ENVIROTEST SYSTEMS CORP /DE/, DEF 14A, 1998-04-10

ENVIROTEST SYSTEMS CORP /DE/
DEF 14A, 1998-04-10
AUTOMOTIVE REPAIR, SERVICES & PARKING

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12

Envirotest Systems Corp.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------
(5) Total fee paid:

------------------------------------------------------------------------

/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------
(3) Filing Party:

------------------------------------------------------------------------
(4) Date Filed:

------------------------------------------------------------------------

<PAGE>
SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )

Filed by the Registrant /X/
Filed by a Party other than the Registrant / /

ENVIROTEST SYSTEMS CORP.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
ENVIROTEST SYSTEMS CORP.
246 SOBRANTE WAY
SUNNYVALE, CALIFORNIA 94086

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 12, 1998

To Our Shareholders:

The Annual Meeting of Shareholders of ENVIROTEST SYSTEMS CORP. (hereinafter
called the "Company"), will be held at the Hyatt Hotels & Resorts, 7400
Wisconsin Avenue, Bethesda, Maryland on May 12, 1998 at 11:00 a.m., local time,
for the following purposes:

(1) To elect three Class A Directors and three Class B Directors to serve
for a term of one year and until their successors are duly elected and
qualified;

(2) To consider and act upon a proposal to approve the selection of Coopers
& Lybrand, L.L.P. as the Company's independent public accountants for
fiscal year 1998;

(3) To approve an amendment to the Company's 1993 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 500,000 shares; and

(4) To transact such other business as may properly be brought before the
Annual Meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on March 27, 1998 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting or any adjournment thereof.

Your attention is directed to the Proxy Statement accompanying this notice
for a more complete statement regarding matters to be acted upon at the Annual
Meeting.

By Order of the Board of Directors
Rajendra Modi
ASSISTANT SECRETARY

Sunnyvale, California
April 13, 1998

YOUR REPRESENTATION AT THE ANNUAL MEETING IS IMPORTANT. TO ENSURE YOUR
REPRESENTATION, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY. SHOULD YOU DESIRE TO REVOKE
YOUR PROXY, YOU MAY DO SO AS PROVIDED IN THE ACCOMPANYING PROXY STATEMENT AT ANY
TIME BEFORE IT IS VOTED.
<PAGE>
ENVIROTEST SYSTEMS CORP.
246 SOBRANTE WAY
SUNNYVALE, CALIFORNIA 94086
------------------------

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 1998
------------------------

The accompanying proxy is solicited by the Board of Directors of ENVIROTEST
SYSTEMS CORP. for use at the Annual Meeting of Shareholders to be held on May
12, 1998 at 11:00 a.m. and any adjournments thereof, notice of which meeting is
attached hereto. This Proxy Statement and the Company's Annual Report to
Shareholders have been mailed on or about April 13, 1998 to all shareholders of
record on March 27, 1998.

The purposes of the Annual Meeting are: to elect six directors; to approve
the selection of Coopers & Lybrand, L.L.P. as the Company's independent public
accountants; to approve an amendment to the Company's 1993 Stock Option Plan
(the "Plan") to increase the number of shares of Common Stock reserved for
issuance thereunder by 500,000 shares; and to transact such other business as
may properly be brought before the Annual Meeting or any adjournment thereof.

A shareholder who signs and returns a proxy in the accompanying form may
revoke the same at any time before the authority granted thereby is exercised by
attending the Annual Meeting and electing to vote in person, by filing with the
Secretary of the Company a written revocation or by duly executing a proxy
bearing a later date. Unless so revoked, the shares of the Company's Class A and
Class B common stock (collectively, the "Common Stock") represented by the proxy
will be voted at the Annual Meeting. Where a choice is specified on the Proxy,
the shares represented thereby will be voted in accordance with such
specifications. If no specification is made, such shares will be voted FOR the
election of the director nominees, FOR the approval of the amendment to the
Plan, and FOR the approval of the selection of Coopers & Lybrand, L.L.P. as the
Company's independent public accountants.

The Board of Directors knows of no other matters which are to be brought to
a vote at the Annual Meeting. However, if any other matter does come before the
Annual Meeting, the persons appointed in the Proxy or their substitutes will
vote in accordance with their best judgment on such matters.

The cost of solicitation of proxies will be borne by the Company, including
expenses in connection with preparing, assembling and mailing this Proxy
Statement. Such solicitation will be made by mail, and may also be made by the
Company's officers, directors and regular employees personally or by telephone
or telegram. The Company may reimburse brokers, custodians and nominees for
their expenses in sending proxies and proxy material to beneficial owners.

The Board of Directors has fixed the close of business on March 27, 1998, as
the record date for the Annual Meeting. On that date, the Company had
outstanding 10,088,913 shares of Common Stock, consisting of 8,839,164 shares of
Class A Common Stock and 1,249,749 shares of Class B Common Stock. Only record
holders of the Common Stock at the close of business on that date will be
entitled to vote at the Annual Meeting. Holders of the Class A Common Stock will
be entitled to one vote for each share of Class A Common Stock so held,
representing an aggregate of 8,839,164 votes for the class, and holders of the
Class B Common Stock will be entitled to 1.75 votes for each share of Class B
Common Stock so held, representing an aggregate of 2,187,069 votes for the
class. The aggregate number of votes represented by the Common Stock is
11,026,224, of which approximately 80.2% are represented by shares of Class A
Common Stock and approximately 19.8% are represented by shares of Class B Common
Stock. The Class A Common Stock and Class B Common Stock vote together as a
single class on all matters except for the election of directors, as to which
the Class A Common Stock votes as a single class for the election of

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the three Class A Directors that such class is entitled to elect pursuant to the
Company's Certificate of Incorporation and the Class B Common Stock votes as a
single class for the election of the three Class B Directors that such class is
entitled to elect pursuant to the Company's Certificate of Incorporation. Votes
may be given in person or by proxy duly authorized in writing.

The following table sets forth certain information, based primarily on
information provided by the Company's transfer agent, as of February 28, 1998,
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.

<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)....................................... 3,454,253 30.7% 2,040,775 100%
Envirotest Systems Corp.
6903 Rockledge Drive, Suite 214
Bethesda, Maryland 20817

TSG Ventures, L.P............................................. 2,246,818 25.4% -- --
1055 Washington Blvd.
Stamford, Connecticut 06901

Chemical Equity Associates (A California
Limited Partnership)(b)....................................... 2,026,111 18.7% -- --
380 Madison Avenue, 12th Floor
New York, New York 10017

Polestar Capital Inc.......................................... 768,768 8.7% -- --
1800 North Michigan
Avenue, Suite 1905
Chicago, Illinois 60601

Appaloosa Management, L.P.(c)................................. 1,224,800 13.9%
David A. Tepper
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078

Kane Partners, L.P.(d)........................................ 717,658 8.1%
80 East Middle Patent Road
Bedford, New York 10506

Cleveland A. Christophe(d).................................... 2,267,651 25.6% -- --
TSG Ventures L.P.
177 Broad Street
Stamford, Connecticut 06901

Edward Dugger, III(f)......................................... 18,331 * -- --

Richard L. Gelfond(g)......................................... 1,009,691 11.3%
Chevoit Capital Advisors Inc.
P.O. Box 571
Southampton, New York 11969
</TABLE>

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<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>
R.W. Kasten, Jr.(h)........................................... 15,333 * --

F. Robert Miller(i)........................................... 266,640 2.9% -- --

Raj Modi(j)................................................... 136,732 1.5% --

C. Michael Alston(k).......................................... 76,216 * --

Lawrence Taylor(l)............................................ 121,265 1.4% --

All directors and officers as a group (16 persons)............ 6,866,111 57.0% 2,040,775 100%
</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,
and Mr. Davenport directly. Includes (i) 375,375 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) 1,249,749 shares of Class B Common Stock and options to purchase
791,026 shares of Class B Common Stock which are exercisable at the option
of the holder within sixty (60) days; and (iii) 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) 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.

(c) The information on Appaloosa Management, L.P. 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 August 18, 1997.

(d) 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 on February 17, 1994.

(e) Represents 2,246,818 shares owned by TSG Ventures L.P. Mr. Christophe, a
Director of the Company, is an officer, director, and shareholder of the
general partner of TSG Ventures L.P., and is a principal of an entity which
provides advisory services to TSG Ventures L.P. and may be deemed to share
voting and investment power with respect to such shares. Also includes 8,333
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.

(f) Includes 8,333 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.

(g) Represents (i) shares owned by Kane Partners, L.P.; (ii) 9,000 shares owned
by Cheviot Capital Advisors (Pension Plan); (iii) 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; (iv) 8,333
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; (v) 137,000 shares held directly by Mr.
Gelfond; and (vi) 22,300 shares held by trusts for which Mr. Gelfond is the
trustee, for

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the benefit of Mr. Gelfond's children. 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.

(h) Includes 12,333 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.

(i) Represents 133,320 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.

(j) Includes 71,666 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. Also includes 15,230 shares
owned by members of Mr. Modi's immediate family. Mr. Modi disclaims
beneficial ownership of such shares.

(k) Includes 75,666 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 68,333 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.

PROPOSAL NO. 1: ELECTION OF DIRECTORS

The Bylaws of the Company provide that the number of directors which shall
constitute the whole Board shall be nine. Six persons are being nominated for
election to the Board at the 1998 Annual Meeting, consisting of three Class A
Directors and three Class B Directors. Three vacancies exist for Class B
Directors. The Board of Directors expects to name three nominees to fill the
vacancy in the proxy statement to be sent to shareholders for the fiscal 1999
annual meeting of shareholders or at such earlier time as it may determine. Each
director will serve until the next Annual Meeting of Shareholders and until his
successor has been elected and qualified.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
ELECTION OF THE DIRECTOR NOMINEES.

It is intended that the shares represented by properly executed proxies will
be voted for the election of the persons listed below except where authority to
so vote is withheld. The nominees have indicated that they are willing to serve
as directors, and the Board of Directors does not contemplate that any of the
nominees will be unable to serve as a director or will become unavailable for
any reason, but if that should occur before the meeting, such proxy will be
voted for such other nominee or nominees as shall be selected by the Board of
Directors. In no event will proxies be voted for more than six (6) nominees.

The following table sets forth, for each nominee for Class A Director and
Class B Director, (i) the name and age of each nominee, (ii) the position and
offices with the Company of each nominee, and (iii) the year during which each
nominee first became a director of the Company.

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CLASS A NOMINEES
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION DIRECTOR SINCE
- - --------------------------------------------- --- --------------------------------------------- ---------------
<S> <C> <C> <C>
Richard L. Gelfond........................... 42 Vice Chairman of the Board of Directors 1993
Edward Dugger III............................ 46 Director 1991
Robert W. Kasten, Jr......................... 53 Director 1996

CLASS B NOMINEES
SERVED AS
NAME AGE POSITION DIRECTOR SINCE
- - --------------------------------------------- --- --------------------------------------------- ---------------
<S> <C> <C> <C>
Chester C. Davenport......................... 55 Chairman of the Board of Directors; 1990
Cleveland A. Christophe...................... 48 Director 1991
F. Robert Miller............................. 53 Director and President 1996
</TABLE>

As of January, 1998, the Audit Committee of the Board of Directors consists
of Mr. Dugger, Mr. Christophe and Mr. Gelfond. Prior to January, 1998, the Audit
Committee of the Board of Directors consisted of Messrs. Davenport, Christophe
and Gelfond. The Audit Committee monitors and supervises the Company's
relationship with its independent public accountants, reviews the internal audit
and control functions and procedures of the Company and makes recommendations to
the Board of Directors thereon.

As of May 12, 1997, the Compensation Committee of the Board of Directors
consists of Mr. Christophe and Mr. Dugger. From October 1, 1996 to May 12, 1997,
the Compensation Committee of the Board of Directors consisted of Mr. Dugger and
Mr. Kasten. The Compensation Committee reviews and makes recommendations to the
Board of Directors regarding the compensation policies of the Company,
administers the Company's Stock Option Plan, makes recommendations to the Board
of Directors as to the amount of any discretionary compensation permitted or
required to be paid to officers and other key personnel of the Company under the
Company's compensation plans, and prepares disclosure of the executive
compensation policies of the Company as required by law.

The Development Committee of the Board of Directors consists of Mr.
Christophe, Mr. Dugger and Mr. Kasten. The Development Committee, which was
formed pursuant to the Indenture governing the Company's 9-5/8% Senior
Subordinated Notes due 2003, is responsible for determining the fairness,
reasonableness and favorability of the terms (compared to comparable
transactions made on an arm's-length basis by non-related parties) of
transactions between the Company or a subsidiary of the Company, and a related
person of the Company or such subsidiary, which transactions have an aggregate
value in excess of $2,000,000. Members of the Development Committee must be
disinterested as to the transaction in question and must satisfy certain other
criteria relating to disinterestedness, as required by the Indenture.

On September 23, 1994, the Board of Directors dissolved the Executive
Committee and established a Management Committee. The members of the Management
Committee are Mr. Christophe, Mr. Davenport and Mr. Gelfond. The Management
Committee was formed to conduct a search for, and recommend to the Board, an
appropriate candidate to serve as President and Chief Executive Officer of the
Company. The Management Committee is also responsible for consulting with the
President of the Company and to give him all directions and approvals that may
be or are required to be given pursuant to the Company's policies and
procedures.

During fiscal 1997, the Board of Directors established a Director Plan
Committee to determine the terms of grants to non-employee directors. The
members of the Director Plan Committee are Mr. Davenport and Mr. Miller. On
October 13, 1997, the Board of Directors also established a Capital Market
Strategy Committee of the Board to advise the Board on matters relating to
improvement of the Company's stock value. The members of the Capital Market
Strategy Committee are Mr. Davenport, Mr. Christophe and Mr. Gelfond.

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The full Board of Directors, rather than a committee thereof, performs the
functions of a nominating committee.

During the fiscal year ended September 30, 1997, there were four meetings of
the Board of Directors, no meetings of the Executive Committee, one meeting of
the Audit Committee, no meetings of the Development Committee, two meetings of
the Compensation Committee, no meetings of the Management Committee, one meeting
of the Director Plan Committee and one meeting of the Capital Market Strategy
Committee. All the directors of the Company, except Mr. Cogut, attended 75% or
more of the meetings of the Board of Directors and the Committees on which they
served. In addition, the Board of Directors acted by written consent on one
occasion, on April 8, 1997. Mr. Cogut resigned as a director as of December 31,
1997.

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 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 managing partner and a member of TSG Capital
Group, L.L.C., the investment advisor to TSG Capital Fund II, L.P. and is a
principal officer and member of TSG Management Co., L.L.C., the investment
advisor to TSG Ventures L.P. He is also an officer, director and shareholder of
the general partner of TSG Capital Fund II, L.P. TSG Ventures L.P. and TSG
Capital Fund II, L.P. are private equity investment firms. Mr. Christophe joined
Equico Capital Corporation, the predecessor to TSG Ventures, L.P. in February
1990. Mr. Christophe is a director of Hayes Lemmerz 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., a Boston-based venture capital firm.
Mr. Dugger is also a member of the Board of Directors of Granite Broadcasting
Corporation and the Federal Reserve Bank of Boston.

Mr. Gelfond has been a member and Vice Chairman of the Board of Directors of
the Company since January 1993. 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. Gelfond has also been the
President of Cheviot Capital Advisors Inc., an investment and merchant bank,
since December 1990.

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

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<PAGE>
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. 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. Apollo Investment Fund L.P. no longer owns 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. All such options have
been exercised. According to the Company's Transfer Agent, as of September 30,
1997, the affiliate of Ms. Edmonds held no shares of Class A or Class B Common
Stock.

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 current stockholders 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; 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

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

7
<PAGE>
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. Outside 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 Option Plan.

On November 12, 1996, the Board of Directors, on recommendation from the
Director Plan Committee, granted an option to purchase an aggregate of 25,000
shares of Class A Common Stock to each of Messrs. Christophe, Kasten, Dugger,
Gelfond and Cogut at a price of $3.25 per share. Such options shall expire ten
years from the date of the grant and 33% of such options become exercisable on
each anniversary of the date of grant. Each of Mr. Christophe and Mr. Gelfond
were granted options to purchase 100,000 shares of the Company's Common Stock,
at an exercise price of $5.25, for their work on the Capital Market Strategy
Committee.

Mr. Miller assumed the duties of President and Chief Executive Officer on
January 26, 1996. From July 27, 1995 to January 26, 1996, Mr. Davenport,
Chairman of the Company, had assumed the duties of President and Chief Executive
Officer of the Company. Mr. Cogut resigned as a director as of December 31,
1997.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based on the Company's review of copies of reporting forms received and
reviewed by it, the Company believes that, during the fiscal year ended
September 30, 1997, 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. Richard P. Webb, Executive Vice
President and Chief Operating Officer of the Company, who failed to file, on a
timely basis, a Form 3.

8
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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, 1995, 1996 and 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------
NAME AND -------------------- OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- - --------------------------------------------- --------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>

Chester C. Davenport......................... 1995 551,256 -- -- -- 38,388(a)
Chairman of the Board 1996 619,221 -- -- -- 131,170(a)
1997 602,766 -- 1,575(b) 145,000(o) 31,125(a)
-- -- -- -- 339,542(p) --

F. Robert Miller............................. 1996 187,500 -- -- 400,000(j) 6,337(k)
President and Chief Executive Officer 1997 296,668 -- 5,000(b) -- 7,950(k)

C. Michael Alston............................ 1995 189,950 -- 1,910(b) 10,000(f) 4,298(c)
Vice President, General Counsel & Secretary -- -- -- -- 36,000(h) --
-- -- -- -- 40,000(g) --
1996 217,626 -- 3,481(b) -- 3,100(c)
1997 224,974 -- 615(b) 55,000(q) 3,200(c)
-- -- -- -- -- 12,111(n)

Raj Modi..................................... 1995 175,000 -- 37,294(d) 50,000(h) 8,561(e)
Vice President, Chief Financial Officer And -- -- -- -- 10,000(f) --
Assistant Secretary -- -- -- -- 15,000(i) --
1996 204,340 -- 62,785(d) -- 32,813(e)
1997 242,104 35,000 42,456(d) 65,000(q) 7,950(e)

Lawrence H. Taylor........................... 1995 165,000 -- 2,500(l) 10,000(f) 7,650(m)
Marketing Vice President -- -- -- -- 50,000(h) --
-- -- -- -- 15,000(i) --
1996 179,945 -- 90,323(l) -- 7,750(m)
1997 195,450 -- 88,349(l) 55,000(q) 7,777(m)
</TABLE>

- - ------------------------

(a) Represents contributions matching employees' deferred compensation of $4,823
in 1995, $4,750 in 1996 and $4,750 in 1997 and profit sharing contributions
made by the Company of $5,756 in 1995, $3,100 in 1996 and $3,200 in 1997, in
each case under the Company's 401(k) savings plan, and $27,809 in 1995,
$23,175 in 1996 and $23,175 in 1997 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.

(b) Represents reimbursements made under the Company's medical reimbursement
program.

(d) Represents relocation expense payments of $32,984 in 1995, $57,785 in 1996
and $39,247 in 1997 (including gross-up for taxes payable thereon of $11,716
in 1995 and $5,191 in 1996 which were paid in

9
<PAGE>
the subsequent fiscal years) and reimbursements made under the Company's
medical reimbursement program of $4,310 in 1995, $5,000 in 1996 and $3,209
in 1997.

(e) Represents contributions matching employee's deferred compensation of $4,927
in 1995, $4,482 in 1996 and $4,750 in 1997 and profit sharing contributions
made by the Company of $3,634 in 1995, $3,100 in 1996 and $3,200 in 1997, in
each case under the Company's 401(k) savings plan. Also includes payment of
accrued vacation of $25,231 for 1996.

(f) Represents stock options previously granted at an exercise price of $20.00
per share which were canceled and reissued on June 8, 1994 under the
Company's Stock Option Plan at an exercise price of $6.125 per share.

(g) Represents stock options previously granted at an exercise price of $15.875
per share which were canceled and reissued on October 14, 1993 under the
Company's Stock Option Plan at an exercise price of $6.125 per share.

(h) Represents stock options previously granted at an exercise price of $16.00
per share which were canceled and reissued on March 30, 1993 under the
Company's Stock Option Plan at an exercise price of $6.125 per share.

(i) Represents stock options granted on July 27, 1995 under the Company's Stock
Option Plan at an exercise price of $6.125 per share.

(j) 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.

(k) Represents contributions matching employees' deferred compensation of $3,237
in 1996 and $3,200 in 1997 and profit sharing contributions made by the
Company under the Company's 401(k) savings plan of $3,100 in 1996 and $4,750
in 1997.

(l) Represents relocation expense payments of $87,290 in 1996 and $79,999 in
1997, reimbursements under the Company's medical reimbursement program of
$2,500 in 1995, $3,033 in 1996 and $4,150 in 1997, and an automobile
allowance of $4,200 in 1997.

(m) Represents contributions matching employee's deferred compensation of $4,650
in 1995, $4,650 in 1996 and $4,750 in 1997 and profit sharing contributions
made by the Company of $3,000 in 1995, $3,100 in 1996 and $3,027 in 1997.

(n) Represents payment of accrued vacation of $12,111 in 1997.

(o) Represents options to purchase Class A Common Stock at an exercise price of
$3.375 per share granted under the Company's Stock Option Plan.

(p) Represents stock options previously granted at an exercise price of $16.00
per share or $20.00 which were canceled and reissued on October 31, 1996
under the Company's Stock Option Plan at an exercise price of $6.125 per
share.

(q) Represents options to purchase Class A Common Stock at an exercise price of
$3.375 per share granted under the Company's Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Dugger and Mr. Christophe serve as the members of the Compensation
Committee of the Board of Directors. Mr. Dugger has served as a member of this
Committee since April 12, 1994 and Mr. Christophe has served as a member since
May 12, 1997. Mr. Kasten served as a member of the Committee from September 24,
1996 to May 12, 1997. The Company is a party to a Legislative Monitoring

10
<PAGE>
Consulting Services Agreement with Kasten & Company. The agreement originally
provided for a consulting fee of $10,000 per month plus expenses which decreased
to $5,000 per month plus expenses in August 1997. For fiscal 1997 the Company
made payments under this agreement of $135,000 for fees and $688 for expenses.
This agreement is in effect through the current fiscal year. Mr. Kasten is the
sole owner of Kasten & Company.

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 it has been automatically renewed
until January 2000). 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. On October 31, 1996, the Compensation
Committee approved the cancellation of these options and issued the same number
of options at an exercise price of $6.125 per share, a price which was above the
fair market value of the Class A Common Stock on the date of the reissuance. 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 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

11
<PAGE>
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 36 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 by the Company without "cause" or by Mr. Miller 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 based upon the change in the Consumer Price Index or 5%, whichever is
greater). 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 (i) reimbursement for relocation to California in
accordance with the Company's relocation policy, including a one-time moving
bonus of $35,000 and (ii) 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 based upon the change in the Consumer Price Index or 5%, whichever is
greater). 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 the 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

12
<PAGE>
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 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 had an employment agreement with the Company that provided 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 based upon the change in the Consumer Price Index or 5%, whichever is
greater). 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.

Effective September 30, 1997, the Company entered into a separation, release
and waiver agreement with C. Michael Alston who resigned as Vice President,
General Counsel and Secretary of the Company. The agreement provides for the
Company to pay to Mr. Alston his salary at the rate of $220,000, payable in
accordance with the Company's payroll practices until July 31, 1998 or sooner
upon agreement of the parties ("Separation Date"). The agreement provides for
the Company to pay certain medical, dental and other insurance coverage for Mr.
Alston until the Separation Date. The agreement provides that Mr. Alston shall
perform certain reasonable duties and special projects assigned to him from time
to time prior to the Separation Date. Under the agreement, for a period of one
year after the Separation Date, Mr. Alston shall not, without the prior written
approval from the Company, directly or indirectly compete with any business
operations in which the Company is engaged. The agreement also requires Mr.
Alston to waive, release and discharge all claims, demands and causes of action
that could be asserted against the Company.

13
<PAGE>
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 fiscal year 1995 no
bonuses were paid. For fiscal year 1996 and 1997, the bonuses were paid on a
discretionary basis and were not funded based upon any formulae.

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 indirectly own or control more than 5% of the
outstanding Common Stock of the Company (collectively, the "Participating
Persons"). As of September 30, 1997, Options granted under the Plan were
outstanding for the purchase of 2,255,625 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 an 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.
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

14
<PAGE>
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, 1997, either 25% of the Options covered by each Option Agreement
become exercisable on 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 NQSOs upon election
to the Board and 3,000 NQSOs 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. All Options vest and become exercisable upon a change of control of the
Company.

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; provided, however, that
the exercise price for NQSOs 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 ISOs 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.

In addition to Options granted pursuant to the Plan, the Company also grants
stock options to directors and employees which are not granted pursuant to the
Plan ("Non-Plan Options"). As of September 30, 1997, the Company had issued
509,937 Non-Plan Options. As of January 30, 1998, the Company had issued an
additional 866,667 Non-Plan Options.

15
<PAGE>
SUPPLEMENTAL RETIREMENT PLAN AGREEMENTS

Effective September 1, 1991, in connection with the acquisition of Hamilton
Test Systems, Inc. ("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 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 or her employment, whether before or during the
period that he or she 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.

16
<PAGE>
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, 1997:

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------
% OF POTENTIAL REALIZABLE
TOTAL VALUE AT
OPTIONS ASSUMED ANNUAL RATES
GRANTED TO EXERCISE MARKET OF
EMPLOYEES OR BASE PRICE ON STOCK PRICE
OPTIONS IN FISCAL PRICE DATE OF EXPIRATION ---------------------
NAME GRANTED(A) YEAR ($/SH) GRANT DATE 5% 10%
- - -------------------------------------- ----------- ------------- ----------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Chester C. Davenport.................. 145,000 9.8 3.375 3.375 10/31/2006 278,242 732,926
339,542(b) 22.9 6.125 3.25 10/31/2006 (282,191) 782,530
F. Robert Miller...................... -- -- -- -- -- -- --
C. Michael Alston..................... 55,000 3.8 3.375 3.375 10/31/2006 116,739 295,838
Raj Modi.............................. 65,000 4.4 3.375 3.375 10/31/2006 137,964 349,627
Lawrence H. Taylor.................... 55,000 3.8 3.375 3.375 10/31/2006 116,739 295,838
</TABLE>

- - ------------------------

(a) One third of such options will vest on each anniversary of the date of the
grant.

(b) Represents reissue of options granted in prior years.

The following table sets forth, as of September 30, 1997, 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 1997:

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AT SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997
- - ---------------------------------------------------- ----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Chester C. Davenport................................ 791,026 (exercisable) $3,229,562 (exercisable)
484,542 (unexercisable) 154,063 (unexercisable)
F. Robert Miller.................................... 133,320 (exercisable) 223,988 (exercisable)
266,680 (unexercisable) 440,023 (unexercisable)
C. Michael Alston................................... 57,333 (exercisable) 0 (exercisable)
47,000 (unexercisable) 19,479 (unexercisable)
Raj Modi............................................ 50,000 (exercisable) 0 (exercisable)
90,000 (unexercisable) 69,063 (unexercisable)
Lawrence H. Taylor.................................. 50,000 (exercisable) 0 (exercisable)
80,000 (unexercisable) 58,438 (unexercisable)
</TABLE>

401(K) SAVINGS PLANS

The Company has a 401(k) Savings Plan (the "Savings Plan"), the purpose of
which is to provide retirement benefits for its eligible employees.
Contributions to the Savings 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 1997 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 discretionary contributions to the Savings Plan.

17
<PAGE>
Through June 30, 1997, the Company made discretionary contributions equal to 2%
of the base salary of each employee eligible to participate in the Savings Plan.

A contribution to the Plan of approximately $457,000 was charged to expense
for 1997.

Effective July 1, 1997, the Company adopted the Envirotest 401(k) Top Hat
Plan (the "Top Hat Plan"). The Top Hat Plan is an unfunded, nonqualified
deferred compensation arrangement which generally permits highly compensated
employees (as defined under the Internal Revenue Code of 1986, as amended) to
make salary reduction contributions in excess of the limitations imposed under
the Company's qualified Savings Plan and applicable law and receive matching
contributions on such amounts up to a maximum of 6% of such employee's
compensation. The Top Hat Plan is intended to be exempt from many of the
requirements of ERISA. All amounts payable under the Top Hat Plan are subject to
the claims of the creditors of the Company and a participant's right to payment
under the Top Hat Plan are the same as an unsecured general creditor of the
Company.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND OPTION REPRICING

The Company's compensation policies are designed to align executive
compensation with the short and long-term profitability of the Company. A
significant part of management compensation is comprised of stock options under
the Company's Stock Option Plan. While the Company has previously relied upon a
combination of cash bonuses and stock options to incentivize its employees, the
Company has relied exclusively on the award of stock options during the previous
three fiscal years.

The Company's current executive compensation arrangements were established
by the full Board of Directors of the Company prior to the formation of the
Compensation Committee in March of 1993. Salaries for Chester C. Davenport, the
Chairman of the Board of the Company and the other most highly compensated
executives are governed by employment contracts approved by the Board of
Directors. The Board of Directors approved employment contracts of Mr. Davenport
in January 1993, Mr. Miller in December 1995 and Messrs. Modi, Alston and Taylor
in November 1996. The general level of Mr. Davenport's salary is based upon
compensation arrangements that were negotiated in the context of the acquisition
of Hamilton Test Systems, Inc. in 1990 and ETI in 1992. These negotiated
compensation arrangements reflected the Board's evaluation of the experience and
value of the executive of the Company, the then-existing compensation of the
executive, prevailing salary levels at similarly capitalized companies, and a
recognition of the efforts required to complete the acquisition. Accordingly,
the salaries fixed by these contracts are not directly tied to corporate
performance (although, as described herein, the aggregate cash bonus amount
available under the Company's Executive Incentive Compensation Plan is tied to
earnings results).

The salary of Mr. Davenport reflects the critical role Mr. Davenport has
played in the affairs of the Company, including the founding of the Company in
1990, the arrangement and successful completion of the Company's acquisitions in
1990 and 1992, and the expansion of the Company through private and public
financings, new contract awards, and the securing and retention of key
management personnel and achievement of significant corporate objectives.

The Committee's awards of options under the Stock Option Plan have been
based upon the overall contribution of the recipient to the development of
corporate policy and the operations and performance of the Company, and the
expected contribution of the recipient to the future success of the Company.

In fiscal 1997, the Compensation Committee reviewed the existing stock
options of all Company executives and employees. In light of the fact that the
outstanding options granted to employees by the Company had exercise prices well
above the recent historical trading prices for the Company's Common Stock, the
Compensation Committee concluded that such stock options were not providing the
desired incentive to those employees whom the Committee believed were making and
would continue to make substantial contributions to the successful growth of the
Company. The Committee believed this action was needed to help retain key
employees at a time of intense competition for experienced personnel. Certain of
the executive officers of the Company were among those employees who had stock
options repriced.

EDWARD DUGGER, III
CLEVELAND CHRISTOPHE

18
<PAGE>
The following table provides information concerning the repricing of stock
options held by executive officers of the Company from the Company's initial
public offering on April 7, 1993 through September 30, 1997.

TEN-YEAR OPTION/SAR REPRICINGS

<TABLE>
<CAPTION>
MARKET EXERCISE
NUMBER OF PRICE OF PRICE AT LENGTH OF
SECURITIES STOCK AT TIME TIME OF ORIGINAL
UNDERLYING OF REPRICING REPRICING OPTION TERM
OPTIONS/SARS OR OR NEW REMAINING AT
REPRICED OR AMENDMENT AMENDMENT EXERCISE DATE OF REPRICING
NAME DATE AMENDED (#) ($) ($) PRICE ($) OR AMENDMENT
- - ---------------------------------- --------- ------------- -------------- ----------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Chester C. Davenport.............. 10/31/96 289,542 $ 3.2500 $ 16.0000 $ 6.1250 6 years, 149 days
10/31/96 50,000 $ 3.2500 $ 20.0000 $ 6.1250 7 years, 215 days
C. Michael Alston................. 5/9/95 10,000 $ 5.8750 $ 20.0000 $ 6.1250 9 years, 30 days
7/26/95 36,000 $ 5.8750 $ 16.0000 $ 6.1250 7 years, 247 days
7/26/95 40,000 $ 5.8750 $ 15.8750 $ 6.1250 8 years, 70 days
Raj Modi.......................... 5/9/95 10,000 $ 5.8750 $ 20.0000 $ 6.1250 9 years, 30 days
7/26/95 50,000 $ 5.8750 $ 16.0000 $ 6.1250 7 years, 247 days
Larry Taylor...................... 5/9/95 10,000 $ 5.8750 $ 20.0000 $ 6.1250 9 years, 30 days
7/26/95 50,000 $ 5.8750 $ 16.0000 $ 6.1250 7 years, 247 days
</TABLE>

STOCK PRICE PERFORMANCE GRAPH

The following graph compares the percentage change in the cumulative total
shareholder return on the Class A Common Stock against the cumulative total
return on the Amex Stock Market (CRSP Index) and a peer group for the period
from April 1, 1993 to September 30, 1997.

The Company's most recent Proxy Statement, dated August 26, 1996, included a
comparison of the percentage change in the cumulative total shareholder return
on the Class A Common Stock against the cumulative total return on the NASDAQ
Stock Market Index. From April 1, 1993 through August 8, 1997, the Class A
Common Stock was listed on the NASDAQ National Market System. Because the
Company's Class A Common Stock is traded, as of August 11, 1997, on the American
Stock Exchange, the Company no longer compares the Class A Common Stock to the
NASDAQ Stock Market Index. Assuming an initial investment of $100 on April 1,
1993, the date of the Company's initial public offering, the cumulative total
return on the NASDAQ Stock Market Index was $111.1, $112.0, $154.7, $183.6, and
$252.1 as of September 30, 1993, 1994, 1995, 1996 and 1997, respectively.

19
<PAGE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
ENVIROTEST SYSTEMS
<S> <C> <C> <C> <C> <C> <C>
CUMULATIVE TOTAL RETURN FROM APRIL 1, 1993 VS.
AMEX STOCK MARKET (CRSP INDEX) AND PEER GROUP
Fiscal Year Ending
4/1/93 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
ENVIROTEST SYSTEMS $100.0 $86.2 $81.5 $24.6 $21.5 $27.7
AMEX STOCK MARKET (CRSP INDEX) $100.0 $111.5 $109.1 $134.3 $136.8 $171.6
PEER GROUP $100.0 $117.6 $110.4 $131.6 $132.0 $149.9
Note: Assumes an initial investment
of $100 on April 1, 1993. Total return
includes reinvestment of dividends.
</TABLE>

For the foregoing graph the Company has used a group of issuers with similar
market capitalization since the Company cannot reasonably identify a "peer
group" as it is not aware of any other companies in its line of business whose
stock is publicly traded. The issuers comprising the group, all of which have
market capitalizations from $80.8 million to $82.9 million, are as follows:
Autocam Corp., Bull Run Corp., Continental Can/De, Dense-Pac Microsystems Inc.,
DRS Technologies Inc., First Banks Amer Inc., First Home Bancorp Inc./NJ, Gencor
Industries Inc., Gold Reserve Corp., Golden Enterprises, Granite St. Bankshares
Inc., Guest Supply Inc., Gundle/SLT Environmental Inc., Hallwood Energy Partners
LP, Rex Stores Corp., Scott & Stringfellow FINL, Southwest Bancshares Inc./De,
Synthetech Inc., U.S. Home & Garden Inc., and Uniroyal Technology Corp.

CERTAIN TRANSACTIONS

The Company is a party to a Legislative Monitoring Consulting Services
Agreement and 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 bore interest at the applicable treasury bill rate per
annum. Mr. Modi repaid the bridge loan in fiscal 1997. As of September 30, 1997,
the balance outstanding on a separate loan of $100,000 (with interest at 7.5%
per annum), which Mr. Modi has with the Company, is $72,755.73, and all payments
are current on such loan.

20
<PAGE>
PROPOSAL NO. 2: APPROVAL OF COOPERS & LYBRAND, L.L.P.
AS INDEPENDENT PUBLIC ACCOUNTANTS

The Board of Directors has appointed Coopers & Lybrand, L.L.P. as
independent public accountants of the Company for the 1998 fiscal year, subject
to approval by the shareholders, Coopers & Lybrand, L.L.P. were the Company's
independent public accountants for the fiscal year ended September 30, 1997. A
representative of Coopers & Lybrand, L.L.P. is expected to be present at the
Annual Meeting with the opportunity to make a statement if such representative
so desires and will be available to respond to appropriate questions.

THE SHAREHOLDERS ARE REQUESTED BY THE BOARD OF DIRECTORS TO VOTE FOR THE
APPROVAL OF THE APPOINTMENT OF COOPERS & LYBRAND, L.L.P. AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 1998.

PROPOSAL NO. 3: APPROVAL OF AN AMENDMENT
TO THE COMPANY'S 1993 STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK
RESERVED FOR ISSUANCE THEREUNDER BY 500,000 SHARES.

The Board of Directors has adopted, subject to stockholder approval, an
amendment to the 1993 Stock Option Plan (the "Plan") whereby the number of
shares of Class A Common Stock of the Company, par value $0.01 per share ("Class
A Stock") reserved for use upon the exercise of options from time to time under
the Plan will be increased to an aggregate of 2,830,285 shares. This amendment
was adopted by the Board of Directors as of April 13, 1998. The current maximum
number of shares of Class A Stock reserved in connection with the Plan is
2,330,285.

The amendment is proposed and was adopted by the Board of Directors in the
belief that the Plan is accomplishing its goal of providing additional incentive
to persons who can contribute significantly to the success of the business of
the Company and that the Company should be in a position to continue to make
stock option grants. In addition, the Board of Directors believes that to manage
the Company's growth successfully requires stability in its management team.
Accordingly, the Board of Directors believes that providing a competitive
compensation package to retain key employees and hire new ones is in the best
interest of the Company and its stockholders. On January 31, 1998, there were
only 74,660 shares of Common Stock available for option grants under the Plan.

The affirmative vote of the holders of a majority of the votes entitled to
be cast is required for adoption of the amendment to the Plan.

THE SHAREHOLDERS ARE REQUESTED BY THE BOARD OF DIRECTORS TO VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1993 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES OF CLASS A STOCK RESERVED FOR ISSUANCE THEREUNDER.

VOTE REQUIRED TO APPROVE MATTERS

A quorum for the meeting requires the presence in person or by proxy of
holders of a majority of the shares entitled to vote. The election of directors
requires the affirmative vote of holders of a majority of the class of shares
present at the meeting in person or by proxy.

Votes cast by proxy or in person at the meeting will be tabulated by the
inspector of elections appointed for the meeting. In accordance with Delaware
law, abstentions and broker non-votes will be treated as present for purposes of
determining the presence of a quorum. For purposes of determining approval of an
issue presented at the meeting, abstentions will be deemed present and will,
therefore, have

21
<PAGE>
the same legal effect as a vote "against" a proposal at the meeting. Broker
non-votes will have no effect on the vote.

PROPOSALS OF SHAREHOLDERS

Shareholders intending to submit proposals for presentation at the next
Annual Meeting of Shareholders of the Company and inclusion in the proxy
statement and form of proxy for such Meeting should forward such proposals to
Rajendra Modi, Assistant Secretary, ENVIROTEST SYSTEMS CORP., 246 Sobrante Way,
Sunnyvale, CA 94086. Proposals must be in writing and must be received by the
Company prior to December 17, 1998. Proposals should be sent to the Company by
certified mail, return receipt requested.

By Order of the Board of Directors
Rajendra Modi
ASSISTANT SECRETARY

April 13, 1998

22
<PAGE>
ENVIROTEST SYSTEMS CORP.
REVOCABLE PROXY -- THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS

The undersigned hereby appoints Chester C. Davenport and Richard L. Gelfond,
and each of them, proxies, with full powers of substitution, to act for and in
the name of the undersigned to vote all shares of Class A Common Stock, $.01 par
value (the "Class A Common Stock"), of ENVIROTEST SYSTEMS CORP. (the "Company")
held of record by the undersigned on March 27, 1998, at the Annual Meeting of
Shareholders and any adjournments thereof. The Annual Meeting will be held at
the Hyatt Hotels and Resorts, Bethesda, Maryland on May 12, 1998 at 11:00 a.m.,
local time.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES FOR DIRECTORS
LISTED BELOW AND "FOR" PROPOSAL 2 AND "FOR" PROPOSAL 3.

1. To elect three (3) Class A Directors to serve for a term of one year and
until their successors are duly elected and qualified.
/ / FOR ALL THREE NOMINEES / / WITHHOLD
AUTHORITY VOTE FOR
ALL THREE NOMINEES
Nominees: Richard L. Gelfond Edward Dugger III Robert W. Kasten, Jr.
(Instruction: To withhold authority to vote for any individual nominee, print
that nominee's name in the space provided below.)
2. To consider and act upon a proposal to approve the selection of Coopers &
Lybrand as the Company's independent public accountants for fiscal year
1998.
FOR / / AGAINST / / ABSTAIN / /
3. To approve 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 500,000 shares.
FOR / / AGAINST / / ABSTAIN / /

IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.
(CONTINUED ON REVERSE SIDE)
<PAGE>
(CONTINUED FROM REVERSE SIDE)

PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED PREPAID
ENVELOPE.

The shares represented by this proxy will be voted as directed by the
undersigned. IF NO INSTRUCTIONS ARE SPECIFIED, THE UNDERSIGNED'S VOTE WILL BE
CAST "FOR" THE ELECTION OF THE NOMINEES NAMED IN PROPOSAL 1, "FOR" PROPOSAL 2
AND "FOR" PROPOSAL 3, AND IN THE DISCRETION OF THE PROXIES AS TO ANY OTHER
MATTERS PRESENTED AT THE ANNUAL MEETING. At the present time, the Board of
Directors knows of no other business to be presented at the Annual Meeting.

The undersigned shareholder may revoke this proxy at any time before it is
voted by delivering to the Assistant Secretary of the Company either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Annual Meeting and voting the shares subject to the proxy by
written ballot.

<TABLE>
<S> <C>
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE
CERTIFICATE OR CERTIFICATES REPRESENTING SHARES TO
BE VOTED BY THIS PROXY. WHEN SHARES ARE HELD
JOINTLY, BOTH HOLDERS SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE YOUR FULL TITLE. IF THE SIGNER
IS A CORPORATION, THE FULL CORPORATE NAME SHOULD BE
SIGNED BY A DULY AUTHORIZED OFFICER.

----------------------------------------------------
Signature

----------------------------------------------------
Signature, if held jointly
Date: , 1998
</TABLE>