<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-1
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
------------------------
CALCULATION OF FILING FEE
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Transaction Value* Amount of Filing Fee**
$283,542,442 $56,709
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* The transaction valuation assumes the purchase of 16,437,243 shares of Class
A Common Stock of Envirotest Systems Corp. at $17.25 per share in cash, which
is based on the number of shares of Class A Common Stock represented by the
Company to be outstanding (8,842,248) as of August 12, 1998, the number of
shares of common stock of the Company issuable under outstanding stock
options (4,319,135), and upon conversion of Envirotest Systems Corp.'s
outstanding shares of Class B Common Stock (1,249,749) and Class C Common
Stock (2,026,111) as of August 12, 1998.
** The amount of the filing fee, calculated in accordance with Rule 0-11(d)
under the Securities Exchange Act of 1934, equals 1/50 of one percent of the
cash offered by the Bidder.
[ ] Check box if any part of the fee is offset by Rule 0-11(a)(2) and identify
the filing with which the offsetting fee was previously paid. Identify the
previous filing by registration statement number, or the form or schedule
and the date of its filing.
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Amount Previously Paid: Not applicable Filing Party: Not applicable
Form or Registration No.: Not applicable Date Filed: Not applicable
</TABLE>
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<PAGE> 2
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CUSIP NO. 29409W105 14D-1 PAGE 2 OF 7
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1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS (ENTITIES ONLY)
Stone Rivet, Inc. (E.I.N. 06-1523253)
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
BK, AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(e) or 2(f)
[ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,029,657*
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES
[ ]
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
49.8%
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10. TYPE OF REPORTING PERSON
CO
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* On August 12, 1998, Environmental Systems Products, Inc.
("Parent") and Stone Rivet, Inc., a wholly owned subsidiary
of Parent (the "Purchaser"), entered into Stockholder
Agreements with certain stockholders (the "Stockholders")
of Envirotest Systems Corp. (the "Company"), pursuant to
which the Stockholders have agreed to tender to the
Purchaser an aggregate of 6,029,657 shares of Class A
Common Stock of the Company (the "Shares"), or
approximately 49.8% of the Shares outstanding as of August
12, 1998. Certain Stockholders who own Class B Common
Stock and Class C Common Stock, which are convertible into
Shares on a one-for-one basis at any time at the holders'
option, have agreed to convert a portion of such shares of
Class B Common Stock and Class C Common Stock into Shares
and tender such Shares in the Offer (as defined herein).
The amounts set forth above include the Shares issuable
upon conversion of the shares of Class B Common Stock and
Class C Common Stock subject to the Stockholder
Agreements. In addition, any Shares that any such
Stockholder may subsequently acquire (by exercise of stock
options or otherwise) automatically become subject to the
provisions of the Stockholder Agreements. Pursuant to the
Stockholder Agreements, each Stockholder has also
delivered an irrevocable proxy to the Purchaser to vote,
or grant a consent or approval in respect of, the Shares
subject to the Stockholder Agreements in favor of the
Merger (as defined below) and against any transaction with
a third party other than the transactions contemplated by
the Offer and the Merger. The Stockholder Agreements are
more fully described in Section 11 of the Offer to
Purchase (as defined below).
</TABLE>
2
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CUSIP NO. 29409W105 14D-1 PAGE 3 OF 7
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1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS
Environmental Systems Products, Inc. (E.I.N. 06-1285832)
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [ ]
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
BK, AF
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(e) or 2(f)
[ ]
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
6,029,657*
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8. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7) EXCLUDES
CERTAIN SHARES
[ ]
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9. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7)
49.8%
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10. TYPE OF REPORTING PERSON
CO
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* The footnote on page 2 is incorporated herein by
reference.
</TABLE>
3
<PAGE> 4
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 is 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 are attached hereto as Exhibits 99(a)(1) and 99(a)(2),
respectively (which collectively constitutes the "Offer").
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Envirotest Systems Corp., a Delaware
corporation. The principal executive offices of the Company are located at 246
Sobrante Way, Sunnyvale, California 94086-4807 (telephone (408) 774-6300).
(b) The information set forth in the Introduction and Section 1 of the
Offer to Purchase is incorporated herein by reference.
(c) The information concerning the principal market in which the Shares are
traded and the high and low sales prices for the Shares in such principal market
is set forth in Section 6 ("Price Range of the Shares; Dividends on the Shares")
of the Offer to Purchase which is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) The name, principal business and address of the principal
office of the Purchaser and Parent is set forth in Section 8 ("Certain
Information Concerning the Purchaser and Parent") of the Offer to Purchase which
is incorporated herein by reference. The name, citizenship, business address,
present principal occupation or employment of each director and executive
officer of Purchaser and Parent and the name, principal business and address of
any corporation or other organization in which such occupation or employment is
conducted, material occupations, positions, offices or employments during the
last five years and the name, principal business and address of any business
corporation or other organization in which such occupation, position, office or
employment was carried on, is set forth in Schedule I of the Offer to Purchase
and is incorporated herein by reference.
(e) and (f) During the last five years none of the Purchaser or Parent or,
to the best knowledge of the Purchaser and Parent, any of the persons listed in
Schedule I to the Offer to Purchase, has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors). During the last five
years, none of the Purchaser or Parent or, to the best knowledge of the
Purchaser and Parent, any of the persons listed in Schedule I to the Offer to
Purchase, was a party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and, as a result of such proceeding, was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting activities subject to, federal or state securities laws or finding
any violation of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a) To the best of Purchaser's and Parent's knowledge, there have been no
transactions with the Company required to be set forth in this Item.
(b) The information set forth in Section 10 ("Background of the Offer;
Contacts with the Company") of the Offer to Purchase is incorporated herein by
reference.
4
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ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(c) The information set forth in Section 9 ("Source and Amount of
Funds") of the Offer to Purchase is incorporated herein by reference.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the Introduction and Section 11 ("The
Purpose of the Offer; The Merger Agreement; Plans for the Company") of the Offer
to Purchase is incorporated herein by reference.
(f) and (g) The information set forth in Section 12 ("Effect of the Offer
on the Market for the Shares, AMEX Listing and Exchange Act Registration") of
the Offer to Purchase is incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) None.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the Introduction, Section 10 ("Background of
the Offer; Contacts with the Company"), Section 11 ("The Purpose of the Offer;
The Merger Agreement; Plans for the Company"), Section 14 ("Certain Legal
Matters") and Section 15 ("Fees and Expenses") of the Offer to Purchase is
incorporated herein by reference. Except as set forth in the Introduction and
Sections 10, 11, 14 and 15 of the Offer to Purchase, none of the Purchaser or
Parent or, to the best knowledge of the Purchaser and Parent, any of the persons
listed in Schedule I to the Offer to Purchase, has any contract, arrangement,
understanding or relationship (whether or not legally enforceable) with any
other person with respect to any securities of the Company (including, but not
limited to, any contract, arrangement, understanding or relationship concerning
the transfer or the voting of any such securities, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against
loss, or the giving or withholding of proxies).
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in Section 15 ("Fees and Expenses") of the Offer
to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The Purchaser was created to effect the Offer and the Merger and has no
business, assets or financial statements. The consolidated financial information
of the Parent set forth in Section 8 ("Certain Information Concerning the
Purchaser and Parent") of the Offer to Purchase is herein incorporated by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) The information set forth in Section 11 ("The Purpose of the Offer; The
Merger Agreement; Plans for the Company") of the Offer to Purchase is
incorporated herein by reference.
(b)-(d) The information set forth in the Introduction and Section 14
("Certain Legal Matters") of the Offer to Purchase is incorporated herein by
reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal annexed hereto as Exhibit 99(a)(2), to the extent not otherwise
incorporated herein by reference, is incorporated herein by reference.
5
<PAGE> 6
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
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99(a)(1) Offer to Purchase, dated August 19, 1998.
99(a)(2) Letter of Transmittal.
99(a)(3) IRS Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
99(a)(4) Summary Advertisement, dated August 19, 1998.
99(a)(5) Notice of Guaranteed Delivery.
99(a)(6) Letter from Purchasers to Brokers, Dealers, Commercial
Banks, Trust Companies and Nominees.
99(a)(7) Letter to Clients for Use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
99(a)(8) Text of Joint Press Release, dated August 13, 1998.
99(b)(1) Commitment Letter, dated August 12, 1998, executed by Credit
Suisse First Boston.
99(b)(2) Commitment Letter, dated August 12, 1998, from Newmall to
the Purchaser regarding capital contribution.
99(c)(1) Agreement and Plan of Merger, dated August 12, 1998, among
Parent, the Purchaser and the Company.
99(c)(2) Stockholders' Agreement, dated August 12, 1998, among Parent
and the Purchaser and certain stockholders of the Company
named therein.
99(c)(3) Stockholder Agreement, dated August 12, 1998, among Parent
and the Purchaser and Chemical Equity Associates
99(c)(4) Confidentiality Agreement, dated as of May 8, 1998, between
Parent and the Company.
99(c)(5) Non-Compete Agreement, dated as of August 12, 1998, between
Parent and Chester C. Davenport.
99(d) Not applicable.
99(e) Not applicable.
99(f) The Offer to Purchase and the Letter of Transmittal are
incorporated herein by reference.
</TABLE>
6
<PAGE> 7
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: August 19, 1998
STONE RIVET, INC.
By: /s/ TERRENCE P. MCKENNA
------------------------------------
Name: Terrence P. McKenna
Title: President and Chief Executive
Officer
Date: August 19, 1998
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By: /s/ TERRENCE P. MCKENNA
------------------------------------
Name: Terrence P. McKenna
Title: President and Chief Executive
Officer
7
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF CLASS A COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
AT
$17.25 CASH NET PER SHARE
BY
STONE RIVET, INC.,
A WHOLLY OWNED SUBSIDIARY OF
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN
STANDARD TIME ON SEPTEMBER 30, 1998, UNLESS THE OFFER IS EXTENDED (THE
"EXPIRATION DATE"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE
BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER
(I) THAT NUMBER OF SHARES THAT WOULD REPRESENT 90% OF ALL OUTSTANDING SHARES OF
CLASS A COMMON STOCK (DETERMINED ON A PRIMARY BASIS) ON THE DATE OF PURCHASE
(ASSUMING CONVERSION OF ALL OUTSTANDING SHARES OF CLASS B COMMON STOCK AND CLASS
C COMMON STOCK INTO SHARES OF CLASS A COMMON STOCK) AND (II) 100% OF THE SHARES
OF CLASS A COMMON STOCK ISSUABLE UPON CONVERSION (AND ASSUMING CONVERSION
THEREOF) OF ALL OUTSTANDING SHARES OF CLASS B COMMON STOCK AND CLASS C COMMON
STOCK ON THE DATE OF PURCHASE. SEE INTRODUCTION AND SECTION 13.
THE BOARD OF DIRECTORS OF ENVIROTEST SYSTEMS CORP. (THE "COMPANY") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT (AS DEFINED HEREIN) AND THE MAKING OF
THE OFFER BY THE PURCHASER (AS DEFINED HEREIN), AND HAS DETERMINED THAT THE
TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE
COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
APPROVE THE MERGER AGREEMENT.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares (as defined herein) should (A) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal, have such stockholder's signature thereon guaranteed if
required by Instruction 1 to the Letter of Transmittal, and mail or deliver the
Letter of Transmittal (or such facsimile) and any other required documents to
the Depositary (as defined herein), and either deliver, together with the Letter
of Transmittal, the certificates representing the tendered Shares and any other
required documents to the Depositary, or tender such Shares pursuant to the
procedure for book-entry transfer set forth in Section 3 or (B) request such
stockholder's broker, dealer, bank, trust company or other nominee to effect the
transaction for such stockholder. Stockholders having Shares registered in the
name of a broker, dealer, bank, trust company or other nominee must contact such
broker, dealer, bank, trust company or other nominee if they desire to tender
Shares so registered.
If a stockholder desires to tender Shares and such stockholder's
certificates for such Shares are not immediately available, or the procedures
for book-entry transfer cannot be completed on a timely basis, or time will not
permit all documents to reach the Depositary prior to the Expiration Date, such
stockholder may tender such Shares by following the procedures for guaranteed
delivery set forth in Section 3.
Questions and requests for assistance may be directed to D.F. King & Co.,
Inc. at the address and telephone numbers set forth on the back cover of this
Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from D.F. King
& Co., Inc. or from brokers, dealers, commercial banks or trust companies.
------------------------
THE INFORMATION AGENT FOR THE OFFER IS:
D. F. KING & CO., INC.
AUGUST 19, 1998
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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Introduction....................................................... 1
1. Term of the Offer; Expiration Date.......................... 2
2. Acceptance for Payment and Payment for Shares............... 4
3. Procedure for Tendering Shares.............................. 5
4. Withdrawal Rights........................................... 7
5. Certain Federal Income Tax Consequences..................... 8
6. Price Range of the Shares; Dividends on the Shares.......... 9
7. Certain Information Concerning the Company.................. 10
8. Certain Information Concerning the Purchaser and Parent..... 13
9. Source and Amount of Funds.................................. 14
10. Background of the Offer; Contacts with the Company.......... 16
11. The Purpose of the Offer; The Merger Agreement; Plans for
the Company............................................... 19
12. Effect of the Offer on the Market for the Shares; AMEX
Listing and Exchange Act Registration..................... 27
13. Certain Conditions to the Offer............................. 27
14. Certain Legal Matters....................................... 29
15. Fees and Expenses........................................... 30
16. Miscellaneous............................................... 30
Schedule I
Directors and Executive Officers of the Purchaser and
Parent.................................................... S-1
</TABLE>
<PAGE> 3
TO THE HOLDERS OF CLASS A COMMON STOCK
OF ENVIROTEST SYSTEMS CORP.:
INTRODUCTION
Stone Rivet, Inc., a Delaware corporation (the "Purchaser"), which is a
wholly owned subsidiary of Environmental Systems Products, Inc. ("Parent"),
hereby offers to purchase all outstanding shares of Class A Common Stock, $.01
par value per share (collectively, the "Shares" or the "Class A Shares"), of
Envirotest Systems Corp., a Delaware corporation (the "Company"), at a purchase
price of $17.25 per Share, net to the seller in cash, upon the terms and subject
to the conditions set forth in this Offer to Purchase and in the related Letter
of Transmittal (which, together with any amendments or supplements hereto or
thereto, collectively constitute the "Offer"). Parent is an indirect wholly
owned subsidiary of Newmall Limited, a private limited company organized under
the laws of the United Kingdom ("Newmall"). Newmall is controlled by the Alchemy
Investment Plan, an investment consortium principally composed of United States
institutional investors that is advised by Alchemy Partners.
The purpose of the Offer is to enable Parent to acquire the entire equity
interest in the Company. The Offer is being made pursuant to an Agreement and
Plan of Merger dated as of August 12, 1998 by and among Parent, the Purchaser,
and the Company (the "Merger Agreement"). The Merger Agreement provides for,
among other things, the Purchaser to commence a cash tender offer to purchase
all of the Shares of the Company for $17.25 per Share. As soon as practicable
following the consummation of the Offer and the satisfaction or waiver of
certain conditions, it is intended that the Purchaser will merge into the
Company (the "Merger"), with the Company surviving the Merger, pursuant to the
applicable provisions of the Delaware General Corporation Law ("DGCL"). The
purpose of the Merger is to facilitate the acquisition of the Shares not
tendered and purchased pursuant to the Offer.
Under the terms of the Merger Agreement, upon consummation of the Merger,
each then outstanding Share and each outstanding share of Class B Common Stock,
$.01 par value per share, and Class C Common Stock, $.01 par value per share, of
the Company (the "Class B Shares" and "Class C Shares," respectively) (other
than Shares owned by the Purchaser, Parent or any indirect or direct wholly
owned subsidiary of Parent or the Company, all of which will be canceled, and
other than Shares, if any, held by stockholders who have perfected rights as
dissenting stockholders under the DGCL) will be converted into the right to
receive an amount in cash equal to the price per Share paid pursuant to the
Offer without interest (the "Offer Price").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. The
Purchaser will pay all fees and expenses of IBJ Schroder Bank & Trust Company,
which is acting as the depositary (the "Depositary"), and D.F. King & Co., Inc.,
which is acting as Information Agent (the "Information Agent") incurred in
connection with the Offer. See Section 15.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MAKING OF THE OFFER BY THE PURCHASER, AND HAS DETERMINED THAT
THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
APPROVE AND ADOPT THE MERGER AGREEMENT. CERTAIN STOCKHOLDERS OF THE COMPANY HAVE
ENTERED INTO AN AGREEMENT TO TENDER THEIR CLASS A SHARES AND A PORTION OF THEIR
CLASS B SHARES PURSUANT TO THE OFFER. SEE SECTION 11.
Credit Suisse First Boston Corporation (in such capacity, the "Financial
Advisor") has delivered to the Board of Directors of the Company its written
opinion that, as of the date of such opinion and subject to the assumptions
made, matters considered and limitations set forth in its opinion, the
consideration to be received by the holders of Shares in the Offer and the
Merger is fair to such holders from a financial point of view. A copy of the
opinion of the Financial Advisor is contained in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being mailed to stockholders herewith. STOCKHOLDERS ARE URGED TO, AND
SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
THE OFFER IS CONDITIONED UPON THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED IN SECTION 1) (A) THAT NUMBER
OF SHARES THAT WOULD REPRESENT 90% OF ALL OUTSTANDING
1
<PAGE> 4
CLASS A SHARES OF THE COMPANY (DETERMINED ON A PRIMARY BASIS) ON THE DATE OF
PURCHASE (ASSUMING CONVERSION OF ALL OUTSTANDING CLASS B SHARES AND CLASS C
SHARES INTO CLASS A SHARES) (THE "MINIMUM NUMBER OF SHARES"), AND (B) 100% OF
THE CLASS A SHARES THAT ARE ISSUABLE UPON CONVERSION (AND ASSUMING CONVERSION
THEREOF) OF ALL OUTSTANDING CLASS B SHARES AND CLASS C SHARES ON THE DATE OF
PURCHASE (TOGETHER, THE "MINIMUM CONDITION"). SUBJECT TO THE CONDITIONS IN THE
MERGER AGREEMENT, THE PURCHASER RESERVES THE RIGHT (SUBJECT TO THE APPLICABLE
RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION ("SEC")), WHICH
IT CURRENTLY HAS NO INTENTION OF EXERCISING, TO WAIVE OR REDUCE THE MINIMUM
CONDITION AND TO ELECT TO PURCHASE, PURSUANT TO THE OFFER, FEWER THAN THE
MINIMUM NUMBER OF SHARES. SEE SECTIONS 1 AND 13.
Certain other conditions to the Offer are described in Section 13. Subject
to the limitations of the Merger Agreement, the Purchaser reserves the right to
waive any one or more of the conditions to the Offer. See Sections 2 and 13.
According to the Company, as of August 12, 1998, there were 8,842,248
Shares issued and outstanding, and there were 4,319,135 shares of common stock
of the Company subject to outstanding stock options. In addition, as of August
12, 1998, there were 1,249,749 Class B Shares and 2,026,111 Class C Shares
outstanding. In connection with the Merger, each stock option of the Company
outstanding at the time of the purchase of the Shares pursuant to the Offer
under any stock option plan of the Company or its affiliates, or any agreement
to which the Company or any of its affiliates are a party, shall be canceled in
exchange for a payment to the option holder equal to the product of (a) the
number of Shares previously subject to such stock option and (b) the excess, if
any, of the Offer Price over the exercise price per Share (less any applicable
withholding).
Based on the foregoing, and assuming (a) conversion of all Class B Shares
and Class C Shares into Class A Shares at the rate of one Class A Share for each
Class B Share or, as the case may be, Class C Share, and (b) that no other
changes (including exercise of any stock options) occur prior to the date of
purchase pursuant to the Offer, there would currently be 12,118,108 Shares
outstanding on a primary basis and the Minimum Number of Shares would be
10,906,297, including 3,275,860 Shares issued upon conversion of all of the
Class B Shares and Class C Shares. However, the actual Minimum Number of Shares
will depend upon the facts as they exist on the date of purchase.
If the Minimum Condition is met and the Offer is consummated, Purchaser
will own a sufficient number of Shares to be able to effect the Merger pursuant
to the "short-form" merger provisions of Section 253 of the DGCL, without prior
notice to, or any action by, any other stockholder of the Company. See Section
11.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
1. TERM OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), the Purchaser will accept for payment and pay for all Shares that
are validly tendered prior to the Expiration Date and not withdrawn as permitted
by Section 4. The term "Expiration Date" means 12:00 Midnight, Eastern standard
time, on Wednesday, September 30, 1998, unless and until the period during which
the Offer is open shall have been extended in accordance with the terms of the
Merger Agreement, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer, as so extended, will expire.
THE OFFER IS CONDITIONED UPON SATISFACTION OF THE MINIMUM CONDITION, THE
EXPIRATION OR EARLY TERMINATION OF THE APPLICABLE WAITING PERIOD UNDER THE
HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, AND THE
REGULATIONS THEREUNDER (THE "HSR ACT") AND THE SATISFACTION OF THE OTHER
CONDITIONS SET FORTH IN SECTION 13.
If by 12:00 Midnight, Eastern standard time, on Wednesday, September 30,
1998 (or any date and time then set as the Expiration Date), any or all of the
conditions to the Offer have not been satisfied or waived, the Purchaser
reserves the right (but shall not be obligated), subject to the applicable rules
and regulations of the
2
<PAGE> 5
SEC and subject to limitations in the Merger Agreement, (a) to waive the
unsatisfied condition (other than the condition with respect to the HSR Act) and
accept for payment and pay for any tendered Shares, (b) to terminate the Offer
and return all tendered Shares to the tendering stockholders or (c) to further
extend the Offer resulting in an extension of the right of stockholders to
withdraw tendered Shares until the new Expiration Date; provided, however, that
the Purchaser may accept tendered Shares for payment subject to the expiration
or termination of the applicable waiting period under the HSR Act. See Section
11. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE FOR TENDERED
SHARES, WHETHER OR NOT THE PURCHASER EXERCISES ITS RIGHT TO EXTEND THE OFFER AND
REGARDLESS OF ANY DELAY IN MAKING PAYMENT OF THE OFFER PRICE.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. Any extension, amendment or termination will be followed as
promptly as practicable by public announcement. In the case of an extension,
Rule 14e-1(d) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the announcement be issued no later than 9:00
a.m., Eastern standard time, on the next business day after the previously
scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcement, the Purchaser will not have any obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service. As used in this Offer to
Purchase, "business day" has the meaning set forth in Rule 14d-1 under the
Exchange Act.
If the Purchaser extends the Offer or if the Purchaser is delayed in its
acceptance for payment of or payment (whether before or after its acceptance for
payment of Shares) for Shares or it is unable to pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser,
and such Shares may not be withdrawn except to the extent tendering stockholders
are entitled to withdrawal rights as described in Section 4. However, the
ability of the Purchaser to delay the payment for Shares that the Purchaser has
accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which
requires that a bidder pay the consideration offered or return the securities
deposited by or on behalf of holders of securities promptly after the
termination or withdrawal of such bidder's offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or waives a material condition of the Offer,
the Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which an offer must remain open
following material changes in the terms of an offer or information concerning an
offer, other than a change in the percentage of securities sought or a change in
price, will depend upon the facts and circumstances, including the relative
materiality of the changes or information.
If, prior to the Expiration Date and subject to the limitations in the
Merger Agreement, the Purchaser should increase or decrease the percentage of
Shares being sought, or increase or decrease the consideration offered pursuant
to the Offer to holders of Shares, such increase or decrease would be applicable
to all holders whose Shares are accepted for payment pursuant to the Offer and
if, at the time notice of any increase or decrease is first published, sent or
given to holders of Shares, the Offer is scheduled to expire at any time earlier
than the 10th business day from and including the date that such notice is first
so published, sent or given, the Offer would be extended at least until the
expiration of such ten business day period. With respect to a change in price or
a change in the percentage of securities sought, a minimum period of 10 business
days is generally required to allow for adequate dissemination to stockholders
and investor response.
In the event that, upon expiration of the Offer (including any extension
thereof), the Minimum Condition is not satisfied or waived, the Merger Agreement
requires that the Company file and that Parent and the Purchaser assist in the
filing of a proxy statement for the purpose of seeking and obtaining stockholder
approval of the Merger Agreement and the Merger. See Section 11.
3
<PAGE> 6
The Company has provided the Purchaser with its stockholder list as of
August 4, 1998 and security position listings for the purpose of disseminating
the Offer to stockholders. This Offer to Purchase, the related Letter of
Transmittal and other relevant materials are being mailed to the record holders
of Shares and will be furnished to brokers, dealers, commercial banks, trust
companies and similar persons whose names, or the names of whose nominees,
appear on the Company's stockholder list as of August 4, 1998 or, if applicable,
who are listed as participants in a clearing agency's security position listing
for subsequent transmittal to beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment, and will pay for all Shares
validly tendered prior to the Expiration Date (and not properly withdrawn in
accordance with Section 4) promptly after the Expiration Date. See Sections 1
and 13. If any condition to the Offer specified in the Merger Agreement or in
Section 13 of the Offer to Purchase is not satisfied at the Expiration Date, the
Purchaser must either (a) waive the unsatisfied condition (other than the
condition with respect to the HSR Act) and accept for payment and pay for any
tendered Shares, (b) terminate the Offer and return all tendered Shares to the
tendering stockholders or (c) further extend the Offer resulting in an extension
of the right of stockholders to withdraw tendered Shares until the new
Expiration Date; provided, however, that the Purchaser may accept tendered
Shares for payment subject to the expiration or termination of the applicable
waiting period under the HSR Act.
Newmall filed a Notification and Report Form with respect to the Offer
under the HSR Act on August 14, 1998. The waiting period under the HSR Act with
respect to the Offer will expire at 11:59 p.m., Eastern standard time, on August
29, 1998, unless early termination of the waiting period is granted. However,
the Antitrust Division of the Department of Justice (the "Antitrust Division")
or the Federal Trade Commission (the "FTC") may extend the waiting period by
requesting additional information or documentary material from Newmall or the
Company. If such a request is made, such waiting period will expire at 11:59
p.m., Eastern standard time, on the 10th day after substantial compliance by
Newmall or the Company with such request. See Section 14 hereof for additional
information concerning the HSR Act and the applicability of the antitrust laws
to the Offer.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not withdrawn
as, if and when the Purchaser gives oral or written notice to the Depositary of
the Purchaser's acceptance for payment of such Shares pursuant to the Offer.
Upon the terms and subject to the conditions of the Offer, payment for Shares
accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Purchaser
and transmitting such payments to stockholders whose Shares have been accepted
for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE OFFER PRICE FOR
TENDERED SHARES BE PAID, REGARDLESS OF ANY DELAY IN MAKING THE PAYMENT AFTER THE
EXPIRATION DATE.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (a)
certificates for such Shares (or a timely Book-Entry Confirmation (as defined in
Section 3) with respect to such Shares), (b) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (c) any other documents required by the Letter of
Transmittal.
If any tendered Shares are not accepted for payment for any reason,
certificates evidencing unpurchased Shares will be returned, without expense, to
the tendering stockholder (or, in the case of Shares tendered by book-entry
transfer into the Depositary's account at the Book-Entry Transfer Facility (as
defined in Section 3) pursuant to the procedures set forth in Section 3, such
Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), as promptly as practicable following the expiration or termination of
the Offer.
4
<PAGE> 7
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. For a stockholder validly to tender Shares pursuant to the
Offer, either (a) the Letter of Transmittal (or a facsimile thereof), properly
completed and duly executed, together with any required signature guarantees and
any other documents required by the Letter of Transmittal, must be received by
the Depositary at one of its addresses set forth on the back cover of this Offer
to Purchase and either (i) the certificates evidencing tendered Shares ("Share
Certificates") must be received by the Depositary at such address or (ii) such
Shares must be tendered pursuant to the procedure for book-entry transfer
described below and a Book-Entry Confirmation (as defined below) must be
received by the Depositary, in each case prior to the Expiration Date, or (b)
the tendering stockholder must comply with the guaranteed delivery procedure
described below. No alternative, conditional or contingent tenders will be
accepted.
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN CASE OF A
BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF) MUST ACCOMPANY EACH
DELIVERY OF SHARE CERTIFICATES TO THE DEPOSITARY.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depositary Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two business days after the date of
this Offer to Purchase. Any financial institution that is a participant in the
system of the Book-Entry Transfer Facility may make book-entry delivery of
Shares by causing such Book-Entry Transfer Facility to transfer such Shares into
the Depositary's account at such Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for such transfer. However,
although delivery of Shares may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, together with any required
signature guarantees, or an Agent's Message (as defined below), and any other
required documents must, in any case, be received by the Depositary at one of
its addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date, or the tendering stockholder must comply with the guaranteed
delivery procedure described below. The confirmation of a book-entry transfer of
Shares into the Depositary's account at the Book-Entry Transfer Facility as
described above is referred to herein as a "Book-Entry Confirmation." The term
"Agent's Message" means a message transmitted by the Book-Entry Transfer
Facility to, and received by, the Depositary and forming a part of a Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received an
express acknowledgment from the participant in the Book-Entry Transfer Facility
tendering the Shares that such participant has received and agrees to be bound
by the terms of the Letter of Transmittal and that the Purchaser may enforce
such agreement against the participant. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY
TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantees. Signatures on Letters of Transmittal must be
guaranteed by a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or by a
bank or trust company having an office or correspondent in the United States
(each of the foregoing being referred to as an "Eligible Institution"), except
no signature guarantee is required where Shares are tendered (i) by a registered
holder of Shares who has not completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of or by an Eligible Institution. See
Instruction 1 of the Letter of Transmittal. If the Share Certificates are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made, or Share Certificates not accepted for
payment or not tendered are to be returned, to a person other than the
registered holder(s), then the Share Certificates must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name(s) of the registered holder(s) appear on such certificates, with the
signature(s) on such certificates or stock powers guaranteed as aforesaid. See
Instructions 1 and 5 of the Letter of Transmittal.
5
<PAGE> 8
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates are not immediately
available or such stockholder cannot deliver the Share Certificates and all
other required documents to the Depositary prior to the Expiration Date, or such
stockholder cannot complete the procedure for delivery by book-entry transfer on
a timely basis, such Shares may nevertheless be tendered, provided that all of
the following conditions are satisfied:
(a) such tender is made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form made available by the Purchaser, is
received by the Depositary, as provided below, prior to the Expiration
Date; and
(c) the Share Certificates (or a Book-Entry Confirmation) representing
all tendered Shares, in proper form for transfer, in each case together
with the Letter of Transmittal (or a facsimile thereof), properly completed
and duly executed, with any required signature guarantees or other
documents required by the Letter of Transmittal, and any other required
documents are received by the Depositary within three trading days after
the date of execution of such Notice of Guaranteed Delivery. A "trading
day" is any day on which The American Stock Exchange, Inc. ("AMEX") is open
for business.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice of Guaranteed Delivery.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (a) certificates for
(or a timely Book-Entry Confirmation with respect to) such Shares, (b) a Letter
of Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message, and (c) any other documents required by the Letter
of Transmittal. Accordingly, tendering stockholders may be paid at different
times depending upon when certificates for Shares or Book-Entry Confirmations
with respect to Shares, are actually received by the Depositary.
Determination of Validity. In order for any tender of Shares to be valid,
it must be in proper form. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance for payment of any tender of Shares
will be determined by the Purchaser, in its sole discretion, which determination
shall be final and binding on all parties. The Purchaser reserves the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance for payment of which may, in the opinion of its counsel, be
unlawful. The Purchaser also reserves the absolute right to waive any defect or
irregularity in any tender of Shares of any particular stockholder whether or
not similar defects or irregularities are waived in the case of other
stockholders. No tender of Shares will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of the Purchaser,
Parent, the Depositary, the Information Agent or any other person will be under
any duty to give notification of any defects or irregularities in tenders or
incur any liability for failure to give any such notification. The Purchaser's
determinations with regard to compliance with the terms and conditions of the
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding.
Appointment. By executing a Letter of Transmittal as set forth above, the
tendering stockholder irrevocably appoints designees of the Purchaser as such
stockholder's proxies, each with full power of substitution, to the full extent
of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser and with respect to any
and all other Shares or other securities issued or issuable in respect of such
Shares on or after the date of the Offer. Such appointment is effective when,
and only to the extent that, the Purchaser accepts such Shares for payment. Upon
such acceptance for payment, all prior proxies, consents and powers of attorney
given by such stockholder with respect to such Shares will be revoked, and no
subsequent proxies, consents and powers of attorney may be given (and, if given,
will not be deemed effective). The designees of the Purchaser will, with respect
to the Shares and other securities for which appointment is effective, be
empowered to exercise all voting and other rights of such stockholder in respect
of any annual, special or adjourned meeting of the stockholders of the
6
<PAGE> 9
Company, actions by written consent in lieu of any such meeting or otherwise as
they, in their sole discretion, deem proper. The Purchaser reserves the right to
require that, in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's payment for such Shares, the Purchaser must be able to
exercise full voting rights with respect to such Shares and other securities.
A valid tender of Shares pursuant to one of the procedures described above
will constitute the tendering stockholder's acceptance of the terms and
conditions of the Offer. The Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
TO AVOID BACKUP WITHHOLDING OF FEDERAL INCOME TAX WITH RESPECT TO PAYMENT
TO CERTAIN STOCKHOLDERS OF THE OFFER PRICE FOR THE SHARES PURCHASED PURSUANT TO
THE OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH
STOCKHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH
STOCKHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY
COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL. SEE
INSTRUCTION 10 TO THE LETTER OF TRANSMITTAL.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of Shares are
irrevocable. Shares tendered pursuant to the Offer may be withdrawn pursuant to
the procedures set forth below at any time prior to the Expiration Date and,
unless theretofore accepted for payment by the Purchaser pursuant to the Offer,
may also be withdrawn at any time after October 17, 1998.
If the Purchaser extends the Offer, is delayed in the acceptance for
payment of Shares or is unable to purchase Shares validly tendered pursuant to
the Offer for any reason, then, without prejudice to the Purchaser's rights
under the Offer, the Depositary may nevertheless, on behalf of the Purchaser,
retain tendered Shares, and such Shares may not be withdrawn except to the
extent that tendering stockholders are entitled to withdrawal rights as
described in this Section 4. Any such delay will be by an extension of the Offer
to the extent required by law.
For a withdrawal to be effective, a written telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If Share Certificates to be withdrawn have been delivered or otherwise
identified to the Depositary, then prior to the physical release of such
certificates, the serial number shown on such certificates must be submitted to
the Depositary and the signature(s) on the notice of withdrawal must be
guaranteed by an Eligible Institution unless such Shares have been tendered for
the account of any Eligible Institution. If Shares have been tendered pursuant
to the procedure for book-entry transfer as set forth in Section 3, any notice
of withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Shares and otherwise comply
with such Book-Entry Transfer Facility's procedures.
All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, Parent, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification.
Any Shares properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of the Offer. However, withdrawn Shares may be
re-tendered at any time prior to the Expiration Date by following one of the
procedures described in Section 3.
7
<PAGE> 10
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following is a summary of the principal federal income tax consequences
associated with the Offer, based upon the advice of Shaw Pittman Potts &
Trowbridge, as federal income tax counsel to the Purchaser and the Parent. This
discussion is based upon the laws, regulations and reported rulings and
decisions in effect as of the date of this letter (or, in the case of certain
regulations, proposed as of such date), including the Internal Revenue Code of
1986, as amended (the "Code"), all of which are subject to change, retroactively
or prospectively, and to possibly differing interpretations. This discussion is
a general summary only and does not purport to deal with the federal income or
other tax consequences applicable to all stockholders in light of their
particular investment circumstances (such as their source and level of income,
the nature of their investment portfolio and the nature and amount of tax
deductions, credits and other expenses unrelated to the Company). In addition,
this discussion may not be applicable with respect to Shares received pursuant
to the exercise of stock options or otherwise as compensation. Nor does this
discussion purport to deal with all categories of stockholders, some of whom may
be subject to special rules (including, for example, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States).
No ruling on the federal income tax consequences of the Offer has been or
will be requested from the Internal Revenue Service or from any other tax
authority. In addition, this discussion is not binding upon any tax authority or
any court and no assurance can be given that a position contrary to those
expressed in this discussion will not be asserted and sustained. Moreover, this
discussion does not address any foreign, state or local income or other tax
consequences of the Offer.
ACCORDINGLY, EACH STOCKHOLDER IS STRONGLY URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISOR REGARDING ANY SPECIFIC TAX CONSEQUENCES TO THE
STOCKHOLDER OF THE OFFER, INCLUDING THE FEDERAL, FOREIGN, STATE AND LOCAL INCOME
AND OTHER TAX CONSEQUENCES OF THE OFFER AND POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
Stockholders who accept the Offer with respect to Shares or whose Shares
are converted into the right to receive cash pursuant to the Merger will receive
a cash payment in exchange for all of their Shares, resulting in taxable gain or
loss to such stockholders. This gain or loss will be equal to the difference, if
any, between (i) the cash received by the stockholder and (ii) such
stockholder's adjusted tax basis in such stockholder's Shares at the time of the
sale. If the Shares surrendered by a stockholder are capital assets, the gain or
loss recognized by such stockholder will be treated as a capital gain or loss.
Otherwise, the gain or loss recognized by such stockholder will be treated as
ordinary income or loss. Capital gain (or loss) recognized by a stockholder who
has held his or her Shares for more than one year at the time of the sale will
generally be treated as long-term capital gain (or loss). Capital gain (or loss)
recognized by a stockholder who has held his or her Shares for one year or less
at the time of the sale will generally be treated as short-term capital gain (or
loss).
Noncorporate stockholders will be subject to federal income tax on any
long-term capital gains recognized as a result of the sale of Shares at a
maximum rate of 20 percent and generally will only be able to offset capital
gains with capital losses. In addition, an individual's capital losses in excess
of capital gains for a taxable year may be used to offset up to $3,000 of
ordinary income, on an annual basis ($1,500 in the case of a married individual
filing a separate return). However, unused capital losses of noncorporate
stockholders may be carried forward indefinitely to subsequent tax years to
offset future capital gains and up to $3,000 of ordinary income, on an annual
basis, to the extent that the carried forward capital loss exceeds the future
capital gain. Noncorporate stockholders will be subject to federal income tax on
any short-term capital gain recognized as a result of the sale of Shares at a
maximum rate of 39.6 percent.
Corporate stockholders will be subject to federal income tax on any
ordinary income or capital gains recognized as a result of the sale of Shares at
a maximum rate of 35 percent (39 percent for certain corporations in order to
effect the phase-out of the benefits of the graduated rates applied to income
below $75,000) and generally will be able to use any capital losses only to
offset capital gains. However, unused capital losses of corporate stockholders
generally may be (i) carried back to each of the three taxable years
8
<PAGE> 11
preceding the taxable year in which the loss is recognized and (ii) carried
forward to each of the five taxable years following the taxable year in which
the loss is recognized.
In order to avoid "backup withholding" of federal income tax on payments of
cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must,
unless an exemption applies, provide the Depositary with such shareholder's
correct taxpayer identification number ("TIN") on a Substitute Form W-9 and
certify under penalties of perjury that such TIN is correct and that such
stockholder is not subject to backup withholding. If a stockholder does not
provide such stockholder's correct TIN or fails to provide the certifications
described above, the Internal Revenue Service may impose a penalty on such
stockholder and payment of cash to such stockholder pursuant to the Offer may be
subject to backup withholding of 31%. Backup withholding is not an additional
tax but merely an advance payment, which may be refunded to the extent it
results in an overpayment of tax. Any amounts withheld from a payment to a
stockholder under the backup withholding rules will be allowed as a credit
against such stockholder's federal income tax liability; provided that the
required information is provided to the Internal Revenue Service. All
stockholders surrendering Shares pursuant to the Offer should complete and sign
the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal to provide the information and certification necessary to
avoid backup withholding (unless an applicable exemption exists and is proved in
a manner satisfactory to the Purchaser and the Depositary). Certain stockholders
(including, among others, all corporations and certain foreign individuals and
entities) are not subject to backup withholding. Each stockholder should consult
with his own tax advisor as to his qualification for exemption from withholding
and the procedure for obtaining such exemption. See Instruction 10 to the Letter
of Transmittal.
6. PRICE RANGE OF THE SHARES; DIVIDENDS ON THE SHARES.
In August 1997, the Company moved trading of the Shares to AMEX under the
trading symbol "ENR" from the Nasdaq National Market ("NNM") under the symbol
"ENVI." The following table sets forth, for the quarters indicated, the high and
low sales prices as reported on either NNM or AMEX for the Shares based on the
Company's Annual Report on Form 10-K for the year ended September 30, 1997, as
amended (the "Company's 1997 Form 10-K"), the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998 (the "Company's 3Q Form 10-Q") and
other publicly available sources.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ending September 30, 1998:
First Quarter.......................................... $ 8.125 $ 4.250
Second Quarter......................................... $13.000 $ 6.250
Third Quarter.......................................... $17.250 $ 8.500
Fourth Quarter (through August 18, 1998)............... $22.000 $14.750
Fiscal Year Ended September 30, 1997:
First Quarter.......................................... $ 3.625 $ 2.000
Second Quarter......................................... $ 3.188 $ 2.250
Third Quarter.......................................... $ 3.563 $ 1.438
Fourth Quarter......................................... $ 5.188 $ 2.375
Fiscal Year Ended September 30, 1996:
First Quarter.......................................... $ 4.250 $ 2.250
Second Quarter......................................... $ 4.000 $ 2.500
Third Quarter.......................................... $ 3.125 $ 2.500
Fourth Quarter......................................... $ 3.875 $ 1.625
</TABLE>
On August 12, 1998, the last full trading day prior to the date of the
public announcement of the execution of the Merger Agreement, the closing price
as reported on AMEX was $15.00 per Share. On August 18, 1998, the last full
trading day prior to the date of this Offer to Purchase, the closing price as
reported on AMEX was $16.00 per Share. According to the Company's 1997 Form 10-K
and 3Q Form 10-Q, the Company has not paid dividends on any of its capital stock
and does not anticipate paying any cash dividends in the foreseeable future.
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
9
<PAGE> 12
7. CERTAIN INFORMATION CONCERNING THE COMPANY.
The information concerning the Company contained in this Offer to Purchase,
including financial information, has been furnished by the Company or taken
from, or based upon, publicly available documents and records on file with the
SEC and other public sources. The summary information concerning the Company in
this Section 7 and elsewhere in this Offer to Purchase is derived from the
Company's 1997 Form 10-K and 3Q Form 10-Q. The summary information set forth
below is qualified in its entirety by reference to such documents (which may be
obtained and inspected as described below) and should be considered in
conjunction with the more comprehensive financial and other information in such
documents and other publicly available reports and documents filed by the
Company with the SEC. Although the Purchaser and Parent do not have any
knowledge that any such information is untrue, neither the Purchaser nor Parent
assume any responsibility for the accuracy or completeness of the information
contained in such documents and records, or for any failure by the Company to
disclose events that may have occurred and may affect the significance or
accuracy of any such information but which are not known to the Purchaser or
Parent.
General. The Company is a Delaware corporation with its principal
executive offices at 246 Sobrante Way, Sunnyvale, California 94806-4807. The
Company is the leading provider of centralized vehicle emissions testing
programs for states and municipalities. In a centralized program, vehicles are
inspected in high volume, test-only facilities operated either by a private
contractor or a governmental authority.
Certain Financial Information. Set forth below is certain selected
consolidated financial data with respect to the Company and its subsidiaries,
which was excerpted from the Company's 1997 Form 10-K and the Company's 3Q Form
10-Q. More comprehensive financial information is included in such reports
(including management's discussion and analysis of financial condition and
results of operations) and other documents filed by the Company with the SEC,
and the following financial information is qualified in its entirety by
reference to such report and other documents and all of the financial
information and notes contained therein. Such reports and other documents may be
examined and copies thereof may be obtained in the manner set forth below.
10
<PAGE> 13
ENVIROTEST SYSTEMS CORP. AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenues............ $ 88,534 $ 96,395 $ 104,757 $ 124,472 $ 140,664 $ 101,803 $ 122,706
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit................. 39,043 44,343 31,660 22,323 41,805 27,755 48,094
Selling, general and
administrative expenses.... 13,297 19,104 24,911 21,782 19,046 13,967 14,321
Amortization expense......... 3,500 4,390 4,017 3,427 2,432 1,861 1,774
Non-recurring (gains) and
losses..................... -- -- 892 (13,457) (3,950) (3,950) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income........... 22,246 20,849 1,840 10,571 24,277 15,877 31,999
Interest and other (income)
and expenses............... 10,842 17,263 17,344 29,997 31,578 23,645 21,991
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes...................... 11,404 3,586 (15,504) (19,426) (7,301) (7,768) 10,008
Income tax expense
(benefit).................. 4,651 1,412 (643) 5,638 -- -- 200
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item......... 6,753 2,174 (14,861) (25,064) (7,301) (7,768) 9,808
----------- ----------- ----------- ----------- ----------- ----------- -----------
Extraordinary loss........... (11,411) -- -- -- (1,324) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............ $ (4,658) $ 2,174 $ (14,861) $ (25,064) $ (8,625) $ (7,768) $ 9,808
=========== =========== =========== =========== =========== =========== ===========
Earnings (loss) per common
and common equivalent
share:
Income (loss) before
extraordinary item....... $ 0.40 $ 0.14 $ (0.93) $ (1.51) $ (0.44) $ (0.47) $ 0.81
Net income (loss), basic... $ (0.28) $ 0.14 $ (0.93) $ (1.51) $ (0.52) $ (0.47) $ 0.81
=========== =========== =========== =========== =========== =========== ===========
Net income (loss),
dilutive................. $ (0.28) $ 0.12 $ (0.93) $ (1.51) $ (0.52) $ (0.47) $ 0.67
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
------------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................. $ 200,656 $ 418,205 $ 457,273 $ 480,784 $ 379,733 $ 465,437 $ 382,869
Long-term debt............... 129,751 328,048 386,906 420,476 360,801 413,058 346,041
Stockholders' equity
(deficit).................. $ 49,470 $ 52,910 $ 38,045 $ 13,154 $ (24,376) $ 5,370 $ (14,709)
OTHER STATEMENT OF OPERATING
DATA:
Earnings before interest,
taxes, depreciation and
amortization
("EBITDA")(a).............. $ 33,369 $ 31,461 $ 18,640 $ 35,109 $ 48,436 $ 33,514 $ 52,001
OTHER OPERATING DATA:
Number of facilities at end
of period.................. 112 113 126 169 176 176 176
Number of testing lanes at
end of period.............. 405 407 479 667 689 689 689
Number of paid tests during
period..................... 11,525,956 12,342,165 11,042,077 10,592,894 12,132,000 8,931,626 8,888,920
</TABLE>
- ---------------
(a) EBITDA represents operating income plus depreciation and amortization
expense. EBITDA is not intended to represent cash flow or any other measure
of performance in accordance with GAAP. EBITDA is included herein because
management believes that certain investors find it to be a useful tool for
measuring debt service ability.
11
<PAGE> 14
Recent Developments. On November 18, 1997, the Company entered into an
agreement with the City of New York to conduct a pilot testing program using its
remote sensing technology in New York City. The three-week program was conducted
during May 1998 and gathered emissions data on vehicles entering the city.
On December 30, 1997 and January 23, 1998, the Company entered into
agreements for the lease of eight remote sensing units in Taiwan. The agreements
provide for four units each to be leased to two Taiwanese companies for the
purpose of collecting fleet emissions data under their contracts with the
Taiwanese government. The data will be used to determine the technology's most
appropriate role in future pollution abatement programs in the cities of Taipei
and Kaohsiung and their surrounding areas. The value of the six-month leases and
related engineering services provided by the Company totaled $850,000 in
revenues.
On April 13, 1998, the Company entered into an agreement with the Atlantic
Richfield Company ("ARCO") to operate up to 80 test-only emissions stations in
the Southern California counties of Los Angeles, Orange, Riverside, San
Bernardino, San Diego and Ventura. Envirotest will operate the stations under
ARCO's "SMOGPROS Test-Only" trademark. The Company expects to open the initial
40-station network in ten-station increments. The first stations opened in July
1998. Additional increments of ten stations are expected to open every 60 to 90
days thereafter. The agreement has an initial term of ten years and an option
for the Company to extend for an additional five years.
On April 22, 1998, the Company entered into an agreement with the State of
Minnesota to extend its contract with the State for one year to June 30, 1999.
The Company conducts approximately one million tests each year in Minnesota,
which generated revenue of approximately $7.0 million in fiscal 1997.
On May 1, 1998, the Company exercised its right to extend its contracts
with the State of Tennessee and the Metropolitan Government of Nashville and
Davidson County to June 30, 2001. The Company performs approximately 730,000
paid tests each year in Tennessee, which generated revenue of approximately $3.6
million in fiscal 1997.
On June 18, 1998, the Company signed a contract with the State of Kentucky
to conduct centralized emissions testing in three northern counties following a
competitive procurement. It is expected that 140,000 tests per year will be
performed generating $23 million over the operational term of the contract that
begins in June 1999 and ends in June 2008. The State has advised the Company
that one of the bidders in the procurement has filed a protest. Until the
protest is resolved, the Company will not make any significant expenditures
toward the program. The Company is not able to predict the outcome of the
protest.
On July 2, 1998, the Company entered into a Sponsorship Agreement with
WorldCom Technologies, Inc. ("WorldCom") pursuant to which the Company will
advertise a long distance telephone program offered by WorldCom in the Company's
vehicle emissions testing facilities. WorldCom will rebate the vehicle emissions
test fees paid by eligible motorists who sign up for WorldCom services. The
Company will receive a percentage of the revenue paid to WorldCom.
Available Information. The Company is subject to the information filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file with the SEC periodic reports, proxy statements and other information
relating to its business, financial condition and other matters. Information as
of particular dates concerning the Company's directors and officers, their
remuneration, stock options granted to them, the principal holders of the
Company's securities and any material interest of such persons in transactions
with the Company is required to be disclosed in reports filed with the SEC or in
proxy statements distributed to the Company's stockholders and filed with the
SEC. Such reports, proxy statements and other information may be inspected at
the SEC's office at 450 Fifth Street, NW, Washington, D.C., 20549, and also
should be available for inspection at the regional offices of the SEC located in
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, and 7 World Trade Center, 13th Floor, New York, New York. Copies of
such materials should be obtainable, upon payment of the SEC's customary
charges, by writing to the SEC's principal office at 450 Fifth Street, NW,
Washington, D.C., 20549. The information also should be available at the offices
of AMEX, 86 Trinity Place, New York, New York 10006-1872. Such material may also
be accessed through an Internet Web site maintained by the SEC at
http://www.sec.gov.
12
<PAGE> 15
8. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT.
General. The Purchaser, a Delaware corporation and a wholly owned
subsidiary of Parent, was organized recently to acquire the Company and has not
conducted any unrelated activities since its organization. The principal offices
of the Purchaser and Parent are located at 7 Kripes Road, East Granby,
Connecticut 06026. Parent is an indirect subsidiary of Newmall, a United Kingdom
private limited company. Newmall is a holding company whose controlling
shareholder is the Alchemy Investment Plan, an investment consortium principally
composed of United States institutional investors that is advised by Alchemy
Partners. The principal executive offices of Newmall are located at Brearley
Works, Luddenfoot, Halifax, West Yorkshire HX2 6JB, England.
Parent is a leading provider of automotive emissions testing and analysis
equipment for decentralized vehicle emissions testing programs. In a
decentralized program, vehicles are tested at numerous privately-owned
facilities, such as service stations, automotive repair shops, and dealerships,
which typically also perform emissions and other vehicle repair work.
Certain Financial Information. Set forth below is certain selected
consolidated financial information of the Parent.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED SELECTED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------ -----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $21,244 $20,240 $20,813 $32,212 $102,526 $17,546 $76,555
Cost of revenues................... 12,493 12,009 12,940 19,355 66,099 10,503 54,355
------- ------- ------- ------- -------- ------- -------
Gross profit....................... 8,751 8,231 7,873 12,857 36,427 7,043 22,200
Operating expenses:
Administrative expenses.......... 7,005 5,098 3,808 6,034 8,101 2,807 5,155
Selling expenses................. 609 643 1,188 1,751 7,993 1,405 5,686
Engineering expenses............. 1,352 1,426 1,418 1,667 2,254 877 1,213
------- ------- ------- ------- -------- ------- -------
Total operating expenses.... 8,966 7,167 6,414 9,452 18,348 5,089 12,059
Income from operations............. (215) 1,064 1,459 3,405 18,079 1,954 10,146
------- ------- ------- ------- -------- ------- -------
Other income (expense)............. (194) 308 23 (174) (417) (44) (2,754)
Income (loss) before income
taxes............................ (409) 1,372 1,482 3,231 17,662 1,910 7,392
------- ------- ------- ------- -------- ------- -------
Net income......................... $ (308) $ 766 $ 611 $ 1,327 $ 10,082 $ 1,201 $ 3,655
======= ======= ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 402 $ 797 $ 445 $ 3,592 $ 3,045 $ 844 $ 850
Working capital................... 2,852 4,432 4,337 6,936 16,263 7,545 738
Total assets............... 16,175 13,639 14,509 31,730 83,869 35,974 219,336
Long-term debt (excluding
current portion)......... 987 833 433 0 0 0 98,350
Total stockholders'
equity................... 3,870 5,054 5,575 19,556 28,580 19,794 70,469
</TABLE>
13
<PAGE> 16
Neither the Purchaser nor, to the best knowledge of the Purchaser, any of
the persons listed on Schedule I hereto or any associate of the Purchaser,
including Parent or any of its subsidiaries, or any of the persons so listed,
beneficially owns or has a right to acquire directly or indirectly any
securities of the Company, and neither the Purchaser nor, to the best knowledge
of the Purchaser, any of the persons or entities referred to above, including
Parent or any of its subsidiaries, or any of the respective executive officers,
directors or subsidiaries of any of the foregoing, has effected any transactions
in the securities of the Company during the past 60 days.
Except as set forth in this Offer to Purchase, none of the Purchaser,
Parent or any of its subsidiaries, or, to the best knowledge of the Purchaser,
any of the persons listed on Schedule I hereto has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, contracts,
arrangements, understandings or relationships concerning the transfer or voting
of such securities, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss or the giving or withholding of
proxies. Except as set forth in this Offer to Purchase, none of the Purchaser,
Parent or any of its subsidiaries, or, to the best knowledge of the Purchaser,
any of the persons listed on Schedule I hereto, has had during the last five
years any business relationships or transactions with the Company or any of its
executive officers, directors or affiliates that are required to be reported
under the rules and regulations of the SEC applicable to the Offer. Except as
set forth in this Offer to Purchase, in the last five years, there have been no
contacts, negotiations or transactions between the Purchaser, Parent or, to the
best knowledge of the Purchaser, any of the persons listed in Schedule I hereto,
on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, a tender offer or other
acquisition of securities, an election of directors, or a sale or other transfer
of a material amount of assets.
9. SOURCE AND AMOUNT OF FUNDS.
The Purchaser and Parent estimate that the total amount of funds required
by the Purchaser (a) to purchase the 8,842,248 Class A Shares that are issued
and outstanding, (b) to purchase the 3,275,860 Shares that are issuable upon the
conversion into Class A Shares of all Class B Shares and Class C Shares, (c) to
refinance approximately $491.8 million of certain existing indebtedness of the
Company and Parent and (d) to pay fees and expenses related to the Offer and the
Merger will be approximately $803.1 million. Environmental Systems Products
Holdings, Inc., a Delaware corporation that will, prior to the acceptance for
payment of any Shares tendered in the Offer, indirectly wholly own and control
Parent ("Holdings"), intends to enter into a credit agreement (the "Credit
Agreement") with a separate and independent financing team at Credit Suisse
First Boston, an affiliate of the Financial Advisor ("CSFB") pursuant to the
terms of a commitment letter dated as of August 12, 1998, from CSFB to Parent
(the "Commitment Letter") and will directly or indirectly advance funds obtained
thereunder to the Purchaser, through capital contributions and/or loans, in such
amounts as are necessary to fund the Purchaser's obligations with respect to the
Offer and the Merger and to refinance certain obligations of Parent and the
Company. The approximately $57.3 million required to pay the net consideration
in respect of outstanding options to purchase 4,319,135 Shares is expected to be
funded from the Company's then existing cash on hand and up to $10.5 million
from the Purchaser.
The funds needed to make the capital contributions and loans described
above shall be raised as follows: (a) from an equity contribution in the amount
of approximately $80 million from the shareholders of Newmall (the "Equity
Contribution"), (b) from existing cash on hand of approximately $92.5 million
from the Company, (c) from borrowings of approximately $395 million under a new
senior secured term credit facility (the "Term Loan Facility"), and up to $10.6
million under a new revolving credit facility (the "Revolving Loan Facility",
together with the Term Loan Facility, the "Credit Facilities"), and (d) from the
issuance by Holdings of senior subordinated notes in the principal amount of
$225 million (the "Senior Subordinated Notes") or, in lieu thereof, from
borrowings by Holdings of up to $225 million under a bridge loan facility (the
"Bridge Loan Facility").
14
<PAGE> 17
The following table has been prepared by Parent after discussions with
management of the Company and sets forth the approximate amounts and proposed
sources and uses of funds necessary to consummate the Offer and the Merger and
the related refinancings:
<TABLE>
<S> <C>
Sources:
Term Loans................................................ $395,000,000
Revolving Credit Facility................................. 10,600,000
Cash on hand.............................................. 92,500,000
Senior Subordinated Notes/Bridge Loans.................... 225,000,000
Equity Contribution....................................... 80,000,000
------------
Total..................................................... $803,100,000
============
Uses:
Purchase stock of the Company............................. $266,300,000
Refinance certain debt of the Company and Parent.......... 491,800,000
Transaction costs......................................... 45,000,000
------------
Total..................................................... $803,100,000
============
</TABLE>
Equity Contribution. Prior to the closing of the Credit Facilities,
pursuant to the terms of a commitment letter dated August 12, 1998 from Newmall
to the Purchaser (the "Equity Commitment Letter"), the shareholders of Newmall
will make an equity contribution in the amount of approximately $80 million to
Newmall, which contribution will be remitted to the Purchaser for the uses
described herein. A copy of the Equity Commitment Letter is filed as Exhibit
99(b)(2) to the Tender Offer Statement of the Purchaser and Parent on Schedule
14D-1 filed with the SEC on August 19, 1998 (the "Schedule 14D-1"). Such Exhibit
should be available for inspection and copies should be obtained, in the manner
set forth in Section 7 (except that it will not be available at the regional
offices of the SEC).
Credit Facilities. The terms of the Term Loan Facility, the Revolving Loan
Facility and the Bridge Loan Facility are described in the Commitment Letter, a
copy of which is filed as Exhibit 99(b)(1) to the Schedule 14D-1, and are
summarized below. Such Exhibit shall be available for inspection and copies
should be obtained, in the manner set forth in Section 7 (except that it will
not be available at the regional offices of the SEC). This summary is qualified
in its entirety by reference to the full text of the Commitment Letter, which is
incorporated herein by reference. CSFB's commitment under the Commitment Letter
remains subject to the negotiation, preparation and execution of definitive
documentation reflecting the transactions contemplated therein.
The Credit Facilities will be comprised of (a) the Term Loan Facility of
$395 million, consisting of a term loan facility of $125 million, maturing five
years after funding ("Term Loan A"); a term loan facility of $50 million,
maturing six years after funding ("Term Loan B"); a term loan facility of $110
million, maturing seven years after funding ("Term Loan C"); and a term loan
facility of $110 million, maturing eight years after funding ("Term Loan D"),
and (b) the Revolving Loan Facility for revolving borrowings of up to $50
million and maturing five years after funding.
Loans under the Term Loan Facility and the Revolving Loan Facility will
bear interest at a floating rate equal to, at Holdings' option, either the Base
Rate or LIBOR, as defined in the Commitment Letter, plus an applicable
percentage per annum ranging from 1.25% to 3.0%, which percentage shall be
determined based upon the ratio of Holdings' Total Debt to EBITDA.
Amounts owed under the Credit Facilities will be the direct obligations of
Holdings and will be unconditionally guaranteed by each existing and
subsequently acquired or organized domestic subsidiary of Holdings (including
Parent and the Company) and, to the extent not expected to have adverse tax
consequences for Holdings, by certain existing and future foreign subsidiaries
of Holdings.
Holdings' obligations under the Credit Agreement will be secured by a first
priority, perfected security interest in (a) substantially all tangible and
intangible assets of Holdings, Parent, the Purchaser and the
15
<PAGE> 18
Company (the "Loan Parties") and each existing and subsequently acquired or
organized domestic subsidiary of Holdings, and (b) all the capital stock of each
Loan Party (in the case of the Company, to the extent such stock is acquired
pursuant to the Offer) other than Holdings and each existing and subsequently
acquired or organized subsidiary of Holdings (including 65% of the stock of
foreign subsidiaries of Parent and the Company, or 100% of such stock, to the
extent that a pledge of such amount would not have adverse tax consequences for
Holdings).
The Credit Facilities will contain terms customary for loan facilities of
this type, including terms relating to mandatory prepayments, voluntary
prepayments, representations, covenants and events of default.
CSFB's commitments under the Commitment Letter are subject to conditions
customary to this type of transaction, including the following: (a) no
information shall have become known to CSFB that CSFB believes is inconsistent
in a material and adverse manner with the information previously received by
CSFB; (b) there shall not have occurred or become known to CSFB any event or
events that CSFB reasonably believes could have a Material Adverse Effect (as
defined in the Commitment Letter); (c) definitive documentation reflecting the
transactions contemplated by the Commitment Letter shall have been prepared,
executed and delivered; (d) terms relating to the transactions contemplated by
the Commitment Letter shall be reasonably satisfactory to CSFB; (e) the
transactions contemplated by the Commitment Letter shall have been consummated
simultaneously on the closing date of the Credit Facilities; (f) no Loan Party
shall have any other outstanding indebtedness other than the Credit Facilities,
the Bridge Loan Facility, the Senior Subordinated Notes and other indebtedness
to be agreed upon; (g) there shall not have occurred and be continuing (i) any
general suspension of trading in securities in the major U.S. markets, (ii) any
U.S. banking moratorium, (iii) a war or similar national emergency involving the
U.S., or (iv) other material adverse changes in the U.S. banking or capital
markets; and (h) there shall be no competing issues of debt by any Loan Party.
Senior Subordinated Notes. In connection with the financings described
herein, Holdings will use its reasonable best efforts to offer and sell the
Senior Subordinated Notes yielding aggregate gross proceeds of $225 million.
Bridge Loan Facility. The Commitment Letter provides for the making of
loans ("Bridge Loans") in the event that Holdings is unable to sell Senior
Subordinated Notes yielding aggregate gross proceeds of $225 million. Each
Bridge Loan shall mature 364 days after the closing of the Bridge Loan Facility.
If any Bridge Loan is not paid in full by such date, the lender of such Bridge
Loan shall have the option to exchange such Bridge Loan in whole or in part for
notes of Holdings equal to the outstanding principal amount (including any
capitalized interest) of such Bridge Loan for which it is exchanged, and ranking
on parity with the Bridge Loans.
10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY.
Background of the Offer. In the normal process of formulating the
Company's business and financial plans, members of the Company's senior
management and the Board regularly review the Company's long-term prospects in
light of anticipated general economic and business conditions and management's
forecasts for the business of the Company. In recent years, senior management
and the Board have considered a number of alternatives designed to maximize
stockholder value. These alternatives have included repurchases of Shares in the
open market or through a tender offer, a potential sale, merger or
recapitalization of the Company, as well as the possibility of strategic
acquisitions of new businesses. From time to time, at its regular meetings, the
Board has discussed some of these alternatives. On September 22, 1997, the
Company purchased 4,388,091 shares of its Common Stock at a price of $4.50 per
share pursuant to a tender offer completed September 17, 1997 (the "Share
Repurchase").
In the process of considering the alternatives referred to above, on
October 13, 1997, the Board established a Capital Market Strategy Committee (the
"Strategy Committee"), consisting of Chester Davenport, Richard Gelfond and
Cleveland Christophe, to advise the Board on matters relating to the enhancement
of stockholder value.
16
<PAGE> 19
On February 11, 1998, Chester C. Davenport, the Chairman of the Board of
the Company, met with Mark Thomas, formerly Senior Vice President and Director
of Development of ITT Corporation, to discuss the possibility of employing Mr.
Thomas to assist the Company in exploring strategies to improve the business
potential of the Company and, in turn, the Company's value to stockholders.
Shortly thereafter, Mr. Davenport and Mr. Thomas met with several potential
financial advisors in connection with such strategies. On March 1, 1998, the
Company hired Mr. Thomas as Chief Development Officer and Executive Vice
President. On March 12, 1998, the Company retained the Financial Advisor, to
assist the Company in exploring its alternatives.
At a special meeting of the Board held on April 21, 1998, Mr. Thomas,
assisted by Raj Modi, the Chief Financial Officer, reported on the status of the
activities of the Company and the Financial Advisor in connection with a
possible transaction. At the meeting, Shearman & Sterling, the Company's legal
advisor, reviewed the responsibilities of the members of the Board and the
relevant legal principles applicable to actions taken by the Board with respect
to the exploration of strategic alternatives.
Beginning in late April 1998, the Financial Advisor began contacting 120
potential acquirors of the Company. Based upon initial expressions of interest,
the Financial Advisor entered into confidentiality agreements and distributed
Confidential Offering Memoranda to 65 potential acquirors.
On May 7, 1998, the Company issued a press release stating that it was
exploring all strategic alternatives available to the Company and that it had
retained the Financial Advisor in connection with that effort. At the annual
meeting of the stockholders on May 12, 1998 (the "1998 Stockholder Meeting"),
Mr. Davenport discussed the Company's exploration of strategic alternatives to
enhance stockholder value and confirmed that such alternatives could include a
possible sale or merger of the Company. At the annual meeting of the Board held
immediately following the 1998 Stockholder Meeting, the Board discussed the
status of the exploration of strategic alternatives.
Beginning on May 15, 1998, potential acquirors were invited to submit
preliminary indications of interest by May 28, 1998. A total of 14 preliminary
indications of interest were received on May 28 and May 29, 1998. These
preliminary indications were reviewed at a meeting of the Strategy Committee
held on May 29, 1998. From May 30 to June 4, 1998, 2 additional preliminary
indications of interest were received. The Strategy Committee, with the
assistance of the Financial Advisor, subsequently determined that 12 of such
potential buyers could proceed with a further in-depth review of the Company
with a view toward making a definitive acquisition proposal.
On June 30, 1998, the Company received a written proposal from another
party to acquire the Company at a higher price than the Offer Price.
Representatives of the Company and the potential purchaser began meetings to
discuss the proposal. The Company also received a written proposal from Alchemy
Partners ("Alchemy") as an indirect majority stockholder of Parent. Alchemy
indicated that Parent and it were willing to make a cash tender offer to acquire
all of the outstanding shares of the Company's Common Stock for $17 per share.
Alchemy's proposal was subject to due diligence and was accompanied by a letter
from Bankers Trust ("BT") indicating that BT was highly confident that it could
arrange the financing for a portion of the funds required by Parent to acquire
shares of common stock of the Company. Representatives of the Financial Advisor
communicated to Alchemy the Company's concerns as to the adequacy of Alchemy's
price and the terms of its due diligence and financing conditions and the
Company began negotiations with the other party.
On July 9, 1998, the Company received another letter from Alchemy, together
with a marked up Agreement and Plan of Merger from Parent's legal advisors and a
set of draft commitment letters from a separate and independent financing team
at CSFB, an affiliate of the Financial Advisor, outlining the terms by which
CSFB would finance a portion of the funds required by Parent to acquire shares
of common stock of the Company. Alchemy reiterated in its letter that its
proposed price was for $17 per share and was subject to due diligence. In
addition, during telephone conversations, it was indicated that Parent would
need an enhanced non-competition agreement with Mr. Davenport in order to
proceed.
On July 7, 1998, a representative of the other party indicated that it
would require another week to perform additional due diligence on the Company
prior to entering into a definitive agreement. On July 13,
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1998, the other party indicated that it was no longer interested in pursuing an
acquisition of the Company at the previously indicated price, but would be
interested in pursuing an acquisition of the Company at a price less than $17
per share offered by Alchemy on behalf of Parent.
In light of developments in the sales process, senior management of the
Company and the Strategy Committee began on July 15, 1998 to review other
strategic alternatives available to the Company, including a potential
recapitalization. Senior management began discussions concerning such a
potential recapitalization with representatives of Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), who had been the Company's financial advisor in
connection with the Share Repurchase. At the same time, representatives of the
Financial Advisor and the Company continued to explore a possible transaction
with Alchemy and Parent. Representatives of Parent indicated that it was not
prepared to offer more than $17 per share. Representatives of the Financial
Advisor and the Company had discussions with certain other parties who
previously had expressed some interest in acquiring the Company about the
possibility of such parties acting as an equity partner of Parent.
On July 20, 1998, the Company publicly announced that it and WorldCom had
entered into a point of sale marketing agreement whereby the Company will
receive a commission on revenues that WorldCom generates from each
Company-originated customer. The Company also confirmed publicly on such date
that, consistent with its commitment to enhance its business potential and value
to stockholders, it was moving forward with its previously reported review of
strategic alternatives, including a potential sale, merger, or recapitalization
of the Company, as well as the possibility of strategic acquisitions.
Representatives of the Company continued to have discussions with
representatives of DLJ regarding the process and preparation required in
connection with a potential recapitalization.
On July 29, 1998, Alchemy and Parent communicated a renewed interest in
exploring a tender offer for the Company's shares at $17 per share and
representatives of the Company indicated that the Company might be interested in
discussing a transaction. On July 30, 1998, Parent's legal advisors began a due
diligence review of the Company. Representatives of the Company continued
discussions with representatives of Parent and Alchemy as to the adequacy of
price and the certainty of their offer and also began to negotiate the terms of
a definitive agreement.
From July 31, 1998 until August 11, 1998, representatives of the Company,
Parent and Alchemy continued to negotiate the terms of a definitive agreement
and address the Company's concerns as to price and the terms of Parent's due
diligence and financing conditions. On August 4, 1998, the board of directors of
Parent and representatives of Alchemy met to discuss the status of negotiations
with respect to a definitive agreement with the Company, the financing
arrangements with CSFB and the due diligence investigation of the Company being
conducted by representatives of Parent. Shortly thereafter, representatives of
Parent and Alchemy also requested that certain stockholders of the Company enter
into agreements requiring them to tender their shares and vote in favor of the
Merger. Representatives of the Company also continued to have discussions with
DLJ regarding a potential recapitalization during such time.
On August 11, 1998, Parent and Alchemy raised their proposal to $17.25 per
share.
On August 12, 1998, the Strategy Committee held a special meeting to
review, with the advice and assistance of the Company's financial and legal
advisors, the terms and conditions of the proposed transactions. All members of
the Strategy Committee participated in person. At such meeting, the Financial
Advisor provided an oral opinion that, as of such date, the cash consideration
to be received by holders of shares in the Offer and the Merger was fair from a
financial point of view to such holders. Shearman & Sterling reviewed the
fiduciary duties of members of the Board to stockholders and outlined the
principal terms of the Offer and the Merger. The Strategy Committee then
unanimously recommended that the Board approve the Merger Agreement and the
transactions contemplated thereby.
Immediately following the Strategy Committee meeting, the full Board held a
special meeting to review, with the advice and assistance of the Company's
financial and legal advisors, the terms and conditions of the proposed
transactions. All members of the Board participated either in person or by
telephone. At such meeting, the Financial Advisor reiterated for the full Board
its oral opinion that, as of such date, the cash
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<PAGE> 21
consideration to be received by holders of shares in the Offer and the Merger
was fair from a financial point of view to such holders. Shearman & Sterling
reviewed for the full Board the fiduciary duties of the Board to stockholders
and outlined the principal terms of the Offer and the Merger. The Board then
unanimously determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are fair to and in the
best interests of the Company and its stockholders, and authorized the execution
and delivery of the Merger Agreement, recommended that the Company's
stockholders accept the Offer and tender their Shares pursuant to the Offer, and
recommended that the Company's stockholders approve and adopt the Merger
Agreement.
On August 12, 1998, the shareholders of Newmall met to consider and approve
the subscription of $80 million of new shares of Newmall, the proceeds of which
will be used by Newmall to provide the $80 million Equity Contribution
(described and defined in Section 9). The members of the board of directors of
each of Parent and the Purchaser approved the Offer, the Merger, the Merger
Agreement and the other transactions contemplated by the Merger Agreement by
unanimous written consent on August 12, 1998 and authorized the execution and
delivery of the Merger Agreement and related documents.
Following approval by the boards of directors of the Company, Parent and
Purchaser, the Merger Agreement was executed and delivered on August 12, 1998. A
non-competition agreement with Mr. Davenport and agreements with certain
stockholders were also executed and delivered at such time. The transaction was
publicly announced through a joint press release before the opening of the
financial markets in the United States on August 13, 1998.
11. THE PURPOSE OF THE OFFER; THE MERGER AGREEMENT; PLANS FOR THE COMPANY.
Purpose. The purpose of the Offer is to enable Parent and its affiliates,
through the Purchaser, to acquire control of, and acquire the entire equity
interest in, the Company. Following the Offer, the Purchaser and Parent intend
to acquire any remaining equity interest in the Company not acquired in the
Offer by consummating the Merger.
Merger Agreement. Set forth below is a summary of the material provisions
of the Merger Agreement, a copy of which is filed as Exhibit 99(a)(1) to the
Schedule 14D-1. Such Exhibit should be available for inspection and copies
should be obtained, in the manner set forth in Section 7 (except that it will
not be available at the regional offices of the SEC). The following summary is
qualified in its entirety by reference to the Merger Agreement.
THE OFFER. The Merger Agreement provides that, upon the terms and
subject to the conditions thereof, the Purchaser will commence the Offer as
promptly as reasonably practicable, but in no event later than five
business days after the initial public announcement of the Purchaser's
intention to commence the Offer. The obligation of the Purchaser to accept
for payment Shares tendered pursuant to the Offer is subject, among other
things, to the satisfaction of the Minimum Condition. Under the Merger
Agreement, the Minimum Condition may not be waived without the prior
approval of the Company (except that the Minimum Condition may be waived
without such prior approval if at least the number of Shares, assuming
conversion of all shares of Class B Common Stock and Class C Common Stock
into Shares, that when added to any Shares already owned by Parent shall
constitute a majority of the then outstanding Shares on a primary basis,
shall have been validly tendered and not withdrawn prior to the expiration
of the Offer) and that no change in the Offer may be made which decreases
the price per Share payable in the Offer, reduces the maximum number of
Shares to be purchased in the Offer, imposes conditions to the Offer in
addition to those described under Section 13 or otherwise is materially
adverse to the Company or its stockholders. In the event that, upon the
expiration of the Offer (including any extension thereof), the Minimum
Condition is not satisfied or waived, the Merger Agreement requires that
the Company file and that Parent and Purchaser assist in the filing of a
proxy statement for the purpose of seeking and obtaining stockholder
approval of the Merger Agreement and the Merger.
THE MERGER. The Merger Agreement provides that, upon the terms and
subject to the conditions thereof, and in accordance with the relevant
provisions of the DGCL, as soon as practicable following the satisfaction
or waiver, if permissible, of the conditions described below under
"Conditions to the Merger,"
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the Purchaser will be merged with and into the Company with the Company as
the surviving corporation in the Merger (the "Surviving Corporation"). The
Merger will become effective at the time of filing of a certificate of
merger, as required by the DGCL (the "Effective Time"). At the Effective
Time, by virtue of the Merger and without any action on the part of the
Purchaser, the Company or its stockholders, each Share and each Class B
Share and Class C Share issued and outstanding immediately prior to the
Effective Time (other than any Class A, B or C Shares held in the treasury
of the Company, or owned by Purchaser, Parent or any direct or indirect
wholly owned subsidiary of Parent or of the Company and any Class A, B or C
Shares which are held by stockholders who have not voted in favor of the
Merger or consented thereto in writing and who shall have demanded properly
in writing appraisal for such Shares in accordance with the DGCL) shall be
canceled and shall be converted automatically into the right to receive an
amount equal to the Offer Price in cash (the "Merger Consideration") net to
the holder, without any interest thereon.
STOCKHOLDERS MEETING. The Merger Agreement provides that the Company
will, if required by applicable law, call and hold a special meeting of its
stockholders as soon as practicable following the consummation or
termination of the Offer, as applicable, for the purpose of approving the
Merger transaction contemplated thereby (the "Stockholders' Meeting") and
prepare and file with the SEC under the Exchange Act a proxy statement with
respect to the Stockholders' Meeting (the "Proxy Statement"). The Company
has agreed in the Merger Agreement to use its reasonable best efforts to
respond to any comments of the SEC or its staff and to cause the Proxy
Statement to be mailed to the Company's stockholders at the earliest
practicable time after responding to all such comments to the satisfaction
of the staff, and to keep Parent informed of all its correspondence with
the SEC with respect to the Proxy Statement. Pursuant to the Merger
Agreement, the Company, through its Board of Directors, will recommend to
its stockholders that the Merger Agreement be approved.
The Merger Agreement provides that, notwithstanding the preceding
paragraph, in the event that the Purchaser acquires at least 90% of the
then outstanding Shares, subject to certain conditions, Parent, the
Purchaser and the Company agree, at the request of Purchaser, to take all
necessary and appropriate action to cause the Merger to become effective in
accordance with Section 253 of the DGCL, as soon as reasonably practicable
after such acquisition, without a meeting of the Company's stockholders, in
accordance with the DGCL.
CONDITIONS TO THE MERGER. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) the Merger Agreement and the transactions contemplated thereby shall
have been approved and adopted by the affirmative vote of the stockholders
of the Company to the extent required by the DGCL; (b) no United States or
Canadian federal, state or provincial governmental authority or other
agency or commission or United States or Canadian federal, state or
provincial court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is then in effect and has the effect of prohibiting
consummation of the Merger; and (c) either (i) the Purchaser or its
permitted assignee shall have purchased all Shares validly tendered and not
withdrawn pursuant to the Offer, provided, however, that this condition is
not applicable to the obligations of Parent or the Purchaser if, in breach
of the Merger Agreement or the terms of the Offer, the Purchaser fails to
purchase any Shares validly tendered and not withdrawn pursuant to the
Offer or (ii) the conditions to the Offer (other than Minimum Condition)
shall have been satisfied.
ACQUISITION PROPOSALS. The Merger Agreement provides that neither the
Company nor any of its subsidiaries nor any of their officers, directors or
agents shall, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with any person relating to an Acquisition Proposal (as defined
below); provided, however, that nothing contained in the Merger Agreement
shall prevent the Company or the Board of Directors of the Company (the
"Board") from engaging in any negotiations or discussions with any person
who has made an unsolicited bona fide written Acquisition Proposal or
recommending such an Acquisition Proposal to the stockholders of the
Company (or withdrawing or modifying, in any manner adverse to Parent and
the
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<PAGE> 23
Purchaser, its approval or recommendation of the Offer, the Merger
Agreement or the Merger), if and only to the extent that (i) the Board
determines in good faith, after consultation with outside legal counsel
that such action is necessary in order for its directors to comply with
their fiduciary duties under applicable law and (ii) the Board determines
in good faith (after consultation with its financial advisor) that such
Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the
proposal and the financial capacity and any other relevant characteristics
of the person making the proposal and would, if consummated, result in a
transaction more favorable to the Company's stockholders from a financial
point of view than the transactions contemplated by the Merger Agreement.
The Company agreed that it would immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The
Merger Agreement defines "Acquisition Proposal" as any proposal or offer
from any person relating to any direct or indirect acquisition or purchase
of all or a substantial part of the assets of the Company, or more than 15%
of the voting securities of the Company or any tender offer or exchange
offer that if consummated would result in any person beneficially owning
15% or more of the voting securities of the Company; or any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company other than the
transactions contemplated by the Merger Agreement.
The Merger Agreement provides that the Company must notify Parent and
the Purchaser immediately if any inquiries, proposals or offers are
received by, any such information is requested from, or any such discussion
or negotiations are sought to be initiated or continued with any of its
officers, directors or agents, indicating, in connection with such notice,
the name of such person and the material terms and conditions of any
proposals or offers and thereafter shall keep Parent and the Purchaser
informed, on a current basis, on the status and material terms of any such
proposals or offers and the status of any such negotiations or discussions.
COSTS AND EXPENSES. The Merger Agreement provides that, except as
provided below, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated by the Merger Agreement
will be paid by the party incurring such costs or expenses, except that the
expenses incurred in connection with printing and mailing the tender offer
documents and the Proxy Statement, as well as any filing fees relating
thereto, will be shared equally by Parent and the Company. The Merger
Agreement also provides that the Company has estimated that it will incur
approximately $8,500,000 of costs and expenses in connection with the Offer
and the Merger (including fees and expenses payable to attorneys and
accountants, investment banks and financial advisors in connection
therewith) and has agreed that it shall not incur costs and expenses in
excess of such amount without obtaining the prior approval of Parent. The
Merger Agreement further provides that in the event that (i) the Merger
Agreement is terminated prior to the purchase of Shares pursuant to the
Offer because the Board shall have withdrawn or modified in a manner
adverse to the Purchaser or Parent its approval or recommendation of the
Offer, the Merger Agreement, the Merger or any other transaction
contemplated by the Merger Agreement in order to approve or recommend any
other Acquisition Proposal or shall have resolved to do any of the
foregoing and (ii) at the time of such termination a third party shall have
made an Acquisition Proposal and such Acquisition Proposal shall have not
been rejected by the Company and withdrawn by such third party, then the
Company shall pay Parent promptly, in cash, a termination fee of
$12,500,000.
CONDUCT OF BUSINESS PENDING THE MERGER. The Merger Agreement provides
that, between the date of the Merger Agreement and the Effective Time, the
Company will use its reasonable best efforts to preserve substantially
intact the business organization of the Company and its subsidiaries and to
preserve the current relationships of the Company and its subsidiaries with
customers, suppliers, regulators, creditors, lessors, employees, agents or
other persons with which the Company or any of its subsidiaries has
significant business relations. The Merger Agreement further provides that,
except as contemplated therein, neither the Company nor any subsidiary of
the Company shall, between the date of the Merger Agreement and the
Effective Time, directly or indirectly do, or propose to do, any of the
following, without the prior written consent of Parent: (a) amend or
otherwise change its certificate of incorporation
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or by-laws or equivalent organizational documents; (b) issue, sell, pledge,
dispose of, grant, encumber or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of (i) any shares of capital stock of any
class of the Company or any subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
such capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of the Company or any subsidiary (except
for the issuance of Shares issuable pursuant to stock options outstanding
on the date of the Merger Agreement) or (ii) any assets of the Company or
any subsidiary for consideration in excess of $1,000,000 in the aggregate
except in the ordinary course of business consistent with past practice or
in connection with the divestiture of certain specified properties; (c)
declare, set aside, make or pay any dividend or other distribution, payable
in cash, stock, property or otherwise, with respect to any of its capital
stock; (d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock; (e)
(i) acquire (including, without limitation, by merger, consolidation or
acquisition of stock or assets) any corporation, partnership, other
business organization or any division thereof; (ii) except for borrowings
under existing credit facilities not to exceed $100,000 in the aggregate
and excepting transactions between the Company and any subsidiary, incur
any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for, the obligations of any person; except for transactions between the
Company and any subsidiary, make any loans or advances for an amount in
excess of $250,000 in the aggregate; (iv) except for certain specified
commitments and funding obligations, authorize capital expenditures in
excess of $250,000; (v) except for certain specified commitments and
funding obligations, acquire any asset for consideration in excess of
$250,000; or (vi) enter into or amend any contract, agreement, commitment
or arrangement with respect to any matter set forth therein; (f) increase
the compensation payable or to become payable to its officers or employees,
except for increases in accordance with past practices in salaries or wages
of employees of the Company or any subsidiary who are not officers of the
Company, or, other than in accordance with existing policies and
arrangements, grant any severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other
employee of the Company or any subsidiary, or establish, adopt, enter into
or amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer
or employee; (g) other than as required by generally accepted accounting
principles, make any material change to its accounting policies or
procedures; (h) settle or compromise any materials claims or litigation or,
except in the ordinary and usual course of business, modify, amend or
terminate any of its material contracts or waive, release or assign any
material rights or claims; or (i) willfully take any action or omit to take
action that would cause any representation or warranty of the Company under
the Merger Agreement to become untrue in any material respect.
TERMINATION OF MERGER AGREEMENT. The Merger Agreement provides that
it may be terminated at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Company:
(a) by mutual written consent duly authorized by the boards of
directors of Parent, the Purchaser and the Company;
(b) by either Parent, the Purchaser or the Company if (i) the
Effective Time shall not have occurred on or before December 31, 1998;
provided, however, that such right to terminate the Merger Agreement
will not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before such date;
or (ii) any United States or Canadian federal, state or provincial
governmental authority shall have issued an order, decree, ruling or
taken any other action restraining, enjoining or otherwise prohibiting
the Offer or Merger or making the acquisition of Shares by Parent or the
Purchaser, or any affiliate thereof, illegal, and such law, rule,
regulation and such order, decree, ruling or other action shall remain
in effect or have become final and nonappealable;
(c) by Parent if (i) due to an occurrence or circumstance that
would result in a failure to satisfy any condition (other than the
Minimum Condition and the condition specified in clause
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<PAGE> 25
(g) of Section 13), Purchaser shall have (A) terminated the Offer
without having accepted any Shares for payment thereunder or (B) failed
to pay for Shares pursuant to the Offer within 75 calendar days
following the commencement of the Offer, unless such failure to pay for
Shares shall have been caused by or resulted from the failure of Parent
or the Purchaser to perform in any material respect any material
covenant or agreement of either of them contained in the Merger
Agreement or the material breach by Parent or the Purchaser of any
material representation or warranty of either of them contained in the
Merger Agreement; or (ii) prior to the purchase of Shares pursuant to
the Offer, the Board or any committee thereof shall have withdrawn or
modified in a manner adverse to the Purchaser or Parent its approval or
recommendation of the Offer, the Merger Agreement, the Merger or any
other transaction contemplated by the Merger Agreement in order to
approve or recommend any Acquisition Proposal, or shall have resolved to
do any of the foregoing;
(d) by the Company, upon approval of the Board, if (i) the
Purchaser shall have (A) failed to commence the Offer within five
business days after the initial public announcement of the Purchaser's
intention to commence the Offer, (B) terminated the Offer without having
accepted any Shares for payment thereunder or (C) failed to pay for
Shares pursuant to the Offer within 75 calendar days following the
commencement of the Offer, unless such failure to pay for Shares shall
have been caused by or resulted from the failure of the Company to
perform in any material respect any material covenant or agreement of it
contained in the Merger Agreement or the material breach by the Company
of any representation or warranty of it contained in the Merger
Agreement; or (ii) prior to the purchase of Shares pursuant to the
Offer, the Board shall have withdrawn or modified in a manner adverse to
the Purchaser or Parent its approval or recommendation of the Offer, the
Merger Agreement or the Merger or any other transaction contemplated by
the Merger Agreement in order to approve or recommend any other
Acquisition Proposal, or shall have resolved to do any of the foregoing;
or
(e) if the vote of the stockholders of the Company is required by
applicable law, by either Parent, the Purchaser or the Company if the
Merger Agreement and the Merger shall not have been approved by the
required vote of the Company's stockholders at the Stockholders' Meeting
or any adjournment thereof.
BOARD OF DIRECTORS. The Merger Agreement provides that, upon the
Purchaser's acceptance for payment and payment for Shares pursuant to the
Offer, the Purchaser will be entitled to designate a number of directors
(rounded up to the nearest whole number) on the Company's Board that is
equal to the product of the total number of directors on the Company's
Board multiplied by the percentage that the aggregate number of Shares
beneficially owned by the Purchaser and its affiliates bears to the number
of Shares outstanding. The Company will promptly, at the request of Parent,
either increase the size of the Company's Board and/or obtain the
resignations of such number of its current directors as is necessary to
enable the Purchaser's designees to be elected to the Company's Board as
provided above.
STOCK OPTIONS. The Merger Agreement also provides that each option to
purchase Shares (an "Option") outstanding at the time of the purchase of
Shares pursuant to the Offer or if the Offer is terminated, at the
Effective Time, whether or not exercisable or vested, shall be canceled by
the Company immediately following (a) the purchase of Shares pursuant to
the Offer or (b) if the Offer is terminated, at the Effective Time, and
each holder of a canceled Option shall be entitled to receive immediately
thereafter from the Company in consideration for the cancellation of such
Option an amount in cash equal to the product of (i) the number of shares
of common stock of the Company previously subject to such Option, and (ii)
the excess, if any, of the Offer Price over the exercise price per Share
previously subject to such Option.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including,
without limitation, representations by the Company as to the organization
and qualification, capitalization, authority to enter into the transactions
contemplated by the Merger Agreement, no conflicts, required filings and
consents, compliance with law, SEC
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filings, financial statements, absence of certain changes or events
concerning the Company's business, absence of litigation, employee benefit
plans, labor matters, offer documents, taxes, brokers, real property and
leases, trademarks, patents, copyrights and intellectual property,
environmental matters, state takeover statutes, insurance and agents. The
Merger Agreement also contains customary representations and warranties of
the Purchaser and Parent as to corporate organization, authority relative
to the Merger Agreement, no conflict, required filings and consents,
financing, offer documents, brokers, financial statements and absence of
certain changes or events concerning Parent's business. The representations
and warranties in the Merger Agreement shall terminate at the Effective
Time or upon the termination of the Merger Agreement pursuant to the terms
thereof.
Stockholder Agreements. Chester C. Davenport, Rockspring Management, Inc.,
The Chester Corporation, Kane Partners, L.P., Richard L. Gelfond, TSG Ventures,
L.P., Richard L. Gelfond 1998 GRAT and Cheviot Capital Advisors Inc.
(collectively, the "Insider Selling Stockholders") are each parties, solely in
their capacities as stockholders, to a Stockholders' Agreement dated August 12,
1998 with the Purchaser and Parent (the "Insider Stockholders' Agreement"). In
addition, Chemical Equity Associates ("Chemical") has also entered into a
Stockholder Agreement dated August 12, 1998 with the Purchaser and Parent (the
"Chemical Agreement"), the terms of which are substantially similar to the terms
of the Insider Stockholders' Agreement. The Insider Stockholders' Agreement and
the Chemical Agreement are collectively referred to herein as the "Stockholder
Agreements" and the Insider Selling Stockholders and Chemical are collectively
referred to herein as the "Selling Stockholders." The Stockholder Agreements
provide that each of the Selling Stockholders will tender their Shares into the
Offer so long as the per Share amount is not less than $17.25 in cash (net to
the seller). Additionally, subject to certain exceptions, each Selling
Stockholder has agreed to sell, and the Purchaser has agreed to purchase, in
each case pursuant to and in accordance with the terms of the Offer, such
Selling Stockholder's Shares at a price per share equal to $17.25, or such
higher price per Share as may be offered by the Purchaser in the Offer, provided
that such obligations to purchase and sell are both subject to (i) the Purchaser
having accepted Shares for payment under the Offer and (ii) the conditions of
the Offer having been satisfied or waived in accordance with the terms of the
Merger Agreement. In addition, certain Selling Stockholders have agreed to
convert approximately 49% of the outstanding Class B Shares and 100% of the
outstanding Class C Shares into Shares prior to the expiration of the Offer and
to tender such Shares into the Offer under the conditions described above.
The Stockholder Agreements also provide that at any stockholders' meeting
called with respect to any of the following, and at every adjournment thereof,
each Selling Stockholder, severally and not jointly, agrees that it shall vote,
with respect to, as appropriate, all of such Selling Stockholder's Shares as to
which it has power to vote in any such vote or consent: (a) in favor of the
Merger, the adoption of and execution and delivery of the Merger Agreement and
the approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement and (b) against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement); (i) any extraordinary corporate transaction, including, but not
limited, to a merger, consolidation or other business combination involving the
Company or any of its subsidiaries; (ii) a sale, lease or transfer of a material
amount of assets of the Company or any of its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of the Company or any of its
subsidiaries; (iii) (A) any change in the majority of the Board except as
contemplated by the Merger Agreement; (B) any material change in the present
capitalization of the Company or any amendment of the Company's Certificate of
Incorporation; (C) any other material change in the Company's corporate
structure or business; or (D) any other action, which, in the case of each of
the matters referred to in clauses (A), (B), (C) or (D) above, is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the consummation of the Merger or the
transactions contemplated by the Merger Agreement or the Stockholder Agreements.
Pursuant to the terms of the Stockholder Agreements, each Selling Stockholder
grants to, and appoints officers of the Purchaser, such Selling Stockholder's
proxy and attorney-in-fact to vote such Selling Stockholder's Shares.
Each of the Selling Stockholders has also agreed not to transfer or agree
to transfer their Shares, directly or indirectly solicit or respond to any
inquiries or the making of any proposal by any person or entity (other than the
Purchaser, Parent or any of their affiliates) with respect to the Company that
constitutes or could
24
<PAGE> 27
reasonably be expected to lead to an Acquisition Proposal, grant a proxy (other
than to the Purchaser and its officers) for their Shares or enter in a voting
agreement respecting them, or take any other action that would in any way
restrict, limit or interfere with the performance of their obligations under the
Stockholder Agreement or the transactions contemplated thereby.
Pursuant to the terms of the Insider Stockholders' Agreement, in the event
that the Purchaser purchases an Insider Selling Stockholder's Shares and,
subsequent to such purchase, such Insider Selling Stockholder continues to hold
any shares of common stock of the Company (the "Remaining Shares"), such Insider
Selling Stockholder agrees that for a period of three years from the date of the
Insider Stockholders' Agreement that, (a) neither such Insider Selling
Stockholder nor any of such Insider Selling Stockholder's affiliates or
associates (as such terms are defined in Rule 12b-2 under the Exchange Act)
will, and neither such Insider Selling Stockholder nor such affiliates or
associates will assist or encourage others to, directly or indirectly, (i)
acquire or offer to acquire, seek, propose or agree to acquire, by means of a
purchase or otherwise, ownership (including but not limited to beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act)) of (A) any
securities (voting or otherwise) or direct or indirect rights or options to
acquire any securities of the Company or any subsidiary thereof, or of any
successor to or person in control of the Company or (B) any of the assets or
business of the Company, (ii) make, or in any way participate in, any
"solicitation" of "proxies" (as such terms are used in the proxy rules
promulgated under the Exchange Act, including any exempt solicitation pursuant
to Rule 14a-2(b)(1) or (2) thereof) to vote, or seek to advise or influence any
person or entity with respect to the voting of, any voting securities of the
Company or seek to nominate or to elect any directors of the Company or to
influence the management of the Company, (iii) enter into any discussions,
negotiations, agreements, arrangements or understandings with any third party
with respect to any of the foregoing or form, join or in any way participate in
a "group" (as defined in Section 13(d)(3) of the Exchange Act) in connection
with any of the foregoing, or (iv) request the Company to amend or waive any of
the foregoing provisions (including this clause (iv)), and (b) such Insider
Selling Stockholder will not sell, transfer or assign or seek, propose or agree
to sell, transfer or assign to any person or entity (including any permitted
transferee under any governing documents of the Company or any contract,
agreement or arrangement to which such Insider Selling Stockholder is or may
become a party) other than the Purchaser or any of its affiliates, ownership
(including but not limited to beneficial ownership (as defined in Rule 13d-3
under the Exchange Act)) of any Remaining Shares.
The Stockholder Agreements terminate upon the earlier of (i) the Merger
Agreement being terminated by the Company, Parent or the Purchaser, in
accordance with its terms or (ii) the date that the Purchaser or Parent shall
have purchased and paid for the Shares of each Selling Stockholders as described
above. The foregoing summary of the Stockholder Agreements is qualified in its
entirety by the text of the Insider Stockholders' Agreement and the Chemical
Agreement, copies of which are filed as Exhibits 99(c)(2) and 99(c)(3),
respectively, to the Schedule 14D-1 and is incorporated herein by reference.
Non-Compete Agreement. In connection with the execution and delivery of
the Merger Agreement, Parent and Chester C. Davenport, the Chairman of the Board
of the Company, entered into a Non-Compete Agreement, dated as of August 12,
1998. Pursuant to the terms of his employment agreement with the Company, Mr.
Davenport is subject to certain non-competition obligations for up to two years
after his termination of employment. However, such obligations do not extend to
the manufacture, sale or leasing of emissions testing equipment. Mr. Davenport
has decided to exercise his unilateral right to terminate his employment with
the Company upon consummation of the Merger. The Non-Compete Agreement provides
for the extension and expansion of Mr. Davenport's existing non-compete
obligations in consideration for the payment of $2,000,000.
Pursuant to the Non-Compete Agreement, subject to certain exceptions, Mr.
Davenport agreed for a period of five years following consummation of the
Merger, not to (i) own, manage, operate, control, participate in, perform
services for, or otherwise engage in, a business in competition with the
business of vehicle emissions testing, the manufacture of equipment for such
testing, or the sale or leasing of such equipment anywhere within the United
States; (ii) directly or indirectly, induce or attempt to persuade any customers
or prospective customers of the Company to curtail, cancel or otherwise
terminate their business with the Company; (iii) employ, offer to employ or
permit to post for any position of employment and
25
<PAGE> 28
employee of the Company; or (iv) otherwise interfere with the employment by the
Company or its affiliates of any individual who becomes or would otherwise
become an employee of the Company. In consideration for such expansion and
extension of non-compete obligations, pursuant to the Non-Compete Agreement,
Parent agreed to compensate Mr. Davenport as follows: (i) $1,000,000 upon the
earlier to occur of (a) the acceptance of Shares for payment pursuant to the
Offer and (b) consummation of the Merger and the closing of the related
transactions; and (ii) $333,333.33 per year for a period of three years payable
in equal monthly installments of $27,777.78 on the first day of each month,
commencing the first month following consummation of the Merger. The foregoing
summary of the Non-Compete Agreement is qualified in its entirety by the text of
the Non-Compete Agreement, a copy of which is filed as Exhibit 99(c)(5) to the
Schedule 14D-1 and is incorporated herein by reference.
Confidentiality Agreement. On May 8, 1998, Parent entered into a
Confidentiality Agreement with the Company, pursuant to which Parent agreed to
treat all information supplied by the Company or its representatives as
confidential and to use such information solely in connection with the
evaluation of a possible transaction with the Company. In the event that the
transactions contemplated by the Merger Agreement are not consummated, the
Purchaser and Parent will (i) upon the Company's request, return to the Company
all information furnished by the Company or its representatives, and (ii)
without the prior approval of the Board for a period of two years from the date
of the Confidentiality Agreement, refrain from (a) acquiring or making any
proposal to acquire any securities or property of the Company, (b) propose to
enter into any merger or business combination involving the Company or purchase
a material portion of the assets of the Company, (c) make or participate in any
solicitation of proxies to vote, or seek to advise or influence any person with
respect to the voting of any securities of the Company, (d) form, join or
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act), with respect to any voting securities of the Company, (e) otherwise act or
seek to control or influence the management, Board or policies of the Company,
(f) disclose any intention, plan or arrangement inconsistent with the foregoing,
or (g) take any action which might require the Company to make a public
announcement regarding the possibility of a business combination or merger.
Operations Following Consummation of the Offer. Following consummation of
the Offer, it is intended that the Shares of the Company will be transferred to
Holdings, a newly formed Delaware corporation that will be the ultimate parent
company of Parent. After the transfer, the Company will operate as a wholly
owned subsidiary of Holdings, but Parent otherwise has no definitive plans to
make any material changes in the business or operations of the Company. Based on
its review of the operations of the Company following consummation of the
Merger, Parent or Holdings may make changes to the Company's assets,
capitalization, organizational structure and management.
Appraisal Rights. Holders of Shares do not have appraisal rights as a
result of the Offer. However, if the Merger is consummated, holders of Shares
will have certain rights pursuant to the provisions of Sections 262 of the DGCL
to dissent and demand appraisal of and to receive payment in cash of the fair
market value of, their Shares. If the statutory procedures are complied with,
such rights could lead to a judicial determination of the fair value required to
be paid in cash to such dissenting holders for their Shares. Any such judicial
determination of the fair value of Shares could be based upon factors other
than, or in addition to, the price per Share to be paid in the Merger or the
market value of the Shares, including asset values and the investment value of
the Shares. The value so determined could be more or less than the Offer Price.
If any holder of Shares who demands appraisal under Section 262 of the DGCL
fails to perfect, or effectively withdraws or loses his right to appraisal, as
provided in the DGCL, the Shares of such holder will be converted into the
Merger Consideration in accordance with the terms of the Merger Agreement. A
stockholder may withdraw his demand for appraisal by delivery to the Purchaser
of a written withdrawal of his demand for appraisal and acceptance of the
Merger.
The foregoing discussion is not a complete statement of law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by reference to
the full text of Section 262 of the DGCL. FAILURE TO FOLLOW THE STEPS REQUIRED
BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE
LOSS OF SUCH RIGHTS.
26
<PAGE> 29
Going Private Transactions. The SEC has adopted Rule 13e-3 under the
Exchange Act which is applicable to certain "going private" transactions and
which may under certain circumstances be applicable to the Merger. However, Rule
13e-3 would be inapplicable if (a) the Shares are deregistered under the
Exchange Act prior to the Merger or (b) the Merger is consummated within one
year after the purchase of the Shares pursuant to the Offer and the Merger
provided for stockholders to receive cash for their Shares in an amount at least
equal to the Offer Price. If applicable, Rule 13e-3 requires, among other
things, that certain financial information concerning the fairness of the
proposed transaction and the consideration offered to minority stockholders in
such transaction to be filed with the SEC and disclosed to stockholders prior to
the consummation of the Merger.
12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; AMEX LISTING AND EXCHANGE
ACT REGISTRATION.
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of stockholders, which
could adversely affect the liquidity and market value of the remaining Shares
held by the public. Depending upon the number of Shares acquired pursuant to the
Offer and the Shares accumulated by other parties, it is possible that the
Company's Common Stock will no longer be eligible for listing on the AMEX. In
that event, the market for the Shares could be adversely affected.
The Shares currently are registered under the Exchange Act. Registration of
the Shares may be terminated upon application of the Company to the SEC if the
Shares are not listed on a national securities exchange and there are fewer than
300 holders of record of the Shares. The Company has informed the Purchaser that
there were approximately 3,500 beneficial owners of the Shares as of August 14,
1998. The termination of the registration of the Shares under the Exchange Act
would render inapplicable certain provisions of the Exchange Act, including
requirements that the Company furnish stockholders with proxy materials
regarding meetings of stockholders of the Company, the reporting and short-swing
profit liability provisions under Section 16 of the Exchange Act and the
requirements of Rule 13e-3 under the Exchange Act regarding "going private"
transactions.
The Shares are currently "margin securities" under the rules of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). Among
other things, this status has the effect of allowing lenders to extend credit to
stockholders who wish to use the Shares as collateral. Depending upon factors
similar to those relevant to AMEX eligibility, following the Offer the Shares
might no longer constitute "margin securities" for purposes of the Federal
Reserve Board's margin regulations, in which event Shares could no longer be
used as collateral for margin loans made by brokers.
The Purchaser currently intends to cause the Company to make an application
for termination of registration of the Shares under the Exchange Act after
consummation of the Merger, and may cause such an application to be filed prior
to the consummation of the Merger if a sufficient number of Shares are purchased
pursuant to the Offer. If registration of the Shares under the Exchange Act were
terminated, the Shares would no longer be "margin securities" or eligible for
listing on the AMEX.
13. CERTAIN CONDITIONS TO THE OFFER.
Notwithstanding any other provision of the Offer, the Purchaser shall not
be required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied and (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer.
Furthermore, the Purchaser may terminate or amend the Offer and may postpone the
acceptance for payment of and payment for Shares tendered, if at any time on or
after the date of the Merger Agreement, and prior to the acceptance for payment
of Shares, any of the following conditions shall exist:
(a) there shall have been any judgment, order or injunction entered or
issued by any United States or Canadian federal, state or provincial court
or governmental, administrative or regulatory authority or agency that (i)
materially prohibits or limits the ownership or operation by Parent or any
of its
27
<PAGE> 30
subsidiaries, or the Purchaser, of all or a material portion of the
business or assets of the Company and its subsidiaries, taken as a whole,
or compels Parent or any of its subsidiaries, the Purchaser, the Company or
any of its subsidiaries, to dispose of or hold separate all or any material
portion of the business or assets of the Company and any of its
subsidiaries, taken as a whole, or Parent and any of its subsidiaries,
taken as a whole, in each case as a result of the Offer or the Merger; (ii)
prohibits or makes illegal the acceptance for payment, payment for or
purchase of some or all of the Shares pursuant to the Offer or the
consummation of the Offer or the Merger; (iii) results in a material delay
in, or prevents, the acceptance of Shares for payment, payment for or
purchase of some or all the Shares tendered pursuant to the Offer; or (iv)
imposes limitations on the ability of Parent or the Purchaser to exercise
effectively full rights of ownership of any Shares, including the right to
vote any Shares acquired by the Purchaser pursuant to the Offer on all
matters properly presented to the Company's stockholders, including,
without limitation, the approval and adoption of the Merger Agreement, the
Offer and the Merger;
(b) a "Material Adverse Effect" shall have occurred and be continuing.
A "Material Adverse Effect" means 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 the business, the financial
condition, results of operations or prospects of the Company and its
subsidiaries and Holdings, Parent, the Purchaser and their subsidiaries,
taken as a whole;
(c) any representation or warranty of the Company set forth in the
Merger Agreement that is qualified by reference to a Material Adverse
Effect shall not be true and correct or any representation or warranty that
is not so qualified shall not be true and correct so as to have a Material
Adverse Effect, in each case as if such representation or warranty of the
Company was made as of such time on or after the date of the Merger
Agreement (except for representations or warranties made as of a specific
date, which shall be true and correct as of such date);
(d) the Company shall have failed to perform, or comply with, any
agreement or covenant of the Company to be performed or complied with by it
under the Merger Agreement, which failure has a Material Adverse Effect;
(e) the Merger Agreement shall have been terminated in accordance with
its terms;
(f) the Purchaser and the Company shall have agreed that the Purchaser
shall terminate the Offer or postpone the acceptance for payment of or
payment for Shares thereunder; or
(g) there shall not have occurred and be continuing (a) any general
suspension of trading of securities on the New York Stock Exchange, AMEX 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 or
the consummation of high yield offerings, as the case may be.
The Merger Agreement provides that the foregoing conditions are for the
sole benefit of the Purchaser and Parent and may be asserted by the Purchaser or
Parent regardless of the circumstances giving rise to any such condition, and
subject to the terms and conditions of the Merger Agreement, may be waived by
the Purchaser and Parent in whole or in part at any time and from time to time
in their sole discretion. The failure by the Purchaser or Parent at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right and each such right shall be deemed an
ongoing right that may be asserted at any time and from time to time.
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<PAGE> 31
14. CERTAIN LEGAL MATTERS.
Except as described below, the Purchaser is not aware of any approval or
other action by any federal, state or foreign governmental or administrative
agency that would be required for the acquisition of the Shares by the Purchaser
pursuant to this Offer. Should any approval or other action be required, it is
presently contemplated that such approval or action would be sought. However,
while there is no present intent to delay the purchase of the Shares tendered
pursuant to this Offer pending the outcome of any such matter, there can be no
assurance that any such approval or other action, if needed, could be obtained
without substantial delay or conditions, or at all. The Purchaser's obligation
under the Offer to accept for payment and pay for Shares is subject to certain
conditions, including conditions relating to the legal matters discussed in this
Section 14. See Section 13.
State Takeover Laws. Section 203 of the DGCL limits the ability of a
Delaware corporation such as the Company from engaging in business combinations
with "interested stockholders" (defined generally as any beneficial owner of 15%
or more of a corporation's outstanding voting stock) unless, among other things,
prior to the date such person became an "interested stockholder," the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the person becoming an "interested stockholder."
Because the Company's Board has approved the Merger Agreement, the Purchaser's
acquisition of Shares pursuant to the Offer and the Merger, Section 203 of the
DGCL is inapplicable to the Offer and the Merger. The foregoing discussion is
not a complete statement of law pertaining to Section 203 of the DGCL and is
qualified in its entirety by reference to the full text of Section 203 of the
DGCL.
Based on information supplied by the Company, the Purchaser and Parent do
not believe any of the statutes adopted by states in which the Company conducts
business by their terms apply to the Offer, and except as described in this
Offer to Purchase, the Purchaser has not complied with any state takeover law.
Pursuant to the Merger Agreement, if any state's takeover law should become
applicable to the Offer or the Merger, Parent and the Company have agreed to
grant such approvals and to take such actions as are necessary so that the
transactions contemplated by the Merger Agreement may be consummated as promptly
as practicable on the terms contemplated thereby and to otherwise act to
minimize the effects of any such statute on such transactions.
If it is asserted that one or more state takeover laws, other than those
described in this Offer to Purchase, apply to the Offer and it is not determined
by all appropriate courts that such act or acts do not apply or are invalid as
applied to the Offer, the Purchaser might be required to file certain
information with, or receive approvals from, the relevant state authorities. In
addition, if enjoined, the Purchaser might be unable to accept for payment any
Shares tendered pursuant to the Offer, or be delayed in consummating the Offer.
In such case, the Purchaser may not be obligated to accept for payment any
Shares tendered. See Section 13.
Antitrust Laws. Under the provisions of the HSR Act applicable to the
Offer, the purchase of Shares under the Offer may be consummated following the
expiration of a 15-calendar-day waiting period following the filing by Newmall
of a Notification and Report Form with respect to the Offer, unless Newmall
receives a request for additional information or documentary material from the
Antitrust Division or the FTC or unless early termination of the waiting period
is granted. Newmall filed a Notification and Report Form with respect to the
Offer under the HSR Act on August 14, 1998. If, within the initial 15-day
waiting period, either the Antitrust Division or the FTC requests additional
information or documentary material from Newmall concerning the Offer, the
waiting period will be extended and would expire at 11:59 p.m., Eastern standard
time, on the 10th calendar day after the date of substantial compliance by
Newmall with such request. Only one extension of the waiting period pursuant to
a request for additional information is authorized by the HSR Act. Thereafter,
such waiting period may be extended only by court order or with the consent of
Newmall. In practice, complying with a request for additional information or
documentary material can take a significant amount of time. In addition, if the
Antitrust Division or the FTC raises substantive issues in connection with a
proposed transaction, the parties frequently engage in negotiations with the
relevant governmental agency concerning possible means of addressing those
issues and may agree to delay consummation of the transaction while such
negotiations continue. The FTC and the Antitrust Division frequently scrutinize
the legality under the antitrust laws of transactions such as the Purchaser's
proposed acquisition of the Company. At any time
29
<PAGE> 32
before or after the Purchaser's purchase of Shares pursuant to the Offer, the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, including seeking to
enjoin the purchase of Shares pursuant to the Offer or the consummation of the
Merger or seeking the divestiture of Shares acquired by the Purchaser or the
divestiture of substantial assets of Newmall, Parent or their subsidiaries, or
the Company or its subsidiaries. Private parties may also bring legal action
under certain circumstances. There can be no assurance that a challenge to the
Offer on antitrust grounds will not be made or, if such a challenge is made, of
the result thereof.
15. FEES AND EXPENSES.
The Purchaser has retained IBJ Schroder Bank & Trust Company, to act as
Depositary and D.F. King & Co., Inc. to serve as Information Agent in connection
with the Offer. The Purchaser will pay each of the Depositary and the
Information Agent reasonable and customary compensation for their services in
connection with the Offer, plus reimbursement for out-of-pocket expenses, and
will indemnify each of them against certain liabilities and expenses in
connection therewith, including certain liabilities under the federal securities
laws.
Neither the Purchaser nor Parent will pay any fees or commissions to any
broker or dealer or other person (other than the Information Agent) in
connection with the solicitation of tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by the
Purchaser for customary mailing and handling expenses incurred by them in
forwarding material to their customers.
16. MISCELLANEOUS.
The Offer is not being made to (nor will tenders be accepted from or on
behalf of) holders of Shares in any jurisdiction in which the making of the
Offer or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Purchaser may, in its sole discretion, take such
action as it may deem necessary to make the Offer in any such jurisdiction and
extend the Offer to holders of Shares in such jurisdiction.
Neither the Purchaser nor Parent is aware of any jurisdiction in which the
making of the Offer or the acceptance of Shares in connection therewith would
not be in compliance with the laws of such jurisdiction. Consequently, the Offer
is currently being made to all holders of Shares. To the extent the Purchaser or
Parent becomes aware of any law that would limit the class of offers in the
Offer, the Purchaser will amend the Offer and, depending on the timing of such
amendment, if any, will extend the Offer to provide adequate dissemination of
such information to holders of Shares prior to the expiration of the Offer.
The Purchaser has filed with the SEC the Schedule 14D-1 (including
exhibits) pursuant to Rule 14d-3 under the Exchange Act containing certain
additional information with respect to the Offer, and may file amendments
thereto. Such Schedule 14D-1 and any amendments thereto, including exhibits, may
be examined and copies may be obtained from the principal office of the SEC in
Washington, D.C. and the AMEX in the manner set forth in Section 7.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF THE PURCHASER NOT CONTAINED IN THIS OFFER TO
PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
STONE RIVET, INC.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
August 19, 1998
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<PAGE> 33
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF
THE PURCHASER AND PARENT
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The name, present
principal occupation or employment and five-year employment history of each of
the directors and executive officers of Parent are set forth below. Unless
otherwise indicated, the business address of each such director and executive
officer is 7 Kripes Road, East Granby, Connecticut 06026. All directors and
executive officers listed below are citizens of the United States, except for
Eric Walters, who is a citizen of the United Kingdom.
<TABLE>
<CAPTION>
POSITION WITH PARENT; PRINCIPAL OCCUPATION
NAME AND BUSINESS ADDRESS OR EMPLOYMENT; FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------
<S> <C>
Terrence P. McKenna President, Chief Executive Officer and Director of Parent
since its formation in 1989. Age: 47.
Rinaldo R. Tedeschi Executive Vice President, Chief Operating Officer and
Director of Parent since its formation in 1989. Age: 49.
David J. Langevin Executive Vice President, Chief Financial Officer and
Director of Parent since April 1998. From 1994 to 1998,
Executive Vice President of Terex Corporation and from March
1993 to December 1993, Acting Chief Financial Officer of
Terex Corporation. Age: 47.
Eric Walters Director of Parent since July 1998. Partner at Alchemy
c/o Alchemy Partners Partners since 1997. From 1987 to 1997, Partner at Schroder
20 Bedfordbury Ventures. Age: 54
London
WC2N 4BL
England
J. Scott Haftmann Vice President, Finance and Administration, Secretary and
Treasurer of Parent since 1996. From 1989 to 1996,
Controller and Assistant Secretary of Parent. Age: 41
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The directors and
executive officers of the Purchaser are the same individuals who are the
directors and executive officers of Parent and, accordingly, their names,
business addresses, present principal occupations or employment and five-year
employment histories are set forth above.
S-1
<PAGE> 34
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates evidencing Shares and any
other required documents should be sent or delivered by each stockholder of the
Company or his broker, dealer, commercial bank, trust company or other nominee,
to the Purchasers at one of their addresses set forth below.
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank and Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One, (SC-1)
Department
</TABLE>
Facsimile Transmission Number:
(For Eligible Institutions Only)
(212) 858-2611
Confirm Receipt of Facsimile by Telephone:
(212) 858-2103
Questions or requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of
this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be obtained from the Information Agent. A stockholder also may
contact brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 425-1685
ALL OTHERS CALL TOLL FREE: (800) 848-3402
<PAGE> 1
LETTER OF TRANSMITTAL
TO TENDER SHARES OF CLASS A COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
PURSUANT TO THE OFFER TO PURCHASE, DATED AS OF AUGUST 19, 1998,
BY
STONE RIVET, INC.,
A WHOLLY OWNED SUBSIDIARY OF
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.,
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON WEDNESDAY, SEPTEMBER 30, 1998 UNLESS THE OFFER IS EXTENDED
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank and Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One, (SC-1)
Department
Facsimile Transmission Number:
(For Eligible Institutions Only)
(212) 858-2611
Confirm Receipt of Facsimile by Telephone:
(212) 858-2103
</TABLE>
Your bank or broker can assist you in completing this Letter of
Transmittal. The instructions enclosed with this Letter of Transmittal must be
followed and should be read carefully. Questions and requests for additional
copies of the Offer to Purchase (as defined below) and this Letter of
Transmittal may be directed to the Information Agent as indicated in Instruction
8.
Delivery of this Letter of Transmittal to an address other than as set
forth above, or transmission of instructions via facsimile transmission or telex
number other than as set forth above, will not constitute valid delivery.
This Letter of Transmittal is to be completed by stockholders if
certificates for Shares (as defined below) are to be forwarded herewith or if
tenders of Shares are to be made by book-entry transfer into the account of IBJ
Schroder Bank & Trust Company, as Depositary (the "Depositary"), at The
Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant
to the procedures set forth in Section 3 of the Offer to Purchase. Stockholders
who tender Shares by book-entry transfer are referred to herein as "Book-Entry
Stockholders." Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase), or who
cannot complete the procedure for book-entry transfer on a timely basis, must
tender their Shares according to the guaranteed delivery procedure set forth in
Section 3 of the Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO
A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE> 2
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------
NAME(S) & ADDRESS(ES) OF REGISTERED HOLDERS(S) SHARE CERTIFICATE(S) AND SHARE(S)
(PLEASE FILL IN, IF BLANK, EXACTLY AS TENDERED (ATTACH ADDITIONAL
NAME(S) APPEAR(S) ON CERTIFICATE(S)) SIGNED LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
SHARE OF SHARES NUMBER
CERTIFICATE(S) REPRESENTED BY OF SHARES
NUMBER(S)* CERTIFICATE(S)* TENDERED**
---------------------------------------------
<S> <C> <C> <C>
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
Total Shares
- -------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, all Shares represented by
certificates delivered to the Depositary will be
deemed to have been tendered. See Instruction 4.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] CHECK HERE IF SHARES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER MADE TO THE
ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE BOOK-ENTRY TRANSFER FACILITY
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------
Check Box of Book-Entry Transfer Facility: [ ] DTC
Account Number
-------------------------------------------------------------
Transaction Code Number
----------------------------------------------------
[ ] CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution which Guaranteed Delivery
------------------------------
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to Stone Rivet, Inc., a Delaware corporation
(the "Purchaser"), which is a wholly owned subsidiary of Environmental Systems
Products, Inc., a Delaware corporation, the above-described shares of Class A
Common Stock, $0.01 par value (the "Shares"), of Envirotest Systems Corp., a
Delaware corporation (the "Company"), at a purchase price of $17.25 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated August 19, 1998, and any amendments or
supplements thereto (the "Offer to Purchase"), and in this Letter of Transmittal
(which together constitute the "Offer"), receipt of which is hereby
acknowledged. The undersigned understands that the Purchaser reserves the right,
with the written consent of the Company, to transfer or assign, in whole or from
time to time in part, the right to purchase all or any portion of the Shares
tendered pursuant to the Offer.
Subject to, and effective upon, acceptance for payment for the Shares
tendered herewith in accordance with the terms and conditions of the Offer, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Purchaser all right, title and interest in and to all of the Shares that are
being tendered hereby and any and all noncash dividends, distributions
(including additional Shares) or rights declared, paid or issued with respect to
the tendered Shares on or after August 12, 1998 and payable or distributable to
the undersigned on a date prior to the transfer to the name of the Purchaser or
a nominee or transferee of the Purchaser on the Company's stock transfer records
of the Shares tendered herewith (a "Distribution"). The undersigned hereby
appoints the Depositary the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Shares (and any Distribution) with full power
of substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to (a) deliver such Share Certificates (as defined
herein) (and any Distribution) or transfer ownership of such Shares (and any
Distribution) on the account books maintained by the Book-Entry Transfer
Facility, together in either case with appropriate evidence of transfer and
authenticity, to the Depositary for the account of the Purchaser, (b) present
such Shares (and any Distribution) for transfer on the books of the Company and
(c) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Shares (and any Distribution), all in accordance with the
terms and subject to the conditions of the Offer.
The undersigned irrevocably appoints designees of the Purchaser as the
undersigned's proxy, each with full power of substitution to the full extent of
the undersigned's rights with respect to the Shares tendered by the undersigned
and accepted for payment by the Purchaser and with respect to any Distribution.
Such appointment will be effective when, and only to the extent that, the
Purchaser accepts such Shares for payment. Upon such acceptance for payment, all
prior proxies, consents and powers of attorney given by the undersigned with
respect to such Shares (and, if applicable, such other shares and securities)
will be revoked without further action, and no subsequent proxies or powers of
attorney may be given nor any subsequent written consents executed (and if given
or executed, will not be deemed effective) by the undersigned. The designees of
the Purchaser will be empowered to exercise all voting and other rights of the
undersigned as they in their sole discretion may deem proper at any annual or
special meeting of the Company's stockholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or otherwise. The
Purchaser reserves the right to require that, in order for Shares to be deemed
validly tendered, immediately upon the Purchaser's payment for such Shares, the
Purchaser must be able to exercise full voting rights with respect to such
Shares.
The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby (and any Distribution) and (b) when the Shares are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title to such Shares (and any Distribution), free and clear of all
liens, restrictions, claims, charges and encumbrances, and the same will not be
subject to any adverse claim. The undersigned, upon request, will execute and
deliver any additional documents deemed by the Depositary or the Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby (and any Distribution). In addition, the undersigned
shall promptly remit and transfer to the Depositary for the account of the
<PAGE> 4
Purchaser any and all Distributions in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer, and pending such
remittance or appropriate assurance thereof, the Purchaser will be, subject to
applicable law, entitled to all rights and privileges as owner of such
Distribution and may withhold the entire purchase price or deduct from the
purchase price the amount or value thereof, as determined by the Purchaser in
its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, executors, administrators, successors and assigns of
the undersigned. Except as stated in the Offer to Purchase, this tender is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Purchaser upon the terms and subject to the conditions set forth in the
Offer, including the undersigned's representations that the undersigned owns the
Shares being tendered.
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificate(s)
for Shares not tendered or not accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or return any
certificate(s) for Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and Special Payment Instructions are
completed, please issue the check for the purchase price and/or issue or return
any certificate(s) for Shares not tendered or accepted for payment in the name
of, and deliver such check and/or such certificate to, the person or persons so
indicated. The undersigned recognizes that the Purchaser has no obligation,
pursuant to the Special Payment Instructions, to transfer any Shares from the
name(s) of the registered holder(s) thereof if the Purchaser does not accept for
payment any of the Shares so tendered.
[ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE
BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11.
Number of Shares represented by the lost or destroyed certificates:
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be issued in the name of someone other than the undersigned.
Issue [ ] Check [ ] Certificate(s) to:
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be mailed to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Mail [ ] Check [ ] Certificate(s) to:
Name:
---------------------------------------------------------------------------
(PLEASE PRINT)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
- --------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 INCLUDED HEREIN)
<PAGE> 6
SIGN HERE
AND COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SIGNATURE(S) OF HOLDER(S)
Dated: , 1998
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or another acting in a fiduciary or
representative capacity, please set forth full title and see Instruction 5.)
Name(s)
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
--------------------------------------------------
Tax Identification or Social Security No.
---------------------------------------
COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREIN
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature
------------------------------------------------------------
Name
----------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Title
---------------------------------------------------------------------------
Name of Firm
--------------------------------------------------------------------
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Dated: , 1998
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required (i) if this Letter of Transmittal is signed by the
registered holder(s) of Shares (which term, for purposes of this document, shall
include any participant in the Book-Entry Transfer Facility whose name appears
on a security position listing as the owner of Share(s)), unless such holder has
completed either the box entitled "Special Payment Instructions" or the box
entitled "Special Delivery Instructions" included herein or (ii) if such Shares
are tendered for the account of a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being referred to as
an "Eligible Institution"). In all other cases, all signatures on this Letter of
Transmittal must be guaranteed by an Eligible Institution. See Instruction 5.
2. Delivery of Letter of Transmittal and Certificates. This Letter of
Transmittal is to be completed either if certificates are to be forwarded
herewith or if tenders are to be made pursuant to the procedure for tender by
book-entry transfer set forth in Section 3 of the Offer to Purchase. Share
Certificates, or timely confirmation (a "Book-Entry Confirmation") of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility, as well as this Letter of Transmittal (or a
facsimile hereof), properly completed and duly executed, with any required
signature guarantees and any other documents required by this Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth herein prior to the Expiration Date.
Stockholders whose Share Certificates are not immediately available, or who
cannot deliver their Share Certificates and all other required documents to the
Depositary prior to the Expiration Date, or who cannot complete the procedure
for delivery by book-entry transfer on a timely basis, may tender their Shares
by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by
or through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form made available by the
Purchaser (with any required signature guarantees) must be received by the
Depositary prior to the Expiration Date; and (iii) the Share Certificates (or a
Book-Entry Confirmation) representing all tendered Shares, in proper form for
transfer, in each case together with the Letter of Transmittal (or a facsimile
hereof), properly completed and duly executed, with any required signature
guarantees and any other documents required by this Letter of Transmittal, must
be received by the Depositary within three American Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF SHARES CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or a facsimile thereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
3. Inadequate Space. If the space herein is inadequate, the certificate
numbers and/or the number of Shares should be listed on a separate signed
schedule attached hereto.
4. Partial Tenders. (Not Applicable to Book-Entry Stockholders). If fewer
than all the Shares evidenced by any Share Certificate submitted are to be
tendered, fill in the number of Shares which are to be tendered in the box
entitled "Number of Shares Tendered." In such cases, new Share Certificates for
the Shares that were evidenced by your old Share Certificates, but were not
tendered by you, will be sent to you, unless otherwise provided in the
appropriate box on this Letter of Transmittal, as soon as practicable after the
purchase of Shares pursuant to the Offer. All Shares represented by Share
Certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated.
<PAGE> 8
5. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, attorney-in-fact, officer of a
corporation or another acting in a fiduciary or representative capacity, such
person should so indicate when signing, and proper evidence satisfactory to the
Purchaser of such person's authority so to act must be submitted.
When this Letter of Transmittal is signed by the registered holder(s) of
the Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment of the purchase price for
Shares is to be made to or certificates for Shares not tendered or purchased are
to be issued in the name of a person other than the registered holder(s).
Signatures on such certificates or stock powers must then be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the certificate(s) listed, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appears on the
certificate(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. Stock Transfer Taxes. Except as provided in this Instruction 6, the
Purchaser will pay any stock transfer taxes with respect to the transfer and
sale of the purchased Shares pursuant to the Offer. If, however, payment of the
purchase price is to be made to, or (in the circumstances permitted hereby and
if applicable) if certificates for Shares not tendered or purchased are to be
registered in the name of, any person other than the registered holder, or if
tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of stock transfer taxes
(whether imposed on the registered holder or such person) payable on account of
the transfer to such person will be deducted from the purchase price if
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
not submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the certificate(s) listed in this Letter of
Transmittal.
7. Special Payment and Delivery Instructions. If a check is to be issued
in the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of this
Letter of Transmittal, or if a check and/or such certificates are to be mailed
to a person other than the signer of this Letter of Transmittal or to an address
other than that shown in this Letter of Transmittal, the appropriate boxes on
this Letter of Transmittal should be completed.
8. Requests for Assistance or Additional Copies. Questions or requests for
assistance may be directed to the Information Agent at the address and telephone
numbers set forth below. Additional copies of the Offer to Purchase, this Letter
of Transmittal and the Notice of Guaranteed Delivery may also be obtained from
the Information Agent or brokers, dealers, commercial banks or trust companies.
9. Waiver of Conditions. The conditions of the Offer may be waived by the
Purchaser in whole or in part at any time and from time to time in its sole
discretion. See Section 13 of the Offer to Purchase.
10. Substitute Form W-9. To prevent backup withholding on payments of the
purchase price for Shares, each tendering stockholder generally is required to
notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 contained herein, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such stockholder is awaiting a TIN), and that (1) such
stockholder has not been notified by the Internal Revenue Service that such
stockholder is subject to backup withholding as a result of a
<PAGE> 9
failure to report all interest or dividends, or (2) the Internal Revenue Service
has notified such stockholder that such stockholder is no longer subject to
backup withholding (see Part 2 of Substitute Form W-9). If the Depositary is not
provided with the correct TIN, the stockholder may be subject to a $50 penalty
imposed by the Internal Revenue Service. In addition, payments that are made to
any stockholder with respect to Shares pursuant to the Offer may be subject to
backup withholding of 31%.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
The stockholder is required to give the Depositary the social security
number or employer identification number of the record holder of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
The box in Part 3 of the Substitute Form W-9 may be checked if the
stockholder has not been issued a TIN and has applied for a number or intends to
apply for a number in the near future. If the box in Part 3 is checked and the
Depositary is not provided with a TIN within 60 days, the Depositary will
thereafter withhold 31% of any purchase price payment made for Shares before a
TIN is provided to the Depositary.
Certain stockholders (including, among others, corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
11. Lost, Destroyed or Stolen Certificates. If any certificate
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary by checking the box immediately preceding the
special payment/special delivery instructions and indicating the number of
Shares lost. The stockholder will then be instructed as to the steps that must
be taken in order to replace the certificate(s). This Letter of Transmittal and
related documents cannot be processed until the procedures for replacing lost or
destroyed certificates have been followed.
IMPORTANT: IF A SHAREHOLDER DESIRES TO ACCEPT THE OFFER, THIS LETTER OF
TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER WITH CERTIFICATES OR CONFIRMATION
OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS, OR THE NOTICE OF
GUARANTEED DELIVERY, MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION
DATE.
<PAGE> 10
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME:
- -------------------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT Social Security Number OR
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Employer Identification Number
FORM W-9
----------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<C> <S> <C>
DEPARTMENT OF THE TREASURY PART 2 -- CERTIFICATION -- PART 3 --
INTERNAL REVENUE SERVICE Under penalties of perjury, I certify that:
(1) the number shown on this form is my correct Taxpayer Awaiting TIN [ ]
Identification Number (or I am waiting for a number to
be issued to me) and
(2) I am not subject to backup withholding either because
I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all
interest or dividends, or the IRS has notified me that
I am no longer subject to backup withholding.
------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR TAXPAYER CERTIFICATION INSTRUCTION -- You must cross out item (2) in Part 2 above if you have been
IDENTIFICATION NUMBER (TIN) notified by the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return. However, if after being notified by the IRS that
you were subject to backup withholding you received another notification from the IRS
stating that you are no longer subject to backup withholding, do not cross out item (2).
Signature: Date:
------------------------------------- -----------------------------------
Name:
-------------------------------------------------------------------------------------
(Please Print)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE OFFER TO PURCHASE.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (b)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within (60) days, 31% of
all reportable payments made to me thereafter will be withheld until I provide a
number.
Signature: Date:
----------------------------------------------- -----------------
<PAGE> 11
Manually signed facsimile copies of the Letter of Transmittal will be
accepted. The Letter of Transmittal, certificates evidencing Shares and any
other required documents should be sent or delivered by each stockholder of the
Company or his broker, dealer, commercial bank, trust company or other nominee,
to the Purchasers at one of their addresses set forth below.
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank and Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One, (SC-1)
Department
</TABLE>
Facsimile Transmission Number:
(For Eligible Institutions Only)
(212) 858-2611
Confirm Receipt of Facsimile by Telephone:
(212) 858-2103
Questions or requests for assistance may be directed to the Information
Agent at its address and telephone number listed below. Additional copies of the
Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be obtained from the Information Agent. A stockholder also may
contact brokers, dealers, commercial banks or trust companies for assistance
concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 425-1685
ALL OTHERS CALL TOLL FREE: (800) 848-3402
<PAGE> 1
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. -- Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL
SECURITY
NUMBER OF --
<C> <S> <C>
1. An individual's account. The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, either
person(1)
4. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee for a incompetent person(3)
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-
savings trust account trustee(1)
(grantor is also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or
valid trust under State
Law
8. Sole proprietorship account The owner(4)
- ---------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
9. A valid trust, estate, or The legal entity (Do
pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or The organization
educational organization
account
12. Partnership account held in The partnership
the name of the business
13. Association, club, or other The organization
tax-exempt organization
14. A broker or registered The broker or nominee
nominee
15. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a State or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
- --------------------------------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE:If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service (the "IRS") and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- An international organization or any agency, or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to non-resident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
<PAGE> 1
This announcement is neither an offer to purchase nor a solicitation of an offer
to sell Shares (as defined below). The offer is being made solely by the Offer
to Purchase, dated August 19, 1998, and the related letter of transmittal, and
any amendments and supplements thereto, and is not being made to, nor will
tenders be accepted from or on behalf of, holders of Shares tendering in any
jurisdiction in which the making of the offer or the acceptance thereof would
not be in compliance with the securities, blue sky or other laws of such
jurisdiction.
NOTICE OF OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF CLASS A COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
AT
$17.25 NET PER SHARE
BY
STONE RIVET, INC.
A WHOLLY OWNED SUBSIDIARY OF
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON WEDNESDAY, SEPTEMBER 30, 1998 UNLESS THE OFFER IS EXTENDED
Stone Rivet, Inc., a Delaware corporation (the "Purchaser"), which is a
wholly owned subsidiary of Environmental Systems Products, Inc., a Delaware
corporation ("Parent"), is offering to purchase all of the outstanding shares of
Class A Common Stock, $0.01 par value (the "Shares"), of Envirotest Systems
Corp., a Delaware corporation (the "Company"), at a purchase price of $17.25 per
Share, net to the seller in cash, upon 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 (which, together with any
amendments or supplements thereto, collectively constitute the "Offer"). Parent
is an indirect wholly owned subsidiary of Newmall Limited, a private limited
company organized under the laws of the United Kingdom. Newmall Limited is
controlled by the Alchemy Investment Plan, an investment consortium principally
composed of United States institutional investors which is advised by Alchemy
Partners.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED BELOW), (A)
THAT NUMBER OF SHARES THAT WOULD REPRESENT 90 PERCENT OF ALL OUTSTANDING SHARES
DETERMINED ON A PRIMARY BASIS ON THE DATE OF PURCHASE (ASSUMING CONVERSION OF
ALL OUTSTANDING SHARES OF CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE ("CLASS
B SHARES") AND SHARES OF CLASS C COMMON STOCK, PAR VALUE $.01 PER SHARE ("CLASS
C SHARES") INTO SHARES) AND (B) 100 PERCENT OF THE SHARES ISSUABLE UPON
CONVERSION (AND ASSUMING CONVERSION THEREOF) OF ALL OUTSTANDING CLASS B SHARES
AND CLASS C SHARES ON THE DATE OF PURCHASE, AND (2) ANY APPLICABLE WAITING
PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS
AMENDED, AND THE REGULATIONS THEREUNDER WITH RESPECT TO THE OFFER AND/OR THE
MERGER HAVING EXPIRED OR BEEN TERMINATED. CERTAIN OTHER CONDITIONS TO THE OFFER
ARE DESCRIBED IN SECTION 13 OF THE OFFER TO PURCHASE.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of August 12, 1998 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company, pursuant to which, after the expiration of the Offer
and the satisfaction of the conditions contained in the Merger Agreement, the
Purchaser will be merged into the Company (the "Merger"), with the Company
surviving the Merger, and each outstanding Share, other than Shares held by
Parent, the Purchaser or any other subsidiary of Parent and Shares held by
stockholders who perfect any available appraisal rights under Delaware law,
would be converted into the right to receive an amount in cash equal to the
price per Share paid pursuant to the Offer.
<PAGE> 2
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MAKING OF THE OFFER BY THE PURCHASER, AND HAS DETERMINED THAT
THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
For purposes of the Offer, the Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares validly tendered and not withdrawn
as, if and when the Purchaser gives oral or written notice to IBJ Schroder Bank
& Trust Company, which is acting as the depositary (the "Depositary"), of the
Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon
the terms and subject to the conditions of the Offer, payment for Shares
accepted for payment pursuant to the Offer will be made by deposit of the
purchase price therefore with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payments from the Purchaser
and transmitting such payments to stockholders whose Shares have been accepted
for payment. UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE FOR
TENDERED SHARES BE PAID, REGARDLESS OF ANY DELAY IN MAKING THE PAYMENT AFTER THE
EXPIRATION DATE.
In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i)
certificates representing such Shares (the "Share Certificates"), or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in Section
3 of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile
thereof), properly completed and duly executed, with any required signature
guarantees, and (iii) any other documents required by the Letter of Transmittal.
The term "Expiration Date" means 12:00 Midnight, Eastern standard time, on
Wednesday, September 30, 1998, unless and until the period during which the
Offer is open shall have been extended in accordance with the terms of the
Merger Agreement, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer, as so extended, shall expire. If by the
Expiration Date any or all of the conditions to the Offer have not been
satisfied or waived, the Purchaser reserves the right (but shall not be
obligated), subject to the applicable rules and regulations of the Securities
and Exchange Commission ("Commission") and subject to the limitations in the
Merger Agreement, to (a) terminate the Offer and not accept for payment or pay
for any Shares and return all tendered Shares to tendering stockholders, (b)
waive all the unsatisfied conditions and accept for payment and pay for all
Shares validly tendered prior to the Expiration Date and not theretofore
withdrawn, (c) extend the Offer and, subject to the right of stockholders to
withdraw Shares until the Expiration Date, retain the Shares that have been
tendered during the period or periods for which the Offer is extended or (d)
amend the Offer. See Section 11 of the Offer to Purchase. Under no circumstances
will interest be paid on the purchase price for tendered Shares, whether or not
the Purchaser exercises its right to extend the Offer. Any extension, amendment
or termination will be followed as promptly as practicable by public
announcement thereof, such announcement to be no later than 9:00 a.m., Eastern
standard time, on the next business day after the previously scheduled
Expiration Date of the Offer.
Except as described below and in Section 4 of the Offer to Purchase,
tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment by the Purchaser pursuant to the
Offer, may also be withdrawn at any time after October 17, 1998.
For a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer to
Purchase. Any notice of withdrawal must specify the name of the person who
tendered the Shares to be withdrawn, the number of Shares to be withdrawn and
the name of the registered holder, if different from that of the person who
tendered such Shares. If Share Certificates to be withdrawn have been delivered
or otherwise identified to the Depositary, then prior to the physical release of
such Certificates, the serial number shown on such Certificates must be
submitted to the Depositary and the signature(s) on the notice of withdrawal
must be guaranteed by an Eligible Institution (as defined in Section 3 of the
Offer to Purchase) unless such Shares have been tendered for the account of any
Eligible Institution. If Shares have been tendered pursuant to the procedure for
Book-Entry Transfer as set forth in Section 3 of the Offer to Purchase,
<PAGE> 3
any notice of withdrawal must specify the name and number of the account of the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with the Book-Entry Transfer Facility's procedures. All
questions as to the form and validity (including the time of receipt) of any
notice of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, is contained in the Offer to Purchase and is incorporated herein by
reference.
The Company has provided the Purchaser with the Company's stockholder list
and security position listings for the purpose of disseminating the Offer to
holders of the Shares. The Offer to Purchase and the related Letter of
Transmittal are being mailed to the record holders of Shares whose names appear
on the Company's stockholder list and will be furnished to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the stockholder list or, if applicable, who are
listed as participants in a clearing agency's security position listing for
subsequent transmittal to beneficial owners of Shares.
THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH HOLDERS OF SHARES SHOULD READ BEFORE MAKING ANY
DECISION WITH RESPECT TO THE OFFER.
Questions and requests for copies of the Offer to Purchase and the related
Letter of Transmittal and all other tender offer materials may be directed to
the Information Agent as set forth below, and copies will be furnished promptly
at the Purchaser's expense. The Purchaser will not pay any fees or commissions
to any broker or dealer or any other person (other than the Depositary and the
Information Agent) in connection with the solicitation of tenders of Shares
pursuant to the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
Banks and Brokers Call Collect: (212) 425-1685
ALL OTHERS CALL TOLL FREE: (800) 848-3402
<PAGE> 1
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
As set forth in Section 3 of the Offer to Purchase (as defined below), this
instrument or one substantially equivalent hereto must be used to accept the
Offer (as defined below) if certificates for Shares (as defined below) are not
immediately available or the certificates for Shares and all other required
documents cannot be delivered to the Depositary prior to the Expiration Date (as
defined in Section 1 of the Offer to Purchase) or if the procedure for delivery
by book-entry transfer cannot be completed on a timely basis. This instrument
may be delivered by hand or transmitted by telegram, telex, facsimile
transmission or mail to the Depositary.
The Depositary for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
IBJ Schroder Bank & Trust Company IBJ Schroder Bank and Trust Company
P.O. Box 84 One State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing
Attn: Reorganization Operations Window, Subcellar One, (SC-1)
Department
</TABLE>
Facsimile Transmission Number:
(For Eligible Institutions Only)
(212) 858-2611
Confirm Receipt of Facsimile by Telephone:
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OR TELEX NUMBER OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to Stone Rivet, Inc., a Delaware corporation
(the "Purchaser"), which is a wholly owned subsidiary of Environmental Systems
Products, Inc., a Delaware corporation, upon 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 (which, together with
any amendments and supplements thereto, collectively constitute the "Offer"),
receipt of which is hereby acknowledged, the number of shares of Class A Common
Stock, $0.01 par value (the "Shares"), indicated below of Envirotest Systems
Corp., a Delaware corporation, pursuant to the guaranteed delivery procedure set
forth in Section 3 of the Offer to Purchase.
Signature(s)
--------------------------------------------------------------------
Name(s)
-------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-------------------------------------------------------------------------
Zip Code
------------------------------------------------------------------------
Area Code and Tel. No(s).
-------------------------------------------------------
Number of Shares
----------------------------------------------------------------
Certificate Nos. (If Available)
-------------------------------------------------
(Check box if Shares will be tendered by book-entry transfer) [ ] The
Depository Trust Company
Dated ____________________
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States, guarantees delivery to the Depositary of either the certificates
evidencing all tendered Shares, in proper form for transfer, or delivery of
Shares pursuant to the procedure for book-entry transfer into the Depositary's
account at The Depository Trust Company (the "Book-Entry Transfer Facility"), in
either case together with the Letter of Transmittal (or a facsimile thereof ),
properly completed and duly executed, with any required signature guarantees and
any other required documents, all within three (3) American Stock Exchange
trading days after the date hereof.
Name of Firm
--------------------------------------------------------------------
Authorized Signature
------------------------------------------------------------
Name
----------------------------------------------------------------------------
(PLEASE PRINT OR TYPE)
Title
---------------------------------------------------------------------------
Address
-------------------------------------------------------------------------
Zip Code
------------------------------------------------------------------------
Area Code and Tel. No.
----------------------------------------------------------
Dated ____________________
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS FORM -- CERTIFICATES ARE TO
BE DELIVERED WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF CLASS A COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
AT
$17.25 NET PER SHARE
BY
STONE RIVET, INC.
A WHOLLY OWNED SUBSIDIARY OF
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON WEDNESDAY, SEPTEMBER 30, 1998 UNLESS THE OFFER IS EXTENDED
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We are asking you to contact your clients for whom you hold shares of Class
A Common Stock, $0.01 par value (the "Shares"), of Envirotest Systems Corp., a
Delaware corporation (the "Company"). Please bring to their attention as
promptly as possible the offer being made by Stone Rivet, Inc., a Delaware
corporation (the "Purchaser"), which is a wholly owned subsidiary of
Environmental Systems Products, Inc., a Delaware corporation ("Parent"), to
purchase all of the outstanding Shares, at a purchase price of $17.25 per Share
net to the seller in cash, upon 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 (which, together with any amendments or
supplements thereto, collectively constitute the "Offer").
Enclosed for your information and for forwarding to your clients, for whose
account you hold Shares registered in your name or in the name of your nominee,
or hold Shares registered in their own names, are copies of the following
documents:
1. The Offer to Purchase, dated August 19, 1998;
2. The Letter of Transmittal to be used in accepting the Offer. Facsimile
copies of the Letter of Transmittal may be used to accept the Offer;
3. A printed form of letter which may be sent to your clients for whose
account you hold Shares in your name or in the name of your nominee,
with space provided for obtaining such client's instructions with regard
to the Offer;
4. A Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares are not immediately available or if the
procedure for book-entry transfer cannot be completed on a timely basis;
5. Letter from Envirotest Systems Corp. with attached Schedule 14D-9
(without exhibits);
6. Guidelines of the Internal Revenue Service for certification of Taxpayer
Identification Number on Substitute Form W-9; and
7. Return envelope addressed to IBJ Schroder Bank & Trust Company.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MAKING OF THE OFFER BY THE PURCHASER, AND HAS DETERMINED THAT
THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY'S STOCKHOLDERS AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
<PAGE> 2
We are asking you to contact your clients for whom you hold Shares
registered in your name (or in the name of your nominee) or who hold Shares
registered in their own names. Please bring the Offer to their attention as
promptly as possible. The Purchaser will not pay any fees or commissions to any
broker or dealer or any other person (other than the Depositary and the
Information Agent) in connection with the solicitation of tenders of Shares
pursuant to the Offer. You will be reimbursed by the Purchaser for customary
mailing expenses incurred by you in forwarding any of the enclosed materials to
your clients. The Purchaser will pay or cause to be paid any stock transfer
taxes payable on the sale and transfer of Shares to it or its order, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD TIME, ON WEDNESDAY, SEPTEMBER 30,
1998, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, (1) a duly executed and properly
completed Letter of Transmittal and, if necessary, any other required documents
should be sent to the Depositary and (2) either certificates representing the
tendered Shares should be delivered to the Depositary, or such Shares should be
tendered by book-entry transfer into the Depositary's account at the Book-Entry
Transfer Facility (as defined in the Offer to Purchase), all in accordance with
the instructions set forth in the Letter of Transmittal and the Offer to
Purchase. If holders of Shares wish to tender, but it is impracticable for them
to forward their certificates or other required documents to the Depositary
prior to the expiration of the Offer or to comply with the book-entry transfer
procedures on a timely basis, a tender may be effected by following the
guaranteed delivery procedures specified in Section 3 of the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed to the
Information Agent at the address and telephone number as set forth on the back
cover page of the Offer to Purchase. Additional copies of the above documents
may be obtained from the Information Agent at the address and telephone number
set forth on the back cover of the Offer to Purchase.
Very truly yours,
STONE RIVET, INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY PERSON AS THE AGENT OF THE PURCHASER, PARENT, THE COMPANY OR THE
DEPOSITARY, OR AS AGENT OF ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF ANY OF THEM WITH RESPECT TO, OR
USE ANY DOCUMENT IN CONNECTION WITH, THE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY
MADE IN THE OFFER TO PURCHASE OR THE LETTER OF TRANSMITTAL AND THE DOCUMENTS
INCLUDED HEREWITH.
<PAGE> 1
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF CLASS A COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
AT
$17.25 NET PER SHARE
BY
STONE RIVET, INC.
A WHOLLY OWNED SUBSIDIARY OF
ENVIROTEST SYSTEMS PRODUCTS, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, EASTERN STANDARD
TIME, ON WEDNESDAY, SEPTEMBER 30, 1998 UNLESS THE OFFER IS EXTENDED
To Our Clients:
Enclosed for your consideration is an Offer to Purchase, dated August 19,
1998 (the "Offer to Purchase"), and the related Letter of Transmittal relating
to an offer by Stone Rivet, Inc., a Delaware corporation (the "Purchaser"),
which is a wholly owned subsidiary of Envirotest Systems Products, Inc., a
Delaware corporation, to purchase all of the outstanding shares of Class A
Common Stock, $0.01 par value (the "Shares"), of Envirotest Systems Corp., a
Delaware corporation (the "Company"), at a purchase price of $17.25 per Share,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase and in the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute the
"Offer"). We are the holder of record of Shares held by us for your account. A
tender of such Shares can be made only by us as the holder of record and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to tender Shares held by us for
your account. We request instructions as to whether you wish to have us tender
on your behalf any or all of such Shares held by us for your account, pursuant
to the terms and conditions set forth in the Offer to Purchase.
Your attention is invited to the following:
1. The tender price is $17.25 per Share, net to you in cash.
2. The Offer is being made for all of the outstanding Shares.
3. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the expiration of the Offer (i) at
least 90 percent of the outstanding Shares (determined on a primary
basis) on the date of purchase (assuming conversion of all outstanding
shares of Class B Common Stock, $0.01 par value ("Class B Shares") and
Class C Common Stock, $0.01 par value ("Class C Shares") into Shares) and
(ii) 100 percent of the Shares issuable upon conversion (and assuming
conversion thereof) of all outstanding Class B Shares and Class C Shares
on the date of purchase.
4. Certain stockholders of the Company have agreed to tender shares
representing approximately 50 percent of the currently outstanding shares
of common stock of the Company and certain directors and officers of the
Company have indicated their intention to tender shares representing an
additional approximately seven percent of the currently outstanding
shares of common stock of the Company.
5. The Offer and withdrawal rights will expire at 12:00 Midnight, Eastern
standard time, on Wednesday, September 30, 1998, unless the Offer is
extended.
6. Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares pursuant to
the Offer.
The Offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of Shares residing in any jurisdiction in which the making or
acceptance thereof would not be in compliance with the laws of such
jurisdiction. If you wish to have us tender any or all of the Shares held by us
for your account, please instruct us by completing, executing and returning to
us the instruction form contained in this letter. If you authorize us to tender
your Shares, all such Shares will be tendered unless otherwise specified in such
instruction form. Your instruction should be forwarded to us in ample time to
permit us to submit a tender on your behalf prior to the expiration of the
Offer.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE
ALL OF THE OUTSTANDING SHARES OF
CLASS A COMMON STOCK
OF
ENVIROTEST SYSTEMS CORP.
The undersigned acknowledge(s) receipt of your letter enclosing the Offer
to Purchase, dated August 19, 1998 (the "Offer to Purchase"), and the related
Letter of Transmittal pursuant to an offer by Stone Rivet, Inc., a Delaware
corporation ("Purchaser"), which is a wholly owned subsidiary of Environmental
Systems Products, Inc., a Delaware corporation, to purchase all of the
outstanding shares of Class A Common Stock, $0.01 par value (the "Shares"), of
Envirotest Systems Corp., a Delaware corporation. This will instruct you to
tender the number of Shares indicated below (or, if no number is indicated
below, all Shares which are held by you for the account of the undersigned),
upon the terms and subject to the conditions set forth in the Offer to Purchase
and in the related Letter of Transmittal furnished to the undersigned.
Number of Shares
to be Tendered: Shares*
SIGN HERE
--------------------------------------
Signature(s)
--------------------------------------
Please print name(s)
--------------------------------------
--------------------------------------
Address
--------------------------------------
Area Code & Telephone Number
--------------------------------------
Tax Identification and
Social Security Number(s)
- ---------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE> 1
Stone Rivet, Inc. to Acquire Envirotest Systems Corp. for $17.25 Per Share
SUNNYVALE, Calif. and LONDON, Aug. 13 -- Stone Rivet, Inc. and
Envirotest Systems Corp. (Amex: ENR), today announced that they have entered
into a definitive merger agreement under which Stone Rivet will acquire
Envirotest for $266.3 million in cash, or $17.25 per share, plus the assumption
of approximately $275 million in net debt. The agreement was unanimously
approved by Envirotest's Board of Directors.
Under the agreement, Stone Rivet will commence a cash tender offer for
all of the issued and outstanding shares of Envirotest's Class A common stock.
The Class B and Class C shares of Envirotest common stock are convertible by
the holders into Class A shares and thus may be tendered as well. The tender
offer will expire September 30, 1998, and will be conditioned upon the tender
of at least 90 percent of the outstanding voting shares of Envirotest. If the
90 percent minimum condition is not satisfied, the transaction will be
completed pursuant to a merger. Certain shareholders of Envirotest have agreed
to tender approximately 50 percent of the outstanding shares into the offer.
The tender offer and the merger are subject to other customary
conditions.
Credit Suisse First Boston is acting as financial advisor to Envirotest
in connection with the transaction.
Based in Sunnyvale, California, Envirotest is a provider of centralized
vehicle emissions testing for states and municipalities.
Stone Rivet, Inc. is a wholly owned indirect subsidiary of Newmall
Limited, a U.K. company. Newmall Limited is controlled by the Alchemy
Investment Plan, an investment consortium principally composed of United
States institutional investors, which is advised by Alchemy Partners.
<PAGE> 1
EXHIBIT 99 (b)(1)
CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010
Environmental Systems Products, Inc.
7 Kripes Road
East Granby, Connecticut 06026
Attention: David Langevin
August 12, 1998
Environmental Systems Products, Inc.
------------------------------------
Senior Secured Credit Facilities and Bridge Loan Commitment Letter
------------------------------------------------------------------
Ladies and Gentlemen:
You have advised Credit Suisse First Boston ("CSFB") that a newly formed
entity (the "BORROWER"), satisfactory to CSFB, that will directly or indirectly
own 100% of the outstanding equity of Environmental Systems Products, Inc. (the
"COMPANY"), and will be more than 50% owned and controlled by Alchemy Partners
("SPONSOR"), intends to acquire (the "ACQUISITION") through a wholly-owned
subsidiary of the Borrower satisfactory to CSFB (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). 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 amount
of $445 million (as more fully described in the Summary of Principal Terms and
Conditions attached hereto as Exhibit A (the "SENIOR 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")), and (iv) the Borrower will issue Senior Subordinated
Notes (the "SENIOR SUBORDINATED NOTES") in a principal amount of $225 million
or, in lieu thereof, obtain Bridge Loans (as defined below) (the Offer, the
Acquisition, the Debt Tender and the
<PAGE> 2
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 Senior Term Sheet.
You have requested that CSFB (i) agree to structure, arrange and syndicate
the Senior Bank Facility, (ii) commit to provide the Senior Bank Facility and to
serve as advisor, arranger, administrative agent and collateral agent therefor
and (iii) commit to provide bridge loans of up to $225 million (the "BRIDGE
LOANS" and, together with the Senior Bank Facility the "FACILITIES") to the
Borrower. CSFB is pleased to advise you of (i) its willingness to act as
exclusive advisor, arranger, administrative agent and collateral agent for the
Senior Bank Facility, (ii) its commitment to provide the entire amount of the
Senior Bank Facility upon the terms and subject to the conditions set forth or
referred to in this commitment letter (the "COMMITMENT LETTER") and in the
Senior Term Sheet, (iii) its commitment to provide the entire amount of the
Bridge Loans upon the terms and subject to the conditions set forth or referred
to herein and in the Summary of Principal Terms and Conditions attached as
Exhibit B hereto (the "BRIDGE TERM SHEET"; together with the Senior Term Sheet,
the "TERM SHEETS").
CSFB reserves the right and intends, prior to or after the execution of the
definitive documentation with respect to the Facilities (the "FACILITIES
DOCUMENTS"), to syndicate all or a portion of its commitments to one or more
financial institutions (such financial institutions, together with CSFB, the
"LENDERS") identified by us in consultation with, and reasonably acceptable to,
you, which Lenders will become parties to the Facilities Documents. It is agreed
that CSFB will act as the sole administrative agent and advisor for, and sole
arranger and syndication manager of, the Facilities and that no additional
agents or co-agents or co-arrangers will be appointed without the prior written
consent of CSFB; 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, adviser, arranger and syndication manager of the Facilities. In addition,
CSFB reserves the right to employ the services of Credit Suisse First Boston
Corporation ("CSFBC") in providing services incidental to the provision of the
Bridge Loans and any resale of the Bridge Loans or Exchange Notes (as defined in
the Bridge Term Sheet), 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.
CSFB 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 understand that the
2
<PAGE> 3
Senior Bank Facility and the Bridge Loans will be separately syndicated. You
agree to assist CSFB 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 each
of the Facilities 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 CSFB may reasonably request and to use commercially
reasonable efforts to ensure that CSFB's syndication efforts materially benefit
from the Target's and the Company's existing lending relationships.
You represent and warrant and covenant that:
(a) all written information (other than financial projections)
which has been or is hereafter furnished to CSFB 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 CSFB 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 Facilities, CSFB will be entitled to use and rely
on such information and projections without independent verification thereof.
In connection with the syndication of the Facilities, CSFB may, in its
discretion, allocate to other Lenders portions of any fees payable to CSFB in
connection with the Facilities. 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 Facilities
except as expressly provided for in this letter or in the fee letter dated the
date hereof between you and CSFB (the "FEE LETTER").
3
<PAGE> 4
You agree to reimburse CSFB and its 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 letter, the Fee
Letter, the Warrant Letter (as defined below) and the Facilities 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 CSFB and its
affiliates approved by you (such approval not to be unreasonably withheld),
whether incurred before or after the execution of this letter.
You agree to indemnify and hold harmless CSFB 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 CSFB's or any Lender's commitment or participation in the
transactions contemplated by this letter, the Facilities or any related matter
or any investigation, litigation or proceeding in connection therewith and
whether or not the Acquisition is consummated or the Facilities are 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.
You hereby agree, in accordance with the terms of a separate letter dated
the date hereof between you and CSFB (the "WARRANT LETTER"), to make available
to CSFB and the Lenders warrants to acquire equity in the Borrower to assist in
the syndication of the Bridge Loans, or the resale of Exchange Notes.
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 the Term Sheets, the other exhibits hereto, the letter
of even date herewith regarding the engagement of CSFBC with respect to the
financing and structure of the Transactions (the "ENGAGEMENT LETTER"), the Fee
Letter and the Warrant 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);
4
<PAGE> 5
provided, however, that you may disclose (and then only on a confidential basis)
this letter, the Term Sheets and the other exhibits hereto and their terms and
substance (but not the Engagement Letter, the Fee Letter or the Warrant Letter
or their respective terms and substance) to the Target, upon your acceptance of
this letter.
Our offer to provide the Facilities will terminate at 5:00 P.M., New York
time, (i) on August 13, 1998, unless on or before that time you accept this
letter by signing and returning an enclosed counterpart of this letter, the Fee
Letter, the Engagement Letter and the Warrant 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 CSFB made
hereunder. You agree to cause the Target, the Borrower, the Acquiror and
Holdings to become a party to this letter, the Fee Letter and the Warrant Letter
as soon as practicable (which, in the case of each such person other than the
Target, will be no later than August 24, 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, the Borrower, 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 CSFB's commitments
hereunder may not be assigned by you without the prior written consent of CSFB,
and any attempted assignment without such consent shall be void. CSFB's
commitments hereunder may be assigned by CSFB to any of its affiliates or,
subject to the proviso in the second full paragraph on page 2 hereof, any
Lender. Any such assignment to an affiliate shall not relieve CSFB from any of
its obligations hereunder unless and until the Facilities 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 CSFB 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 CSFB. This 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 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.
[Remainder of this page intentionally left blank]
5
<PAGE> 6
We appreciate the opportunity to assist you in this very important
transaction.
Very truly yours,
CREDIT SUISSE FIRST BOSTON
By: /s/ ROBERT HETU
-------------------------
Name: Robert Hetu
Title: Vice President
By: /s/ RICHARD CAREY
-------------------------
Name:
Title:
Accepted and agreed to as of
the date first written above,
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ DAVID J. LANGEVIN
--------------------------------
Name:
Title:
6
<PAGE> 7
EXHIBIT A
Environmental Systems Products, Inc.
Senior Secured Credit Facilities
Summary of Principal Terms and Conditions(1)
Borrower: A newly-formed entity (the "BORROWER") directly or
indirectly owning all of the outstanding equity of
Environmental Systems Products, Inc. (the "COMPANY")
that is satisfactory to CSFB.
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 the Acquiror, for aggregate cash
consideration of approximately $266.3 million (the
"PURCHASE PRICE"). 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 $445 million; (b) 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; (c) an equity contribution of $80
million (the "EQUITY CONTRIBUTION") will be made to the
Borrower by Sponsor; (d) the Borrower will issue Senior
Subordinated Notes (the "SENIOR SUBORDINATED NOTES") in
a principal amount of $225 million or, in lieu thereof,
obtain Bridge Loans in such principal amount; and (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").
- ------------------
(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.
A-1
<PAGE> 8
Sources and Uses: The approximate sources and uses of funds necessary to
consummate the Transactions are set forth on Annex II
attached hereto.
Agent: CSFB will act as administrative agent (the "AGENT") for
a syndicate of financial institutions identified by CSFB
in consultation with, and reasonably acceptable to, the
Company (the "LENDERS"), and will perform the duties
customarily associated with such role.
Advisor and Arranger: CSFB will act as advisor and arranger for the Senior
Bank Facility (the "ARRANGER"), 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 $395 million
(the "TERM FACILITY"), of which (i) $125 million
("TERM LOAN A") will mature in five years, (ii)
$50 million ("TERM LOAN B") will mature in six
years, (iii) $110 million ("TERM LOAN C") will
mature in seven years and (iv) $110 million
("TERM LOAN D") will mature in eight years.
The Agent may, with the Company's or the
Borrower's consent (not to be unreasonably
withheld), reallocate amounts among Term Loan A,
Term Loan B, Term Loan C and Term Loan D in
order to facilitate the syndications of the
Senior Bank Facility, provided that the
aggregate amount of the Term Facility remains
unchanged.
(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.
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 Subordinated Notes (or the Bridge
Loans) and the Equity Contribution and $92.5
million of cash on hand at the Target and the
Company, solely (i) to
A-2
<PAGE> 9
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 $10.6
million may be used, together with the proceeds
of the Equity Contribution and Senior
Subordinated Notes (or Bridge Loans) to finance
the Acquisition, repay Existing Indebtedness and
pay related fees and expenses. The proceeds of
any subsequent borrowings under the Revolving
Facility will be used for general corporate
purposes.
(C) Letters of credit will be used by the Borrower
solely for ordinary course purposes.
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 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.
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 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 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
A-3
<PAGE> 10
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 Facility
Commitment Reductions:
Term Loan A, Term Loan B and Term Loan C and
Term Loan D will mature on the fifth, sixth,
seventh and eighth anniversaries, respectively,
of the Closing Date, and will amortize on a
quarterly basis, in annual amounts to be agreed
upon.
(B) The Revolving Facility will mature on the fifth
anniversary of the Closing Date.
Guarantees: All obligations of the Borrower under the Senior Bank
Facility will be unconditionally guaranteed by Holdings,
each other existing and subsequently acquired or
organized domestic subsidiary of the Borrower
(including, without limitation, the Company, the Target
and their respective domestic subsidiaries).
Security: The Senior Bank Facility and the related guarantees will
be secured by substantially all the assets of each Loan
Party 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 Borrower) and each other existing
and subsequently acquired or organized subsidiary of the
Borrower (65% of foreign subsidiaries of the Target or
the Company) and (b) perfected first priority security
interests in, and mortgages on, substantially all
tangible and intangible assets of each Loan Party 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).
A-4
<PAGE> 11
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 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 (including the Bridge Loans, the
Exchange Notes and the Senior Subordinated Notes) 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 (but with Breakage Costs (as defined below)),
and shall be applied pro rata to the Term A, B, C and D
Loans, in each case pro rata to the remaining
amortization payments of such loans; provided that
holders of Term Loan B, Term Loan C and Term Loan D 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, 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").
A-5
<PAGE> 12
Representations Usual for facilities and transactions of this type and
and Warranties: others to be agreed upon by the Agent 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 The obligations of CSFB and the Lenders to make the
to Initial Borrowing: Senior Bank Facility available on the Closing Date are
subject to the satisfaction or waiver of the conditions
set forth in Exhibit C to the Commitment Letter.
Affirmative Usual for facilities and transactions of this type and
Covenants: others to be agreed upon by the Borrower and the Agent
(the Borrower's agreement not to be unreasonably
withheld) (to be applicable to the Borrower and its
subsidiaries), including but not limited to maintenance
of corporate existence 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 Agent
(the Borrower's agreement not to be unreasonably
withheld) (to be applicable to 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
A-6
<PAGE> 13
transactions with affiliates; limitations on changes in
business conducted; limitations on amendment of debt and
other material agreements; and limitations on capital
expenditures.
Selected Financial The credit agreement relating to the Senior Bank
Covenants: 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. Annex III hereto sets forth the currently
contemplated financial covenant types and levels.
Events of Default: Usual for facilities and transactions of this type and
others to be agreed upon by the Borrower and the Agent
(the Borrower's agreement not to be unreasonably
withheld), 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 type on
Protection: terms to be agreed upon. In addition, the Borrower will
obtain interest rate hedging on not less than 50% of
outstandings
A-7
<PAGE> 14
under the Term Loan Facility in form and substance
satisfactory to Agent and Borrower.
Assignments and The Lenders will be permitted to assign loans and
Participations: 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 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.
Expenses and In addition to those reasonable out-of-pocket expenses
Indemnification: reimbursable under the Commitment Letter, all reasonable
out-of-pocket costs of the Agent (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 Arranger, the Agent, 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 Arranger, the Agent or any Lender will be
indemnified for its gross negligence or willful
misconduct.
A-8
<PAGE> 15
Counsel for the Arranger Skadden, Arps, Slate, Meagher & Flom LLP
and the Agent:
Governing Law New York.
and Forum:
A-9
<PAGE> 16
ANNEX I
TO EXHIBIT A
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 1.25% 2.25%
--------------------------------------------------------------
Term Loan A 1.25% 2.25%
--------------------------------------------------------------
Term Loan B 1.50% 2.50%
--------------------------------------------------------------
Term Loan C 1.75% 2.75%
--------------------------------------------------------------
Term Loan D 2.00% 3.00%
==============================================================
</TABLE>
The Borrower may elect interest periods of 1, 2, 3 or 6
months for Adjusted LIBOR borrowings.
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.
<PAGE> 17
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 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.
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 months after the Closing Date, so long as
Commitment Fees and no event of default shall have occurred and be
Interest Rates: continuing, Applicable Margins in respect of the
Revolving Facility and the Tranche A Loans and
commitment fees under the Senior Bank Facility will be
A-I-2
<PAGE> 18
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 IV.
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.
A-I-3
<PAGE> 19
ANNEX II
TO EXHIBIT A
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(1) 10.6
Repayment/Defeasance of Existing 491.8 Term Facility 395.0
Indebtedness and Premiums associated
therewith
Transaction Expenses 45.0 Senior Subordinated 225.0
Notes/Bridge Loans
Equity Contribution 80.0
----------- -------
Total Uses $803.1 Total Sources $803.1
=========== ======
</TABLE>
- --------------------
(1) $50 million Revolving Facility of which $10.6 million will be drawn
at Closing.
<PAGE> 20
ANNEX III
TO EXHIBIT A
INDICATIVE COVENANTS
<TABLE>
<CAPTION>
DURING FISCAL YEAR
ENDING SEPTEMBER LTM PF 1998 1999 2000 2001 2002 2003 2004
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Indicative Covenants
Total Debt/EBITDA 5.75x 5.75x 5.75x 5.00x 4.50x 4.00x 4.00x 3.50x
EBITDA/Cash Interest 1.50x 1.70x 1.85x 2.00x 2.25x 2.50x 2.50x 2.50x
EBITDA/Fixed Charges 1.00x 1.00x 1.05x 1.10x 1.15x 1.20x
</TABLE>
<TABLE>
<CAPTION>
DURING FISCAL YEAR
ENDING SEPTEMBER 2005 2006 2007
- --------------------------------------------------------
<S> <C> <C> <C>
Indicative Covenants
Total Debt/EBITDA 3.50x 3.50x 3.50x
EBITDA/Cash Interest 2.50x 2.50x 2.50x
EBITDA/Fixed Charges 1.20x 1.20x 1.20x
</TABLE>
<PAGE> 21
ANNEX IV
TO EXHIBIT A
PRICING GRID
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Total Debt/EBITDA Revolver & Term Loan A Commitment Fee
- ------------------------------------------------------------------------------------------
<S> <C> <C>
greater than or equal to 5.25x +250 bps 50 bps
greater than or equal to 4.25x and
less than 5.25x +225 50
greater than or equal to 3.75x and
less than 4.25x +200 50
greater than or equal to 3.25x and
less than 3.75x +175 50
greater than or equal to 2.75x and
less than 3.25x +150 37.5
less than 2.75x +125 37.5
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
EXHIBIT B
Environmental Systems Products, Inc.
Bridge Loan Facility
Summary of Principal Terms and Conditions(1)
Arranger and Credit Suisse First Boston ("CSFB" or the "AGENT").
Administrative Agent:
Lenders: A syndicate of lenders (the "LENDERS") identified in
consultation with and reasonably acceptable to the
Borrower.
Borrower: A newly formed entity (the "Borrower") directly or
indirectly owning all the outstanding equity of
Environmental Systems Products, Inc. (the "COMPANY")
that is satisfactory to CSFB.
Amount: Up to $225 million aggregate principal amount.
Rank: The loans to be made hereunder by each of the Lenders
(the "BRIDGE LOANS") will be senior subordinated,
unsecured debt of the Borrower, subordinated in right of
payment to the Senior Bank Facility and to all other
existing and future senior indebtedness of the Borrower.
Guarantees: The obligations of the Borrower under the Bridge Loans
will be unconditionally guaranteed on a senior
subordinated basis by each other Loan Party and each
other existing and subsequently organized subsidiary of
the Borrower that guarantees the Senior Bank Facility.
Use of Proceeds: The proceeds of the Bridge Loans will be used by the
Borrower, together with up to $445 million of the
proceeds of the Senior Bank Facility and the proceeds of
the Equity Contribution and $92.5 million of cash on
hand at the Target and the Company, solely (i) to
finance the Acquisition, (ii) to repay or defease, as
applicable, the Existing Indebtedness and (iii) to pay
related fees and expenses.
- ----------------
(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> 23
Funding: The Lenders will make the Bridge Loans on a date
simultaneous with the consummation of the other
Transactions (the "CLOSING DATE").
Senior Subordinated The Borrower will use its reasonable best efforts to
Notes: offer and sell senior subordinated notes of the Borrower
(the "SENIOR SUBORDINATED NOTES") yielding aggregate
gross proceeds of $225 million, in lieu of borrowing the
Bridge Loans (the "SUBORDINATED NOTE OFFERING").
In connection with the foregoing, the Borrower will use
its reasonable best efforts to accomplish the following:
(i) no later than 37 days prior to the Closing Date, the
Borrower will deliver to CSFB all financial statements
that would be required to be included in a Registration
Statement on Form S-1;
(ii) no later than 37 days prior to the Closing Date,
the Borrower will deliver to CSFB an initial draft of
offering circular for the distribution of the Senior
Subordinated Notes containing at a minimum a description
of the business and management's discussion and
analysis;
(iii) no later than 30 days prior to the Closing Date,
the Borrower will deliver to CSFB a completed
preliminary offering circular, in form and substance
satisfactory to CSFB, that would be suitable to use on a
roadshow for the sale of the Senior Subordinated Notes;
and
(iv) upon delivery of such completed offering circular,
the Borrower will cause its senior management to
participate in a customary roadshow for the sale of the
Senior Subordinated Notes.
In the event that the Borrower has not issued the Senior
Subordinated Notes prior to the Closing Date, the
Borrower will use good faith efforts to refinance the
Bridge Loans as promptly as practicable after the
Closing Date, as further described under "Affirmative
Covenants".
Maturity/Exchange: The Bridge Loans will mature on the date which is 364
days after the Closing Date (the "BRIDGE MATURITY
DATE"). If any Bridge Loan is not repaid in full on or
prior to the Bridge Maturity Date, the Lender thereof
will have the option at
B-2
<PAGE> 24
any time or from time to time to receive, in exchange
for such Bridge Loan or portion thereof, exchange notes
of the Borrower (the "EXCHANGE NOTES") ranking pari
passu with the Bridge Loans and having the terms set
forth in the term sheet attached as Annex I to this
Exhibit B. If any Lender does not exchange its Bridge
Loan for Exchange Notes on the Bridge Maturity Date,
such Lender shall be required to extend the maturity of
such loan to another date selected by such Lender. If,
on or prior to such extended maturity, such Lender does
not exchange its Bridge Loan, such Lender shall be
required again to extend the maturity of such Bridge
Loan to another date selected by such Lender (provided,
however, that such Lender shall not be required to
extend the maturity of its Bridge Loans beyond the tenth
anniversary of the Closing Date (the "FINAL MATURITY
DATE")) and this sentence shall apply to each extended
maturity of its Bridge Loan prior to the Final Maturity
Date.
Interest Rates: Prior to the Bridge Maturity Date, the Bridge Loans will
accrue interest at a rate per annum equal to 3 month
Adjusted LIBOR plus 5.50% per annum plus the Bridge
Spread (as defined below) provided, however, that the
interest rate on Bridge Loans in effect at any time
prior to the Bridge Maturity Date shall not exceed 18%
per annum, and cash interest on the Bridge Loans shall
not exceed 16% per annum. To the extent the applicable
interest on the Bridge Loans exceeds the maximum
permitted cash interest, the excess will be added to the
principal amount of the Bridge Loans.
Adjusted LIBOR will at times include statutory reserves.
In no event shall the interest rate on the Bridge Loans
exceed the highest lawful rate permitted under
applicable law.
Following the Bridge Maturity Date, all outstanding
Bridge Loans will accrue interest at the rate provided
for the Exchange Notes in Annex I hereto, subject to the
absolute and cash caps therein.
Calculation of interest shall be on the basis of actual
days elapsed in a year of 360.
B-3
<PAGE> 25
"BRIDGE SPREAD" shall mean 0 basis points during the
three-month period commencing on the Closing Date and
shall increase to 50 basis points at the beginning of
the subsequent three-month period and shall increase by
50 basis points at the beginning of each subsequent
three- month period.
Interest Payments: Interest will be payable in arrears (a) at the end of
each Adjusted LIBOR period and on the Bridge Maturity
Date and (b) for Bridge Loans outstanding after the
Bridge Maturity Date, at the end of each fiscal quarter
of the Borrower following the Bridge Maturity Date and
on the date on which such Bridge Loans are repaid in
full.
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 making or acquisition
of Bridge Loans, 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 withholding taxes as are not adverse
to it in its sole discretion.
Mandatory Prepayments: Subject to compliance with the Senior Bank Facility, the
Bridge Loans will be required to be prepaid with:
(a) subject to exceptions to be agreed upon, 100% of
the net cash proceeds of the issuance or
incurrence of debt or of any sale and lease-back
transaction by the Borrower or its subsidiaries;
(b) a percentage to be agreed on of the net cash
proceeds from any issuance of equity securities
of the Borrower or its subsidiaries in any
public offering or private placement or from any
capital contribution; and
(c) certain asset sales.
B-4
<PAGE> 26
Optional Prepayments: Bridge Loans may be repaid at any time upon five days'
prior notice to the Agent, in whole or in part at the
option of the Borrower, in a minimum principal amount
and in multiples to be agreed upon, without premium or
penalty (other than breakage costs (excluding profits,
margins and Bridge Spreads) and actual re-employment
costs).
Conditions to Closing: The obligations of CSFB and the Lenders to make the
Bridge Loans on the Closing Date are subject to the
satisfaction or waiver of the conditions set forth in
Exhibit C to the Commitment Letter.
Representations and Customary for loans similar to the Bridge Loans and such
Warranties: additional representations and warranties as may
reasonably be required by the Agent, including: no
Default or Event of Default; absence of material adverse
change; financial statements; absence of undisclosed
material liabilities or material contingent liabilities;
compliance with laws; solvency; no conflicts with laws,
charter documents or agreements; good standing; payment
of taxes; ownership of properties; and absence of liens
and security interests.
Affirmative Covenants: Customary for loans similar to the Bridge Loans and such
others as may reasonably be required by the Agent,
including: maintenance of corporate existence and
rights; compliance with laws; performance of
obligations; maintenance of properties in good repair;
maintenance of appropriate and adequate insurance;
inspection of books and properties; payment of taxes and
other liabilities; notice of defaults, litigation and
other adverse action; delivery of financial statements,
financial projections and compliance certificates; and
further assurances.
In addition, the Borrower will agree to file a
registration statement under the Securities Act or
prepare an offering memorandum covering senior
subordinated notes or other debt or equity securities of
the Borrower (the "REFINANCING SECURITIES") to be issued
in a public offering or private placement to refinance
in full the Bridge Loans (the "LOAN REFINANCING") and to
consummate such Loan Refinancing as soon as possible
after the Closing Date in an amount sufficient to
refinance all amounts outstanding under the Bridge Loan
Documents and on such terms and conditions (including
interest rate, yield, redemption prices and dates) as
CSFB may in its judgment determine to be appropriate in
B-5
<PAGE> 27
light of prevailing circumstances and market conditions
and the financial condition and prospects of the
Borrower; provided, however, that the Borrower shall not
be obligated to issue the Refinancing Securities in the
Loan Refinancing bearing interest in excess of the
maximum interest rate (and maximum cash interest rate)
set forth in Annex I applicable to Exchange Notes. The
indenture for the Refinancing Securities will be
substantially in the form of CSFB's standard indenture
for high-yield subordinated debt securities, modified as
appropriate to reflect the terms of this transaction and
the financial condition and prospects of the Borrower
and its subsidiaries, and in form and substance
reasonably satisfactory to CSFB and the Borrower. If any
Refinancing Securities are issued in a transaction not
registered under the Securities Act to effect the Loan
Refinancing, all such Refinancing Securities shall be
entitled to the benefit of registration rights
agreements to be entered into by the Borrower in
customary form acceptable to CSFB.
Negative Covenants: Customary for loans similar to the Bridge Loans and such
others as may reasonably be required by the Agent,
including: limitations on incurrence of indebtedness
(including no senior subordinated debt other than the
Bridge Loans); limitations on loans, investments and
joint ventures; limitations on guarantees or other
contingent obligations; limitations on restricted
payments (including dividends, redemptions and
repurchases of capital stock); limitations on
fundamental changes (including limitations on mergers,
acquisitions and asset sales); limitations on operating
leases; limitations on transactions with affiliates;
limitations on dividend and other payment restrictions
affecting subsidiaries; limitations on capital
expenditures; limitations on lines of business;
limitations on amendment of indebtedness and other
material documents; and limitations on prepayment or
repurchase of other indebtedness.
Events of Default: Customary for loans similar to the Bridge Loans and
others as are reasonably specified by the Agent,
including: nonpayment of principal, interest, fees or
other amounts when due; violation of covenants; failure
of any representation or warranty to be true in all
material respects; cross-default and cross-acceleration;
Change in Control; bankruptcy events; material
judgments; ERISA; and actual or asserted invalidity of
any Bridge Loan Document.
B-6
<PAGE> 28
Yield Protection and Customary for facilities of this type.
Increased Costs:
Assignments and The Borrower may not assign its rights or obligations in
Participations: connection with the definite documentation relating to
the Bridge Loans (the "BRIDGE LOAN DOCUMENTS") without
the prior written consent of all the Lenders.
Lenders will have the absolute right to assign Bridge
Loans without the consent of the Borrower. Lenders will
also have the right to assign their commitments with the
consent of the Borrower (such consent not to be
unreasonably withheld) and such assignments will be by
novation which will release the obligation of the
assigning Lender.
Lenders will be permitted to participate their Bridge
Loans to other financial institutions; provided,
however, that the Lenders granting participations retain
the voting rights to such participated amounts.
Participants will have the same benefits as the selling
Lenders would have with regard to yield protection and
increased costs, collateral benefits and provision of
information on the Borrower and its subsidiaries.
Voting: Amendments and waivers of any provision of any Bridge
Loan Documents will require the approval of Lenders
holding commitments or loans, as the case may be,
representing a majority of the aggregate amount of
commitments or loans, respectively, under the Bridge
Loan Documents, except that the consent of all affected
Lenders shall be required with respect to (a) increases
in commitments, (b) reductions of principal, interest or
fees, (c) extensions of the maturity date and (d)
releases of certain guarantors.
Expenses and In addition to those reasonable out-of-pocket expenses
Indemnification: reimbursable under the Commitment Letter, all reasonable
out-of-pocket expenses of the Agent (and the Lenders for
enforcement costs and documentary taxes) associated with
the preparation, execution and delivery of any waiver or
modification (whether or not effective) of, and the
enforcement of, any Bridge Loan Document or any document
relating to the refinancing of the Bridge Loans
(including the reasonable fees, disbursements and other
B-7
<PAGE> 29
charges of counsel for the Agent) are to be paid by the
Borrower. The Borrower will indemnify the Agent and the
other Lenders and hold them harmless from and against
all costs, expenses (including reasonable fees and
disbursements of counsel) and liabilities arising out of
or relating to those matters set forth in the Commitment
Letter, including, without limitation, any litigation or
other proceeding (regardless of whether the Agent or any
such other Lender is a party thereto) that relate to the
Transactions, the Bridge Loans or refinancing thereof;
provided, however, that neither the Agent nor any such
other Lender will be indemnified for any costs, expense
or liability to the extent determined by a court of
competent jurisdiction in a final and nonappealable
judgment to have resulted from such person's gross
negligence or willful misconduct.
Counsel for the Skadden, Arps, Slate, Meagher & Flom LLP.
Arranger and the
Administrative Agent:
Governing Law and New York.
Forum:
B-8
<PAGE> 30
ANNEX I
TO EXHIBIT B
Exchange Notes
Summary of Principal Terms and Conditions(1)
Issuer: The Borrower will issue Exchange Notes under an
indenture that complies with the Trust Indenture Act
(the "INDENTURE").
Principal Amount: The Exchange Notes will be available only in exchange
for the Bridge Loans. The face amount of any Exchange
Note will equal 100% of the aggregate principal amount
(including any accrued interest not required to be paid
in cash) of the Bridge Loan for which it is exchanged.
Maturity: The Exchange Notes will mature on the tenth anniversary
of the Closing Date.
Interest Rate: Exchange Notes will bear interest at a rate equal to the
Initial Rate (as defined below) plus the Exchange Spread
(as defined below). Notwithstanding the foregoing, the
interest rate on Exchange Notes in effect at any time
shall not exceed 18% per annum, and to the extent that
the interest payable on Exchange Notes exceeds a rate of
16% per annum, the Borrower may, at its option, cause
such excess interest to be paid by issuing additional
Exchange Notes in a principal amount equal to such
excess portion of interest. Interest on Exchange Notes
will be payable semiannually in arrears.
In no event shall the interest rate on the Exchange
Notes exceed the highest lawful rate permitted under
applicable law.
"INITIAL RATE" shall be determined on the Bridge
Maturity Date and shall be equal to the greatest of (a)
the interest rate borne by Bridge Loans on the day
immediately preceding the Bridge Maturity Date, (b) the
Treasury Rate (as defined below) on the Bridge Maturity
Date plus 750 basis points
- -----------------
(1) All capitalized terms used but not defined herein have the meanings
given in the Summary of Principal Terms and Conditions of the Bridge Loan
Facility to which this Annex I is attached.
<PAGE> 31
and (c) the Credit Suisse First Boston Corporation High
Yield Single B Index Rate on the Bridge Maturity Date
plus 400 basis points.
"TREASURY RATE" means (i) the rate borne by direct
obligations of the United States maturing on the tenth
anniversary of the Closing Date and (ii) if there are no
such obligations, the rate determined by linear
interpolation between the rates borne by the two direct
obligations of the United States maturing closest to,
but straddling, the tenth anniversary of the Closing
Date, in each case as published by the Board of
Governors of the Federal Reserve System.
"EXCHANGE SPREAD" shall mean 50 basis points during the
six-month period commencing on the Bridge Maturity Date
and shall increase by 50 basis points at the beginning
of each subsequent three-month period.
Tax Gross Up: Same as Bridge Loans.
Rank: Exchange Notes will rank pari passu with Bridge Loans
but will be subordinated in right of payment to all
existing and future senior indebtedness of the Borrower.
Mandatory Redemption: Same as Bridge Loans.
Optional Redemption: Subject to the following sentence, the Exchange Notes
will be redeemable at the option of the Borrower, in
whole or in part, at any time at par plus accrued and
unpaid interest to the redemption date. If any Exchange
Note is sold by a Lender to a third party purchaser,
such Lender shall have the right to fix the interest
rate on such Exchange Note at a rate not higher than the
then applicable rate of interest and, if such Lender
exercises such right, such Exchange Note will be
non-callable for four years from the date of its sale to
such third party and will be callable thereafter at par
plus Accrued interest plus a premium, which premium
shall initially be the fixed interest rate borne by such
Exchange Note declining ratable to zero one year prior
to the maturity of the Exchange Notes, provided, that
such call protection shall not apply to any call for
redemption issued prior to the sale to such third party
purchaser.
Registration Rights: The Borrower will use its best efforts to cause to
become effective an exchange offer registration
statement or a shelf
B-I-2
<PAGE> 32
registration statement no later than the date of
issuance of the Exchange Notes, and the Borrower will
use its best efforts to keep such registration statement
effective and available (subject to customary
exceptions) until it is no longer needed to permit
unrestricted resales of such Exchange Notes, but in no
event longer than two years from the date of issuance of
any such Exchange Notes. If the registration statement
is not effective by the Bridge Maturity Date or, once
effective, ceases to be effective or ceases to be
useable in connection with resales of such Exchange
Notes (subject to customary exceptions), cash interest
will accrue and be payable (in addition to interest
otherwise accruing on the Exchange Notes) at a rate of
0.50% per annum until such default shall be cured.
The Borrower agrees, at its expense, to assist CSFB in
connection with resales of any of the Exchange Notes,
including making its senior officers available to CSFB,
including making them available to assist in the
preparation of marketing materials relating to any
resales, to participate in due diligence sessions and to
participate in road shows or other presentations to
prospective purchasers of such Exchange Notes.
Exchange Notes
Escrowed: The Exchange Notes will be delivered on the Closing Date
and held, undated, in escrow by a mutually agreeable
fiduciary.
Right to Transfer The holders of the Exchange Notes shall have the
Exchange Notes: absolute and unconditional right to transfer such
Exchange Notes to any third parties in compliance with
applicable law.
Covenants: Those typical for an indenture governing a high-yield
senior subordinated note issue, including a "change in
control" put provision, and, to the extent deemed
reasonably necessary by CSFBC, certain covenants
contained in the Bridge Loan documentation.
Events of Default: Those typical for an indenture governing a high-yield
senior subordinated note issue.
Governing Law and
Forum: New York.
B-I-3
<PAGE> 33
EXHIBIT C
CONDITIONS
The commitments of Credit Suisse First Boston ("CSFB") pursuant to the
Senior Secured Credit Facilities and Bridge Loan Commitment Letter, dated as of
August 12, 1998 (the "LETTER"), between CSFB and Environmental Systems Products,
Inc. shall be subject to the following conditions (capitalized terms used but
not defined herein shall, unless otherwise specified, have the meanings assigned
to such terms in the Letter):
(i) after the date of the Letter, no information or other matter
becomes known to CSFB (including, without limitation, any information or
matter disclosed pursuant to the delivery of the financial information
described in item (x) below) that CSFB in good faith believes is
inconsistent in a material and adverse manner with (a) any information
or other matter disclosed to CSFB prior to the date of the Letter or (b)
any information or other matter obtained by CSFB during its due
diligence investigation;
(ii) there shall not have occurred or become known to CSFB 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 CSFB, in connection with the Facilities;
(iv) CSFB and the Lenders shall be reasonably satisfied as of
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 final form of the Agreement and Plan of
Merger reviewed by CSFB and its counsel prior to CSFB's delivery of the
Letter), the Debt Tender and each agreement entered into in connection
with the Transactions and (b) all legal, tax and accounting matters
relating to the Transactions that could have a Material Adverse Effect,
including 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 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 contemplated by the Letters;
(x) CSFB and, if applicable, the Lenders shall be
reasonably satisfied with all material legal, tax and accounting
matters relating to the Transactions and the other transactions
contemplated by the Letter, 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
C-1
<PAGE> 34
consequences thereof and the Borrower's, the Target's and the
Company's plans and programs with respect to managing currency
risk exposure;
(y) CSFB and, if applicable, 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 by the
Letter 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 CSFB, 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 and the purchase of at least 90% of the Target's outstanding
equity pursuant to the Offer) 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 CSFB and the Lenders;
(vi) after giving effect to the Transactions and the other
transactions contemplated by the Letter, 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 Bridge Loan or the Senior Subordinated Notes, as the case may
be, and (c) other indebtedness or preferred stock to be agreed upon;
(vii) customary closing conditions for transactions similar to
the Bridge Loan and 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 by the
Letter, (c) the absence of any material change in the capital, 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 CSFB of reasonably satisfactory
legal opinions and accountants' comfort letters;
C-2
<PAGE> 35
(viii) there shall not have occurred 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 or the consummation of
high yield offerings, as the case may be;
(ix) CSFB's satisfaction that, immediately prior to and during
the marketing period for (a) the Subordinated Note Offering or the
syndication of the Bridge Loan, as the case may be, 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
Offering or the Bridge Loan, as applicable, or other permitted
indebtedness thereunder) of any Loan Party or any of their affiliates;
(x) the receipt by CSFB and, if applicable, 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 CSFB, (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 Loan Parties and their respective
subsidiaries as CSFB 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 not be materially inconsistent with financial
statements, projections and estimates previously provided to CSFB and,
if applicable, the Lenders;
(xi) payment of fees and expenses; and
(xii) the Warrants shall have been issued and placed into escrow
for the benefit of the Lenders in accordance with the terms of the
Warrant Letter.
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
C-3
<PAGE> 36
Loan Party and its and 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 by the Letter or
the rights, remedies and benefits available to the parties thereunder.
C-4
<PAGE> 1
EXHIBIT 99 (b)(2)
- --------------------------------------------------------------------------------
NEWMALL LIMITED
August 12, 1998
Mr. Terrence P. McKenna
President and Chief Executive Officer
Stone Rivet, Inc.
7 Kripes Road
East Granby, Connecticut 06026
USA
Re: US$80 million Equity Contribution
Dear Mr. McKenna:
We are pleased to inform you that Newmall Limited has accepted
subscriptions for the issuance of US$80 million of new shares from its
shareholders and hereby agrees to contribute (through intermediary companies
owned and controlled by Newmall Limited) such US$80 million to the capital of
Stone Rivet, Inc. ("Stone Rivet") Such contribution is to be used by Stone Rivet
as partial consideration to be paid in connection with the tender offer (the
"Offer") by Stone Rivet for all of the outstanding shares of Class A Common
Stock of Envirotest Systems Corp. ("Envirotest") at a price of $17.25 per share
pursuant to the terms of an Agreement and Plan of Merger dated of even date
hereof among Envirotest, Stone Rivet and Environmental Systems Products, Inc.
(the "Merger Agreement"). We shall cause such contribution to be made at the
time that all of the conditions of the Offer listed in Annex A to the Merger
Agreement have been satisfied or waived in connection with the terms of the
Merger Agreement.
We are able to commit to make such contribution because of subscriptions
for additional shares of Newmall Limited.
Very truly yours,
Newmall Limited
By: /s/ ERIC WALTERS
-----------------
Name: Eric Walters
Title: Director
- --------------------------------------------------------------------------------
REGISTERED OFFICE: BREARLY WORKS, LUDDENFOOT, HALIFAX, WEST YORKSHIRE HX2 6JB
ENGLAND
REGISTERED NUMBER: 3461909
<PAGE> 1
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
STONE RIVET, INC.
and
ENVIROTEST SYSTEMS CORP.
Dated as of August 12, 1998
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
Glossary of Defined Terms
(Not Part of this Agreement)
----------------------------
Defined Term Location of Definition
- ------------ ----------------------
<S> <C>
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(a)
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Acquisition Proposal . . . . . . . . . . . . . . . . . . . . . Section 6.05(a)
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(b)
Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.05(b)
Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(c)
CCA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.05(b)
Certificate of Merger . . . . . . . . . . . . . . . . . . . . . Section 2.02
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.09(b)
Class A Common Stock . . . . . . . . . . . . . . . . . . . . . Recitals
Class B Common Stock . . . . . . . . . . . . . . . . . . . . . Recitals
Class C Common Stock . . . . . . . . . . . . . . . . . . . . . Recitals
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Company Benefit Plans . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
Company Common Stock . . . . . . . . . . . . . . . . . . . . . Recitals
Company Stock Option . . . . . . . . . . . . . . . . . . . . . Section 1.03
Company Stock Option Plans . . . . . . . . . . . . . . . . . . Section 1.03
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . Section 6.04(b)
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(d)
CSFB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.02(a)
Debt Tenders . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.08(c)
Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . Section 2.08
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . Section 2.02
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . Section 9.03(e)
Environmental Permits . . . . . . . . . . . . . . . . . . . . . Section 3.16(b)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.02(b)
Financing Commitments . . . . . . . . . . . . . . . . . . . . . Section 4.04
Governmental Antitrust Authority . . . . . . . . . . . . . . . Section 6.08(b)
Governmental Order . . . . . . . . . . . . . . . . . . . . . . Section 7.01(b)
Guarantor Subsidiary . . . . . . . . . . . . . . . . . . . . . Section 9.03(f)
Hazardous Substances . . . . . . . . . . . . . . . . . . . . . Section 9.03(g)
Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 4.01
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.05(b)
Indemnification Provisions . . . . . . . . . . . . . . . . . . Section 6.07(a)
</TABLE>
<PAGE> 3
2
<TABLE>
<CAPTION>
Defined Term Location of Definition
- ------------ ----------------------
<S> <C>
Intellectual Property . . . . . . . . . . . . . . . . . . . . . Section 9.03(h)
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(i)
known . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(i)
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.14(b)
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . Section 9.03(j)
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Merger Consideration . . . . . . . . . . . . . . . . . . . . . Section 2.06(a)
Minimum Condition . . . . . . . . . . . . . . . . . . . . . . . Section 1.01(a)
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6.08(c)
Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Offer Documents . . . . . . . . . . . . . . . . . . . . . . . . Section 1.01(b)
Offer to Purchase . . . . . . . . . . . . . . . . . . . . . . . Section 1.01(b)
Option Spread . . . . . . . . . . . . . . . . . . . . . . . . . Section 1.03
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Parent Audited Statements . . . . . . . . . . . . . . . . . . . Section 4.07
Parent Unaudited Statements . . . . . . . . . . . . . . . . . . Section 4.07
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.09(a)
Payment Fund . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.09(a)
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . Section 3.14(b)
Per Share Amount . . . . . . . . . . . . . . . . . . . . . . . Recitals
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(k)
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(a)
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . Section 3.12
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
Schedule 14D-9 . . . . . . . . . . . . . . . . . . . . . . . . Section 1.02(b)
Schedule 14D-1 . . . . . . . . . . . . . . . . . . . . . . . . Section 1.01(b)
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(l)
SEC Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(m)
SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.07(a)
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . Section 3.07(a)
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals
Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . Section 6.01(a)
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.03(n)
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . Section 2.01
Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . Section 8.03(a)
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.04
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE OFFER
SECTION 1.01. The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 1.03. Employee Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE II
THE MERGER
SECTION 2.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.02. Effective Time; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.03. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.04. Certificate of Incorporation; By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.05. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.06. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.07. Employee Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.08. Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.09. Surrender of Shares; Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.01. Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.02. Certificate of Incorporation and By-laws . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.03. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.04. Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.05. No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.06. Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.07. SEC Filings; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.08. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.09. Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.10. Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.11. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy Statement . . . . . . . . . . . . . . . . . . . . 16
SECTION 3.13. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 5
ii
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 3.14. Property and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.15. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.16. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.17. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.18. Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.19. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.20. Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.21. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
SECTION 4.01. Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.02. Authority Relative to this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.03. No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.04. Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.05. Offer Documents; Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.06. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.07. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.08. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.02. Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.03. Company Board Representation; Section 14(f) . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.04. Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.05. No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.06. Employee Benefits Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.07. Directors' and Officers' Indemnification and Insurance . . . . . . . . . . . . . . . . . . 29
SECTION 6.08. Further Action; Reasonable Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
<PAGE> 6
iii
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.09. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.10. Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 8.02. Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.03. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.04. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.05. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and Agreements . . . . . . . . . . . . . . . . 34
SECTION 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9.03. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 9.04. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 9.05. Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.06. Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.07. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.08. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
ANNEX A
Conditions to the Offer
ANNEX B
Employee Benefit Matters
<PAGE> 7
iv
SCHEDULES
<TABLE>
<S> <C>
3.01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Subsidiaries
3.03 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization
3.05(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conflicts
3.05(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Required Filings, Consents
3.06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compliance
3.07(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements
3.08 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Absence of Certain Changes or Events
3.09 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Litigation
3.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Benefits
3.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Labor Matters
3.13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes
3.14(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property Matters
3.15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intellectual Property Matters
3.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Environmental Matters
3.19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance
5.01(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conduct of Business Pending the
Merger
5.01(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Conduct of Business Pending the
Merger
6.06 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employee Benefits Matters
</TABLE>
<PAGE> 8
AGREEMENT AND PLAN OF MERGER dated as of August 12, 1998
(this "Agreement") among ENVIRONMENTAL SYSTEMS PRODUCTS, INC., a Delaware
corporation ("Parent"), STONE RIVET, INC., a Delaware corporation and a wholly
owned subsidiary of Parent ("Purchaser"), and ENVIROTEST SYSTEMS CORP., a
Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for Parent to acquire the Company upon the terms and
subject to the conditions set forth herein; and
WHEREAS, the Company's common stock consists of three classes
as follows: Class A Common Stock, par value $.01 per share ("Class A Common
Stock"), Class B Common Stock, par value $.01 per share ("Class B Common
Stock") and Class C Common Stock, par value $.01 per share ("Class C Common
Stock"; together with Class A Common Stock and Class B Common Stock, being
hereinafter collectively referred to as "Company Common Stock"); and
WHEREAS, in furtherance of such acquisition, it is proposed
that Purchaser shall make a cash tender offer (the "Offer") to acquire all the
issued and outstanding shares of the Company's Class A Common Stock (shares of
Class A Common Stock, being hereinafter collectively referred to as "Shares")
for $17.25 per Share (such amount, or any greater amount per Share paid
pursuant to the Offer, being hereinafter referred to as the "Per Share Amount")
net to the seller in cash, upon the terms and subject to the conditions of this
Agreement and the Offer; and
WHEREAS, the Board of Directors of the Company (the "Board")
has unanimously approved the making of the Offer and resolved and agreed to
recommend that holders of Shares tender their Shares pursuant to the Offer; and
WHEREAS, also in furtherance of such acquisition, the Boards
of Directors of Parent, Purchaser and the Company have each approved the merger
(the "Merger") of Purchaser with and into the Company in accordance with the
General Corporation Law of the State of Delaware ("Delaware Law") upon the
terms and subject to the conditions set forth herein; and
WHEREAS, Parent and Purchaser are unwilling to enter into this
Agreement unless, contemporaneously with the execution and delivery hereof,
certain stockholders of the Company each enter into an agreement providing for
certain matters with respect to certain shares of the Company Common Stock
beneficially owned by them as set forth therein and such stockholders have each
agreed to execute and deliver such agreement.
<PAGE> 9
2
NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements herein contained, and intending to
be legally bound hereby, Parent, Purchaser and the Company hereby
agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Upon the terms and subject to
the conditions of this Agreement, Purchaser shall commence the Offer as
promptly as reasonably practicable after the date hereof, but in no event later
than five Business Days after the initial public announcement of Purchaser's
intention to commence the Offer. The obligation of Purchaser to accept for
payment and pay for Shares tendered pursuant to the Offer shall be subject to
the condition (the "Minimum Condition") that (i) at least the number of Shares,
assuming conversion of all shares of Class B Common Stock and Class C Common
Stock into Shares, that when added to any Shares already owned by Parent shall
constitute 90 percent of the then outstanding Shares on a primary basis, and
(ii) 100 percent of the Shares that are issuable upon conversion (and assuming
conversion thereof) of all of the then outstanding shares of Class B Common
Stock and Class C Common Stock, shall have been validly tendered and not
withdrawn prior to the expiration of the Offer and also shall be subject to the
satisfaction of the other conditions set forth in Annex A hereto. Purchaser
expressly reserves the right to waive any such condition, to increase the price
per Share payable in the Offer, and to make any other changes in the terms and
conditions of the Offer; provided, however, that the Minimum Condition may not
be waived without the prior approval of the Company (except that the Minimum
Condition may be waived without such prior approval if at least the number of
Shares, assuming conversion of all shares of Class B Common Stock and Class C
Common Stock into Shares, that when added to any Shares already owned by Parent
shall constitute a majority of the then outstanding Shares on a primary basis,
shall have been validly tendered and not withdrawn prior to the expiration of
the Offer) and that no change may be made which decreases the price per Share
payable in the Offer, reduces the maximum number of Shares to be purchased in
the Offer, imposes conditions to the Offer in addition to those set forth in
Annex A hereto or otherwise is materially adverse to the Company or the holders
of Shares. Notwithstanding the foregoing, Purchaser may, without the consent
of the Company, (i) extend the Offer for up to 30 Business Days beyond the
scheduled expiration date (the initial scheduled expiration date being
September 30, 1998) if, at the scheduled expiration date of the Offer, any of
the conditions (other than the Minimum Condition or the condition specified in
paragraph (g) of Annex A) to Purchaser's obligation to accept for payment, and
to pay for, the Shares shall not be satisfied or waived, (ii) extend the Offer
for any period required by the SEC Rules applicable to the Offer, (iii) extend
the Offer for an aggregate period of not more than ten Business Days beyond the
latest applicable date that would otherwise be permitted
<PAGE> 10
3
under clause (i) or (ii) of this sentence, if as of such date, the Minimum
Condition shall not be satisfied or waived or (iv) extend the Offer for so long
as this Agreement shall remain in effect if the condition specified in
paragraph (g) of Annex A shall not be satisfied or waived; provided, however,
that (A) if the waiting period under the HSR Act shall not have expired or been
terminated on the scheduled expiration date of the Offer or a temporary
restraining order prohibiting the purchase of the Shares shall have been issued
by a court of competent jurisdiction, the Purchaser shall extend the Offer from
time to time until five Business Days after the expiration or termination of
the waiting period under the HSR Act or the lifting of such temporary
restraining order and (B) if the condition set forth in paragraph (c) or (d) of
Annex A shall not have been satisfied, the Purchaser shall, so long as the
breach can be cured and the Company is vigorously attempting to cure such
breach, extend the Offer from time to time until five Business Days after such
breach is cured. The Per Share Amount shall be net to the seller in cash, upon
the terms and subject to the conditions of the Offer. Subject to the terms and
conditions of the Offer, Purchaser shall pay, as promptly as practicable after
expiration of the Offer, for all Shares validly tendered and not withdrawn.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, Purchaser shall file with the SEC (i) a Tender Offer
Statement on Schedule 14D-1 (together with all amendments and supplements
thereto, the "Schedule 14D-1") with respect to the Offer. The Schedule 14D-1
shall contain or shall incorporate by reference an offer to purchase (the
"Offer to Purchase") and forms of the related letter of transmittal and any
related summary advertisement (the Schedule 14D-1, the Offer to Purchase and
such other documents, together with all supplements and amendments thereto,
being referred to herein collectively as the "Offer Documents"). Parent,
Purchaser and the Company agree to correct promptly any information provided by
any of them for use in the Offer Documents which shall have become false or
misleading, and Parent and Purchaser further agree to take all steps necessary
to cause the Schedule 14D-1 as so corrected to be filed with the SEC and the
other Offer Documents as so corrected to be disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws.
(c) In the event that, upon the expiration of the Offer
(including any extension thereof made in accordance with Section 1.01(a)), the
Minimum Condition shall not have been satisfied or waived, the Company shall
file, and Parent and Purchaser shall use all reasonable efforts to assist the
Company in filing, as promptly as practicable, but in no event later than five
Business Days following such expiration date, the Proxy Statement with the SEC
under the Exchange Act pursuant to Section 6.02 for the purpose of considering
and taking action on this Agreement and the Merger.
SECTION 1.02. Company Action. (a) The Company hereby
approves of and consents to the Offer and represents that (i) the Board, at a
meeting duly called and held on August 12, 1998, has unanimously (A) determined
that this Agreement and the Transactions,
<PAGE> 11
4
including the Offer and the Merger, are fair to and in the best interests of
the holders of Shares, (B) approved and adopted this Agreement and the
Transactions (such approval and adoption having been made in accordance with
the provisions of Section 203 of Delaware Law) and (C) recommended that the
stockholders of the Company accept the Offer and approve and adopt this
Agreement and the Transactions, and (ii) Credit Suisse First Boston ("CSFB")
has delivered to the Board an opinion that the consideration to be received by
the holders of Shares pursuant to the Offer and the Merger is fair from a
financial point of view to the holders of Shares, a copy of the written opinion
of which shall be delivered to Purchaser promptly after the date hereof. CSFB
has agreed to permit the inclusion of its fairness opinion or references
thereto in the Offer Documents (subject to CSFB's review and reasonable
approval of the description of such fairness opinion). Subject to the
fiduciary duties of the Board under applicable law as determined by the Board
in good faith after receiving advice from independent counsel, the Company
hereby consents to the inclusion in the Offer Documents of the recommendation
of the Board described in the immediately preceding sentence. The Company has
been advised by each of its directors and executive officers that they intend
either to tender all Shares beneficially owned by them to Purchaser pursuant to
the Offer or to vote such Shares in favor of the approval and adoption by the
stockholders of the Company of this Agreement and the Transactions.
(b) As soon as reasonably practicable on the date of
commencement of the Offer, the Company shall file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing, subject
to the fiduciary duties of the Board under applicable law as determined by the
Board in good faith after receiving advice from independent counsel, the
recommendation of the Board described in Section 1.02(a) and shall disseminate
the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other
applicable federal securities laws. The Company, Parent and Purchaser agree to
correct promptly any information provided by any of them for use in the
Schedule 14D-9 which shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities laws.
(c) The Company shall promptly furnish to Purchaser
mailing labels containing the names and addresses of all record holders of
Shares and with security position listings of Shares held in stock
depositories, each as of a recent date, together with all other available
listings and computer files containing names, addresses and security position
listings of record holders and beneficial owners of Shares. The Company shall
furnish to Purchaser such additional information, including, without
limitation, updated listings and computer files of stockholders, mailing labels
and security position listings, and such other assistance as Parent, Purchaser
or their agents may reasonably request. Subject to the requirements of
<PAGE> 12
5
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or
the Merger, Parent and Purchaser shall hold in confidence the information
contained in such labels, listings and files, shall use such information only
in connection with the Offer and the Merger, and, if this Agreement shall be
terminated in accordance with Section 8.01, shall deliver to the Company all
copies of such information then in their possession.
SECTION 1.03. Employee Stock Options. (a) Each stock option
(a "Company Stock Option") outstanding at the time of the purchase of Shares
pursuant to the Offer in accordance with Section 1.01, whether or not
exercisable and whether or not vested, under any stock option plan of the
Company, or any of its Affiliates or any agreement to which the Company or any
of its Affiliates is a party (the "Company Stock Option Plans"), shall be
canceled by the Company immediately following the purchase of Shares pursuant
to the Offer in accordance with Section 1.01 and each holder of a canceled
Company Stock Option shall be entitled to receive immediately thereafter from
the Company in consideration for the cancellation of such Company Stock Option
an amount (the "Option Spread") equal to the product of (i) the number of
Shares previously subject to such Company Stock Option and (ii) the excess, if
any, of the Per Share Amount over the exercise price per share of Company
Common Stock previously subject to such Company Stock Option. The Option
Spread, after reduction for applicable tax withholding, if any, shall be paid
in cash. No interest shall accrue or be paid on the Option Spread for the
benefit of the holder of such canceled Company Stock Option.
(b) On the day immediately following the purchase of
Shares pursuant to the Offer in accordance with Section 1.01, Purchaser shall
cause to be wired to an account designated by the Company not less than three
days prior to the expiration of the Offer an amount sufficient to enable the
Company to make the payments required pursuant to Sections 1.03(a) and 6.06,
but in no event shall such amount to be wired exceed $10,500,000.
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with Delaware Law, at
the Effective Time (as hereinafter defined) Purchaser shall be merged with and
into the Company. As a result of the Merger, the separate corporate existence
of Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation").
<PAGE> 13
6
SECTION 2.02. Effective Time; Closing. As promptly as
practicable after the satisfaction or, if permissible, waiver of the conditions
set forth in Article VII, the parties hereto shall cause the Merger to be
consummated by filing this Agreement or a certificate of merger or certificate
of ownership and merger (in either case, the "Certificate of Merger") with the
Secretary of State of the State of Delaware, in such form as is required by,
and executed in accordance with, the relevant provisions of Delaware Law (the
date and time of such filing being the "Effective Time").
SECTION 2.03. Effect of the Merger. At the Effective Time,
the effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of the Company and Purchaser shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
SECTION 2.04. Certificate of Incorporation; By-laws. (a) At
the Effective Time, the Certificate of Incorporation of the Company shall be
restated in a form acceptable to Purchaser and shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that such
restated Certificate of Incorporation shall be in accordance with the
provisions of Section 6.07 hereof.
(b) The By-laws of Purchaser, as in effect immediately
prior to the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter amended as provided by law, the Certificate of Incorporation
of the Surviving Corporation and such By-laws.
SECTION 2.05. Directors and Officers. The directors of
Purchaser immediately prior to the Effective Time shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the Certificate of Incorporation and By-laws of the Surviving Corporation, and
the officers of the Company immediately prior to the Effective Time shall be
the initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective
Time, by virtue of the Merger and without any action on the part of Purchaser,
the Company or the holders of any of the following securities:
(a) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than any
shares of Company Common Stock to be canceled pursuant to Section
2.06(b) and any Dissenting Shares (as
<PAGE> 14
7
hereinafter defined)) shall be canceled and shall be converted
automatically into the right to receive an amount equal to the Per
Share Amount in cash (the "Merger Consideration") payable, without
interest, to the holder of such share of Company Common Stock, upon
surrender, in the manner provided in Section 2.09, of the certificate
that formerly evidenced such share of Company Common Stock;
(b) Each share of Company Common Stock held in the
treasury of the Company and each share of Company Common Stock owned
by Purchaser, Parent or any direct or indirect wholly owned Subsidiary
of Parent or of the Company immediately prior to the Effective Time
shall be canceled without any conversion thereof and no payment or
distribution shall be made with respect thereto; and
(c) Each share of Common Stock, par value $.01 per share,
of Purchaser issued and outstanding immediately prior to the Effective
Time shall be converted into, and exchanged for, one validly issued,
fully paid and nonassessable share of Common Stock, par value $.01 per
share, of the Surviving Corporation.
SECTION 2.07. Employee Stock Options. In the event that the
Company Stock Options are not canceled pursuant to Section 1.03, each Company
Stock Option outstanding at the Effective Time, whether or not exercisable and
whether or not vested, under any Company Stock Option Plan, shall be canceled
by the Company at the Effective Time and each holder of a canceled Company
Stock Option shall be entitled to receive immediately thereafter from the
Company in consideration for the cancellation of such Company Stock Option the
Option Spread. The Option Spread, after reduction for applicable tax
withholding, if any, shall be paid in cash. No interest shall accrue or be
paid on the Option Spread for the benefit of the holder of such canceled
Company Stock Option.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any
provision of this Agreement to the contrary, shares of Company Common Stock
that are outstanding immediately prior to the Effective Time and which are held
by stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing an appraisal
for such shares of Company Common Stock in accordance with Section 262 of
Delaware Law (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of
such shares of Company Common Stock held by them in accordance with the
provisions of such Section 262, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares of Company Common
Stock under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right
to receive the Merger Consideration, without any interest thereon, upon
surrender, in the manner provided in
<PAGE> 15
8
Section 2.09 of the certificate or certificates that formerly
evidenced such shares of Company Common Stock.
(b) The Company shall give Purchaser (i) prompt notice of
any written demands for fair value, withdrawals of demands for fair value and
any other instruments served pursuant to applicable law received by the Company
relating to stockholders' rights of appraisal and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for appraised
value under Section 262 of Delaware Law. The Company shall not, except with
the prior written consent of Purchaser, voluntarily make any payment with
respect to any demands for appraised value of Dissenting Shares or offer to
settle or settle any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a)
As of the Effective Time, Purchaser shall deposit, or shall cause to be
deposited, with a bank or trust company designated by Parent or Purchaser to
act as its paying agent (the "Paying Agent"), for the benefit of the holders of
shares of Company Common Stock, for payment in accordance with this Article II,
through the Paying Agent, cash in an amount equal to the Per Share Amount
multiplied by the number of Shares (assuming the conversion of all issued and
outstanding shares of Class B Common Stock and Class C Common Stock into shares
of Class A Common Stock prior to the Effective Time) outstanding immediately
prior to the Effective Time (such cash being hereinafter referred to as the
"Payment Fund"). The Paying Agent shall, pursuant to irrevocable instructions,
deliver the cash contemplated to be paid pursuant to Sections 2.06(a) and 2.08
out of the Payment Fund. The Payment Fund shall not be used for any other
purpose. The Payment Fund shall be invested by the Paying Agent as directed by
the Surviving Corporation, provided that such investments shall be in
obligations of or guaranteed by the United States of America or of any agency
thereof and backed by the full faith and credit of the United States of
America, in commercial paper obligations rated A-1 or P-1 or better by Moody's
Investors Service, Inc. or Standard & Poor's Rating Services, respectively, or
in deposit accounts, certificates of deposit or banker's acceptances of,
repurchase or reverse repurchase agreements with, or Eurodollar time deposits
purchased from, commercial banks with capital, surplus and undivided profits
aggregating in excess of $500 million (based on the most recent financial
statements of such bank which are then publicly available at the SEC or
otherwise).
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each person who was, at the Effective
Time, a holder of record of shares of Company Common Stock entitled to receive
the Merger Consideration pursuant to Section 2.06(a) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the certificates evidencing such shares of Company Common
Stock (the "Certificates") shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates
<PAGE> 16
9
pursuant to such letter of transmittal. Upon surrender to the Paying Agent of
a Certificate, together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto, and such other
documents as may be required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor the Merger
Consideration for each share of Company Common Stock formerly evidenced by such
Certificate, and such Certificate shall then be canceled. No interest shall
accrue or be paid on the Merger Consideration payable upon the surrender of any
Certificate for the benefit of the holder of such Certificate. If payment of
the Merger Consideration is to be made to a person other than the person in
whose name the surrendered Certificate is registered on the stock transfer
books of the Company, it shall be a condition of payment that the Certificate
so surrendered shall be endorsed properly or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable.
(c) At any time following the sixth month after the
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of shares of Company Common Stock
(including, without limitation, all interest and other income received by the
Paying Agent in respect of all funds made available to it), and thereafter such
holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat and other similar laws) only as general creditors
thereof with respect to any Merger Consideration that may be payable.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Share for any Merger Consideration
delivered in respect of such Share to a public official pursuant to any
abandoned property, escheat or other similar law.
(d) At the close of business on the day of the Effective
Time, the stock transfer books of the Company shall be closed and thereafter
there shall be no further registration of transfers of shares of Company Common
Stock on the records of the Company. From and after the Effective Time, the
holders of shares of Company Common Stock outstanding immediately prior to the
Effective Time shall cease to have any rights with respect to such shares of
Company Common Stock except as otherwise provided herein or by applicable law.
<PAGE> 17
10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and each Subsidiary of the Company is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority and
governmental approvals does not, individually or in the aggregate, have a
Material Adverse Effect. Each of the Company and each Subsidiary is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that do not, individually or in the aggregate, have a
Material Adverse Effect. A true and complete list of all the Subsidiaries,
together with the jurisdiction of organization of each Subsidiary and the
percentage of the outstanding capital stock of each Subsidiary owned by the
Company and each other Subsidiary, is set forth in Schedule 3.01. Except as
disclosed in Schedule 3.01, the Company does not directly or indirectly own any
equity or similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
SECTION 3.02. Certificate of Incorporation and By-laws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-laws or equivalent organizational
documents, each as amended to date, of the Company and each Subsidiary. Such
Certificates of Incorporation and By-Laws or equivalent organizational
documents are in full force and effect, and neither the Company nor any
Subsidiary is in violation of any provision thereof.
SECTION 3.03. Capitalization. The authorized capital stock
of the Company consists of 40,000,000 Shares, 5,000,000 shares of Class B
Common Stock and 5,000,000 shares of Class C Common Stock. As of the date
hereof, (i) 8,842,248 Shares, 1,249,749 shares of Class B Common Stock and
2,026,111 shares of Class C Common Stock are issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) 4,388,091 Shares,
no shares of Class B Common Stock and no shares of Class C Common Stock are
held in the treasury of the Company, (iii) no Shares, no shares of Class B
Common Stock and no shares of Class C Common Stock are held by the
Subsidiaries, (iv) 2,830,285 Shares, no shares of Class B Common Stock and no
shares of Class C Common Stock are reserved for
<PAGE> 18
11
issuance pursuant to currently outstanding stock options granted pursuant to
the Company's Stock Option Plans and (v) 589,660 Shares, no shares of Class B
Common Stock and no shares of Class C Common Stock are reserved for issuance
pursuant to stock options to be granted pursuant to the Company's Stock Option
Plans. Each of the outstanding shares of capital stock or other securities of
each Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and owned by a direct or indirect wholly-owned subsidiary of the
Company, free and clear of any lien, pledge, security interest, claim or other
encumbrance. Except as set forth in this Section 3.03 or in the Certificate of
Incorporation of the Company, neither the Company nor any Subsidiary has
granted any options, warrants or other rights, or entered into any agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any Subsidiary or obligating the Company or any
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Subsidiary. All Shares subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. Schedule 3.03 contains a correct
and complete list of all options to purchase capital stock of the Company or
any Subsidiary. Except as set forth on Schedule 3.03, there are no outstanding
contractual obligations of the Company or any Subsidiary to provide funds to,
or make any investment (in the form of a loan, capital contribution or
otherwise) in, or to repurchase, redeem or otherwise acquire any shares of
capital stock of the Company or any Subsidiary or any other person other than
to Subsidiaries in the ordinary course of business consistent with past
practice.
SECTION 3.04. Authority Relative to this Agreement. The
Company has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby (the "Transactions"). The execution and
delivery of this Agreement by the Company and the consummation by the Company
of the Transactions have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the then outstanding Shares if and to
the extent required by applicable law, and the filing and recordation of
appropriate merger documents as required by Delaware Law). This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent and Purchaser, constitutes
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company does not, and
the performance of
<PAGE> 19
12
this Agreement by the Company will not, (i) conflict with or violate the
Certificate of Incorporation or By-laws or equivalent organizational documents
of the Company or any Subsidiary, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary
is bound or affected other than conflicts or violations that do not,
individually or in the aggregate, have a Material Adverse Effect, or (iii)
except as set forth on Schedule 3.05(a), result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become
a default) under, require any third-party consents, approvals, or
authorizations, give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any Subsidiary pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation, other than breaches,
defaults or other occurrences that do not, individually or in the aggregate,
have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any United States or Canadian federal, state or provincial
governmental or regulatory authority except (i) for applicable requirements, if
any, of the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws")
and state takeover laws, the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), and filing and recordation of
appropriate merger documents as required by Delaware Law and (ii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Offer
or the Merger, or otherwise prevent the Company from performing its obligations
under this Agreement, and do not, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 3.06. Compliance. (a) The business and operations of
the Company have been conducted in compliance with all applicable federal,
state and local statutes and regulations, except where the failure to so
conduct such business and operations would not, individually or in the
aggregate, have a Material Adverse Effect. Except for statutory or regulatory
restrictions of the business of the Company, no governmental authority has
imposed any restrictions on the Company's business, which restrictions either,
individually or in the aggregate, do not and, so far as the Company can
reasonably foresee, will not have a Material Adverse Effect.
(b) Except as would not, individually or in the
aggregate, have a Material Adverse Effect, (i) the Company has all approvals,
permits and licenses from federal, state and local government agencies and
government-sponsored enterprises which are required to
<PAGE> 20
13
conduct its business and (ii) all such approvals, permits and licenses are in
full force and effect and are being complied with in all material respects.
(c) Neither the Company nor any Subsidiary is in conflict
with, or in default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(ii) any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any property
or asset of the Company or any Subsidiary is bound or affected, except for any
such conflicts, defaults or violations that do not, individually or in the
aggregate, have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) Each
of the Company and Envirotest Technologies, Inc., a Subsidiary of the Company,
has filed all forms, reports and documents required to be filed by it with the
SEC since September 30, 1996 and has heretofore made available to Parent, in
the form filed with the SEC, (i) the Company's Annual Reports on Form 10-K for
the fiscal years ended September 30, 1996 and 1997, (ii) all proxy statements
relating to the Company's meetings of stockholders (whether annual or special)
held since September 30, 1996, and (iii) all other forms, reports and other
registration statements filed by the Company with the SEC since September 30,
1996 (the forms, reports and other documents referred to in clauses (i), (ii)
and (iii) above being referred to herein, collectively, as the "SEC Reports").
The SEC Reports (i) were prepared in accordance with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange
Act, as the case may be, and the rules and regulations thereunder and (ii) did
not at the time they were filed contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Except for Envirotest
Technologies, Inc., no Subsidiary is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and each fairly presented
the consolidated financial position, results of operations and cash flow of the
Company and the Subsidiaries or the Guarantor Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein (except as
otherwise noted therein and subject, in the case of unaudited statements, to
normal and recurring year-end adjustments which are not expected to have either
individually or in the aggregate a Material Adverse Effect).
<PAGE> 21
14
(c) Except as and to the extent set forth on the
consolidated balance sheet of the Company and the Subsidiaries as at September
30, 1997, including the notes thereto, neither the Company nor any Subsidiary
has any liability or obligation of any nature (whether accrued, absolute,
contingent or otherwise) which would be required to be reflected on a balance
sheet prepared in accordance with generally accepted accounting principles,
except for liabilities and obligations (i) that do not, individually or in the
aggregate, have a Material Adverse Effect or (ii) as set forth on Schedule
3.07(c).
SECTION 3.08. Absence of Certain Changes or Events. From
September 30, 1997 through the date hereof, except as set forth on Schedule
3.08 or disclosed in any SEC Report, there has not been (i) a Material Adverse
Effect, (ii) any material change by the Company in its accounting methods,
principles or practices, (iii) any entry by the Company or any Subsidiary into
any contract material to the Company and the Subsidiaries, taken as a whole,
(iv) any declaration, setting aside or payment of any dividend or distribution
in respect of any capital stock of the Company or any redemption, purchase or
other acquisition of any of its securities, (v) other than pursuant to the
contractual arrangements referred to in Section 3.10 and Annex B, any increase
in or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of the Company or any
Subsidiary, except in the ordinary course of business consistent with past
practice or (vi) any damage, destruction or other casualty loss with respect to
any material asset or property owned, leased or otherwise used by the Company
or any of its Subsidiaries, whether or not covered by insurance, which is
reasonably likely to have a Material Adverse Effect.
SECTION 3.09. Absence of Litigation. Except as set forth on
Schedule 3.09 or disclosed in the SEC Reports, there is no claim, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary or any Company Benefit Plan,
or any property or asset of the Company or any Subsidiary or any Company
Benefit Plan, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, that, individually or in the
aggregate, has a Material Adverse Effect. Neither the Company nor any
Subsidiary nor any property or asset of the Company or any Subsidiary is
subject to any order, writ, judgment, injunction, decree, determination or
award having, individually or in the aggregate, a Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. (a) With respect to
each employee benefit plan, program, arrangement and contract (x) covering one
or more current or former officers or employees of the Company or any of its
Subsidiaries (including, without limitation, any "employee benefit plan", as
defined in Section 3(3) or the Employee Retirement Income
<PAGE> 22
15
Security Act of 1974, as amended ("ERISA")), whether written or oral, or
maintained or contributed to by the Company or any of its Subsidiaries or (y)
with respect to which the Company or any of its Subsidiaries is a party or
could incur liability under Section 4069, 4201 or 4212(c) of ERISA or any
material liability under any other applicable law (collectively, the "Company
Benefit Plans"), the Company has made available to Parent a true and correct
copy of (i) the most recent annual report (Form 5500) filed with the Internal
Revenue Service (the "IRS"), (ii) such Company Benefit Plan (or a description
thereof, if such Company Benefit Plan is not in writing), and any amendments
thereto, (iii) each related trust agreement, annuity contract or other funding
instrument, (iv) the most recent summary plan description (and summary of
material modifications), if a summary plan description (or summary of material
modifications) is required, (v) the most recent actuarial report or valuation,
if any, and (vi) the most recent determination letter or prototype opinion
letter, if any, issued by the IRS with respect to any Company Benefit Plan
qualified under Section 401(a) of the Code.
(b) Except as set forth on Schedule 3.10 or as would not
have a Material Adverse Effect, individually or in the aggregate, each Company
Benefit Plan that is intended to be "qualified" within the meaning of Section
401(a) of the Code is so qualified.
(c) Except as set forth on Schedule 3.10 or as would not
have a Material Adverse Effect, individually or in the aggregate, each Company
Benefit Plan presently complies and has been maintained in compliance with its
terms and, both as to form and operation, with the requirements prescribed by
any statutes, orders, rules and regulations that apply to such Company Benefit
Plan, including, without limitation, ERISA and the Code. Except as set forth
on Schedule 3.10 or as would not have a Material Adverse Effect, individually
or in the aggregate, no Company Benefit Plan or related trust or other funding
vehicle is liable for any tax under Section 511 of the Code. Except as set
forth on Schedule 3.10, with respect to the Company Benefit Plans, no event has
occurred and, to the knowledge of the Company, there exists no condition or set
of circumstances in connection with which the Company or any of its
Subsidiaries could be subject to any liability under the terms of such Company
Benefit Plans, ERISA, the Code or any other applicable law which would have a
Material Adverse Effect, individually or in the aggregate.
(d) The Company has made available to Parent (i) copies
of all employment agreements with officers of the Company and its Subsidiaries;
(ii) copies of all severance agreements, programs and policies of the Company
and its Subsidiaries with or relating to its employees; and (iii) copies of all
plans, programs, agreements and other arrangements of the Company and its
Subsidiaries with or relating to its employees which contain change in control
provisions. Schedule 3.10 contains a complete list of such agreements,
programs and policies. Schedule 6.06 contains a complete and accurate list of
the names of all individuals who are entitled to payments upon a change of
control of the Company and the respective amounts to which they are so
entitled.
<PAGE> 23
16
(e) Except as set forth on Schedule 3.10 or as otherwise
required by law, neither the Company, its Subsidiaries nor any Company Benefit
Plan is obligated to provide or provides medical or life insurance benefits to
any person who is or becomes a retiree or otherwise is or becomes a former
employee of the Company or any of its Subsidiaries.
(f) No Company Benefit Plan is a Multiemployer Plan
(within the meaning of Section 4001(a)(3) or 3(37) of ERISA), and neither the
Company nor any of its Subsidiaries has ever maintained, contributed to or been
required to contribute to or participated in any Multiemployer Plan.
SECTION 3.11. Labor Matters. Except as set forth in Schedule
3.11, (i) there are no controversies pending, or, to the knowledge of the
Company, threatened between the Company or any Subsidiary and any of their
respective employees, other than controversies which, individually or in the
aggregate, do not have a Material Adverse Effect; (ii) neither the Company nor
any Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any Subsidiary
or, to the knowledge of the Company, are there any activities or proceedings of
any labor union to organize any such employees; and (iii) to the knowledge of
the Company, there are no strikes, slowdown, works stoppages or lockouts or, to
the knowledge of the Company, threats of any of the foregoing by, or with
respect to, any employees of the Company that would have a Material Adverse
Effect.
SECTION 3.12. Offer Documents; Schedule 14D-9; Proxy
Statement. Neither the Schedule 14D-9 nor any information supplied by the
Company for inclusion in the Offer Documents shall, at the respective times set
out in the Schedule 14D-9, the Offer Documents or any amendments or supplements
thereto that are filed with the SEC or are first published, sent or given to
stockholders of the Company, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. Neither the proxy statement to be
sent to the stockholders of the Company in connection with the Stockholders'
Meeting (as hereinafter defined) nor the information statement to be sent to
such stockholders, as appropriate (such proxy statement or information
statement, as amended or supplemented, being referred to herein as the "Proxy
Statement"), shall, at the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders' Meeting and at the Effective Time, be false or misleading
with respect to any material fact, or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders' Meeting which shall have
become false or misleading. The Schedule
<PAGE> 24
17
14D-9 and the Proxy Statement shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 3.13. Taxes. The Company and the Subsidiaries have
properly filed on a timely basis all federal, state, local and foreign tax
returns and reports required to be filed and have paid and discharged all taxes
shown as due thereon, including, without limitation, the collection and
remittance of all amounts required to be withheld by the Company and its
Subsidiaries, and have paid all applicable ad valorem taxes as are due, other
than (i) such payments as are being contested in good faith by appropriate
proceedings as set forth in Schedule 3.13 and (ii) such filings, payments or
other occurrences that, individually or in the aggregate, would not have a
Material Adverse Effect. Except as set forth in Schedule 3.13, there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for the payment of taxes. Except as set forth on Schedule 3.13,
neither the IRS nor any other taxing authority or agency, domestic or foreign,
is now asserting or, to the best knowledge of the Company, threatening to
assert against the Company or any Subsidiary any deficiency or claim for
additional taxes or interest thereon or penalties in connection therewith that
individually or in the aggregate, would have a Material Adverse Effect.
Neither the Company nor any Subsidiary has made an election under Section
341(f) of the Code. The Company shall deliver all necessary certificates and
documents confirming that no withholding under Section 1445 of the Code is
required in connection with the payment for shares of Company Common Stock in
the Offer or the Merger. Neither the Company nor any of its Subsidiaries is a
party to any tax-sharing or tax-allocation agreement with any third party.
SECTION 3.14. Property and Leases. (a) The Company and the
Subsidiaries have sufficient title to all their properties and assets to
conduct their respective businesses as currently conducted with only such
exceptions as, individually or in the aggregate, do not have a Material Adverse
Effect.
(b) Each parcel of real property owned or leased by the
Company or any Subsidiary (i) is owned or leased free and clear of all
mortgages, pledges, liens, security interests, conditional and installment sale
agreements, encumbrances, charges or other claims of third parties of any kind
(collectively, "Liens"), other than (A) Liens for current taxes and assessments
not yet past due, (B) inchoate mechanics' and materialmen's Liens for
construction in progress, (C) workmen's, repairmen's, warehousemen's and
carriers' Liens arising in the ordinary course of business of the Company or
such Subsidiary consistent with past practice, and (D) all matters of record,
Liens and other imperfections of title and encumbrances which, individually or
in the aggregate, do not have a Material Adverse Effect or as set forth in
Schedule 3.14(b) (collectively, "Permitted Liens"), and (ii) is neither subject
to any governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the best knowledge of the Company, has any
such condemnation, expropriation or
<PAGE> 25
18
taking been proposed. With respect to each parcel of real property owned by
the Company or any of its Subsidiaries, except as would not, individually or in
the aggregate, have a Material Adverse Effect, (x) there are no leases,
subleases, licenses, concessions or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any material portion
of such parcel and (y) there are no outstanding options or rights of first
refusal to purchase such parcel or any material portion thereof or interest
therein.
(c) All leases of real property leased for the use or
benefit of the Company or any Subsidiary to which the Company or any Subsidiary
is a party requiring rental payments in excess of $100,000 during the period of
the lease, and all amendments and modifications thereto are in full force and
effect and have not been modified or amended, and there exists no default under
any such lease by the Company or any Subsidiary, nor any event which with
notice or lapse of time or both would constitute a default thereunder by the
Company or any Subsidiary, except as, individually or in the aggregate, does
not have a Material Adverse Effect.
SECTION 3.15. Intellectual Property. (a) The Company and
the Subsidiaries own, or possess licenses or other valid rights to use, all
Intellectual Property that is material to the business of the Company and the
Subsidiaries as currently conducted, and the Company is unaware of any
assertion or claim challenging the validity of any of the foregoing, other than
any assertion or claim which, individually or in the aggregate, does not have a
Material Adverse Effect. The conduct of the business of the Company and the
Subsidiaries as currently conducted does not interfere with, misappropriate,
violate or otherwise conflict with any material Intellectual Property rights of
third parties, other than conflicts that, individually or in the aggregate, do
not have a Material Adverse Effect. Except as set forth in Schedule 3.15, to
the knowledge of the Company, neither it nor any Subsidiary has licensed or
otherwise permitted the use by any third party of any Intellectual Property on
terms or in a manner which, individually or in the aggregate, has a Material
Adverse Effect.
(b) Schedule 3.15 identifies (i) each unexpired patent or
registration which has been issued to the Company or any of its Subsidiaries
with respect to any of its Intellectual Property, (ii) each pending patent
application or application for registration which the Company or any of the
Subsidiaries has made with respect to any of its Intellectual Property, and
(iii) each material license, agreement, or other permission which the Company
or any of its Subsidiaries has granted to any third party with respect to any
of its Intellectual Property (together with any exceptions).
SECTION 3.16. Environmental Matters. Except as disclosed in
Schedule 3.16 and except as would not, individually or in the aggregate, have a
Material Adverse Effect, (a) to the Company's knowledge, the Company and the
Subsidiaries are in compliance with all applicable Environmental Laws and have
obtained and are in compliance with all governmental
<PAGE> 26
19
permits, licenses and other authorizations required under any Environmental
Law, (b) there are no written claims pursuant to any Environmental Law pending
or, to the Company's knowledge, threatened, against the Company, (c) the
Company has provided Purchaser with copies of any and all environmental
assessment or audit reports or other similar studies or analyses generated
within the last three years and in the Company's possession, that relate to the
Company, and (d) to the Company's knowledge, no real property currently owned
or operated by the Company or any of its Subsidiaries is contaminated with any
Hazardous Substance.
SECTION 3.17. Brokers. No broker, finder or investment
banker (other than CSFB) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Company. The Company has heretofore furnished to Parent a
complete and correct copy of all agreements between the Company and CSFB
pursuant to which such firm would be entitled to any payment relating to the
Transactions.
SECTION 3.18. Assets. Except for Permitted Liens and except
as would not, individually or in the aggregate, have a Material Adverse Effect,
the Company has good and valid title to or a valid leasehold interest in all of
its personal property and all equipment, fixtures, furnishings and other
material items of tangible personal property owned or used by the Company are
in good operating condition and repair, subject to normal wear and maintenance,
and are usable in the regular and ordinary course of the Company's business.
SECTION 3.19. Insurance. All material risks of the Company
in respect of its business are covered by valid and currently effective
insurance policies or binders of insurance or programs of self-insurance in
such types and amounts as are reasonable in the context of the businesses and
operations engaged by the Company. The Company has paid all premiums due under
such policies and is not in default with respect to its obligations under any
such policies other than any default that does not, individually or in the
aggregate, have a Material Adverse Effect. All programs of self-insurance are
listed and described in Schedule 3.19.
SECTION 3.20. Takeover Statutes. To the knowledge of the
Company, no "fair price," "control share acquisition" or other similar
anti-takeover statute or regulation or any applicable anti-takeover provision
in the Company's Certificate of Incorporation or By-Laws is, or at the
Effective Time will be, applicable to the Company, the Shares, the Merger or
the other Transactions.
SECTION 3.21. Expenses. Except for (i) fees and expenses
payable to attorneys and accountants, investment banks and financial advisors,
(ii) costs and expenses in connection with the printing and mailing of the
Offer Documents, the Schedule 14D-9 and the Proxy Statement, as well as any
filing fees relating thereto, and (iii) the payment to holders of
<PAGE> 27
20
Company Stock Options provided in Section 2.07 and the change of control
payments set forth on Schedule 6.06, the Company will not incur any material
costs and expenses in connection with the Transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite power
and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would not,
individually or in the aggregate, have an adverse effect on the ability of
Parent or Purchaser to perform their obligations hereunder, or prevent or
materially delay the consummation of the Transactions. Parent owns all of the
issued and outstanding shares of Purchaser. On or prior to earlier of the
purchase of Shares pursuant to the Offer and the Effective Time, Parent shall
be an indirect, wholly owned Subsidiary of Environmental Systems Products
Holdings, Inc. a Delaware corporation ("Holdings"), Holdings has conducted no
business and has incurred no liabilities, other than, in each case, in
connection with the Transactions.
SECTION 4.02. Authority Relative to this Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Transactions. The execution and delivery of this Agreement by
Parent and Purchaser and the consummation by Parent and Purchaser of the
Transactions have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of Parent or Purchaser
are necessary to authorize this Agreement or to consummate the Transactions
(other than, with respect to the Merger, the filing and recordation of
appropriate merger documents as required by Delaware Law). This Agreement has
been duly and validly executed and delivered by Parent and Purchaser and,
assuming the due authorization, execution and delivery by the Company,
constitutes legal, valid and binding obligations of each of Parent and
Purchaser enforceable against each of Parent and Purchaser in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
<PAGE> 28
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SECTION 4.03. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the performance of this Agreement by Parent and Purchaser will not,
(i) conflict with or violate the Certificate of Incorporation or By-laws of
either Parent or Purchaser, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Parent or Purchaser or by
which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, require any third-party
consents, approvals or authorizations, give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent or
Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Purchaser is a party or by which Parent or Purchaser or any
property or asset of either of them is bound or affected, except for any such
violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, have an adverse effect on the ability of
Parent or Purchaser to perform their obligations hereunder, or prevent or
materially delay the consummation of the Transactions.
(b) The execution and delivery of this Agreement by
Parent and Purchaser do not, and the performance of this Agreement by Parent
and Purchaser will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any United States or Canadian federal,
state or provincial governmental or regulatory authority except (i) for
applicable requirements, if any, of the Exchange Act, Blue Sky Laws and state
takeover laws, the HSR Act, and filing and recordation of appropriate merger
documents as required by Delaware Law and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, have an adverse
effect on the ability of Parent or Purchaser to perform their obligations
hereunder, or prevent or materially delay the consummation of the Transactions.
SECTION 4.04. Financing. The Company has received a true and
complete copy of (i) a letter of commitment obtained by Parent from CSFB to
provide debt financing for the Transactions pursuant to senior secured credit
facilities and bridge loans and (ii) a letter of commitment obtained by Parent
from Newmall Limited to provide certain equity financing (collectively, the
"Financing Commitments"). Assuming that the financing contemplated by the
Financing Commitments is consummated in accordance with the terms thereof, the
funds to be borrowed and/or provided thereunder will provide sufficient funds
to permit Purchaser to acquire all the outstanding shares of Company Common
Stock in the Offer and the Merger.
SECTION 4.05. Offer Documents; Proxy Statement. The Offer
Documents will not, at the time the Offer Documents are filed with the SEC or
are first published, sent or given to stockholders of the Company, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the
<PAGE> 29
22
statements made therein, in the light of the circumstances under which they are
made, not misleading. The information supplied by Parent for inclusion in the
Proxy Statement will not, on the date the Proxy Statement (or any amendment or
supplement thereto) is first mailed to stockholders of the Company, at the time
of the Stockholders' Meeting and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it is made,
is false or misleading with respect to any material fact, or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading or necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders' Meeting which shall have become false or
misleading. Notwithstanding the foregoing, Parent and Purchaser make no
representation or warranty with respect to any information supplied by the
Company or any of its representatives which is contained in any of the
foregoing documents or the Offer Documents. The Offer Documents shall comply
in all material respects with the requirements of the Exchange Act and the
rules and regulations thereunder.
SECTION 4.06. Brokers. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf
of Parent or Purchaser.
SECTION 4.07. Financial Statements. (a) Parent has furnished
the Company with audited balance sheets for the calendar year ended December
31, 1997, together with the related consolidated statements of operations,
stockholders' equity and cash flows for the calendar year then ended, together
with a report of such entity's accountants with respect thereto (collectively,
the "Parent Audited Statements"). Parent has furnished the Company with
unaudited interim financial statements for the period ended June 30, 1998
(collectively, the "Parent Unaudited Statements").
(b) Each of the Parent Audited Statements and the Parent
Unaudited Statements (including any notes thereto) was prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and each fairly presented the consolidated
financial position, results of operations and cash flow of Parent and its
consolidated subsidiaries as at the respective dates thereof and for the
respective periods indicated therein (except as otherwise noted therein and
subject, in the case of the Parent Unaudited Statements, to normal and
recurring year-end adjustments which are not expected to have either,
individually or in the aggregate, a material adverse effect on the business,
financial condition, results of operations or prospects of Parent and its
Subsidiaries, taken as a whole).
(c) Except as and to the extent set forth on the
consolidated balance sheet of Parent as at December 31, 1997, including the
notes thereto, neither Parent nor any of its Subsidiaries has any liability or
obligation of any nature (whether accrued, absolute, contingent
<PAGE> 30
23
or otherwise) which would be required to be reflected on a balance sheet
prepared in accordance with generally accepted accounting principles, except
for liabilities and obligations that do not, individually or in the aggregate,
have a material adverse effect on the business, financial condition, results of
operations or prospects of Parent.
SECTION 4.08. Absence of Certain Changes or Events. From
December 31, 1997 through the date hereof, there has not been a material
adverse effect on the business, financial condition, results of operations or
prospects of Parent and its Subsidiaries, taken as a whole, and, to the
knowledge of Parent, there is no event or prospective event that reasonably
would be expected to cause such an effect.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the
Merger. Except as set forth in Schedule 5.01, the Company agrees that, between
the date of this Agreement and the Effective Time, the Company shall use its
reasonable best efforts to preserve substantially intact the business
organization of the Company and the Subsidiaries and to preserve the current
relationships of the Company and the Subsidiaries with customers, suppliers,
regulators, creditors, lessors, employees, agents and other persons with which
the Company or any Subsidiary has significant business relations. Except as
contemplated by this Agreement, neither the Company nor any Subsidiary shall,
between the date of this Agreement and the Effective Time, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change its Certificate of
Incorporation or By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or
encumbrance of (i) any shares of capital stock of any class of the
Company or any Subsidiary, or any options, warrants, convertible
securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of the Company or any Subsidiary
(except for the issuance of Shares issuable pursuant to stock options
outstanding on the date hereof) or (ii) any assets of the Company or
any Subsidiary for consideration in excess of $1,000,000 in the
aggregate except in the ordinary course of business consistent with
past practice or as set forth on Schedule 5.01(b);
<PAGE> 31
24
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its
capital stock;
(e) (i) acquire (including, without limitation, by
merger, consolidation, or acquisition of stock or assets) any
corporation, partnership, other business organization or any division
thereof; (ii) except for borrowings under existing credit facilities
not to exceed $100,000 in the aggregate and excepting transactions
between the Company and any Subsidiary, incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or
endorse, or otherwise as an accommodation become responsible for, the
obligations of any person; (iii) except for transactions between the
Company and any Subsidiary, make any loans or advances, for an amount
in excess of $250,000 in the aggregate; (iv) except as set forth on
Schedule 5.01(e), authorize capital expenditures which are, in the
aggregate, in excess of $250,000 for the Company and the Subsidiaries;
(v) except as set forth on Schedule 5.01(e), acquire any assets for
consideration in excess of $250,000 in the aggregate except in the
ordinary course of business consistent with past practice; or (vi)
enter into or amend any contract, agreement, commitment or arrangement
with respect to any matter set forth in this Section 5.01(e);
(f) increase the compensation payable or to become
payable to its officers or employees, except for increases in
accordance with past practices in salaries or wages of employees of
the Company or any Subsidiary who are not officers of the Company, or,
other than in accordance with existing policies and arrangements,
grant any severance or termination pay to, or enter into any
employment or severance agreement with any director, officer or other
employee of the Company or any Subsidiary, or establish, adopt, enter
into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer or employee;
(g) other than as required by generally accepted
accounting principles, make any change to its accounting policies or
procedures;
(h) except as provided in Schedule 5.01, settle or
compromise any material claims or litigation or, except in the
ordinary and usual course of business, modify, amend or terminate any
of its material contracts or waive, release or assign any material
rights or claims; or
<PAGE> 32
25
(i) willfully take any action or omit to take any
action that would cause any representation or warranty of the
Company herein to become untrue in any material respect.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders' Meeting. (a) If required by
applicable law in order to consummate the Merger, the Company, acting through
the Board, shall, in accordance with applicable law and the Company's
Certificate of Incorporation and By-laws, (i) duly call, give notice of,
convene and hold an annual or special meeting of its stockholders as soon as
practicable following the consummation or the termination of the Offer, as
applicable, for the purpose of considering and taking action on this Agreement
and the transactions contemplated hereby (the "Stockholders' Meeting") and (ii)
subject to the fiduciary duties of the Board under applicable law as determined
by the Board in good faith after receiving the advice of independent counsel,
(A) include in the Proxy Statement the recommendation of the Board that the
stockholders of the Company approve and adopt this Agreement and the
Transactions and (B) use its reasonable best efforts to obtain such approval
and adoption. At the Stockholders' Meeting, Parent and Purchaser shall cause
all Shares then owned by them and their Subsidiaries to be voted in favor of
the approval and adoption of this Agreement and the Transactions.
(b) Notwithstanding the foregoing, in the event that
Purchaser shall acquire at least 90 percent of the then outstanding Shares, the
parties hereto agree, at the request of Purchaser, subject to Article VII, to
take all necessary and appropriate action to cause the Merger to become
effective, in accordance with Section 253 of Delaware Law, as soon as
reasonably practicable after such acquisition, without a meeting of the
stockholders of the Company.
SECTION 6.02. Proxy Statement. If required by applicable
law, the Company shall, within the time period provided in Section 1.01(c) or
as soon as practicable following the consummation of the Offer, as applicable,
file the Proxy Statement with the SEC under the Exchange Act, and shall use its
reasonable best efforts to have the Proxy Statement cleared by the SEC.
Parent, Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Parent and its counsel the opportunity to
<PAGE> 33
26
review the Proxy Statement prior to its being filed with the SEC and
shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to
requests for additional information and replies to comments prior to
their being filed with, or sent to, the SEC. Each of the Company,
Parent and Purchaser agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all
such comments of and requests by the SEC and to cause the Proxy
Statement and all required amendments and supplements thereto to be
mailed to the holders of Shares entitled to vote at the Stockholders'
Meeting at the earliest practicable time.
SECTION 6.03. Company Board Representation; Section 14(f).
(a) Promptly upon the purchase by Purchaser of Shares pursuant to the Offer,
and from time to time thereafter, Purchaser shall be entitled to designate up
to such number of directors, rounded up to the next whole number, on the Board
as shall give Purchaser representation on the Board equal to the product of the
total number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any Affiliate of Purchaser
following such purchase bears to the total number of Shares then outstanding,
and the Company shall, at such time, promptly take all actions necessary to
cause Purchaser's designees to be elected as directors of the Company,
including increasing the size of the Board or securing the resignations of
incumbent directors or both. At such times, the Company shall use its
reasonable best efforts to cause persons designated by Purchaser to constitute
the same percentage of each committee of the Board as persons designated by
Purchaser to constitute the Board to the extent permitted by applicable law.
(b) The Company shall promptly take all actions required
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations under this Section 6.03 and
shall include in the Schedule 14D-9 such information with respect to the
Company and its officers and directors as is required under Section 14(f) and
Rule 14f-1 to fulfill such obligations. Parent or Purchaser shall supply to
the Company and be solely responsible for any information with respect to
either of them and their nominees, officers, directors and affiliates required
by such Section 14(f) and Rule 14f-1.
(c) Following the election of designees of Purchaser
pursuant to this Section 6.03, prior to the Effective Time, any amendment of
this Agreement or the Certificate of Incorporation or By-laws of the Company,
any termination of this Agreement by the Company, any extension by the Company
of the time for the performance of any of the obligations or other acts of
Parent or Purchaser or waiver of any of the Company's rights hereunder shall
require the concurrence of a majority of the directors of the Company then in
office who neither were designated by Purchaser nor are employees of the
Company.
<PAGE> 34
27
SECTION 6.04. Access to Information; Confidentiality. (a)
In connection with their investigation of the business of the Company, Parent
and Purchaser have received from the Company certain estimates, projections and
other forecasts for the business of the Company, and certain plan and budget
information, including, without limitation, estimates, projections, forecasts,
plans or budgets relating to the Company's Remote Sensing Technology. Each of
Parent and Purchaser acknowledges (i) that there are uncertainties inherent in
attempting to make such estimates, projections, forecasts, plans and budgets,
that it is familiar with such uncertainties, (ii) that it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of
all estimates, projections, forecasts, plans and budgets so furnished to it,
and (iii) that it will not assert any claim against the Company or any of its
Affiliates or any of their respective directors, officers, employees, agents,
stockholders, consultants, investment bankers, accountants or representatives,
or hold the Company or any such persons liable with respect thereto, except for
claims based on fraud or intentional misrepresentation as to which the
foregoing clause (iii) is not applicable. Accordingly, the Company makes no
representation or warranty with respect to any estimates, projections,
forecasts, plans or budgets referred to in this Section 6.04(a).
(b) From the date hereof to the Effective Time, the
Company shall, and shall cause the Subsidiaries and the officers, directors,
employees, auditors and agents of the Company and the Subsidiaries to, afford
the officers, employees and agents of Parent and Purchaser and persons
providing or committing to provide Parent or Purchaser with financing for the
Transactions reasonable access at all reasonable times to the officers,
employees, agents, properties, offices and other facilities, books and records
of the Company and each Subsidiary, and shall promptly furnish Parent and
Purchaser and persons providing or committing to provide Parent or Purchaser
with financing for the Transactions with (i) a copy of each report, statement,
schedule and other document filed or received by the Company or any of its
Subsidiaries pursuant to the requirements of federal or state securities laws
or filed with any other governmental or regulatory authority and (ii) all
financial, operating and other data and information as Parent or Purchaser,
through its officers, employees or agents, may reasonably request.
(c) Purchaser agrees to be bound by the terms of the
confidentiality agreement, dated May 8, 1998 (the "Confidentiality Agreement"),
between Parent and the Company as if Purchaser was a party thereto. All
information obtained by Parent or Purchaser pursuant to this Section 6.04 shall
be kept confidential in accordance with the Confidentiality Agreement.
SECTION 6.05. No Solicitation of Transactions. (a) The
Company agrees that neither it nor any of its Subsidiaries nor any of their
officers, directors or agents shall, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with any Person relating to an Acquisition
<PAGE> 35
28
Proposal; provided, however, that nothing contained herein shall prevent the
Company or the Board from engaging in any negotiations or discussions with any
Person who has made an unsolicited bona fide written Acquisition Proposal or
recommending such an Acquisition Proposal to the stockholders of the Company
(or withdrawing or modifying, in any manner adverse to Parent and Purchaser,
its approval or recommendation of the Offer, the Agreement, the Merger or any
other Transaction), if and only to the extent that (i) the Board determines in
good faith, after consultation with outside legal counsel that such action is
necessary in order for its directors to comply with their fiduciary duties
under applicable law and (ii) the Board determines in good faith (after
consultation with its financial advisor) that such Acquisition Proposal, if
accepted, is reasonably likely to be consummated, taking into account all
legal, financial and regulatory aspects of the proposal and the financial
capacity and any other relevant characteristics of the Person making the
proposal and would, if consummated, result in a transaction more favorable to
the Company's stockholders from a financial point of view than the
Transactions. The Company agrees that it will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The Company
also agrees that it will promptly request each Person that has heretofore
executed a confidentiality agreement in connection with its consideration of
acquiring it or any of its Subsidiaries to return or destroy all confidential
information heretofore furnished to such Person by or on behalf of the Company
or any of its Subsidiaries. The Company agrees that it will notify Parent and
Purchaser immediately if any inquiries, proposals or offers are received by,
any such information is requested from, or any such discussion or negotiations
are sought to be initiated or continued with any of its officers, director or
agents, indicating, in connection with such notice, the name of such Person and
the material terms and conditions of any proposals or offers and thereafter
shall keep Parent and Purchaser informed, on a current basis, on the status and
material terms of any such proposals or offers and the status of any such
negotiations or discussions. "Acquisition Proposal" shall mean (i) any
proposal or offer from any person relating to any direct or indirect
acquisition or purchase of (A) all or a substantial part of the assets of the
Company, or (B) over 15% of the voting securities of the Company; (ii) any
tender offer or exchange offer as defined pursuant to the Exchange Act that if
consummated would result in any person beneficially owning 15% or more of the
voting securities of the Company; or (iii) any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company other than the Transactions.
(b) Nothing contained in this Section 6.05 shall prohibit
the Company or Parent from taking and disclosing to their respective
shareholders a position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act or issuing a communication that meets the requirements of Rule
14d-9(e) promulgated under the Exchange Act.
<PAGE> 36
29
SECTION 6.06. Employee Benefits Matters. Annex B hereto sets
forth certain agreements among the parties hereto with respect to the Plans and
other employee benefits matters.
SECTION 6.07. Directors' and Officers' Indemnification and
Insurance. (a) The Certificate of Incorporation of the Surviving Corporation
shall contain provisions (collectively, "Indemnification Provisions") no less
favorable with respect to indemnification than are set forth in Article 8 of
the Certificate of Incorporation of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company, unless such modification shall be
required by law. Parent hereby agrees that, for a period of six years from the
Effective Time, it shall absolutely and unconditionally guarantee the prompt
performance and satisfaction of all obligations of the Surviving Corporation
under the Indemnification Provisions.
(b) Parent and the Surviving Corporation each shall use
its best efforts to maintain in effect for six years from the Effective Time,
if available, the current directors' and officers' liability insurance policies
maintained by the Company (provided that Parent and the Surviving Corporation
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less favorable) with respect to matters
occurring prior to the Effective Time; provided, however, that if the existing
policies expire, are terminated or canceled during such period Parent or the
Surviving Corporation will obtain substantially similar policies.
Notwithstanding the foregoing, in no event shall Parent or the Surviving
Corporation be required to expend pursuant to this Section 6.07(b) more than an
amount per year equal to 200% of current annual premiums paid by the Company
for such insurance (which premiums the Company represents and warrants to be
$232,000 in the aggregate); provided, however, that, in the event of an
expiration, termination or cancellation of such current policies, Parent or the
Surviving Corporation shall be required to obtain as much coverage as is
possible under substantially similar policies for $464,000 in aggregate annual
premiums.
SECTION 6.08. Further Action; Reasonable Best Efforts. (a)
Upon the terms and subject to the conditions hereof, each of the parties hereto
shall (i) make promptly its respective filings, and thereafter make any other
required submissions, under the HSR Act with respect to the Transactions and
(ii) use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the Transactions, including, without limitation, using all
reasonable efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and the Subsidiaries as are necessary for
<PAGE> 37
30
the consummation of the Transactions and to fulfill the conditions to the Offer
and the Merger. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall use
their reasonable best efforts to take all such action.
(b) If any "fair price," "control share acquisition" or
other similar anti-takeover statute or regulation or any applicable
anti-takeover provision in the Company's Certificate of Incorporation or
By-Laws is or may become applicable to the Company or the Transactions, each of
Parent and the Company and its Board shall grant such approvals and take such
actions as are necessary so that the Transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise act to eliminate or minimize the effects of such statute or
regulation on the Transactions.
(c) The Company hereby consents to the making by Parent
or an Affiliate of Parent of tender offers (the "Debt Tenders") for the
Company's outstanding 9-1/8% Senior Notes due 2001 and its 9-5/8% Senior
Subordinated Notes due 2003 (the "Notes"). The Company agrees to reasonably
assist Parent or such Affiliate in the timely completion of the Debt Tenders
and, without limiting the generality of the foregoing, to promptly provide
Parent or such Affiliate with all information and documentation concerning the
Company and the Notes as Parent or such Affiliate may reasonably request in
connection with the making of the Debt Tenders.
SECTION 6.09. Public Announcements. Parent and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or any Transaction
and shall not issue any such press release or make any such public statement
without the prior consent of the other parties, except as may be required by
law or any listing agreement with a national securities exchange to which
Parent or the Company is a party.
SECTION 6.10. Confidentiality Agreement. The Company hereby
waives the provisions of the Confidentiality Agreement as and to the extent
necessary to permit the consummation of each Transaction. Upon the acceptance
for payment of Shares pursuant to the Offer, the Confidentiality Agreement
shall be deemed to have terminated without further action by the parties
thereto.
SECTION 6.11 Expenses. (a) Except as set forth in Section
8.03 and in Section 6.11(b), whether or not the Offer or Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
Transactions shall be paid by the party incurring such cost or expense, except
that the expenses incurred in connection with printing and mailing the Offer
Documents, the Schedule 14D-9 and the Proxy Statement, as well as any filing
fees relating thereto, shall be shared equally by Parent and the Company.
<PAGE> 38
31
(b) The Company has estimated that it will incur approximately
$8,500,000 of costs and expenses in connection with the Transactions (including
fees and expenses payable to attorneys and accountants, investment banks and
financial advisors in connection therewith). The Company agrees that it shall
not incur costs and expenses in excess of such amount without obtaining the
prior approval of Parent.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective
obligations of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the
transactions contemplated hereby shall have been approved and adopted
by the affirmative vote of the stockholders of the Company to the
extent required by Delaware Law;
(b) No Order. No United States or Canadian federal,
state or provincial governmental authority or other agency or
commission or United States or Canadian federal, state or provincial
court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive
order, decree, injunction or other order (whether temporary,
preliminary or permanent) (a "Governmental Order") which is then in
effect and has the effect of prohibiting consummation of the Merger;
and
(c) Offer. Either (i) Purchaser or its permitted
assignee shall have purchased all Shares validly tendered and not
withdrawn pursuant to the Offer; provided, however, that this
condition shall not be applicable to the obligations of Parent or
Purchaser if, in breach of this Agreement or the terms of the Offer,
Purchaser fails to purchase any Shares validly tendered and not
withdrawn pursuant to the Offer or (ii) the conditions to the Offer
(other than the Minimum Condition) shall have been satisfied.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated
and the Merger and the other Transactions may be abandoned at any time prior to
the Effective Time,
<PAGE> 39
32
notwithstanding any requisite approval and adoption of this Agreement
and the transactions contemplated hereby by the stockholders of the
Company:
(a) By mutual written consent duly authorized by the
Boards of Directors of Parent, Purchaser and the Company;
(b) By either Parent, Purchaser or the Company if (i) the
Effective Time shall not have occurred on or before December 31, 1998;
provided, however, that the right to terminate this Agreement under
this clause (i) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before
such date; or (ii) any United States or Canadian federal, state or
provincial court of competent jurisdiction or other United States or
Canadian federal, state or provincial governmental authority shall
have issued an order, decree, ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and
non-appealable;
(c) By Parent if (i) due to an occurrence or circumstance
that would result in a failure to satisfy any condition (other than
the Minimum Condition or the condition specified in paragraph (g) of
Annex A) set forth in Annex A hereto, Purchaser shall have (A)
terminated the Offer without having accepted any Shares for payment
thereunder or (B) failed to pay for Shares pursuant to the Offer
within 75 calendar days following the commencement of the Offer,
unless such failure to pay for Shares shall have been caused by or
resulted from the failure of Parent or Purchaser to perform in any
material respect any material covenant or agreement of either of them
contained in this Agreement or the material breach by Parent or
Purchaser of any material representation or warranty of either of them
contained in this Agreement; or (ii) prior to the purchase of Shares
pursuant to the Offer, the Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Purchaser or Parent its
approval or recommendation of the Offer, this Agreement, the Merger or
any other Transaction in order to approve or recommend any other
Acquisition Proposal, or shall have resolved to do any of the
foregoing;
(d) By the Company, upon approval of the Board, if (i)
Purchaser shall have (A) failed to commence the Offer within 5
Business Days after the initial public announcement of Purchaser's
intention to commence the Offer, (B) terminated the Offer without
having accepted any Shares for payment thereunder or (C) failed to pay
for Shares pursuant to the Offer within 75 calendar days following the
commencement of the Offer, unless such failure to pay for Shares shall
have been caused by or resulted from the failure of the Company to
perform in any material respect any material covenant or agreement of
it contained in this Agreement or the material breach by the
<PAGE> 40
33
Company of any material representation or warranty of it contained in
this Agreement; or (ii) prior to the purchase of Shares pursuant to the
Offer, the Board shall have withdrawn or modified in a manner adverse
to Purchaser or Parent its approval or recommendation of the Offer,
this Agreement, the Merger or any other Transaction in order to
approve or recommend any other Acquisition Proposal; or
(e) If the vote of the stockholders of the Company is
required by applicable law, by either Parent, Purchaser or the Company
if this Agreement and the Merger shall not have been approved by the
required vote of the Company's stockholders at the Stockholders'
Meeting, or any adjournment thereof.
SECTION 8.02. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 8.01, this Agreement shall
have no further effect, and there shall be no further liability on the part of
any party hereto, except (i) as set forth in Sections 6.04, 8.03 and 9.01 and
(ii) nothing herein shall relieve any party from liability for any breach
hereof.
SECTION 8.03. Fees and Expenses. (a) In the event that (x)
this Agreement is terminated pursuant to Section 8.01(c)(ii) or 8.01(d)(ii) and
(y) at the time of such termination a third party shall have made an
Acquisition Proposal and such Acquisition Proposal shall not have been rejected
by the Company and withdrawn by such third party then, the Company shall pay
Parent promptly (but in no event later than three Business Days after receipt
of a request from Parent), in cash a fee (the "Termination Fee") in the amount
of $12,500,000.
(b) In the event that the Company shall fail to pay the
Termination Fee when due, the Company shall reimburse Parent and the Purchaser
for the costs and expenses actually incurred or accrued by Parent and Purchaser
(including, without limitation, fees and expenses of counsel) in connection
with the collection under and enforcement of this Section 8.03, together with
interest on such unpaid Termination Fee, commencing on the date that the
Termination Fee became due, at a rate equal to the rate of interest publicly
announced by Citibank, N.A., from time to time, in the City of New York, as
such bank's Base Rate.
SECTION 8.04. Amendment. Subject to Section 6.03, this
Agreement may be amended by the parties hereto by action taken by or on behalf
of their respective Boards of Directors at any time prior to the Effective
Time; provided, however, that, after the approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of the
Company, no amendment may be made which would reduce the amount or change the
type of consideration into which each Share shall be converted upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
<PAGE> 41
34
SECTION 8.05. Waiver. At any time prior to the
Effective Time, any party hereto may (i) extend the time for the
performance of any obligation or other act of any other party hereto,
(ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any agreement or condition contained
herein. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that the agreements set
forth in Article II and Sections 6.06 and 6.07 shall survive the Effective Time
indefinitely and those set forth in Sections 6.04(b) and 8.03 shall survive
termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims,
demands and other communications hereunder shall be in writing and shall be
given (and shall be deemed to have been duly given upon receipt) by delivery in
person, by cable, telecopy, telegram or telex or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.02):
if to Parent or Purchaser:
Environmental Systems Products, Inc.
7 Kripes Road
East Granby, Connecticut 06026
Fax: (860) 653-4731
Attention: Mr. Terrence P. McKenna,
President and Chief Executive Officer
with a copy to:
Shaw Pittman Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
Fax: (202) 663-8007
<PAGE> 42
35
Attention: Richard I. Ansbacher, Esq.
Elisabeth J. Harper, Esq.
if to the Company:
Envirotest Systems Corp.
6903 Rockledge Drive
Bethesda, Maryland 20817
Fax: (301) 530-9538
Attention: Mr. Mark Thomas,
Executive Vice President and
Chief Development Officer
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Fax: (212) 848-7179
Attention: Peter D. Lyons, Esq.
SECTION 9.03. Certain Definitions. For purposes of this
Agreement, the term:
(a) "Affiliate" of a specified person means a person who
directly or indirectly through one or more intermediaries controls, is
controlled by, or is under common control with, such specified person;
(b) "Beneficial Owner" with respect to any Shares means a
person who shall be deemed to be the beneficial owner of such Shares
(i) which such person or any of its Affiliates or associates (as such
term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or
any of its Affiliates or associates has, directly or indirectly, (A)
the right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the
right to vote pursuant to any agreement, arrangement or understanding
or (iii) which are beneficially owned, directly or indirectly, by any
other persons with whom such person or any of its Affiliates or
associates or person with whom such person or any of its Affiliates or
associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any Shares;
<PAGE> 43
36
(c) "Business Day" means any day on which the
principal offices of the SEC in Washington, D.C. are open to
accept filings, or, in the case of determining a date when any
payment is due, any day on which banks are not required or
authorized to close in the City of New York;
(d) "control" (including the terms "controlled by" and
"under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause
the direction of the management and policies of a person, whether
through the ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise;
(e) "Environmental Laws" means any federal, state or
local law relating to (A) releases or threatened releases of Hazardous
Substances or materials containing Hazardous Substances; (B) the
manufacture, handling, transport, use, treatment, storage or disposal
of Hazardous Substances or materials containing Hazardous Substances;
or (C) otherwise relating to pollution of the environment or the
protection of human health;
(f) "Guarantor Subsidiaries" means the following
Subsidiaries of the Company: Envirotest Technologies, Inc.,
Envirotest Illinois, Inc., Remote Sensing Technology, Inc., Envirotest
Systems Corp. (a corporation incorporated in the State of Washington),
Envirotest Acquisition Corp. and Envirotest Partners.
(g) "Hazardous Substances" means (A) those substances
defined in or regulated under the following federal statutes and their
state counterparts, as each may be amended from time to time, and all
regulations thereunder: the Hazardous Materials Transportation Act,
the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air
Act; (B) petroleum and petroleum products including crude oil and any
fractions thereof; (C) natural gas, synthetic gas, and any mixtures
thereof; (D) radon; (E) any other contaminant; and (F) any substance
with respect to which a federal, state or local agency requires
environmental investigation, monitoring, reporting or remediation;
(h) "Intellectual Property" shall mean (a)
inventions, whether or not reduced to practice and whether or not yet
made the subject of a pending patent application or applications, (b)
statutory invention registrations, patents, patent registrations and
patent applications and all improvements to the inventions covered in
each such registration, patent or application, (c) trademarks, service
marks, trade dress, logos, trade names and corporate names (in each
case, registered or otherwise), including all associated goodwill, and
registrations and applications for registration thereof, (d)
copyrights
<PAGE> 44
37
(registered or otherwise) and registrations and applications for
registration thereof, (e) moral rights (including, without limitation,
rights of paternity and integrity), and waivers of such rights by
others, (f) trade secrets and confidential business information
(including, without limitation, ideas, formulas and composition,
technology (including, without limitation, know-how), manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing and
business data, pricing and cost information, business and marketing
plans and customer and supplier lists and information, (g) computer
software programs and hardware, and (h) all rights to sue for present
and past infringement of any of the Intellectual Property Rights
hereinabove set out.
(i) "knowledge" or "known" means, as for the Company with
respect to any matter in question, the best knowledge (after
reasonable inquiry of persons who, by virtue of their positions, could
reasonably be expected to have such knowledge of the subject matter)
of the directors and executive officers of the Company and the
Subsidiaries;
(j) "Material Adverse Effect" means 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 the business, the financial condition, results of operations
or prospects of the Company and its Subsidiaries and Holdings, Parent,
Purchaser and their Subsidiaries, taken as a whole;
(k) "Person" means an individual, corporation,
partnership, limited partnership, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government;
(l) "SEC" means the U.S. Securities and Exchange
Commission;
(m) "SEC Rules" means any rule, regulation or
interpretation of the SEC or the staff thereof; and
(n) "Subsidiary" or "Subsidiaries" of the Company, the
Surviving Corporation, Parent, Holdings, Purchaser or any other person
means an Affiliate controlled by such person, directly or indirectly,
through one or more intermediaries.
SECTION 9.04. Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so
<PAGE> 45
38
long as the economic or legal substance of the Transactions is not
affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable
manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible.
SECTION 9.05. Entire Agreement; Assignment. This Agreement
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes, except as set forth in Sections 6.04(c) and 6.10,
all prior statements, agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Purchaser may assign all or any of their rights and obligations
hereunder to any wholly owned subsidiary of Parent provided that no such
assignment shall relieve the assigning party of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 9.06. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement, other than Sections 1.03, 2.07, 6.06 and 6.07 (which
is intended to be for the benefit of each of the persons covered thereby and
may be enforced by such persons).
SECTION 9.07. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware applicable to contracts executed in and to be performed in that State.
All actions and proceedings arising out of or relating to this Agreement shall
be heard and determined in any Delaware state court.
SECTION 9.08. Headings. The descriptive headings contained
in this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.09. Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE> 46
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
<TABLE>
<S> <C>
By /s/ DAVID J. LANGEVIN
------------------------------------------
Name: David J. Langevin
Title: Executive Vice President and
Chief Financial Officer
STONE RIVET, INC.
By /s/ DAVID J. LANGEVIN
------------------------------------------
Name: David J. Langevin
Title: Executive Vice President and
Financial Officer
ENVIROTEST SYSTEMS CORP.
By /s/ CHESTER C. DAVENPORT
------------------------------------------
Name: Chester C. Davenport
Title: Chairman of the Board
</TABLE>
<PAGE> 47
ANNEX A
Conditions to the Offer
Notwithstanding any other provision of the Offer, Purchaser
shall not be required to accept for payment or pay for any Shares tendered
pursuant to the Offer, and may terminate or amend the Offer and may postpone
the acceptance for payment of and payment for Shares tendered, if (x) the
Minimum Condition shall not have been satisfied, (y) any applicable waiting
period under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer, or (z) at any time on or after the date of this
Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall exist:
(a) there shall have been any judgment, order or
injunction entered or issued by any United States or Canadian federal,
state or provincial court or governmental, administrative or
regulatory authority or agency of competent jurisdiction that (i)
materially prohibits or limits the ownership or operation by Parent or
Purchaser, of all or a material portion of the business or assets of
the Company and the Subsidiaries, taken as a whole, or compels Parent,
Purchaser the Company or the Subsidiaries, to dispose of or hold
separate all or a material portion of the business or assets of the
Company and the Subsidiaries, taken as a whole, or Parent and its
Subsidiaries, taken as a whole, in each case as a result of the
Transactions; (ii) prohibits or makes illegal the acceptance for
payment, payment for or purchase of some or all of the Shares pursuant
to the Offer or the consummation of the Offer or the Merger; (iii)
results in a material delay in, or prevents, the acceptance of Shares
for payment, payment for purchase of some or all the Shares tendered
pursuant to the Offer; or (iv) imposes limitations on the ability of
Parent or Purchaser to exercise effectively full rights of ownership
of any Shares, including the right to vote any Shares acquired by
Purchaser pursuant to the Offer on all matters properly presented to
the Company's stockholders, including, without limitation, the
approval and adoption of this Agreement and the Transactions;
(b) a Material Adverse Effect shall have occurred and be
continuing;
(c) any representation or warranty of the Company in this
Agreement that is qualified by reference to a Material Adverse Effect
shall not be true and correct or any representation or warranty of the
Company in this Agreement that is not so qualified shall not be true
and correct so as to have a Material Adverse Effect, in each case as
if such representation or warranty was made as of such time on or
after the date of this Agreement (except for representations and
warranties made as of a specific date which shall be true and correct
as of such date);
<PAGE> 48
(d) the Company shall have failed to perform, or comply
with, any agreement or covenant of the Company to be performed or
complied with by it under this Agreement, which failure has a Material
Adverse Effect;
(e) this Agreement shall have been terminated in
accordance with its terms;
(f) Purchaser and the Company shall have agreed that
Purchaser shall terminate the Offer or postpone the acceptance for
payment of or payment for Shares thereunder; or
(g) there shall have occurred and be continuing (a) any
general suspension of trading in securities on the New York or
American Stock exchanges 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 or the consummation of high yield offerings, as
the case may be.
The foregoing conditions are for the sole benefit of Parent
and Purchaser, may be asserted by Parent or Purchaser regardless of the
circumstances giving rise to such condition and, subject to the terms and
conditions of the Agreement, may be waived by Parent and Purchaser, in whole or
in part at any time and from time to time in the sole discretion of Parent and
Purchaser. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
<PAGE> 49
ANNEX B
Employee Benefits Matters
1. In General
Parent hereby agrees that, for a period of one year
immediately following the Effective Time, it shall, or shall cause the
Surviving Corporation and its Subsidiaries to, maintain employee benefit plans,
programs, contracts and arrangements for the benefit of active and retired
employees of the Company and its Subsidiaries immediately prior to the
Effective Time (including those on leave of absence or disability immediately
prior to the Effective Time) which in the aggregate will provide compensation
and benefits that are at least substantially equivalent to the compensation and
benefits provided to such active and retired employees under the employee
benefit plans, programs, contracts and arrangements of the Company and its
Subsidiaries as in effect immediately prior to the Effective Time and that have
been disclosed or made available to Parent, other than employee benefit plans,
programs, contracts or arrangements providing for stock options, stock purchase
rights, restricted stock or other stock-based compensation. From and after the
Effective Time, Parent shall honor, and shall cause the Surviving Corporation
and its Subsidiaries to honor all contracts, agreements, arrangements,
policies, plans and commitments of the Company and its Subsidiaries in
accordance with their terms and as in effect immediately prior to the Effective
Time which are applicable to any current or former employees or directors of
the Company or any of its Subsidiaries and that have been disclosed or made
available to Parent, other than contracts, agreements, arrangements, policies,
plans or commitments providing for stock options which shall be treated in the
manner set forth in Section 1.03 or 2.07, as applicable.
2. Service Recognition
Employees of the Company and its Subsidiaries immediately
prior to the Effective Time (including those on leave of absence or disability
immediately prior to the Effective Time) shall receive credit for purposes of
eligibility to participate, vesting, benefit accrual and eligibility to receive
benefits under any employee benefit plan, program or arrangement established or
maintained by Parent, the Surviving Corporation or any of their respective
subsidiaries for service accrued or deemed accrued prior to the Effective Time
with the Company or any of its Subsidiaries; provided, however, that such
crediting of service shall not operate to duplicate any benefit or the funding
of any such benefit or to prevent a plan that is intended to be "qualified"
within the meaning of Section 401(a) of the Code from being so qualified.
<PAGE> 50
3. Certain Payments
Immediately following the purchase of Shares pursuant to the
Offer in accordance with Section 1.01, Parent or the Surviving Corporation
shall make payments as set forth in Schedule 6.06 to the employees listed
therein.
<PAGE> 1
99(c)(2)
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT dated as of August 12, 1998 among ENVIRONMENTAL
SYSTEMS PRODUCTS, INC., a Delaware corporation ("ESP"), STONE RIVET, INC., a
Delaware corporation and a direct wholly owned subsidiary of ESP ("Sub"), and
the other parties identified on SCHEDULE A hereto (each, a "Stockholder").
WHEREAS, each Stockholder desires that Envirotest Systems Corp., a
Delaware corporation (the "Company"), ESP and Sub enter into an Agreement and
Plan of Merger dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement") with respect to the merger of Sub with
and into the Company (the "Merger"); and
WHEREAS, each Stockholder is executing this Agreement as an inducement
to ESP and Sub to enter into and execute the Merger Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by ESP
and Sub of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein and therein, the parties agree as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES. Each Stockholder severally,
and not jointly, represents and warrants to ESP and Sub as follows:
(a) Such Stockholder is the record or beneficial owner of the
number of shares of Class A Common Stock of the Company (the "Company Common
Stock"), and the beneficial owner of the number of shares of Class B Common
Stock and Class C Common Stock of the Company, which are convertible into
Company Common Stock on a one-for-one basis at any time at the option of the
Stockholder, each as set forth opposite such Stockholder's name in SCHEDULE A
hereto (as may be adjusted from time to time pursuant to Section 6, such
Stockholder's "Shares"). Except for such Stockholder's Shares and as provided
on SCHEDULE B hereto, such Stockholder is not the record or beneficial owner of
any other shares of the Company's capital stock. Such Stockholder has sole
voting power and sole power to issue instructions with respect to the voting of
such Stockholder's Shares, sole power of disposition, sole power of exercise
and the sole power to demand appraisal rights, in each case with respect to all
of such Stockholder's Shares, except as indicated on said SCHEDULE A and, on
the date of any Stockholders' Meeting (as defined in the Merger Agreement),
will have the sole voting power and power to issue instructions with respect to
the voting of all of such Stockholder's Shares, the sole powers of disposition,
exercise and the sole power to demand appraisal rights, in each case with
respect to all of such Stockholder's Shares, except as described on SCHEDULE A.
Such Stockholder holds options to purchase shares of Company Common Stock,
Class B Common Stock and Class C Common Stock as set forth opposite such
Stockholder's name in SCHEDULE B. Any of such Shares which are described on
SCHEDULE B as option shares shall be deemed "Option Shares" for the purposes of
this Agreement. Any Option Shares which are exercised prior to the termination
<PAGE> 2
of this Agreement and, pursuant to Section 2 hereof, the shares of Company
Common Stock which are issuable upon the conversion of the number of shares of
Class B Common Stock and Class C Common Stock set forth on SCHEDULE A shall
also be deemed to be "Shares."
(b) This Agreement has been executed and delivered by such
Stockholder and constitutes the legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally, and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. To the best of Stockholder's knowledge, neither the execution and
delivery of this Agreement nor the consummation by such Stockholder of the
transactions contemplated hereby will result in a violation of, or a default
under, or conflict with, any contract, trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which such Stockholder
is a party or bound or to which such Stockholder's Shares are subject.
(c) Such Stockholder's Shares and the certificates representing
such Shares are now and at all times during the term hereof will be held by
such Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests, proxies,
voting trusts or agreements, understandings or arrangements or any other
encumbrances whatsoever, except for the Stockholders' Agreement, dated as of
March 30, 1993 among Chester C. Davenport, Slivy C. Edmonds, Georgetown
Partners Limited Partnership, Apollo Investment Fund, L.P., Chemical Equity
Associates and TSG Ventures Inc. and except for any such encumbrances arising
hereunder.
(d) Such Stockholder understands and acknowledges that ESP is
entering into, and causing Sub to enter into, the Merger Agreement in reliance
upon such Stockholder's execution and delivery of this Agreement.
SECTION 2. PURCHASE AND SALE OF SHARES.
(a) So long as (i) the Per Share Amount (as defined in the Merger
Agreement) in the Offer (as defined in the Merger Agreement) for all Shares is
not less than $17.25 in cash (net to the seller), (ii) the conditions of the
Offer have been satisfied or waived in accordance with the terms of the Merger
Agreement, and (iii) Sub shall have accepted the Shares for payment under the
Offer, each Stockholder hereby severally agrees that he will tender or cause to
be tendered his Shares set forth on SCHEDULE A into the Offer prior to the
expiration of the Offer and that he will not withdraw any Shares so tendered
and each Stockholder hereby severally agrees to sell to Sub, and Sub hereby
agrees to purchase, in each case pursuant to, and accordance with, the terms of
the Offer, all such Stockholder's Shares at a price per Share equal to the Per
Share Amount; provided, however that Richard L. Gelfond, Kane Partners, L.P.,
Cheviot Capital Advisors Inc. and Richard L. Gelfond 1998 GRAT (collectively,
the "Gelfond Entities") shall not be required to tender up to 100,000, in the
aggregate, of the Shares held by such Gelfond Entities so long as such Shares
are not necessary to satisfy the Minimum Condition.
(b) In furtherance of each Stockholder's obligations under
subsection (a) above, each Stockholder which owns Shares of Class B Common
Stock or Class C Common
2
<PAGE> 3
Stock of the Company agrees to convert such number of Shares of Class B Common
Stock or Class C Common Stock, respectively, as set forth on SCHEDULE A into
Shares of Company Common Stock prior to the expiration of the offer and tender
such Shares into the Offer pursuant to the terms of subsection (a) above.
SECTION 3. AGREEMENT TO VOTE SHARES. At any Stockholders' Meeting called
with respect to any of the following, and at every adjournment thereof, each
Stockholder, severally and not jointly, agrees that it shall vote, with respect
to, as appropriate all of such Stockholder's Shares set forth on SCHEDULE A as
to which it has power to vote in any such vote or consent: (i) in favor of the
Merger, the adoption of and execution and delivery of the Merger Agreement and
the approval of the terms thereof and each of the other transactions
contemplated by the Merger Agreement and (ii) against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement); (1) any extraordinary corporate transaction, including, but not
limited to a merger, consolidation or other business combination involving the
Company or any of its subsidiaries; (2) a sale, lease or transfer of a material
amount of assets of the Company or any of its subsidiaries or a reorganization,
recapitalization, dissolution or liquidation of the Company or any of its
subsidiaries; (3) (a) any change in the majority of the Board of Directors of
the Company except as contemplated by this Agreement; (b) any material change
in the present capitalization of the Company or any amendment of the Company's
Certificate of Incorporation; (c) any other material change in the Company's
corporate structure or business; or (d) any other action, which, in the case of
each of the matters referred to in clauses (a), (b), (c) or (d) above, is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, discourage or materially adversely affect the consummation of the
Merger or the transactions contemplated by the Merger Agreement or this
Agreement.
SECTION 4. IRREVOCABLE PROXY. EACH STOCKHOLDER HEREBY, SEVERALLY AND NOT
JOINTLY, GRANTS TO, AND APPOINTS SUB AND THE PRESIDENT OF SUB AND THE TREASURER
OF SUB, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF SUB, AND ANY INDIVIDUAL
WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF SUB, AND ANY OTHER DESIGNEE
OF SUB, EACH OF THEM INDIVIDUALLY, SUCH HOLDER'S PROXY AND ATTORNEY-IN-FACT
(WITH FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH
RESPECT TO SUCH STOCKHOLDER'S SHARES IN ACCORDANCE WITH SECTION 3 HEREOF. THIS
PROXY IS COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND EACH
STOCKHOLDER WILL TAKE SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS
MAY REASONABLY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY
REVOKES ANY PROXY PREVIOUSLY GRANTED BY IT WITH RESPECT TO SUCH STOCKHOLDER'S
SHARES.
SECTION 5. COVENANTS. Each Stockholder severally, and not jointly,
agrees with, and covenants to, ESP and Sub as follows: such Stockholder shall
not, except as contemplated by the terms of this Agreement, during the term of
this Agreement, (i) transfer (which term shall include, without limitation, for
the purposes of this Agreement, any sale, gift, pledge or other disposition),
or consent to any transfer of, any or all of such Stockholder's Shares or any
interest therein, (ii) enter into any contract, option or other agreement or
3
<PAGE> 4
understanding with respect to any transfer of any or all of such Shares or any
interest therein, (iii) grant any proxy, power-of-attorney or other
authorization or consent in or with respect to such Shares other than as
described in Sections 3 and 4 above in connection with a Stockholders' Meeting
to approve the Merger, (iv) deposit such Shares into a voting trust or enter
into a voting agreement or arrangement with respect to such Shares, (v)
directly or indirectly, solicit (including by way of furnishing information) or
respond to any inquiries or the making of any proposal by any person or entity
(other than ESP, Sub or any affiliate of ESP or Sub) with respect to the
Company that constitutes or could reasonably be expected to lead to an
Acquisition Proposal (as defined in the Merger Agreement), and if any
Stockholder receives any such inquiry or proposal, then it shall promptly
inform ESP and Sub of the terms and conditions, if any, of such inquiry or
proposal and the identity of the person making it, and such Stockholder will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, or (vi) take any other action that would in any way
restrict, limit or interfere with the performance of its obligations hereunder
or the transactions contemplated hereby; provided that each Stockholder shall
be entitled to transfer all or any portion of such Shareholder's Shares to any
person or entity which agrees in writing to be bound by the provisions of this
Agreement.
SECTION 6. CERTAIN EVENTS. Each Stockholder agrees that this Agreement
and the obligations hereunder shall attach to such Stockholder's Shares and
shall be binding upon any person or entity to which legal or beneficial
ownership of such Shares shall pass, whether by operation of law or otherwise,
including without limitation such Stockholder's heirs, guardians,
administrators or successors. In the event of any stock split, stock dividend,
merger, reorganization, recapitalization or other change in the capital
structure of the Company affecting the Company Common Stock, or the acquisition
of additional shares of Company Common Stock or other securities or rights of
the Company by any Stockholder, the number of Shares listed on SCHEDULE A and
Option Shares listed on SCHEDULE B beside the name of such Stockholder shall be
adjusted appropriately and this Agreement and the obligations hereunder shall
attach to any additional shares of Company Common Stock or other securities or
rights of the Company issued to or acquired by such Stockholder.
SECTION 7. TRANSFER. Each Stockholder agrees with and covenants to ESP
and Sub that such Stockholder shall not request that the Company register the
transfer (booked as entry or otherwise) of any certificated or uncertificated
interest representing any of the securities of the Company, unless such
transfer is made in compliance with this Agreement.
SECTION 8. VOIDABILITY. If prior to the execution hereof, the Board of
Directors of the Company shall not have duly and validly authorized and
approved by all necessary corporate action the acquisition of Company Common
Stock by ESP and Sub and other transactions contemplated by this Agreement and
the Merger Agreement, so that by the execution and delivery hereof ESP or Sub
would become, or could reasonably be expected to become, an "interested
stockholder" with whom the Company would be prevented for any period pursuant
to Section 203 of the Delaware General Corporation Law (the "DGCL") from
engaging in any "business combination" (as such terms are defined in Section
203 of the DGCL), then this Agreement shall be void and unenforceable until
such time as such authorization and approval shall have been duly and validly
obtained.
4
<PAGE> 5
SECTION 9. STOCKHOLDER CAPACITY. No person executing this Agreement who
is a director or officer of the Company makes any agreement or understanding
herein in his capacity as such director or officer. Each Stockholder signs
solely in his capacity as the record holder and beneficial owner of such
Stockholder's Shares and nothing herein shall limit or affect any actions taken
by a Stockholder in his capacity as an officer or director for the Company to
the extent specifically permitted by the Merger Agreement, including the
fiduciary duties of officers and directors in accordance with Delaware law.
SECTION 10. FURTHER ASSURANCES. Each Stockholder shall, upon request of
ESP or Sub, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by ESP or Sub to be necessary or desirable
to carry out the provisions hereof.
SECTION 11. TERMINATION. This Agreement, and all rights and obligations
of the parties hereunder, shall terminate upon the earlier of (a) the date upon
which the Merger Agreement is terminated by the Company, ESP or Sub for any
reason in accordance with its terms, and (b) the date that ESP or Sub shall
have purchased and paid for the Shares of each Stockholder pursuant to Section
2.
SECTION 12. STANDSTILL. In the event that Sub purchases a Stockholder's
Shares pursuant to Section 2 of this Agreement and, subsequent to such
purchase, such Stockholder continues to hold any shares of Company Common Stock
(the "Remaining Shares"), such Stockholder agrees that for a period of three
(3) years from the date of this Agreement that:
(a) Neither such Stockholder nor any of such Stockholders
affiliates or associates (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "1934 Act")) will, and neither
such Stockholder nor such affiliates or associates will assist or encourage
others to, directly or indirectly, (i) acquire or offer to acquire, seek,
propose or agree to acquire, by means of a purchase or otherwise, ownership
(including but not limited to beneficial ownership (as defined in Rule 13d-3
under the 1934 Act)) of (A) any securities (voting or otherwise) or direct or
indirect rights or options to acquire any securities of the Company or any
subsidiary thereof, or of any successor to or person in control of the Company
or (B) any of the assets or business of the Company, (ii) make, or in any way
participate in, any "solicitation" of "proxies" (as such terms are used in the
proxy rules promulgated under the 1934 Act, including any exempt solicitation
pursuant to Rule 14a-2(b)(1) or (2) thereof) to vote, or seek to advise or
influence any person or entity with respect to the voting of, any voting
securities of the Company or seek to nominate or to elect any directors of the
Company or to influence the management of the Company, (iii) enter into any
discussions, negotiations, agreements, arrangements or understandings with any
third party with respect to any of the foregoing or form, join or in any way
participate in a "group" (as defined in Section 13(d)(3) of the 1934 Act) in
connection with any of the foregoing, or (iv) request the Company to amend or
waive any provision of this Section 12 (including this clause (iv)). Such
Stockholder also agrees to promptly advise the Company of any inquiry or
proposal made to such Stockholder (including but not limited to the nature of
the contact and the parties thereto) with respect to any of the foregoing.
(b) Such Stockholder will not sell, transfer or assign or seek,
propose or agree
5
<PAGE> 6
to sell, transfer or assign to any person or entity (including any permitted
transferee under any governing documents of the Company or any contract,
agreement or arrangement to which such Stockholder is or may become a party)
other than Sub or any of its affiliates, ownership (including but not limited
to beneficial ownership (as defined in Rule 13d-3 under the 1934 Act)) of any
Remaining Shares.
SECTION 13. MISCELLANEOUS.
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to such terms in the
Merger Agreement.
(b) All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or such other address for a party as shall
be specified by like notice): (i) if to ESP or Sub, to the address set forth in
Section 9.02 of the Merger Agreement, and (ii) if to a Stockholder, to the
address set forth on SCHEDULE A hereto, or such other address as may be
specified in writing by such Stockholder.
(c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(d) This Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same agreement, and shall become
effective (even without the signature of any other Stockholder) as to any
Stockholder when one or more counterparts have been signed by each of ESP, Sub
and such Stockholder and delivered to ESP, Sub and such Stockholder.
(e) This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts or laws
thereof.
(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in party, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties, except by laws of descent. Any assignment in
violation of the foregoing shall be void.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any event, be held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions herein and the
application thereof to any other circumstances, shall remain in full force and
effect, shall not in any way be affected, impaired or invalidated, and shall be
enforced to the fullest extent permitted by law.
6
<PAGE> 7
(i) Each Stockholder agrees that irreparable damage would occur and
that ESP and Sub would not have any adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
ESP and Sub shall be entitled to an injunction or injunctions to prevent
breaches by any Stockholder of this Agreement and to enforce specifically the
terms and provisions of this Agreement.
(j) No amendment, modification or waiver in respect of this
Agreement shall be effective against any party unless it shall be in writing
and signed by such party.
(k) Terms used herein but not otherwise defined shall have the
meanings set forth in the Merger Agreement.
7
<PAGE> 8
IN WITNESS WHEREOF, ESP, Sub and the Stockholders have caused this
Agreement to be duly executed and delivered as of the date first written above.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ David J. Langevin
Name:
Title:
STONE RIVET, INC.
By: /s/ David J. Langevin
Name:
Title:
8
<PAGE> 9
<TABLE>
<S> <C>
STOCKHOLDERS
/s/ Chester C. Davenport /s/ Richard L. Gelfond
- --------------------------- ----------------------
Chester C. Davenport Richard L. Gelfond
ROCKSPRING MANAGEMENT, INC. THE CHESTER CORPORATION
By: /s/ Chester C. Davenport By: /s/ Chester C. Davenport
-------------------------- ------------------------
Name: Name:
Title: Title:
KANE PARTNERS, L.P. TSG VENTURES, L.P.
By: KPGP Corporation, its general partner By: TSGVI Associates, Inc.,, its general partner
By: /s/ Richard L. Gelfond By: /s/ Cleveland A. Christophe
------------------------- ---------------------------
Name: Name: Cleveland A. Christophe
Title: Title: Executive Vice President
CHEVIOT CAPITAL ADVISORS INC. RICHARD L. GELFOND 1998 GRAT
By: Richard L. Gelfond, as trustee
By /s/ Richard L. Gelfond
--------------------------
Name: Richard L. Gelfond
Title: President By: /s/ Richard L. Gelfond
----------------------
Name: Richard L. Gelfond
Title: Trustee
</TABLE>
9
<PAGE> 10
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF SHARES OWNED AND COVERED BY THIS AGREEMENT
STOCKHOLDER CLASS A CLASS B(1) CLASS C(1)
<S> <C> <C> <C>
Chester C. Davenport 17,100 79,840 0
Rockspring Management, Inc. 309,933 535,229 0
The Chester Corporation 3,412 8,556 0
TSG Ventures, L.P. 2,246,818 0 0
Kane Partners, L.P. 717,658 0 0
Richard L. Gelfond 1988 GRAT 85,000 0 0
Cheviot Capital Advisors Inc. 0 0 0
Richard L. Gelfond 0 0 0
</TABLE>
1. Shares of Class B Common Stock and Class C Common Stock are convertible into
shares of Class A Common Stock at the holder's option on a one-for-one basis.
Holders of Class B Common Stock and Class C Common Stock have agreed to convert
such shares into shares of Class A Common Stock pursuant to the terms of this
Agreement.
<PAGE> 11
SCHEDULE B
<TABLE>
<CAPTION>
NUMBER OF OPTIONS HELD AND CONVERTIBLE INTO STOCK:
STOCKHOLDER CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Chester C. Davenport 484,542 0 0
Rockspring Management, Inc. 0 778,542 0
The Chester Corporation 0 12,484 0
TSG Ventures, L.P. 0 0 0
Kane Partners, L.P. 0 0 0
Richard L. Gelfond 1998 GRAT 0 0 0
Cheviot Capital Advisors Inc. 100,000 0 0
Richard L. Gelfond 125,000 0 0
</TABLE>
SHARES BENEFICIALLY OWNED AND NOT SUBJECT TO THIS AGREEMENT
1. There are approximately 83,000 shares of Class A Common Stock held in trusts
for which Mr. Gelfond is the trustee, for the benefit of Mr. Gelfond's
children. Such shares are not subject to the terms of this Agreement.
2. Chester C. Davenport, Rockspring Management, Inc., and The Chester
Corporation, own an additional 80,160, 537,374 and 8,590 shares of Class B
Common Stock, respectively, which shares are not subject to this Agreement.
11
<PAGE> 1
99(c)(3)
STOCKHOLDER AGREEMENT
STOCKHOLDER AGREEMENT dated as of August 12, 1998 among ENVIRONMENTAL
SYSTEMS PRODUCTS, INC., a Delaware corporation ("ESP"), STONE RIVET, INC., a
Delaware corporation and a direct wholly owned subsidiary of ESP ("Sub"), and
CHEMICAL EQUITY ASSOCIATES (the "Stockholder").
WHEREAS, the Stockholder desires that Envirotest Systems Corp., a Delaware
corporation (the "Company"), ESP and Sub enter into an Agreement and Plan of
Merger dated as of the date hereof (as the same may be amended or supplemented,
the "Merger Agreement") with respect to the merger of Sub with and into the
Company (the "Merger"); and
WHEREAS, the Stockholder is executing this Agreement as an inducement to
ESP and Sub to enter into and execute the Merger Agreement.
NOW, THEREFORE, in consideration of the execution and delivery by ESP and
Sub of the Merger Agreement and the mutual covenants, conditions and agreements
contained herein and therein, the parties agree as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES. The Stockholder represents and
warrants to ESP and Sub as follows:
(a) The Stockholder is the record or beneficial owner of the number
of shares of Class A Common Stock of the Company (the "Company Common Stock"),
and the beneficial owner of the number of shares of Class B Common Stock and
Class C Common Stock of the Company, which are convertible into Company Common
Stock on a one-for-one basis at any time at the option of the Stockholder, each
as set forth on SCHEDULE A hereto (as may be adjusted from time to time pursuant
to Section 6, the Stockholder's "Shares"). Except for the Stockholder's Shares
and as provided on SCHEDULE B hereto, the Stockholder is not the record or
beneficial owner of any other shares of the Company's capital stock. The
Stockholder has sole voting power and sole power to issue instructions with
respect to the voting of the Stockholder's Shares, sole power of disposition,
sole power of exercise and the sole power to demand appraisal rights, in each
case with respect to all of the Stockholder's Shares, except as indicated on
said SCHEDULE A and, on the date of any Stockholders' Meeting (as defined in the
Merger Agreement), will have the sole voting power and power to issue
instructions with respect to the voting of all of the Stockholder's Shares, the
sole powers of disposition, exercise and the sole power to demand appraisal
rights, in each case with respect to all of the Stockholder's Shares, except as
described on SCHEDULE A. The Stockholder holds options to purchase shares of
Company Common Stock, Class B Common Stock and Class C Common Stock as set forth
on SCHEDULE B. Any of such Shares which are described
<PAGE> 2
on SCHEDULE B as option shares shall be deemed "Option Shares" for the purposes
of this Agreement. Any Option Shares which are exercised prior to the
termination of this Agreement and, pursuant to Section 2 hereof, the shares of
Company Common Stock which are issuable upon the conversion of the number of
shares of Class B Common Stock and Class C Common Stock set forth on SCHEDULE A
shall also be deemed to be "Owned Shares."
(b) This Agreement has been executed and delivered by the Stockholder
and constitutes the legal, valid and binding obligation of the Stockholder,
enforceable against the Stockholder in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies. To the best of the
Stockholder's knowledge, neither the execution and delivery of this Agreement
nor the consummation by the Stockholder of the transactions contemplated hereby
will result in a violation of, or a default under, or conflict with, any
contract, trust, commitment, agreement, understanding, arrangement or
restriction of any kind to which the Stockholder is a party or bound or to which
the Stockholder's Shares are subject.
(c) The Stockholder's Shares and the certificates representing such
Shares are now and at all times during the term hereof will be held by the
Stockholder, or by a nominee or custodian for the benefit of the Stockholder,
free and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever, except for the Stockholders' Agreement, dated as of March 30, 1993
among Chester C. Davenport, Slivy C. Edmonds, Georgetown Partners Limited
Partnership, Apollo Investment Fund, L.P., Chemical Equity Associates and TSG
Ventures Inc. and except for any such encumbrances arising hereunder.
(d) The Stockholder understands and acknowledges that ESP is entering
into, and causing Sub to enter into, the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement.
SECTION 2. PURCHASE AND SALE OF SHARES.
(a) So long as (i) the Per Share Amount (as defined in the Merger
Agreement) in the Offer (as defined in the Merger Agreement) for all Shares is
not less than $17.25 in cash (net to the seller), (ii) the conditions of the
Offer have been satisfied or waived in accordance with the terms of the Merger
Agreement, and (iii) Sub shall have accepted the Shares for payment under the
Offer, the Stockholder hereby agrees that it will tender or cause to be tendered
its Shares set forth on SCHEDULE A into the Offer prior to the expiration of the
Offer and that it will not withdraw any Shares so tendered and the Stockholder
hereby agrees to sell to Sub, and Sub hereby agrees to purchase, in each case
pursuant to, and accordance with, the terms of the Offer, all the Stockholder's
Owned Shares at a price per Share equal to the Per Share Amount.
2
<PAGE> 3
(b) In furtherance of the Stockholder's obligations under subsection
(a) above, the Stockholder agrees to convert any Shares of Class B Common Stock
or Class C Common Stock, respectively, held by the Stockholder, as set forth on
SCHEDULE A into Shares of Company Common Stock prior to the expiration of the
offer and tender such Shares into the Offer pursuant to the terms of subsection
(a) above.
SECTION 3. AGREEMENT TO VOTE SHARES. At any Stockholders' Meeting called
with respect to any of the following, and at every adjournment thereof, the
Stockholder agrees that it shall vote, with respect to, as appropriate all of
the Stockholder's Shares set forth on SCHEDULE A as to which it has power to
vote in any such vote or consent: (i) in favor of the Merger, the adoption of
and execution and delivery of the Merger Agreement and the approval of the terms
thereof and each of the other transactions contemplated by the Merger Agreement
and (ii) against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement); (1) any extraordinary
corporate transaction, including, but not limited to a merger, consolidation or
other business combination involving the Company or any of its subsidiaries; (2)
a sale, lease or transfer of a material amount of assets of the Company or any
of its subsidiaries or a reorganization, recapitalization, dissolution or
liquidation of the Company or any of its subsidiaries; (3) (a) any change in the
majority of the Board of Directors of the Company except as contemplated by this
Agreement; (b) any material change in the present capitalization of the Company
or any amendment of the Company's Certificate of Incorporation; (c) any other
material change in the Company's corporate structure or business; or (d) any
other action, which, in the case of each of the matters referred to in clauses
(a), (b), (c) or (d) above, is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, discourage or materially adversely
affect the consummation of the Merger or the transactions contemplated by the
Merger Agreement or this Agreement.
SECTION 4. IRREVOCABLE PROXY. THE STOCKHOLDER HEREBY, SEVERALLY AND NOT
JOINTLY, GRANTS TO, AND APPOINTS SUB AND THE PRESIDENT OF SUB AND THE TREASURER
OF SUB, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF SUB, AND ANY INDIVIDUAL
WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF SUB, AND ANY OTHER DESIGNEE OF
SUB, EACH OF THEM INDIVIDUALLY, SUCH HOLDER'S PROXY AND ATTORNEY-IN-FACT (WITH
FULL POWER OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH RESPECT TO
THE STOCKHOLDER'S SHARES IN ACCORDANCE WITH SECTION 3 HEREOF. THIS PROXY IS
COUPLED WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND THE STOCKHOLDER WILL TAKE
SUCH FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY REASONABLY BE
NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY IT WITH RESPECT TO THE STOCKHOLDER'S SHARES.
3
<PAGE> 4
SECTION 5. COVENANTS. The Stockholder agrees with, and covenants to, ESP
and Sub as follows: the Stockholder shall not, except as contemplated by the
terms of this Agreement, during the term of this Agreement, (i) transfer (which
term shall include, without limitation, for the purposes of this Agreement, any
sale, gift, pledge or other disposition), or consent to any transfer of, any or
all of the Stockholder's Shares or any interest therein, (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of the Shares or any interest therein, (iii) grant any
proxy, power-of-attorney or other authorization or consent in or with respect to
the Shares other than as described in Sections 3 and 4 above in connection with
a Stockholders' Meeting to approve the Merger, (iv) deposit the Shares into a
voting trust or enter into a voting agreement or arrangement with respect to the
Shares, (v) directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
person or entity (other than ESP, Sub or any affiliate of ESP or Sub) with
respect to the Company that constitutes or could reasonably be expected to lead
to an Acquisition Proposal (as defined in the Merger Agreement), and if the
Stockholder receives any such inquiry or proposal, then it shall promptly inform
ESP and Sub of the terms and conditions, if any, of such inquiry or proposal and
the identity of the person making it, and the Stockholder will immediately cease
and cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing, or
(vi) take any other action that would in any way restrict, limit or interfere
with the performance of its obligations hereunder or the transactions
contemplated hereby; provided that the Stockholder shall be entitled to transfer
all or any portion of the Shareholder's Shares to any person or entity which
agrees in writing to be bound by the provisions of this Agreement.
SECTION 6. CERTAIN EVENTS. The Stockholder agrees that this Agreement and
the obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of the
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's heirs, guardians, administrators or successors. In
the event of any stock split, stock dividend, merger, reorganization,
recapitalization or other change in the capital structure of the Company
affecting the Company Common Stock, or the acquisition of additional shares of
Company Common Stock or other securities or rights of the Company by the
Stockholder, the number of Shares listed on SCHEDULE A and Option Shares listed
on SCHEDULE B beside the name of the Stockholder shall be adjusted appropriately
and this Agreement and the obligations hereunder shall attach to any additional
shares of Company Common Stock or other securities or rights of the Company
issued to or acquired by the Stockholder.
SECTION 7. TRANSFER. The Stockholder agrees with and covenants to ESP and
Sub that the Stockholder shall not request that the Company register the
transfer (booked as entry or otherwise) of any certificated or uncertificated
interest representing any of the securities of the Company, unless such transfer
is made in compliance with this Agreement.
4
<PAGE> 5
SECTION 8. VOIDABILITY. If prior to the execution hereof, the Board of
Directors of the Company shall not have duly and validly authorized and approved
by all necessary corporate action the acquisition of Company Common Stock by ESP
and Sub and other transactions contemplated by this Agreement and the Merger
Agreement, so that by the execution and delivery hereof ESP or Sub would become,
or could reasonably be expected to become, an "interested stockholder" with whom
the Company would be prevented for any period pursuant to Section 203 of the
Delaware General Corporation Law (the "DGCL") from engaging in any "business
combination" (as such terms are defined in Section 203 of the DGCL), then this
Agreement shall be void and unenforceable until such time as such authorization
and approval shall have been duly and validly obtained.
SECTION 9. STOCKHOLDER CAPACITY. No person executing this Agreement who is
a director or officer of the Company makes any agreement or understanding herein
in his capacity as such director or officer. The Stockholder signs solely in its
capacity as the record holder and beneficial owner of the Stockholder's Shares
and nothing herein shall limit or affect any actions taken by the Stockholder in
its capacity as an officer or director for the Company to the extent
specifically permitted by the Merger Agreement, including the fiduciary duties
of officers and directors in accordance with Delaware law.
SECTION 10. FURTHER ASSURANCES. The Stockholder shall, upon request of ESP
or Sub, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by ESP or Sub to be necessary or desirable
to carry out the provisions hereof.
SECTION 11. TERMINATION. This Agreement, and all rights and obligations of
the parties hereunder, shall terminate upon the earlier of (a) the date upon
which the Merger Agreement is terminated by the Company, ESP or Sub for any
reason in accordance with its terms, and (b) the date that ESP or Sub shall have
purchased and paid for the Shares of the Stockholder pursuant to Section 2.
SECTION 12. MISCELLANEOUS.
(a) Capitalized terms used and not otherwise defined in this
Agreement shall have the respective meanings assigned to such terms in the
Merger Agreement.
(b) All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or such other address for a party as shall
be specified by like notice): (i) if to ESP or Sub, to the address set forth in
Section 9.02 of the Merger Agreement, and (ii) if to the Stockholder, to the
address set forth on SCHEDULE A hereto, or such other address as may be
specified in writing by the Stockholder.
5
<PAGE> 6
(c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
(d) This Agreement may be executed in two or more counterparts, all
of which shall be considered one and the same agreement, and shall become
effective as to the Stockholder when one or more counterparts have been signed
by each of ESP, Sub and the Stockholder and delivered to ESP, Sub and the
Stockholder.
(e) This Agreement (including the documents and instruments referred
to herein) constitutes the entire agreement, and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(f) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts or laws thereof.
(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in party, by
operation of law or otherwise, by any of the parties without the prior written
consent of the other parties, except by laws of descent. Any assignment in
violation of the foregoing shall be void.
(h) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any event, be held by a court
of competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions, covenants and restrictions herein and the application
thereof to any other circumstances, shall remain in full force and effect, shall
not in any way be affected, impaired or invalidated, and shall be enforced to
the fullest extent permitted by law.
(i) The Stockholder agrees that irreparable damage would occur and
that ESP and Sub would not have any adequate remedy at law in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that ESP and
Sub shall be entitled to an injunction or injunctions to prevent breaches by the
Stockholder of this Agreement and to enforce specifically the terms and
provisions of this Agreement.
(j) No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and signed by
such party.
6
<PAGE> 7
(k) Terms used herein but not otherwise defined shall have the
meanings set forth in the Merger Agreement.
IN WITNESS WHEREOF, ESP, Sub and the Stockholder have caused this
Agreement to be duly executed and delivered as of the date first written above.
ENVIRONMENTAL SYSTEMS PRODUCTS, INC.
By: /s/ David J. Langevin
---------------------
Name:
Title:
STONE RIVET, INC.
By: /s/ David J. Langevin
---------------------
Name:
Title:
CHEMICAL EQUITY ASSOCIATES
By: Chase Capital Partners Inc. its general partner
By: /s/ Arnold L. Chavkin
---------------------
Name: Arnold L. Chavkin
Title: General Partner
7
<PAGE> 8
SCHEDULE A
Stock Ownership of Envirotest Systems Corp. ("Envirotest")
Chemical Equity Associates Class A Common Stock - 0
c/o Chase Capital Partners, Inc.
380 Madison Avenue Class B Common Stock - 0
12th Floor
New York, New York 10017 Class C Common Stock - 2,026,111(1)
Attn: Arnie Chavkin
Facsimile: (212) 622-3750
- ---------------
(1) Shares of Class B Common Stock of Envirotest are convertible into shares of
Class A Common Stock of Envirotest on a one-for-one basis at any time at the
holder's option.
8
<PAGE> 9
SCHEDULE B
Ownership of Options to Purchase Shares of
Class A Common Stock of Envirotest
None.
9
<PAGE> 1
EXHIBIT 99(c)(4)
Mr. David Langevin
Executive Vice President
Environmental Systems Products
7 Cripes Road
East Granby, CT 06026
8 May, 1998
Dear Mr. Langevin:
You have requested information regarding Envirotest Systems Corp. (the
"Company") in connection with your consideration of the possible acquisition of
the Company (a "Possible Transaction"). In consideration of our furnishing you
with the Evaluation Materials (as defined below) you agree as follows:
Confidentiality of Evaluation Materials
You will treat confidentially any information (whether written or oral) that
either we or our financial advisor, Credit Suisse First Boston Corporation
("CSFB"), or our other representatives furnish to you in connection with a
Possible Transaction involving the Company, together with analyses,
compilations, studies or other documents prepared by you, or by your
representatives (as defined below) which contain or otherwise reflect such
information or your review of, or interest in, the Company (collectively, the
"Evaluation Materials"). You recognize and acknowledge the competitive value of
the Evaluation Materials and the damage that could result to the Company if the
Evaluation Materials were used or disclosed except as authorized by this
Agreement.
The term "Evaluation Materials" includes information furnished to you orally or
in writing (whatever the form or storage medium) or gathered by inspection, and
regardless of whether such information is specifically identified as
"confidential". The term "Evaluation Materials" does not include information
which (i) is or becomes generally available to the public other than as a
result of a disclosure by you or your representatives, (ii) was or becomes
available to you on a non-confidential basis from a source other than the
Company or its representatives, provided that such source is not prohibited
from disclosing such information to you by a contractual, legal or fiduciary
obligation to the Company or its representatives, or (iii) is independently
developed by you.
<PAGE> 2
Environmental Systems Products
8 May, 1998
Page 2
Use of Evaluation Materials
You will not use any of the Evaluation Materials for any purpose other than the
exclusive purpose of evaluating a Possible Transaction. You and your
representatives will keep the Evaluation Materials completely confidential;
provided, however, that (i) any of such information may only be disclosed to
those of your directors, officers, employees, agents, representatives
(including attorneys, accountants and financial advisors), lenders and other
sources of financing (collectively, "your representatives") who need to know
such information for the purpose of evaluating a Possible Transaction between
you and the Company (it being understood that your representatives shall be
informed by you of the confidential nature of such information and shall be
directed by you, and shall each expressly agree, to treat such information
confidentially in accordance with this Agreement) and (ii) any other disclosure
of such information may only be made if the Company consents in writing prior
to any such disclosure. Without limiting the generality of the foregoing, in
the event that a Possible Transaction is not consummated neither you nor your
representatives shall use any of the Evaluation Materials for any purpose. You
will be responsible for any breach of this Agreement by your representatives.
In the event that you or any of your representatives receive a request or are
required (by deposition, interrogatory, request for documents, subpoena, civil
investigative demand or similar process) to disclose all or any part of the
Evaluation Materials, you or your representatives, as the case may be, agree to
(i) immediately notify the Company of the existence, terms and circumstances
surrounding such a request, (ii) consult with the Company on the advisability
of taking legally available steps to resist or narrow such request and (iii)
assist the Company in seeking a protective order or other appropriate remedy.
In the event that such protective order or other remedy is not obtained or that
the Company waives compliance with the provisions hereof, (i) you or your
representatives, as the case may be, may disclose to any tribunal only that
portion of the Evaluation Materials which you are advised by counsel is legally
required to be disclosed, and shall exercise your best efforts to obtain
assurance that confidential treatment will be accorded such Evaluation
Materials and (ii) you shall not be liable for such disclosure unless
disclosure to any such tribunal was caused by or resulted from a previous
disclosure by you or your representatives not permitted by this Agreement.
<PAGE> 3
Environmental Systems Products
8 May, 1998
Page 3
Non-Disclosure
The disclosure of your possible interest in purchasing the Company could have a
material adverse effect on the Company's business if for any reason an
agreement of purchase and sale is not consummated. Accordingly, unless required
by applicable law, you agree that prior to the closing of a Possible
Transaction, without the prior written consent of the Company, you will not,
and you will direct your representatives not to, disclose to any person either
the fact that discussions or negotiations are taking place concerning a
possible transaction between you and the Company or any of the terms,
conditions or other facts with respect to any such Possible Transaction,
including the status thereof. The term "person" as used in this letter shall be
broadly interpreted to include, without limitation, any corporation, the
Company, governmental agency or body, stock exchange, partnership, association
or individual.
Return of Documents
Upon the Company's request, you shall promptly deliver to the Company or
destroy all written Evaluation Materials and any other written materials
without retaining, in whole or in part, any copies, extracts or other
reproductions (whatever the form or storage medium) of such materials, and
shall certify the destruction of such materials in writing to the Company.
No Unauthorized Contact or Solicitation
During the course of your evaluation, all inquiries and other communications
are to be made directly to CSFB or employees or representatives of the Company
specified by CSFB. Accordingly, you agree not to directly or indirectly contact
or communicate with any executive or other employee of the Company concerning a
Possible Transaction, or to seek any information in connection therewith from
such person, without the express consent of CSFB. You also agree not to discuss
with or offer to any third party an equity participation in a Possible
Transaction or any other form of joint acquisition by you and such third party
without CSFB's prior written consent.
Without the Company's prior written consent, you will not for a period of two
years from the date of this Agreement directly solicit for employment any
person who is now employed by the Company (or whose activities are dedicated to
the Company) in an executive or management level position or otherwise
considered by the Company to be a key employee.
<PAGE> 4
Environmental Systems Products
8 May, 1998
Page 4
Standstill
You agree that until two years from the date of this Agreement, you will not
without the prior approval of the Board of Directors of the Company (i) acquire
or make any proposal to acquire any securities or property of the Company, (ii)
propose to enter into any merger or business combination involving the Company
or purchase a material portion of the assets of the Company, (iii) make or
participate in any solicitation of proxies to vote, or seek to advise or
influence any person with respect to the voting of any securities of the
Company, (iv) form, join or participate in a "group" (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934) with respect to any
voting securities of the Company, (v) otherwise act or seek to control or
influence the management, Board of Directors or policies of the Company, (vi)
disclose any intention, plan or arrangement inconsistent with the foregoing or
(vii) take any action which might require the Company to make a public
announcement regarding the possibility of a business combination or merger.
Except as provided above, you also agree during such period not to request the
Company (or its directors, officers, employees, agents or representatives) to
amend or waive any provision of this paragraph.
No Representation or Warranty
Although the Company and CSFB have endeavored to include in the Evaluation
Materials information known to them which they believe to be relevant for the
purpose of your investigation, you acknowledge and agree that none of the
Company, CSFB or any of the Company's other representatives or agents is making
any representation or warranty, expressed or implied, as to the accuracy or
completeness of the Evaluation Materials, and none of the Company, CSFB or any
of the Company's other representatives or agents, nor any of their respective
officers, directors, employees, representatives, stockholders, owners,
affiliates, advisors or agents, will have any liability to you or any other
person resulting from the use of Evaluation Materials by you or any of your
representatives. Only those representations or warranties that are made to a
purchaser in a definitive sale agreement for the Company ("Sale Agreement")
when, as, and if it is executed, and subject to such limitations and
restrictions as may be specified in such Sale Agreement, will have any legal
effect.
You also acknowledge and agree that no contract or agreement providing for the
sale of the Company shall be deemed to exist between you and the Company unless
and until a Sale Agreement has been executed and delivered by you and each of
the other parties thereto, and you hereby waive, in advance, any claims
(including, without limitation, breach of contract) in connection with the sale
of the Company unless and until a Sale Agreement has been executed and
delivered by
<PAGE> 5
Environmental Systems Products
8 May, 1998
Page 5
you and each of the other parties thereto. You also agree that unless and until
a Sale Agreement between the Company and you with respect to the acquisition of
the Company has been executed and delivered by you and each of the other
parties thereto, there shall not be any legal obligation of any kind whatsoever
with respect to any such transaction by virtue of this agreement or any other
written or oral expression with respect to such transaction except, in the case
of this Agreement, for the matters specifically agreed to herein. For purposes
of this Agreement, the term "Sale Agreement" does not include an executed
letter of intent or any other preliminary written agreement, nor does it
include any oral acceptance of an offer or bid by you.
You further understand and agree that (i) the Company and CSFB shall be free to
conduct the process for the Company's sale as they in their sole discretion
shall determine (including, without limitation, negotiating with any of the
prospective buyers and entering into a Sale Agreement without prior notice to
you or to any other person), (ii) any procedures relating to such sale may be
changed at any time without notice to you or any other person and (iii) you
shall not have any claims whatsoever against the Company, CSFB or any of their
respective directors, officers, employees, stockholders, owners, affiliates,
agents or representatives arising out of or relating to the sale of the Company
(other than those as against the parties to a Sale Agreement with you in
accordance with the terms thereof).
Legal Remedy
You understand and agree that money damages would not be a sufficient remedy
for any breach of this Agreement by you or your representatives and that the
Company will be entitled to specific performance and injunctive relief as
remedies for any such breach. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Agreement by you or your
representatives but shall be in addition to all other remedies available at law
or equity.
Other
This Agreement constitutes the entire agreement between the parties hereto
regarding the subject matter hereof. This Agreement may be changed only by a
written agreement signed by the parties hereto or their authorized
representatives.
This Agreement shall be governed and construed in accordance with the laws of
the State of New York, without regard to the conflicts of law principles
thereof.
<PAGE> 6
Environmental Systems Products
8 May, 1998
Page 6
If you are in agreement with the foregoing, please sign and return one copy of
this letter, it being understood that all counterpart copies will constitute
but one agreement with respect to the subject matter of this letter.
Very truly yours,
By Credit Suisse First Boston Corporation, solely as Company's representative
By:
-------------------------------------------
Name: Andrew Lipsky
Title: Vice President
Accepted and agreed to as of the date hereof:
Environmental Systems Products
By:
-------------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 99(c)(5)
NON-COMPETE AGREEMENT
This Agreement, dated as of August 12, 1998 (the "Agreement"), between
ENVIRONMENTAL SYSTEMS PRODUCTS, INC., a Delaware corporation (the "Company") and
CHESTER C. DAVENPORT ("Davenport").
RECITALS
1. The Company and Envirotest Systems Corp. ("Envirotest") are parties to
a Merger Agreement dated as of August 12, 1998 (the "Merger Agreement"),
pursuant to which Envirotest will be merged with and into the Company (the
"Merger") at the Effective Time (as defined in the Merger Agreement).
2. Davenport serves as Chairman of the Board of Envirotest pursuant to an
Employment Agreement dated as of January 1, 1993, as amended on June 4, 1998
(the "Employment Agreement"). In accordance with the Employment Agreement,
Davenport has the unilateral right to terminate his employment with Envirotest
upon the consummation of the Merger, and, in the event of such termination, is
subject for two years to certain non-competition obligations (such obligations,
as set forth in the Employment Agreement, the "Existing Non-Compete
Obligations").
3. Davenport has determined to exercise his unilateral right to terminate
his employment with Envirotest under the Employment Agreement upon the
consummation of the Merger.
4. The Existing Non-Compete Obligations are of two years in duration, and
are not applicable to the manufacture, sale or leasing of emissions testing
equipment.
5. By reason of Davenport's unique talents, background, experience and
knowledge of the industry, Davenport could, if he chose to compete with the
Company to the extent consistent with the Existing Non-Compete Obligations, pose
a unique and major competitive threat to the Company.
6. In furtherance of the Merger in accordance with the Merger Agreement
and the transactions contemplated thereby, in order that the Company may have
and enjoy the full benefit of the ownership of the business of Envirotest, and
more effectively to protect the value and goodwill of such business, the parties
have agreed to extend and expand the Existing Non-Compete Obligations.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in order to effect the foregoing and in consideration of
the promises and the respective covenants and agreements of the parties herein
contained and intending to be legally bound hereby, the parties hereto agree as
follows:
1. Non-Competition; Nonsolicitation.
(a) , Davenport agrees that for a period of five years following the
consummation of the Merger (the "Term"), Davenport shall not:
(i) own, manage, operate, control, participate in, perform
services for, or otherwise engage in, a business in
competition with the business of vehicle emissions testing,
the manufacture of equipment for such testing, or the sale or
leasing of such equipment (the "Business"), either acting alone
or in conjunction with others, directly or indirectly, whether
as owner, partner, stockholder, principal, agent, consultant,
independent contractor or employer, anywhere within the United
States (it being understood that the Business can be national in
scope and not limited to any particular region of the United
States and that the Business may be engaged in effectively from
any location within the United States); and
(ii) either acting alone or in conjunction with others, directly or
indirectly, induce or attempt to persuade any customers or
prospective customers of the Company to curtail, cancel or
otherwise terminate their business with the Company.
provided, however, that nothing set forth in this Agreement shall prohibit
Davenport from owning not in excess of 5% in the aggregate of any class of
capital stock of any corporation if such stock is publicly traded and listed on
any national or regional stock exchange or on the NASDAQ market system.
(b) Davenport agrees that during the Term, Davenport shall not:
(i) employ, offer to employ or permit to post for any position of
employment any employee of the Company, except for Mark Thomas or any
individual who has customarily been employed in the operations of
Envirotest in Bethesda, Maryland (the "Excepted Employees"); or
(ii) otherwise interfere with the employment by the Company or its
Affiliates of, any individual (other than an Excepted Employee) who
becomes or would otherwise become an employee of the Company, unless and
until such employee's employment is terminated by the Company after the
consummation of the Merger or the Company and Davenport enter into a
written agreement with respect to such employee providing otherwise.
2
<PAGE> 3
"Affiliate" means any person or entity that directly, or indirectly
through one of more intermediaries, controls or is controlled by or is under
common control with the person or entity specified. For purposes of this
definition, control of a person or entity means the power, direct or indirect,
to direct or cause the direction of the management and policies of such person
or entity, whether by contract or otherwise.
(c) It is expressly understood and agreed that although Davenport and the
Company consider the restrictions contained in paragraph (a) and paragraph (b)
above to be reasonable in scope and duration, if a final judicial determination
is made by a court of competent jurisdiction that the time or territory or any
other restriction contained in paragraph (a) or paragraph (b) is an
unenforceable restriction against Davenport, the provisions of such paragraph
shall not be rendered void, but shall be deemed amended to apply as to such
maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in paragraph (a)
or paragraph (b) is unenforceable, and such restriction cannot be amended so as
to make it enforceable, such finding shall not affect the enforceability of any
of the other restrictions contained in such paragraph or in this Agreement.
2. Compensation. In consideration for the extension and expansion of the
Existing Non-Compete Obligations as set forth herein, the Company agrees to
compensate Davenport as follows:
(a) $1,000,000 upon the earlier to occur of (i) the acceptance of shares
for payment pursuant to the tender offer contemplated by the Merger Agreement
and (ii) consummation of the Merger and the closing of the related transactions,
(b) $333,333.33 per year for a period of three years, payable in equal
monthly installments of $27,777.78 on the first day of each month, commencing
the first month following the consummation of the Merger.
3. Injunctive Relief. In the event of breach by Davenport of his
obligations hereunder, the Company shall be entitled to institute legal
proceedings to obtain damages for any such breach, or to enforce the specific
performance of this Agreement by Davenport and to enjoin Davenport from any
further violation of the terms herein and to exercise such remedies cumulatively
or in conjunction with all other rights and remedies provided by law or equity.
Davenport acknowledges, however, that the remedies at law for any breach by
Davenport of the provisions herein may be inadequate since violation of this
Agreement may cause the Company irreparable harm. Davenport therefore agrees
that in the event of any actual or threatened violation of this Agreement, the
Company shall be entitled, in addition to other remedies that it may have, to a
temporary restraining order and to preliminary and final injunctive relief
against Davenport to prevent any violations of this Agreement, without the
necessity of posting a bond.
3
<PAGE> 4
4. Maintaining Confidential Information.
(a) At all times during the Term and thereafter, Davenport will hold
in strictest confidence, and not use, except for the benefit of the Company, or
disclose to any person, firm or corporation without written authorization of the
Board of Directors of the Company, any trade secrets, confidential knowledge,
data or other proprietary information relating to products, processes, know-how,
design, formulas, developmental or experimental work, computer programs, data
bases, other original works of authorship, customer lists, business plans,
financial information or other subject matter pertaining to any business of the
Company or any of its clients, consultants or licensees (the "Confidential
Information").
(b) "Confidential Information" does not include any such information,
technical data, or know-how which:
(i) is already or otherwise enters the public domain, not as a
result of any action or inaction by Davenport in violation of this
Agreement;
(ii) is in the receiving party's possession prior to disclosure by
Davenport;
(iii) is approved for release by the Company or is made available by
the Company to third parties without an obligation of
confidentiality;
(iv) relates to Davenport's general business knowledge acquired as a
result of his association with and services to the Company.
(c) Davenport will promptly make full written disclosure to the
Company, hold in trust for the sole right and benefit of the Company and assign
to the Company all his right, title, and interest in and to all inventions,
original works of authorship, developments, improvements or trade secrets which
Davenport may solely or jointly conceive or develop or reduce to practice, or
cause to be conceived or developed or reduced to practice, which relate to the
Company's business, are developed by Davenport in connection with the services
provided hereunder or under the Employment Agreement or are developed by
Davenport through the use of any property, equipment or other assets of the
Company.
5. Modification; Waiver; Discharge. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by each of the parties hereto. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
4
<PAGE> 5
6. Effect on Other Agreements. This Agreement is not intended to amend or
otherwise affect the provisions of the Employment Agreement or any other
arrangements between Davenport and Envirotest.
7. Assignment; Binding on Successors. This Agreement and the rights and
obligations of the parties hereto will bind and inure to the benefit of any
successor or successors of the Company by reorganization, merger or
consolidation and any assignee of all or substantially all of its business and
properties, provided that, in the case of an assignment, the assignee assumes
all of the Company's obligations hereunder. Except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by Davenport, and no assignment by
the Company will relieve the Company from its obligations to Davenport
hereunder.
8. Reimbursement of Certain Costs. The Company shall reimburse Davenport
for reasonable attorney fees, court costs and other related expenses incurred in
defending or enforcing his rights under this Agreement; provided that if the
Company is the opposing party against Davenport in any action or proceeding,
Davenport shall not be entitled to any such reimbursement unless and to the
extent he is the prevailing party in such action or proceeding.
9. No Set-Offs. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against Davenport.
10. Notices. Any notice which the Company is required or may desire to
give to Davenport will be given by personal delivery or registered or certified
mail, return receipt requested, addressed to Davenport at the address of record
with the Company, or at such other place as Davenport may from time to time
designate in writing. Any notice which Davenport is required or may desire to
give to the Company will be given by personal delivery or by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing. The date of personal delivery or three days after the date
of mailing any such notice will be deemed to be the date of delivery thereof.
11. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
12. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Delaware without regard to its conflicts of law principles.
5
<PAGE> 6
14. Termination. In the event that the Merger Agreement is terminated,
this Agreement shall automatically and simultaneously terminate and be of no
further force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
ENVIRONMENTAL SYSTEMS
PRODUCTS, INC.
By: /s/ David J. Langevin
----------------------
David J. Langevin
Executive Vice President &
Chief Financial Officer
/s/ Chester C. Davenport
------------------------
Chester C. Davenport
6
