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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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Form 10-K/A (Amendment No. 1)
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 (IRS 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 (IRS Employer
of incorporation or organization) Identification Number)
246 Sobrante Way, Sunnyvale, California 94086
(Address of registrants' principal executive offices) (zip code)
Registrants' telephone number, including area code: (408) 774-6300
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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, $0.01 par value per share, of Envirotest Systems Corp.
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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. [ ]
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TABLE OF CONTENTS
Item Description Page
- ---- ----------- ----
PART III
10. Directors and Executive Officers of the Registrant 4
11. Executive Compensation 7
12. Security Ownership of Certain Beneficial
Owners and Management 18
13. Certain Relationships and Related
Transactions 21
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PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding executive officers of the Company, included in the
Company's Form 10-K filed on December 30, 1996 under the caption "Executive
Officers of the Company" in Part I, Item 1 therein, is incorporated herein by
reference.
The following table sets forth, for each Class A Director and Class B
Director, (i) the name and age of each director, (ii) the position and offices
with the Company of each director, and (iii) the year during which each director
first became a director of the Company.
Class A Directors
<TABLE>
<CAPTION>
Served as
Name Age Position Director Since
- ---- --- -------- --------------
<S> <C> <C> <C>
Richard L. Gelfond (a) 41 Vice Chairman of the Board of Directors 1993
Edward Dugger III 47 Director 1991
Robert W. Kasten, Jr 53 Director 1996
</TABLE>
Class B Directors
<TABLE>
<CAPTION>
Served as
Name Age Position Director Since
- ---- --- -------- --------------
<S> <C> <C> <C>
Chester C. Davenport 56 Chairman of the Board of Directors 1990
Cleveland A. Christophe 51 Director 1991
Craig M. Cogut 42 Director 1992
F. Robert Miller 53 Director; President 1996
</TABLE>
__________
(a) On September 23, 1994, the Class A directors elected Mr. Gelfond to fill
the vacant Class A Director position until the next annual meeting of
stockholders and until his successor is elected and qualified; Mr. Gelfond
resigned as a Class B Director immediately prior to such election.
Mr. Davenport is a founder of the Company and has been Chairman of the
Board of Directors since September 1990. Since September 1988 he has been a
managing director of Georgetown Partners, a merchant banking firm. Prior to
October 26, 1993, Georgetown Partners was a stockholder of the Company.
Prior to joining Georgetown Partners, Mr. Davenport was a senior partner in
the Washington, D.C. law firm of Davenport and Seay from 1979 to 1987 and
from 1973 to 1976 and managing general partner of First City Properties, an
investment partnership, from 1979 to 1985. Mr. Davenport served in President
Carter's Administration as Assistant Secretary of Transportation for Policy
and
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International Affairs from 1977 to 1979. In that position he was responsible
for the analysis, development, articulation, and review of domestic and
international transportation policies for the United States Government. Mr.
Davenport is a Managing Trustee of the University of Georgia Foundation.
Mr. Christophe has been a member of the Board of Directors of the Company
since January 1991. He is currently the Managing Partner of TSG Capital Group,
L.L.C. and Executive Vice President, principal and director of TSG Ventures,
Inc.; both companies are private equity investment firms. Mr. Christophe joined
Equico Capital Corporation, the predecessor to TSG Ventures, Inc. in February,
1990. Mr. Christophe is a director of Hayes Wheels International, Inc.
Mr. Dugger has been a member of the Board of Directors of the Company
since February 1991. Since January 1978, Mr. Dugger has been President and
Chief Executive Officer of UNC Ventures, Inc. and, along with UNC Ventures,
Inc. is a General Partner of UNC Ventures II, L.P., Boston-based venture
capital firms. Mr. Dugger is also a member of the Board of Directors of Granite
Broadcasting Corporation and Federal Reserve Bank of Boston.
Mr. Cogut has been a member of the Board of Directors of the Company since
May 1992. Mr. Cogut is the principal of Pegasus Financial, L.L.C., an
investment firm. Mr. Cogut was one of the founding principals of Apollo
Advisors, L.P. which acts as managing general partner of Apollo Investment Fund,
L.P. and AIF II, L.P., securities investment funds, and of Lion Advisors, L.P.
which acts as financial advisor to and representative for certain institutional
investors with respect to securities investments. Mr. Cogut is a director of
Gillett Holdings, Inc. and Salant Corporation.
Mr. Gelfond has been a member of the Board of Directors of the Company
since January 1993 and has been the President of Cheviot Capital Advisors Inc.,
an investment and merchant bank, since December 1990. Since March 1994, Mr.
Gelfond has been the Vice Chairman of the Board of Directors of IMAX Corporation
and was appointed Co-Chief Executive Officer on May 1, 1996.
Mr. Miller has been a member of the Board of Directors of the Company since
September 1996. Mr. Miller has been President and Chief Executive Officer of
the Company since January 26, 1996. Prior to joining the Company, Mr. Miller
served as the President and Chief Executive Officer and a director of Systems
Control, Inc. and its predecessors since 1987.
Mr. Kasten has been a member of the Board of Directors of the Company since
September 1996. Mr. Kasten has been the President of Kasten & Company, a
consulting firm, since the beginning of 1993. From 1981 through 1993, Mr.
Kasten served as a United States Senator representing the State of Wisconsin,
serving on both the Senate Appropriations and Budget Committees. From April
1993 until June 1996, Mr. Kasten also served as Chairman of the Legislative
Studies Institute. Mr. Kasten presently serves as a Senior Associate at the
Center for Strategic and International Studies, a trustee of the American
University in Cairo, Egypt, and a director of the Russia Privatization Fund.
Under a certain Stockholders' Agreement, dated as of March 31, 1993,
among Georgetown Partners (and all subsequent transferees of Class B Common
Stock), Chester C.
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Davenport, Slivy C. Edmonds, TSG Ventures Inc., Apollo Investment Fund, L.P.
and Chemical Equity Associates (the "1993 Stockholders' Agreement"), no more
than four of the six Class B Directors shall consist of persons who are: (i)
officers or full-time employees of the Company; (ii) Chester C. Davenport,
or Slivy C. Edmonds or their affiliates; or (iii) family members of either
(i) or (ii). The 1993 Stockholders' Agreement also provides that the holders
of shares of Class B Common Stock will be obligated to immediately convert
all of their shares of Class B Common Stock into shares of Class A Common
Stock upon the earlier to occur of the following: (i) Mr. Davenport ceases
to control, directly or indirectly, the voting of a majority of the
outstanding shares of Class B Common Stock (such control is deemed to be
ceased if Mr. Davenport dies or suffers a severe and irreversible physical
or mental disability that renders him incapable of controlling the voting of
such shares); or (ii) Mr. Davenport, Ms. Edmonds, members of the immediate
families of either, and trusts or other entities created for estate-planning
purposes whose beneficiaries are members of their immediate families fail to
have, in the aggregate, a direct or indirect (through one or more
intermediaries or entities, in proportion to their economic interest therein)
pecuniary interest in at least 5% of the outstanding shares of common stock
of the Company, including, for purposes of this calculation, shares of common
stock issuable upon exercise of options to purchase common stock. The
foregoing provisions are enforceable only by TSG Ventures Inc., Apollo
Investment Fund, L.P. and Chemical Equity Associates, and shall no longer be
enforceable by any one of the foregoing entities if such entity, together
with its affiliates, at any time, fails to beneficially own unregistered
shares of the Company's Class A Common Stock representing 5% or more of the
outstanding common stock of the Company.
Under an agreement between Mr. Davenport and Ms. Edmonds, dated as of
October 26, 1993, Ms. Edmonds granted to Mr. Davenport an irrevocable proxy to
vote the shares of Common Stock distributed by Georgetown Partners to one of its
partners, an affiliate of Ms. Edmonds, originally consisting of 87,814 shares of
Class A Common Stock and 441,334 shares of Class B Common Stock and including
any shares issued upon exercise of an option to purchase 321,325 shares of Class
B Common Stock, which option is exercisable at any time. According to the
Company's Transfer Agent, as of November 15, 1996, the affiliate of Ms. Edmonds
held no shares of Class B Common Stock.
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All of the current members of the Board of Directors of the Company,
other than Mr. Miller and Mr. Kasten, were elected to the Board of Directors
under the terms of a certain Amended and Restated Stockholders' Agreement,
dated as of April 10, 1992, among the Company and all of the holders of
Common Stock or options or warrants to purchase Common Stock of the Company
(the "1992 Stockholders' Agreement"). Pursuant to the terms of the 1992
Stockholders' Agreement, the following entities nominated the following
persons to serve on the Board of Directors of the Company (and such persons
were elected pursuant to the terms of the 1992 Stockholders' Agreement):
Georgetown Partners: Chester C. Davenport; TSG Ventures Inc.: Cleveland A.
Christophe; Apollo Investment Fund, L.P.: Craig M. Cogut; Kane Partners:
Richard L. Gelfond; and a group composed of Polestar Capital Inc. (f/k/a
Amoco Venture Capital Company), UNC Ventures II, L.P., UNC Ventures, Inc. and
MESBIC Ventures: Edward Dugger III. Pursuant to the terms of the 1992
Stockholders' Agreement, all provisions relating to Board of Directors voting
agreements and arrangements expired on March 31, 1993, the date of the
registration of a class of the Company's equity securities under the Exchange
Act. Mr. Miller was nominated as a member of the Board of Directors under
the terms of his employment agreement. See Employment Agreements and
Compensation Arrangements.
Members of the Board of Directors are reimbursed by the Company for their
travel expenses incurred in attending Board of Directors and Committee
meetings. Members of the Board of Directors who are not also officers of the
Company or any of its subsidiaries, and who are not affiliated with a
stockholder of the Company, receive compensation of $1,000 for each Board of
Directors and Committee meeting attended. Outide Directors (as defined later)
are granted 5,000 options to purchase shares of Class A common stock of the
Company upon election to the Board and 3,000 such options on each succeeding
January 1. See Stock Option Plan.
Mr. Miller assumed the duties of President and Chief Executive Officer on
January 26, 1996. From July 27, 1995 to January 26, 1996, Chester C.
Davenport, Chairman of the Company, had assumed the duties of President and
Chief Executive Officer of the Company. On July 27, 1995, Ralph C. Reins
announced his resignation from such positions. Effective May 24, 1995 William
J. Beckham resigned as a director and Chief Operating Officer and Executive
Vice President of the Company. Ms. Edmunds resigned as Executive Vice
President of the Company on December 31, 1993. Ms. Edmonds also announced
her resignation as a director of the Company on March 24, 1995. In September
1996, Mr. Chavkin did not stand for re-election as a director of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on the Company's review of copies of reporting forms reviewed by
it, the Company believes that, during the fiscal year ended September 30,
1996, all directors and executive officers have filed all required insider
reporting forms with the U.S. Securities and Exchange Commission in a timely
manner, with the exception of Mr. Modi who failed to file, on a timely basis,
one transaction on a Form 4.
Item 11. Executive Compensation
The following table sets forth the compensation paid or awarded by the
Company to the Chief Executive Officer and the four most highly compensated
executive officers of the Company for services rendered in all capacities
during the fiscal years ended September 30, 1994, 1995 and 1996:
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
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Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------ ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Chester C. Davenport
Chairman of the Board 1994 $538,128 -- $ 98 (d) 50,000 (b) $ 32,899 (c)
1995 551,256 -- -- -- 38,388 (c)
1996 619,221 -- -- 131,170 (c)
F. Robert Miller
President and Chief 1996 187,500 -- -- 400,000 (m) 6,337 (n)
Executive Officer
C. Michael Alston
Vice President, General 1994 190,000 -- -- 10,000 (b) 3,302 (f)
Counsel and Secretary 40,000 (e) --
1995 189,950 -- 1,910 (d) 10,000 (j) 4,298 (f)
36,000 (k)
40,000 (k)
1996 217,626 -- 3,481 (d) -- 3,100 (f)
Raj Modi
Vice President, Chief 1994 152,268 -- 125,304 (g) 10,000 (b) 29,803 (h)
Financial Officer, Treasurer 1995 175,000 -- 37,294 (g) 50,000 (k) 8,561 (h)
and Assistant Secretary 10,000 (j)
15,000 (l)
1996 204,340 -- 62,785 (g) -- 32,813 (h)
Lawrence H. Taylor
Marketing Vice President 1994 152,050 -- 2,500 (o) 10,000 (b) 18,866 (p)
1995 165,000 -- 2,500 (o) 10,000 (j) 7,650 (p)
50,000 (k)
15,000 (l)
1996 179,945 -- 90,323 (o) -- 7,750 (p)
</TABLE>
(b) Represents options to purchase Class A Common Stock granted under the
Company's Stock Option Plan for options granted in 1994, the exercise price
is $20.00 per share, which in each case is equal to the market price of the
Class A Common Stock on the date of grant.
(c) Represents contributions matching employees' deferred compensation of
$5,179 in 1994, $4,823 in 1995 and $4,750 in 1996 and profit sharing
contributions made by the Company of $5,625 in 1994, $5,756 in 1995 and
$3,100 in 1996, in each case under the Company's 401(k) savings plan, and
$22,095 in 1994, $27,809 in 1995, and $23,175 in 1996 representing that
part of the premiums paid by the Company under Mr. Davenport's key man life
insurance policy attributable to the policy proceeds as to which Mr.
Davenport may name the beneficiary. Includes payment of accrued vacation
of $100,145 in 1996.
(d) Represents reimbursements made under the Company's medical reimbursement
program.
(e) Represents options to purchase Class A Common Stock at an exercise price of
$15.88 per share (the market price on the date of grant) granted under the
Company's Stock Option Plan.
(f) Represents profit sharing contributions made by the Company under the
Company's 401(k) savings plan.
(g) Represents relocation expense payments of $124,053 in 1994 , $32,984 in
1995 and $57,785 in 1996 (including gross-up for taxes payable thereon of
$48,181 in 1994 and $11,716 in 1995, each of which were paid in the
subsequent fiscal year) and reimbursements made under the Company's medical
reimbursement program of $1,251 in 1994, $4,310 in 1995 and $5,000 in
1996.
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(h) Represents contributions matching employee's deferred compensation of
$3,631 in 1994, $4,927 in 1995 and $4,482 in 1996 and profit sharing
contributions made by the Company of $3,045 in 1994, $3,634 in 1995 and
$3,100 in 1996 in each case under the Company's 401(k) savings plan. Also
includes payments of accrued vacation of $23,127 for 1994 and $25,231 for
1996.
(j) Represents stock options previously granted which were canceled and
reissued on May 9, 1995 under the Company's Stock Option Plan at an
exercise price of $6.125 per share.
(k) Represents stock options previously granted which were canceled and
reissued on July 27, 1995 under the Company's Stock Option Plan at an
exercise price of $6.125 per share.
(l) Represents stock options granted on July 27, 1995 under the Company's Stock
Option Plan at an exercise price of $6.125 per share.
(m) Represents options to purchase Class A Common Stock. 200,000 of such
options have an exercise price of $2.75 (closing price on the date of
grant) and the remaining 200,000 options have an exercise price of $2.8375
(the average closing price for the 5 trading day period ending thirty days
after the date of such grant). Such options were granted under the
Company's Stock Option Plan.
(n) Represents contributions matching employees' deferred compensation of
$3,237 and profit sharing contributions made by the Company under the
Company's 401(k) savings plan of $3,100.
(o) Represents relocation expense payments of $87,290 in 1996 and
reimbursements under the Company's medical reimbursement program of $2,500
in 1994, $2,500 in 1995, and $3,033 in 1996.
(p) Represents contributions matching employee's deferred compensation of
$4,435 in 1994, $4,650 in 1995, and $4,650 in 1996 and profit sharing
contributions made by the Company of $3,000 in 1994, $3,000 in 1995, and
$3,100 in 1996. Also includes payments of accrued vacation of $11,431 in
1994.
Compensation Committee Interlocks and Insider Participation
Mr. Dugger and Mr. Kasten serve as the members of the Compensation
Committee of the Board of Directors since September 24, 1996. The Company is
a party to a Legislative Monitoring Consulting Services Agreement with Kasten
& Company. Under the agreement, Kasten & Company is required to render
consulting services to the Company relating to federal and state legislation
and regulation involving motor vehicle inspections and automotive diagnostic
systems until the period ending September 30, 1996 and during all subsequent
renewal periods. In exchange for its services under the agreement, Kasten &
Company receives monthly payments of $10,000 during the term of the
agreement. Mr. Kasten is the sole owner of Kasten & Company.
Mr. Dugger and Mr. Chavkin had served as the sole members of the
Compensation Committee of the Board of Directors from April 12, 1994 to
September 24, 1996.
Employment Agreements and Compensation Arrangements
Mr. Davenport has an employment agreement with the Company that provides
for a three year employment term, which is automatically renewed for
subsequent two-year terms unless notice of non-renewal is given (the initial
term under such agreement expired in January 1996 and was automatically
renewed until January 1998). The agreement provides for a base salary of
$500,000 per year (which is subject to an annual increase on April 1 of each
year based upon the change in the Consumer Price Index or 5%, whichever is
greater). The agreement provides for the grant to Mr. Davenport of options
under the Company's Stock Option Plan for the purchase of 289,542 shares of
the Company's Class A Common Stock at an exercise price per share equal to
$16.00, the initial public offering price of the Class A Common Stock.
Options to purchase 144,771 shares vested on the date of grant (which was
March 30, 1993) and the remaining options vested on March 30, 1995. The
options expire if not exercised on the tenth anniversary of the date of
grant. The agreement stipulates that Mr. Davenport will devote to the
Company that amount of his time and energies necessary for the performance of
his duties as Chairman of the Board of the Company and will not, during the
term of his employment, engage in any business activity, or acquire an
ownership interest in any entity, that is competitive with any line of
business in which the Company is engaged. The agreement also provides that
for a period of twenty-four months after termination of his
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employment with the Company, Mr. Davenport will continue to receive payment
of his base salary, provided that he does not (without the written approval
of the Board of Directors of the Company) engage in any business in
competition with the Company or its subsidiaries, as such business is
conducted on the date on which his employment with the Company is terminated.
If the Company terminates the employment of Mr. Davenport without "cause" (as
defined in the agreement), or as a result of the sale of the Company to
another entity which does not accept an assignment of the agreement, in each
case prior to the expiration of the term of the agreement, then Mr. Davenport
is entitled to receive, for the remainder of the term, all base salary and
bonus payments, and fifty percent (50%) of his base salary and bonus payments
for three years thereafter, plus other benefits Mr. Davenport otherwise would
have been entitled to receive for such time period. The Company has also
agreed to cover Mr. Davenport during the term of the agreement with a "key
man" life insurance policy in an amount equal to $2.5 million, with the
Company as the beneficiary of $1.0 million and a designee of Mr. Davenport as
the beneficiary of $1.5 million thereof.
Mr. Miller has an employment agreement with the Company that provides for
a three year employment term, which is automatically extended for two
additional years, unless not later than one year prior to the termination
date, the Company or Mr. Miller gives written notice not to extend the
employment agreement (the initial term under such agreement will expire
January 26, 1999). The agreement provides for a base salary of $300,000 per
year (which is subject to an annual increase of the lesser of 5% or the
aggregate monthly percentage increase in the Consumer Price Index for all
Urban Consumers). The agreement also provides for Mr. Miller to earn an
annual target bonus equal to 100% of his base salary, measured against
objective financial criteria to be determined by the Board after consultation
with Mr. Miller. The agreement provides for the grant to Mr. Miller of
options under the Company's Stock Option Plan for the purchase of 400,000
shares of the Company's Class A Common Stock. The exercise price with
respect to 200,000 of such options is the closing NASDAQ National Market
quotation on the date of the grant or the most recent trading date prior to
the date of grant and the exercise price with respect to the remaining
200,000 such options is the average closing market price for the 5 trading
day period ending thirty days after the date of the initial grant. Such
options vest pro rata 10% on the 6 month anniversary of the date of the
grant, an additional 23.33% on the 12 month anniversary of the date of the
grant, an additional 33.33% on the 24 month anniversary of the date of the
grant and the final 33.33% on the thirty six month anniversary of the date of
the grant. The options expire if not exercised on the tenth anniversary of
the grant. The agreement states that if (i) Mr. Miller is terminated by the
Company other than for Cause (as defined in the agreement), (ii) Mr. Miller
terminates his employment for Good Reason (as defined in the agreement),
(iii) the employment is terminated by reason of Mr. Miller's death or
permanent disability, or (iv) there occurs a Change of Control (as defined in
the agreement), all options granted prior to that date shall vest and become
immediately exercisable. In addition, the agreement provides for the grant
of an additional 100,000 options at the discretion of the Board. The
agreement states that during the term, Mr. Miller shall devote his full
business time, energy and skill to the performance of his duties as the
President and Chief Executive Officer of the Company, and shall be nominated
for membership on the Board of Directors. The agreement also provides for a
lump sum payment, based on the remainder of the term of the employment
agreement to Mr. Miller, if Mr. Miller's employment is terminated
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without Cause or for Good Reason.
Mr. Modi has an employment agreement with the Company that provides for a
three year employment term, which is automatically renewed for subsequent
two-year terms unless notice of non-renewal is given by either party (the
initial term under such agreement will expire January 1, 1999). The agreement
provides for a base salary of $210,000 per year (which is subject to an annual
increase of not less than 5% of the prior year's salary). The agreement
stipulates that Mr. Modi will serve as Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary of the Company and will not, during the term
of his employment or Consulting Period (as defined in the agreement), engage in
any business activity, or acquire an ownership interest in any entity, that is
competitive with any line of business in which the Company is engaged without
the written approval of the Board of Directors of the Company. The agreement
also provides that for a period of twelve months after termination of his
employment with the Company, Mr. Modi may, at the election of the Company, serve
as a consultant to the Company and continue to receive payment of his base
salary and be subject to the non-competition clause. If the Company terminates
the employment of Mr. Modi without "cause" (as defined in the agreement), or as
a result of the sale of the Company to another entity which does not accept an
assignment of the agreement, in each case prior to the expiration of the term of
the agreement, then the Company shall retain Mr. Modi as a consultant and
Mr. Modi is entitled to receive, for the remainder of the term or twenty four
months, whichever is greater, all base salary, accrued bonuses and any other
benefits Mr. Modi otherwise would have been entitled to receive for such time
period. The Company has also agreed to provide Mr. Modi during the term of the
agreement with a life insurance policy in an amount equal to $1 million, with a
designee of Mr. Modi as the beneficiary thereof. Mr. Modi is entitled to
receive reimbursement for relocation to California in accordance with the
Company's Relocation Policy including a one-time moving bonus of $35,000 and
payment of reasonable relocation expenses if his agreement is not renewed and
his future employer does not pay relocation costs. The agreement provides for
participation of Mr. Modi in the Company's bonus plans, fringe benefits,
perquisites, benefit programs and other compensation plans.
Mr. Taylor has an employment agreement with the Company that
provides for a three year employment term, which is automatically renewed for
subsequent two-year terms unless notice of non-renewal is given by either
party(the initial term under such agreement will expire January 1, 1999).
The agreement provides for a base salary of $182,000 per year (which is
subject to an annual increase of not less than 5% of the prior year's
salary). The agreement stipulates that Mr. Taylor will serve as Vice
President-Marketing of the Company and will not, during the term of his
employment or Consulting Period (as defined in the agreement), engage in any
business activity, or acquire an ownership interest in any entity, that is
competitive with any line of business in which the Company is engaged without
the written approval of the Board of Directors of the Company. The agreement
also provides that for a period of twelve months after termination of his
employment with the Company, Mr. Taylor may, at the election of the Company,
serve as a consultant to the Company and continue to receive payment of his
base salary and be subject to the non-competition clause. If the Company
terminates the employment of Mr. Taylor without "cause" (as defined in the
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agreement), or as a result of the sale of the Company to another entity which
does not accept an assignment of the agreement, in each case prior to the
expiration of the term of the agreement, then the Company shall retain Mr.
Taylor as a consultant and Mr. Taylor is entitled to receive, for the
remainder of the term or eighteen months, whichever is greater, all base
salary, accrued bonuses and any other benefits Mr. Taylor otherwise would
have been entitled to receive for such time period. The Company has also
agreed to provide Mr. Taylor during the term of the agreement with a life
insurance policy in an amount equal to $1 million, with a designee of Mr.
Taylor as the beneficiary thereof. Mr. Taylor is entitled to receive
reimbursement for relocation to California in the form of a relocation grant
in the estimated amount of $124,680 to be disbursed in three equal annual
installments. The agreement provides for participation of Mr. Taylor in the
Company's bonus plans, fringe benefits, perquisites, benefit programs and
other compensation plans.
Mr. Alston has an employment agreement with the Company that provides
for a three year employment term, which is automatically renewed for
subsequent two-year terms unless notice of non-renewal is given by either
party (the initial term under such agreement will expire January 1, 1999).
The agreement provides for a base salary of $210,000 per year (which is
subject to an annual increase of not less than 5% of the prior year's
salary). The agreement stipulates that Mr. Alston will serve as Vice
President and General Counsel of the Company and will not, during the term of
his employment or Consulting Period (as defined in the agreement), engage in
any business activity, or acquire an ownership interest in any entity, that
is competitive with any line of business in which the Company is engaged
without the written approval of the Board of Directors of the Company. The
agreement also provides that for a period of twelve months after termination
of his employment with the Company, Mr. Alston may, at the election of the
Company, serve as a consultant to the Company and continue to receive payment
of his base salary and be subject to the non-competition clause. If the
Company terminates the employment of Mr. Alston without "cause" (as defined
in the agreement), or as a result of the sale of the Company to another
entity which does not accept an assignment of the agreement, in each case
prior to the expiration of the term of the agreement, then the Company shall
retain Mr. Alston as a consultant and Mr. Alston is entitled to receive, for
the remainder of the term or twenty-four months, whichever is greater, all
base salary, accrued bonuses and any other benefits Mr. Alston otherwise
would have been entitled to receive for such time period. The Company has
also agreed to cover Mr. Alston during the term of the agreement with a life
insurance policy in an amount equal to $1 million, with a designee of Mr.
Alston as the beneficiary thereof. The agreement provides for participation
of Mr. Alston in the Company's bonus plans, fringe benefits, perquisites,
benefit programs and other compensation plans.
Mr. Lancaster had an employment agreement with the Company that provides
for an employment term expiring in December 1995, which is automatically renewed
for subsequent two-year terms unless notice of non-renewal is given. The
employment agreement was not renewed and Mr. Lancaster is no longer employed by
the Company.
On May 24, 1995 the Company entered into a separation, release and waiver
agreement with William J. Beckham, Jr. who resigned as a director and Chief
Operating
12
<PAGE>
Officer and Executive Vice President of the Company. The agreement provides
for a payment to Mr. Beckham of $400,000 payable $300,000 on the effective
date of the agreement and $100,000 paid to a deferred compensation plan,
commonly known as a rabbi trust. The agreement provides for the Company to
pay certain medical and dental insurance premiums for twelve months following
termination of employment. The agreement provides that for a period of two
years following the termination of employment, Mr. Beckham shall not, without
the prior written approval of the Company, directly or indirectly compete
with any business operation in which the Company is currently engaged. The
agreement also required Mr. Beckham to waive, release and discharge all
claims, demands and causes of action that could be asserted against the
Company.
Executive Incentive Compensation Plan
The Company has an Executive Incentive Compensation Plan (the
"Compensation Plan"). The purpose of the Compensation Plan is to facilitate
the hiring, retaining, and motivating of Company executives and key
management personnel. The Compensation Plan is administered by the
Compensation Committee, which recommends to the Board of Directors a
discretionary bonus for eligible employees based on their contributions
during the applicable year to the successful management of the Company. The
Compensation Plan also provides for payment of certain discretionary bonuses
to eligible employees who are not officers of the Company, based on certain
specified performance standards and the employee's base compensation for that
fiscal year. For 1993 and 1994, the Compensation Plan bonuses were funded if
net income before extraordinary items (after deducting bonus payments to be
made under the Compensation Plan) ("adjusted net income") equaled or exceeded
93% of the budgeted adjusted net income amount approved by the Board of
Directors for that fiscal year. The aggregate amount available for
distribution under the Compensation Plan for 1993 and 1994 equaled 5% of the
adjusted net income amount; however, if the adjusted net income amount
equaled or exceeded 100% of the budgeted adjusted net income amount approved
by the Board of Directors for that fiscal year, then the aggregate amount
available for distribution equaled 10% of the adjusted net income amount.
For fiscal year 1995 no bonuses were paid. For fiscal year 1996, the
Compensation Plan bonuses were not funded based upon any formulae and will be
discretionary. Bonuses were paid in respect of fiscal year 1993 only.
Stock Option Plan
In January 1993, the Company adopted a Stock Option Plan (the "Stock
Option Plan" or the "Plan") providing for the grant, from time to time, of
options ("Options") to purchase up to 1,930,285 shares of Class A Common
Stock, to employees of the Company and its subsidiaries (including employees
who are officers or directors, but excluding directors who are not employees)
that have substantial responsibility in the direction and management of the
Company or its subsidiaries, and to Outside Directors (as defined) on an
annual, non-discretionary basis. In September 1996, the shareholders of the
Company approved an amendment to the Plan to increase the shares of Class A
Common Stock reserved for issuance thereunder to 2,330,285. Outside
Directors are directors who are not employees of the Company, and were not
employees for the year prior to the first grant of an Option under the Plan,
and who, when elected to the Board, did not directly or
13
<PAGE>
indirectly own or control more than 5% of the outstanding Common Stock of the
Company (collectively, the "Participating Persons"). As of September 30,
1996, Options granted under the Plan were outstanding for the purchase of
1,483,542 shares of Class A Common Stock.
The Stock Option Plan provides for the grant of (i) Options intended to
qualify as Incentive Stock Options ("ISOs") as defined in Section 422 of the
Code, and (ii) Options that do not qualify as ISOs ("NQSOs"). To the extent
that the aggregate fair market value (determined as of the time the ISO was
granted) of the shares subject to ISOs granted to a Participating Person under
the Plan (combined with all incentive stock option plans of the Company and any
parent or subsidiary) which become exercisable for the first time in any
calendar year exceeds $100,000, such Option shall be treated as a NQSO. The
Committee may provide that in lieu of purchasing the entire number of shares
subject to an Option, the Optionee can relinquish all or any part of the
unexercised portion of the Option for a number of shares of Common Stock equal
to the product of (1) the number of shares of Common Stock subject to the
relinquished Option and (2) a fraction, (i) the numerator of which is the excess
of (A) the current fair market value per share of Common Stock subject to the
relinquished Option over (B) the option price of such relinquished Option, and
(ii) the denominator of which is the then current fair market value per share of
such Common Stock.
The Stock Option Plan is administered by the Compensation Committee (the
"Committee"), which must have at least two members at all times. Members of
the Committee must be "disinterested persons" as that term is defined under
Rule 16b-3 under the Exchange Act. Generally, prior to November 1, 1996, a
disinterested person was a director who, during the one year period prior to
his or her service on the Committee, was not granted a stock option or other
equity security of the Company or any of its affiliates, except as expressly
permitted under Rule 16b-3. Rule 16b-3 has been revised effective November
1, 1996. The Board of Directors has reorganized the Compensation Committee
to comply with the revisions to Rule 16b-3. Subject to the provisions of the
Plan, the Committee is empowered to, among other things, grant Options under
the Plan; determine which employees may be granted Options under the Plan,
the type of Option granted (ISO or NQSO), the number of shares subject to
each Option, the time or times at which Options may be granted and exercised
and the exercise price thereof; construe and interpret the Plan; determine
the terms of any option agreement pursuant to which Options are granted (an
"Option Agreement"); and amend any Option Agreement with the consent of the
recipient of Options (the "Optionee"). The Board of Directors may at any
time suspend or terminate the Stock Option Plan or amend the Stock Option
Plan to conform to changes in the law or as the Board determines to be in the
Company's best interest, except that stockholder approval is required for any
amendment for which stockholder approval is required of the Company by (a)
Rule 16b-3, promulgated under the Exchange Act; (b) the Code or regulatory
provisions dealing with Incentive Stock Options; (c) any rules for listed
companies promulgated by any national stock exchange on which the Company's
stock is traded; or (d) any other applicable rule or law. No amendment,
suspension, or termination of the Stock Option Plan may be made that would
impair or negate any of the rights or obligations of any Participating Person
under any Option theretofore granted without the consent of such
Participating Person.
Pursuant to the terms of each Option Agreement that was in effect on
September 30, 1996, either 25% of the options covered by each Option
Agreement become exercisable on
14
<PAGE>
each anniversary of the date of grant thereof, on a cumulative basis, or 33%
of the options covered by each Option Agreement become exercisable on each
anniversary of the date of grant thereof, on a cumulative basis. The options
granted to Mr. Davenport and Mr. Miller are subject to a different vesting
schedule. See "Employment Agreements and Compensation Arrangements." Options
granted to Outside Directors (5,000 NQSO's upon election to the Board and
3,000 NQSO's on each succeeding January 1) vest 50% on the first and 50% on
the second anniversary of the date of grant thereof, on a cumulative basis.
The exercise price per share for all ISOs may not be less than 100% of the
fair market value of a share of Class A Common Stock on the date on which the
Option is granted (or 110% of the fair market value on the date of grant of an
ISO if the Optionee owns more than 10% of the total combined voting power of all
classes of voting stock of the Company or any of its affiliates (a "10%
Holder")). The exercise price per share for NQSOs may be less than, equal to or
greater than the fair market value of a share of Class A Common Stock on the
date such NQSO is granted, but not less than par value, except that the exercise
price for NQSO's granted to Outside Directors shall be the fair market value of
a share of Class A Common Stock on the date of grant. To the extent determined
by the Committee in granting any Option, upon exercise of such Option, the
option price may be paid in cash or in shares of Class A Common Stock and, if
approved by the Board, the Company, or any parent or subsidiary, may make or
guarantee a loan to an Optionee to finance the exercise of any Option. Options
are not assignable or transferable other than by will or the laws of descent and
distribution. Each Option is exercisable, during the Optionee's lifetime, only
by the Optionee.
Unless earlier terminated by the Board of Directors, the Plan will
terminate in January 2003, 10 years after its effective date. Unless otherwise
specifically provided in an Optionee's Option Agreement, each Option granted
under the Plan expires no later than 10 years after the date such Option is
granted (five years for ISO's granted to 10% Holders). Options may be exercised
only during the period that the Optionee is an employee (or member of the Board,
for Outside Directors) of the Company and (i) for a period of 30 days after
termination of employment (or membership on the Board, for Outside Directors)
other than for cause, without the Company's consent or due to the death of the
Optionee, (ii) for a period of three months after retirement by the Optionee
with the consent of the Company, or (iii) for a period of 12 months after the
death or disability of the Optionee, in each case to the extent the Options are
then exercisable.
Supplemental Retirement Plan Agreements
Effective September 1, 1991, in connection with the acquisition of HTS,
Mr. Singleton and Ms. Edmonds, who were officers or employees of HTS, each
entered into a separate Supplemental Retirement Plan Agreement (the "Retirement
Plans") with the Company. The purpose of these agreements was to induce such
individuals to remain with HTS and to provide them with retirement benefits
similar to those to which they were then entitled.
Under the Retirement Plans, the Company is required to pay to the
recipient a fixed monthly benefit for a ten-year period beginning at the
later of the date on which the recipient reaches 65 years of age and the date
on which the recipient's employment is terminated. The Retirement Plans
provide that, if the recipient dies after terminating
15
<PAGE>
employment, the benefit continues for the remainder of the ten-year term. If
the recipient dies before terminating employment, the recipient's designated
beneficiaries will be entitled to a reduced benefit payable quarterly and if
the recipient becomes totally disabled while employed by the Company, the
recipient will be entitled to the full monthly benefit for ten years starting
at 65 years of age.
Although the benefits vested upon inception, the benefits may be terminated
by the Company if the recipient engages in a business that is competitive with
HTS after the termination of his employment, whether before or during the period
that he is otherwise entitled to receive the benefit. The benefit is an
unsecured obligation of the Company, which is payable from its general assets.
The annual payment to which each recipient may be entitled at age 65 is
$100,000. The benefits under the Retirement Plans were determined as a result
of negotiations between the Company and the respective beneficiaries thereof.
The Company is the owner and beneficiary of life insurance policies or
annuities, obtained in order to fund the Retirement Plans, the annual
premiums/deposits for which are $17,000 for Mr. Singleton and $15,000 for Ms.
Edmonds.
Medical Reimbursement Program
Executives of the Company are eligible to participate in a medical
reimbursement program. The program provides direct payment to participating
employees for non-reimbursed expenses that constitute "covered" medical and
dental expenses incurred under the Company's health insurance program. The
health services costs include any deductibles, co-payments, and payments above
reasonable and customary levels that are incurred by a participating employee.
Payments are limited to $5,000 per year per employee.
Stock Options
The following table sets forth information with respect to options awarded
by the Company to the Chief Executive Officer and the four most highly
compensated executive officers of the Company during the fiscal year ended
September 30, 1996:
16
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Stock Price
Individual Grants Appreciation for Option Term(a)
----------------- ----------------------------
% of
Total
Options
Granted to Exercise Market
Employees or Base Price on
Options in Fiscal Price Date of Expiration
Name Granted(b) Year ($/Sh) Grant Date 0% 5% 10%
- ---- ------- ---- ------ ----- ---- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Chester C. Davenport 0 0.0% -- -- -- -- -- --
F. Robert Miller 200,000(b) 50.0% 2.75 2.75 1/26/2006 -- 346,000 876,000
200,000(b) 50.0% 2.8375 2.75 1/26/2006 -- 346,000 876,000
C. Michael Alston 0 0.0% -- -- -- -- -- --
Raj Modi 0 0.0% -- -- -- -- -- --
Lawrence H. Taylor 0 0.0% -- -- -- -- -- --
</TABLE>
(a) Illustrates value that might be realized upon exercise of options
immediately prior to the expiration date thereof, assuming specified
compounded annual rates of appreciation on the Company's Class A Common
Stock over the term of the options. At the end of the option terms on
January 26, 2006 and January 26, 2006, the price per share of the Class A
Common Stock would be $4.48 and $4.48, respectively, at an assumed
compounded annual rate of appreciation of 5%, and $7.13 and $7.13,
respectively, at an assumed compounded annual rate of appreciation of 10%.
Assumed rates of appreciation are not necessarily indicative of future
stock performance.
(b) Options are exercisable 10% on and after the six-month anniversary of
the date of grant, 23.33% on and after the 12-month anniversary of the date
of grant, and 33.33% on and after the 24-month anniversary of the date of
grant, and the remaining on and after the 36-month anniversary of the date
of grant.
The following table sets forth, as of September 30, 1996, the number of
options and the value of unexercised options held by the Company's Chief
Executive Officer and the four most highly compensated executive officers during
fiscal 1996:
17
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
Number of Value of Unexercised
Unexercised Options In-the-Money Options
Name at September 30, 1996 at September 30, 1996
- ---- ----------------------- ---------------------
Chester C. Davenport 965,568 (exercisable) $2,035,775 (exercisable)
25,000 (unexercisable) 0 (unexercisable)
F. Robert Miller 40,000 (exercisable) 28,250 (exercisable)
360,000 (unexercisable) 0 (unexercisable)
C. Michael Alston 28,666 (exercisable) 0 (exercisable)
57,334 (unexercisable) 0 (unexercisable)
Raj Modi 25,000 (exercisable) 0 (exercisable)
50,000 (unexercisable) 0 (unexercisable)
Lawrence H. Taylor 25,000 (exercisable) 0 (exercisable)
50,000 (unexercisable) 0 (unexercisable)
_______________
401(k) Savings Plan
The Company has a 401(k) Savings Plan, the purpose of which is to provide
retirement benefits for substantially all of its employees. Contributions to
the Plan are made by both the employee and the Company. The Company matches 50%
of that part of an employee's deferred compensation that does not exceed 6% of
such employee's salary. The maximum matching payment by the Company per
employee for 1996 was $4,750. Company-matched contributions vest in full after
three years of an employee's credited service (at least 1,000 hours per year) to
the Company. In addition, the Company may, in the discretion of the Board of
Directors, make profit-sharing contributions to the Plan. For 1996, the Company
made profit-sharing contributions equal to 2% of the base salary of each Plan
participant.
A contribution to the Plan of approximately $696,000 was charged to expense
for 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of November 15,
1996, regarding beneficial ownership of all classes of the Company's voting
common stock by each person (including any "group" as that term is used in
Section 13(d)(3) of the Securities Exchange Act of 1934) who is known by the
Company to own more than 5% of any class of the Company's voting common stock,
each director, each "named" executive officer (as that term is used in Item 402
of Regulation S-K) and all directors and executive officers as a group.
18
<PAGE>
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
------------------------------ ------------------------------
Percentage Percentage
Number of Class Number of Class
Beneficially Beneficially Beneficially Beneficially
Owned Owned Owned Owned
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Chester C. Davenport (a) 3,518,645 22.6% 2,040,775 100%
Envirotest Systems Corp.
6903 Rockledge Drive
Suite 214
Bethesda, Maryland 20817
TSG Ventures Inc. 2,246,818 17.0% -- --
177 Broad St.
Stamford, Connecticut 06901
Apollo Investment Fund, L.P. (b) 2,101,111 15.9% -- --
c/o Apollo Advisors, L.P.
2 Manhattanville Road
Purchase, New York 10577
Chemical Equity Associates (c)
(A California Limited
Partnership) 2,026,111 13.3% -- --
380 Madison Avenue
12th Floor
New York, New York 10017
Polestar Capital Inc. 768,768 5.8% -- --
180 North Michigan Ave.
Suite 1905
Chicago, Illinois 60601
Appaloosa Management, L.P (d) 789,000 6.0% -- --
David A. Tepper
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Kane Partners, L.P. (e) 717,658 5.4% -- --
80 East Middle Patent Road
Bedford, New York 10506
Cleveland A. Christophe (f) 2,246,818 17.0% -- --
TSG Ventures Inc.
177 Broad St.
Stamford, Connecticut 06901
Craig M. Cogut (b) 2,101,111 15.9% -- --
Pegasus Financial LLC
591 West Putnam Avenue
Greenwich, CT 06830
Edward Dugger III (g) 417,203 3.2% -- --
UNC Ventures, Inc.
711 Atlantic Avenue
Third Floor
Boston, Massachusetts 02111
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Richard L. Gelfond (h) 911,658 6.9% -- --
Cheviot Capital Advisors Inc.
P.O. Box 571
Southampton, New York 11969
R.W. Kasten, Jr. 2,000 * --
F. Robert Miller (i) 40,000 * -- --
Raj Modi (j) 87,066 * --
C. Michael Alston (k) 29,216 * --
Lawrence Taylor (l) 77,932 * --
All directors and
officers as a group
(15 persons) 9,431,648 60.1% 2,040,755 100%
</TABLE>
__________________________________
* Less than 1%
(a) Represents shares owned by Rockspring Management, Inc. and The Chester
Corporation, both of which are wholly owned corporations of Mr.
Davenport. Includes (i) 314,542 shares of Class A Common Stock
issuable upon the exercise of options to purchase Class A Common
Stock, which are exercisable at the option of the holder within sixty
(60) days; (ii) 1,389,749 shares of Class B Common Stock and options
to purchase 651,026 shares of Class B Common Stock which are
exercisable at the option of the holder within sixty (60) days; (iii)
132,325 shares of Class A Common Stock held by Ms. Slivy Edmonds (as
confirmed by Ms. Edwards and the Company's transfer agent on July 15,
1996) as to which Mr. Davenport has been granted an irrevocable proxy
with respect to all shareholder voting matters other than the election
of directors; and (iv) 717,658 shares of Class A Common Stock owned by
Kane Partners, L.P. Mr. Davenport, a Director of the Company,
controls the General Partner of Georgetown Partners Limited
Partnership ("Georgetown Partners"), which is a limited partner of
Kane Partners, L.P. Georgetown Partners shares voting and investment
power with respect to shares held by Kane Partners, L.P. Shares of
Class B Common Stock are convertible at the option of the holder at
any time into an equal number of shares of Class A Common Stock.
(b) Includes 2,026,111 shares owned by Apollo Investment Fund, L.P., a
securities investment fund. Also includes 75,000 shares owned by Mr.
Cogut. Mr. Cogut, a Director of the Company, is a Limited Partner of
Apollo Advisors, L.P., and an executive officer and director of Apollo
Capital Management, Inc., the General Partner of Apollo Advisors, L.P.
Apollo Advisors, L.P., as the Managing General Partner of Apollo
Investment Fund, L.P., exercises sole investment discretion over
securities held by Apollo Investment Fund, L.P. Accordingly, Apollo
Advisors, L.P. may be deemed the beneficial owner of the shares owned
by Apollo Investment Fund, L.P. Mr. Cogut and the other officers and
directors of Apollo Capital Management, Inc. disclaim beneficial
ownership with respect to shares owned by Apollo Capital Management,
Inc.
(c) Represents shares of Class A Common Stock issuable upon the conversion
of Class C Common Stock, which are convertible at the option of Chase
Banking Corporation. The Class C Common Stock does not have ordinary
voting rights for the election of directors or other matters generally
requiring a stockholder vote.
(d) The information on Appaloosa Management, LP and David A. Tepper and their
beneficial ownership of Class A Common Stock is based on Schedule 13D
filed with the Securities and Exchange Commission on October 9, 1996.
(e) The information on Kane Partners, L.P. and its beneficial ownership of
the Class A Common Stock is based on Schedule 13G filed with the
Securities and Exchange Commission filed on February 17, 1994.
(f) Represents shares owned by TSG Ventures Inc. Mr. Christophe, a
Director of the Company, is a Principal, Director, and stockholder of
TSG Ventures Inc., and shares voting and investment power with respect
to such shares.
(g) Includes 319,224 shares owned by UNC Ventures II, L.P. and 87,991
shares owned by UNC Ventures, Inc. Mr. Dugger, a Director of the
Company, is the President and Chief Executive Officer of UNC Ventures
Inc. and, along with UNC Ventures, Inc., is a General Partner of UNC
Ventures II, L.P., and holds, subject to the approval of the Board of
Directors of UNC Ventures, Inc., investment power with respect to such
shares.
(h) Represents shares owned by Kane Partners, L.P., options to purchase
100,000 shares of Class A Common Stock held by Cheviot Capital
Advisors Inc. which are exercisable by the holder within sixty (60)
days and 94,000 shares held directly by Mr. Gelfond. Mr. Gelfond, a
Director of the Company, is the Vice President of the General Partner
of Kane Partners, L.P. and shares voting and investment power with
respect to such shares, and is the President and sole stockholder of
Cheviot Capital Advisors Inc.
(i) Represents 40,000 shares of Class A Common Stock issuable upon the
exercise of options to purchase Class A Common Stock, which are
exercisable at the option of the holder within sixty (60) days.
20
<PAGE>
(j) Includes 25,000 shares of Class A Common Stock issuable upon the exercise
of options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days. Also includes 9,230 shares
owned by members of Mr. Modi's immediate family. Mr. Modi disclaims
beneficial ownership of such shares.
(k) Includes 28,666 shares of Class A Common Stock issuable upon the exercise
of options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
(l) Includes 25,000 shares of Class A Common Stock issuable upon the exercise
of options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
Item 13. Certain Relationships and Related Transactions
The Company was a party to an Agreement for Consulting Services with
Cheviot Capital Advisors Inc. ("Cheviot") dated as of September 1, 1993 which
expired on September 1, 1996. Under the agreement, Cheviot (and,
specifically, Mr. Gelfond, the President and sole stockholder of Cheviot) was
required to render consulting services to the Company at such times and in
such manner as the Company may reasonably request, relating to strategy,
bidding and financing of emissions testing contracts, for a three year term.
In exchange for its services under the agreement, Cheviot received a base
consulting service fee of $20,000 and $10,000 per month during the first and
second year of the term, respectively, and received $10,000 per month during
the next year of the term, reimbursement for reasonable out-of-pocket
expenses, options to purchase 50,000 shares of Class A Common Stock at an
exercise price of $9.75 per share (equal to the final quotation of the Class
A Common Stock on the NASDAQ-NMS on August 31, 1993) and options to purchase
50,000 shares of Class A Common Stock at an exercise price of $14.00 per
share. The options became fully vested on September 1, 1994. The option
exercise price may be paid in cash or in unexercised in-the-money options (at
their fair market value). All options expire if not exercised on or prior to
August 31, 1998. The agreement prohibited Cheviot, during the term of the
agreement, from engaging in any business or performing any services
inconsistent with Cheviot's obligations under the agreement, or engaging in
any business or performing any services for an organization or person engaged
in a business directly competitive with that in which the Company is then
engaged or has agreed or
21
<PAGE>
undertaken to become engaged. Under the agreement, the Company agreed to
indemnify Cheviot, its directors, officers and employees from and against
losses, damages and expenses in connection with any threatened, pending or
completed action, suit, claim or proceeding arising out of any conduct, act
or omission of the indemnified party relating to the agreement, so long as
the indemnified party was not guilty of bad faith, gross negligence or
willful or reckless misconduct and, in respect of any criminal action or
proceeding, had no reasonable cause to believe that such indemnified party's
conduct, act or omission was unlawful. Payments made under the agreement
consisted of $120,000 for fees and $280 for reimbursed expenses during
fiscal 1996.
The Company is a party to a Legislative Monitoring Consulting Services
Agreement with Kasten & Company. Mr. Kasten, a Class A director, is the sole
owner of Kasten & Company. See Compensation Committee Interlocks and Insider
Participation.
During fiscal 1996, the Company made a bridge loan of $350,000 to Mr. Modi,
Vice President, Chief Financial Officer, Treasurer and Assistant Secretary, the
loan proceeds were used for relocation expenses and the purchase of new
residence in the Sunnyvale, California area, the location of the Company's new
headquarters. The loan bears interest at the applicable treasury bill rate
per annum and matures immediatley after the sale of his home at the old
corporate headquarters location.
22
<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 28th day of
January, 1997.
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
23
