the
Purchased Interest from time to time, 6% per annum.
provided, that no provision of this Agreement shall require the payment
or permit the collection of Discount in excess of the maximum permitted
by applicable law; and provided, further, that Discount for the Capital
shall not be considered paid by any distribution to the extent that at
any time all or a portion of such distribution is rescinded or must
otherwise be returned for any reason.
"Downgrade Collateral Account" has the meaning set forth in Section
11(h).
"Eligible Agent" means an Eligible Institution whose short-term
debt is rated by each Rating Agency not lower than the respective
current ratings assigned by the Rating Agencies to the Notes.
"Eligible Assignee" means any Eligible Institution (i) whose
short-term debt is rated by each Rating Agency not lower than the
respective current ratings assigned by the Rating Agencies to the Notes
or (ii) whose short-term debt is rated lower than the respective current
ratings assigned by the Rating Agencies to the Notes, or is unrated,
provided, that a written statement is obtained by the Issuer from each
of the Rating Agencies that the rating of the Notes will not be
downgraded or withdrawn solely as a result of the assignment of rights
and obligations under this Agreement to such Eligible Institution.
7
<PAGE>
"Eligible Institution" means a commercial bank having a combined
capital and surplus of at least $250,000,000.
"Eurodollar Reserve Percentage" means, for any Fixed Period, the
maximum reserve percentage (expressed as a decimal, rounded upward to
the nearest 1/100th of 1 %) in effect on the date LIBOR for such Fixed
Period is determined under regulations issued from time to time by the
Federal Reserve Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve
requirement) with respect to "Eurocurrency" funding (currently referred
to as "Eurocurrency liabilities") having a term comparable to such Fixed
Period.
"Face Amount" means, (i) with respect to any Notes issued on a
discount basis, the face amount of any such Notes, and (ii) with respect
to any Notes issued on an interest bearing basis, the principal amount
of, plus the amount of all interest accrued and to accrue thereon to the
stated maturity date of any such Notes.
"Fixed Period" means, with respect to the Capital:
(a) initially the period commencing on the date of the purchase by
the Issuer of the Purchased Interest and ending such number of days later as
the Administrator shall select, subject to the approval of the Administrator,
up to 180 days after such date; and
(b) thereafter each period commencing on the last day of the
immediately preceding Fixed Period and ending such number of days (not to
exceed 180 days) as the Administrator shall select, provided, that
(i) any Fixed Period in respect of which Discount is computed
by reference to the Alternate Rate shall be a period from one to
and including 180 days, or a period of one, two, three or six
months;
(ii) any Fixed Period (other than of one day) which would
otherwise end on a day which is not a Business Day shall be
extended to the next succeeding Business Day; provided, however, if
Discount in respect of such Fixed Period is computed by reference
to the Eurodollar Rate, and such Fixed Period would otherwise end
on a day which is not a Business Day, and there is no subsequent
Business Day in the same calendar month as such day, such Fixed
Period shall end on the next preceding Business Day;
(iii) in the case of any Fixed Period of one day, (A) if such
Fixed Period is the initial Fixed Period,
8
<PAGE>
such Fixed Period shall be the day of purchase of the Purchased
Interest; (B) any subsequently occurring Fixed Period which is one
day shall, if the immediately preceding Fixed Period is more than
one day, be the last day of such immediately preceding Fixed
Period, and, if the immediately preceding Fixed Period is one day,
be the day next following such immediately preceding Fixed Period;
and (C) if such Fixed Period occurs on a day immediately preceding
a day which is not a Business Day, such Fixed Period shall be
extended to the next succeeding Business Day; and
(iv) in the case of any Fixed Period which commences before
the Termination Date and would otherwise end on a date occurring
after the Termination Date, such Fixed Period shall end on such
Termination Date and the duration of each Fixed Period which
commences on or after the Termination Date shall be of such
duration as shall be selected by the Administrator.
"Governmental Authority" means any nation or government, any state
or other political subdivision thereof any central bank (or similar
monetary or regulatory authority) thereof, any body or entity exercising
executive, legislative, judicial, regulatory or administrative functions
of or pertaining to government, including without limitation any court,
and any Person owned or controlled, through stock or capital ownership
or otherwise, by any of the foregoing.
"Indemnified Liabilities" has the meaning specified in Section
6(i).
"Insolvency Proceeding" means (a) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
benefit of creditors of a Person, composition, marshalling of assets for
creditors of a Person; or other similar arrangement in respect of its
creditors generally or any substantial portion of its creditors; in each
of cases (a) and (b) undertaken under U.S. Federal, state or foreign
law, including the Bankruptcy Code.
"Interest Period" means, with respect to any Liquidity Loan, the
Fixed Period for the Capital being funded or maintained by the Issuer
with the proceeds of such Liquidity Loan.
"Issuer" has the meaning set forth in the preamble.
9
<PAGE>
"LIBOR" means the rate of interest per annum determined by the
Liquidity Agent to be the arithmetic mean (rounded upward to the nearest
1/16th of 1%) of the rates of interest per annum notified to the
Liquidity Agent by each Reference Bank as the rate of interest at which
dollar deposits in the approximate amount of the Capital associated with
such Fixed Period would be offered to major banks in the London
interbank market at their request at or about 11:00 a.m. (London time)
on the second Business Day prior to the commencement of such Fixed
Period.
"Liquidity Agent" has the meaning set forth in the preamble.
"Liquidity Commitment Amount" means- with respect to each Liquidity
Lender, the amount set forth below its signature to this Agreement or in
the Assignment pursuant to which it became a Liquidity Lender, as such
amount may be reduced or terminated pursuant to Section 2(j) or modified
in connection with any subsequent Assignment pursuant to Section 9(b) or
in connection with a termination of such Liquidity Lender's Liquidity
Commitment pursuant to Section 11(h).
"Liquidity Commitment" has the meaning set forth in paragraph (3)
of the Preliminary Statements.
"Liquidity Downgrade Draw" has the meaning set forth in Section
11(h).
"Liquidity Funded Percentage" at any time means a percentage
representing the portion of the Purchased Interest in which a security
interest has been granted to secure Liquidity Loans made by the
Liquidity Lenders hereunder. The Liquidity Funded Percentage shall
initially be zero, and shall be increased in connection with each
Borrowing hereunder by a percentage determined in accordance with
Section 2(a), provided that at no time shall the Liquidity Funded
Percentage exceed 100%.
"Liquidity Lender" has the meaning set forth in the preamble.
"Liquidity Loans" has the meaning set forth in Section 2(a).
"Liquidity Termination Date" has the meaning set forth in Section
10 hereof.
"Majority Lenders" means at any time Liquidity Lenders whose
Percentages aggregate more than 50%.
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"MSFC" means Market Street Funding Corporation, a Delaware
corporation.
"Notes" means the commercial paper notes issued by the Issuer from
time to time to finance the Capital, not to exceed a term of 180 days.
"Outstanding Balance" of any Receivable at any time means the then
outstanding principal balance thereof.
"Percentage" means, with respect to each Liquidity Lender, the
percentage set forth below its signature to this Agreement or in the
Assignment pursuant to which it became a Liquidity Lender, as such
percentage may be modified in connection with any subsequent Assignment
pursuant to Section 9(b).
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a
government or any political subdivision or agency thereof.
"Placement Agent" means, at any time, any Person who has agreed to
act as a placement agent for the Notes pursuant to a commercial paper
placement agreement which is in effect at such time.
"PNC" has the meaning set forth in the preamble.
"Program Support Provider" means the Liquidity Lender.
"Program Support Agreement means and includes the Liquidity
Agreement.
"Purchased Interest" means the rights sold and assigned by the
Seller Sub to the Issuer under the Receivables Purchase Agreement.
"Purchase Limit" means $79,405,707.00 as reduced from time to time
by collections on the Purchased Interest applied as reductions of
Capital.
"Rating Agencies" means, collectively, Moody's Investors Service,
Inc. and Standard & Poor's Ratings Services, and their respective
successors that are nationally recognized rating agencies.
"Receivables Purchase Agreement" has the meaning set forth in
paragraph (1) of the Preliminary Statements.
"Register" has the meaning set forth in Section 3(a) hereof.
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"Requirements of Law" for any Person shall mean the certificate of
incorporation or articles of association and by-laws or other
organizational or governing documents of such Person, and any law,
treaty, rule or regulation, or determination of or settlement with an
arbitrator or Governmental Authority, in each case applicable to or
binding upon such Person or to which such Person is subject.
"Scheduled Payment Date" means each of July 31, 1997 and July 31,
1998, as set forth in Section 4 of the Settlement Agreement.
"Seller" has the meaning set forth in paragraph (1) of the
Preliminary Statements.
"Seller Sub" has the meaning set forth in paragraph (1) of the
Preliminary Statements.
"Settlement Agreement" means that certain General Release and
Settlement Agreement, dated December 15, 1995, as amended by Amendment
No. l to General Release and Settlement Agreement dated November 26,
1996 by and among the Seller, Envirotest Systems Corp., a Delaware
corporation, Envirotest Technologies, Inc., a Delaware corporation and
the Commonwealth of Pennsylvania including, without limitation, its
agency, the Commonwealth of Pennsylvania, Department of Transportation.
"Settlement Receivable Assets" means the right of the Seller or its
assigns to receive payment of the outstanding balance of the Base
Settlement Amount (as defined in the Settlement Agreement), together
with interest thereon accruing from (but excluding) and after the
Closing Date (as defined in the Receivables Purchase Agreement) at the
rate of six percent (6.00%) per annum, pursuant to Section 4 of the
Settlement Agreement. The Settlement Receivable Assets shall not include
(i) the sums due on December 31, 1995 and July 31, 1996 under Section 4
of the Settlement Agreement, together with accrued interest through July
31, 1996 on the unpaid balance of the Base Settlement Amount pursuant to
Section 4 of the Settlement Agreement, which the Seller has previously
received and are no longer outstanding, (ii) accrued interest from and
after July 31, 1996 to and including the Closing Date on the unpaid
balance of the Base Settlement Amount pursuant to Section 4 of the
Settlement Agreement, which shall remain the property of the Seller, or
(iii) any Settlement Amount Increase (as defined in the Settlement
Agreement) or any other amount (other than the Base Settlement Amount)
payable pursuant to the Settlement Agreement, which shall remain
property of the Seller.
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"Withholding Tax" has the meaning set forth in Section 11(g)
hereof.
(b) Unless otherwise defined herein, the terms defined in the
Receivables Purchase Agreement are used herein as therein defined.
(c) In this Agreement, in the computation of periods of time from
a specified date to a later specified date, the word "from" means "from and
including" and the words"to" and "until" each means "to but excluding."
2. Making of Liquidity Loans. (a) Each Liquidity Lender agrees,
on the terms and conditions of this Agreement, to make loans to the Issuer
(relative to each Liquidity Lender, its "Liquidity Loans"), without recourse
to the Issuer except as provided herein, in accordance with its respective
Percentage, during the period from the Business Day following the effective
date of this Agreement to and including the Liquidity Termination Date, in an
aggregate principal amount at any one time outstanding up to but not
exceeding such Lender's Liquidity Commitment. Subject to the terms and
conditions hereof, the Company may borrow, repay and reborrow Liquidity
Loans.
The Administrator shall provide notice of each Borrowing (a
"Borrowing Notice") to the Liquidity Agent no later than 1:45 P.M. (New York
City time) on the Business Day of such Borrowing and shall specify the date
of such Borrowing, the aggregate amount of such Borrowing and the calculation
of the Collateral Interest in reasonable detail. The Liquidity Agent shall
provide notice of such Borrowing no later than 2:30 P.M. (New York City time)
on the Business Day of such Borrowing which notice shall be made by telephone
calls or by facsimile to all Liquidity Lenders confirmed (if such notice is
by telephone calls) in writing sent by facsimile on the same day to all
Liquidity Lenders, and shall specify the date of such Borrowing and the
aggregate amount of such Borrowing and the calculation of the Collateral
Interest as provided by the Administrator. Such notice shall also specify the
Fixed Periods and Discount applicable to the Capital (or any applicable
Discount) being funded in connection with such Borrowing. Prior to 4:00 P.M.
(New York City time) on the date of such Borrowing, each Liquidity Lender
shall pay to the Liquidity Agent for the account of the Issuer in immediately
available funds in United States dollars, by depositing to an account
designated by the Liquidity Agent (and the Liquidity Agent shall transfer
such funds to the Commercial Paper Account prior to 4:30 P.M. (New York City
time) on such day, to the extent necessary to pay maturing Notes on such
day), an amount equal to such Liquidity Lender's Percentage of the amount of
such Borrowing, determined as set forth in the following paragraph. If on the
date of any payment of the Base Settlement Amount the Company has
insufficient funds to pay
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maturing Notes the Administrator and the Liquidity Agent shall provide
Borrowing Notices and the Liquidity Lenders shall advance funds in accordance
with the terms hereof. In the event that Moody's Investors Service, Inc.
("Moody's") lowers its long-term or short-term debt rating of the
Commonwealth of Pennsylvania below a rating of "P1," or in the event that the
Commonwealth of Pennsylvania is on review by Moody's with negative
implications, then until such time as such debt rating is at least "PI" and
the Commonwealth of Pennsylvania is no longer on review by Moody's with
negative implications, (i) the Administrator and the Liquidity Agent shall
provide Borrowing Notices to the Liquidity Lenders and the Liquidity Lenders
shall advance funds equal to the full amount of the then outstanding Notes
into the Issuer Account (established and maintained under that certain
Depositary Agreement, dated as of December 15, 1995, as amended from time to
time, between the Issuer and PNC, as depositary), and (ii) the Issuer shall
cease to issue any Notes.
In connection with each Borrowing, the Liquidity Funded Percentage
shall be increased by a percentage determined by the Administrator as the
lowest percentage which will result in an aggregate principal amount of new
Liquidity Loans (in accordance with the computation set forth below)
sufficient to permit the Issuer to fund the Capital to be funded by such
Borrowing. The amount of any Borrowing shall equal the lesser of (i) the
Capital (and any accrued and unpaid Discount thereon) being funded in
connection with such Borrowing, and (ii) the largest amount that would not
cause the aggregate unpaid principal amount of all outstanding Liquidity
Loans to exceed the aggregate of the Liquidity Commitments of all the
Liquidity Lenders.
Notwithstanding the foregoing, a Liquidity Lender shall not be
obligated to make any Liquidity Loan:
(i) to the extent that, after giving effect to such Liquidity
Loan and the application of all amounts which are received by such
Liquidity Lender on or prior to the day of such Liquidity Loan in
respect of all Liquidity Loans made by such Liquidity Lender under this
Agreement, the aggregate principal amount of its Liquidity Loans then
outstanding under this Agreement would exceed such Liquidity Lender's
Liquidity Commitment; or
(ii) if, on the date of the funding of such Liquidity Loan,
any of the following events shall have occurred: (a) a payment default
by the Commonwealth of Pennsylvania under the Settlement Agreement,
which remains uncured for 90 days; (b) the Issuer or the Commonwealth of
Pennsylvania commences any Insolvency Proceeding with respect to itself;
or (c) any involuntary Insolvency Proceeding is commenced or filed
against the Issuer, or the Commonwealth of Pennsylvania and any such
proceeding or
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petition shall not be dismissed within 60 days after commencement or
filing.
(b) As collateral security for payment in full of the unpaid
principal amount of and interest on the Liquidity Loans made or to be made by
the Liquidity Lenders hereunder, the Issuer hereby pledges to the Liquidity
Agent, for the benefit of the Liquidity Lenders, a first priority security
interest in an undivided portion, equal to the Liquidity Funded Percentage in
effect from time to time, of all of the Issuer's right, title and interest in
(whether now existing and owned by the Issuer or hereafter arising or
acquired) the Purchased Interest (the "Collateral Interest").
The Collateral Interest may constitute all or a portion of the
Purchased Interest. The Collateral Interest shall include the right to
receive (x) a portion of the distributions with respect to Capital and
Discount made to the Issuer in connection with the Purchased Interest and (y)
certain related payments, as more fully described in Sections 4(c) and 4(f)
hereof. The rights of the Liquidity Lenders to receive payment from the
Issuer of principal of the Liquidity Loans shall be limited to the Collateral
Interest, and, except to the extent of the Collateral Interest, the Liquidity
Agent and the Liquidity Lenders shall have no recourse against the Issuer for
payment of such amounts. The rights of the Liquidity Lenders to receive
payment from the Issuer of interest on the Liquidity Loans shall be limited
to such Liquidity Lenders' claims against the Issuer and the Collateral
Interest and, except to the extent of the Collateral Interest, the Liquidity
Agent and the Liquidity Lender shall have no recourse against the Issuer for
payment of such amounts. The Liquidity Agent agrees not to exercise its
rights of foreclosure with respect to the Collateral Interest until such time
as the Administrator shall have confirmed in writing to the Liquidity Agent
that the Issuer is no longer funding or maintaining its interest in the
Purchased Interest with outstanding Notes.
(c) Each Liquidity Lender's obligation hereunder shall be several,
such that the failure of any Liquidity Lender to make payment to the
Liquidity Agent in connection with any Liquidity Loan requested hereunder
shall not relieve any other Liquidity Lender of its obligation hereunder to
make its Liquidity Loan. Further, in the event any Liquidity Lender fails to
satisfy its obligation to make any Liquidity Loan as required hereunder, upon
receipt of notice of such failure from the Liquidity Agent (which the
Liquidity Agent agrees to provide), subject to the limitations provided in
Section 2(a), the non-defaulting Liquidity Lenders shall make Liquidity Loans
in an aggregate principal amount equal to the principal amount of the
Liquidity Loan that was to be made by such defaulting Liquidity Lender, pro
rata in proportion to their relative Percentages (determined
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without regard to the Percentage of the defaulting Liquidity Lender).
(d) Unless the Liquidity Agent shall have received notice from a
Liquidity Loan prior to 3:30 P.M. (New York City time) on the date of any
proposed Borrowing, that such Liquidity Lender 'will not make available to
the Liquidity Agent the amount of that Liquidity Lender's Percentage of such
Borrowing. the Liquidity Agent may assume that each Liquidity Lender has made
such amount available to the Liquidity Agent on the date of such Borrowing
and the Liquidity Agent may (but shall not be so required), in reliance upon
such assumption. make available to the Issuer on such date a corresponding
amount. If and to the client any Liquidity Lender shall not have made its
full amount available to the Liquidity Agent, and the Liquidity Agent in such
circumstances has made available to the Issuer the corresponding amount, that
Liquidity Lender shall on the next Business Day following the date of such
Borrowing make such amount available to the Liquidity Agent, together with
interest M the Federal Funds Rate for each day during such period. A
certificate of the Liquidity Agent submitted to any Liquidity Lender with
respect to amounts owing under this clause (d) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the
Liquidity Agent shall constitute a Liquidity Loan of such Liquidity Lender
and, for all purposes of this Agreement, shall deemed to have been made on
the date of such Borrowing. If such amount is not made available to the
Liquidity Agent on the next Business Day following the date of such Borrowing
(including from amounts funded by the non-defaulting Liquidity Lenders
pursuant to Section 2(c)), the Liquidity Agent shall notify the Issuer of
such failure to fund and, upon demand by the Liquidity Agent, the Issuer
shall pay such amount to the Liquidity Agent for the Liquidity Agent's
account, together with interest thereon for each day elapsed since the date
of such Borrowing, at a rate per annum equal to the Federal Funds Rate.
(e) Each Liquidity Lender's Liquidity Commitment shall be
irrevocable and, subject to the limitations provided in Section 2(a),
unconditional from the effective date of this Agreement or as set forth in
the applicable Assignment, as the case may be, until the earliest of (i) the
Liquidity Termination Date, (ii) the date on which the Liquidity Agent
notifies the Liquidity Lender that the Receivables Purchase Agreement has
been terminated, the Capital has been reduced to zero and the Discount for
the Purchased Interest has been paid in full and (iii) the date on which the
Liquidity Lender's obligation to make Liquidity Loans is terminated pursuant
to Section 11(h).
(f) Within 10 days after the first Borrowing under this Agreement,
the Liquidity Agent shall arrange for the filing of Uniform Commercial Code
financing statements, in form and substance satisfactory to the Liquidity
Agent, in all
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jurisdictions that the Liquidity Agent may deem necessary or desirable in
order to perfect the security interest of the Liquidity Agent for the benefit
of the Liquidity Lenders contemplated by this Agreement. Upon request, the
Liquidity Agent shall furnish to any Liquidity Lender copies of such
financing statements (at such Liquidity Lender's sole expense).
(g) This is a revolving loan facility. Accordingly,
notwithstanding that any Liquidity Lender may have made Liquidity Loans
hereunder for an aggregate principal amount up to such Liquidity Lender's
Liquidity Commitment, if and to the extent that such Liquidity Lender shall
thereafter have received payments in respect of the outstanding principal
amount of its Liquidity Loans pursuant to Section 4(a), such Liquidity Lender
shall, subject to the limitations provided in Section 2, and the other terms
and provisions of this Agreement, be obligated to make additional Liquidity
Loans in accordance with the provisions of Section 2(a) until the Liquidity
Termination Date in an amount equal at any time to the excess of its
Liquidity Commitment Amount over the aggregate unpaid principal amount of all
its Liquidity Loans then outstanding.
(h) The Issuer shall pay to the Liquidity Agent for the account of
each Liquidity Lender a commitment fee of .10% per annum on 102% of the Face
Amount of outstanding Notes issued to finance the Purchased Interest,
computed on an annual basis in arrears, on (i) July 31, 1997 for the period
from the Closing Date until July 31, 1997 and (ii) each July 31 (or, if such
day is not a Business Day, the next subsequent Business Day) thereafter
through the term of this Agreement and (iii) on the Liquidity Termination
Date based upon the daily utilization since the previous July 31 on which
such a payment was made, as calculated by the Liquidity Agent.
(i) The Issuer shall use the proceeds of the Liquidity Loans
solely (x) to repay Notes, or to make provision for the payment of unmatured
Notes (and any unsecured indebtedness constituting discretionary advances
owed by the Issuer to the Administrator incurred to repay Notes), (y) to fund
the Purchased Interest, and (z) to repay any advances outstanding under any
other liquidity facility which were used for the purposes described in
clauses x) and/or (y) of this Section 2(i). Any proceeds of Liquidity Loans
that are to be used to repay Notes that have not then matured shall be
invested by the Administrator for the account of the Issuer in investments
permitted pursuant to the documents governing the Issuer's securitization
program.
(j) The Issuer shall have the right, upon not less than one
Business Day's notice to the Liquidity Agent (with a copy to the
Administrator), to terminate in whole or reduce ratably in part the unused
portion of the Liquidity Commitment Amounts; provided, that no such reduction
or termination shall be
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permitted if, (i) after giving effect thereto and to any prepayments of the
Liquidity Loans made on the effective date thereof, the then outstanding
principal amount of all Liquidity Loans of all Liquidity Lenders would exceed
the aggregate amount of the Liquidity Commitment of all Liquidity Lenders
then in effect or (ii) if after giving effect to such reduction or
termination the aggregate Liquidity Commitment Amounts of the Liquidity
Lenders would be less than the outstanding Capital of the Purchased Interest
together with Discount accrued or to accrue thereon during the current Fixed
Periods provided that, after giving effect to any such reduction the
aggregate of such Liquidity Commitment Amounts hereunder shall at least equal
the Purchase Limit multiplied by 1.02. All accrued commitment fees to, but
not including, the effective date of any reduction or termination of the
Liquidity Commitments, shall be paid on the effective date of such reduction
or termination.
(k) Any Lender may, if it so elects, fulfill its obligations to
make or continue Liquidity Loans hereunder by causing one of its branches,
agencies or Affiliates to make or maintain such Liquidity Loan; provided,
however, that such election shall not relieve such Liquidity Lender of its
obligation to make and continue Liquidity Loans hereunder; and provided,
further, that such Liquidity Loan shall nonetheless be deemed to have been
made and to be held by such Liquidity Lender, and the obligation of the
Issuer to repay such Liquidity Loan shall nevertheless be to such Liquidity
Lender for the account of such branch, agency or Affiliate.
3. Register; Information Regarding Liquidity Lenders.
(a) The Liquidity Agent will maintain, at its address set forth on
the signature page hereof, a copy of this Agreement and all counterpart
signature pages hereto, each Assignment delivered to and accepted by it, each
notice of revision to the allocation of each Liquidity Lender's Liquidity
Commitment Amount and a register (the "Register") for the recordation of the
names and addresses of the Liquidity Lenders, their respective Percentages
and effective dates, and the Liquidity Termination Date, and the aggregate
outstanding Capital ended by Liquidity Loans and the aggregate unpaid
principal amount of the Liquidity Loans of each Liquidity Lender from time to
time outstanding. The entries in the Register shall be conclusive and binding
for all purposes absent manifest error, and the Liquidity Agent, the Issuer,
the Administrator and the Liquidity Lenders may treat each Person whose name
is recorded in the Register as a Liquidity Lender hereunder for all purposes
of this Agreement. The Register shall be available for inspection by the
Administrator or any Liquidity Lender at any reasonable time and from time to
time upon reasonable prior notice.
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(b) Each Liquidity Lender acknowledges that, in connection with
the sale of the Notes, certain documents containing information relating to
the Liquidity Lenders may be prepared and distributed to purchasers or
prospective purchasers of the Notes. To provide the basis for the preparation
of such documents and to assist the Placement Agents in their normal credit
review procedures, each Liquidity Lender agrees to provide the Administrator
and the Liquidity Agent (and through the Administrator, the Placement Agents)
with the following documents, promptly upon request therefor by the
Administrator: (i) such Liquidity Lender's quarterly and fiscal-year-end
financial statements for its last three years, and (ii) such Liquidity
Lender's publicly available quarterly and fiscal-year-end financial
statements for any fiscal year ending during the term of this Agreement. In
addition, each Liquidity Lender agrees to provide to the Administrator and
Liquidity Agent any other information that the Administrator or Liquidity
Agent reasonably requests for the purpose of the ongoing review of the Issuer
and such Liquidity Lender.
4. Distribution of Payments.
(a) The Issuer shall repay the principal amount of each Loan from
distributions of amounts received in respect of the Capital in accordance
with Section 4(c). The Issuer shall also pay interest on the principal amount
of each Liquidity Loan from time to time outstanding, at the Alternate Rate
on the principal amount of such Liquidity Loan. The Issuer shall repay all
the Liquidity Loans and accrued interest thereon on July 31, 1998 or such
later date on which the Purchase Limit is reduced to zero; provided, however,
that recourse for repayment of such amounts shall be limited to the
Collateral Interest.
(b) The Issuer may on any Business Day prepay the outstanding
principal amount of any or all of the Loans in whole or ratably in part,
together with accrued interest to the date of such prepayment on the
principal amount prepaid and all other payments payable in respect thereof
pursuant to this Agreement.
(c) Whenever any payment in respect of Capital or Discount is
remitted to the Issuer in connection with the Purchased Interest (including
payments made by the Seller on account of deemed collections, which will
include any indemnity payments made by the Seller to the Liquidity Agent the
Issuer or MSFC pursuant to Article VIII of the Receivables Sale Agreement
with respect to any amounts set-off by the Commonwealth against the
Settlement Receivable Assets) at any time when any portion of the principal
amount of or accrued interest on any Liquidity Loans hereunder remains
unpaid, (1) the Administrator shall promptly pay, or cause to be paid, to the
Liquidity Agent an amount equal to the sum of (i) the lesser of (x) the
amount of such payment in respect of Capital times the Liquidity Funded
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Percentage, expressed as a decimal, and (y) the aggregate unpaid principal
amount of Liquidity Loans hereunder, plus (ii) the lesser of (x) the portion
of such payment representing the Discount on the Capital funded by Liquidity
Loans and (y) the amount of accrued interest on the Liquidity Loans, and (2)
the Liquidity Agent shall promptly pay, or cause to be paid, out of such
funds received by it, to each Liquidity Lender its Percentage of such amount;
provided, however, that each Liquidity Lender shall be entitled to interest
only from payments in respect of Discount which accrued from and after the
date it made a Liquidity Loan relating to such Purchased Interest or if any
Discount was included in the amount of such Liquidity Loan.
(d) If, after the Liquidity Agent has paid a Liquidity Lender its
Percentage of any such amount pursuant to subsection (a) above, all or any
portion of such amount must be returned for any reason (including any
Insolvency Proceeding), such Liquidity Lender will repay to the Liquidity
Agent promptly the amount the Liquidity Agent paid to such Liquidity Lender
and required to be returned, together with such Liquidity Lender's Percentage
of any related interest and penalties required to be paid by the Liquidity
Agent in connection with such repayment.
(e) After the outstanding principal amount of all Liquidity Loans
and accrued interest thereon and all other amounts owing hereunder to the
Liquidity Lender has been paid to the Liquidity Lenders (excluding any
repayment referred to in subsection (d) above), each Liquidity Lender
acknowledges and agrees that any remaining amounts paid in respect of Capital
or Discount shall be paid to or retained by the Issuer for its own account.
(f) (i) If the Liquidity Agent or any Liquidity Lender shall have
determined that the adoption or the implementation of, or any change in, any
applicable law, rule, treaty, regulation, policy, guideline, request or
directive, or any change in the interpretation or administration thereof by
any governmental authority charged with the interpretation or administration
thereof (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) occurring after the date
hereof, or the compliance by the Liquidity Agent or any Liquidity Lender (or
any lending office of the Liquidity Agent or any Liquidity Lender) with any
request or directive of any such Governmental Authority (whether or not
having the force of law and whether or not the failure to comply therewith
would be unlawful), or the implementation of any change in any accounting
principles applicable to the Liquidity Agent or any Liquidity Lender required
by any governmental authority, shall (i) change the basis of taxation of
payment to the Liquidity Agent or any Liquidity Lender of any amounts payable
to the Liquidity Agent or any Liquidity Lender hereunder, (ii) impose, modify
or deem applicable any reserve, special deposit or similar
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requirement against assets of or held by, deposits with or for the account
of, credit extended by, or commitments made by, the Liquidity Agent or any
Liquidity Lender in connection with payments by the Liquidity Agent or any
Liquidity Lender hereunder, or (iii) impose on the Liquidity Agent or any
Liquidity Lender any other condition regarding this Agreement, and the result
of any event referred to in clause (i), (ii) or (iii) above shall be to
increase the cost to the Liquidity Agent or any Liquidity Lender of making
any payment or maintaining its commitments hereunder, or to reduce the amount
of any sum received or receivable by the Liquidity Agent or any Liquidity
Lender hereunder (whether of principal, interest or otherwise) in respect
thereof, by an amount deemed by the Liquidity Agent to be material (which
increase in cost or reduction in amount shall be determined by the Liquidity
Agent's reasonable allocation of the aggregate of such increased costs or
reductions in amount resulting from such events), then and in any such case,
(x) the Liquidity Agent shall promptly notify the Seller in writing of the
happening of such event; (y) the Liquidity Agent shall promptly deliver to
the Seller a certificate stating the event which has occurred or the reserve
requirements or other conditions which have been imposed on the Liquidity
Agent or any Liquidity Lender, together with the date thereof, the amount of
such increased costs or reductions, and the way in which such amount has been
calculated; and (z) the Seller shall pay to the Liquidity Agent and each
Liquidity Lender, within 15 days after delivery of the certificate referred
to in clause (y) above, such amount or amounts as will compensate the
Liquidity Agent and each Liquidity Lender for such increased costs or
reductions in amount.
(ii) If the Liquidity Agent shall have determined (through its own
means or through notice received by it from a Liquidity Lender) that the
adoption of any capital guideline, or any change in any applicable capital
guideline, or any change in the interpretation or administration of any
capital guideline by any governmental authority charged with the
interpretation or administration thereof (whether or not having the force of
law and whether or not the failure to comply therewith would be unlawful)
occurring after the date hereof, or the compliance by the Liquidity Agent or
any Liquidity Lender (or any lending office of the Liquidity Agent or any
Liquidity Lender) with any request or directive (whether or not having the
force of law and whether or not the failure to comply therewith would be
unlawful) of any such Governmental Authority, or with any capital guideline,
or the implementation of any change in any accounting principles applicable
to the Liquidity Agent or any Liquidity Lender required by generally accepted
accounting principles, or by any governmental authority, either (i) increases
the amount of capital required to be maintained by the Liquidity Agent or any
Liquidity Lender as a direct or indirect consequence of its commitments
hereunder, or (ii) reduces the rate of return on the
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Liquidity Agent's or any Liquidity Lender's capital as a direct or indirect
consequence of its commitments hereunder at a level below that which the
Liquidity Agent or such Liquidity Lender could have achieved but for such
capital guideline, implementation, change or compliance (taking into
consideration the Liquidity Agent's and each such Liquidity Lender's policies
with respect to capital adequacy), by an amount deemed by the Liquidity Agent
or such Liquidity Lender to be material, then and in any such case, (x) the
Liquidity Agent shall promptly notify the Seller in writing of the happening
of such event; (y) the Liquidity Agent shall promptly deliver to the Seller a
certificate stating the event which has occurred, together with the date
thereof, the amount of such increased capital or reduction in the rate of
return on the Liquidity Agent's and each such Liquidity Lender's capital, and
the way in which such amount has been calculated: and (z) the Seller shall
pay to the Liquidity Agent, within 15 days after delivery of the certificate
referred to in clause (y) above, such amount or amounts as will compensate
the Liquidity Agent and each such Liquidity Lender for the cost of
maintaining such increased capital or reduction in the rate of return on the
Liquidity Agent's and each such Liquidity Lender's capital.
(iii) All payments under this paragraph (f) shall bear interest
thereon at the Base Rate for each day after such payments fall due in
accordance with the provisions hereof until payment in full. A certificate
delivered by the Liquidity Agent as to the additional amounts payable
pursuant to this paragraph (f) shall, in the absence of manifest error, be
conclusive evidence of the amount thereof.
The Liquidity Agent and each Liquidity Lender shall also, to the
extent related to the portion of the Collateral Interest securing such
Liquidity Lender's Liquidity Loans, be entitled to the costs and expenses of
the enforcement of the Seller's obligations hereunder.
(g) If any Liquidity Lender shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Liquidity Loans made by it (other than any
payment of a type described in subsection (f) above and any repayment in
accordance with Section 10(b) of Liquidity Loans made by a non-renewing
Liquidity Lender pursuant to such Section 10(b)) in excess of its ratable
share of payments on account of the Liquidity Loans obtained by all the
Liquidity Lenders, such Liquidity Lender shall forthwith (i) notify the
Liquidity Agent (who shall promptly thereafter notify each of the other
Liquidity Lenders) of such receipt and (ii) purchase from the other Liquidity
Lenders, such participation in Liquidity Loans made by them as shall be
necessary to cause such purchasing Liquidity Lender to share the excess
payment ratably with each of them; provided, however, that, if all or any
portion
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of such excess payment is thereafter recovered from such purchasing Liquidity
Lender, such purchase from each Liquidity Lender shall be rescinded and such
Liquidity Lender shall repay to the purchasing Liquidity Lender the purchase
price to the extent of such recovery together with an amount equal to such
Liquidity Lender's ratable share (according to the proportion of (i) the
amount of such Liquidity Lender's required repayment to (ii) the total amount
so recovered from the purchasing Liquidity Lender) of any interest or other
amount paid or payable by the purchasing Liquidity Lender in respect of the
total amount so recovered. The Issuer agrees that any Liquidity Lender so
purchasing a participation from another Liquidity Lender pursuant to this
Section 4(g) may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Liquidity Lender were the direct creditor
of the Issuer in the amount of such participation.
5. Representations and Warranties. (a) None of the Liquidity
Agent, the Administrator or the Issuer makes any representation or warranty
or assumes any responsibility with respect to:
(i) any statements, warranties or representations made in or
in connection with the Receivables Purchase Agreement or the execution,
legality, validity, enforceability, genuineness or sufficiency of the
Receivables Purchase Agreement or any instrument or document furnished
pursuant thereto;
(ii) the value or collectibility of the Purchased Interest;
(iii) the financial condition of the Seller Sub or the ability
of the Seller Sub to perform its obligations under, or the performance
or observance by the Seller Sub of any of its obligations under, the
Receivables Purchase Agreement or any instrument or document furnished
pursuant thereto; or
(iv) the financial condition of the Seller or the ability of
the Seller to perform its obligations under the Receivables Sale
Agreement or any instrument or document furnished pursuant thereto.
(b) The Issuer represents and warrants that:
(i) the Issuer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware,
and is duly qualified to do business and is in good standing in every
jurisdiction where the nature of its business requires it to be so
qualified, except where
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the failure to so qualify would not have a material adverse effect on
its business, condition or operations;
(ii) the execution, delivery and performance by the Issuer of
this Agreement are within the Issuer's corporate powers, have been duly
authorized by all necessary corporate action, and do not contravene (A)
the Issuer's charter or by-laws, (B) any law, rule or regulation
applicable to the Issuer, (C) any contractual restriction binding on the
Issuer or its property or, to the best knowledge of the Issuer,
affecting the Issuer or its property or (D) any order, writ, judgment
award, injunction or decree binding on the Issuer or its property or, to
the best knowledge of the Issuer, affecting the Issuer or its property;
(iii) there is no pending or, to the best knowledge of the
Issuer, threatened action or proceeding affecting the Issuer before any
court, governmental agency or arbitrator which may materially adversely
affect the financial condition or operations of the Issuer or the
ability of the Issuer to perform its obligations under this Agreement,
or which purports to affect the legality, validity or enforceability of
this Agreement;
(iv) no consent of any other Person (including, without
limitation, stockholders or creditors of the Issuer), and no consent,
license, permit, approval or authorization of, exemption by, notice or
report to, or registration, filing or declaration with any governmental
authority, is required in connection with the execution, delivery,
performance, validity or enforceability of this Agreement by or against
the Issuer, except for the filing of Uniform Commercial Code financing
statements as contemplated by Section 2(f);
(v) this Agreement has been duly executed and delivered on
behalf of the Issuer; and
(vi) this Agreement constitutes a legal, valid and binding
obligation of the Issuer enforceable against the Issuer in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by general
principles of equity.
(c) Each Liquidity Lender represents and warrants that:
(i) it is an Eligible Institution duly incorporated or
organized, validly existing and in good
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standing under the laws of its jurisdiction of incorporation or
organization;
(ii) the execution, delivery and performance by it of this
Agreement are within its corporate powers, have been duly authorized by
all necessary corporate action, and do not contravene (A) its charter,
by-laws, or other organizational documents, or (B) any law, rule or
regulation applicable to it (including, without limitation, any such
law, rule or regulation regarding per-customer lending limits);
(iii) no consent, license, permit, approval or authorization
of, or registration, filing or declaration with any governmental
authority, is required in connection with the execution, delivery,
performance, validity or enforceability of this Agreement by or against
it;
(iv) this Agreement has been duly executed and delivered by
it; and
(v) this Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
receivership, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally or by general principles of
equity.
(d) Each Liquidity Lender confirms that such Liquidity Lender has
received such documents and information as such Liquidity Lender has deemed
appropriate to make its own credit analysis and decision independently and
without reliance on the Liquidity Agent, the Administrator or the Issuer, to
enter into this Agreement and will, independently and without reliance on
PNC, the Liquidity Agent, the Administrator or the Issuer and based on such
documents and information as such Liquidity Lender shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action hereunder. The Administrator shall furnish to the Liquidity Agent, and
the Liquidity Agent shall thereafter furnish to each Liquidity Lender, copies
of any financial or other documents that the Administrator receives from time
to time in connection with the Receivables Purchase Agreement, but neither
the Administrator nor the Liquidity Agent assumes any responsibility for the
authenticity, validity, accuracy or completeness thereof.
6. The Liquidity Agent and the Administrator. (a) Each Liquidity
Lender hereby irrevocably appoints, designates and authorizes the Liquidity
Agent to take such action on its behalf under the provisions of this
Agreement and the Receivables Purchase Agreement and to exercise such powers
and perform such
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duties as are expressly delegated to it by the terms of this Agreement or the
Receivables Purchase Agreement, together with such powers as are reasonably
incidental thereto. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or in the Receivables Purchase Agreement, the
Liquidity Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Liquidity Agent have or be deemed
to have any fiduciary relationship with any Liquidity Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or the Receivables Purchase Agreement or
otherwise exist against the Liquidity Agent.
(b) The Liquidity Agent may execute any of its duties under this
Agreement or the Receivables Purchase Agreement by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Liquidity Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
(c) None of the Liquidity Agent, the Administrator or any of their
respective Affiliates or any of the officers, directors, employees, agents or
attorneys-in-fact of the Liquidity Agent, the Administrator or any of their
respective Affiliates (each, an "Agent-Related Person") shall (i) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or the Receivables Purchase Agreement or the
transactions contemplated hereby or thereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to
any of the Liquidity Lenders for any recital, statement, representation or
warranty made by the Issuer or any Affiliate of the Issuer, or any officer
thereof, contained in this Agreement or in the Receivable Purchase Agreement,
or in any certificate, report, statement or other document referred to or
provided for in, or received by the Liquidity Agent or the Administrator
under or in connection with, this Agreement or the Receivables Purchase
Agreement, or for the value of or title to the Purchased Interest, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or the Receivables Purchase Agreement, or for any failure of the
Issuer or any other party to the Receivables Purchase Agreement to perform
its obligations hereunder or thereunder. No Agent-Related Person shall be
under any obligation to any Liquidity Lender to ascertain or to inquire as to
the observance or performance of any of the agreements contained -in, or
conditions of, this Agreement or the Receivables Purchase Agreement, or to
inspect the properties, books or records of the Issuer or any of the Issuer's
Affiliates.
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(d) The Liquidity Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel (including
counsel to the Issuer), independent accountants and other experts selected by
the Liquidity Agent. The Liquidity Agent shall be fully justified in failing
or refusing to take any action under this Agreement or the Receivables
Purchase Agreement, unless it shall first receive such advice or concurrence
of the Majority Lenders as it deems appropriate and, if it so requests, it
shall first be indemnified to its satisfaction by the Liquidity Lenders
against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Liquidity Agent
shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or the Receivables Purchase Agreement in
accordance with a request or consent of the Majority Lenders and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all of the Liquidity Lenders.
(e) The Liquidity Agent shall not be deemed to have knowledge or
notice of the occurrence of any Termination Event, unless the Liquidity Agent
shall have received written notice from a Liquidity Lender or the Issuer
referring to this Agreement, describing such Termination Event and stating
that such notice is a "Notice of Termination Event."
(f) Each Liquidity Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by the Liquidity Agent hereinafter taken, including any review of the
affairs of the Issuer, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Liquidity Lender. Each Liquidity
Lender represents to the Liquidity Agent that it has, independently and
without reliance upon any Agent-Related Person and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, prospects, operations, property, financial
and other condition and credit-worthiness of the Issuer, the value of and
title to the Purchased Interest, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own decision
to enter into this Agreement and to extend its Liquidity Commitment to the
Issuer hereunder. Each Liquidity Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and to make such investigations as
it
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deems necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of the Issuer.
Except for notices, reports and other documents expressly herein required to
be furnished to the Liquidity Lenders by the Liquidity Agent, the Liquidity
Agent shall not have any duty or responsibility to provide any Liquidity
Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Issuer which may come into the possession of any of
the Agent-Related Persons.
(g) None of the Liquidity Agent, the Administrator or the Issuer
shall be liable to any Liquidity Lender in connection with (x) the
administration of the Receivables Purchase Agreement or (y) this Agreement or
any Borrowings hereunder (except in the case of the Issuer, pursuant to the
Issuer's representations in Section 5(b) hereof)), in either case, except for
its own gross negligence or willful misconduct. Without limiting the
foregoing, the Liquidity Agent, the Administrator and the Issuer:
(i) may consult with legal counsel (including counsel for the
Seller), independent public accountants or other experts and shall not
be liable for any action taken or omitted to be taken in good faith in
accordance with the advice of such counsel, accountants or other
experts:
(ii) shall not be responsible for the performance or
observance by the Seller Sub of any of the terms, covenants or
conditions of the Receivables Purchase Agreement or any instrument or
document furnished pursuant thereto;
(iii) shall incur no liability by acting upon any notice,
consent, certificate or other instrument or writing, or any other
communication believed to be genuine and signed, sent or made by the
proper party; and
(iv) shall not be deemed to be acting as any Liquidity
Lender's trustee or otherwise in a fiduciary capacity hereunder or under
or in connection with the Receivables Purchase Agreement or the
Purchased Interest.
(h) The Liquidity Agent shall be fully justified in failing or
refusing to take any action that is discretionary under this Agreement, the
Receivables Purchase Agreement or any other agreement related thereto unless
it shall first receive such advice or concurrence of the Majority Liquidity
Lenders as it deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by the Liquidity Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Liquidity Agent shall in all cases be
fully protected in acting,
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or in refraining from acting, under this Agreement, the Receivables Purchase
Agreement or any other agreement in accordance with a request or consent of
the Majority Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Liquidity Lenders.
(i) Whether or not the transactions contemplated hereby shall
be consummated, the Liquidity Lenders shall indemnify upon demand the
Agent-Related Persons ratably from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, charges, expenses and disbursements (including Attorney Costs) of
any kind or nature whatsoever with respect to the execution, delivery,
enforcement, performance and administration of this Agreement, the
Receivables Purchase Agreement or any document contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby, and with respect to any investigation, litigation or proceeding
(including any insolvency proceeding or appellate proceeding) related to
this Agreement, the borrowing of Liquidity Loans or the use of the
proceeds thereof, whether or not any Agent-Related Person is a party
thereto (all of the foregoing, collectively, the "Indemnified
Liabilities"); provided, however, that no Liquidity Lender shall be
liable for the payment to the Agent-Related Persons of any portion of
such Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the foregoing,
each Liquidity Lender shall reimburse the Liquidity Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by the Liquidity Agent in connection with the
preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, the Receivables Purchase
Agreement or any document contemplated by or referred to herein to the
extent that the Liquidity Agent is not reimbursed for such expenses by
or on behalf of the Issuer. The agreements in this subsection (i) shall
survive termination of this Agreement, the repayment of all Liquidity
Loans and payment of all other obligations hereunder.
(j) PNC and its Affiliates may make loans to, issue letters of
credit for the account of, accept deposits from, acquire equity
interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Issuer, the
Seller, the Seller Sub and their respective Affiliates as though PNC
were not the Liquidity Agent hereunder and without notice to or consent
of the Liquidity Lenders. The Liquidity Lenders
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<PAGE>
acknowledge that, pursuant to such activities, PNC or its Affiliates may
receive information regarding the Issuer, the Seller, the Seller Sub or
their respective Affiliates (including information that may be subject
to confidentiality obligations in favor of the Issuer, the Seller, the
Seller Sub or such Affiliate) and acknowledge that the Liquidity Agent
shall be under no obligation to provide such information to them. With
respect to its purchases, PNC shall have the same rights and powers
under this Agreement as any other Liquidity Lender and may exercise the
same as though it were not the Liquidity Agent, and the terms "Liquidity
Lender" and "Liquidity Lenders" include PNC in its individual capacity.
(k) The Liquidity Agent may resign at any time by giving 30
days' prior written notice thereof to the Liquidity Lenders, the
Administrator and the Issuer. The Liquidity Agent may be removed at any
time by the affirmative vote of the Majority Lenders upon 30 days' prior
written notice thereof to the Liquidity Agent, the Administrator and the
Issuer if the Liquidity Agent shall have engaged in willful misconduct
or shall have been grossly negligent in the performance of its duties as
Liquidity Agent. Such resignation or removal shall become effective upon
the acceptance of appointment by a successor Liquidity Agent as set
forth below. The Majority Lenders shall have the right to appoint a
successor Liquidity Agent, which shall be an Eligible Agent; provided,
that the Issuer shall have the right to approve the successor Liquidity
Agent, such approval not to be unreasonably withheld. If no successor
Liquidity Agent shall have been so appointed by the Majority Lenders and
approved by the Issuer, and shall have accepted such appointment, within
30 days after the prior Liquidity Agent's giving of notice of
resignation or the Majority Liquidity Lenders' removal of the prior
Liquidity Agent, then the prior Liquidity Agent may, on behalf of the
Liquidity Lenders, appoint a successor Liquidity Agent, which shall be
an Eligible Agent. In the event the Liquidity Agent ceases to be an
Eligible Agent, the Administrator shall appoint an Eligible Agent to
succeed such existing Liquidity Agent. Upon the acceptance of any
appointment as Liquidity Agent hereunder by a successor Liquidity Agent,
such successor Liquidity Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the prior
Liquidity Agent, and the prior Liquidity Agent shall be discharged from
its duties and obligations under this Agreement. After any Liquidity
Agent's resignation or removal hereunder as Liquidity Agent, the
provisions of this Section 6 and Section 11 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was
Liquidity Agent under this Agreement. If no successor agent has
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accepted appointment as Liquidity Agent by the date which is 30 days
following a retiring Liquidity Agent's notice of resignation, the
retiring Liquidity Agent's resignation shall nevertheless thereupon
become effective and the Liquidity Lenders shall perform all of the
duties of the Liquidity Agent hereunder until such time, if any, as the
Majority Liquidity Lenders appoint a successor agent as provided for
above. The Issuer (or the Administrator on its behalf) shall promptly
notify each Rating Agency and the Placement Agents of its receipt of any
such notice from the Majority Lenders or the Liquidity Agent with
respect to such resignation or removal of the Liquidity Agent.
7. Rights of the Issuer and the Administrator. The Issuer (or the
Administrator on behalf of the Issuer) shall retain the exclusive right, in
its sole discretion (subject to the next sentence) to exercise any rights and
remedies available under the Receivables Purchase Agreement or pursuant to
applicable law, including the right to approve any amendment, modification or
waiver of the Receivables Purchase Agreement or any instrument or document
delivered pursuant thereto. Notwithstanding the foregoing, the Issuer agrees
that it shall not (and the Administrator agrees that it shall not, on behalf
of the Issuer) without the prior written consent of all Liquidity Lenders,
amend, modify or waive any provision of the Receivables Purchase Agreement
which would:
(i) reduce the amount of Capital or Discount that is payable
on account of the Purchased Interest or delay any scheduled date for
payment thereof; or
(ii) modify any yield protection or indemnity provision which
expressly inures to the benefit of assignees or participants of the
Issuer.
The Issuer (or the Administrator on behalf of the Issuer) agrees to
provide to the Liquidity Agent and the Liquidity Agent agrees to provide to
the Liquidity Lenders notice of any amendment of or waiver or consent in
connection with the Receivables Purchase Agreement promptly after the
effectiveness of the same.
8. Obligations of the Liquidity Lenders, Including
Confidentiality. Each Liquidity Lender agrees to abide by any obligations set
forth in the Receivables Purchase Agreement on the part of an owner of the
Purchased Interest, including without limitation any obligations to maintain
confidentiality. Furthermore, each Liquidity Lender understands that the
Receivables Purchase Agreement itself is a confidential document and such
Liquidity Lender agrees that it will not disclose it to any other Person
except (a) with the Administrator's prior written consent, (b) to such
Liquidity Lender's legal counsel or
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auditors if such counsel or auditors agree to hold it confidential, (c) to
any regulatory authority having jurisdiction over such Liquidity Lender or
(d) as required by law or any court of law in connection with any litigation.
Notwithstanding the foregoing, any Liquidity Lender may, in connection with
any assignment or proposed assignment pursuant to Section 9 hereof, disclose
to the assignee or proposed assignee the Receivables Purchase Agreement or
any information relating to the Seller furnished to such Liquidity Lender by
or on behalf of the Seller or by the Liquidity Agent or the Administrator;
provided, that prior to any such disclosure, the assignee or proposed
assignee agrees to preserve the confidentiality of any confidential
information (including the Receivables Purchase Agreement) relating to the
Seller Sub or the Receivables Purchase Agreement received by it from any of
the foregoing entities. The agreements in this Section 8 shall survive
termination of the Agreement and payment of all obligations hereunder.
9. Assignability and Purchase Limit. (a) A Person (other than
PNC) shall become a party hereto and shall become a Liquidity Lender
hereunder upon satisfaction of the conditions set forth in Section 9(b),
acceptance and recording of an Assignment by the Liquidity Agent in the
Register and the occurrence of the effective date of such Liquidity
Commitment (as set forth in such Assignment) and subject to the approval of
such Liquidity Lender by the Liquidity Agent and, if required by the
Receivables Purchase Agreement, the Seller.
(b) Each Liquidity Lender may assign to any Eligible Assignee all
or a portion of its rights and obligations under this Agreement: provided,
however, that:
(i) each such assignment shall be of a constant, and not a
varying, percentage of the aggregate rights and obligations of the
assigning Liquidity Lender under this Agreement (including, without
limitation, its Liquidity Commitment and Liquidity Loans),
(ii) the amount of the assigning Liquidity Commitment being
assigned pursuant to such assignment shall in no event be less than
$20,000,000.00 and shall be in an integral multiple of $10,000,000.00,
and, unless such assigning Liquidity Lender is assigning its entire
Liquidity Commitment, such assigning Liquidity Lender's retained
Liquidity Commitment after giving effect to such assignment shall in no
event be less than $20,000,000.00,
(iii) the parties to each such assignment shall execute and
deliver an Assignment to the Liquidity Agent, for its acceptance and
recording in the Register, and
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(iv) the assignee shall deliver to the Liquidity Agent (A) not
later than the effective date specified in the Assignment, an
enforceability opinion of counsel for such assignee, addressed to the
Liquidity Agent, the Administrator, the Issuer and each Rating Agency
(and a copy of which may be given to each Placement Agent), in form and
substance reasonably satisfactory to such addressees (and the Liquidity
Agent shall promptly deliver copies of the same to each of such
addressees), and (B) at least five days prior to the effective date
specified in the applicable Assignment, the information and financial
statements, if any, regarding such assignee described in Section 3(b)(i)
hereof and requested to be delivered by the Administrator.
Upon such execution, delivery, acceptance and recording, from and
after the effective date specified in the Assignment, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to this Agreement,
have the rights and obligations of a Liquidity Lender hereunder and (y) the
Liquidity Lender which is the assignor thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to this
Agreement, relinquish its rights (other than the right to receive payments
which accrued in favor of such Liquidity Lender pursuant to Section 4(d)
hereof prior to such assignment) and be released from its obligations under
this Agreement (and, if such Assignment provides for an assignment of all
such assigning Liquidity Lender's Liquidity Commitment, such Liquidity Lender
shall cease to be a party hereto).
(c) Upon receipt by the Liquidity Agent of an Assignment executed
by an assigning Liquidity Lender and by an assignee who is an Eligible
Assignee and the satisfaction of the other conditions set forth in Sections
9(a) and (Lb, the Liquidity Agent shall (i) accept such Assignment, (ii)
record the information contained therein in the Register and (iii) give
prompt notice thereof to the Administrator, the Issuer, the Seller and each
Rating Agency. The assigning Liquidity Lender shall pay to the Liquidity
Agent an assigning fee equal to $2,500 for each assignment hereunder.
(d) The Liquidity Agent, the Administrator and the Liquidity
Lenders acknowledge and agree that the Issuer shall be entitled to assign its
rights, title, interests and obligations under this Agreement to MSFC. All
references to the Issuer in this Agreement shall be deemed to include such
assignee to the extent of such assignment.
(e) If the Purchase Limit shall be reduced, the Percentage of each
Liquidity Lender shall remain the same and each Liquidity Lender's Liquidity
Commitment Amount shall be deemed to be proportionately reduced; provided,
however, that no
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such reduction shall be effective unless and until such time as the
outstanding Capital of the Purchased Interest together with Discount accrued
and to accrue thereon during the current Fixed Periods are less than or equal
to the aggregate of the Liquidity Commitment Amounts of all Liquidity Lenders
as so reduced.
10. Liquidity Termination Date: Extension of Liquidity Termination
Date. (a) Subject to earlier termination of a Liquidity Commitment pursuant
to Section 2(e) or Section 11(h) hereof, the Liquidity Lenders' Liquidity
Commitments under this Agreement shall expire at the close of business on
November _____, 1997 (such date being the "Liquidity Termination Date"). If
at any time the Issuer requests that the Liquidity Lenders renew their
Liquidity Commitments hereunder and less than all the Liquidity Lenders
consent to such renewal within 30 days of the Issuer's request, the Issuer
may arrange for an assignment to one or more Eligible Assignees of all the
rights and obligations hereunder of each such nonconsenting Liquidity Lender
in accordance with Section 9. Any such assignment shall become effective on
the then current Liquidity Termination Date. Each Liquidity Lender agrees
that if it does not so consent to any such renewal, it shall cooperate fully
with the Issuer in effectuating any such assignment. The Liquidity Agent will
provide written notice to the Liquidity Lenders of any proposed modifications
to this Agreement requested in connection with any renewal hereof and the
Liquidity Lenders shall each have the right to elect not to renew this
Agreement in light of such modifications.
(b) If at any time the Issuer requests that the Liquidity Lenders
renew their Liquidity Commitments hereunder and less than all the Liquidity
Lenders consent to such renewal within 30 days of the Issuer's request, and
if none or less than all the Liquidity Commitments of the nonrenewing
Liquidity Lenders are assigned to one or more Eligible Assignees as provided
in subsection (a), then (without limiting the Issuer's right to borrow
Liquidity Loans at any time prior to the Liquidity Commitment Termination
Date in accordance with the terms hereof) the Issuer may borrow Liquidity
Loans hereunder in an amount equal to the least of (i) the maximum amount of
Liquidity Loans that 'it could borrow at that time under Section 2(a), (ii)
the aggregate Liquidity Commitments of the nonrenewing Liquidity Lenders and
(iii) the excess, if any, of (A) the Face Amount of Notes issued to fund the
Purchased Interest over (B) the aggregate Liquidity Commitments other than
those of the nonrenewing Lenders, which Liquidity Loans shall be made solely
by the nonrenewing Liquidity Lenders, pro rata according to their respective
Liquidity Commitments. Following the making of such Liquidity Loans, this
Agreement and the Liquidity Commitments of the renewing Liquidity Lenders
shall remain in effect in accordance with their terms notwithstanding the
expiration of the Liquidity Commitments of the nonrenewing Liquidity Lenders.
All
34
<PAGE>
amounts which, under the Receivables Purchase Agreement, are received by the
Issuer in reduction of the Capital of the Purchased Interest, up to the
outstanding principal amount of the Liquidity Loans described above in this
subsection (b), shall be distributed to the nonrenewing Liquidity Lenders,
ratably according to the principal amount of such Liquidity Loans made by
them, in payment of the principal amount of such Liquidity Loans. When (after
the expiration of the Liquidity Commitments of the nonrenewing Liquidity
Lenders) the principal amount of and interest on the Liquidity Loans
described above in this subsection (b) shall have been paid in full, then
such Liquidity Lenders shall cease to be parties to this Agreement for any
purpose, provided they shall remain entitled to receive any payments under
Section 4(f) accrued in favor of such Liquidity Lenders while they were
Liquidity Lenders hereunder.
11. Miscellaneous. (a) Amendments, Etc. No amendment or waiver of
any provision of this Agreement, nor consent to any departure by the Issuer
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Majority Lenders and, in the case of an amendment,
the Issuer, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Liquidity Lenders and the Issuer, amend the last paragraph
of Section 2(a), Section 4(a), Section 4(d) or Section 7 hereof or amend the
formula for calculating the amount of each Liquidity Loan set forth in
Section 2(a) hereof; provided, further, that no material amendment of this
Agreement (other than an amendment to extend the scheduled Purchase
Termination Date) shall be effective unless the Issuer (or the Administrator
on its behalf) shall have received written confirmation by the Rating
Agencies that such amendment shall not cause the rating on the then
outstanding Notes to be downgraded or withdrawn and provided, further, that
no amendment, waiver or consent shall affect the rights or duties of the
Administrator or the Liquidity Agent under this Agreement unless the same is
in writing and signed by the Administrator or the Liquidity Agent, as the
case may be, in addition to the other parties required above to take such
action. The Administrator shall provide each Rating Agency with a copy of
each amendment to or waiver or consent under this Agreement promptly
following the effective date thereof.
(b) Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including facsimile communication) and
mailed, telecopied or delivered, if to PNC, the Liquidity Agent, the Issuer
or the Administrator, at its address specified on the signature page hereof;
if to any other Liquidity Lender, at its address specified in the Assignment
pursuant to which it became a Liquidity Lender; if to any Placement Agent, at
its address specified in the commercial paper
35
<PAGE>
placement agreement to which it is a party; or, as to PNC, the Liquidity
Agent, the Issuer or the Administrator, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party
in a written notice to the Administrator and the Liquidity Agent. All such
notices and communications shall, when mailed or telecopied (receipt
confirmed), be effective when deposited in the mails or telecopied,
respectively, except that notices and communications to the Liquidity Agent
shall not be effective until received by the Liquidity Agent.
(c) Costs and Expenses of the Administrator. Each Liquidity Lender
will on demand reimburse the Administrator its Percentage of any and all
reasonable costs and expenses (including Attorney Costs), which may be
incurred in connection with collecting payments relating to the Purchased
Interest at a time when a Liquidity Lender has Liquidity Loans outstanding
hereunder or enforcing related rights, for which the Administrator is not
promptly reimbursed by the Seller. Should the Administrator later be
reimbursed by the Seller or the Issuer for any such amount paid pursuant to
the foregoing sentence, the Administrator shall immediately pay to each
Liquidity Lender its pro rata share of such amount.
(d) Costs and Expenses of the Liquidity Agent. Each Liquidity
Lender will on demand reimburse the Liquidity Agent its Percentage of any and
all reasonable costs and expenses (including Attorney Costs), which may be
incurred by the Liquidity Agent in connection with administering or enforcing
rights under this Agreement.
(e) Compensation of the Liquidity Agent. In consideration of and
as compensation for all services to be rendered by the Liquidity Agent as
described in this Agreement, the Issuer will pay such reasonable fees to the
Liquidity Agent as may be mutually agreed upon from time to time.
(f) Binding Effect. This Agreement shall become effective when it
shall have been executed and delivered by each of the parties hereto and
thereafter shall be binding upon and inure to the benefit of the Issuer, the
Administrator, the Liquidity Agent and each Liquidity Lender and their
respective successors and assigns. The provisions of Section 11(o) shall also
inure to the benefit of the Persons specified therein. The Issuer shall not
assign any portion of the Purchased Interest to another Person, unless the
Notes issued to fund or maintain the Purchased Interest shall concurrently be
paid in full, and if any such assignment shall be made, the Liquidity
Commitments of the Liquidity Lenders hereunder shall not inure to the benefit
of such other Person. In connection with any assignment by the Issuer of the
Purchased Interest (or any portion thereof), the
36
<PAGE>
Issuer shall comply with any applicable legal requirements, including the
Securities Act of 1933, as amended.
(g) Taxes. Any taxes due and payable on any payments to be made to
any Liquidity Lender hereunder shall be such Liquidity Lender's sole
responsibility. Each Liquidity Lender warrants that it is not subject to any
taxes, charges, levies or withholdings with respect to payments under this
Agreement that are imposed by means of withholding by any applicable taxing
authority ("Withholding Tax"). Each Liquidity Lender agrees to provide the
Liquidity Agent, from time to time upon the Liquidity Agent's request,
completed and signed copies of any documents that may be required by an
applicable taxing authority to certify such Liquidity Lender's exemption from
Withholding Tax with respect to payments to be made to such Liquidity Lender
under this Agreement; and each Liquidity Lender agrees to hold the Liquidity
Agent harmless from any Withholding Tax imposed due to such Liquidity
Lender's failure to establish that it is not subject to Withholding Tax.
(h) Termination of a Liquidity Lender's Rights and Obligations.
(i) The Majority Lenders and the Issuer each shall have the
right, in their or its sole discretion, to terminate the right and
obligation of any Liquidity Lender to make Liquidity Loans hereunder in
the event that the short-term debt ratings of such Liquidity Lender by
any Rating Agency shall cease to be at least equal to the ratings
assigned by the Rating Agencies to the Notes. Such termination shall be
effective upon the delivery of written notice to such effect delivered
by the Liquidity Agent to the Issuer and such Liquidity Lender (in the
case of a termination by the Majority Lenders) or by the Issuer (or the
Administrator on its behalf) to the Liquidity Agent and such Liquidity
Lender (in the case of a termination by the Issuer), subject to the next
following sentence. Upon such termination, (i) such Liquidity Lender
shall cease to have any rights or obligations with respect to future
Liquidity Loans under this Agreement but shall continue- to have the
rights and obligations of a Liquidity Lender (including, without
limitation, rights to payments described in Section 4(d) hereof) with
respect to any Liquidity Loans made by it pursuant to the terms of this
Agreement prior to such termination and shall continue to be bound by
the provisions of Section 8 and Section 11(i), and (ii) effective on the
date of termination, either (x) the Liquidity Agent shall arrange for
such Liquidity Lender's rights and obligations hereunder to be assigned
to an Eligible Assignee pursuant to Section 9 hereof or (y) if such an
assignment cannot be arranged on or before such date, the Liquidity
Commitment of such Liquidity Lender hereunder shall be reduced to zero;
provided, however, that no such reductions shall be
37
<PAGE>
effective unless and until such time as the outstanding Capital of the
Purchased Interest together with Discount accrued and to accrue thereon
during the current Fixed Periods are less than or equal to the aggregate
of the Liquidity Commitment Amounts of all other Liquidity Lenders;
provided that, after giving effect to such reduction, the aggregate of
such Liquidity Commitment Amounts hereunder shall at least equal the
Purchase Limit multiplied by 1.02.
(ii) If the short-term debt ratings of a Liquidity Lender by
any Rating Agency shall cease to be at least equal to the ratings
assigned by the Rating Agencies to the Notes, then the Issuer may, in
its sole discretion, if such Liquidity Lender's Liquidity Commitment has
not theretofore been terminated pursuant to clause (i) above, require
such Liquidity Lender to fund (and each Liquidity Lender hereby agrees
in such event to fund) any unused portion of its Liquidity Commitment by
payment of such amount to the Administrator (a "Liquidity Downgrade
Draw") for deposit in an account in the name of the Issuer, maintained
at the Administrator's office in Pittsburgh, Pennsylvania or such other
office of the Administrator as the Administrator may specify by notice
to the Issuer (a "Downgrade Collateral Account").
(iii) If any Liquidity Lender shall be required pursuant to
clause (ii) above to fund a Liquidity Downgrade Draw, then the Issuer
shall instruct the Administrator to apply the monies in the Downgrade
Collateral Account applicable to such Liquidity Lender's Percentage of
requested Liquidity Loans at the times, in the manner and subject to the
conditions precedent of such requested purchases. The deposit of monies
in such Downgrade Collateral Account by any Liquidity Lender shall not
constitute a Liquidity Loan (and such Liquidity Lender shall not be
entitled to interest on such monies except as provided below in this
clause (iii)) unless and until (and then only to the extent that) such
monies are used to fund a Liquidity Loan pursuant to the first sentence
of this clause (iii)). Proceeds in such Downgrade Collateral Account
shall be invested in investments permitted pursuant to the documents
governing the Issuer's securitization program (as notified by the
Administrator), as directed by the applicable Liquidity Lender by
written notice to the Issuer and the Administrator, the income of which
shall be for the account of such Liquidity Lender. The income that has
accrued from such investments and received by the Issuer shall be
released to such Liquidity Lender on the last Business Day of each
month. Unless required to be released by the following sentence, any
payments with respect to Capital or Discount received by the Issuer or
the Liquidity Agent that are required to be applied to the repayment or
38
<PAGE>
prepayment of Liquidity Loans made by such Liquidity Lender pursuant to
Section 4 shall be deposited in the Downgrade Collateral Account for
such Liquidity Lender. All amounts remaining in such Downgrade
Collateral~Account shall be released to such Liquidity Lender no later
than the Business Day immediately following the earliest of (x) the
effective date of any replacement of such Liquidity Lender or removal of
such Liquidity Lender as a party to this Agreement, (y) the date on
which such Liquidity Lender shall furnish the Liquidity Agent with
confirmation that such Liquidity Lender shall have short-term debt
ratings by each Rating Agency at least equal to the ratings assigned by
the Relevant Rating Agencies to the Notes, and (z) the Liquidity
Termination Date.
(i) No Proceedings; Waiver of Set-Off. (i) Each of the
Liquidity Agent, the Administrator and each Liquidity Lender hereby
covenants and agrees that it shall not institute against, or join any
other Person in instituting against, the Issuer any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding or
other proceedings under any federal or state bankruptcy or similar law,
for one year and a day after the latest maturing commercial paper note
issued by the Issuer is paid. The agreements in this subsection (i)
shall survive termination of this Agreement.
(ii) Each of the Liquidity Agent, the Administrator and each
Liquidity Lender hereby waives any right to set-off and to appropriate
and apply any and all deposits and any other indebtedness at any time
held or owing thereby to or for the credit or the account of the Issuer
against and on account of the obligations and liabilities of the Issuer
to such Person under this Agreement; provided, however, that such right
of set-off is hereby waived by such Person only until one year and one
day shall have elapsed after the latest maturing commercial paper issued
by the Issuer is paid.
(j) Limitation on Payments. Notwithstanding any provisions
contained in this Agreement to the contrary, the Issuer shall not, and
shall not be obligated to, pay any amount pursuant to this Agreement
unless (i) the Issuer has received funds which may be used to make such
payment and which funds are not required to repay the Notes when due and
(ii) after giving effect to such payment, either (x) the Issuer could
issue Notes to refinance all outstanding Notes (assuming such
outstanding Notes matured at such time) in accordance with the program
documents governing the Issuer's securitization program or (y) all Notes
are paid in full; provided, however, that the foregoing limitations on
payments by the Issuer shall not apply to any distributions
39
<PAGE>
of funds received by the Issuer pursuant to Section 4. Any amount which
the Issuer does not pay pursuant to the operation of the preceding
sentence shall not constitute a claim (as defined in Section 101 of the
Bankruptcy Code) against or corporate obligation of the Issuer for any
such insufficiency unless and until the Issuer satisfies the provisions
of clauses (i) and (ii) above.
(k) Limitation on Issuance of Notes. Notwithstanding any
provisions contained in this Agreement, the Issuer hereby covenants and
agrees that it shall not issue any Notes that have a maturity date later
than the 75th day following any Scheduled Payment Date until the full
amount of the payment due on such Scheduled Payment Date has been paid.
The Issuer also covenants not to Issue Notes which mature later than the
seventy-fifth day following July 31, 1998.
(l) Indemnification of Issuer. The Liquidity Agent hereby
agrees to indemnify the Issuer for any broken funding costs and any swap
breakage costs of the Issuer relating to interest rate hedging
agreements effected in connection with the transactions contemplated by
this Agreement, the Receivables Purchase Agreement and the Receivables
Sale Agreement, to the extent such funds have not provided by the Seller
pursuant to Article VIII of the Receivables Sale Agreement.
(m) GOVERNING LAW; JURISDICTION. THIS AGREEMENT AND EACH
ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF).
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY ASSIGNMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT AND ANY ASSIGNMENT, EACH OF THE
ISSUER, THE ADMINISTRATOR, THE LIQUIDITY AGENT AND EACH LIQUIDITY LENDER
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE ISSUER, THE
ADMINISTRATOR, THE LIQUIDITY AGENT AND EACH LIQUIDITY LENDER IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT, ANY ASSIGNMENT OR ANY
DOCUMENT RELATED HERETO. EACH OF THE ISSUER, THE ADMINISTRATOR, THE
LIQUIDITY AGENT AND EACH WAIVES PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY NEW YORK LAW.
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<PAGE>
(n) Execution in Counterparts. This Agreement and each
Assignment may be executed in any number of counterparts, each of which
when so executed shall be deemed to be an original and all of which when
taken together shall constitute one and the same agreement. Delivery of
an executed counterpart of a signature page to this Agreement or an
Assignment by facsimile shall be effective as delivery of a manually
executed counterpart of this Agreement or an Assignment, as applicable.
(o) No Recourse. The obligations of the Issuer under this
Agreement are solely the corporate obligations of the Issuer. No
recourse shall be had for the payment of any amount owing by the Issuer
under this Agreement, or for the payment by the Issuer of any other
obligation or claim of or against the Issuer arising out of or based on
this Agreement, against any stockholder, employee, officer, director,
agent or incorporator of the Issuer provided, further, that nothing in
this subsection (o) shall relieve any of the foregoing Persons from any
liability which such Person may otherwise have in such capacity for
his/her or its gross negligence or willful misconduct. The agreements in
this Section shall survive the termination of this Agreement and payment
of all obligations hereunder.
(p) WAIVER OF JURY TRIAL. THE ISSUER, THE ADMINISTRATOR, THE
LIQUIDITY AGENT AND EACH LIQUIDITY LENDER EACH WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY ASSIGNMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST THE OTHER PARTIES,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
ISSUER, THE ADMINISTRATOR, THE LIQUIDITY AGENT AND EACH LIQUIDITY LENDER
EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES
FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY
OR ENFORCEABILITY OF THIS AGREEMENT, ANY ASSIGNMENT OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY
ASSIGNMENT.
41
<PAGE>
Exhibit A
Assignment of Liquidity Commitment
with respect to
ES Funding Corporation
Liquidity Loan Agreement
Dated _________, 199__
Section 1.
Percentage assigned: ________%
Assignor's remaining Percentage: ________%
Outstanding principal amount of Liquidity
Loans assigned: $________
Section 2.
Assignee's Liquidity Commitment Amount $________
Assignor's remaining
Liquidity Commitment Amount $________
Section 3.
Effective Date of this Assignment: ______,19__
Upon execution and delivery of this Assignment by Assignor and Assignee,
satisfaction of the other conditions to assignment specified in Section 9 of
the Liquidity Loan Agreement referred to below and acceptance and recording
of this Assignment by PNC BANK, National Association, as Liquidity Agent,
from and after the effective date specified above, Assignee shall become a
party to, and have the rights and obligations of a Liquidity Lender under,
the Liquidity Loan Agreement dated as of _________, 19 among the Liquidity
Lenders referred to therein, PNC BANK, National Association, as Liquidity
Agent, Envirotest Partners Market Street Capital Corporation and PNC BANK,
National Association, as Administrator.
ASSIGNOR: [NAME OF ASSIGNOR]
By: ________________________
Title:_________________
By: ________________________
Name:
Title:
Address:
Attention:
Telephone:
Telecopy
42
<PAGE>
THE LIQUIDITY LENDERS
PNC BANK, NATIONAL ASSOCIATION
By: /s/ William E. Falon
-------------------------------
Name: William E. Falon
Title: Executive Vice President
Address:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15265
Attention: Richard J. Hendrix
Telephone: 412-762-5158
Telecopy: 412-762-9184
Percentage: 100%
Amount: $80993821 Liquidity
Commitment
ENVIROTEST PARTNERS, as Seller
By its partners:
ENVIROTEST SYSTEMS CORP.
By: /s/ C. Michael Alston
----------------------------
Name: C. Michael Alston
Title: Vice President
ENVIROTEST TECHNOLOGIES, INC.
By: /s/ C. Michael Alston
----------------------------
Name: C. Michael Alston
Title: Vice President
43
<PAGE>
MARKET STREET CAPITAL CORP.
as Issuer
By: /s/ Douglas K. Johnson
-----------------------------
Name: Douglas K. Johnson
Title: President
Address:
c/o Amacor Group Llc
6707-D Fairview Road
Charlotte, North Carolina 28210
Attention: Juliana C. Johnson
Telephone: 704-365-0569
Telecopy: 704-365-1362
44
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
PNC BANK, NATIONAL ASSOCIATION
as Liquidity Agent
By: /s/ William E. Fallon
------------------------------
Name: William E. Fallon
Title: Executive Vice President
Address:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15265
Attention: Richard J. Hendrix
Telephone: (412) 762-5158
Telecopy: (412) 762-9184
PNC BANK, NATIONAL ASSOCIATION,
as Administrator
By:
---------------------------
Name: Richard J. Hendrix
Title: Managing Director
Address:
One PNC Plaza
Fifth Avenue and Wood Street
Pittsburgh, Pennsylvania 15265
Attention: Richard J. Hendrix
Telephone: (412) 762-5158
Telecopy: (412) 762-9184
45
<PAGE>
ES FUNDING CORPORATION
as Buyer
and
ENVIROTEST PARTNERS
as Seller
PURCHASE AND SALE AGREEMENT
Dated as of November 26, 1996
<PAGE>
PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT, dated as of November 26, 1996,
between, ENVIROTEST PARTNERS, a Pennsylvania partnership (the "Seller"), and
ES FUNDING CORPORATION, a Delaware corporation (the "Buyer"). Any reference
to the "Buyer" in this Agreement shall include any person to whom an
assignment has been made pursuant to Section 10.5 hereof (after giving effect
to such assignment).
WITNESSETH:
WHEREAS, the Buyer desires to purchase the right, title and
interest in and to the Settlement Receivable Assets (as defined below) under
the Settlement Agreement (as defined below) (along with certain other rights
that may be incidental thereto) from the Seller;
WHEREAS, the Seller desires to sell and assign to the Buyer such
Settlement Receivable Assets upon the terms and conditions hereinafter set
forth;
WHEREAS, upon the purchase of such Settlement Receivable Assets,
the Buyer will enter into the Settlement Receivable Purchase Agreement (as
defined below) with MSCC (as defined below) and in accordance with the terms
thereof sell to MSCC all of the Buyer's right, title and interest in and to
such Settlement Receivable Assets;
WHEREAS, MSCC will enter into a Liquidity Loan Agreement, dated the
date thereof(the "Liquidity Loan Agreement"), with PNC Bank, National
Association, as Administrator (the "Administrator") and Liquidity Agent ("the
"Liquidity Lenders") from time to time parties thereto, whereby the rights of
MSCC under this Agreement and the Settlement receivable Purchase Agreement
may be pledged to the Liquidity Agent; and
WHEREAS, on or after the effective date of this Agreement MSCC may
assign its right, title and interest under this Agreement to MSFC (as defined
below).
NOW THEREFORE, it is hereby agreed by and between the Buyer and the
Seller as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement,
except as otherwise expressly provided herein or unless the contact otherwise
requires capitalized terms used herein shall have the following meanings
assigned to them:
"Affiliate" shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, through one or more intermediaries, owns or
controls, either beneficially or as trustee, guardian or other fiduciary, any
of the capital stock having ordinary voting power in the election of
directors of such Person or of the ownership interests in any partnership or
joint venture, (b) each Person that controls, is controlled by or is under
common control with such Person or any Affiliate of such person or (c) each
of such Person's officers, directors, joint ventures and partners. For the
purpose of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, by contract or otherwise.
"Business Day" shall mean any day which is not a Saturday, Sunday,
or a legal holiday under the laws of the State of Pennsylvania and is not a
day on which banking institutions located in the State of Pennsylvania are
authorized or permitted by law or other governmental action to close.
"Closing Date" shall mean December 11, 1996.
"Collections" shall mean all payments with respect to the
Settlement Receivable, in the form of cash, checks, wire transfers, or other
forms of payment.
"Commonwealth" shall mean the Commonwealth of Pennsylvania, a
governmental instrumentality.
"Escrow Agreement" means that certain Escrow Agent Agreement among
Seller, Envirotest Systems Corp., Envirotest Systems Corp., Envirotest
Technologies Inc., MSCC, MFSC, the Escrow Agent (as defined therein) and the
Liquidity Agent, dated as of November 26, 1996, as the same may be amended,
modified, supplemented or restarted from time to time.
"Governmental Authority" means (a) federal, state, county,
municipal, or foreign government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau,
commission, department, instrumentality or public body, (c) any court or
administrative tribunal or (d) with respect to any Person, any arbitration
2
<PAGE>
tribunal or other non-governmental authority to the jurisdiction of which
such Person has consented.
"Incremental Note Liability" means an amount determined in good
faith by MSFC as representing the shortfall between the discount received by
MSFC pursuant to Section 6.1 hereof and the amount due the Holder of such
Note on the Note Liability Date, but only to the extent that MSFC (i) has
used its reasonable best efforts to manage its securitization program so as
to minimize the potential amount of such Incremental Note Liability and (ii)
has in good faith invested amounts received by it pursuant to Section 6.1
hereof in such manner as to cause the application of the proceeds of any such
investments to reduce the amount of such Incremental Liability.
"Lien" shall mean any mortgage , pledge, hypothetical, assignment
for security, security interest, encumbrance, levy, lien or charge of any
kind, whether voluntarily incurred or arising by operation of law or
otherwise, affecting any property, including any agreement to grant any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature of a security interest, and the filing of or agreement to
file or deliver any financing statement (other than a precautionary financing
statement with respect to a lease that is note in the nature of a security
interest) under the UCC or comparable law of any jurisdiction.
"MSCC" shall mean Market Street Capital Corp., a Delaware
corporation.
"MSFC" shall man MarKet Street Funding Corporation, a Delaware
Corporation.
"Note" means any commercial paper note issued by MSFC that MSFC has
determined in good faith was issued to fund its acquisition of the
Settlement receivable Assets.
"Note Liability Date" means that date of which any note first
becomes due and payable (without taking into account any renewal,
"evergreen", or "roll-over" provisions thereof).
"Obligor" shall mean the Commonwealth of Pennsylvnia, a
governmental instrumentality.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, joint stock corporation, estate
entity or Governmental Authority.
"Purchase Price" shall have the meaning set forth in Section 3.1
hereof.
3
<PAGE>
"Requirements of Law" for any Person shall mean the certificate of
incorporation or articles of association and by-laws or other organizational
or governing documents of such Person, and any law, treaty, rule or
regulation, or determination of or settlement with an arbitrator or
governmental Authority, in each case applicable to or binding upon such
Person or to which such Person is subject.
"Seller" shall mean Envirotest Partners, a Pennsylvania
partnership.
"Settlement Agreement" shall mean the General Release and
Settlement Agreement dated December 15, 1995, as amended by Amendment No. 1
dated as of November 26, 1996, among the Obligor, the Seller, Envirotest
Systems Corp. and Envirotest Technologies, Inc.
"Settlement Receivable" shall mean the right of the Seller or its
assigns to receive payment of the outstanding balance of the Base Settlement
Amount (as defined in the Settlement Agreement) together with interest
thereon accruing from and after the Closing Date at the rate of six percent
(6.00%) per annum, calculated on the basis of actual days elapsed in a year
of 365 or 366 days, as the case may be. The Settlement Receivable shall not
include (i) the sums due on December 31, 1995 and July 31, 1996 under Section
4 of the Settlement Agreement, together with accrued interest through July
31, 1996 on the unpaid balance of the Base Settlement Amount pursuant to
Section 4 of the Settlement Agreement, which the Seller has previously
received and are no longer outstanding, (ii) accrued interest from and after
July 31, 1996 to and including the Closing Date on the unpaid balance of the
Base Settlement Amount pursuant to Section 4 of the Settlement Agreement,
which shall remain the property of the Seller, or (iii) any Settlement Amount
Increase (as defined in the Settlement Agreement) or any other amount (other
than the Base Settlement Amount) payable pursuant to the Settlement
Agreement, which shall remain the property of the Seller.
"Settlement Receivable Assets" shall have the meaning set forth in
Section 2.1 thereof.
"Settlement Receivable Purchase Agreement" shall mean the
Settlement Receivables Purchase Agreement, dated as of November 26, 1996
between the buyer and MSCC as the same may from time to time be amended,
modified, supplemented or renewed.
"UCC" shall mean the Uniform Commercial Code, as amended from time
to time, as in effect in any specified jurisdiction.
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Section 1.2 OTHER DEFINITIONAL PROVISIONS. The words "hereof",
"herein", and "hereunder"and words of similar import when used in this
Agreement shall refer to this agreement as a whole and not to any particular
provision of this Agreement; and Section, Subsection, Schedule, and Exhibit
references contained in this Agreement are references to Sections,
Subsections, Schedules, and Exhibits in or to this Agreement unless otherwise
specified.
ARTICLE II
PURCHASE AND CONVEYANCE OF
SETTLEMENT RECEIVABLE
Section 2.1 SALE. (a) Upon the terms and subject to the
conditions set forth herein, the Seller hereby irrevocably sells, assigns,
transfers and conveys (collectively, "Transfers") to the Buyer, without
recourse (Except to the extent expressly provided herein), and the Buyer
hereby irrevocably purchases from the Seller, on the terms and subject to the
conditions specifically set forth herein, all rights, title, and interest of
the Seller in and to the Settlement Receivable, all monies due or to become
due or to become due with respect thereto (along with certain rights that may
be incidental thereto including, without limitation, the right to declare the
outstanding balance of the base Settlement Amount (as defined in the
Settlement Agreement) due and payable pursuant to Section 4 (h) of the
Settlement Agreement) accruing from (but excluding) and after the Closing
Date, and all proceeds thereof (collectively, the "Settlement Receivable
Assets"). The execution by the Seller of this Agreement shall evidence the
Seller having relinquished all right, title and interest in and to and
control over the Settlement Receivable Assets; provided, however, the
foregoing sale, assignment, transfer and conveyance does not constitute an
assumption by the Buyer of any obligations of the Seller, or of any other
Person, to the obligor or to any other Person in connection with the
Settlement Receivable or under any other agreements or instruments relating
to the Settlement Receivable.
(b) In connection with the Transfer effected pursuant to this
Agreement, the Seller agrees, at its own expense, on or prior to the closing
Date to, (i) clearly and unambiguously mark its computer files, data
processing records, microfiche storage
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files and other records, and (ii) clearly label and mark any file cabinets
and other storage files or facilities where any information or records
relating to the Settlement Receivable are stored, in each case, with a legend
to the effect that the Settlement Receivable has been transferred to the
Buyer pursuant to this Agreement.
(c) It is the express intent of the Seller and the Buyer that the
purchase of the Settlement Receivable Assets hereunder shall constitute a
sale of "accounts", and/or of "general intangibles" as each such term is used
in Article 9 of the UCC, which sale is absolute and irrevocable and which
provides the Buyer with the full benefits of ownership of the Settlement
Receivable Assets. It is, further, not the intention of the Seller and the
Buyer that such conveyance be deemed a grant of a security interest in the
Settlement Receivable Assets by the Seller to the Buyer to secure a debt or
other obligation of the Seller. However, in the event that, notwithstanding
the intent of the parties, the Settlement Receivable Assets are held by a
court of law to continue to be property of the Seller, then (i) this
Agreement also shall be deemed to be and hereby is a security agreement
within the meaning of the UCC; and (ii) the conveyance by the Seller provided
for in this Agreement shall be deemed to be and the Seller hereby grants to
the Buyer a security interest in and to all of the Seller's right, title and
interest in and to the Settlement Receivable Assets, all monies due or to
become due with respect thereto on and after the Closing Date and all
proceeds of such Settlement Receivable Assets to secure (1) the rights of the
Buyer under this Agreement and (2) a loan to the Seller in the original
principal amount, together with any interest thereon, of the Purchase Price
as set forth in this Agreement. The Seller and the Buyer shall, to the
extent consistent with this Agreement, take such actions as may be necessary
to ensure that, if this Agreement were deemed to create a security interest
in the Settlement Receivable Assets, such security would be deemed to be a
perfected security interest of first priority in favor of the Buyer under
applicable law and will be maintained as such (subject only to any assignment
by the Buyer to MSFC as contemplated herein and in the Settlement Receivable
Purchase Agreement) throughout the term of this Agreement.
(d) Notwithstanding any other provisions hereof or of the
Settlement Receivable Purchase Agreement, the parties hereto hereby agree
that this Agreement is in addition to and in furtherance of the transactions
contemplated by the Settlement Receivable Purchase Agreement.
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ARTICLE III
CONSIDERATION AND PAYMENT
Section 3.1 PURCHASE PRICE. The Purchase Price for the Settlement
Receivable conveyed to the Buyer by the Seller under this Agreement shall be
$79,405,707.
Section 3.2 PAYMENT OF PURCHASE PRICE. The Purchase Price for the
Settlement Receivable shall be paid in full in immediately available funds on
the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1 SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
represents and warrants to the Buyer as of the Closing Date that:
(a) Organization and Good Standing. The Seller is a general
partnership duly organized under the laws of the State of Pennsylvania, and
has full power and authority to execute, deliver and perform its obligations
under this Agreement and each other document or instrument to be delivered by
it hereunder, including but not limited to the authority to sell, assign, and
transfer the Settlement Receivable in accordance with this Agreement, and, in
all material respects, to own its property and conduct its business as such
properties are presently owned and as such business is presently conducted.
(b) Due Authorization. The execution, delivery and performance of
this Agreement and each other document or instrument to be delivered
hereunder, and the consummation of the transaction provided in such documents
to which the Seller is party have been duly authorized by the Seller by' all
necessary partnership action on the part of the Seller.
(c) Binding Obligation. Assuming the due authorization,
execution, and delivery of this Agreement by the Buyer, this Agreement
constitutes legal, valid and binding obligations of the Seller, enforceable
in accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or herein-after in effect, relating to the enforcement of
creditors' rights in general and except as such enforce-ability may be
limited by general principles of equity (whether considered in a proceeding
at law or in equity).
(d) No Conflict. The execution, delivery and performance of this
Agreement, the performance of the
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transactions contemplated hereby and the fulfillment of the terms hereof by
the Seller do not (a) contravene its partnership agreement, (b) violate any
provision of, or require any filing (except for the filings under the UCC
required hereunder, each of which will be duly made and will be in full force
and effect on the Closing Date) registration, consent or approval under, any
law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to the
Seller, except for such filings, registrations, consents or approvals as have
already been obtained and are in full force and effect, (c) result in a
breach of or constitute a default or require any consent under any indenture,
loan agreement, credit agreement, deed of trust or any other agreement,
contract, lease or instrument to which the Seller is a party or by which it
or its assets or properties may be bound or affected except those as to which
a consent or waiver has been obtained and is full force and effect and an
executed copy of which has been delivered to the Buyer, or (d) result in, or
require, the creation or imposition of any Lien upon or with respect to any
of the properties now owned or hereafter acquired by the Seller other than as
specifically contemplated hereby.
(e) No Proceedings. There are no proceedings or investigations
pending or, to the best knowledge of the Seller, threatened against the
Seller, before any court, regulatory body, administrative agency, or other
tribunal or governmental instrumentality (i) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or the
Settlement Agreement, (ii) seeking any determination or ruling that would
materially and adversely affect the performance by the Seller of its
obligations under this Agreement or the Settlement Agreement, or (iii)
seeking any determination or ruling that would materially and adversely
affect the validity or enforceability of this Agreement or the Settlement
Agreement. The Seller is not in violation of any order of any court,
arbitrator or governmental authority which would have the effect of any of
the foregoing.
(f) All Consents Required. All approvals, authorizations,
consents, orders or other actions of and registrations with any Person or of
any Governmental Authority required in connection with the execution and
delivery by the Seller of this Agreement, the performance by the Seller of
the transactions contemplated by this Agreement and the fulfillment by the
Seller of the terms hereof and thereof, have been obtained and are in full
force and effect.
(g) Settlement Agreement Amendments. The Seller has not amended
the Settlement Agreement prior to the date hereof, except for the amendment
evidenced by that certain Amendment No. 1 dated as of November 26, 1996.
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(h) Not an Investment Company. The Seller is
not an "investment company" or a company controlled by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended, or is exempt from all provisions of such Act.
(i) Business Intent. The Seller has a valid business reason for
the sale of the Settlement Receivable. Such sale is not being made with any
intent to hinder, delay or defraud any entity to which the Seller is or will
become indebted on or after the date of transfer. The sale of the Settlement
Receivable by the Seller is not being done with any intent to evade any
applicable laws or public policy.
(j) Proceeds. No proceeds of the purchase will be used for any
purpose that violates Regulations G or U of the Federal Reserve Board.
(k) Valid Sale, etc. The Seller hereby represents and warrants as
of the Closing Date, with respect to the Settlement Receivable, that:
(l) the Seller is not insolvent and will not be rendered insolvent
upon sale of the Settlement Receivable to the Buyer; the Seller is not
engaged in business or about to engage in business for which the assets
remaining with it after the sale of the Settlement Receivable will be an
unreasonably small amount of capital; and the Seller does not intend to incur
or believe that it will incur debts beyond its ability to pay as such debts
mature;
(ii) the Seller is the legal and beneficial owner of all right,
title and interest in and to the Settlement Receivable Assets and the
Settlement Receivable Assets have been transferred to the Buyer free and
clear of any Lien;
(iii) This Agreement constitutes a valid sale, transfer and
assignment to the Buyer of all right, title and interest of the Seller in and
to the Settlement Receivable Assets;
(iv) the consideration received by the Seller upon the sale of the
Settlement Receivable will constitute reasonably equivalent value and fair
consideration for the property sold, consistent with terms that would be
arrived at on an arm's-length basis; and
(v) the Settlement Receivable is enforceable against the
Commonwealth in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now
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or hereafter in effect, relating to the enforcement of creditors' rights in
general and except as such enforceability may be limited by general
principles of equity (whether considered in a proceeding at law or in equity).
The representations and warranties set forth in this Section 4.1
shall survive the transfer of the Settlement Receivable to the Buyer. Upon
discovery by the Seller or the Buyer of a breach of any of the foregoing
representations and warranties which adversely affects Seller's performance
of its obligations hereunder or any other material breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice thereof to the other party hereto within
three Business Days of such discovery.
Section 4.2 SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller
hereby represents and warrants that, with respect to the Settlement
Receivable Assets, as of the Closing Date and as of each date on which a Note
(as defined in the Liquidity Loan Agreement) and the date any Liquidity Loan
(as defined in the Liquidity Loan Agreement) is made that:
(a) Legal Ownership. No effective financing statement or other
instrument similar in effect with respect to the Seller in connection with
the Settlement Receivable Assets is on file in any recording office, except
those filed in favor of Buyer as contemplated by the terms of this Agreement.
(b) Place of Business. The principal place of business and chief
executive office of the Seller is located at 6903 Rockledge Drive, Suite 214,
Bethesda, Maryland 20817, and the Seller keeps its records concerning the
Settlement Receivable at such office. Such office and the address thereof
shall not be changed without 30 days' prior written notice to the Buyer.
(c) Name. The Seller's complete partnership name is set forth in
the preamble to this Agreement, and the Seller does not use and has not
during the last six years used any other name, partnership name, trade name,
doing-business name or fictitious name other than Envirotest/Synterra
Partners.
(d) Ownership. Neither the Seller nor any Affiliate of the Seller
has any direct or indirect ownership or other financial interest in MSCC or
MSFC.
(e) No Transfer. The Seller has not sold, assigned, pledged,
conveyed, or otherwise transferred the Settlement Receivable Assets or
suffered to exist a material Lien thereon except for the sale and assignment
of the Settlement Receivable Assets to the Buyer as provided herein and as
provided in the Settlement Receivable Purchase Agreement and shall defend and
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hold harmless the Buyer from any material Lien or other adverse claim in or
to the Settlement Receivable Assets.
(f) Commonwealth's Obligation. The Settlement Agreement,
including but not limited to the obligation of the Commonwealth to pay the
Settlement Receivable Assets, is a legal, valid and binding obligation of the
Commonwealth, enforceable against the Commonwealth in accordance with its
terms, except as (a) such enforcement may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar
laws affecting the rights of creditors generally and by equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law) ; (b) the indemnification provisions in the Settlement
Agreement may not be enforceable to the extent that they may be deemed to be
against public policy or relate to or purport to govern indemnification
against liabilities under any securities laws; and (c) certain other rights,
remedies and other remedial provisions of the Settlement Agreement may not be
enforceable, provided that such unenforceability does not render the
Settlement Agreement invalid as a whole or substantially interfere with the
substantial realization of the principal benefits or security, or both, which
the Settlement Agreement purports to provide.
Section 4.3 NOTICE OF BREACH. The representations and warranties
set forth in this Section 4.2 shall survive the transfer of the Settlement
Receivable Assets hereunder to the Buyer. Upon discovery by the Seller the
Buyer of a material breach of any of the representations and warranties set
forth in Section 4.2, the party discovering such breach shall give prompt
written notice thereof to the other party hereto within three Business Days
of such discovery.
ARTICLE V
COVENANTS OF THE SELLER
Section 5.1 SELLER'S COVENANTS. During the term of this Agreement,
and until the Settlement Receivable Assets shall have been paid in full or
written-off as uncollectible and all amounts payable to the liquidity Agent
and the Liquidity Lenders under the Liquidity Loan Agreement have been paid
in full, and all amounts owed by the Seller pursuant to this Agreement shall
have been paid in full, unless the Buyer otherwise consents in writing, the
Seller hereby covenants and agrees with the Buyer as follows:
(a) Compliance with Laws, etc. The Seller shall satisfy all of
its obligations to be fulfilled under or in connection with the Settlement
Receivable Assets, maintain in effect all qualifications required under
Requirements of Law to
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the extent required to (i) maintain the effectiveness of the conveyance of
the Settlement Receivable Assets and (ii) to preserve the ability of the
Seller to bring an action to enforce the Commonwealth's obligation to pay the
Settlement Receivable Assess.
(b) Preservation of Partnership. The Seller shall preserve and
maintain its partnership existence.
(c) Audits. At any time and from time to time during the Seller's
regular business hours, on reasonable prior notice, the Seller shall, in
response to any reasonable request of the Buyer, permit the Buyer, or its
agents or representatives, (i) to examine and make copies of and abstracts
from all books, records and documents (including, without limitation,
computer tapes and disks) in the possession or under the control of the
Seller relating to the Settlement Receivable Assets, and (ii) to visit the
offices and properties of the Seller for the purpose of examining such
materials and to discuss matters relating to the Settlement Receivable Assets
or the Seller's performance hereunder with any of the officers or employees
of the Seller having knowledge thereof or the Seller's Independent
accountants.
(d) Keeping of Records and Books of Account. The Seller shall
maintain and implement administrative and operating procedures (including,
without limitation, the ability to recreate records evidencing the Settlement
Receivable Assets and the related property with respect thereto conveyed
hereunder in the event of the destruction of the originals thereof), and keep
and maintain all documents, books, microfiche, computer records and other
information reasonably necessary or advisable for the collection of the
Settlement Receivable Assets and such related property. Such books,
microfiche and computer records shall reflect all facts giving rise to the
Settlement Receivable Assets, all payments and credits with respect thereto,
and the computer records shall be clearly marked to show the interests of the
Buyer (and MSCC as the Buyer's assignee) in the Settlement Receivable Assets
and such related property. The Seller shall furnish MSFC a copy of each
servicing report delivered to the Commonwealth pursuant to the Settlement
Agreement.
(e) Performance and Compliance with Settlement Agreement. At its
expense the Seller shall timely and fully perform and comply with all
material provisions, covenants and other promises required to be observed by
the Seller under the Settlement Agreement directly related to the Settlement
Receivable Assets.
(f) Continuous Perfection. The Seller shall not change its name or
identity in any manner which might make any financing or continuation
statement filed here-under misleading within the meaning of Section 9-402(7)
of the UCC (or any other
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then applicable provision of the UCC) unless the Seller shall have given at
least 30 days' prior written notice thereof to the Buyer and shall have taken
all action prior to making such change (or made arrangements to take such
action substantially simultaneously with such change if it is impossible to
take such action in advance) necessary or advisable in the opinion of the
Buyer to amend such financing statement or continuation statement so that it
is not misleading. The Seller shall neither change its chief executive
office nor change the location of its principal records concerning the
Settlement Receivable Assets and the Collections from the locations specified
in Section 4.1(g) unless it has given the Buyer at least 30 days' prior
written notice of its intention to do so and has taken such action as is
necessary or advisable to cause the interest of the Buyer in the Settlement
Receivable Assets and the Collections to continue to be perfected with the
priority required by this Agreement. The Seller will at all times maintain
its principal executive office and any other office at which it maintains
records relating to the Settlement Receivable Assets within the United States
of America.
(g) Further Action. The Seller shall make, execute or endorse,
acknowledge, and file or deliver to the Buyer from time to time such
schedules, confirmatory assignments, conveyances, transfer endorsements,
powers of attorney, certificates, reports and other assurances or instruments
and take such further steps relating to the Settlement Receivable Assets and
the Collections and other rights covered by this Agreement, as the Buyer may
request and reasonably require including executing and delivering to the
Buyer any instruments, financing or continuation statements or other writings
reasonably necessary or desirable to maintain the perfection or priority of
the ownership interest of the Buyer in the Settlement Receivable Assets and
the Collections under the UCC or other applicable law. The Seller shall
provide the Buyer with copies of all monthly reports delivered to the
Commonwealth by the Seller relating to the Settlement Agreement and all
correspondence between the Commonwealth and the Seller relating to the
Settlement Receivable Assets. At any time at the request of the Buyer, the
Seller shall deliver and sign any bills, statements or letters or other
writings necessary to carry out the terms and provisions of this Agreement
and to facilitate the collection of the Settlement Receivable Assets for the
benefit of the Buyer.
(h) Sale. The Seller agrees to treat this conveyance for all
purposes (including, without limitation, tax and financial accounting
purposes) as a sale on all relevant books, records, tax returns, financial
statements and other applicable documents.
(i) Filings. The Seller shall record and file, at its expense, on
or prior to the Closing Date any financing
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statement wit resect to the Settlement Receivable meeting the requirement of
applicable state law in such manner and in such jurisdictions as are
necessary under the applicable UCC to perfect the sale of the Settlement
Receivable from the Seller to the Buyer, and shall deliver a file-stamped
copy of such financing statements or other evidence of such filings (which
may, for purposes of this paragraph, consist of telephone confirmations of
such filings) to the Buyer.
(j) Third Parties. If a third party, including a potential
purchaser of the Settlement Receivable, inquires, the Seller will promptly
indicate that the Settlement Receivable has been sold to the Buyer and
interests in the Settlement Receivable have been sold by the Buyer to MSCC,
and the Seller will not claim any ownership interest in the Settlement
Receivable.
(k) Payment Instructions. The Seller will instruct the
Commonwealth to remit payments of the Settlement Receivable and interest
thereon to account #2037341 at PNC Bank National Association, Pittsburgh, PA,
TDCA #2037341, ABA #0430-0009-6, Attn: F.J. Deramo, which shall be an account
segregated from other assets and proceeds of the Seller. Seller will in no
event provide alternate instructions to the Commonwealth that are
inconsistent with the foregoing, nor will Seller withdraw or revoke such
instructions without the prior written consent of the Liquidity Agent.
(l) Bankruptcy. The Seller will not institute any bankruptcy
proceedings against the Buyer before the expiration of one year and one day
after MSFC's Notes (as defined in the Liquidity Loan Agreement) shall have
been paid in full.
(m) Amendments. The Seller shall not make any amendments to (i)
its partnership agreement, (ii) any of the terms of, or waive any performance
under, this Agreement or (iii) any of the terms of the Settlement Agreement
which would affect the payment of the Settlement Receivable without the prior
written consent of MSCC, MSFC and the Liquidity Agent, which will not be
unreasonably withheld.
(n) Ownership. The Seller shall at all times be wholly-owned
(directly or indirectly) by Envirotest Systems Corp. or any Affiliate
thereof.
(o) Information. All Information, exhibits, financial statements,
documents, books, records or reports furnished or to be furnished at any time
by or on behalf of the Seller in connection with this Agreement is or will be
accurate in all material respects as of its date or as of the date so
furnished.
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ARTICLE VI
REPURCHASE OBLIGATION
Section 6.1 MANDATORY REPURCHASE. On and after the Closing Date,
in the event that any of the representations and warranties of the Seller
with respect to the Settlement Receivable Assets set forth in Section 4.1 and
4.2(b) and (c) shall not have been true and correct as of the date such
representation or warranty is made (which date shall be the Closing Date with
respect to Section 4.1), then, with respect to Section 4.1, no later than 180
days, and with respect to Section 4.2(b) and 4.2(c) no later than 90 days,
after receipt by the Seller of written notice of such breach given by the
Buyer, the Seller shall repurchase and accept a retransfer of such Settlement
Receivable Assets on the terms and conditions set forth below;
provided,however, that no such repurchase or retransfer shall be required to
be made with respect to the Settlement Receivable Assets if, on any day
within such 180 or 90 day period, as applicable, the representations and
warranties in Section 4.1, Section 4.2(b) and 4.2(c) that triggered such 180
or 90 day period shall then be true and correct in all material respects. In
the event that any of the representations and warranties set forth in Section
4.2 (other than Section 4.2(b) or Section 4.2(c)) shall not have been true
and correct as of the date made, then (i) as of the date of a payment default
by the Commonwealth with respect to the Settlement Receivable Assets or (ii)
if on and after the date of such payment default the Seller is diligently
pursuing its legal rights to cure such payment default and has a reasonable
basis to believe it will prevail in its efforts to cure said payment default
(and no non-appealable order has determined to the contrary) 90 days after a
payment default by the Commonwealth with respect to the Settlement Receivable
Assets,the Seller shall repurchase and accept a retransfer o the Settlement
Receivable Assets on the terms and conditions set forth below;
provided,however, that no such repurchase or retransfer shall be required to
be made with respect to the Settlement Receivable Assets if prior to such
payment default or such 90 day period (if applicable) the representation or
the warranty which triggered this provision shall then be true and correct in
all material respects. In consideration of such resale the Seller shall, on
the date of the resale of such Settlement Receivable Assets, pay to the Buyer
an amount equal to the sum of the unpaid principal balance of such Settlement
Receivable Assets on the date of repurchase and accrued and unpaid interest
thereupon accruing after the date hereof, any broken funding costs and any
swap breakage costs of the Buyer relating to interest rate hedging agreements
effected in connection with the transactions contemplated by this Agreement.
In addition, in consideration of such resale, the Seller shall on each Note
Liability Date pay an amount equal to
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the Incremental Note Liability due on such Note Liability Date. Upon any
resale to the Seller of the Settlement Receivable Assets pursuant to this
Section 6.1, the Buyer shall automatically and without further action be
deemed to sell, transfer, assign and set-over to the Seller, without
recourse, representation or warranty, all right, title and interest of the
Buyer, in, to and under such Settlement Receivable Assets and all monies due
or to become due with respect thereto and all proceeds of such Settlement
Receivable Assets. The obligation of the Seller to repurchase and accept
resale of such Settlement Receivable Assets shall constitute the sole remedy
respecting any breach of the representations and warranties set forth in
Sections 4.1 and 4.2 with respect to the Settlement Receivable Assets.
Section 6.2 CONVEYANCE OF REASSIGNED SETTLEMENT RECEIVABLE ASSETS.
Upon any reconveyance of the Settlement Receivable Assets by the Buyer to the
Seller pursuant to Section 6.1, the Buyer shall execute and deliver to the
Seller instruments of sale and assignment in such form as shall reasonably be
requested by the Seller, MSCC, MSFC or the Administrator, in order to vest in
the Seller, or its designee or assignee, all right, title interest of the
Buyer in, to and under such Settlement Receivable Assets, provided, that any
such reconveyance shall expressly state that it is made by the Buyer without
any recourse, representation or warranty. Subject to the foregoing, the
Buyer shall execute such other documents or instruments of conveyance or take
such other actions as the Seller, MSCC, MSFC or the Administrator may
reasonably require to effect any repurchase of the Settlement Receivable
Assets pursuant to Section 6.1.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 CONDITIONS TO THE BUYER'S OBLIGATIONS REGARDING SETTLEMENT
RECEIVABLE. The obligations of the Buyer to purchase the Settlement
Receivable on the Closing Date hereunder shall be subject to the satisfaction
of each of the following conditions:
(a) All representations and warranties of the Seller contained in
this Agreement shall be true and correct with the same effect as though such
representations and warranties had been made on such date.
(b) All information concerning the Settlement Receivable provided
to the Buyer shall be true and correct in all material respects as of the
Closing Date.
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(c) At the Closing Date, the Seller shall have performed all other
obligations required to be performed by the provisions of this Agreement.
(d) The Seller shall have filed the financing statement(s)
required to be filed pursuant to Section 5.1(i) and shall have delivered
file-stamped copies thereof to the Buyer and MSFC.
(e) All partnership, corporate and legal proceedings and all
instruments, documents and legal opinions in connection with the transactions
contemplated by this Agreement, the Settlement Receivables Purchase Agreement
and the Liquidity Loan Agreement shall be satisfactory in form and substance
to the Buyer, MSCC, MSFC and the Administrator, and the Buyer, MSCC, MSFC and
the Administrator shall have received from the Seller copies of all documents
(including, without limitation, records of partnership proceedings) relevant
to the transactions herein contemplated as the Buyer, MSCC, MSFC and the
Administrator may reasonably have requested.
(f) The Settlement Receivable Purchase Agreement, dated as of the
date hereof, between the Buyer and MSCC, shall have been executed and
delivered by MSCC.
Section 7.2 CONDITIONS PRECEDENT TO THE SELLER'S OBLI- ATIONS. The
obligations of the Seller to sell the Settlement Receivable on the Closing
Date hereunder shall be subject to the satisfaction of each of the following
conditions (the execution by the Seller of this Agreement shall be conclusive
evidence of the satisfaction of such conditions):
(a) Payment of the Purchase Price in accordance with Section 3.2
shall have been made.
(b) The Settlement Receivable Purchase Agreement, dated as of the
date hereof, between the Buyer and MSCC, shall have been executed and
delivered by the Buyer and MSCC.
ARTICLE VIII
INDEMNITY
Notwithstanding any other provision of this Agreement, the Seller
hereby agrees to indemnify the Buyer for any reductIon in the Settlement
Receivable solely due to the exercise of set off rights by the Obligor under
Section 4(e) of the Settlement Agreement. The amount paid under any such
indemnity shall be deemed to be a reduction in the Settlement Receivable
amount outstanding hereunder. The payment obligation of the Seller under
this Article in respect of the exercise by the obligor of
17
<PAGE>
set off rights under Section 5(c) of the Settlement Agreement shall be
reduced by amounts paid by the Escrow Agent (as defined in the Escrow
Agreement) to the Liquidity Agent pursuant to Section 2(c) of the Escrow
Agreement. In addition, the Seller hereby agrees to Indemnify the Buyer for
any broken funding costs and any swap breakage costs of the Buyer relating to
interest rate hedging agreements effected in connection with the transactions
contemplated by this Agreement, including any such costs caused by any
repurchase by the Seller of the Settlement Receivable Assets or by a
prepayment by the Commonwealth (i.e., any payment in excess of the amounts
referenced in Section 4 of the Settlement Agreement or any payment in respect
of the amounts referenced in Section 4(b), (c) or (d) of the Settlement
Agreement before July 31, 1997 or July 31, 1998, respectively), and any
amounts constituting Incremental Note Liabilities.
ARTICLE IX
EFFECT OF TERMINATION
Section 9.1 EFFECT OF TERMINATION. No termination or rejection or
failure to assume the executory obligations of this Agreement in the
bankruptcy of the Seller or the Buyer shall be deemed to impair or affect the
obligations pertaining to any executed sale or executed obligations,
including, without limitation, pretermination breaches of representations and
warranties by the Seller or the Buyer. Without limiting the foregoing, prior
to termination, the failure of the Seller to deliver computer records of the
Settlement Receivable or evidence of the transfer thereof shall not render
such transfer or obligation executory, nor shall the continued duties of the
parties pursuant to Section 5 of this Agreement render an executed sale
executory.
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 AMENDMENT OF THIS AGREEMENT. This Agreement and the rights
and obligations of the parties hereunder may not be changed orally, but only
by an instrument in writing signed by the Buyer, MSFC, the Administrator and
the Seller. Any supplemental conveyance or reconveyance executed in
accordance with the provisions hereof shall not be considered amendments to
this Agreement.
Section 10.2 GOVERNING LAW. THIS AGREEMENT AND THE OTHER CONVEYANCE
DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
PENNSYLVANIA, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND
18
<PAGE>
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
Section 10.3 NOTICES. All demands, notices and communications
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by registered mail, return receipt
requested, to:
(a) in the case of the Buyer, to:
ES Funding Corporation
246 Sobrante Way
Sunnyvale, CA 94086
Attention: Chester Davenport, Chairman
Telephone: (408) 774-6319
Telecopy: (408) 481-3929
and
ES Funding CorporatIon
246 Sobrante Way
Sunnyvale, CA 94086
Attention: C. Michael Alston, General Counsel
Telephone: (408) 774-6319
Telecopy: (408) 481-3929
(b) in the case of the Seller, to:
Envirotest Partners
c/o Envirotest Systems Corp.
6903 Rockledge DrIve, Suite 214
Bethesda, MD 20817
Attention: Chester Davenport, Chairman
Telephone: (301) 530-8110
Telecopy: (301) 530-9538
and
Envirotest Partners
c/o Envirotest Systems Corp.
6903 Rockledge Drive, Suite 214
Bethesda, MD 20817
Attention: C. Michael Alston, General Counsel
Telephone: (301) 530-8110
Telecopy: (301) 530-9538
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party.
19
<PAGE>
Section 10.4 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such covenants, agreements,
provisions, or terms shall be deemed severable from the remaining covenants,
agreements, provisions, or terms of this Agreement and shall in no way affect
the validity or enforceability of the other provisions of this Agreement.
Section 10.5 Assignment. The Seller acknowledges and agrees that
(i) the Buyer shall be entitled to assign its rights under this Agreement to
MSCC pursuant to the Settlement Receivable Purchase Agreement, (ii) MSCC may
pledge such rights to the Liquidity Agent for the benefit of the Liquidity
Lenders pursuant to the Liquidity Loan Agreement and (iii) MSCC may assign
its rights under this Agreement to MSFC. Except as provided in the preceding
sentence, this Agreement may not be assigned by the parties hereto.
Section 10.6 Further Assurances. The Buyer and the Seller agree to
do and perform, from time to time, any and all acts and to execute any and
all further instruments required or reasonably requested by the other party
more fully to effect the purposes of this Agreement, including, without
limitation, the execution of any financing statements or continuation
statements or equivalent documents relating to the Settlement Receivable for
filing under the provisions of the UCC or other laws of any applicable
jurisdiction.
Section 10.7 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Buyer or the Seller, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of
any other right, remedy, power or privilege. The rights, remedies, powers
and privileges herein provided are cumulative and not exhaustive of any
rights, remedies, powers and privilege provided by law.
Section 10.8 Counterparts. This Agreement may be executed in two
or more counterparts including telefax transmission thereof (and by different
parties on separate counterparts), each of which shall be an original, but
all of which together shall constitute one and the same instrument.
20
<PAGE>
Section 10.9 Binding Effect; Third-Part; Beneficiaries. This Agreement
will inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Each assignee contemplated hereunder to
whom an assignment is effected (including, but not limited to, MSCC, MSFC and
the Liquidity Agent) is an express third party beneficiary of the obligations
of the Seller hereunder and may directly enforce the performance by Seller of
such obligations.
Section 10.10 Merger and Integration. Except as specifically
stated otherwise herein, this Agreement sets forth the entIre understanding
of the parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by this Agreement. This
Agreement may not be modified, amended, waived or supplemented except as
provided herein.
Section 10.11 Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or Interpretation
of any provisIon hereof.
IN WITNESS WHEREOF, the Buyer and the Seller
each have caused this Agreement to be duly executed by
their respective officers as of the day and year first
above written.
ENVIROTEST PARTNERS, as Seller
By Its partners:
ENVIROTEST SYSTEMS CORP.
By: /s/ C. Michael Alston
-------------------------
Name : C. Michael Alston
Title: Vice President
ENVIROTEST TECHNOLOGIES, INC.
By: /s/ C. Michael Alston
-------------------------
Name: C. Michael Alston
Title: Vice President
ES FUNDING CORPORATION, as Buyer
By: /s/ C. Michael Alston
-------------------------
Name : C. Michael Alston
Title: Vice President
21
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
among
MARKET STREET CAPITAL CORP.
ES FUNDING CORPORATION
and
PNC BANK, NATIONAL ASSOCIATION
Dated as of November 26, 1996
<PAGE>
TABLE OF CONTENTS
Page
Purchase Price; Purchase and Sale.......................................... 1
Representations and Warranties............................................. 2
Notice of Breach; Cure and Repurchase...................................... 6
Opinions of ounsel......................................................... 7
Closing Items.............................................................. 7
Covenants of Seller Sub.................................................... 7
Events of Default.......................................................... 12
Notices.................................................................... .13
Pledge and Assignment...................................................... 13
Third Party and Liquidity Agent Beneficiaries.............................. 13
Miscellaneous.............................................................. 13
i
<PAGE>
RECEIVABLES PURCHASE AGREEMENT
This Receivables Purchase Agreement (this "Agreement") dated as of
November 26, 1996, is among Market Street Capital Corp., a Delaware
corporation (the "Company"), ES Funding Corporation (the "Seller Sub") and
PNC Bank, National Association, as Administrator and Liquidity Agent. As of,
and effective on, December 11, 1996 (the "Closing Date") the Seller Sub
hereby sells, assigns, transfers and otherwise conveys and the Company agrees
to purchase, all of the Seller Sub's rights (including, but not limited to,
all of the Seller Sub's right, title and interest in and to the right to
receive payment of the Settlement Receivable Assets), but not its
obligations, (the "Rights") under (i) that certain Purchase and Sale
Agreement (the "Receivables Sale Agreement"), dated as of November 26, 1996,
by and among Envirotest Partners (formerly known as Envirotest/Synterra
Partners) (the "Seller"), a Pennsylvania partnership and the Seller Sub and
(ii) that certain General Release and Settlement Agreement dated December 15,
1995, as amended by Amendment No. 1 to General Release and Settlement
Agreement dated November 26, 1996 (as so amended, the "Settlement Agreement")
by and among the Commonwealth of Pennsylvania (the "Commonwealth"), including
without limitation, its agency the Commonwealth of Pennsylvania, Department
of Transportation, the Seller, Envirotest Systems Corp., a Delaware
corporation, and Envirotest Technologies, Inc., a Delaware corporation.
Simultaneously with the execution of this Agreement the Company has, pursuant
to the terms of the Liquidity Agreement (as defined below), pledged to the
Liquidity Agent, as agent for the Liquidity Lenders, all of the Company's
right, title and interest in and to the Rights. On or after the effective
date of this Agreement, the Company may, subject to the pledge to the
Liquidity Agent described in the preceding sentence, assign all of its right,
title and interest in and to the Rights under this Agreement and all of its
rights, title, interests and obligations under the Liquidity Agreement to
Market Street Funding Corporation, a Delaware corporation ("MSFC"). A copy
of the Settlement Agreement is attached hereto as Exhibit A. Terms used
without definition herein shall have the respective meanings assigned to them
in that certain Liquidity Loan Agreement, dated November 26, 1996 (the
"Liquidity Agreement"), by and among the Company, the Liquidity Lenders from
time to time party thereto, and PNC Bank, National Association, as
Administrator and Liquidity Agent.
1. Purchase Price; Purchase and Sale. The purchase price (the
"Purchase Price") for the Rights shall be $79,405,707.00, which amount shall
be payable by the Company to the Seller Sub on the Closing Date in
immediately available funds. On the Closing Date, the Company shall pay the
Purchase Price to the Seller Sub. If, after the payment in full by the
Commonwealth of the Settlement Receivable Asset (as defined in the
Receivables Sale Agreement) and the payment in full by MSCC and MSFC of any
amounts owing under the Liquidity Agreement and
<PAGE>
payment in full of any Notes maturing not later than the seventy-fifth day
following July 31, 1998, and any amounts owing to the Administrator, the
Company has remaining any portion of the amounts paid in respect of the
Settlement Receivable Assets, the Administrator shall instruct the Company to
pay such amount to the Seller Sub no later than the seventy-fifth day following
July 31, 1998.
2. Representations and Warranties. (a) The Seller Sub hereby
represents and warrants to the Company as of the Closing that:
(i) Organization and Good Standing. The Seller Sub is a
corporation duly formed, validly existing and in good
standing under the laws of its state of incorporation,
and the Seller Sub has full power and authority to
execute, deliver and perform its obligations under this
Agreement and the Receivables Sale Agreement and each
other document or instrument to be delivered by it
hereunder and thereunder, including but not limited to
the authority to sell, assign, and transfer the Rights in
accordance with this Agreement and in all material
respects to own its property and conduct its business as
such properties are presently owned and as such business
is presently conducted;
(ii) Due Authorization. The execution, delivery and
performance of this Agreement, the Receivables Sale
Agreement and each other document to be delivered
hereunder or thereunder, and the consummation of the
transactions provided in such documents to which the
Seller Sub is a party have been duly authorized by the
Seller Sub by all the necessary corporate action on the
part of the Seller Sub;
(iii) Binding Obligation. Assuming the due authorization,
execution and delivery of this Agreement, the Receivables
Sale Agreement and each other agreement executed by the
Seller Sub in connection therewith by each party thereto
other than the Seller Sub, this Agreement, the
Receivables Sale Agreement and each such other agreement
and all of the obligations of the Seller Sub hereunder
and thereunder are the legal, valid and binding
obligations of the Seller Sub, enforceable in accordance
with the terms of this Agreement
2
<PAGE>
and the Receivables Sale Agreement, except as enforceability
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting creditors'
right in general, and except as such enforceability may be
limited by general principles of equity (whether such
enforceability is considered in a proceeding in equity or
at law);
(iv) No Conflict. The execution, delivery and performance by
the Seller Sub of this Agreement and the Receivables Sale
Agreement, the performance by the Seller Sub of the
transactions contemplated hereby and thereby and the
fulfillment of the terms hereof and thereof by the Seller
Sub do not (a) contravene its articles of incorporation
or by-laws, (b) violate any provision of, or require any
filing (except for the filings under the UCC required
hereunder, each of which will be duly filed and will be
in full force and effect on the Closing Date),
registration, consent or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having
applicability to the Seller Sub, except for such filings,
registrations, consents or approvals as have already been
obtained and are in full force and effect, (c) result in
a breach of or constitute a default or require any
consent under any indenture, loan agreement, credit
agreement, deed of trust or any other agreement,
contract, lease or instrument to which the Seller Sub is
a party or by which it or its assets or properties may be
bound or affected except those as to which a consent or
waiver has been obtained and is in full force and effect
and an executed copy of which has been delivered to the
Company, or (d) result in, or require, the creation or
imposition of any Lien upon or with respect to any of the
properties now owned or hereafter acquired by the Seller
Sub other than as specifically contemplated hereby or by
the Liquidity Agreement.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment for security, security interest, encumbrance,
levy, lien or charge of any kind, whether voluntarily
3
<PAGE>
incurred or arising by operation of law or otherwise,
affecting any property, including any agreement to grant
any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature of a
security interest, and the filing of or agreement to file
or deliver any financing statement (other than a
precautionary financing statement with respect to a lease
that is not in the nature of a security interest) under
the UCC or comparable law of any jurisdiction;
(v) All Consents Required. All approvals, authorizations,
licenses, consents, orders, or other actions of any
Person or of any Governmental Authority required in
connection with the execution and delivery by the Seller
Sub of this Agreement and the Receivables Sale Agreement,
the performance by the Seller Sub of the transactions
contemplated hereby and thereby, and the fulfillment by
the Seller Sub of the terms hereof and thereof have been
obtained, are in full force and effect, and copies
thereof have been delivered to the Company;
(vi) Not an Investment Company. The Seller Sub is not an
"investment company" or a company controlled by an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended, or is exempt from all
provisions of such Act;
(vii) Proceeds. No proceeds of the purchase will be used for
any purpose that violates Regulations G or U of the
Federal Reserve Board;
(viii) Special Purpose Corporation. The Seller Sub is a newly
formed special purpose corporation organized solely for
the purposes of the transactions contemplated by this
Agreement and the Receivables Sale Agreement and has not
engaged in any activities prior to the date hereof;
(ix) Valid Sale, etc. (A) The Seller Sub is not insolvent and
will not be rendered insolvent upon sale of the Rights to
the Company; the Seller Sub is not engaged in business or
about to engage in business for which the
4
<PAGE>
assets remaining with it after the sale of the Rights will
be an unreasonably small amount of capital; and the Seller
Sub does not intend to incur or believe that it will incur
debts beyond its ability to pay as such debts mature; and
(B) The consideration received by the Seller Sub upon the
sale of the Rights will constitute reasonably equivalent
value and fair consideration for the property sold,
consistent with terms that would be arrived at on an
arm's-length basis; and
(x) No Proceedings. There are no proceedings or
investigations pending or, to the best knowledge of the
Seller Sub, threatened against the Seller Sub, before any
court, regulatory body, administrative agency or other
tribunal or governmental instrumentality (i) asserting
the invalidity of this Agreement or the Receivables Sale
Agreement, (ii) seeking to prevent the consummation of
any of the transactions contemplated hereunder or under
the Receivables Sale Agreement, (iii) which would
adversely affect the performance by the Seller Sub of its
obligations hereunder or under the Receivables Sale
Agreement, (iv) which would adversely affect the
collectibility of the Rights, or (v) seeking any
determination or ruling that would adversely affect the
validity or enforceability of this Agreement or the
Receivables Sale Agreement. The Seller Sub is not in
violation of any order of any court, arbitrator or
governmental authority.
(b) The Seller Sub hereby represents and warrants with respect to
the Rights and the Receivables Sale Agreement, that as of the Closing Date
and as of each date on which a Note is issued and the date any Liquidity Loan
is made that:
(i) Legal Ownership. No effective financing statement or
other instrument similar in effect with respect to the
Seller Sub in connection with the Rights is on file in
any recording office, except those filed in favor of the
Company as contemplated by the Receivables Sale Agreement
or this Agreement;
5
<PAGE>
(ii) Place of Business. The principal place of business and
chief executive office of the Seller Sub is located at
Sunnyvale, California, and the Seller Sub keeps its
records concerning the Settlement Agreement at such
office. Such office shall not be changed without 30 days'
prior written notice to the Company and the
Administrator;
(iii) Name. The Seller Sub's complete corporate name is set
forth in the preamble to this Agreement, and the Seller
Sub does not use and has not during the last six years
used any other corporate name, trade name, doing-business
name or fictitious name;
(iv) Ownership. Neither the Seller Sub nor any Affiliate of
the Seller Sub has any direct or indirect ownership or
other financial interest in the Company or MSFC;
(v) No Transfer. The Seller Sub has not sold, assigned,
pledged, conveyed or otherwise transferred the Rights or
any interest therein or suffered to exist a material Lien
thereon except for the sale and assignment of the Rights
to the Company as provided herein and as provided in the
Receivables Sale Agreement and shall defend and hold
harmless the Company from any Lien or other adverse claim
in or to the Rights; and
(vi) Commonwealth's Obligation. The Settlement Agreement,
including but not limited to the obligation of the
Commonwealth to pay the Settlement Receivable Assets, is
a legal, valid and binding obligation of the
Commonwealth, enforceable against the Commonwealth in
accordance with its terms, except as (a) such enforcement
may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, moratorium or similar laws
affecting the rights of creditors generally and by
equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or
at law); (b) the indemnification provisions in the
Settlement Agreement may not be enforceable to the extent
that they may be deemed to be against public policy or
relate to or purport to govern indemnification against
liabilities under any securities
6
<PAGE>
laws; and (c) certain other rights, remedies and other
remedial provisions of the Settlement Agreement may not be
enforceable, provided that such unenforceability does not
render the Settlement Agreement invalid as a whole or
substantially interfere with the substantial realization of
the principal benefits or security, or both, which the
Settlement Agreement purports to provide.
(c) The representations and warranties set forth in this Section 2
shall survive the conveyance of the Rights to the Company, and termination of
the rights and obligations of the Company and the Seller Sub under this
Agreement.
3. Notice of Breach: Cure and Repurchase. (a) Upon discovery by
the Company or the Seller Sub of a breach of any of the representations and
warranties in Section 2, the party discovering such breach shall give prompt
written notice to the Administrator and the other parties hereto, within
three Business Days of such discovery.
(b) On and after the Closing Date, in the event that any of
the representations and warranties of the Seller Sub as set forth in Sections
2(a) and 2(b)(ii) and (iii) shall not have been true and correct as of the
date such representation or warranty is made (which date shall be the Closing
Date with respect to Section 2(a)), then with respect to Section 2(a) no
later than 180 days, and with respect to Sections 2(b)(ii) and (iii) no later
than 90 days, after receipt by the Seller Sub of written notice of such
breach given by the Company, the Seller Sub shall repurchase and accept a
retransfer of the Rights on the terms and conditions set forth below;
provided, however, that no such repurchase shall be required to be made with
respect to the Rights if, within such 180 or 90 day period, as applicable,
the representations and warranties in Sections 2(a), 2(b)(ii) and (iii) that
triggered such 180 or 90 day period shall then be true and correct in all
material respects. In the event that any of the representations and
warranties set forth in Section 2(b), other than Sections 2(b)(ii) and (iii),
shall not have been true and correct as of the date such representation or
warranty is made, then (i) as of the date of a payment default by the
Commonwealth with respect to the Rights, or (ii) if on and after the date of
such payment default the Company is diligently pursuing its legal rights to
cure such payment default and has a reasonable basis to believe that it will
prevail in its efforts to cure said payment default (and no non-appealable
order has determined to the contrary), 90 days after a payment default by the
Commonwealth with respect to the Rights, the Seller shall repurchase and
accept a retransfer of the Rights on the terms and conditions set forth
below; provided, however, that no such repurchase shall be required to be
made with respect to the
7
<PAGE>
Rights if prior to such payment default or such 90 day period (if applicable)
the representation or warranty which triggered this provision shall then be
true and correct in all material respects. In consideration of such resale the
Seller Sub shall, on the date of the resale of the Rights, pay to the Company
an amount equal to the sum of the outstanding balance of the Capital on the
date of repurchase and accrued unpaid Discount thereupon accruing after the
date hereof, any broken funding costs and any swap breakage costs relating to
interest hedging agreements effected in connection with this Agreement. Upon
each resale to the Seller Sub of the Rights pursuant to this Section 3(b), the
Company shall automatically and without further action be deemed to sell,
transfer, assign and set-over to the Seller Sub, without recourse,
representation or warranty, all right, title and interest of the Company, in,
to and under the Rights and all monies due or to become due with respect
thereto and all proceeds of the Rights.
(c) Upon any reconveyance of the Settlement Receivable Assets
by the Company to the Seller Sub pursuant to Section 3(b), the Company shall
execute and deliver to the Seller Sub instruments of sale and assignment in
such form as shall reasonably be requested by the Seller Sub, in order to
vest in the Seller Sub, or its designee or assignee, all right, title and
interest of the Company in, to and under such Settlement Receivable Assets,
provided, that any such reconveyance shall expressly state that it is made by
the Company without any recourse, representation or warranty. Subject to the
foregoing, the Company shall execute such other documents or instruments of
conveyance or take such other actions as the Seller Sub may reasonably
require to effect any repurchase of the Settlement Receivable Assets pursuant
to Section 3(b).
4. Opinions of Counsel. The Seller Sub hereby covenants to the
Company to, simultaneously with the execution hereof, deliver or cause to be
delivered to the Company opinions of counsel as to various matters in form
and substance satisfactory to the Company.
5. Closing Items. (a) The Seller Sub hereby agrees to furnish to
the Company at or prior to the Closing Date any and all information,
documents, certificates, letters and opinions with respect to this Agreement,
the Liquidity Agreement, the Receivables Sale Agreement, the Seller Sub's
corporate documents and all other program documents and the transactions
contemplated thereby that are reasonably requested by the Company.
(b) The Seller Sub hereby agrees to furnish to the Company at or
prior to the Closing Date executed copies of this Agreement, the Receivables
Sale Agreement and all documents contemplated hereby or thereby.
8
<PAGE>
6. Covenants of Seller Sub. (a) During the term of this
Agreement, and until the Rights sold to the Company shall have been paid in
full or repurchased by the Seller Sub, pursuant to the terms of Section 3(b)
herein, or written-off as uncollectible, and all amounts owed by the Seller
Sub pursuant to this Agreement have been paid, unless the Company otherwise
consents in writing, the Seller Sub covenants and agrees as follows:
(i) Compliance with Laws. etc. The Seller Sub shall satisfy
all of its obligations to be fulfilled under or in
connection with the Rights and maintain in effect all
qualifications required under all applicable laws, rules
and regulations to the extent required in order to
maintain the effectiveness of the conveyance the Rights.
(ii) Preservation of Corporation. The Seller Sub shall
preserve and maintain its corporate existence.
(iii) Audits. At any time and from time to time during the
Seller Sub's regular business hours, on reasonable prior
notice, the Seller Sub shall, in response to any
reasonable request of the Company, permit the Company, or
its agents or representatives, at the cost and expense of
the Seller Sub, (i) to examine and make copies of and
abstracts from all books, records and documents
(including, without limitation, computer tapes and disks)
in the possession or under the control of the Seller Sub
relating to the Rights, and (ii) to visit the offices and
properties of the Seller Sub for the purpose of examining
such materials and to discuss matters relating to the
Rights or the Seller Sub's performance hereunder with any
of the officers or employees of the Seller Sub having
knowledge thereof or the Seller Sub's independent
accountants.
(iv) Keeping of Records and Books of Account. The Seller Sub
shall maintain and implement administrative and operating
procedures (including, without limitation, the ability to
recreate records evidencing the Rights and the related
property with respect thereto conveyed hereunder in the
event of the destruction of the originals thereof), and
keep and maintain all documents, books,
9
<PAGE>
microfiche, computer records and other information
reasonably necessary or advisable for the collection of the
Rights and such related property. Such books, microfiche and
computer records shall reflect all facts giving rise to
the Rights, all payments and credits with respect
thereto, and the computer records shall be clearly marked
to show the interests of the Company in the Rights and
such related property.
(v) Continuous Perfection. The Seller Sub shall not change
its name or identity in any manner which might make any
financing or continuation statement filed hereunder
misleading within the meaning of Section 9-402(7) of the
UCC (or any other then applicable provision of the UCC)
unless the Seller Sub shall have given at least 30 days'
prior written notice thereof to the Company and shall
have taken all action prior to making such change (or
made arrangements to take such action substantially
simultaneously with such change if it is impossible to
take such action substantially simultaneously with such
change if it is impossible to take such action in
advance) necessary or advisable in the opinion of the
Company to amend such financing statement or continuation
statement so that it is not misleading and so that it
continues to perfect the interests of the Company, the
Liquidity Agent and the Liquidity Lenders with the
priority required by this Agreement and the Liquidity
Agreement. The Seller Sub shall neither change the
address of its chief executive office nor change the
location of its principal records concerning the Rights
unless it has given the Company or the Administrator at
least 30 days' prior written notice of its intent to do
so and has taken such action as is necessary or advisable
to cause the interest of the Company, the Liquidity Agent
and the Liquidity Lenders in the Rights to continue to be
perfected with the priority required by this Agreement
and the Liquidity Agreement. The Seller Sub will at all
times maintain its principal executive office and any
other office at which it maintains records relating to
the Rights within the United States of America.
10
<PAGE>
(vi) Further Action. The Seller Sub shall make, execute or
endorse, acknowledge, and file or deliver to the Company
and the Liquidity Agent from time to time such schedules,
confirmatory assignments, conveyances, transfer
endorsements, powers of attorney, certificates, reports
and other assurances or instruments and take such further
steps relating to the Rights and other rights covered by
this Agreement, as the Company or the Liquidity Agent may
request and reasonably require including executing and
delivering to the Company or the Liquidity Agent any
instruments, financing or continuation statements or
other writings reasonably necessary or desirable to
maintain the perfection or priority of the Company's
ownership interest in the Rights under the UCC or other
applicable law. At any time at the request of the
Company or the Administrator, the Seller Sub shall
deliver to, and sign any bills, statements and letters or
other writings necessary to carry out the terms and
provisions of this Agreement and to facilitate the
collection of the Rights.
(vii) Filings. The Seller Sub shall record and file, at its
expense, on or prior to the Closing Date any financing
statement with respect to the Rights meeting the
requirements of applicable state law in such manner and
in such jurisdictions as are necessary under the
applicable UCC to perfect the sale of the Rights from the
Seller Sub to the Company, and shall deliver a
file-stamped copy of such financing statement or other
evidence of such filings (which may, for purposes of this
paragraph, consist of telephone confirmations of such
filings) to the Company.
(viii) Third Parties. If a third party, including a potential
purchaser of the Rights, inquires, the Seller Sub will
promptly indicate that the Rights have been sold to the
Company, and the Seller Sub will not claim any ownership
interest in the Rights.
(ix) Payment Instructions. The Seller Sub will not instruct
the Commonwealth to remit any payments with respect to
the Rights to any
11
<PAGE>
location other than the escrow account established under
that certain Base Settlement Amount Escrow Agent Agreement,
dated as of the date hereof, by and among the Company, MSFC,
and PNC Bank, National Association, as Escrow Agent, as
Liquidity Agent and as Administrative Agent.
(x) Bankruptcy. The Seller Sub will not institute any
bankruptcy proceedings against the Company before the
expiration of one year and one day after the Company's
latest maturing Notes shall have been paid in full.
(xi) Business Character. The Seller Sub shall not engage in
any activities other those contemplated by or in
furtherance of this Agreement, the Receivables Sale
Agreement and the Liquidity Agreement.
(xii) Amendments. The Seller Sub shall not make any amendments
to its articles of incorporation or by-laws or any of the
terms of, or waive any performance under, this Agreement
or the Receivables Sale Agreement, without the written
consent of the Company and the Administrator.
(xiii) Reports. The Seller Sub shall deliver to the Company:
(A) Within ninety (90) days after the end of each fiscal
year of Seller Sub, consolidated balance sheets of Seller
Sub and the related consolidated statements of income
showing the financial condition of Seller Sub as of the
close of such fiscal year and the results of operations
during such year, and a consolidated statement of cash
flows, as of the close of such fiscal year, setting
forth, in each case, in comparative form the
corresponding figures for the preceding year, all the
foregoing consolidated financial statements to be
reported on by, and to carry the report (acceptable in
form and content to Purchaser) of an independent public
accountant of national standing acceptable to Purchaser;
(B) Promptly upon becoming aware thereof, notice of (1)
the commencement of, or any
12
<PAGE>
determination in, any legal judicial or regulatory
proceedings involving or directly relating to the Seller
Sub, (2) any dispute between Seller Sub and any governmental
or regulatory body, (3) any event or condition which in any
case of (1) or (2) if adversely determined, would have a
material adverse effect on (A) the validity or
enforceability of this Agreement, or (B) the ability of
Seller Sub to fulfill its obligations under this Agreement
and (4) any change in the business, operations or financial
condition of Seller Sub, including, without limitation, the
insolvency of Seller Sub.
(xiv) Perfected Security Interest. It is the express intent of
the Seller Sub and the Company that the purchase of the
Rights hereunder shall constitute a sale of "accounts"
and/or of "general intangibles" and the "proceeds"
thereof, as each such term is used in Article 9 of the
UCC, which sale is absolute and irrevocable and provides
the Company with the full benefits of ownership of the
Rights. It is, further, not the intention of the Seller
Sub and the Company that such conveyance be deemed a
grant of a security interest in the Rights by the Seller
Sub to the Company to secure a debt or other obligation
of the Seller Sub. Nevertheless, in the event that,
notwithstanding the intent of the parties, the Rights are
found by a court of law to continue to be the property of
the Seller Sub, then (i) this Agreement also shall be
deemed to and hereby is a security agreement within the
meaning of the UCC, and (ii) the conveyance by the Seller
Sub provided for in this Agreement shall be deemed to be
and the Seller Sub hereby grants to the Company a
security interest in and to all of the Seller Sub's
right, title and interest in the Rights, all monies due
or to become due with respect thereto on and after the
Closing Date and all proceeds of such Rights to secure
(1) the rights of the Company under this Agreement, and
(2) a loan to the Seller Sub in the amount of the
Purchase Price plus the Discount thereon as set forth in
the Liquidity Agreement. The Seller Sub shall, to the
extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this
13
<PAGE>
Agreement were deemed to create a security interest in the
Rights, such security interest would be deemed to be a
perfected security interest of first priority in favor of
the Company under applicable law and will be maintained as
such throughout the term of this Agreement.
(xv) No Broker's Fees. No broker, investment banker, agent or
other Person (other than the Company and the Liquidity
Agent) is entitled to any commission or compensation from
the Seller Sub in connection with the sale to the Company
of the Rights.
(xvi) Information. All information, exhibits, financial
statements, documents, books, records or reports
furnished or to be furnished at any time by or on behalf
of the Seller Sub to the Administrator in connection with
this Agreement is or will be accurate in all material
respects as of the date so furnished.
(b) During the term of this Agreement, and until the Rights sold
to the Company shall have been paid in full or repurchased by the Seller Sub,
pursuant to the terms of Section 3(b) herein, or written-off as
uncollectible, and all amounts owed by the Seller Sub pursuant to this
Agreement have been paid, unless the Company otherwise consents in writing,
the Seller Sub covenants and agrees that it shall not:
(i) engage in any business or activity other than those set
forth in Article III of its certificate of incorporation;
(ii) incur any indebtedness, or assume or guaranty any
indebtedness of any other entity, other than (A)
indebtedness arising from the salaries, fees and expenses
to its professional advisors and counsel, directors,
officers and employees, (B) other indebtedness on account
of incidentals or services supplied or furnished to the
Seller Sub, and (C) in the ordinary course of the Seller
Sub's business as set forth in Article III of its
certificate of incorporation:
(iii) dissolve or liquidate, in whole or in part, consolidate
or merge with or into any other entity or convey or
transfer its properties and assets substantially as an
entirety to
14
<PAGE>
any entity other than in the ordinary course of the Seller
Sub's business as set forth in Article III of its
certificate of incorporation;
(iv) delete, amend, supplement or otherwise modify any
provision of its certificate of incorporation;
(v) amend, supplement or otherwise modify any part of
Articles II, III, IV, V or X of the by-laws of the Seller
Sub; or
(vi) increase or reclassify the capital stock of the Seller
Sub or issue any additional shares of capital stock of
the Seller Sub.
(vii) take any corporate action in connection with (A) any
merger of the Seller Sub into, or consolidation or
amalgamation of the Seller Sub with, any other person or
entity or (B) any merger of any other person or entity
into the Seller Sub.
7. Events of Default. In the event that any of the Seller Sub's
representations and warranties in Section 2 of this Agreement or any of the
Seller Sub's covenants in Section 6 of this Agreement has been breached, the
Seller Sub shall be in default under this Agreement.
8. Notices. All communications hereunder shall be in writing and
effective only upon receipt and, if sent to the Company, will be mailed,
delivered or telegraphed and confirmed to it at Market Street Capital Corp.,
c/o AMACAR Group, L.L.C., 6707-D Fairview Road, Charlotte, North Carolina
28210, attention of Douglas K. Johnson, with a copy to PNC Bank, National
Association, 5th and Wood Street, One PNC Plaza - 3rd Floor, Pittsburgh,
Pennsylvania 15265 attention of Richard J. Hendrix or, if sent to the Seller
Sub, will be mailed, delivered or telegraphed and confirmed to it at ES
Funding Corporation, c/o Envirotest Systems Corp., 246 Sobrante Way,
Sunnyvale, CA, 94086 attention of President, with a copy to Envirotest
Systems Corp., 6903 Rockledge Drive, Ste. 214, Bethesda, Maryland 20817,
attention of Chester Davenport.
9. Pledge and Assignment. The Seller Sub acknowledges and agrees
that (i) the Company shall be entitled to pledge its interest in the Rights
under this Agreement to the Liquidity Agent, as agent for the Liquidity
Lenders, pursuant to the terms of the Liquidity Agreement and (ii) the
Company shall be entitled to assign its right, title and interest in the
Rights under this Agreement to MSFC. All references to
15
<PAGE>
the Company in this Agreement shall be deemed to include its assignee to the
extent of such assignment. This Agreement shall bind and inure to the benefit
of and be enforceable by the Company and the respective permitted assigns of
the Company.
10. Third Party and Liquidity Agent Beneficiaries. Each of MSFC
and the Liquidity Agent (on behalf of itself and on behalf of the Liquidity
Lenders) are an express third party beneficiary of this Agreement. The
representations, warranties, covenants and agreements made by the Seller Sub
in this Agreement are also made for the benefit of MSFC and the Liquidity
Agent, and may be enforced by or on behalf of, MSFC (or the Administrator on
behalf of MSFC) or the Liquidity Agent (on behalf of itself and the other
Liquidity Lenders) to the same extent that the Company has rights against the
Seller Sub under this Agreement in respect of representations, warranties and
agreements made by the Seller Sub herein and such representations, warranties
and agreements shall survive delivery of this Agreement.
11. Miscellaneous. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF PENNSYLVANIA. Neither
this Agreement nor any term hereof may be changed, waived, discharged or
terminated except by a writing signed by the party against whom enforcement
of such change, waiver, discharge or termination is sought. This Agreement
may not be changed in any manner which would have a material adverse effect
on the Company or the holders of Notes without the prior written consent of
the Company and the Administrator. This Agreement may be executed in any
number of counterparts, each of which shall for all purposes be deemed to be
an original and all of which shall together constitute but one and the same
instrument. This Agreement will inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns, and no other
person will have any right or obligation hereunder, other than as provided in
Sections 9 and 10 hereof.
[SIGNATURE PAGE FOLLOWS]
16
<PAGE>
EXHIBIT A
See Tab 1.
<PAGE>
IN WITNESS WHEREOF, the Company, PNC Bank, National Association, as
Administrator and Liquidity Agent, and the Seller Sub have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
MARKET STREET CAPITAL CORP.
By: /s/ Douglas K. Johnson
-------------------------------
Name: Douglas K. Johnson
Title: President
ES FUNDING CORPORATION
By: /s/ C. Michael Alston
--------------------------------
Name: C. Michael Alston
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
as Administrator and as Liquidity Agent
By: /s/ William E. Fallon
----------------------------------
Name: William E. Fallon
Title: Executive Vice President
<PAGE>
ENVIROTEST SYSTEMS CORP.
EXHIBIT 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
(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.
Year Ended September 30,
1996 1995 1994 1993
-------- -------- ------ -------
Income (Loss)
Income (loss) before extraordinary item ($25,064) ($14,861) $2,174 $6,753
Extraordinary item -- -- -- (11,411)
-------- -------- ------ -------
Net income (loss) ($25,064) ($14,861) $2,174 ($4,658)
-------- -------- ------ -------
-------- -------- ------ -------
Earnings (Loss) Per Common and Common
Equivalent Share (b)
Weighted average number of shares
outstanding 16,552 16,059 15,923 14,175
Net effect of dilutive stock options based
on the treasury stock method using the
average market price of common stock (a) 1,147 1,242 1,623 2,539
-------- -------- ------ -------
Common stock and common stock equivalents 17,699 17,301 17,546 16,714
-------- -------- ------ -------
-------- -------- ------ -------
Earnings (loss) per common and common
equivalent share (b):
Income (loss) before extraordinary item ($1.42) ($0.86) $0.12 $0.40
Extraordinary item (0.00) 0.00 0.00 (0.68)
Net income (loss) ($1.42) ($0.86) $0.12 ($0.28)
-------- -------- ------ -------
-------- -------- ------ -------
Earnings (Loss) Per Common Share -
Assuming Full Dilution (b)
Weighted average number of shares
outstanding 16,552 16,059 15,923 14,175
Net effect of dilutive stock options based
on the treasury stock method using the
ending market price of common stock, if
higher than average (a) 1,147 1,242 1,623 2,543
-------- -------- ------ -------
Common stock and common stock equivalents 17,699 17,301 17,546 16,718
-------- -------- ------ -------
-------- -------- ------ -------
Earnings (loss) per common and common
equivalent share (b):
Income (loss) before extraordinary item ($1.42) ($0.86) $0.12 $0.40
Extraordinary item (0.00) 0.00 0.00 (0.68)
-------- -------- ------ -------
Net income (loss) ($1.42) ($0.86) $0.12 ($0.28)
-------- -------- ------ -------
-------- -------- ------ -------
Notes:
(a) Common stock equivalents represent stock options and warrants.
(b) These calculations for the years ended September 30, 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.
<PAGE>
EXHIBIT 21
ENVIROTEST SYSTEMS CORP
ENVIROTEST TECHNOLOGIES, INC.
SUBSIDIARIES
ENVIROTEST SYSTEMS CORP.
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
Envirotest Technologies, Inc. (1) Delaware
Ebco-Hamilton Test Systems Ltd. (4) British Columbia
Hamilton Test Systems (B.C.) Ltd. (1) British Columbia
EBCO-Hamilton Partners (2) British Columbia
Envirotest Partners (3) Pennsylvania
(Partnership)
Remote Sensing Technologies, Inc. (1) Delaware
Envirotest Wisconsin Inc. (1) Wisconsin
Systems Control. Inc. (1) Washington
ES Funding Corp. (1) Delaware
Envirotest Holdings, Inc. (1) Delaware
Envirotest Acquisition Co. (1) Delaware
EBCO Automotive Testing LTD. (1) British Columbia
ENVIROTEST TECHNOLOGIES, INC.
None.
(1) Wholly owned
(2) Controlled by Envirotest, but less than wholly-owned
(3) Wholly owned by Envirotest Systems Corp. and Envirotest Technologies,
Inc.
(4) Wholly owned by Envirotest Systems Corp. and EBCO Automotive Testing
LTD.
<PAGE>
EXHIBIT 23
Consent of Independent Accountants
We consent to the incorporation by reference in the Registration Statement of
Envirotest Systems Corp. and Subsidiaries on Form S-8 (File No. 33-81556) of
our reports dated December 13, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Envirotest Systems Corp. and
Subsidiaries as of September 30, 1996 and 1995, and for the years ended
September 30, 1996, 1995 and 1994, which reports are included in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
San Jose, California
December 30, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE
ENVIROTEST SYSTEMS CORP. FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 53,104
<SECURITIES> 0
<RECEIVABLES> 90,969
<ALLOWANCES> 449
<INVENTORY> 0
<CURRENT-ASSETS> 158,496
<PP&E> 232,629
<DEPRECIATION> 40,229
<TOTAL-ASSETS> 480,784
<CURRENT-LIABILITIES> 41,888
<BONDS> 420,476
0
0
<COMMON> 166
<OTHER-SE> 12,988
<TOTAL-LIABILITY-AND-EQUITY> 480,784
<SALES> 124,472
<TOTAL-REVENUES> 124,472
<CGS> 102,149
<TOTAL-COSTS> 102,149
<OTHER-EXPENSES> 11,677
<LOSS-PROVISION> 75,000
<INTEREST-EXPENSE> 29,997
<INCOME-PRETAX> (19,426)
<INCOME-TAX> 5,638
<INCOME-CONTINUING> (25,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,064)
<EPS-PRIMARY> $(1.51)
<EPS-DILUTED> $(1.51)
</TABLE>
