<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1/A
AMENDMENT NO. 4
TENDER OFFER STATEMENT PURSUANT TO SECTION 14(D)(1)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
ENVIROTEST SYSTEMS CORP.
(NAME OF SUBJECT COMPANY)
------------------------
STONE RIVET, INC.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
(BIDDERS)
------------------------
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
------------------------
29409W105
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
TERRENCE P. MCKENNA
C/O ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
7 KRIPES ROAD
EAST GRANBY, CONNECTICUT 06026
(860) 653-0081
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDER)
------------------------
COPY TO:
RICHARD I. ANSBACHER, ESQ.
ELISABETH J. HARPER, ESQ.
SHAW PITTMAN POTTS & TROWBRIDGE
2300 N STREET, N.W.
WASHINGTON, D.C. 20037
(202) 663-8000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
This Amendment No. 4 is filed to supplement and amend the information set
forth in the Tender Offer Statement on Schedule 14D-1 filed by Environmental
Systems Products Inc., a Delaware corporation ("Parent"), and Stone Rivet, Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent (the "Purchaser")
relating to the offer by the Purchaser to purchase all outstanding shares of
Class A Common Stock, par value $.01 per share (the "Shares"), of Envirotest
Systems Corp., a Delaware corporation (the "Company"), at $17.25 per Share, net
to the seller in cash, on the terms and subject to the conditions set forth in
the Offer to Purchase, dated August 19, 1998 (the "Offer to Purchase"), and in
the related Letter of Transmittal and any amendments and supplements thereto,
copies of which were previously filed as Exhibits 99(a)(1) and 99(a)(2),
respectively to the Schedule 14D-1 (which collectively constitutes the "Offer").
Capitalized terms not defined herein have the meanings assigned thereto in the
Schedule 14D-1, including the Offer to Purchase.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
On October 2, 1998, Stone Rivet, Inc. and Environmental Systems Products,
Inc. ("ESP") announced that ESP, together with its proposed parent company,
Environmental Systems Products Holdings Inc. ("ESPH"), had entered into new
financing commitments with Credit Suisse First Boston ("CSFB"), Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") and certain affiliates of each
of CSFB and DLJ to provide financing for the acquisition by Stone Rivet, an
indirect, wholly owned subsidiary of ESP, of Envirotest Systems Corp.
("Envirotest"), and repay or repurchase certain outstanding indebtedness of ESP
and Envirotest.
In connection with the new financing, (i) CSFB and DLJ have agreed to
provide to ESPH a $435 million senior secured credit facility, (ii) affiliates
of CSFB and DLJ have agreed to purchase $100 million of senior subordinated
notes of ESPH and (iii) affiliates of DLJ have agreed to purchase $100 million
of senior discount notes of a newly formed holding company which will own ESPH.
A commitment letter, dated October 1, 1998, among CSFB, DLJ, certain affiliates
of CSFB and DLJ, ESP and ESPH with respect to the senior secured credit
facility, a letter of intent, dated October 1, 1998, among an affiliate of DLJ,
ESP and ESPH with respect to the senior discount notes, a letter of intent,
dated October 1, 1998 among affiliates of CSFB and DLJ, ESP and ESPH with
respect to the senior subordinated notes and a letter, dated October 1, 1998,
among CSFB, ESP and ESPH with respect to the relationship between the new
financing commitments and the financing commitment under the bridge loan
commitment letter, dated August 12, 1998, between CSFB and ESP are each attached
hereto as Exhibits 99(b)(3), 99(b)(4), 99(b)(5) and 99(b)(6), respectively and
incorporated herein by reference.
A copy of a press release issued by Stone Rivet, Inc. and ESP on October
2, 1998 announcing the new financing commitments is attached hereto as Exhibit
99(a)(11) and incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
99(a)(11) Text of Press Release, dated October 2, 1998.
99(b)(3) Commitment Letter, dated October 1, 1998, among CSFB, DLJ, certain
affiliates of CSFB and DLJ, ESP and ESPH.
99(b)(4) Letter of Intent, dated October 1, 1998, among an affiliate of DLJ,
ESP and ESPH.
99(b)(5) Letter of Intent, dated October 1, 1998, among affiliates of CSFB and
DLJ, ESP and ESPH.
99(b)(6) Letter, dated October 1, 1998, among CSFB, ESP and ESPH.
</TABLE>
2
<PAGE> 3
SIGNATURE
After due inquiry and to the best of our knowledge and belief, we certify
that the information set forth in this statement is true, complete, and correct.
Date: October 5, 1998
STONE RIVET, INC.
By: /s/ TERRENCE P. MCKENNA
------------------------------------
Name: Terrence P. McKenna
Title: President and Chief Executive
Officer
Date: October 5, 1998
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By: /s/ TERRENCE P. MCKENNA
------------------------------------
Name: Terrence P. McKenna
Title: President and Chief Executive
Officer
3
<PAGE> 1
EXHIBIT 99(a)(11)
STONE RIVET, INC. AND ENVIRONMENTAL SYSTEMS PRODUCTS, INC. OBTAIN NEW FINANCING
COMMITMENTS FOR
TENDER OFFER FOR ENVIROTEST STOCK
East Granby, Connecticut - October 2, 1998 - Stone Rivet, Inc. and
Environmental Systems Products, Inc. ("ESP") announced today that ESP, together
with its proposed parent company, Environmental Systems Products Holdings Inc.
("ESPH"), has entered into financing commitments with Credit Suisse First Boston
("CSFB"), Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and
certain affiliates of each of CSFB and DLJ to provide financing for the
acquisition by Stone Rivet, an indirect, wholly owned subsidiary of ESP, of
Envirotest Systems Corp. (AMEX: ENR), and repay or repurchase certain
outstanding indebtedness of ESP and Envirotest. Stone Rivet's cash tender offer
for all of the outstanding Class A common stock of Envirotest at $17.25 per
share is scheduled to expire at 12:00 midnight, Eastern Standard Time, on
Tuesday, October 13, 1998, unless extended.
In connection with the financing, (i) CSFB and DLJ have agreed to provide
ESPH a $435 million senior secured credit facility, (ii) affiliates of CSFB and
DLJ have agreed to purchase $100 million of senior subordinated notes of ESPH
and (iii) affiliates of DLJ have agreed to purchase $100 million of senior
discount notes of a newly formed holding company which will own ESPH. Funds
advised by Alchemy Partners, a U.K.-based private equity investment partnership,
will contribute $80 million of new equity.
The new financing arrangements are subject to various conditions, including
agreement upon definitive documentation that will include customary
representations, warranties, covenants, conditions and other provisions,
including a condition that since August 12, 1998 there shall not have occurred
and be continuing any material adverse change in banking or capital markets that
has had a material adverse effect on the syndication of leveraged bank credit
facilities. The commitments of CSFB and DLJ to provide the senior secured credit
facility expire on October 15, 1998. The agreements of affiliates of CSFB and
DLJ to purchase the senior subordinated notes and the senior discount notes
expire on October 9, 1998 unless definitive documentation with respect to the
notes has been executed and delivered by that time.
The prior financing commitment of CSFB dated August 12, 1998 will remain in
effect until October 15, 1998. ESP has agreed with CSFB, however, that the
commitment will be available to ESP only in the event that the parties are
unable to consummate tbe financing under the senior secured credit facility, the
senior subordinated notes and the senior discount notes and the conditions to
the prior financing commitment are satisfied.
<PAGE> 1
EXHIBIT 99(b)(3)
<TABLE>
<S> <C>
CREDIT SUISSE FIRST BOSTON DONALDSON, LUFKIN & JENRETTE
Eleven Madison Avenue SECURITIES CORPORATION
New York, New York 10010 2121 Avenue of the Stars
Los Angeles, California 90067
</TABLE>
October 1, 1998
Environmental Systems Products Holdings Inc.
and
Environmental Systems Products, Inc.
7 Kripes Road
East Granby, Connecticut 06026
Attention: David Langevin
Environmental Systems Products Holdings Inc.
Senior Secured Credit Facilities Commitment Letter
Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") and
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ SECURITIES"; and
together with CSFB, the "ARRANGERS") that Environmental Systems Products
Holdings Inc., a newly formed entity (the "BORROWER"), on terms satisfactory to
the Arrangers, will become the direct or indirect owner of 100% of the
outstanding equity of Environmental Systems Products, Inc. (the "COMPANY"; also
referred to herein, together with the Borrower and the Loan Parties (as defined
below, upon becoming a party hereto), as "you"), and will be more than 50%
owned and controlled by Alchemy Partners ("SPONSOR"), intends to acquire (the
"ACQUISITION") through Stone Rivet, Inc., which is currently a direct
wholly-owned subsidiary of the Company and, on terms satisfactory to the
Arrangers, will become a wholly-owned subsidiary of the Borrower (the
"ACQUIROR"), all the issued and outstanding shares of capital stock (the
"SHARES") of Envirotest Systems Corp. (the "TARGET") pursuant to a recommended
cash tender offer (the "OFFER") for not less than 90% of the Shares (the number
of shares sufficient to accomplish a short-form merger), all as more fully set
forth in the Agreement and Plan of Merger dated as of August 12, 1998 (the
"MERGER AGREEMENT") among the Company, the Acquiror and the Target and the
Acquiror's Offer to Purchase dated August 19, 1998 (the "OFFER TO PURCHASE").
We understand that the aggregate cash consideration to be paid for the Shares
will be approximately $266.3 million. You have further advised us that in
connection with the Acquisition (i) Sponsor will make or cause to be made by
certain shareholders of Newmall Limited as of the date hereof an indirect
equity contribution of $80 million (the "EQUITY CONTRIBUTION") to the Borrower,
(ii) the Borrower will obtain senior secured credit facilities (the "SENIOR
BANK FACILITY") in an aggregate principal
<PAGE> 2
amount of $435 million (as more fully described in the Summary of Principal
Terms and Conditions attached hereto as Exhibit A (the "TERM SHEET")), (iii)
certain existing indebtedness of the Target and the Company (the "EXISTING
INDEBTEDNESS") will be repaid in an aggregate amount (including any applicable
prepayment premiums) of up to $491.8 million (which, in the case of any
existing public debt, will be accomplished through tender offers or, but only
to the extent the same can be accomplished in a timely manner in accordance
with the terms thereof, voluntary redemption rights or, to the extent either of
the foregoing do not result in the acquisition of all of the outstanding public
debt simultaneously with the Acquisition, defeasance of the remaining portion
of such public debt coupled with a notice of voluntary redemption for such
remaining debt (the "DEBT TENDER")), (iv) the Borrower will issue Subordinated
Notes (the "SUBORDINATED NOTES") in a principal amount of $100 million, and (v)
a newly-formed direct parent of the Borrower satisfactory to the Arrangers will
issue Senior Discount Notes (the "SENIOR DISCOUNT NOTES") in a principal amount
of $100 million, the proceeds of which will be used to make an additional
equity contribution to the Borrower (the Offer, the Acquisition, the Debt
Tender and the foregoing transactions are collectively referred to herein as
the "TRANSACTIONS"). The approximate sources and uses of the funds necessary to
consummate the Transactions are set forth on Annex II to the Term Sheet.
You have requested that the Arrangers agree to structure,
arrange and syndicate the Senior Bank Facility, and to serve as advisor,
arranger, administrative agent and collateral agent therefor. The Arrangers
are pleased to advise you of their willingness to agree to structure, arrange
and syndicate the Senior Bank Facility and to serve as advisors and arrangers.
CSFB is pleased to advise you of (i) its willingness to act, together with DLJ
Securities, as exclusive advisor and arranger, and to act as administrative
agent (in such capacity, the "ADMINISTRATIVE AGENT") and collateral agent (in
such capacity, the "COLLATERAL AGENT") for the Senior Bank Facility, and (ii)
its commitment to provide one-half of the Senior Bank Facility upon the terms
and subject to the conditions set forth or referred to in this letter (the
"COMMITMENT LETTER") and in the Term Sheet. DLJ Securities is pleased to
advise you of its willingness to act, together with CSFB, as exclusive advisor
and arranger. DLJ Capital Funding, Inc., an affiliate of DLJ Securities ("DLJ
CAPITAL"), is pleased to advise you of (i) its willingness to act as
syndication agent (in such capacity, the "SYNDICATION AGENT"; and together with
the Administrative Agent and the Collateral Agent, the "AGENTS") for the Senior
Bank Facility, and (ii) its commitment that DLJ Capital or one or more
affiliates of DLJ Securities will provide one-half of the Senior Bank Facility
upon the terms and subject to the conditions set forth or referred to in this
Commitment Letter and in the Term Sheet.
The Arrangers shall be entitled, after consultation with you,
to change the structure, terms, pricing or amounts of any or all of the
facilities comprising the Senior Bank Facility as set forth in the Term Sheet
if either of the Arrangers determine that such changes are advisable in order
to ensure a successful syndication and if the aggregate amount of the Senior
Bank Facility is not changed.
The Arrangers reserve the right and intend, prior to or after
the execution of the definitive documentation with respect to the Senior Bank
Facility (the "FACILITY DOCUMENTS"), to syndicate all or a portion of its
commitments to one or more financial institutions (such
2
<PAGE> 3
financial institutions, together with CSFB and DLJ Capital, the "LENDERS")
identified by us in consultation with, and reasonably acceptable to, you, which
Lenders will become parties to the Facility Documents. It is agreed that CSFB
will act as the sole and exclusive administrative agent and collateral agent,
DLJ Capital will act as the sole and exclusive syndication agent and that the
Arrangers will act as sole and exclusive advisors, arrangers and syndication
managers for the Senior Bank Facility and that no additional agents or
co-agents or co-arrangers will be appointed without the prior written consent
of the Arrangers; provided, however, that in the event CSFB syndicates more
than 95% of the amount of its commitments to other Lenders, CSFB, upon the
request of the Sponsor (but only so long as the Sponsor continues to control
Holdings, the Borrower, the Acquiror and the Company), shall cease to act as
administrative agent, collateral agent, adviser, arranger and syndication
manager of the Senior Bank Facility. In addition, (i) CSFB reserves the right
to employ the services of Credit Suisse First Boston Corporation ("CSFBC") in
providing services incidental to the arrangement and provision of the Senior
Bank Facility, and you agree that, in connection with the provision of such
services, CSFB and CSFBC may share with each other any confidential or other
information relating to the Acquiror, the Borrower, the Company, the Target,
each entity (other than the Borrower) that directly or indirectly owns 100% of
the outstanding equity of either the Target or the Company after giving effect
to the Transactions (collectively, "HOLDINGS") and their respective
subsidiaries and affiliates as from time to time they may possess, and (ii) DLJ
Securities reserves the right to employ the services of any of its affiliates
in providing services incidental to the arrangement and provision of the Senior
Bank Facility, and you agree that, in connection with the provision of such
services, DLJ Securities and such affiliates may share with each other any
confidential or other information relating to the Acquiror, the Borrower, the
Company, the Target, Holdings and their respective subsidiaries and affiliates
as from time to time they may possess.
The Arrangers will manage all aspects of the syndication,
including decisions as to the selection of institutions to be approached and
when they will be approached, when their commitments will be accepted, which
institutions identified by us in consultation with, and reasonably acceptable
to, you, will participate in the allocations of the commitments among the
Lenders and the amount and distribution of fees among the Lenders. You agree to
assist the Arrangers in forming any such syndicate and to provide the potential
Lenders, promptly upon request, with all information reasonably requested by
them to complete successfully the syndication, including but not limited to (a)
an information package, including a Confidential Information Memorandum for the
Senior Bank Facility (or any amendment, supplement or addition to the
Confidential Information Memorandum distributed in connection with the Prior
Commitment Letter (as defined below)) and other marketing materials for
delivery to potential Lenders and participants, and (b) all information and
projections prepared by you or your advisers relating to the Transactions. You
also agree to participate in, and to make appropriate senior officers and
representatives of Sponsor, the Acquiror, the Borrower, the Target, Holdings
and the Company available to participate in, informational meetings for
potential Lenders and participants at such times and places as the Arrangers
may reasonably request and to use commercially reasonable efforts to ensure
that the Arrangers's syndication efforts materially benefit from the Target's
and the Company's existing lending relationships.
You represent and warrant and covenant that:
3
<PAGE> 4
(a) all written information (other than financial
projections) which has been or is hereafter furnished to the Arrangers
by you or any of your representatives in connection with the
Transactions is and will be complete and correct as of the date
thereof in all material respects and does not and will not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not
misleading in light of the circumstances under which such statements
were or are made; and
(b) all financial projections that have been or are
hereafter prepared by you or on your behalf and made available to the
Arrangers have been or will be prepared in good faith based upon what
you believe to be reasonable assumptions (it being understood that
such projections are subject to significant uncertainties and
contingencies, many of which are beyond the Borrower's control, and
that no assurance can be given that the projections will be realized).
You agree to supplement the information and projections referred to in clauses
(a) and (b) above from time to time until completion of the syndication so that
the representations and warranties in the preceding sentence remain correct
without regard to when such information and projections were furnished. In
arranging and syndicating the Senior Bank Facility, the Arrangers will be
entitled to use and rely on such information and projections without
independent verification thereof.
In connection with the syndication of the Senior Bank
Facility, the Arrangers may, in their discretion, allocate to other Lenders
portions of any fees payable to the Arrangers in connection with the Senior
Bank Facility. You agree that neither you, the Borrower, the Target nor any of
their respective affiliates will pay to any Lender any compensation or titles
of any kind for its participation in the Senior Bank Facility except as
expressly provided for in this letter or in the fee letter dated the date
hereof between you and the Arrangers (the "FEE LETTER").
You agree to reimburse the Arrangers and their affiliates,
upon request made from time to time, for their reasonable out-of-pocket fees
and expenses incurred in connection with the preparation, execution and
delivery of this Commitment Letter, the Fee Letter and the Facility Documents
and the activities thereunder or contemplated thereby, including without
limitation syndication expenses (other than fees allocated in accordance with
the preceding paragraph) and the reasonable fees and expenses of Skadden, Arps,
Slate, Meagher & Flom LLP and such other outside counsel and advisors to the
Arrangers and their affiliates approved by you (such approval not to be
unreasonably withheld), whether incurred before or after the execution of this
Commitment Letter.
You agree to indemnify and hold harmless the Arrangers and
each other Lender, their respective affiliates and each of their respective
directors, officers, employees, agents and advisors (each, an "INDEMNIFIED
PARTY"), from and against any and all claims, damages, liabilities (including
securities law liabilities), losses and expenses, including reasonable fees,
expenses and disbursements of counsel, which may be incurred by or asserted
against an Indemnified Party in connection with the Arrangers' or any Lender's
commitment or participation
4
<PAGE> 5
in the transactions contemplated by this letter, the Senior Bank Facility or
any related matter or any investigation, litigation or proceeding in connection
therewith and whether or not the Acquisition is consummated or the Senior Bank
Facility is drawn upon, except to the extent such claim, damage, loss,
liability or expense is found in a final nonappealable judgment by a court of
competent jurisdiction to have resulted from such Indemnified Party's own gross
negligence or willful misconduct; provided, however, that in connection with
any such third party claim, you shall not be responsible for, or required to
hold harmless any Indemnified Party from and against, the reasonable fees,
expenses and disbursements of more than one counsel for all of the Indemnified
Parties taken together, except to the extent any such Indemnified Party
requires its own counsel in order to be adequately represented in the
reasonable judgment of such Indemnified Party. No Indemnified Party shall be
responsible or liable to any other party hereto or any other person for
consequential damages that may be alleged as a result of this letter or the
breach of any party's obligations hereunder.
This letter is delivered to you on the understanding that
neither this letter nor any other agreement between us related to this letter
or the Transactions, including, without limitation, the Term Sheet, the
exhibits and annexes hereto and thereto, and the Fee Letter, nor any of their
terms or substance shall be disclosed, directly or indirectly, to any other
person except (a) to your officers, directors, agents and advisors who are
directly involved in the consideration of this matter (and then only on a
confidential basis) or (b) as may be compelled in a judicial or administrative
proceeding or as otherwise required by law (in which case you agree to inform
us promptly thereof); provided, however, that you may disclose (and then only
on a confidential basis) this letter, the Term Sheet and the other exhibits
hereto and their terms and substance (but not the Fee Letter or their
respective terms and substance) to the Target, upon your acceptance of this
Commitment Letter.
Our offer to provide the Senior Bank Facility will terminate
at 1:00 p.m., New York time, (i) on October 1, 1998, unless on or before that
time you accept this letter by signing and returning an enclosed counterpart of
this letter and the Fee Letter and (ii) if accepted by you on or prior to such
time, on October 15, 1998. In any event your obligations with respect to
indemnification and confidentiality shall remain in full force and effect,
regardless of any termination of the commitment of the Arrangers made
hereunder. You agree to cause the Target, the Acquiror and Holdings to become a
party to this Commitment Letter and the Fee Letter as soon as practicable
(which, in the case of each such person other than the Target, will be no later
than October 8, 1998 and, in the case of the Target, will be the date of
consummation of the Acquisition) and thereby assume your obligations thereunder
jointly and severally with you. The obligations of you, the Acquiror, Holdings
and the Target (each a "LOAN PARTY" and collectively the "LOAN PARTIES")
hereunder are joint and several obligations.
This letter is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This letter and
the Arrangers' obligations hereunder may not be assigned by you without the
prior written consent of the Arrangers, and any attempted assignment without
such consent shall be void. The commitments of CSFB and DLJ Capital hereunder
may be assigned by CSFB and DLJ Capital to any of their respective affiliates
or, subject to the proviso in the
5
<PAGE> 6
fourth paragraph of this Commitment Letter, any Lender. Any such assignment to
an affiliate shall not relieve the applicable Arranger from any of its
obligations hereunder unless and until the Facility Documents with respect to
such assigned commitment shall have been executed and delivered by the parties
thereto, but any assignment to a Lender shall be by novation and shall release
the applicable Arranger from its commitment hereunder pro tanto. This letter
may not be amended or modified or any provision hereof waived except in writing
signed by you and the Arrangers.
This Commitment Letter shall be governed by and construed in
accordance with the internal laws of the State of New York without giving
effect to the conflicts of laws principles thereof. This Commitment Letter may
be executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original and all of which together shall
constitute one and the same instrument. Delivery of an executed counterpart of
a signature page of this letter by facsimile transmission shall be effective as
delivery of a manually signed counterpart hereof.
6
<PAGE> 7
We appreciate the opportunity to continue to assist you in
this very important transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ LAURI SIVASLIAN
-------------------------
Name: Lauri Sivaslian
Title: Director
By: /s/ RICHARD S. CAREY
-------------------------
Name: Richard S. Carky
Title: Director
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ HAROLD J. PHILIPPS
-------------------------
Name: Harold J. Philipps
Title: Managing Director
DLJ CAPITAL FUNDING, INC.
By: /s/ HAROLD J. PHILIPPS
-------------------------
Name: Harold J. Philipps
Title: Managing Director
7
<PAGE> 8
Accepted and agreed to as of
the date first written above,
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
By:/s/ DAVID J. LANGEVIN
--------------------------------
Name: David J. Langevin
Title:
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By:/s/ DAVID J. LANGEVIN
--------------------------------
Name: David J. Langevin
Title:
8
<PAGE> 9
EXHIBIT A
Environmental Systems Products, Inc.
Senior Secured Credit Facilities
Summary of Principal Terms and Conditions(1)
Borrower: Environmental Systems Products Holdings Inc.,
a newly-formed entity (the "BORROWER"), which
(i) directly or indirectly owns all of the
outstanding equity of Environmental Systems
Products, Inc. (the "COMPANY"), (ii) is
directly and wholly-owned by a newly formed
entity (the "PARENT"). The Borrower and the
Parent shall be satisfactory to the Agents.
Acquisition: The Borrower intends to acquire (the
"ACQUISITION") all the issued and outstanding
share capital (the "SHARES") of Envirotest
Systems Corp. (the "TARGET"), pursuant to a
recommended cash tender offer (the "OFFER") to
be consummated by Stone Rivet, Inc., a
wholly-owned subsidiary of the Borrower (the
"ACQUIROR"), for aggregate cash consideration
of approximately $266.3 million (the "PURCHASE
PRICE"), all as more fully described in the
Merger Agreement and the Offer to Purchase. In
connection with the Acquisition, (a) the
Borrower will obtain the senior secured credit
facilities (the "SENIOR BANK FACILITY") as
described below under the caption "Facility"
in an aggregate principal amount of $435
million and will issue $100 million of
Subordinated Notes (the "SUBORDINATED NOTES");
(b) certain existing indebtedness (but
excluding, in any event, indebtedness of
approximately $53.1 million in respect of
Envirotest's Ohio test sites) of the Target
and the Company (the "EXISTING INDEBTEDNESS")
will be repaid in an aggregate amount
(including any applicable prepayment premiums)
of up to $442.8 million; (c) an equity
contribution of $80 million (the "EQUITY
CONTRIBUTION") will be made to the Borrower by
Alchemy Partners (the "SPONSOR"); (d) the
Parent will issue Senior Discount Notes (the
"SENIOR DISCOUNT NOTES") in a principal amount
of $100 million and will contribute the net
proceeds thereof to the Borrower; and
- ------------
(1) All capitalized terms used but not defined herein have
the meanings given to them in the Commitment Letter to which this
term sheet is attached.
<PAGE> 10
(e) the Borrower will pay fees and expenses
(including, without limitation, reasonable
fees of outside counsel) in connection with
the foregoing in an amount not to exceed $45
million (the Offer, the Acquisition and the
foregoing transactions are collectively
referred to herein as the "TRANSACTIONS").
Sources and Uses: The approximate sources and uses of funds
necessary to consummate the Transactions are
set forth on Annex II attached hereto.
Agents: CSFB will act as administrative agent (the
"ADMINISTRATIVE AGENT") and DLJ Capital
Funding, Inc. will act as syndication agent
(the "SYNDICATION AGENT"; together with the
Administrative Agent, the "AGENTS") for a
syndicate of financial institutions identified
by the Agents in consultation with, and
reasonably acceptable to, the Company (the
"LENDERS"), and will perform the duties
customarily associated with such roles.
Advisors and Arrangers: CSFB and DLJ Securities will act as the sole
and exclusive advisors and arrangers for the
Senior Bank Facility (collectively, the
"ARRANGERS"), and will perform the duties
customarily associated with such roles.
Facilities: (A) Senior Secured Term Loan Facilities in
an aggregate principal amount of up to
$385 million (the "TERM FACILITY"),
of which (i) $175 million ("TERM LOAN
A") will mature in five and a half (5
1/2) years, and (ii) $210 million
("TERM LOAN B") will mature in seven
(7) years.
(B) Senior Secured Revolving Credit
Facility (the "REVOLVING FACILITY") in
an amount equal to $50 million, of
which up to an amount to be agreed
upon will be available in the form of
letters of credit and $5,000,000 will
be available for swing line loans
("SWING LINE LOANS").
The Agents may, after consultation
with the Borrower, reallocate amounts
among Term Loan A, Term Loan B and the
Revolving Facility in order to
facilitate the syndications of the
Senior Bank Facility.
A-2
<PAGE> 11
Purpose: (A) The proceeds of the Term Facility will
be used by the Borrower on the date of
the initial funding under the Senior
Bank Facility (the "CLOSING DATE"),
together with the proceeds of the
Senior Discount Notes, the
Subordinated Notes and the Equity
Contribution and $92.5 million of cash
on hand at the Target and the Company,
solely (i) to finance the Purchase
Price, (ii) to repay the Existing
Indebtedness and (iii) to pay related
fees and expenses.
(B) The proceeds of loans under the
Revolving Facility in an amount not to
exceed $5 million may be used,
together with the proceeds of the
Equity Contribution, the Subordinated
Notes and Senior Discount Notes to
finance the Acquisition, repay
Existing Indebtedness and pay related
fees and expenses. The proceeds of
any subsequent borrowings under the
Revolving Facility (including Swing
Line Loans) will be used for general
corporate purposes.
(C) Letters of credit will be used by the
Borrower solely for ordinary course
purposes and to support certain
outstanding obligations to be agreed
upon by the Arrangers and the Agents
in their discretion.
Availability: (A) Loans under the Term Facility will be
made available only on the Closing
Date. Such loans, once repaid may not
be reborrowed.
(B) Loans under the Revolving Facility
(including Swing Line Loans) will be
available at any time prior to the
final maturity of the Revolving
Facility. Amounts repaid under the
Revolving Facility may be reborrowed.
(C) Letters of Credit will be available at
any time before the fifth business day
prior to the final maturity of the
Revolving Facility.
Default Rate: The applicable interest rate plus 2% per
annum.
A-3
<PAGE> 12
Letters of Credit: Letters of credit under the Revolving Facility
will be issued by a New York-based Lender, as
issuing bank (in such capacity, the "ISSUING
BANK"), agreed upon by the Borrower and the
Administrative Agent. Each letter of credit
shall expire no later than the earlier of (a)
12 months after its date of issuance and (b)
the fifth (5th) business day prior to the
final maturity of the Revolving Facility.
Drawings under any letter of credit shall be
reimbursed by the Borrower on the same
business day. To the extent that the Borrower
does not reimburse the Issuing Bank on the
same business day, the Lenders shall be
irrevocably obligated to reimburse the Issuing
Bank pro rata based upon their respective
Revolving Facility commitments, with the
amount of such reimbursement payment being
deemed to be a drawing under the Revolving
Facility.
The issuance of all letters of credit shall be
subject to the customary procedures of the
Issuing Bank.
Final Maturity and (A) Term Facilities
Commitment Reductions:
Term Loan A and Term Loan B will
mature on the five and a half (5 1/2)
year and seventh (7th) anniversaries,
respectively, of the Closing Date, and
will amortize on a quarterly basis, in
annual amounts to be agreed upon.
(B) Revolving Facility
The Revolving Facility will mature on
the five and half (5 1/2) year
anniversary of the Closing Date.
Guarantees: All obligations of the Borrower under the
Senior Bank Facility will be unconditionally
guaranteed by the Parent, Holdings, and each
other existing and subsequently acquired or
organized domestic subsidiary (and certain
foreign subsidiaries (the "NON-EXCLUDED
FOREIGN SUBSIDIARIES")) of the Parent and the
Borrower (including, without limitation, the
Company, the Target and their respective
domestic subsidiaries) (collectively, the
"LOAN PARTIES").
Security: The Senior Bank Facility and the related
guarantees will be secured by substantially
all the assets of each Loan Party
A-4
<PAGE> 13
and each other subsequently acquired or
organized subsidiary of the Borrower
(collectively, the "COLLATERAL"), including
but not limited to (a) a first priority pledge
of all the capital stock of each Loan Party
(other than the Parent) and each other
existing and subsequently acquired or
organized subsidiary of the Borrower and the
Parent (65% of foreign subsidiaries other than
Non-Excluded Foreign Subsidiaries) and (b)
perfected first priority security interests
in, and mortgages on, substantially all
tangible and intangible assets of each Loan
Party (other than the Parent) and each other
existing and subsequently acquired or
organized domestic subsidiary of the Borrower
(including but not limited to accounts
receivable, inventory, general intangibles,
intellectual property, real property, cash and
proceeds of the foregoing).
All the above-described pledges, security
interests and mortgages shall be created on
terms, and pursuant to documentation,
reasonably satisfactory to the Lenders and the
Borrower, and, subject to limited exceptions
to be agreed upon, none of the Collateral
shall be subject to any other pledges,
security interests or mortgages.
Interest Rates As set forth on Annex I attached hereto.
and Fees:
Mandatory Prepayment: Loans under the Term Facility shall be prepaid
with (a) a percentage to be agreed upon of
Consolidated Excess Cash Flow (to be defined),
(b) 100% of the net cash proceeds of all
non-ordinary-course asset sales or other
dispositions of property by the Borrower and
its subsidiaries (including insurance and
condemnation proceeds), subject to exceptions
to be agreed upon, (c) 100% of the net cash
proceeds of issuances of debt obligations of
the Borrower and its subsidiaries, subject to
exceptions to be agreed upon, and (d) 100% of
the net cash proceeds of issuances of equity
securities of the Borrower and its
subsidiaries, subject to exceptions to be
agreed upon.
Mandatory prepayments shall be made, without
premium or penalty, except in the case of Term
Loan B (which shall be prepayable during the
first year and second year following the
Closing Date at a premium equal to 101% of the
aggregate principal amount to be prepaid and
thereafter, without, premium or penalty),
other than payment of
A-5
<PAGE> 14
Breakage Costs (as defined below), and shall
be applied pro rata to the Term A and B Loans,
in each case pro rata to the remaining
amortization payments of such loans; provided
that holders of Term Loan B may elect to have
their portion of any mandatory prepayment
applied to any outstanding portion of Term
Loan A.
Voluntary Prepayment: Voluntary prepayments will be permitted in
whole or in part, at the option of the
Borrower, in minimum principal amounts to be
agreed upon, without premium or penalty,
except in the case of Term Loan B (which shall
be prepayable (i) during the first year
following the Closing Date at a premium equal
to 102% of the aggregate principal amount to
be prepaid, (ii) during the second year
following the Closing Date at a premium equal
to 101% of the aggregate principal amount to
be prepaid, and (iii) thereafter, without,
premium or penalty), other than payment of
Breakage Costs (as defined below), other than
payment of breakage costs (excluding profits
and Applicable Margins) and reimbursement of
the Lenders' actual re-employment costs in the
case of prepayment of Adjusted LIBOR
borrowings other than on the last day of the
relevant Interest Period (such breakage costs
and re-employment costs, collectively
"BREAKAGE COSTS").
Representations Usual for facilities and transactions of this
Warranties: type and others to be and agreed upon
(including, without limitation, with respect
to the Parent) by the Agents and the Borrower
(the Borrower's agreement not to be
unreasonably withheld), including but not
limited to accuracy of financial statements;
no material adverse change; absence of
litigation; no violation of agreements or
instruments; compliance with laws (including
employee benefits, margin regulations and
environmental laws); payment of taxes;
ownership of properties; solvency;
effectiveness of regulatory approvals; labor
matters; environmental matters; accuracy of
information; and validity, priority and
perfection of security interests in the
Collateral.
Conditions Precedent: Usual for facilities of this type and others
to be agreed upon by the Borrower and the
Agents (the Borrower's agreement not to be
unreasonably withheld), including, without
limitation, in the case of the borrowing of
the initial Loans, the conditions precedent
set forth on Annex IV attached hereto.
A-6
<PAGE> 15
Affirmative Usual for facilities and transactions of this
Covenants: type and others to be agreed upon by the
Borrower and the Agents (the Borrower's
agreement not to be unreasonably withheld) (to
be applicable to the Parent, the Borrower and
its subsidiaries), including but not limited
to maintenance of, corporate existence,
separateness and rights; performance of
obligations; delivery of audited financial
statements, other financial information and
notices of default and litigation; maintenance
of properties in good working order;
maintenance of reasonably satisfactory
insurance; compliance with laws; inspection of
books and properties; further assurances; and
payment of taxes.
Negative Covenants: Usual for facilities and transactions of this
type and others to be agreed upon by the
Borrower and the Agents (the Borrower's
agreement not to be unreasonably withheld) (to
be applicable to the Parent, the Borrower and
its subsidiaries), including but not limited
to limitations on dividends on, and
redemptions and repurchases of, capital stock;
limitations on prepayments, redemptions and
repurchases of subordinated debt; limitations
on prepayments, redemptions and repurchases of
senior debt; limitations on liens and
sale-leaseback transactions; limitations on
loans and investments; limitations on debt;
limitations on mergers, acquisitions and asset
sales; limitations on transactions with
affiliates; limitations on changes in business
conducted; limitations on amendment of debt
and other material agreements; limitations on
capital expenditures; and special purpose
corporation type covenants in respect of
Holdings and the Parent.
Selected Financial The credit agreement relating to the Senior
Covenants: Bank Facility (the "CREDIT AGREEMENT") will
contain financial covenants (with definitions
of financial terms and levels to be agreed
upon; it being understood that "EBITDA" shall
include net cash income (to be defined) from
the Company's new financial services program),
including but not limited to (a) maximum
ratios of Total Debt to EBITDA, (b) minimum
ratios of EBITDA to Interest Expense and (c)
minimum ratios of EBITDA to Fixed Charges.
Events of Default: Usual for facilities and transactions of this
type and others to be agreed upon by the
Borrower and the Agents (the Borrower's
agreement not to be unreasonably withheld),
A-7
<PAGE> 16
including but not limited to nonpayment of
principal or interest, violation of covenants,
incorrectness of representations and
warranties in any material respect, cross
default and cross acceleration, bankruptcy,
material judgments, employee benefits, actual
or asserted invalidity of the guarantees or
the security documents and Change in Control
(the definition of which will be agreed upon).
Voting: Amendments and waivers of the Credit Agreement
and the other definitive credit documentation
will require the approval of Lenders holding
more than 50% of the aggregate amount of the
loans and commitments under the Senior Bank
Facility, except that the consent of each
Lender adversely affected thereby shall be
required with respect to (a) increases in such
Lender's commitments, (b) reductions of
principal, interest or fees, (c) extensions of
scheduled amortization or final maturity and
(d) releases of all or substantially all of
the Collateral or certain guarantors.
Cost and Yield Usual for facilities and transactions of this
Protection: type on terms to be agreed upon. In addition,
the Borrower will obtain interest rate hedging
on not less than 50% of outstandings under the
Term Loan Facility in form and substance
satisfactory to Agents and Borrower.
Assignments and The Lenders will be permitted to assign loans
Participations: and commitments to other financial
institutions in minimum amounts of $5 million
without restriction (other than consultation
rights, on terms to be agreed upon, in favor
of the Borrower in the case of assignments
occurring when no default or Event of Default
exists). The Administrative Agent will
receive a processing and recordation fee of
$3,500, payable by the assignor and/or the
assignee, with each assignment. Assignments
will be by novation.
The Lenders will be permitted to participate
loans and commitments to other financial
institutions without restriction. Voting
rights of participants shall be limited to
matters in respect of (a) reductions of
principal, interest or fees, (b) extensions of
scheduled amortization or final maturity and
(c) releases of all or substantially all of
the Collateral or certain guarantors.
A-8
<PAGE> 17
Expenses and In addition to those reasonable out-of-pocket
Indemnification: expenses reimbursable under the Commitment
Letter, all reasonable out-of-pocket costs of
the Agents (and, in the case of enforcement
costs and documentary taxes, the Lenders)
associated with the Senior Bank Facility are
to be paid by the Borrower.
The Borrower will indemnify the Arrangers, the
Agents, the Lenders and their respective
officers, directors, employees, affiliates and
agents and hold them harmless from and against
all costs, expenses (including reasonable
fees, disbursements and other charges of
counsel) and liabilities of any such
indemnified person arising out of or relating
to those matters set forth in the Commitment
Letter, including, without limitation, any
claim or any litigation or other proceedings
(regardless of whether any such indemnified
person is a party thereto) that relate to the
Transactions or any transactions connected
therewith, provided that none of the
Arrangers, the Agents or any Lender will be
indemnified for its gross negligence or
willful misconduct.
Counsel for the Arrangers Skadden, Arps, Slate, Meagher & Flom LLP
and the Agents:
Governing Law New York.
and Forum:
A-9
<PAGE> 18
ANNEX I
Interest Rates and Fees
Interest Rates: The interest rates under the Senior Bank
Facility will be, at the Borrower's option,
either the Base Rate or the Adjusted LIBOR
plus, in each case, the Applicable Margin from
time to time as set forth in the following
table.
<TABLE>
<CAPTION>
================================================
Applicable Margin
------------------------------------------------
Base Rate Adjusted
LIBOR
------------------------------------------------
<S> <C> <C>
Revolving Facility 1.75% 2.75%
------------------------------------------------
Term Loan A 1.75% 2.75%
------------------------------------------------
Term Loan B 2.50% 3.50%
================================================
</TABLE>
The Borrower may elect interest periods of 1,
2, 3 or 6 months for Adjusted LIBOR
borrowings.
Swing Line Loans will bear interest at the
Base Rate plus the Applicable Margin for
Revolving Loans.
Calculation of interest shall be on the basis
of actual days elapsed in a year of 360 days
(or 365 or 366 days, as the case may be, in
the case of Base Rate loans based on the Prime
Rate) and interest shall be payable at the end
of each interest period and, in any event, at
least every 3 months.
The Base Rate will be defined as the higher of
the Agent's prime lending rate and the rate
1/2 of 1% in excess of the Federal funds
effective rate.
Adjusted LIBOR will at all times include
statutory reserves.
Letter of Credit Fee: A per annum participation fee equal to the
spread over Adjusted LIBOR from time to time
in effect for loans under the Revolving
Facility will accrue on the aggregate face
amount of outstanding letters of credit under
the Revolving Facility, payable in arrears at
the end of each quarter and
<PAGE> 19
upon the termination of the Revolving
Facility, in each case for the actual number
of days elapsed over a 360-day year. Such fees
shall be distributed to the Lenders pro rata
in accordance with the amount of each such
Lender's Revolving Facility commitment. In
addition, the Issuing Bank shall receive a
fronting fee equal to 0.25% per annum on all
outstanding letters of credit, payable
quarterly in arrears.
Commitment Fees: 0.50% per annum of the undrawn portion of the
commitments in respect of the Revolving
Facility (subject to reduction as set forth
below under the caption "Changes in Commitment
Fees and Interest Rates''), commencing to
accrue upon the execution and delivery of the
Credit Agreement and payable quarterly in
arrears and upon the termination of any
commitment. For purposes of the foregoing,
outstanding Swing Line Loans shall not
constitute usage of the Revolving Facility.
Tax Gross Up: All payments shall be made without withholding
or deduction for, or on account of, any
present or future taxes or duties imposed or
levied by or on behalf of any governmental
taxing authority or, if any such withholding
or deductions are required to be made by law,
with the payment of such additional amounts as
will result in holders receiving such amounts
as they would have received had no such
withholding or reduction been required. In
connection with its becoming a party to the
Credit Agreement, each Lender shall deliver
such forms regarding the applicability of U.S.
withholding taxes to it as are usual for
facilities of this type. In addition, each
Lender, at the cost and expense of the
Borrower, shall agree, on customary terms, to
take such actions to mitigate withholdings
taxes as are not adverse to it in its sole
judgment.
Changes in Commencing six (6) months after the Closing
Commitment Fees and Date, so long as no event of default shall
Interest Rates: have occurred and be continuing, Applicable
Margins in respect of the Revolving Facility
and the Tranche A Loans and commitment fees
under the Senior Bank Facility will be
determined by reference to the Borrower's
consolidated ratio of Total Debt to trailing
four-quarter EBITDA pursuant to the grid
attached hereto as Annex III.
I-2
<PAGE> 20
The ratio of Total Debt to EBITDA shall be
determined as at the last day of each fiscal
quarter; changes in interest rates and
commitment fees resulting from changes in such
ratio shall become effective on the first day
on which the financial statements covering the
quarter-end date as of which such ratio is
computed are available.
I-3
<PAGE> 21
ANNEX II
Sources and Uses of Funds
(in millions)
(all figures are approximate)
<TABLE>
<CAPTION>
Uses of Funds Sources of Funds
------------- ----------------
<S> <C> <C> <C>
Existing Cash $92.5
Purchase Price of Equity $266.3 Revolving Facility(2) 1.3
Repayment/Defeasance of 449.4 Term Facility 385.0
Existing Indebtedness
and Premiums and Accrued
Interest associated
therewith
Transaction Expenses 43.1 Senior Discount Notes 100.0
Subordinated Notes 100.0
----------
Equity Contribution 80.0
----------- ---------
Total Uses $758.8 Total Sources $758.8
=========== ======
</TABLE>
- -------------------------
(2) $50 million Revolving Facility of which $1.3 million will be drawn at
Closing.
I-1
<PAGE> 22
ANNEX III
PRICING GRID
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Total Debt/EBITDA Revolver & Term Loan A Commitment Fee
Adjusted LIBOR/Base Rate
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
>4.25x +300 bps/200bps 50 bps
-
>3.75x and <4.25x +275bps/ 175bps 50
-
>3.25x and <3.75x +250bps/150bps 50
-
>2.75x and <3.25x +225bps/125bps 50
-
>2.25x and <2.75x +200bps/100bps 37.5
-
<2.25x +175bps/75bps 37.5
--------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
ANNEX IV
CONDITIONS
The commitments of the Arrangers under the Commitment Letter, as well
as the obligations of the Lenders to make the initial Loans, shall be subject
to the satisfaction of the following conditions on or prior to October 15,
1998:
(i) no information or other matter becomes known to the
Arrangers or the Agents (including, without limitation, any
information or matter disclosed pursuant to the delivery of the
financial information described in item (x) below) that the Arrangers
in good faith believe is inconsistent in a material and adverse manner
with (a) any information or other matter disclosed to the Arrangers or
the Agents prior to such date or (b) any information or other matter
obtained by the Arrangers or the Agents during its due diligence
investigation;
(ii) there shall not have occurred or become known to the
Arrangers, the Agents or the Lenders any event or events, adverse
condition or change that, individually or in the aggregate, could have
a Material Adverse Effect;
(iii) the preparation, execution and delivery of definitive
documentation satisfactory to the Arrangers, the Agents and the
Lenders, in connection with the Senior Credit Facility;
(iv) the Arrangers, the Agents and the Lenders shall be
reasonably satisfied as of the date of the making of the initial Loans
(the "CLOSING DATE") with (a) the material terms and conditions of the
Offer (to the extent such terms and conditions differ in any material
respect than those set forth in the Merger Agreement and the Offer to
Purchase), the Debt Tender, the Senior Discount Notes, the
Subordinated Notes and each agreement entered into in connection with
the Transactions (including, without limitation, the maturities (which
in no event shall be earlier than six (6) months after the final
maturity of the Senior Bank Facility) and the terms relating to the
accrual and payment of interest of the Senior Discount Notes the
Subordinated Notes (which in no event shall permit cash payment of
interest during the first five (5) years of the Senior Bank Facility)
and (b) all legal, tax and accounting matters relating to the
Transactions that could have a Material Adverse Effect, including,
without limitation, the following:
(w) there shall be no litigation or
administrative proceedings or other legal or regulatory
developments, actual or threatened, that, singly or in the
aggregate, could have a Material Adverse Effect or could
materially and adversely affect the ability of the Parent,
Holdings, the Borrower or the Company to fully and timely
perform their respective obligations under the documents
executed in connection with the Transactions, or the ability
of the parties to consummate the financings or the other
Transactions;
<PAGE> 24
(x) the Arrangers, the Agents and the Lenders
shall be reasonably satisfied with all material legal, tax and
accounting matters relating to the Transactions and the other
transactions contemplated hereby, including, without
limitation, the ability of subsidiaries of the Borrower, the
Target or the Company to transfer funds to the Borrower, the
Target and the Company and the withholding tax consequences
thereof and the Borrower's, the Target's and the Company's
plans and programs with respect to managing currency risk
exposure;
(y) the Arrangers, the Agents and the Lenders
shall be reasonably satisfied that the amount and nature of
any environmental and employee health and safety exposures to
which any Loan Party and its subsidiaries may be subject, and
the plans of each Loan Party with respect thereto, could not
be reasonably expected to have a Material Adverse Effect; and
(z) all requisite governmental authorities
(including antitrust or banking authorities in any relevant
jurisdiction) and third parties shall have approved or
consented to the Transactions and the other transactions
contemplated hereby to the extent required, in each case to
the extent failure to obtain such consent or approval could
have a Material Adverse Effect or could materially and
adversely affect the rights or remedies of the Arrangers, the
Agents, or, if applicable, the Lenders, and there shall be no
governmental or judicial action, actual or threatened, that
has a reasonable likelihood of restraining, preventing or
imposing burdensome conditions on the Transactions or the
other transaction contemplated hereby;
(v) the Transactions (including, without limitation, the
required debt purchases or redemptions, as applicable, under the Debt
Tender, the purchase of at least 90% of the Target's outstanding
equity pursuant to the Offer and the issuance and sale of the full
amount of the Senior Discount Notes and the Subordinated Notes) shall
have been consummated or shall be consummated simultaneously on the
Closing Date and each of the respective conditions to the Offer and
the Debt Tender shall have been satisfied without amendment or waiver
thereof, unless in each case approved in writing by the Arrangers, the
Agents and the Lenders;
(vi) after giving effect to the Transactions and the other
transactions contemplated hereby, neither any Loan Party nor any of
their subsidiaries shall have outstanding any indebtedness or
preferred stock other than (a) the loans under the Senior Bank
Facility, (b) the Senior Discount Notes and the Subordinated Notes and
(c) other indebtedness or preferred stock to be agreed upon;
(vii) customary closing conditions for transactions similar
to the Senior Bank Facility, as applicable, including without
limitation (a) the accuracy of all representations and warranties, (b)
the absence of any defaults, prepayment events or creation of liens
under debt instruments or other agreements as a result of the
Transactions and the other transactions contemplated hereby, (c) the
absence of any material change in the capital,
IV-2
<PAGE> 25
corporate and organizational structure of the Loan Parties and their
subsidiaries (after giving effect to the Transactions), (d)
first-priority perfected security interests in the Collateral, (e)
compliance with applicable laws and regulations (including employee
health and safety, margin regulations and environmental laws), (f)
obtaining reasonably satisfactory insurance, (g) evidence of
authority, (h) consents of all relevant persons, and (i) the receipt
by the Agents and the Lenders of reasonably satisfactory legal
opinions, accountants' comfort letters, and officer's certificates
(including, without limitation, a solvency certificate of the Chief
Financial Officer of the Borrower and the Company));
(viii) there shall not have occurred after August 12, 1998
and be continuing (a) any general suspension of trading in securities
on the New York or American Stock Exchange or in the NASDAQ National
Market System (other than circuit breakers), (b) the declaration of a
banking moratorium or any suspension of payments in respect of banks
in the United States, (c) the commencement of a war or other similar
international or national calamity or emergency, directly or
indirectly involving the United States, (d) any limitations (whether
or not mandatory) imposed by any governmental authority on the nature
or extension of credit or further extension of credit by banks or
other lending institutions, (e) in the case of the foregoing clauses
(c) and (d), a material escalation or worsening thereof or (f) any
other material adverse change in banking or capital market conditions
that has had a material adverse effect on the syndication of leveraged
bank credit facilities;
(ix) the Arrangers' satisfaction that, immediately prior
to and during the marketing period for (a) the Senior Discount Notes
and the Subordinated Notes or (b) the Senior Bank Facility, there
shall be no competing issues of debt securities or commercial bank
facilities (other than the Senior Bank Facility, the Senior Discount
Notes, the Subordinated Notes or other permitted indebtedness
thereunder) of any Loan Party or any of their affiliates;
(x) the receipt by the Arrangers, the Agents and the
Lenders, on or before the closing of the Transactions, of financial
statements of the Borrower and the Company (including notes thereto),
consisting of (a) audited and pro forma balance sheets as of the end
of each period in the 3 fiscal-year period most recently ended, (b)
audited and pro forma statements of operations and cash flows for each
period in the 3 fiscal-year period December 31, 1997, (c) consolidated
and consolidating financial statements for each period in the 3
fiscal-year period most recently ending and supporting documentation
satisfactory to the Arrangers and the Agents, (d) comparable unaudited
historical and pro forma interim financial statements covering all
quarterly or other appropriate periods subsequent to the fiscal year
most recently ended, and (e) such final projections in respect of the
Parent, the other Loan Parties and their respective subsidiaries as
the Arrangers or the Agents may reasonably request; and all such
financial statements, historical or pro forma, delivered pursuant to
this paragraph (x) shall be in compliance with the requirements of
Regulation S-X for a public offering registered under the Securities
Act of 1933, and all financial statements and projections referred to
in this paragraph (x) shall
IV-3
<PAGE> 26
not be materially inconsistent with financial statements,
projections and estimates previously provided to the Arrangers, the
Agents and, if applicable, the Lenders; and
(xi) payment of fees and expenses.
A "MATERIAL ADVERSE EFFECT" shall mean the result of one or
more events, changes or effects which, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on (i) the business,
results of operations, financial condition or prospects of any Loan Party and
its subsidiaries, in each case, taken as a whole, or (ii) the validity or
enforceability of any of the documents entered into in connection with the
Transactions or the other transactions contemplated hereby or the rights,
remedies and benefits available to the parties thereunder.
IV-4
<PAGE> 1
EXHIBIT 99.(b)(4)
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
7 Kripes Road
East Granby, Connecticut 06026
October 1, 1998
DLJ Merchant Banking Partners II, L.P.
c/o DLJ Merchant Banking Partners II, Inc.
277 Park Ave.
New York, NY 10172
LETTER OF INTENT
Ladies and Gentlemen:
Environmental Systems Products Holdings Inc. ("ESPH") and
Environmental Systems Products, Inc. ("ESP") are proposing that DLJ Merchant
Banking Partners II, L.P. ("DLJMB") and one or more of its affiliates
(collectively, the "Buyers") make an investment (the "Investment") in
securities of a newly-formed holding company to be named ("Holdco") which will
own 100% of ESPH in the manner set forth below and pursuant to the terms set
forth on the term sheet (the "Term Sheet") attached hereto as Annex A. Holdco
will be majority-owned by Alchemy Partners (Guernsey) Limited ("Alchemy") and
its affiliates. Unless otherwise defined therein, any capitalized terms used
but not defined in the attached Annexes shall have the meaning set forth herein.
1. General Terms.
DLJMB hereby agrees to make an Investment consisting of the purchase
by the Buyers of Senior Discount Notes (the "Notes") issued by Holdco in a face
amount sufficient to provide Holdco with $100,000,000 in gross proceeds on
terms and subject to conditions that are substantially as set forth on the Term
Sheet. As a
<PAGE> 2
DLJ Merchant Banking Partners II, L.P. October 1, 1998
condition to the Buyers' purchase of the Notes, (i) Holdco, Alchemy, other
Holdco stockholders and the Buyers will enter into an Investors Agreement (the
"Investors Agreement") on terms and subject to conditions that are
substantially as set forth on the Term Sheet and (ii) Holdco will issue
non-voting series B common stock (the "Series B Common Stock") convertible into
shares of Holdco series A common stock (the "Series A Common Stock") on terms
and subject to conditions that are substantially as set forth on the Term
Sheet.
The parties contemplate that Holdco will use the proceeds from sale of
the Notes to make a capital contribution to ESPH in order to finance, in part,
the consummation of the transactions (the "Acquisition") contemplated by the
Agreement and Plan of Merger dated as of August 12, 1998 between Envirotest
Systems Corp. ("Envirotest"), Environmental Systems Products, Inc. ("ESP"),
and Stone Rivet, Inc. (the "Acquisition Agreement"), including the refinancing
of certain outstanding indebtedness of ESP and Envirotest. The parties expect
to finance the remainder of the costs of the Acquisition through the following:
(a) an equity contribution in the amount of approximately $80 million from
Alchemy and certain other of the shareholders of Holdco, (b) available cash of
approximately $92.5 million at Envirotest, (c) the issuance of approximately
$100 million of senior subordinated notes of ESPH (the "Senior Subordinated
Notes"), and (d) borrowings of approximately $385 million under a new senior
secured term credit facility (the "Term Loan Facility"), and up to $1.3 million
under a new revolving credit facility (the "Revolving Loan Facility," and
together with the Term Loan Facility, the "Credit Facilities") (collectively,
the "Other Financing").
2. Certain Conditions.
The consummation of the Investment is conditioned upon (i) the
arrangement and consummation of the Other Financing (including the purchase by
DLJMB or its affiliates of the Senior Subordinated Notes as contemplated in
that certain Letter of Intent among the parties hereto dated as of even date
herewith relating to the Senior Subordinated Notes) or such other alternative
financing reasonably acceptable to the parties, (ii) the consummation of the
Acquisition on the terms set forth in the Acquisition Agreement (as it may be
amended by the parties thereto with the consent of the Buyers, which consent
shall not be unreasonably withheld), (iii) the execution of definitive
agreements (the "Definitive Agreements") relating to the Investment
2
<PAGE> 3
DLJ Merchant Banking Partners II, L.P. October 1, 1998
containing customary representations, warranties, covenants and indemnities,
which in the case of each of (i) and (iii) shall be on terms and conditions
satisfactory to the Buyers, ESP and Alchemy and (iv) the receipt of all
governmental consents and approvals necessary to consummate the Investment.
3. Access and Cooperation.
Subject to Section 4 below, from the date of execution of this letter
of intent until the closing of the Acquisition, the Investment and the other
transactions contemplated hereby, the Buyers and their representatives will
have full reasonable access to Holdco and its subsidiaries and affiliates and
their respective officers, employees, counsel, auditors, books and records and
full reasonable opportunity to investigate their titles to property and the
condition and nature of their assets, businesses and liabilities. The Buyers
and their representatives shall (i) not disclose to any third party any
confidential, non-public information (in whatever form) regarding Holdco and
its subsidiaries and affiliates unless such disclosure is consented to by ESPH
or required by applicable law or legal process, (ii) use such information for
the sole purpose of making a determination as to whether to make the Investment
and the Other Financing (iii) return any such information to ESPH in the event
the Investment is not consummated for any reason.
The parties to this letter shall cooperate and use commercially
reasonable efforts with respect to all steps required to effect the
transactions, including the negotiation of the Definitive Agreements, the
making of all filings and the obtaining of all governmental and third party
consents and approvals.
4. Publicity.
Except as required by law, none of the Buyers or Holdco or their
respective affiliates or representatives will publicly disclose the existence
of this letter or make known any facts related to the proposed transactions
without the prior consent of the other parties, except to its advisors, counsel
or lenders. In addition, the Buyers and their respective affiliates and
representatives shall not communicate the existence of this letter or make
known any facts related to the proposed transactions to Envirotest or its
officers, directors, employees, affiliates or representatives without the prior
written consent of ESP and CSFB and any communications by the Buyers or their
3
<PAGE> 4
DLJ Merchant Banking Partners II, L.P. October 1, 1998
respective affiliates and representatives with Envirotest or its officers,
directors, employees, affiliates or representatives (pursuant to Section 3
above or otherwise) shall be arranged by ESP and CSFB.
5. Termination.
This letter of intent shall expire at 5:00 p.m. on October 1, 1998
unless signed by all of the parties hereto prior to such time and shall if so
signed expire at 5:00 p.m. on October 9, 1998 unless the Definitive Agreements
shall have been executed and delivered prior to such time.
6. Placement Agent.
CSFB is acting as the placement agent for Holdco with respect to the
Investment and any other sale of the Notes for which it will receive a
placement fee in accordance with CSFB's agreement with ESPH and Holdco. ESPH
and Holdco reserve the right to sell a portion of the Notes to other
third-party investors designated by CSFB, subject to the consent of DLJMB. If
any such Notes are sold to any other third-party investor, the obligations of
DLJMB to purchase the Notes hereunder shall be reduced by an amount equal to
any such other sale; provided that, for purposes of this letter, the term
Buyers shall mean only DLJMB and one or more of its affiliates.
7. Fees, Costs and Expenses.
(a) Each party hereto shall bear its respective costs related to
the proposed transactions, including, without limitation, the fees and
expenses of its respective lawyers, accountants and financial
advisors; provided that Holdco and ESP shall bear the reasonable
out-of-pocket expenses of the Buyers, including the reasonable fees
and expenses of one counsel for the Buyers unless (i) the Buyers shall
have failed to pursue the Investment contemplated hereby in good faith
or (ii) this letter of intent is terminated in accordance with its
terms prior to the execution and delivery of the Definitive
Agreements, or any of the Definitive Agreements is terminated prior to
the consummation of the transactions contemplated thereby, in each
case, as a
4
<PAGE> 5
DLJ Merchant Banking Partners II, L.P. October 1, 1998
result of the Buyers' breach of this letter of intent or of such
Definitive Agreement, as the case may be.
(b) Holdco shall pay to Donaldson, Lufkin & Jenrette Securities
Corporation a placement fee of $2.0 million upon consummation of the
Investment.
8. Effect.
If the foregoing accurately summarizes our understanding with respect
to the proposed transactions, please date and execute the duplicate original of
this letter that is enclosed and return the same to the undersigned not later
than 5:00 p.m. on October 1, 1998. This letter of intent shall reflect the
respective rights and obligations of the parties and shall constitute the
binding obligations of the parties hereto until the earlier of the execution
and delivery of Definitive Agreements relating to the Investment and the
termination of this letter of intent in accordance with its terms. Upon
termination of this letter of intent in accordance with its terms, all of the
respective rights and obligations of the parties hereunder shall terminate
(except for the second sentence of paragraph 3 and paragraphs 4 and 7 which
shall survive indefinitely).
5
<PAGE> 6
DLJ Merchant Banking Partners II, L.P. October 1, 1998
Very truly yours,
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
By:/s/ DAVID J. LANGEVIN
----------------------------------------
Name: David J. Langevin
Title: Executive Vice President,
Finance and Administration
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By:/s/ DAVID J. LANGEVIN
----------------------------------------
Name: David J. Langevin
Title: Executive Vice President and
Chief Financial Officer
Accepted: October 1, 1998
DLJ MERCHANT BANKING PARTNERS II, L.P.
By: DLJ Merchant Banking Partners II, Inc.,
Its General Partner
By:/s/ THOMPSON DEAN
--------------------------------------------
Name: Thompson Dean
Title: Managing Director
6
<PAGE> 7
HOLDING COMPANY OF ESPH
SENIOR DISCOUNT NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Issuer: Holding Company (the "Issuer") of Environmental Systems
Products Holdings Inc. ("ESPH").
Buyers: DLJ Merchant Banking Partners II, L.P. ("DLJMB") and
one or more of its affiliates (provided that the Issuer
may sell a portion of the Notes to other third parties
with the consent of DLJMB).
Security: Senior Discount Notes (the "Notes").
Amount: $100.0 million (gross proceeds); $__ million face
amount.
Term: 11 years (2009).
Interest: 15% accretion per annum. On June 30, 2004, cash
interest will be payable in an amount equal to at least
[TO COME] (which amount shall equal the excess of the
total accrued and unpaid federal income tax "original
issue discount" ("OID") on the Notes over one year's
accrued OID on the Notes). Thereafter, accrued
interest on the accreted principal amount of the Notes
(or, if higher, the Notes' "adjusted issue price" as
determined for federal income tax purposes) will be
payable in cash semi-annually in arrears at a rate of
15% per annum (or, if higher, the Notes' "yield to
maturity" as determined for federal income tax
purposes).
Use of Proceeds: To finance a portion of the acquisition (the
"Acquisition") of Envirotest Systems Corp.
("Envirotest") and refinance existing debt.
Call Features: Callable for first twelve months at 115% of accreted
value, thereafter declining ratably on an annual basis
to par at maturity.
Change of Control: Standard investor put at 101% of accreted value.
Security: None.
Sinking Fund: None.
Guarantees: None.
Series B Common
Stock: Detachable Series B Common Stock, convertible into
Series A Common Stock of the Issuer representing 12.5%
of the fully diluted Series A Common Stock. The Series
B Common Stock will have customary tag-along,
anti-dilution (including adjustments to the number of
shares of Series A Common Stock into which the Series B
Common
<PAGE> 8
HOLDING COMPANY OF ESPH
SENIOR DISCOUNT NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
Stock is convertible in the event of stock splits,
stock dividends, mergers and rights offerings),
pre-emptive and demand and piggy-back registration
rights as set forth on Exhibit A.
Covenants: The indenture governing the Notes will contain
customary representations, warranties, covenants,
agreements, conditions and other provisions that are
customary for comparable high yield securities
including, but not limited to, limitation on
indebtedness, limitation on restricted payments,
limitation on asset sales, limitation on transactions
with affiliates, limitation on restrictions on
subsidiary distributions and standard default
provisions. The Series B Common Stock shall be
convertible into Series A Common Stock at any time at
DLJMB's option.
Board Participation: For so long as DLJMB owns at least 25% of its Initial
Ownership (defined as the number of shares of Series A
Common Stock/Series B Common Stock held by such person
or group as of the date of the Investors Agreement) of
the Series B Common Stock (and/or Series A Common
Stock), DLJMB will be entitled to nominate one person
to serve as a member of the Issuer's Board of Directors
(the "Board"). Each committee of the Board will also
include DLJMB's nominee.
Certain Conditions: The proposed investment is subject to (i) the
arrangement and consummation of additional financing
required to complete the Acquisition (including
approximately $435 million in Senior Secured Bank
Facilities and $80 million in cash equity, in addition
to approximately $90 million of available cash and the
purchase by DLJMB or its affiliates of $100 million
aggregate principal amount of Senior Subordinated Notes
of ESPH or such other alternative financing reasonably
acceptable to the parties); (ii) the consummation of
the Acquisition on the terms set forth in the
Acquisition Agreement (as it may be amended by the
parties thereto, with the consent of the Buyers, which
consent will not be unreasonably withheld); (iii) the
execution of definitive agreements (the "Definitive
Agreements") relating to the investment in the Notes
containing customary representations, warranties,
covenants and indemnities, which in the case of each of
(i) and (iii) shall be on terms and conditions
satisfactory to DLJMB, ESP and Alchemy and (iv) the
receipt of all governmental consents and approvals
necessary to consummate the Investment.
Representations and
Warranties: Market standard.
Transfer The Buyers of the Notes may transfer any of the Notes,
shares of Series A Common Stock Restrictions: and/or
Series B Common Stock subject to applicable securities
laws.
Fees, Costs and Each party hereto shall bear its respective costs
related to any investment in the Notes,
<PAGE> 9
HOLDING COMPANY OF ESPH
SENIOR DISCOUNT NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
Expenses: including, without limitation, the fees and expenses of
its respective lawyers, accountants and financial
advisors and out-of-pocket expenses; provided that the
Issuer shall bear the reasonable out-of-pocket expenses
of DLJMB (including the reasonable fees and expenses of
one counsel for DLJMB) unless (i) DLJMB shall have
failed to pursue the investment contemplated hereby in
good faith or (ii) the letter of intent related to this
term sheet is terminated in accordance with its terms
prior to the execution and delivery of the Definitive
Agreements, or any of the Definitive Agreements is
terminated prior to the consummation of the
transactions contemplated thereby, in each case, as a
result of DLJMB's breach of such letter of intent or of
such Definitive Agreement, as the case may be.
Registration Rights: See Exhibit A attached.
Additional Terms: See Exhibit A attached.
Placement Agent: Credit Suisse First Boston Corporation.
- ------------------------------------------------------------------------------
<PAGE> 10
SENIOR DISCOUNT NOTES
EXHIBIT A
Parties: The Issuer, Alchemy, the Buyers and any
other stockholders of the Issuer
Equity Held by Parties to the Series A Common Stock and Series B Common
Investors Agreement: Stock. The Registration Rights to be
included in the Investors Agreement and
described below will also cover the Notes.
Drag-Along Rights: If Alchemy proposes to sell a majority (or
more) of its shares of Series A Common
Stock or other equity securities of the
Issuer to any third party, Alchemy will
have the right to require the Buyers to
participate in such sale to such
transferee on a pro rata basis (in respect
of the Series A Common Stock and/or Series
B Common Stock then held by them) on the
same terms as Alchemy and any other
sellers.
Tag-Along Rights: If Alchemy proposes to sell any shares of
Series A Common Stock or other equity
securities of the Issuer to any third
party other than its "permitted
transferees," the Buyers will have the
right to participate in the sale. If
Tag-Along Rights apply, Alchemy will
inform the Buyers of the terms and
conditions of the proposed sale and offer
each Buyer the opportunity to participate.
From the date of the notice, each Buyer
will have 15 days to respond with the
number of shares, if any, it proposes to
sell. If the number of shares that
Alchemy and the Buyers propose to sell
exceeds the number that can be sold on the
terms and conditions proposed by the
prospective purchaser, each Buyer who has
exercised Tag-Along Rights will be
entitled to sell up to its Tag-Along
Portion of shares that such a person owns.
"Tag-Along Portion" shall be defined as
the number of shares that any Buyer holds
(on a fully-diluted basis including
convertible securities) multiplied by a
fraction the numerator of which is the
number of shares proposed to be sold by
Alchemy and its permitted transferees in
the transaction in question, and the
denominator of which is the total number
of shares (on a fully-diluted basis
including convertible securities) held by
the parties to the Investors Agreement.
Alchemy and the Buyers may sell their
shares on substantially the same terms and
conditions set forth in the notice
(subject to an increase in the amount of
consideration of up to 10%) within 120
days of the date all Tag-Along Rights are
waived, exercised or expire.
Registration Rights: At any time after the third anniversary
date of the Investor Agreement, DLJMB will
be entitled to request two demand
<PAGE> 11
registrations (each, a "Demand
Registration") with respect to the Notes,
the Series B Common Stock and/or the
Series A Common Stock. Upon DLJMB's
request, the Issuer will effect a shelf
registration statement of Series A Common
Stock into which the Series B Common Stock
is convertible. In addition, the Buyers
will also be entitled to unlimited
piggyback registration rights with respect
to any other registration of Notes, the
Series B Common Stock and/or the Series A
Common Stock. The Issuer will bear the
costs and expenses of registration
(including the costs and expenses of one
counsel for the Buyers in respect of any
Demand Registration) and will provide
customary indemnities in connection
therewith. The Issuer will use its
reasonable best efforts to assist the
holders of the Notes, the Series B Common
Stock and/or the Series A Common Stock in
the sale of any such securities made (i)
pursuant to their registration rights set
forth above or (ii) at any time in any
Rule 144A transaction; provided that the
Issuer shall only bear the costs and
expenses of such sale to the extent set
forth in the preceding sentence.
Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), or its successor, an
affiliate of DLJMB, shall have the right
to act as co-manager of any public
offering by the Issuer so long as DLJ
shall be the holder of at least 25% of the
Initial Ownership.
<PAGE> 1
EXHIBIT 99.(b)(5)
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
7 Kripes Road
East Granby, Connecticut 06026
October 1, 1998
Credit Suisse First Boston Corporation
Eleven Madison Avenue
New York, NY 10010
DLJ Merchant Banking Partners II, L.P.
c/o DLJ Merchant Banking Partners II, Inc.
277 Park Ave.
New York, NY 10172
LETTER OF INTENT
Ladies and Gentlemen:
Environmental Systems Products Holdings Inc. ("ESPH") and
Environmental Systems Products, Inc. ("ESP") are proposing that DLJ Merchant
Banking Partners II, L.P and one or more of its respective affiliates (the
"DLJMB Buyers") and Credit Suisse First Boston Corporation and one or more of
its respective affiliates (in such capacity, the "CSFB Buyers" and together
with the DLJMB Buyers, the "Senior Subordinated Notes Buyers") make an
investment (the "Investment") in securities of ESPH in the manner set forth
below and pursuant to the terms set forth on the term sheet (the "Senior
Subordinated Notes Term Sheet") attached hereto as Annex A. ESPH will be a
wholly-owned subsidiary of a newly formed holding company to be named
("Holdco") which in turn will be majority-owned by Alchemy Partners (Guernsey)
Limited ("Alchemy") and its affiliates. Unless otherwise defined therein, any
capitalized terms used but not defined in the attached Annexes shall have the
meaning set forth herein.
<PAGE> 2
Credit Suisse First Boston Corporation October 1, 1998
DLJ Merchant Banking Partners II, L.P.
1. General Terms.
Each of the Senior Subordinated Notes Buyers hereby agrees to make an
Investment consisting of the purchase by each of them of a $50,000,000
aggregate principal amount of the $100,000,000 aggregate principal amount of
senior subordinated notes (the "Notes") to be issued by ESPH on terms and
subject to conditions that are substantially as set forth on the Senior
Subordinated Notes Term Sheet. As a condition to each of the Senior
Subordinated Notes Buyers' purchase of the Notes, (i) Holdco, Alchemy, other
Holdco stockholders and the Senior Subordinated Notes Buyers will enter into an
Investors Agreement (the "Investors Agreement") on terms and subject to
conditions that are substantially as set forth on the Senior Subordinated Notes
Term Sheet and (ii) Holdco will issue to each of the Senior Subordinated Notes
Buyers non-voting series B common stock (the "Series B Common Stock")
convertible into shares of Holdco series A common stock (the "Series A Common
Stock") on terms and subject to conditions that are substantially as set forth
on the Senior Subordinated Notes Term Sheet.
The parties contemplate that ESPH will use the proceeds from sale of
the Notes in order to finance, in part, the consummation of the transactions
(the "Acquisition") contemplated by the Agreement and Plan of Merger dated as
of August 12, 1998 between Envirotest Systems Corp. ("Envirotest"),
Environmental Systems Products, Inc. ("ESP"), and Stone Rivet, Inc. (the
"Acquisition Agreement"), including the refinancing of certain outstanding
indebtedness of ESP and Envirotest. The parties expect to finance the
remainder of the costs of the Acquisition through the following: (a) an equity
contribution in the amount of approximately $80 million from Alchemy and
certain other of the shareholders of Holdco, (b) available cash of
approximately $92.5 million at Envirotest, (c) the issuance of approximately
$100 million of senior discount notes (the "Discount Notes") of Holdco, and (d)
borrowings of approximately $385 million under a new senior secured term credit
facility (the "Term Loan Facility"), and up to $1.3 million under a new
revolving credit facility (the "Revolving Loan Facility," and together with the
Term Loan Facility, the "Credit Facilities") (collectively, the "Other
Financing").
2. Certain Conditions.
2
<PAGE> 3
Credit Suisse First Boston Corporation October 1, 1998
DLJ Merchant Banking Partners II, L.P.
The consummation of the Investment is conditioned upon (i) the
arrangement and consummation of the Other Financing (including the purchase by
DLJMB or its affiliates of the Discount Notes as contemplated in that certain
Letter of Intent among DLJMB, ESPH and ESP dated as of even date herewith
relating to the Discount Notes) or such other alternative financing reasonably
acceptable to the parties, (ii) the consummation of the Acquisition on the
terms set forth in the Acquisition Agreement (as it may be amended by the
parties thereto with the consent of each of the Senior Subordinated Notes
Buyers, which consent shall not be unreasonably withheld), (iii) the execution
of definitive agreements (the "Definitive Agreements") relating to the
Investment containing customary representations, warranties, covenants and
indemnities, which in the case of each of (i) and (iii) shall be on terms and
conditions satisfactory to each of the Senior Subordinated Notes Buyers, ESP
and Alchemy and (iv) the receipt of all governmental consents and approvals
necessary to consummate the Investment.
3. Access and Cooperation.
Subject to Section 4 below, from the date of execution of this letter
of intent until the closing of the Acquisition, the Investment and the other
transactions contemplated hereby, each of the Senior Subordinated Notes Buyers
and its representatives will have full reasonable access to Holdco and its
subsidiaries and affiliates and their respective officers, employees, counsel,
auditors, books and records and full reasonable opportunity to investigate
their titles to property and the condition and nature of their assets,
businesses and liabilities. Each of the Senior Subordinated Notes Buyers and
its representatives shall (i) not disclose to any third party any confidential,
non-public information (in whatever form) regarding Holdco and its subsidiaries
and affiliates unless such disclosure is consented to by ESPH or required by
applicable law or legal process, (ii) use such information for the sole purpose
of making a determination as to whether to make the Investment and the Other
Financing and (iii) return any such information to ESPH in the event the
Investment is not consummated for any reason.
The parties to this letter shall cooperate and use commercially
reasonable efforts with respect to all steps required to effect the
transactions, including the
3
<PAGE> 4
Credit Suisse First Boston Corporation October 1, 1998
DLJ Merchant Banking Partners II, L.P.
negotiation of the Definitive Agreements, the making of all filings and the
obtaining of all governmental and third party consents and approvals.
4. Publicity.
Except as required by law, either of the Senior Subordinated Notes
Buyers nor Holdco nor their respective affiliates or representatives will
publicly disclose the existence of this letter or make known any facts related
to the proposed transactions without the prior consent of the other parties,
except to its advisors, counsel or lenders. In addition, each of the Senior
Subordinated Notes Buyers and its respective affiliates and representatives
shall not communicate the existence of this letter or make known any facts
related to the proposed transactions to Envirotest or its officers, directors,
employees, affiliates or representatives without the prior written consent of
ESP and Credit Suisse First Boston Corporation ("CSFBC") and any communications
by either of the Senior Subordinated Notes Buyers or their respective
affiliates and representatives with Envirotest or its officers, directors,
employees, affiliates or representatives (pursuant to Section 3 above or
otherwise) shall be arranged by ESP and CSFBC.
5. Termination.
This letter of intent shall expire at 5:00 p.m. on October 1, 1998
unless signed by all of the parties hereto prior to such time and shall if so
signed expire at 5:00 p.m. on October 9, 1998 unless the Definitive Agreements
shall have been executed and delivered prior to such time.
6. Placement Agent.
CSFBC is acting as the placement agent for ESPH with respect to the
Investment and any other sale of the Notes for which it will receive a
placement fee in accordance with CSFBC's agreement with ESPH. ESPH reserves
the right to sell a portion of the Notes to other third-party investors
designated by CSFBC, subject to the consent of DLJMB. If any such Notes are
sold to any other third-party investor, the obligations of DLJMB to purchase
the Notes hereunder shall be reduced by an amount equal to any such other sale.
4
<PAGE> 5
Credit Suisse First Boston Corporation October 1, 1998
DLJ Merchant Banking Partners II, L.P.
7. Fees, Costs and Expenses.
(a) Each party hereto shall bear its respective costs related to
the proposed transactions, including, without limitation, the fees and expenses
of its respective lawyers, accountants and financial advisors; provided that
ESPH and ESP shall bear the reasonable out-of-pocket expenses of each of the
Senior Subordinated Notes Buyers, including the reasonable fees and expenses of
one counsel for each of the Senior Subordinated Notes Buyers unless (i) the
Senior Subordinated Notes Buyers shall have failed to pursue the Investment
contemplated hereby in good faith or (ii) this letter of intent is terminated
in accordance with its terms prior to the execution and delivery of the
Definitive Agreements, or any of the Definitive Agreements is terminated prior
to the consummation of the transactions contemplated thereby, in each case, as
a result of the Senior Subordinated Notes Buyers' breach of this letter of
intent or of such Definitive Agreement, as the case may be.
(b) Upon consummation of the Investment, ESPH shall pay to: (i)
Donaldson, Lufkin & Jenrette Securities Corporation a placement fee of $2.0
million and (ii) to CSFBC a placement fee of $2.0 million.
8. Effect.
If the foregoing accurately summarizes our understanding with respect
to the proposed transactions, please date and execute the duplicate original of
this letter that is enclosed and return the same to the undersigned not later
than 5:00 p.m. on October 1, 1998. This letter of intent shall reflect the
respective rights and obligations of the parties and shall constitute the
binding obligations of the parties hereto until the earlier of the execution
and delivery of Definitive Agreements relating to the Investment and the
termination of this letter of intent in accordance with its terms. Upon
termination of this letter of intent in accordance with its terms, all of the
respective rights and obligations of the parties hereunder shall terminate
(except for the second sentence of paragraph 3 and paragraphs 4 and 7 which
shall survive indefinitely).
5
<PAGE> 6
Credit Suisse First Boston Corporation October 1, 1998
DLJ Merchant Banking Partners II, L.P.
Very truly yours,
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
By:/s/ DAVID J. LANGEVIN
---------------------
Name: David J. Langevin
Title: Executive Vice President,
Finance and Administration
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By:/s/ DAVID J. LANGEVIN
---------------------
Name: David J. Langevin
Title: Executive Vice President and
Chief Financial Officer
6
<PAGE> 7
Credit Suisse First Boston Corporation October 1, 1998
DLJ Merchant Banking Partners II, L.P.
Accepted: October 1, 1998
DLJ MERCHANT BANKING PARTNERS II, L.P.
By: DLJ Merchant Banking Partners II, Inc.,
Its General Partner
By:/s/ THOMPSON DEAN
--------------------------------------------
Name: Thompson Dean
Title: Managing Director
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:/s/ LAURI SIVASLIAN
------------------------------------------
Name: Lauri Sivaslian
Title: Director
<PAGE> 8
ESPH
SENIOR SUBORDINATED NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Issuer: Environmental Systems Products Holdings Inc. ("ESPH").
Buyers: DLJ Merchant Banking Partners II, L.P. and one or more
of its respective affiliates (the "DLJMB Buyers") and
Credit Suisse First Boston Corporation and one or more
of its affiliates (the "CSFBC Buyers" and together with
the DLJMB Buyers, the "Senior Subordinated Notes
Buyers") (provided that the Issuer may sell a portion
of the Notes to other third parties with the consent of
the DLJMB Buyers and the CSFBC Buyers).
Security: Senior Subordinated Notes (the "Notes").
Amount: $100.0 million ($50.0 million to be purchased by the
DLJMB Buyers and $50.0 million to be purchased by the
CSFBC Buyers).
Term: 10 years (2008).
Interest: Cash interest payable semi-annually in arrears at a
rate of 13% per annum.
Use of Proceeds: To finance a portion of the acquisition (the
"Acquisition") of Envirotest Systems Corp.
("Envirotest") and refinance existing debt.
Call Features: Non-callable for five years; thereafter callable for
the first twelve months at 106.5% of principal amount,
thereafter declining ratably on an annual basis to par
at maturity.
IPO Call: During the first three years, up to 35% of original
principal amount callable at 113% of principal amount
with the proceeds of a public equity offering.
Change of Control: Standard investor put at 101% of principal amount.
Ranking Senior Subordinated.
Security: None.
Sinking Fund: None.
Guarantees: The Notes will be guaranteed on a senior subordinated
basis by the domestic restricted subsidiaries of the
Issuer.
Series B Common
Stock: Detachable Series B Common Stock convertible into
Series A Common Stock of Holdco, the direct parent of
ESPH ("Holdco"), representing 5.0% of the fully diluted
common stock. The Series B Common Stock will have
customary tag-along, anti-dilution (including
adjustments to the number of shares of Series A Common
Stock into
<PAGE> 9
ESPH
SENIOR SUBORDINATED NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
which the Series B Common Stock is convertible in the
event of stock splits, stock dividends, mergers and
rights offerings), pre-emptive and demand and
piggy-back registration rights as set forth on Exhibit
A. The Series B Common Stock shall be convertible into
Series A Common Stock at any time at DLJMB's option (in
respect of the Series B Common Stock held by the DLJMB
Buyers) or at CSFBC's option (in respect of the Series
B Common Stock held by the CSFBC Buyers).
Covenants: The indenture governing the Notes will contain
customary representations, warranties, covenants,
agreements, conditions and other provisions that are
customary for comparable high yield securities
including, but not limited to, limitation on
indebtedness, limitation on restricted payments,
limitation on asset sales, limitation on transactions
with affiliates, limitation on restrictions on
subsidiary distributions, limitation on layering and
standard default provisions.
Certain Conditions: The proposed investment is subject to (i) the
arrangement and consummation of additional financing
required to complete the Acquisition (including
approximately $385 million in Senior Secured Bank
Facilities, $80 million in cash equity, in addition to
approximately $90 million of available cash, the
purchase by DLJMB or its affiliates of $100 million
aggregate principal amount of Discount Notes of Holdco
or such other alternative financing reasonably
acceptable to the parties); (ii) the consummation of
the Acquisition on the terms set forth in the
Acquisition Agreement (as it may be amended by the
parties thereto, with the consent of each of the Senior
Subordinated Notes Buyers, which consent will not be
unreasonably withheld); (iii) the execution of
definitive agreements (the "Definitive Agreements")
relating to the investment in the Notes containing
customary representations, warranties, covenants and
indemnities, which in the case of each of (i) and (iii)
shall be on terms and conditions satisfactory to each
of the Senior Subordinated Notes Buyers, ESP and
Alchemy and (iv) the receipt of all governmental
consents and approvals necessary to consummate the
Investment.
Representations and
Warranties: Market standard.
Transfer Each of the Senior Subordinated Notes Buyers may
Restrictions: transfer any of its Notes, shares of Series B Common
Stock and/or Series A Common Stock subject to
applicable securities laws.
Fees, Costs and Each party hereto shall bear its respective costs
Expenses: related to any investment in the Notes, including,
without limitation, the fees and expenses of its
respective lawyers, accountants and financial advisors
and out-of-pocket expenses; provided that the Issuer
shall bear the reasonable out-of-pocket expenses of
each of the Senior Subordinated Notes Buyers (including
the reasonable fees and expenses of one counsel for
each of the Senior Subordinated Notes Buyers) unless
(i) the applicable Senior Subordinated
<PAGE> 10
Notes Buyer shall have failed to pursue the Investment
contemplated hereby in good faith or (ii) the letter of
intent related to this term sheet is terminated in
accordance with its terms prior to the execution and
delivery of the Definitive Agreements, or any of the
Definitive Agreements is terminated prior to the
consummation of the transactions contemplated thereby,
in each case, as a result of the Senior Subordinated
Notes Buyers' breach of such letter of intent or of
such Definitive Agreement, as the case may be.
Registration Rights: See Exhibit A attached.
Additional Terms: See Exhibit A attached.
Placement Agent: Credit Suisse First Boston Corporation.
- ------------------------------------------------------------------------------
<PAGE> 11
SENIOR SUBORDINATED NOTES
EXHIBIT A
Parties: Holdco, Alchemy, the Senior Subordinated
Notes Buyers and any other stockholders of
Holdco.
Equity Held by Parties to the Series A Common Stock and Series B Common
Investors Agreement: Stock. The Registration Rights to be
included in the registration rights
agreement and described below will also
cover the Notes.
Drag-Along Rights: If Alchemy proposes to sell a majority (or
more) of its shares of Common Stock or
other equity securities of Holdco to any
third party, Alchemy will have the right
to require each of the Senior Subordinated
Notes Buyers to participate in such sale
to such transferee on a pro rata basis (in
respect of the Series B Common Stock
and/or Series A Common Stock then held by
each of them) on the same terms as Alchemy
and any other sellers.
Tag-Along Rights: If Alchemy proposes to sell any shares of
Common Stock or other equity securities of
Holdco to any third party other than its
"permitted transferees," each of the
Senior Subordinated Notes Buyers will have
the right to participate in the sale. If
Tag-Along Rights apply, Alchemy will
inform each of the Senior Subordinated
Notes Buyers of the terms and conditions
of the proposed sale and offer each of the
Senior Subordinated Notes Buyers the
opportunity to participate. From the date
of the notice, each of the Senior
Subordinated Notes Buyers will have 15
days to respond with the number of shares,
if any, it proposes to sell. If the
number of shares that Alchemy and the
Senior Subordinated Notes Buyers propose
to sell exceeds the number that can be
sold on the terms and conditions proposed
by the prospective purchaser, each of the
Senior Subordinated Notes Buyers will be
entitled to sell up to its Tag-Along
Portion of shares. "Tag-Along Portion"
shall be defined as the number of shares
that the applicable Senior Subordinated
Notes Buyer holds (on a fully-diluted
basis including convertible securities)
multiplied by a fraction the numerator of
which is the number of shares proposed to
be sold by Alchemy and its permitted
transferees in the transaction in
question, and the denominator of which is
the total number of shares (on a
fully-diluted basis including convertible
securities) held by the parties to the
Investors Agreement. Alchemy and each of
the Senior Subordinated Notes Buyers may
sell their shares on substantially the
same terms and conditions set forth in the
notice (subject to an increase in the
amount of consideration of up to 10%)
within 120 days of the date all Tag-Along
Rights are waived, exercised or expire.
<PAGE> 12
ESPH
SENIOR SUBORDINATED NOTES
SUMMARY OF PRINCIPAL TERMS AND CONDITIONS
Registration Rights: ESPH and Holdco will enter into a
registration rights agreement with each of
the Senior Subordinated Notes Buyers
pursuant to which Holdco and the Company
will file a registration statement within
60 days of the issuance of the Notes, with
respect to the Notes and use their
respective best efforts to cause such
registration statement to be declared
effective 150 days after the date of
issuance of the Notes. In addition, if
after the termination of the effectiveness
of such registration statement any of the
Senior Subordinated Notes Buyers continue
to hold Notes twelve months after the
termination of such effectiveness, such
Senior Subordinated Notes Buyers shall be
entitled to request a demand registration
with respect to such Notes. At any time
after the third anniversary of the
Investor Agreement, each of the Senior
Subordinated Notes Buyers will be entitled
to request two demand registrations (each,
a "Demand Registration"),with respect to
the Series B Common Stock and/or the
Series A Common Stock. Upon either of the
Senior Subordinated Notes Buyer's
requests, Holdco will effect a shelf
registration statement of Series A Common
Stock into which the Series B Common Stock
is convertible. In addition, each of the
Senior Subordinated Notes Buyers will also
be entitled to unlimited piggyback
registration rights with respect to any
other registration of the Series B Common
Stock and/or the Series A Common Stock.
The Issuer will bear the costs and
expenses of registration (including the
costs and expenses of one counsel for each
of the Senior Subordinated Notes Buyers in
respect of such registration) and will
provide customary indemnities in
connection therewith. The Issuer will use
its reasonable best efforts to assist the
holders of the Notes, the Series B Common
Stock and/or the Series A Common Stock in
the sale of any such securities made (i)
pursuant to their registration rights set
forth above or (ii) in any Rule 144A
transaction; provided that the Issuer
shall only bear the costs and expenses of
such sale to the extent set forth in the
preceding sentence.
<PAGE> 1
EXHIBIT 99(B)(6)
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010
October 1, 1998
Environmental Systems Products Holdings Inc.
and Environmental Systems Products, Inc.
7 Kripes Road
East Granby, CT 06020
Attention: David Langevin
Dear David:
We refer to the senior secured credit facilities and bridge
loan commitment letter dated August 12, 1998 (together with the Exhibits and
Annexes thereto, the "Existing Commitment Letter") between Credit Suisse First
Boston ("CSFB") and Environmental Systems Products, Inc. ("ESP") to provide
certain financing (the "Existing Financing Proposal") in connection with your
proposed acquisition of Envirotest Systems Corp.
At your request, we have expended considerable time and energy
over the past few weeks in developing an alternative financing proposal in
order to provide you with viable financing (the "New Financing Proposal") for
the acquisition, which is set forth in the following letter agreements (the
"New Commitment Letters"): (i) the senior secured credit facilities commitment
letter dated October 1, 1998 among CSFB, Donaldson, Lufkin & Jenrette
Securities Corporation, DLJ Capital Funding, Inc., Environmental Systems
Products Holdings Inc. ("ESPH") and ESP, including all Exhibits and Annexes
thereto, (ii) the letter of intent dated October 1, 1998 between ESPH and DLJ
Merchant Banking Partners II. L.P. in respect of senior discount notes,
including all attachments and exhibits, and (iii) the letter of intent dated
October 1, 1998 between ESPH, CSFB and DLJ Merchant Banking Partners II. L.P.
in respect of senior subordinated notes, including all attachments and
exhibits.
<PAGE> 2
Environmental Systems Products Holdings Inc.
and Environmental Systems Products Inc.
October 1, 1998
Page 2
At your request, the New Commitment Letters do not supersede
the Existing Commitment Letter and while the New Financing Proposal is subject
to the terms and conditions set forth in the New Commitment Letters, we think
you will agree that the New Financing Proposal provides greater certainty of
consummation than any presently available alternative, including the Existing
Financing Proposal.
In consideration of the foregoing, each of you agree that you
will use reasonable best efforts to consummate the financing transactions
contemplated by, and pursuant to the terms and conditions of, the New
Commitment Letters (the "New Financing") and further that our commitments under
the Existing Commitment Letter and the financing transactions contemplated
thereby shall be available to you only in the event that we have been unable to
consummate the New Financing and shall be subject to the terms and conditions
of the Existing Commitment Letter.
<PAGE> 3
Environmental Systems Products Holdings Inc.
and Environmental Systems Products Inc.
October 1, 1998
Page 3
Please indicate your acceptance of, and agreement to, the
terms hereof by signing in the appropriate spaces below and returning to us the
enclosed duplicate originals hereof, whereupon this letter agreement shall
become a binding agreement between us.
<TABLE>
<S> <C>
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ RICHARD CAREY
-------------------------
Name: Richard Carey
Director
By: /s/ LAURI SIVASLIAN
-------------------------
Name: Lauri Sivaslian
Title: Director
Accepted and agreed to as of
the date first written above,
ENVIRONMENTAL SYSTEMS PRODUCTS HOLDINGS INC.
By: /s/ DAVID J. LANGEVIN
--------------------------
Name:
Title:
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ DAVID J. LANGEVIN
--------------------------
Name:
Title:
</TABLE>
