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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K/A (AMENDMENT NO. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
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Commission file number 1-13241
ENVIROTEST SYSTEMS CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-0914220
(State or other jurisdiction (IRS Employer
of incorporation or Identification
organization) Number)
</TABLE>
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Commission file numbers 33-57384-01 and 33-75406-01
ENVIROTEST TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 36-2680300
(State or other jurisdiction (IRS Employer
of incorporation or Identification
organization) Number)
</TABLE>
<TABLE>
<S> <C>
246 SOBRANTE WAY, SUNNYVALE, CALIFORNIA 94086-4807
(Address of registrants' principal executive (zip code)
offices)
</TABLE>
Registrants' telephone number, including area code: (408) 774-6300
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Class A Common Stock, $0.01 par value per share, of Envirotest Systems Corp.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrants' knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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PART III
10. Directors and Executive Officers of the Registrant.................................................. 3
11. Executive Compensation.............................................................................. 6
12. Security Ownership of Certain Beneficial Owners and Management...................................... 15
13. Certain Relationships and Related Transactions...................................................... 17
</TABLE>
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers of the Company, included in the
Company's Form 10-K filed on December 29, 1997 under the caption "Executive
Officers of the Company" in Part I, Item 1 therein, is incorporated herein by
reference.
The following table sets forth, for each Class A Director and Class B
Director, (i) the name and age of each director, (ii) the position and offices
with the Company of each director, and (iii) the year during which each director
first became a director of the Company.
CLASS A DIRECTORS
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION DIRECTOR SINCE
- ------------------------------------ --- ------------------------------------------------------ ---------------
<S> <C> <C> <C>
Richard L. Gelfond (a).............. 42 Vice Chairman of the Board of Directors 1993
Edward Dugger III................... 48 Director 1991
Robert W. Kasten, Jr................ 55 Director 1996
</TABLE>
CLASS B DIRECTORS
<TABLE>
<CAPTION>
SERVED AS
NAME AGE POSITION DIRECTOR SINCE
- ------------------------------------ --- ------------------------------------------------------ ---------------
<S> <C> <C> <C>
Chester C. Davenport................ 57 Chairman of the Board of Directors 1990
Cleveland A. Christophe............. 52 Director 1991
Craig M. Cogut (b).................. 43 Director 1992
F. Robert Miller.................... 54 Director; President 1996
</TABLE>
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(a) On September 23, 1994, the Class A directors elected Mr. Gelfond to fill the
vacant Class A Director position until the next annual meeting of
stockholders and until his successor is elected and qualified; Mr. Gelfond
resigned as a Class B Director immediately prior to such election.
(b) Mr. Cogut resigned as a Class B Director on December 31, 1997.
Mr. Davenport is a founder of the Company and has been Chairman of the Board
of Directors since September 1990. Since September 1988 he has been a managing
director of Georgetown Partners, a merchant banking firm. Prior to October 26,
1993, Georgetown Partners was a stockholder of the Company. Prior to joining
Georgetown Partners, Mr. Davenport was a senior partner in the Washington, D.C.
law firm of Davenport and Seay from 1979 to 1987 and from 1973 to 1976 and
managing general partner of First City Properties, an investment partnership,
from 1979 to 1985. Mr. Davenport served in President Carter's Administration as
Assistant Secretary of Transportation for Policy and International Affairs from
1977 to 1979. In that position he was responsible for the analysis, development,
articulation, and review of domestic and international transportation policies
for the United States Government. Mr. Davenport is a Managing Trustee of the
University of Georgia Foundation.
Mr. Christophe has been a member of the Board of Directors of the Company
since January 1991. He is currently managing partner and a member of TSG Capital
Group, L.L.C., the investment advisor to TSG Capital Fund II, L.P. and is a
principal officer and member of TSG Management Co., L.L.C., the investment
advisor to TSG Ventures L.P. He is also an officer, director and shareholder of
the general partner of TSG Capital Fund II, L.P. TSG Ventures L.P. and TSG
Capital Fund II, L.P. are private equity investment firms. Mr. Christophe joined
Equico Capital Corporation, the predecessor to TSG Ventures, L.P. in February,
1990. Mr. Christophe is a director of Hayes Lemmerz International, Inc.
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Mr. Dugger has been a member of the Board of Directors of the Company since
February 1991. Since January 1978, Mr. Dugger has been President and Chief
Executive Officer of UNC Ventures, Inc. and, along with UNC Ventures, Inc. is a
General Partner of UNC Ventures II, L.P., Boston-based venture capital firms.
Mr. Dugger is also a member of the Board of Directors of Granite Broadcasting
Corporation and Federal Reserve Bank of Boston.
Mr. Cogut has been a member of the Board of Directors of the Company since
May 1992. Mr. Cogut is the principal of Pegasus Financial, L.L.C., an investment
firm. Mr. Cogut was one of the founding principals of Apollo Advisors, L.P.
which acts as managing general partner of Apollo Investment Fund, L.P. and AIF
II, L.P., securities investment funds, and of Lion Advisors, L.P. which acts as
financial advisor to and representative for certain institutional investors with
respect to securities investments. Mr. Cogut is a director of Gillett Holdings,
Inc. and Salant Corporation.
Mr. Gelfond has been a member and Vice Chairman of the Board of Directors of
the Company since January 1993. Since March 1994, Mr. Gelfond has been the Vice
Chairman of the Board of Directors of IMAX Corporation and was appointed
Co-Chief Executive Officer on May 1, 1996. Mr. Gelfond has also been the
President of Cheviot Capital Advisors Inc., an investment and merchant bank,
since December 1990.
Mr. Miller has been a member of the Board of Directors of the Company since
September 1996. Mr. Miller has been President and Chief Executive Officer of the
Company since January 26, 1996. Prior to joining the Company, Mr. Miller served
as the President and Chief Executive Officer and a director of Systems Control,
Inc. and its predecessors since 1987.
Mr. Kasten has been a member of the Board of Directors of the Company since
September 1996. Mr. Kasten has been the President of Kasten & Company, a
consulting firm, since the beginning of 1993. From 1981 through 1993, Mr. Kasten
served as a United States Senator representing the State of Wisconsin, serving
on both the Senate Appropriations and Budget Committees. From April 1993 until
June 1996, Mr. Kasten also served as Chairman of the Legislative Studies
Institute. Mr. Kasten presently serves as a Senior Associate at the Center for
Strategic and International Studies, a trustee of the American University in
Cairo, Egypt, and a director of the Russia Privatization Fund.
Under a certain Stockholders' Agreement, dated as of March 31, 1993, among
Georgetown Partners (and all subsequent transferees of Class B Common Stock),
Chester C. Davenport, Slivy C. Edmonds, TSG Ventures Inc., Apollo Investment
Fund, L.P. and Chemical Equity Associates (the "1993 Stockholders' Agreement"),
no more than four of the six Class B Directors shall consist of persons who are:
(i) officers or full-time employees of the Company; (ii) Chester C. Davenport,
or Slivy C. Edmonds or their affiliates; or (iii) family members of either (i)
or (ii). The 1993 Stockholders' Agreement also provides that the holders of
shares of Class B Common Stock will be obligated to immediately convert all of
their shares of Class B Common Stock into shares of Class A Common Stock upon
the earlier to occur of the following: (i) Mr. Davenport ceases to control,
directly or indirectly, the voting of a majority of the outstanding shares of
Class B Common Stock (such control is deemed to be ceased if Mr. Davenport dies
or suffers a severe and irreversible physical or mental disability that renders
him incapable of controlling the voting of such shares); or (ii) Mr. Davenport,
Ms. Edmonds, members of the immediate families of either, and trusts or other
entities created for estate-planning purposes whose beneficiaries are members of
their immediate families fail to have, in the aggregate, a direct or indirect
(through one or more intermediaries or entities, in proportion to their economic
interest therein) pecuniary interest in at least 5% of the outstanding shares of
common stock of the Company, including, for purposes of this calculation, shares
of common stock issuable upon exercise of options to purchase common stock. The
foregoing provisions are enforceable only by TSG Ventures Inc., Apollo
Investment Fund, L.P. and Chemical Equity Associates, and shall no longer be
enforceable by any one of the foregoing entities if such entity, together with
its affiliates, at any time, fails to beneficially own unregistered shares of
the Company's Class A Common Stock representing 5% or more of the outstanding
common stock of the Company. Apollo Investment Fund, L.P. no longer
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owns shares of the Company's Class A Common Stock representing 5% or more of the
outstanding common stock of the Company.
Under an agreement between Mr. Davenport and Ms. Edmonds, dated as of
October 26, 1993, Ms. Edmonds granted to Mr. Davenport an irrevocable proxy to
vote the shares of Common Stock distributed by Georgetown Partners to one of its
partners, an affiliate of Ms. Edmonds, originally consisting of 87,814 shares of
Class A Common Stock and 441,334 shares of Class B Common Stock and including
any shares issued upon exercise of an option to purchase 321,325 shares of Class
B Common Stock, which option is exercisable at any time. All such options have
been exercised. According to the Company's Transfer Agent, as of September 30,
1997, the affiliate of Ms. Edmonds held no shares of Class A or Class B Common
Stock.
All of the current members of the Board of Directors of the Company, other
than Mr. Miller and Mr. Kasten, were elected to the Board of Directors under the
terms of a certain Amended and Restated Stockholders' Agreement, dated as of
April 10, 1992, among the Company and all of the holders of Common Stock or
options or warrants to purchase Common Stock of the Company (the "1992
Stockholders' Agreement"). Pursuant to the terms of the 1992 Stockholders'
Agreement, the following entities nominated the following persons to serve on
the Board of Directors of the Company (and such persons were elected pursuant to
the terms of the 1992 Stockholders' Agreement): Georgetown Partners: Chester C.
Davenport; TSG Ventures Inc.: Cleveland A. Christophe; Apollo Investment Fund,
L.P.: Craig M. Cogut; Kane Partners: Richard L. Gelfond; and a group composed of
Polestar Capital Inc. (f/k/a Amoco Venture Capital Company), UNC Ventures II,
L.P., UNC Ventures, Inc. and MESBIC Ventures: Edward Dugger III. Pursuant to the
terms of the 1992 Stockholders' Agreement, all provisions relating to Board of
Directors voting agreements and arrangements expired on March 31, 1993, the date
of the registration of a class of the Company's equity securities under the
Exchange Act. Mr. Miller was nominated as a member of the Board of Directors
under the terms of his employment agreement. See Employment Agreements and
Compensation Arrangements.
Members of the Board of Directors are reimbursed by the Company for their
travel expenses incurred in attending Board of Directors and Committee meetings.
Members of the Board of Directors who are not also officers of the Company or
any of its subsidiaries, and who are not affiliated with a stockholder of the
Company, receive compensation of $1,000 for each Board of Directors and
Committee meeting attended. Outside Directors (as defined later) are granted
5,000 options to purchase shares of Class A common stock of the Company upon
election to the Board and 3,000 such options on each succeeding January 1. See
Stock Option Plan.
Mr. Miller assumed the duties of President and Chief Executive Officer on
January 26, 1996. From July 27, 1995 to January 26, 1996, Chester C. Davenport,
Chairman of the Company, had assumed the duties of President and Chief Executive
Officer of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on the Company's review of copies of reporting forms reviewed by it,
the Company believes that, during the fiscal year ended September 30, 1997, all
directors and executive officers have filed all required insider reporting forms
with the U.S. Securities and Exchange Commission in a timely manner, with the
exception of Mr. Richard P. Webb, Executive Vice President and Chief Operating
Officer of the Company, who failed to file, on a timely basis, a Form 3.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or awarded by the
Company to the Chief Executive Officer and the four most highly compensated
executive officers of the Company for services rendered in all capacities during
the fiscal years ended September 30, 1995, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
--------------- OTHER ANNUAL ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- --------------------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Chester C. Davenport .................. 1995 551,256 -- -- -- 38,388(a)
Chairman of the Board 1996 619,221 -- -- -- 131,170(a)
1997 602,766 -- 1,575(b) 145,000(o) 31,125(a)
-- -- -- -- 339,542(p) --
F. Robert Miller ...................... 1996 187,500 -- -- 400,000(j) 6,337(k)
President and Chief Executive Officer 1997 296,668 -- 5,000(b) -- 7,950(k)
C. Michael Alston ..................... 1995 189,950 -- 1,910(b) 10,000(f) 4,298(c)
Vice President, General Counsel and -- -- -- -- 36,000(h) --
Secretary -- -- -- -- 40,000(g) --
1996 217,626 -- 3,481(b) -- 3,100(c)
1997 224,974 -- 615(b) 55,000(q) 3,200(c)
-- -- -- -- -- 12,111(n)
Raj Modi .............................. 1995 175,000 -- 37,294(d) 50,000(h) 8,561(e)
Vice President, Chief Financial -- -- -- -- 10,000(f) --
Officer and Assistant Secretary -- -- -- -- 15,000(i) --
1996 204,340 -- 62,785(d) -- 32,813(e)
1997 242,104 35,000 42,456(d) 65,000(q) 7,950(e)
Lawrence H. Taylor .................... 1995 165,000 -- 2,500(l) 10,000(f) 7,650(m)
Marketing Vice President -- -- -- -- 50,000(h) --
-- -- -- -- 15,000(i) --
1996 179,945 -- 90,323(l) -- 7,750(m)
1997 195,450 -- 88,349(l) 55,000(q) 7,777(m)
</TABLE>
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(a) Represents contributions matching employees' deferred compensation of $4,823
in 1995, $4,750 in 1996 and $4,750 in 1997 and profit sharing contributions
made by the Company of $5,756 in 1995, $3,100 in 1996 and $3,200 in 1997, in
each case under the Company's 401(k) savings plan, and $27,809 in 1995,
$23,175 in 1996 and $23,175 in 1997 representing that part of the premiums
paid by the Company under Mr. Davenport's key man life insurance policy
attributable to the policy proceeds as to which Mr. Davenport may name the
beneficiary. Includes payment of accrued vacation of $100,145 in 1996.
(b) Represents reimbursements made under the Company's medical reimbursement
program.
(c) Represents profit sharing contributions made by the Company under the
Company's 401(k) savings plan.
(d) Represents relocation expense payments of $32,984 in 1995, $57,785 in 1996
and $39,247 in 1997 (including gross-up for taxes payable thereon of $11,716
in 1995 and $5,191 in 1996 which were paid in
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the subsequent fiscal years) and reimbursements made under the Company's
medical reimbursement program of $4,310 in 1995, $5,000 in 1996 and $3,209
in 1997.
(e) Represents contributions matching employee's deferred compensation of $4,927
in 1995, $4,482 in 1996 and $4,750 in 1997 and profit sharing contributions
made by the Company of $3,634 in 1995, $3,100 in 1996 and $3,200 in 1997, in
each case under the Company's 401(k) savings plan. Also includes payment of
accrued vacation of $25,231 for 1996.
(f) Represents stock options previously granted at an exercise price of $20.00
per share which were canceled and reissued on June 8, 1994 under the
Company's Stock Option Plan at an exercise price of $6.125 per share.
(g) Represents stock options previously granted at an exercise price of $15.875
per share which were canceled and reissued on October 14, 1993 under the
Company's Stock Option Plan at an exercise price of $6.125 per share.
(h) Represents stock options previously granted at an exercise price of $16.00
per share which were canceled and reissued on March 30, 1993 under the
Company's Stock Option Plan at an exercise price of $6.125 per share.
(i) Represents stock options granted on July 27, 1995 under the Company's Stock
Option Plan at an exercise price of $6.125 per share.
(j) Represents options to purchase Class A Common Stock. 200,000 of such options
have an exercise price of $2.75 (closing price on the date of grant) and the
remaining 200,000 options have an exercise price of $2.8375 (the average
closing price for the 5 trading day period ending thirty days after the date
of such grant). Such options were granted under the Company's Stock Option
Plan.
(k) Represents contributions matching employees' deferred compensation of $3,237
in 1996 and $3,200 in 1997 and profit sharing contributions made by the
Company under the Company's 401(k) savings plan of $3,100 in 1996 and $4,750
in 1997.
(l) Represents relocation expense payments of $87,290 in 1996 and $79,999 in
1997, reimbursements under the Company's medical reimbursement program of
$2,500 in 1995, $3,033 in 1996 and $4,150 in 1997, and an automobile
allowance of $4,200 in 1997.
(m) Represents contributions matching employee's deferred compensation of $4,650
in 1995, $4,650 in 1996 and $4,750 in 1997 and profit sharing contributions
made by the Company of $3,000 in 1995, $3,100 in 1996 and $3,027 in 1997.
(n) Represents payment of accrued vacation of $12,111 in 1997.
(o) Represents options to purchase Class A Common Stock at an exercise price of
$3.375 per share granted under the Company's Stock Option Plan.
(p) Represents stock options previously granted at an exercise price of $16.00
per share or $20.00 per share which were canceled and reissued under the
Company's Stock Option Plan at an exercise price of $6.125 per share.
(q) Represents options to purchase Class A Common Stock at an exercise price of
$3.375 per share granted under the Company's Stock Option Plan.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dugger and Mr. Christophe serve as the members of the Compensation
Committee of the Board of Directors. Mr. Dugger has served as a member of this
committee since April 12, 1994 and Mr. Christophe has served as a member since
May 12, 1997. Mr. Kasten served as a member of the Committee from September 24,
1996 to May 12, 1997. The Company is a party to a Legislative Monitoring
Consulting Services Agreement with Kasten & Company. The agreement originally
provided for a consulting fee of $10,000 per month plus expenses which decreased
to $5,000 per month plus expenses in August 1997. For fiscal 1997 the Company
made payments under this agreement of $135,000 for fees and $688 for expenses.
This agreement is in effect through the current fiscal year. Mr. Kasten is the
sole owner of Kasten & Company.
EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS
Mr. Davenport has an employment agreement with the Company that provides for
a three year employment term, which is automatically renewed for subsequent
two-year terms unless notice of non-renewal is given (the initial term under
such agreement expired in January 1996 and it has been automatically renewed
until January 2000). The agreement provides for a base salary of $500,000 per
year (which is subject to an annual increase on April 1 of each year based upon
the change in the Consumer Price Index or 5%, whichever is greater). The
agreement provides for the grant to Mr. Davenport of options under the Company's
Stock Option Plan for the purchase of 289,542 shares of the Company's Class A
Common Stock at an exercise price per share equal to $16.00, the initial public
offering price of the Class A Common Stock. Options to purchase 144,771 shares
vested on the date of grant (which was March 30, 1993) and the remaining options
vested on March 30, 1995. The options expire if not exercised on the tenth
anniversary of the date of grant. On October 31, 1996, the Compensation
Committee approved the cancellation of these options and issued the same number
of options at an exercise price of $6.125 per share, a price which was above the
fair market value of the Class A Common Stock on the date of the reissuance. The
agreement stipulates that Mr. Davenport will devote to the Company that amount
of his time and energies necessary for the performance of his duties as Chairman
of the Board of the Company and will not, during the term of his employment,
engage in any business activity, or acquire an ownership interest in any entity,
that is competitive with any line of business in which the Company is engaged.
The agreement also provides that for a period of twenty-four months after
termination of his employment with the Company, Mr. Davenport will continue to
receive payment of his base salary, provided that he does not (without the
written approval of the Board of Directors of the Company) engage in any
business in competition with the Company or its subsidiaries, as such business
is conducted on the date on which his employment with the Company is terminated.
If the Company terminates the employment of Mr. Davenport without "cause" (as
defined in the agreement), or as a result of the sale of the Company to another
entity which does not accept an assignment of the agreement, in each case prior
to the expiration of the term of the agreement, then Mr. Davenport is entitled
to receive, for the remainder of the term, all base salary and bonus payments,
and fifty percent (50%) of his base salary and bonus payments for three years
thereafter, plus other benefits Mr. Davenport otherwise would have been entitled
to receive for such time period. The Company has also agreed to cover Mr.
Davenport during the term of the agreement with a "key man" life insurance
policy in an amount equal to $2.5 million, with the Company as the beneficiary
of $1.0 million and a designee of Mr. Davenport as the beneficiary of $1.5
million thereof.
Mr. Miller has an employment agreement with the Company that provides for a
three year employment term, which is automatically extended for two additional
years, unless not later than one year prior to the termination date, the Company
or Mr. Miller gives written notice not to extend the employment agreement (the
initial term under such agreement will expire January 26, 1999). The agreement
provides for a base salary of $300,000 per year (which is subject to an annual
increase of the lesser of 5% or the aggregate monthly percentage increase in the
Consumer Price Index for all Urban Consumers). The
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agreement also provides for Mr. Miller to earn an annual target bonus equal to
100% of his base salary, measured against objective financial criteria to be
determined by the Board after consultation with Mr. Miller. The agreement
provides for the grant to Mr. Miller of options under the Company's Stock Option
Plan for the purchase of 400,000 shares of the Company's Class A Common Stock.
The exercise price with respect to 200,000 of such options is the closing NASDAQ
National Market quotation on the date of the grant or the most recent trading
date prior to the date of grant and the exercise price with respect to the
remaining 200,000 such options is the average closing market price for the 5
trading day period ending thirty days after the date of the initial grant. Such
options vest pro rata 10% on the 6 month anniversary of the date of the grant,
an additional 23.33% on the 12 month anniversary of the date of the grant, an
additional 33.33% on the 24 month anniversary of the date of the grant and the
final 33.33% on the 36 month anniversary of the date of the grant. The options
expire if not exercised on the tenth anniversary of the grant. The agreement
states that if (i) Mr. Miller is terminated by the Company other than for
"cause" (as defined in the agreement), (ii) Mr. Miller terminates his employment
for Good Reason (as defined in the agreement), (iii) the employment is
terminated by reason of Mr. Miller's death or permanent disability, or (iv)
there occurs a Change of Control (as defined in the agreement), all options
granted prior to that date shall vest and become immediately exercisable. In
addition, the agreement provides for the grant of an additional 100,000 options
at the discretion of the Board. The agreement states that during the term, Mr.
Miller shall devote his full business time, energy and skill to the performance
of his duties as the President and Chief Executive Officer of the Company, and
shall be nominated for membership on the Board of Directors. The agreement also
provides for a lump sum payment, based on the remainder of the term of the
employment agreement to Mr. Miller, if Mr. Miller's employment is terminated
without "cause" or for Good Reason.
Mr. Modi has an employment agreement with the Company that provides for a
three year employment term, which is automatically renewed for subsequent
two-year terms unless notice of non-renewal is given by either party (the
initial term under such agreement will expire January 1, 1999). The agreement
provides for a base salary of $210,000 per year (which is subject to an annual
increase of not less than 5% of the prior year's salary). The agreement
stipulates that Mr. Modi will serve as Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary of the Company and will not, during the term
of his employment or Consulting Period (as defined in the agreement), engage in
any business activity, or acquire an ownership interest in any entity, that is
competitive with any line of business in which the Company is engaged without
the written approval of the Board of Directors of the Company. The agreement
also provides that for a period of twelve months after termination of his
employment with the Company, Mr. Modi may, at the election of the Company, serve
as a consultant to the Company and continue to receive payment of his base
salary and be subject to the non-competition clause. If the Company terminates
the employment of Mr. Modi without "cause" (as defined in the agreement), or as
a result of the sale of the Company to another entity which does not accept an
assignment of the agreement, in each case prior to the expiration of the term of
the agreement, then the Company shall retain Mr. Modi as a consultant and Mr.
Modi is entitled to receive, for the remainder of the term or twenty four
months, whichever is greater, all base salary, accrued bonuses and any other
benefits Mr. Modi otherwise would have been entitled to receive for such time
period. The Company has also agreed to provide Mr. Modi during the term of the
agreement with a life insurance policy in an amount equal to $1 million, with a
designee of Mr. Modi as the beneficiary thereof. Mr. Modi is entitled to receive
(i) reimbursement for relocation to California in accordance with the Company's
relocation policy, including a one-time moving bonus of $35,000 and (ii) payment
of reasonable relocation expenses if his agreement is not renewed and his future
employer does not pay relocation costs. The agreement provides for participation
of Mr. Modi in the Company's bonus plans, fringe benefits, perquisites, benefit
programs and other compensation plans.
Mr. Taylor has an employment agreement with the Company that provides for a
three year employment term, which is automatically renewed for subsequent
two-year terms unless notice of non-renewal is given by either party (the
initial term under such agreement will expire January 1, 1999). The agreement
provides for a base salary of $182,000 per year (which is subject to an annual
increase of not less than 5%
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of the prior year's salary). The agreement stipulates that Mr. Taylor will serve
as Vice President-Marketing of the Company and will not, during the term of his
employment or the Consulting Period (as defined in the agreement), engage in any
business activity, or acquire an ownership interest in any entity, that is
competitive with any line of business in which the Company is engaged without
the written approval of the Board of Directors of the Company. The agreement
also provides that for a period of twelve months after termination of his
employment with the Company, Mr. Taylor may, at the election of the Company,
serve as a consultant to the Company and continue to receive payment of his base
salary and be subject to the non-competition clause. If the Company terminates
the employment of Mr. Taylor without "cause" (as defined in the agreement), or
as a result of the sale of the Company to another entity which does not accept
an assignment of the agreement, in each case prior to the expiration of the term
of the agreement, then the Company shall retain Mr. Taylor as a consultant and
Mr. Taylor is entitled to receive, for the remainder of the term or eighteen
months, whichever is greater, all base salary, accrued bonuses and any other
benefits Mr. Taylor otherwise would have been entitled to receive for such time
period. The Company has also agreed to provide Mr. Taylor during the term of the
agreement with a life insurance policy in an amount equal to $1 million, with a
designee of Mr. Taylor as the beneficiary thereof. Mr. Taylor is entitled to
receive reimbursement for relocation to California in the form of a relocation
grant in the estimated amount of $124,680 to be disbursed in three equal annual
installments. The agreement provides for participation of Mr. Taylor in the
Company's bonus plans, fringe benefits, perquisites, benefit programs and other
compensation plans.
Mr. Alston has an employment agreement with the Company that provides for a
three year employment term, which is automatically renewed for subsequent
two-year terms unless notice of non-renewal is given by either party (the
initial term under such agreement will expire January 1, 1999). The agreement
provides for a base salary of $210,000 per year (which is subject to an annual
increase of not less than 5% of the prior year's salary). The agreement
stipulates that Mr. Alston will serve as Vice President and General Counsel of
the Company and will not, during the term of his employment or Consulting Period
(as defined in the agreement), engage in any business activity, or acquire an
ownership interest in any entity, that is competitive with any line of business
in which the Company is engaged without the written approval of the Board of
Directors of the Company. The agreement also provides that for a period of
twelve months after termination of his employment with the Company, Mr. Alston
may, at the election of the Company, serve as a consultant to the Company and
continue to receive payment of his base salary and be subject to the
non-competition clause. If the Company terminates the employment of Mr. Alston
without "cause" (as defined in the agreement), or as a result of the sale of the
Company to another entity which does not accept an assignment of the agreement,
in each case prior to the expiration of the term of the agreement, then the
Company shall retain Mr. Alston as a consultant and Mr. Alston is entitled to
receive, for the remainder of the term or twenty-four months, whichever is
greater, all base salary, accrued bonuses and any other benefits Mr. Alston
otherwise would have been entitled to receive for such time period. The Company
has also agreed to cover Mr. Alston during the term of the agreement with a life
insurance policy in an amount equal to $1 million, with a designee of Mr. Alston
as the beneficiary thereof. The agreement provides for participation of Mr.
Alston in the Company's bonus plans, fringe benefits, perquisites, benefit
programs and other compensation plans.
Effective September 30, 1997, the Company entered into a separation, release
and waiver agreement with C. Michael Alston who resigned as Vice President,
General Counsel and Secretary of the Company. The agreement provides for the
Company to pay to Mr. Alston his salary at the rate of $220,000, payable in
accordance with the Company's payroll practices until July 31, 1998 or sooner
upon agreement of the parties ("Separation Date"). The agreement provides for
the Company to pay certain medical, dental and other insurance coverage for Mr.
Alston until the Separation Date. The agreement provides that Mr. Alston shall
perform certain reasonable duties and special projects assigned to him from time
to time prior to the Separation Date. Under the agreement, for a period of one
year after the Separation Date, Mr. Alston shall not, without the prior written
approval from the Company, directly or indirectly compete with any business
operations in which the Company is engaged. The agreement also requires Mr.
Alston to
10
<PAGE>
waive, release and discharge all claims, demands and causes of action that could
be asserted against the Company.
On November 12, 1996, the Board of Directors granted an option to purchase
an aggregate of 25,000 shares of Class A Common Stock to each of Messrs.
Christophe, Kasten, Dugger, Gelfond and Cogut at a price of $3.25 per share.
Such options shall expire ten years from the date of the grant and 33% of such
options become exercisable on each anniversary of the date of grant.
EXECUTIVE INCENTIVE COMPENSATION PLAN
The Company has an Executive Incentive Compensation Plan (the "Compensation
Plan"). The purpose of the Compensation Plan is to facilitate the hiring,
retaining, and motivating of Company executives and key management personnel.
The Compensation Plan is administered by the Compensation Committee, which
recommends to the Board of Directors a discretionary bonus for eligible
employees based on their contributions during the applicable year to the
successful management of the Company. The Compensation Plan also provides for
payment of certain discretionary bonuses to eligible employees who are not
officers of the Company, based on certain specified performance standards and
the employee's base compensation for that fiscal year. For fiscal year 1995 no
bonuses were paid. For fiscal year 1996 and 1997, the bonuses were paid on a
discretionary basis and were not funded based upon any formulae.
STOCK OPTION PLAN
In January 1993, the Company adopted a Stock Option Plan (the "Stock Option
Plan" or the "Plan") providing for the grant, from time to time, of options
("Options") to purchase up to 1,930,285 shares of Class A Common Stock, to
employees of the Company and its subsidiaries (including employees who are
officers or directors, but excluding directors who are not employees) that have
substantial responsibility in the direction and management of the Company or its
subsidiaries, and to Outside Directors (as defined) on an annual,
non-discretionary basis. In September 1996, the shareholders of the Company
approved an amendment to the Plan to increase the shares of Class A Common Stock
reserved for issuance thereunder to 2,330,285. Outside Directors are directors
who are not employees of the Company, and were not employees for the year prior
to the first grant of an Option under the Plan, and who, when elected to the
Board, did not directly or indirectly own or control more than 5% of the
outstanding Common Stock of the Company (collectively, the "Participating
Persons"). As of September 30, 1997, Options granted under the Plan were
outstanding for the purchase of 2,202,875 shares of Class A Common Stock.
The Stock Option Plan provides for the grant of (i) Options intended to
qualify as Incentive Stock Options ("ISOs") as defined in Section 422 of the
Code, and (ii) Options that do not qualify as ISOs ("NQSOs"). To the extent that
the aggregate fair market value (determined as of the time the ISO was granted)
of the shares subject to ISOs granted to a Participating Person under the Plan
(combined with all incentive stock option plans of the Company and any parent or
subsidiary) which become exercisable for the first time in any calendar year
exceeds $100,000, such Option shall be treated as an NQSO. The Committee may
provide that in lieu of purchasing the entire number of shares subject to an
Option, the Optionee can relinquish all or any part of the unexercised portion
of the Option for a number of shares of Common Stock equal to the product of (1)
the number of shares of Common Stock subject to the relinquished Option and (2)
a fraction, (i) the numerator of which is the excess of (A) the current fair
market value per share of Common Stock subject to the relinquished Option over
(B) the option price of such relinquished Option, and (ii) the denominator of
which is the then current fair market value per share of such Common Stock.
The Stock Option Plan is administered by the Compensation Committee (the
"Committee"), which must have at least two members at all times. Members of the
Committee must be "disinterested persons" as that term is defined under Rule
16b-3 under the Exchange Act. Generally, prior to November 1, 1996, a
disinterested person was a director who, during the one year period prior to his
or her service on the
11
<PAGE>
Committee, was not granted a stock option or other equity security of the
Company or any of its affiliates, except as expressly permitted under Rule
16b-3. Rule 16b-3 has been revised effective November 1, 1996. The Board of
Directors has reorganized the Compensation Committee to comply with the
revisions to Rule 16b-3. Subject to the provisions of the Plan, the Committee is
empowered to, among other things, grant Options under the Plan; determine which
employees may be granted Options under the Plan, the type of Option granted (ISO
or NQSO), the number of shares subject to each Option, the time or times at
which Options may be granted and exercised and the exercise price thereof;
construe and interpret the Plan; determine the terms of any option agreement
pursuant to which Options are granted (an "Option Agreement"); and amend any
Option Agreement with the consent of the recipient of Options (the "Optionee").
The Board of Directors may at any time suspend or terminate the Stock Option
Plan or amend the Stock Option Plan to conform to changes in the law or as the
Board determines to be in the Company's best interest, except that stockholder
approval is required for any amendment for which stockholder approval is
required of the Company by (a) Rule 16b-3, promulgated under the Exchange Act;
(b) the Code or regulatory provisions dealing with Incentive Stock Options; (c)
any rules for listed companies promulgated by any national stock exchange on
which the Company's stock is traded; or (d) any other applicable rule or law. No
amendment, suspension, or termination of the Stock Option Plan may be made that
would impair or negate any of the rights or obligations of any Participating
Person under any Option theretofore granted without the consent of such
Participating Person.
Pursuant to the terms of each Option Agreement that was in effect on
September 30, 1997, either 25% of the Options covered by each Option Agreement
become exercisable on each anniversary of the date of grant thereof, on a
cumulative basis, or 33% of the Options covered by each Option Agreement become
exercisable on each anniversary of the date of grant thereof, on a cumulative
basis. The Options granted to Mr. Davenport and Mr. Miller are subject to a
different vesting schedule. See "Employment Agreements and Compensation
Arrangements." Options granted to Outside Directors (5,000 NQSOs upon election
to the Board and 3,000 NQSOs on each succeeding January 1) vest 50% on the first
and 50% on the second anniversary of the date of grant thereof, on a cumulative
basis. All Options vest and become exercisable upon a change of control of the
Company.
The exercise price per share for all ISOs may not be less than 100% of the
fair market value of a share of Class A Common Stock on the date on which the
Option is granted (or 110% of the fair market value on the date of grant of an
ISO if the Optionee owns more than 10% of the total combined voting power of all
classes of voting stock of the Company or any of its affiliates (a "10%
Holder")). The exercise price per share for NQSOs may be less than, equal to or
greater than the fair market value of a share of Class A Common Stock on the
date such NQSO is granted, but not less than par value; provided, however, that
the exercise price for NQSOs granted to Outside Directors shall be the fair
market value of a share of Class A Common Stock on the date of grant. To the
extent determined by the Committee in granting any Option, upon exercise of such
Option, the option price may be paid in cash or in shares of Class A Common
Stock and, if approved by the Board, the Company, or any parent or subsidiary,
may make or guarantee a loan to an Optionee to finance the exercise of any
Option. Options are not assignable or transferable other than by will or the
laws of descent and distribution. Each Option is exercisable, during the
Optionee's lifetime, only by the Optionee.
Unless earlier terminated by the Board of Directors, the Plan will terminate
in January 2003, 10 years after its effective date. Unless otherwise
specifically provided in an Optionee's Option Agreement, each Option granted
under the Plan expires no later than 10 years after the date such Option is
granted (five years for ISOs granted to 10% Holders). Options may be exercised
only during the period that the Optionee is an employee (or member of the Board,
for Outside Directors) of the Company and (i) for a period of 30 days after
termination of employment (or membership on the Board, for Outside Directors)
other than for cause, without the Company's consent or due to the death of the
Optionee, (ii) for a period of three months after retirement by the Optionee
with the consent of the Company, or (iii) for a period of
12
<PAGE>
12 months after the death or disability of the Optionee, in each case to the
extent the Options are then exercisable.
SUPPLEMENTAL RETIREMENT PLAN AGREEMENTS
Effective September 1, 1991, in connection with the acquisition of Hamilton
Test Systems, Inc. ("HTS"), Mr. Singleton and Ms. Edmonds, who were officers or
employees of HTS, each entered into a separate Supplemental Retirement Plan
Agreement (the "Retirement Plans") with the Company. The purpose of these
agreements was to induce such individuals to remain with HTS and to provide them
with retirement benefits similar to those to which they were then entitled.
Under the Retirement Plans, the Company is required to pay to the recipient
a fixed monthly benefit for a ten-year period beginning at the later of the date
on which the recipient reaches 65 years of age and the date on which the
recipient's employment is terminated. The Retirement Plans provide that, if the
recipient dies after terminating employment, the benefit continues for the
remainder of the ten-year term. If the recipient dies before terminating
employment, the recipient's designated beneficiaries will be entitled to a
reduced benefit payable quarterly and if the recipient becomes totally disabled
while employed by the Company, the recipient will be entitled to the full
monthly benefit for ten years starting at 65 years of age.
Although the benefits vested upon inception, the benefits may be terminated
by the Company if the recipient engages in a business that is competitive with
HTS after the termination of his or her employment, whether before or during the
period that he or she is otherwise entitled to receive the benefit. The benefit
is an unsecured obligation of the Company, which is payable from its general
assets.
The annual payment to which each recipient may be entitled at age 65 is
$100,000. The benefits under the Retirement Plans were determined as a result of
negotiations between the Company and the respective beneficiaries thereof. The
Company is the owner and beneficiary of life insurance policies or annuities,
obtained in order to fund the Retirement Plans, the annual premiums/deposits for
which are $17,000 for Mr. Singleton and $15,000 for Ms. Edmonds.
MEDICAL REIMBURSEMENT PROGRAM
Executives of the Company are eligible to participate in a medical
reimbursement program. The program provides direct payment to participating
employees for non-reimbursed expenses that constitute "covered" medical and
dental expenses incurred under the Company's health insurance program. The
health services costs include any deductibles, co-payments, and payments above
reasonable and customary levels that are incurred by a participating employee.
Payments are limited to $5,000 per year per employee.
13
<PAGE>
STOCK OPTIONS
The following table sets forth information with respect to options awarded
by the Company to the Chief Executive Officer and the four most highly
compensated executive officers of the Company during the fiscal year ended
September 30, 1997:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------------------- STOCK PRICE
% OF TOTAL EXERCISE APPRECIATION FOR
OPTIONS GRANTED OR MARKET PRICE OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE ON DATE OF EXPIRATION -----------------
NAME GRANTED(A) FISCAL YEAR ($/SH) GRANT DATE 5% 10%
- ----------------------- ---------- ------------------ ---------- ------------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Chester C.
Davenport ........... 145,000 9.8 3.375 3.375 10/31/2006 278,242 732,926
339,542(b) 22.9 6.125 3.25 10/31/2006 (282,191) 782,530
F. Robert Miller....... -- -- -- -- -- -- --
C. Michael Alston...... 55,000 3.8 3.375 3.375 10/31/2006 116,739 295,838
Raj Modi............... 65,000 4.4 3.375 3.375 10/31/2006 137,964 349,627
Lawrence H. Taylor..... 55,000 3.8 3.375 3.375 10/31/2006 116,739 295,838
</TABLE>
- ------------------------
(a) One third of such options will vest on each anniversary of the date of the
grant.
(b) Represents reissue of options granted in prior years.
The following table sets forth, as of September 30, 1997, the number of
options and the value of unexercised options held by the Company's Chief
Executive Officer and the four most highly compensated executive officers during
fiscal 1997:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AT SEPTEMBER 30, 1997 AT SEPTEMBER 30, 1997
- -------------------------------------------------------- ---------------------- -------------------------
<S> <C> <C>
Chester C. Davenport.................................... 791,026(exercisable) $3,229,562(exercisable)
484,542(unexercisable) 154,063(unexercisable)
F. Robert Miller........................................ 133,320(exercisable) 223,988(exercisable)
266,680(unexercisable) 440,023(unexercisable)
C. Michael Alston....................................... 57,333(exercisable) 0(exercisable)
47,000(unexercisable) 19,479(unexercisable)
Raj Modi................................................ 50,000(exercisable) 0(exercisable)
90,000(unexercisable) 69,063(unexercisable)
Lawrence H. Taylor...................................... 50,000(exercisable) 0(exercisable)
80,000(unexercisable) 58,438(unexercisable)
</TABLE>
401(k) SAVINGS PLANS
The Company has a 401(k) Savings Plan (the "Savings Plan"), the purpose of
which is to provide retirement benefits for its eligible employees.
Contributions to the Savings Plan are made by both the employee and the Company.
The Company matches 50% of that part of an employee's deferred compensation that
does not exceed 6% of such employee's salary. The maximum matching payment by
the
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<PAGE>
Company per employee for 1997 was $4,750. Company-matched contributions vest in
full after three years of an employee's credited service (at least 1,000 hours
per year) to the Company. In addition, the Company may, in the discretion of the
Board of Directors, make discretionary contributions to the Savings Plan.
Through June 30, 1997, the Company made discretionary contributions equal to 2%
of the base salary of each employee eligible to participate in the Savings Plan.
A contribution to the Plan of approximately $457,000 was charged to expense
for 1997.
Effective July 1, 1997, the Company adopted the Envirotest 401(k) Top Hat
Plan (the "Top Hat Plan"). The Top Hat Plan is an unfunded, nonqualified
deferred compensation arrangement which generally permits highly compensated
employees (as defined under the Internal Revenue Code of 1986, as amended) to
make salary reduction contributions in excess of the limitations imposed under
the Company's qualified Savings Plan and applicable law and receive matching
contributions on such amounts up to a maximum of 6% of such employee's
compensation. The Top Hat Plan is intended to be exempt from many of the
requirements of ERISA. All amounts payable under the Top Hat Plan are subject to
the claims of the creditors of the Company and a participant's right to payment
under the Top Hat Plan are the same as an unsecured general creditor of the
Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of November 15, 1997,
regarding beneficial ownership of all classes of the Company's voting common
stock by each person (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who is known by the Company to
own more than 5% of any class of the Company's voting common stock, each
director, each "named" executive officer (as that term is used in Item 402 of
Regulation S-K) and all directors and executive officers as a group.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
NUMBER CLASS NUMBER CLASS
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED OWNED OWNED OWNED
----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Chester C. Davenport (a)...................................... 3,454,253 22.2% 1,968,775 100%
Envirotest Systems Corp.
6903 Rockledge Drive, Suite 214
Bethesda, Maryland 20817
TSG Ventures L.P.............................................. 2,246,818 17.0% -- --
1055 Washington Blvd.
Stamford, Connecticut 06901
Chemical Equity Associates
(A California Limited Partnership) (b)...................... 2,026,111 13.3% -- --
380 Madison Ave., 12th Floor
New York, New York 10017
Polestar Capital Inc.......................................... 768,768 5.8% -- --
1800 North Michigan Ave.
Suite 1905
Chicago, Illinois 60601
Appaloosa Management, L.P. (c)................................ 1,224,800 9.3% -- --
David A. Tepper
51 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
NUMBER CLASS NUMBER CLASS
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED OWNED OWNED OWNED
----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C>
Kane Partners, L.P. (d)....................................... 717,658 5.4% -- --
80 East Middle Patent Road
Bedford, New York 10506
Cleveland A. Christophe (e)................................... 2,255,151 17.1% -- --
TSG Ventures L.P.
177 Broad Street
Stamford, Connecticut 06901
Craig M. Cogut (f)............................................ 83,333 * --
Edward Dugger III (f)......................................... 18,331 * -- --
Richard L. Gelfond (g)........................................ 994,291 7.5%
Cheviot Capital Advisors Inc.
P. O. Box 571
Southampton, New York 11969
R.W. Kasten, Jr. (h).......................................... 14,333 * --
F. Robert Miller (i).......................................... 133,320 * -- --
Raj Modi (j).................................................. 136,732 1.0% --
C. Michael Alston (k)......................................... 76,216 * --
Lawrence Taylor (l)........................................... 121,265 * --
All directors and officers as a group (17 persons)............ 6,683,824 41.4% 1,968,755 100%
</TABLE>
- ------------------------
* Less than 1%
(a) Represents shares owned by Rockspring Management, Inc. and The Chester
Corporation, both of which are wholly owned corporations of Mr. Davenport
and Mr. Davenport directly. Includes (i) 375,375 shares of Class A Common
Stock issuable upon the exercise of options to purchase Class A Common
Stock, which are exercisable at the option of the holder within sixty (60)
days; (ii) 1,249,749 shares of Class B Common Stock and options to purchase
791,026 shares of Class B Common Stock which are exercisable at the option
of the holder within sixty (60) days; and (iii) 717,658 shares of Class A
Common Stock owned by Kane Partners, L.P. Mr. Davenport, a Director of the
Company, controls the General Partner of Georgetown Partners Limited
Partnership ("Georgetown Partners"), which is a limited partner of Kane
Partners, L.P. Georgetown Partners shares voting and investment power with
respect to shares held by Kane Partners, L.P. Shares of Class B Common Stock
are convertible at the option of the holder at any time into an equal number
of shares of Class A Common Stock.
(b) Represents shares of Class A Common Stock issuable upon the conversion of
Class C Common Stock, which are convertible at the option of Chase Banking
Corporation. The Class C Common Stock does not have ordinary voting rights
for the election of directors or other matters generally requiring a
stockholder vote.
(c) The information on Appaloosa Management, LP and David A. Tepper and their
beneficial ownership of Class A Common Stock is based on Schedule 13D filed
with the Securities and Exchange Commission on August 18, 1997.
16
<PAGE>
(d) The information on Kane Partners, L.P. and its beneficial ownership of the
Class A Common Stock is based on Schedule 13G filed with the Securities and
Exchange Commission filed on February 17, 1994.
(e) Represents 2,246,818 shares owned by TSG Ventures L.P. Mr. Christophe, a
Director of the Company, is an officer, director, and shareholder of the
general partner of TSG Ventures L.P., and is a principal of an entity which
provides advisory services to TSG Ventures L.P. and may be deemed to share
voting and investment power with respect to such shares. Also includes 8,333
shares of Class A Common Stock issuable upon the exercise of options to
purchase Class A Common Stock, which are exercisable at the option of the
holder within sixty (60) days.
(f) Includes 8,333 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
(g) Represents (i) shares owned by Kane Partners, L.P.; (ii) 9,000 shares owned
by Cheviot Capital Advisors Inc.; (iii) options to purchase 100,000 shares
of Class A Common Stock held by Cheviot Capital Advisors Inc. which are
exercisable by the holder within sixty (60) days; (iv) 8,333 shares of Class
A Common Stock issuable upon the exercise of options to purchase Class A
Common Stock, which are exercisable at the option of the holder within sixty
(60) days; (v) 137,000 shares held directly by Mr. Gelfond; and (vi) 22,300
shares held by trusts for which Mr. Gelfond is the trustee, for the benefit
of Mr. Gelfond's children. Mr. Gelfond, a Director of the Company, is the
Vice President of the General Partner of Kane Partners, L.P. and shares
voting and investment power with respect to such shares, and is the
President and sole stockholder of Cheviot Capital Advisors Inc.
(h) Includes 14,333 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
(i) Represents 133,320 shares of Class A Common Stock issuable upon the exercise
of options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
(j) Includes 71,666 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days. Also includes 15,230 shares
owned by members of Mr. Modi's immediate family. Mr. Modi disclaims
beneficial ownership of such shares.
(k) Includes 75,666 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
(l) Includes 68,333 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a Legislative Monitoring Consulting Services
Agreement with Kasten & Company. Mr. Kasten, a Class A director, is the sole
owner of Kasten & Company. See Compensation Committee Interlocks and Insider
Participation.
During fiscal 1996, the Company made a bridge loan of $350,000 to Mr. Modi,
Vice President, Chief Financial Officer, Treasurer and Assistant Secretary, the
loan proceeds were used for relocation expenses and the purchase of new
residence in the Sunnyvale, California area, the location of the Company's new
headquarters. The loan bore interest at the applicable treasury bill rate per
annum. Mr. Modi repaid the bridge loan in fiscal 1997. As of September 30, 1997,
the balance outstanding on a separate loan of $100,000 (with interest at 7.5%
per annum), which Mr. Modi has with the Company, is $72,755.73, and all payments
are current on such loan.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrants have duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Bethesda, State of Maryland, on the 28th day of January, 1998.
ENVIROTEST TECHNOLOGIES, INC. ENVIROTEST SYSTEMS CORP.
By: /s/ CHESTER C. DAVENPORT By: /s/ CHESTER C. DAVENPORT
---------------------------------- ----------------------------------
Chester C. Davenport Chester C. Davenport
CHAIRMAN OF THE BOARD OF DIRECTORS CHAIRMAN OF THE BOARD OF DIRECTORS
18
