Envirotest Systems Corp/DE · SC 14D9 · Envirotest Systems Corp/DE · On 8/19/98

Filed On 8/19/98   ·   SEC File 5-47047   ·   Accession Number 950133-98-3148

Tender-Offer Solicitation/Recommendation Statement   ·   Schedule 14D-9
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SC 14D9     Tender-Offer Solicitation/Recommendation Statement    46    254K 
 2: EX-99.2     Letter to the Stockholders                             2±    12K 
 3: EX-99.4     Opinion of Credit Suisse First Boston Corporation      2     14K 
 4: EX-99.6     1993 Company Stock Option Plan                        10     40K 

SC 14D9   ·   Tender-Offer Solicitation/Recommendation Statement
Document Table of Contents

SC 14D9
1st Page of 46
TOC
Top
Previous
Next
Bottom
Just 1st
 
Sponsored Ads...


[ENVIROTEST SYSTEMS LOGO]                            ENVIROTEST SYSTEMS CORP.   

                                              6903 Rockledge Drive
                                                  Bethesda, Maryland 20817
                                      301/530-8110
                                           FAX: 301/530-9538

                                                                 August 19, 1998

Dear Stockholder:                                                               

   I am pleased to report that, on August 12, 1998, Envirotest Systems Corp.
(the "Company"), entered into a merger agreement with Stone Rivet, Inc.         
("Purchaser"), a Delaware corporation and a wholly owned subsidiary of          
Environmental Systems Products, Inc. ("Parent"), a Delaware corporation, that   
provides for the acquisition of the Company by Purchaser at a price of $17.25   
per share in cash. Under the terms of the proposed transaction, Purchaser is    
today commencing a cash tender offer (the "tender offer") for all outstanding   
shares of the Company common stock at $17.25 per share. Following the successful
completion of the tender offer, Purchaser will be merged into the Company and   
all shares not purchased in the tender offer will be converted into the right to
receive $17.25 per share in cash in the merger. 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 that is advised by Alchemy Partners.  

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE TENDER OFFER AND 
DETERMINED THAT THE TERMS OF EACH OF THE TENDER OFFER AND THE MERGER IS FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT ALL THE COMPANY STOCKHOLDERS     
ACCEPT THE TENDER OFFER AND TENDER THEIR SHARES TO PURCHASER.                   

    As previously announced in May of this year, the Company has been actively
exploring strategic alternatives aimed at enhancing stockholder value. In       
evaluating the range of options open to the Company as a result of this process,
the Board of Directors has determined that the tender offer and the merger      
represent the best alternative for the Company and its stockholders. In arriving
at its recommendations, the Board of Directors gave careful consideration to a  
number of factors, each of which is described in the attached Schedule 14D-9    
that is being filed today with the Securities and Exchange Commission. These    
factors included the opinion of Credit Suisse First Boston Corporation,         
financial advisor to the Company, that, as of the date of such opinion and      
subject to the assumptions made, matters considered and limitations set forth in
its opinion, the cash consideration of $17.25 per share to be received by the   
Company stockholders pursuant to the tender offer and the merger is fair from a 
financial point of view to such stockholders.                                   

 Stockholders should note that the merger agreement includes a condition
requiring the tender of at least 90% of the Company's outstanding shares prior  
to the expiration of the Offer. Stockholders should also note that the          
likelihood that this condition will be satisfied is increased by the fact that  
certain stockholders have agreed with Purchaser to tender shares representing   
approximately 50% of the currently outstanding shares and that certain directors
and officers of the Company have indicated their intention to tender shares     
representing approximately an additional 7% of the currently outstanding shares.
In the event that this condition is not satisfied, the merger agreement requires
the Company to seek stockholder approval for the merger at a duly held          
stockholders' meeting. The affirmative vote of a majority of the currently      
outstanding shares entitled to vote would result in approval of the merger.     
Certain stockholders of the Company have agreed to vote shares representing     
approximately 41% of the voting shares in favor of the merger, and certain      
directors and officers of the Company have indicated their intention of voting  
shares representing approximately an additional 12% of the voting shares in     
favor of the merger.                                                            

While a vote in favor of the merger by way of stockholder approval is 
virtually assured by the factors set out above, the Board of Directors          
recommends that stockholders tender their shares pursuant to the tender offer.  
Stockholders are further reminded that they will receive the cash consideration 
of $17.25 per share on an earlier date if shares are tendered pursuant to the   
tender offer than the date on which such consideration would be received in the 
event that the merger is effected by way of stockholder approval.               

     Enclosed is the Company's Solicitation/Recommendation Statement on Schedule
14D-9 and Purchaser's Offer to Purchase and related materials, including a      
Letter of Transmittal for use in tendering shares. We urge you to carefully read
the enclosed materials, including Credit Suisse First Boston Corporation's      
fairness opinion which is attached to the Schedule 14D-9.                       

   The management and directors of the Company thank you for the support you
have given the Company.                                                         

                  Sincerely,

                                /s/ CHESTER D. DAVENPORT
                                ------------------------
                            Chester D. Davenport
                             Chairman of the Board

SC 14D9
2nd Page of 46
TOC
1st
Previous
Next
Bottom
Just 2nd

(This page intentionally left blank)

SC 14D9
3rd Page of 46
TOC
1st
Previous
Next
Bottom
Just 3rd

================================================================================
SECURITIES AND EXCHANGE COMMISSION  
WASHINGTON, D.C. 20549

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

SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO 
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 

ENVIROTEST SYSTEMS CORP.
(NAME OF SUBJECT COMPANY) 

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

ENVIROTEST SYSTEMS CORP.
(NAME OF PERSON FILING STATEMENT) 

CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASSES OF SECURITIES)

29409W105 
(CUSIP NUMBER OF CLASS OF SECURITIES) 

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

C. MICHAEL ALSTON, ESQ. 
ENVIROTEST SYSTEMS CORP.
6903 ROCKLEDGE DRIVE
BETHESDA, MARYLAND 20817
(301) 530-8110
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO 
RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF 
THE PERSON FILING STATEMENT)

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

With a copy to: 

PETER D. LYONS, ESQ.
SHEARMAN & STERLING 
599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022
212-848-4000

================================================================================

SC 14D9
4th Page of 46
TOC
1st
Previous
Next
Bottom
Just 4th

(This page intentionally left blank)

SC 14D9
5th Page of 46
TOC
1st
Previous
Next
Bottom
Just 5th

ITEM 1.  SECURITY AND SUBJECT COMPANY                                           

 The name of the subject company is Envirotest Systems Corp., a Delaware
corporation (the "Company"). The address of the principal executive offices of  
the Company is 246 Sobrante Way, Sunnyvale, California 94086. The title of the  
classes of equity securities to which this Solicitation/Recommendation Statement
on Schedule 14D-9 of the Company (the "Statement") relates is the shares of     
Class A Common Stock, par value $.01 per share, of the Company (the "Shares").  

ITEM 2.  TENDER OFFER OF THE BIDDER                                             

   This Statement relates to a tender offer by Stone Rivet, Inc., a Delaware
corporation ("Purchaser") and a wholly owned subsidiary of Environmental Systems
Products, Inc., a Delaware corporation ("Parent"), disclosed in a Tender Offer  
Statement on Schedule 14D-1 (the "Schedule 14D-1") dated August 19, 1998 to     
purchase all Outstanding Shares at a price of $17.25 per Share, net to the      
seller in cash, without interest thereon, upon the terms and subject to the     
conditions set forth in the Offer to Purchase dated August 19, 1998 (the "Offer 
to Purchase") and the related Letter of Transmittal (the "Letter of             
Transmittal") (which together constitute the "Offer").                          

   The Offer is being made pursuant to an Agreement and Plan of Merger dated
as of August 12, 1998 (the "Merger Agreement") among Parent, Purchaser and the  
Company. The Merger Agreement provides that, among other things, as soon as     
practicable after the consummation of the Offer and satisfaction or, if         
permissible, waiver of the conditions to the Merger, Purchaser shall be merged  
with and into the Company (the "Merger"), the separate existence of Purchaser   
shall cease and the Company shall continue as the surviving corporation (the    
"Surviving Corporation"). A copy of the Merger Agreement is filed as Exhibit 1  
to this Statement and is incorporated herein by reference.                      

According to the Offer to Purchase, the principal executive offices of
Parent and Purchaser are located at 7 Kripes Road, East Granby, Connecticut     
06026.                                                                          

ITEM 3.  IDENTITY AND BACKGROUND                                                

  (a) The name and address of the Company, which is the person filing this
Statement, are set forth in Item 1 above.                                       

   (b) Certain contracts, agreements, arrangements or understandings between
the Company or its affiliates and certain of its executive officers, directors  
or affiliates are described in the Company's Information Statement under the    
heading "Material Contracts and Agreements with Executive Officers". A copy of  
the Information Statement is set forth on Annex I hereto and is incorporated    
herein by reference in its entirety. Except as described or incorporated by     
reference herein, to the knowledge of the Company, as of the date hereof, there 
exists no material contract, agreement, arrangement or understanding and no     
actual or potential conflict of interest between the Company or its affiliates  
and (i) the Company, its executive officers, directors or affiliates or (ii)    
Purchaser or its executive officers, directors or affiliates.                   

PURPOSE OF THE OFFER; THE MERGER AGREEMENT                                      

    Purpose.  The purpose of the Offer is to enable Parent and its affiliates,
through Purchaser, to acquire control of, and acquire the entire equity interest
in, the Company. Following the Offer, 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 1 to this Statement
on Schedule 14D-9. Such Exhibit should be available for inspection and copies   
should be obtained, in the manner set forth in Section 7 of the Offer to        
Purchase (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.                                                               

 1

SC 14D9
6th Page of 46
TOC
1st
Previous
Next
Bottom
Just 6th

      THE OFFER.  The Merger Agreement provides that, upon the terms and
 subject to the conditions thereof, 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 Purchaser's    
    intention to commence the Offer. The obligation of Purchaser to accept for
payment Shares tendered pursuant to the Offer is subject, among other 
  things, to the condition (the "Minimum Condition") that there be 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   
    determined on a primary basis on the date of purchase (assuming conversion
   of all 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 (ii) 100% of the 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.
     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 Class B Shares and Class C Shares 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 set forth under Section 13 of the Offer to Purchase or otherwise is
materially adverse to the Company or its stockholders. Certain other  
conditions to the Offer are described in Section 13 of the Offer to   
     Purchase. In the event that, upon the expiration of the Offer (included 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 Delaware General Corporation Law ("DGCL"), as soon as
  practicable following the satisfaction or waiver, if permissible, of the
     conditions described below under "Conditions to the Merger," 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 described above (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
 as promptly as practicable 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.  

 2

SC 14D9
7th Page of 46
TOC
1st
Previous
Next
Bottom
Just 7th

     The Merger Agreement provides that, notwithstanding the preceding
  paragraph, in the event that the Purchaser shall acquire 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) 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 Purchaser if, in breach of the
     Merger 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 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
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
  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 Purchaser    
informed, on a                                                        

 3

SC 14D9
8th Page of 46
TOC
1st
Previous
Next
Bottom
Just 8th

  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 fees and expenses incurred in connection with the 
   Offer, the Merger, 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 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 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 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) other than as set forth
 in the Merger Agreement, increase the compensation payable or to become
payable to its officers or employees, except for increases in         

 4

SC 14D9
9th Page of 46
TOC
1st
Previous
Next
Bottom
Just 9th

 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 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, 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 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 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 other than the condition relating to the  
     occurrence of events described in clause (g) of Annex A to the Merger
        Agreement which relate, among other things, to a material adverse effect
       in financial markets) to the Offer, 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 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 of Directors of the Company 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 or any other transaction contemplated by 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) Purchaser
     shall have (A) failed to commence the Offer within five business days
       after the initial public announcement of Purchaser's intent 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                                                              

 5

SC 14D9
10th Page of 46
TOC
1st
Previous
Next
Bottom
Just 10th

   modified in a manner adverse to 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, 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
   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 of    
    Directors 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 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 of Directors 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 of Directors 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 Company common stock 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 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 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
 the 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 Agreement.  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                

 6

SC 14D9
11th Page of 46
TOC
1st
Previous
Next
Bottom
Just 11th

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)     
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 of Directors of 
the Company 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      
Stockholders Agreement. 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     
Purchaser, Parent or any of their affiliates) with respect to the Company that  
constitutes or could reasonably be expected to lead to an Acquisition Proposal, 
grant a proxy (other than to 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 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,                   

 7

SC 14D9
12th Page of 46
TOC
1st
Previous
Next
Bottom
Just 12th

(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 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 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 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 employee of the Company; or   
(iv) otherwise interfere with the employment by the Company of its affiliates   
of, any individual who becomes or would otherwise become an employee of the     
Company. In consideration for such extended 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 payable over 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 be 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, 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                           

 8

SC 14D9
13th Page of 46
TOC
1st
Previous
Next
Bottom
Just 13th

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 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.                                                          

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.                                                            

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.                                                 

ITEM 4.  THE SOLICITATION OR RECOMMENDATION                                     

(a) RECOMMENDATION OF THE BOARD OF DIRECTORS                                    

At a special meeting held on August 12, 1998, the Board unanimously   
approved the Merger Agreement, the Offer and the Merger (as these terms are     
defined herein) and determined that the Offer and the Merger are fair to and in 
the best interests of the stockholders of the Company.                          

   THE BOARD UNANIMOUSLY RECOMMENDS ACCEPTANCE OF THE OFFER AND APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND THE MERGER BY THE STOCKHOLDERS OF THE      
COMPANY.                                                                        

    Copies of a letter to the Company's stockholders and a joint press release
communicating such approval and recommendation are filed as Exhibits 2 and 3,   
respectively, to this Statement and are incorporated herein by reference.       

(b) BACKGROUND TO THE MERGER AND THE OFFER; REASONS FOR THE RECOMMENDATION      

Background to the Merger.  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                                                                       

 9

SC 14D9
14th Page of 46
TOC
1st
Previous
Next
Bottom
Just 14th

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.                                                           

   On February 11, 1998, Mr. Davenport 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   
Credit Suisse First Boston Corporation (the "Financial Advisor"), as its        
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 "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 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 a majority shareholder 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 Company common stock. Representatives of the Financial Advisor        
communi-                                                                        

10

SC 14D9
15th Page of 46
TOC
1st
Previous
Next
Bottom
Just 15th

cated 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 and a set of draft commitment     
letters from a separate financing team at Credit Suisse First Boston ("CSFB"),  
outlining the terms by which CSFB would finance a portion of the funds required 
by Parent to acquire shares of Company Common Stock. 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, representatives of      
Parent 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, 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 the $17 per share price      
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 eligible     
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.                                                                          

11

SC 14D9
16th Page of 46
TOC
1st
Previous
Next
Bottom
Just 16th

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 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 of the Offer to Purchase). The members of   
the board of directors of each 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.                      

    Reasons for the Board's Recommendation.  In approving the Merger Agreement
and the transactions contemplated thereby, and recommending that holders of     
Shares accept the Offer and tender their shares pursuant to the Offer, the Board
considered a number of factors, including, but not limited to, the following:   

      (i) the views expressed by management of the Company (at the Board
    meeting on August 12, 1998 and at previous Board meetings) and the Board's
  knowledge regarding: (a) the financial condition, results of operations,
business and prospects of the Company, including the prospects of the 
 Company if the Company were to remain independent and (b) the strategic
alternatives available to the Company;                                

        (ii) the results of the process designed and executed by the Company
and the Financial Advisor to identify and solicit proposals from third
parties to enter into a strategic transaction with the Company;       
     specifically, the fact that the Financial Advisor had contacted 120 parties
  as potential purchasers, Confidential Offering Memoranda were sent to 65
    potential purchasers, 16 preliminary indications of interest were received
by the Financial Advisor, 12 potential purchasers were invited by the 
     Company to participate in second round due diligence and that none of these
    potential purchasers had proposed a transaction that was more favorable to
     the Company and its stockholders and the Board's conclusion that it was not
   likely that any other party would propose an acquisition transaction that
was more favorable to the Company and its stockholders;               

12

SC 14D9
17th Page of 46
TOC
1st
Previous
Next
Bottom
Just 17th

     (iii) the views of management regarding the potential values that
  could be realized through a recapitalization transaction and the Board's
conclusion that a sale of the Company pursuant to the Merger Agreement
would be more attractive to the Company and its stockholders;         

          (iv) the trading price of the shares of common stock both prior to and
   immediately following the Company's public announcement on May 7, 1998 of
   its intention to explore strategic alternatives; in particular, the Board
     acknowledged that the Shares had briefly traded as high as $22 per Share on
  the American Stock Exchange ("AMEX") on July 20, 1998 but noted that the
 $17.25 per Share to be paid in the Offer and in the Merger represents a
   premium of approximately 60.5% over the $10.75 closing sale price for the
     Shares on the AMEX on May 6, 1998, the last trading day prior to the public
announcement that the Company would explore strategic alternatives, a 
   premium of approximately 59.4% over the $10.82 average closing sale price
    for the shares on the AMEX one month prior to May 6, 1998 and a premium of
     approximately 205.3% over the average closing price for the Shares of $5.65
during the 12 months prior to May 6, 1998;                            

         (v) the analyses conducted by the Financial Advisor, oral and written
     presentations by the Financial Advisor at the August 12, 1998 Board meeting
 and the written opinion of the Financial Advisor delivered to the Board
following the August 12, 1998 Board meeting that, as of such date, and
 subject to the assumptions made, matters considered and limitations set
   forth in such opinion, the consideration to be received by the holders of
    the Common Stock pursuant to the Merger Agreement is fair from a financial
    point of view to such stockholders (a copy of the opinion of the Financial
Advisor which sets forth the assumptions made, matters considered and 
     limitations on the review undertaken is attached hereto as Annex II to this
   Schedule 14D-9 and is incorporated herein by reference). STOCKHOLDERS ARE
 URGED TO READ THE OPINION OF THE FINANCIAL ADVISOR CAREFULLY AND IN ITS
ENTIRETY;                                                             

  (vi) the fact that the transactions contemplated by the Merger
Agreement provided for an all cash payment to stockholders, with no   
financing condition; that Purchaser had received commitments for all  
  required financing of the transaction and the views of management of the
  Company that there did not appear to be a significant risk of regulatory
impediments to the consummation of the Merger;                        

       (vii) the fact that the Merger Agreement provides that if the Board
     determines in good faith, after receipt of advice from its outside counsel,
that it is necessary to do so in order to comply with fiduciary duties
 under applicable law, it may furnish nonpublic information and data and
   enter into discussions and negotiations in connection with an alternative
 Acquisition Proposal and the fact that the Merger Agreement permits the
 Board, in the exercise of its fiduciary duties, to terminate the Merger
    Agreement in favor of another Acquisition Proposal (upon such termination,
the Company would pay Parent a fee of $12,500,000); and               

          (viii) while the Board recognized that the Merger Agreement includes a
     condition requiring the tender of at least 90% of the Company's outstanding
   Shares prior to the expiration of the Offer, the Board noted that certain
    shareholders had indicated an intention to enter into agreements requiring
them to tender Shares representing approximately 50% of the currently 
    outstanding Shares, and that certain directors and officers of the Company
had indicated their intention of tendering Shares representing        
 approximately an additional 7% of the Company's outstanding Shares; the
  Board further noted that, in the event that the Minimum Condition is not
    satisfied, Parent and Purchaser are required under the Merger Agreement to
     assist the Company in obtaining the stockholder approval required to effect
  a long-form merger, thereby increasing the likelihood of consummation of
    the transaction. Finally, the Board noted that the likelihood of obtaining
   stockholder approval for a long-form merger is increased by the fact that
   shares representing approximately 41% of the currently outstanding voting
shares would be voted in favor of such a merger pursuant to a voting  
   agreement entered into by certain of the Company's stockholders, and that
     certain directors and officers of the Company had indicated their intention
     of voting shares representing approximately an additional 12% of the voting
shares in favor of such merger.                                       

     The Board did not assign relative weights to the above factors or determine
that any factor was of particular importance. Rather, the Board viewed its      
position and recommendations as being based on the totality of the information  
presented to and considered by it.                                              

13

SC 14D9
18th Page of 46
TOC
1st
Previous
Next
Bottom
Just 18th

  The Board recognized that, while the consummation of the Offer gives the
Company's stockholders the opportunity to realize a premium, over the price at  
which the Shares were traded prior to the public announcement of the Company's  
exploration of strategic alternatives, tendering in the Offer would eliminate   
the opportunity for such stockholders to participate in the future growth and   
profits of the Company. The Board believes that the loss of the opportunity to  
participate in the growth and profits of the Surviving Corporation was reflected
in the Offer price of $17.25 per Share. The Board also recognized that there can
be no assurance as to the level of growth or profits to be attained by the      
Surviving Corporation in the future.                                            

It is expected that, if the Shares are not purchased by Parent in     
accordance with the terms of the Offer or if the Merger is not consummated, the 
Company's current management, under the general direction of the Board, will    
continue to manage the Company as an ongoing business.                          

ITEM 5.  PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED                        

     Except as described below, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to   
make solicitations or recommendations to the stockholders on its behalf         
concerning the Offer.                                                           

    The Financial Advisor has been retained by the Company to act as financial
advisor to the Company with respect to an acquisition transaction, such as the  
Offer, the Merger and matters arising in connection therewith. Pursuant to a    
letter agreement dated March 12, 1998 between the Company and the Financial     
Advisor, the Financial Advisor was paid a financial advisory fee of $250,000 and
an opinion fee of $500,000, both of which are creditable toward a transaction   
fee of approximately $3,260,000 to which the Financial Advisor will become      
entitled upon consummation of the Offer or, in the event that the Offer is not  
consummated, upon consummation of the Merger. The Company also has agreed to    
reimburse the Financial Advisor for its reasonable out-of-pocket expenses,      
including reasonable fees and expenses of its counsel. The Company has further  
agreed to indemnify and hold harmless the Financial Advisor and each of its     
directors, officers, agents, employees and controlling persons against losses,  
claims, damages or liabilities (or actions or proceedings in respect thereof)   
related to or arising out of its rendering of services under its engagement as  
financial advisor, and will reimburse the Financial Advisor and each other      
person indemnified for all legal and other expenses as incurred in connection   
with investigating or defending any such loss, claim, damage, liability, action 
or proceeding.                                                                  

ITEM 6.  RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES              

 (a) No transactions in the Shares have been effected during the past 60
days by the Company or, to the best of the Company's knowledge, by any executive
officer, director, affiliate or subsidiary of the Company.                      

    (b) To the best of the Company's knowledge, all of the Company's executive
officers, directors, affiliates and subsidiaries currently intend to tender     
pursuant to the Offer all Shares held of record or beneficially owned by such   
persons, subject to and consistent with applicable securities laws and any      
fiduciary obligations of such person.                                           

ITEM 7.  CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY           

    (a) Except as described in Items 3 and 4 above, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result in 
(i) an extraordinary transaction, such as a merger or reorganization, involving 
the Company; (ii) a purchase, sale or transfer of a material amount of assets by
the Company; (iii) a tender offer for or other acquisition of securities by or  
of the Company, or (iv) any material change in the present capitalization or    
dividend policy of the Company.                                                 

   (b) Except as described in Items 3 or 4 above, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to   
the Offer that relate to or would result in one or more of the events referred  
to in Item 7(a) above.                                                          

14

SC 14D9
19th Page of 46
TOC
1st
Previous
Next
Bottom
Just 19th

ITEM 8.  ADDITIONAL INFORMATION TO BE FURNISHED                                 

BOARD OF DIRECTORS                                                              

    The Information Statement attached hereto as Annex I is being furnished in
connection with the contemplated designation by Purchaser, pursuant to the      
Merger Agreement, of certain persons to be appointed to the Board other than at 
a meeting of the Company's stockholders, following the purchase by Purchaser of 
the number of Shares pursuant to the Offer necessary to satisfy the Minimum     
Condition.                                                                      

REGULATORY APPROVALS                                                            

     The Company generally conducts its business pursuant to long-term contracts
with each of the states in which it operates or the state agencies responsible  
for emissions testing programs. None of the state contracts to which the Company
is currently a party require any notice or consent to be obtained by the        
Company, Purchaser or Parent prior to the consummation of the Offer or the      
Merger. Licenses obtained by the Company from the Bureau of Automotive Repair   
(the "Bureau") in connection with the business carried on pursuant to the       
Company's agreement with Atlantic Richfield Company must be reissued by the     
Bureau upon a change of company ownership. To obtain a valid license            
registration, the new owner must submit a new application, accompanied by the   
license application fee.                                                        

     With respect to matters relating to antitrust, the information set forth in
Section 14 of the Offer to Purchase entitled "Certain Legal Matters" filed by   
Parent and Purchaser with the Securities and Exchange Commission on August 19,  
1998 is hereby incorporated by reference.                                       

CERTAIN LITIGATION                                                              

    Other than as disclosed in the Company's most recently filed annual report
on Form 10-K and its most recently filed report on Form 10-Q, the Company is not
currently subject to any material litigation. No such litigation involves the   
proposed acquisition of the Company by Parent and Purchaser.                    

ITEM 9.  MATERIAL TO BE FILED AS EXHIBITS                                       

                                                                · Download Table

EXHIBIT NO.                                                                
-----------                                                                
                                                                           
Exhibit 1      Agreement and Plan of Merger dated as of August 12, 1998    
               among the Parent, the Purchaser and the Company, to be filed
               as Exhibit 99(a)(1) to the Purchaser's Tender Offer         
               Statement on Schedule 14D-1 filed with the SEC on August 19,
               1998.                                                       
Exhibit 2      Letter dated August 19, 1998, from the Chairman of the Board
               and Chief Executive Officer to the stockholders of the      
               Company.*                                                   
Exhibit 3      Joint Press release issued by Parent and the Company dated  
               August 13, 1998, to be filed as Exhibit 99(a)(8) to the     
               Purchaser's Tender Offer Statement on Schedule 14D-1 filed  
               with the SEC on August 19, 1998.                            
Exhibit 4      Opinion of Credit Suisse First Boston Corporation dated     
               August 12, 1998 (included as Annex II to this Statement).*  
Exhibit 5      Confidentiality Agreement between Parent and the Company    
               dated May 8, 1998, to be filed as Exhibit 99(c)(4) to the   
               Purchaser's Tender Offer Statement on Schedule 14D-1 filed  
               with the SEC on August 19, 1998.                            
Exhibit 6      1993 Company Stock Option Plan.                             

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

* Included with Schedule 14D-9 mailed to stockholders of the Company.           

15

SC 14D9
20th Page of 46
TOC
1st
Previous
Next
Bottom
Just 20th

SIGNATURE 

After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and  
correct.                                                                        

                          ENVIROTEST SYSTEMS CORP., INC.

                     By: /s/ C. MICHAEL ALSTON
                                      ----------------------------------
                            Name:  C. Michael Alston
                                        Title: General Counsel and Secretary

Dated:  August 19, 1998                                                         

16

SC 14D9
21st Page of 46
TOC
1st
Previous
Next
Bottom
Just 21st

                                                                         ANNEX I

ENVIROTEST SYSTEMS CORP.
246 SOBRANTE WAY
SUNNYVALE, CALIFORNIA 94086 
(301) 530-8110

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

INFORMATION STATEMENT PURSUANT
TO SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER

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

NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS 
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.

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

  This information statement (the "Information Statement"), which is being
mailed on or about August 19, 1998 to the holders of shares of the Company's    
Class A Common Stock, par value $.01 per share ("Shares" or "Class A Shares"),  
of Envirotest Systems Corp., a Delaware corporation (the "Company"), is being   
furnished in connection with the designation by Stone Rivet, Inc., a Delaware   
corporation ("Purchaser") and a wholly owned subsidiary of Environmental Systems
Products, Inc., a Delaware corporation ("Parent"), of persons (the "Purchaser   
Designees") to the Board of Directors of the Company (the "Board"). Such        
designation is to be made pursuant to an Agreement and Plan of Merger dated as  
of August 12, 1998 (the "Merger Agreement") among the Company, Parent and       
Purchaser. Terms not defined in this Information Statement shall have the       
meaning ascribed to them in the Merger Agreement.                               

     Pursuant to the Merger Agreement, among other things, Purchaser commenced a
cash tender offer on August 19, 1998 to purchase all of the issued and          
outstanding Shares at a price of $17.25 per Share, net to the seller in cash, as
described in Purchaser's Offer to Purchase dated August 19, 1998 and the related
Letter of Transmittal (which Offer to Purchase and related Letter of Transmittal
together constitute the "Offer"). The Offer is scheduled to expire at 12:00     
Midnight, New York City time, on September 30, 1998, unless extended. The Offer 
is subject to, among other things, the condition that a number of Shares        
representing (i) not less than 90% of all outstanding Shares on a primary basis 
(assuming conversion of all 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 (ii) 100% of the Shares that are    
issuable upon conversion (and assuming conversion thereof of all outstanding    
Class B Shares and Class C Shares being validly tendered prior to the expiration
of the Offer and not withdrawn (the "Minimum Condition"). The Merger Agreement  
also provides for the merger (the "Merger") of Purchaser with and into the      
Company as soon as practicable after consummation of the Offer. Following the   
consummation of the Merger (the "Effective Time"), the Company will be the      
surviving corporation (the "Surviving Corporation") and a wholly owned          
subsidiary of Parent. In the Merger each Share and each Class B Share and Class 
C Share issued and outstanding immediately prior to the Effective Time (other   
than Shares held in the treasury of the Company or by Parent, Purchaser, or any 
indirect or direct wholly owned subsidiary of the 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 Delaware General     
Corporation Law (the "Delaware Law")) will be converted into the right to       
receive cash in an amount of $17.25 per Share.                                  

SC 14D9
22nd Page of 46
TOC
1st
Previous
Next
Bottom
Just 22nd

RIGHT TO DESIGNATE DIRECTORS; THE PURCHASER DESIGNEES                           

     The Merger Agreement provides that, 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 to give Purchaser representation on the Board   
that equals the product of (i) the total number of directors on the Board       
(giving effect to the election of any additional directors pursuant to the      
Merger Agreement) and (ii) the percentage that the aggregate number of Shares   
beneficially owned by Purchaser and its affiliates (including any Shares        
purchased pursuant to the Offer) bears to the total number of outstanding       
Shares. The Company shall, upon request by Purchaser, promptly either increase  
the size of the Board (and shall if necessary, amend the Company's By-Laws to   
permit such an increase) or use its reasonable best efforts to secure the       
resignation of such number of directors as is necessary to enable Purchaser's   
Designees to be elected to the Board and shall cause Purchases Designees to be  
so elected. The Merger Agreement also provides that, promptly upon request by   
Purchaser, the Company will use its reasonable best efforts to cause persons    
designated by Purchaser to constitute the same percentage as the number of      
Purchaser's Designees to the Board to the total number of directors on the Board
on (i) each committee of the Board, (ii) each board of directors or similar     
governing body or bodies of each subsidiary of the Company designated by        
Purchaser and (iii) each committee of each such board or body.                  

    Following the election or appointment of the Purchaser Designees and prior
to the Effective Time, any amendment of the Merger Agreement or the Certificate 
of Incorporation or By-laws of the Company, any termination of the Merger       
Agreement by the Company, any extension by the Company of the time for the      
performance of any obligations or other acts of Parent or Purchaser or any      
waiver of any of the Company's rights thereunder shall require the concurrence  
of a majority of the Directors of the Company present at the meeting who are not
designees of Purchaser or employees of the Company.                             

  The terms of the Merger Agreement, a summary of the events leading up to
the Offer and the execution of the Merger Agreement and other information       
concerning the Offer and the Merger are contained in the Offer to Purchase and  
in the Solicitation/Recommendation Statement on Schedule 14D-9 of the Company   
(the "Schedule 14D-9") with respect to the Offer, copies of which are being     
delivered to stockholders of the Company contemporaneously herewith. Certain    
other documents (including the Merger Agreement) were filed with the Securities 
and Exchange Commission (the "SEC") as exhibits to the Schedule 14D-9 and as    
exhibits to the Tender Offer Statement on Schedule 14D-1 of the Purchaser and   
Parent (the "Schedule 14D-1"). The exhibits to the Schedule 14D-9 and the       
Schedule 14D-1 may be examined at, and copies thereof may be obtained from, the 
regional offices of and public and reference facilities maintained by the SEC   
(except that the exhibits thereto cannot be obtained from the regional offices  
of the SEC) in the manner set forth in Sections 7 and 8 of the Offer to         
Purchase. The Company has been informed that the Parent intends to finance the  
purchase of Shares in the Offer and the Merger by making capital contributions  
to Purchaser from available cash and from some combination of borrowings.       
Environmental Systems Products Holdings, Inc., a Delaware corporation that will 
wholly own and control Parent ("Holdings") will advance funds, directly or      
indirectly, to Purchaser through Parent, through capital contributions and/or   
loans, in such amounts as are necessary to fund Purchaser's obligations with    
respect to the Offer and the Merger (including the refinancing of certain       
obligations of the Company and the Parent). 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.               

Holdings plans to obtain all funds needed to make such capital        
contributions and/or loans to Purchaser (a) from an equity contribution in the  
amount of approximately $80 million from the stockholders 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 $l0.6 million under a new revolving credit facility (the "Revolving Loan  
Facility", and together with the Term Loan Facility, the "Credit Facilities"),  
(d) from the issuance by Holdings of senior subordinated notes in the principal 
amount of $225 million (the "Senior Subordinated                                

 2

SC 14D9
23rd Page of 46
TOC
1st
Previous
Next
Bottom
Just 23rd

Notes") or, in lieu thereof, from borrowings by Holdings under a bridge loan    
facility (the "Bridge Loan Facility")                                           

     No action is required by the stockholders of the Company in connection with
the election or appointment of the Purchaser Designees to the Board. However,   
Section 14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange 
Act"), requires the mailing to the Company's stockholders of the information set
forth in this Information Statement prior to a change in a majority of the      
Company's directors otherwise than at a meeting of the Company's stockholders.  

    The information contained in this Information Statement concerning Parent,
Purchaser and the Purchaser Designees, has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or          
completeness of such information. The Schedule 14D-1 indicates that the         
principal executive offices of Parent and Purchaser are located at 7 Kripes     
Road, East Granby, Connecticut 06026.                                           

SECURITY OWNERSHIP OF 
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

GENERAL                                                                         

   Although the Company's authorized capital stock consists of three classes
of shares with voting and other privileges varying according to each, only      
shares of Class A Common Stock may be tendered pursuant to the Offer. Each such 
share of Class A Common Stock is entitled to one vote. As of July 31, 1998,     
there were 12,118,108 shares of Common Stock outstanding which were eligible, on
conversion of Class B Shares and Class C Shares into Class A Shares, to be      
tendered pursuant to the Offer. The Board currently consists of six members.    
Each director holds office until his successor is elected and qualified or until
his earlier death, resignation or removal.                                      

PRINCIPAL STOCKHOLDERS                                                          

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information, based primarily on
information provided by the Company's transfer agent, as of the period          
immediately prior to the filing of the Company's most recent proxy statement,   
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        

 3

SC 14D9
24th Page of 46
TOC
1st
Previous
Next
Bottom
Just 24th

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.            

                                                        · Enlarge/Download Table

                                                   CLASS A COMMON STOCK          CLASS B COMMON STOCK    
                                               ----------------------------  ----------------------------
                                                                PERCENTAGE                    PERCENTAGE 
                                                  NUMBER         OF CLASS       NUMBER         OF CLASS  
                                               BENEFICIALLY    BENEFICIALLY  BENEFICIALLY    BENEFICIALLY
                                                  OWNED           OWNED         OWNED           OWNED    
                                               ------------    ------------  ------------    ------------
                                                                                                         
Chester C. Davenport(a).......................  3,454,253          30.7%      2,040,775          100%    
Envirotest Systems Corp.                                                                                 
6903 Rockledge Drive, Suite 214                                                                          
Bethesda, Maryland 20817                                                                                 

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

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

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

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

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

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

Richard L. Gelfond(g).........................  1,009,691          11.3%             --           --     
Cheviot Capital Advisors Inc.                                                                            
P.O. Box 571                                                                                             
Southampton, New York 11969                                                                              

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

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

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

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

Lawrence Taylor(l)............................    121,265           1.4%             --           --     
All directors and officers as a group (16                                                                
  persons)....................................  6,866,111          57.0%      2,040,775          100%    

---------------                                                                 
* 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         

 4

SC 14D9
25th Page of 46
TOC
1st
Previous
Next
Bottom
Just 25th

  power with respect to shares held by Kane Partners, L.P. Shares of Class B
    Common Stock are convertible at the option of the holder at any time into an
equal number of shares of Class A Common Stock.                         

(b) Represents shares of Class A Common Stock issuable upon the conversion of   
  Class C Common Stock, which are convertible at the option of Chase Banking
  Corporation. The Class C Common Stock does not have ordinary voting rights
for the election of directors or other matters generally requiring a    
stockholder vote.                                                       

(c) The information on Appaloosa Management, L.P. and David A. Tepper and their 
   beneficial ownership of Class A Common Stock is based on Schedule 13D filed
with the Securities and Exchange Commission on August 18, 1997.         

(d) The information on Kane Partners, L.P. and its beneficial ownership of the  
   Class A Common Stock is based on Schedule 13G filed with the Securities and
Exchange Commission on February 17, 1994.                               

(e) Represents 2,246,818 shares owned by TSG Ventures L.P. Mr. Christophe, a    
Director of the Company, is an officer, director, and shareholder of the
   general partner of TSG Ventures L.P., and is a principal of an entity which
  provides advisory services to TSG Ventures L.P. and may be deemed to share
    voting and investment power with respect to such shares. Also includes 8,333
shares of Class A Common Stock issuable upon the exercise of options to 
 purchase Class A Common Stock, which are exercisable at the option of the
holder within sixty (60) days.                                          

(f) Includes 8,333 shares of Class A Common Stock issuable upon the exercise of 
options to purchase Class A Common Stock, which are exercisable at the  
option of the holder within sixty (60) days.                            

(g) Represents (i) shares owned by Kane Partners, L.P.; (ii) 9,000 shares owned 
by Cheviot Capital Advisors (Pension Plan); (iii) options to purchase   
    100,000 shares of Class A Common Stock held by Cheviot Capital Advisors Inc.
which are exercisable by the holder within sixty (60) days; (iv) 8,333  
shares of Class A Common Stock issuable upon the exercise of options to 
 purchase Class A Common Stock, which are exercisable at the option of the
holder within sixty (60) days; (v) 137,000 shares held directly by Mr.  
   Gelfond; and (vi) 22,300 shares held by trusts for which Mr. Gelfond is the
   trustee, for the benefit of Mr. Gelfond's children. Mr. Gelfond, a Director
of the Company, is the Vice President of the General Partner of Kane    
  Partners, L.P. and shares voting and investment power with respect to such
shares, and is the President and sole stockholder of Cheviot Capital    
Advisors Inc.                                                           

(h) Includes 12,333 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the  
option of the holder within sixty (60) days.                            

(i) Represents 133,320 shares of Class A Common Stock issuable upon the exercise
 of options to purchase Class A Common Stock, which are exercisable at the
option of the holder within sixty (60) days.                            

(j) Includes 71,666 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the  
option of the holder within sixty (60) days. Also includes 15,230 shares
owned by members of Mr. Modi's immediate family. Mr. Modi disclaims     
beneficial ownership of such shares.                                    

(k) Includes 75,666 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the  
option of the holder within sixty (60) days.                            

(l) Includes 68,333 shares of Class A Common Stock issuable upon the exercise of
options to purchase Class A Common Stock, which are exercisable at the  
option of the holder within sixty (60) days.                            

DIRECTORS AND EXECUTIVE OFFICERS

THE PURCHASER DESIGNEES                                                         

 Purchaser has informed the Company that each of the Purchaser Designees
listed below has consented to act as a director.                                

 None of the Purchaser Designees is a director of, or holds any position
with, the Company. To the best knowledge of the Company, none of the Purchaser  
Designees or their associates beneficially owns any equity securities, or rights
to acquire any equity securities, of the Company or has been involved in any    
transactions with the Company or any of its directors or executive officers that
are required to be disclosed pursuant to the rules and regulations of the SEC.  

   It is expected that the Purchaser Designees may assume office at any time
following the purchase by Purchaser of such number of Shares that satisfies the 
Minimum Condition, which purchase cannot be earlier than October 1, 1998 and    
that, upon assuming office, the Purchaser Designees will thereafter constitute  
at least a majority of the Board.                                               

 5

SC 14D9
26th Page of 46
TOC
1st
Previous
Next
Bottom
Just 26th

Biographical information concerning each of the Purchaser Designees,  
directors and executive officers is presented on the following pages. The       
Purchaser Designees are:                                                        

                                                                · Download Table

                           POSITION WITH PARENT; PRINCIPAL OCCUPATION 
NAME AND BUSINESS ADDRESS  OR EMPLOYMENT; FIVE-YEAR EMPLOYMENT HISTORY
-------------------------  -------------------------------------------
                                                                      
Terrence P. McKenna        President, Chief Executive Officer and     
7 Kripes Road              Director of Parent since its formation in  
East Granby, CT 06026      1989. Age: 47.                             

Rinaldo R. Tedeschi        Executive Vice President, Chief Operating  
7 Kripes Road              Officer and Director of Parent since its   
East Granby, CT 06026      formation in 1989. Age: 49.                

David J. Langevin          Executive Vice President, Chief Financial  
7 Kripes Road              Officer and Director of Parent since April 
East Granby, CT 06026      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
c/o Alchemy Partners       at Alchemy Partners since 1997. From 1987  
20 Bedfordbury             to 1997, Partner at Schroder Ventures. Age:
London                     54                                         
WC2N 4BL                                                              
England                                                               

Susan M. Woodman           Counsel of Alchemy Partners since June     
c/o Alchemy Partners       1998, Partner at Wedlake Saint solicitors  
20 Bedfordbury             from 1995 to 1998. From 1991 to 1995,      
London                     Partner at Edge & Ellison solicitors. Age: 
WC2N 4BL                   45.                                        
England                                                               

CURRENT DIRECTORS AND EXECUTIVE OFFICERS                                        

The following table sets forth information concerning the executive   
officers of the Company as of August 12, 1998.                                  

                                                        · Enlarge/Download Table

NAME                            AGE            CURRENT POSITION AND BUSINESS EXPERIENCE          
----                            ---            ----------------------------------------          
                                                                                                 
Chester C. Davenport........... 57   Chairman of the Board of Directors since September 1990;    
                                     Managing Director of Georgetown Partners Limited            
                                     Partnership, a merchant banking firm ("Georgetown           
                                     Partners"), since September 1988; Senior Partner in         
                                     Washington, D.C. law firm of Davenport and Seay from 1979 to
                                     1987 and from 1973 to 1976; Managing General Partner of     
                                     First City Properties, an investment partnership, from 1979 
                                     to 1985; Assistant Secretary of Transportation for Policy   
                                     and International Affairs from 1977 to 1979.                
F. Robert Miller............... 54   President, Chief Executive Officer and director since 1996; 
                                     President, Chief Executive Officer and director of SC and   
                                     its predecessors from 1987 to 1995.                         

 6

SC 14D9
27th Page of 46
TOC
1st
Previous
Next
Bottom
Just 27th

                                                        · Enlarge/Download Table

NAME                            AGE            CURRENT POSITION AND BUSINESS EXPERIENCE          
----                            ---            ----------------------------------------          
                                                                                                 
Mark Thomas.................... 42   Executive Vice President and Chief Development Officer of   
                                     the Company since March 1998; Senior Vice President and     
                                     Director of Corporate Development of ITT Corporation from   
                                     June 1997 to February 28, 1998; Vice President and Director 
                                     of Corporate Development of ITT from October 1995 to June   
                                     1997; Senior Vice President and Director of Corporate       
                                     Development for ITT Sheraton Corporation from June 1994 to  
                                     October 1995; Senior Vice President and General Counsel of  
                                     Hilton Gaming Corporation from April 1994 to June 1994; Vice
                                     President and General Counsel of Sheraton Gaming Corporation
                                     from April 1993 to April 1994; Various positions in the Law 
                                     Department of Holiday Corporation and its successor         
                                     corporation, The Promus Companies Incorporated, the parent  
                                     company of Holiday Inns, Hampton Inns, Embassy Suites,      
                                     Homewood and Harrah's from May 1980 to April 1993.          
Richard P. Webb................ 56   Executive Vice President, Chief Operating Officer since     
                                     April 1997; Independent Consultant from September 1996 to   
                                     April 1997; President & Chief Operating Officer, Shared     
                                     Technologies Cellular, Inc. December 1995 to September 1996;
                                     Independent Consultant from September 1995 to December 1995;
                                     Chief Executive Officer, Ambac BV (a Dutch company) from May
                                     1987 to October 1995.                                       
Raj Modi....................... 45   Vice President, Chief Financial Officer, Treasurer and      
                                     Assistant Secretary since January 1993; Controller from July
                                     1992 to January 1993; Controller of ETI from December 1986  
                                     to July 1992.                                               
Michael Alston................. 40   Vice President and General Counsel of the Company June 4,   
                                     1998; Vice President, General Counsel and Secretary from    
                                     September 1992 to September 1997; Executive Vice President  
                                     and General Counsel of Horne Engineering Services, Inc. from
                                     March 1992 to September 1992.                               
Lawrence H. Taylor............. 53   Vice President of Marketing since January 1994; divisional  
                                     Vice President of Marketing and Sales of the Company from   
                                     April 1992 to January 1994 and of ETI from 1989 to April    
                                     1992.                                                       
Laura E. Baker................. 43   Vice President of Corporate Communications since January    
                                     1996; Vice President of Corporate Communications of SC from 
                                     September 1994 to January 1996; Director of Corporate       
                                     Communications from April 1992 to September 1994; Manager of
                                     Marketing Services of SC from 1985 to April 1992.           
John Pachuta................... 48   Vice President of Engineering since June 1, 1998; Director  
                                     of Engineering since March 1994. Director, Bureau of Motor  
                                     Vehicles, Commonwealth of Pennsylvania from 1980 to 1993.   
Perry J. Ludy.................. 46   Vice President of Operations since February 1996; Vice      
                                     President of SC from December 1994 to February 1996;        
                                     President of U.S. Auto Glass, Inc. from December 1990 to    
                                     December 1994.                                              
Richard M. Tucker.............. 50   Vice President of Program Development since January 1996;   
                                     Vice President of Program Development of SC from March 1992 
                                     to January 1996; Director of International Marketing of SC  
                                     from August 1991 to March 1992.                             

 7

SC 14D9
28th Page of 46
TOC
1st
Previous
Next
Bottom
Just 28th

                                                        · Enlarge/Download Table

NAME                            AGE            CURRENT POSITION AND BUSINESS EXPERIENCE         
----                            ---            ----------------------------------------         
                                                                                                
James Burley................... 49   Vice President of Administration since July 1996; Human    
                                     Resources Manager for the Hughes Research Laboratories from
                                     January 1992 to July 1996; Manager of Human Resources      
                                     Administration for the Electron Dynamics Division of Hughes
                                     Electronics from July 1984 to January 1992.                

    All officers are elected annually and serve at the discretion of the Board
of Directors.                                                                   

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 a 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.                                                       

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS                               

   During the fiscal year ended September 30, 1997, there were four meetings
of the Board. All of the directors of the Company, with the exception of Mr.    
Cogut who is no longer a member of the Board, attended 75% or more of the       
meetings of the Board and the committees on which they served.                  

As of January 1998, the Audit Committee of the Board consists of Mr.  
Dugger, Mr. Christophe and Mr. Gelfond. The Audit Committee monitors and        
supervises the Company's relationship with its independent public accountants,  
reviews the internal audit and control functions and procedures of the Company  
and makes recommendations to the Board accordingly. As of May 12, 1997, the     
Compensation Committee of the Board consists of Mr. Christophe and Mr. Dugger.  
The Compensation Committee reviews and makes recommendations to the Board       
regarding the compensation policies of the Company, administers the Company     
Stock Option Plan, and makes recommendations to the Board regarding any         
discretionary compensation to be paid to officers or key personnel of the       
Company.                                                                        

The Development Committee of the Board consists of Mr. Christophe, Mr.
Dugger and Mr. Kasten. This Committee is responsible for determining the        
reasonableness and favorability of the terms of related party transactions      
having an aggregate value in excess of $2,000,000. Members of this committee    
must be disinterested as to the transaction in question.                        

    The Management Committee consists of Mr. Christophe, Mr. Davenport and Mr.
Gelfond. This committee was formed to conduct a search for, and recommend, an   
appropriate candidate to serve as President and Chief Executive Officer. This   
committee is also responsible for consulting with the President of the Company. 

  During the fiscal year ended September 30, 1997, the Board established a
Director Plan Committee to determine the terms of grants to non-employee        
directors. The members of the Director Plan Committee are Mr. Davenport and Mr. 
Miller. During that year, the Board also established a Capital Market Strategy  
Committee to advise the Board on matters relating to improvement of the         
Company's stock value. The members of this Committee are Mr. Davenport, Mr.     
Christophe and Mr. Gelfond.                                                     

    During the fiscal year ended September 30, 1997, there were no meetings of
the Executive Committee, one meeting of the Audit Committee, no meetings of the 
Development Committee, two meetings of the                                      
 8

SC 14D9
29th Page of 46
TOC
1st
Previous
Next
Bottom
Just 29th

Compensation Committee, no meetings of the Management Committee and one meeting 
of the Director Plan Committee. In 1997, one meeting of the Capital Market      
Strategy Committee was held.                                                    

   The Board does not have a nominating committee. The selection of nominees
for the Board is made by the entire Board.                                      

DIRECTOR COMPENSATION                                                           

Members of the Board are reimbursed by the Company for their travel   
expenses incurred in attending Board and Committee meetings. Members of the     
Board 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 meeting attended. Outside Directors 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 1st.             

COMPENSATION OF EXECUTIVE OFFICERS                                              

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

                                                        · Enlarge/Download Table

                                           ANNUAL                        LONG-TERM                
                                        COMPENSATION                    COMPENSATION              
                                        ------------      OTHER ANNUAL     AWARDS      ALL OTHER  
NAME AND PRINCIPAL POSITION    YEAR  SALARY       BONUS   COMPENSATION    OPTIONS     COMPENSATION
---------------------------    ----  ------       -----   ------------  ------------  ------------
                                                                                                  
Chester C. Davenport.......... 1995  551,256          --          --            --      38,388(a) 
Chairman of the Board          1996  619,221          --          --            --     131,170(a) 
                               1997  602,766          --     1,575(b)    145,000(o)     31,125(a) 
                                 --       --          --          --     339,542(p)           --  
F. Robert Miller.............. 1996  187,500          --          --     400,000(j)      6,337(k) 
President and Chief Executive                                                                     
  Officer                      1997  296,668          --     5,000(b)           --       7,950(k) 
C. Michael Alston............. 1995  189,950          --     1,910(b)     10,000(f)      4,298(c) 
Vice President, General                                                                           
  Counsel & Secretary            --       --          --          --      36,000(h)           --  
                                 --       --          --          --      40,000(g)           --  
                               1996  217,626          --     3,481(b)           --       3,100(c) 
                               1997  224,974          --       615(b)     55,000(q)      3,200(c) 
                                 --       --          --          --            --      12,111(n) 
Raj Modi...................... 1995  175,000          --    37,294(d)     50,000(h)      8,561(e) 
Vice President, Chief                                                                             
  Financial Officer and                                                                           
  Assistant Secretary            --       --          --          --      10,000(f)           --  
                                 --       --          --          --      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)           --  

 9

SC 14D9
30th Page of 46
TOC
1st
Previous
Next
Bottom
Just 30th

                                                        · Enlarge/Download Table

                                         ANNUAL                        LONG-TERM                
                                      COMPENSATION                    COMPENSATION              
                                      ------------      OTHER ANNUAL     AWARDS      ALL OTHER  
NAME AND PRINCIPAL POSITION  YEAR  SALARY       BONUS   COMPENSATION    OPTIONS     COMPENSATION
---------------------------  ----  ------       -----   ------------  ------------  ------------
                                                                                                
                             1996  179,945          --    90,323(l)           --       7,750(m) 
                             1997  195,450          --    88,349(l)     55,000(q)      7,777(m) 

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

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

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

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

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

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

(j) Represents options to purchase Class A Common Stock. 200,000 of such options
    have an exercise price of $2.75 (closing price on the date of grant) and the
remaining 200,000 options have an exercise price of $2.8375 (the average
    closing price for the 5 trading day period ending thirty days after the date
  of such grant). Such options were granted under the Company's Stock Option
Plan.                                                                   

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

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

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

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

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

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

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

OPTION VALUE TABLE                                                              

 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:                                                                    

10

SC 14D9
31st Page of 46
TOC
1st
Previous
Next
Bottom
Just 31st

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND 
FISCAL YEAR-END OPTION VALUES 

                                                        · Enlarge/Download Table

                                               NUMBER OF               VALUE OF UNEXERCISED     
                                          UNEXERCISED OPTIONS          IN-THE-MONEY OPTIONS     
NAME                                     AT SEPTEMBER 30, 1997        AT SEPTEMBER 30, 1997     
----                                   -------------------------   ---------------------------- 
                                                                                                
                                       791,026      (exercisable)  $3,229,562      (exercisable)

Chester C. Davenport.................. 484,542    (unexercisable)     154,063    (unexercisable)
                                       133,320      (exercisable)     223,988      (exercisable)

F. Robert Miller...................... 266,680    (unexercisable)     440,023    (unexercisable)
                                        57,333      (exercisable)           0      (exercisable)

C. Michael Alston.....................  47,000    (unexercisable)      19,479    (unexercisable)
                                        50,000      (exercisable)           0      (exercisable)

Raj Modi..............................  90,000    (unexercisable)      69,063    (unexercisable)
                                        50,000      (exercisable)           0      (exercisable)

Lawrence H. Taylor....................  80,000    (unexercisable)      58,438    (unexercisable)

MATERIAL CONTRACTS AND AGREEMENTS WITH EXECUTIVE OFFICERS                       

EMPLOYMENT AGREEMENTS                                                           

  The Davenport Agreement.  Mr. Davenport has an employment agreement with
the Company (the "Davenport Agreement") 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 Davenport 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 Davenport  
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
Davenport 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 Davenport Agreement also provides that for a period of          
twenty-four months after termination of his employment with the Company other   
than for "Cause" (as defined below) or because of Mr. Davenport's permanent     
disability, 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. In addition, if the Company          
terminates the employment of Mr. Davenport other than for Cause, or as a result 
of the sale of the Company to another entity which does not accept an assignment
of the Davenport Agreement, in each case prior to the expiration of the term of 
the Davenport 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. Under the Davenport Agreement, such payments will not, in the 
aggregate, result in Mr. Davenport being entitled to more than one hundred      
percent of his salary and bonus during any period after his termination. The    
Company has also agreed to cover Mr. Davenport during the term of the Davenport 
11

SC 14D9
32nd Page of 46
TOC
1st
Previous
Next
Bottom
Just 32nd

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.                       

   In June, 1998, the Davenport Agreement was amended to provide that in the
event of a "Change in Control" (as defined below) of the Company, Mr. Davenport 
will have the right to terminate his employment under the Davenport Agreement   
for any reason on or within 60 days of the date on which the Change in Control  
is consummated (a "Special Termination"). In the event of a Special Termination,
Mr. Davenport will have the right to (i) receive a cash lump sum equal to the   
sum of (A) 100% of the base salary and bonus Mr. Davenport would have received  
for a period of 24 months following the date of termination and (B) 50% of the  
base salary and bonus for an additional period of (x) 36 months minus (y) the   
difference between 24 months and the number of months that remain in the term of
the Davenport Agreement after the date of termination, (ii) receive all other   
benefits which he would have been entitled to receive had he remained employed  
for the remainder of the term of the Davenport Agreement plus 36 months         
thereafter, (iii) sublease the Company's existing office space in Bethesda,     
Maryland at the then applicable rate of rent for a period of one year after such
Special Termination, and (iv) buy, at the then fair market value, all computer  
equipment, related hardware and furniture in use in the Bethesda facility. The  
foregoing payments and benefits will be paid to Mr. Davenport in lieu of any    
other salary, bonus or benefit continuation that otherwise would have been      
applicable under the Davenport Agreement. In consideration of the benefits Mr.  
Davenport will receive in the event of a Special Termination, the Davenport     
Agreement, as amended, requires Mr. Davenport to comply with a twenty-four month
non-competition clause following such Special Termination.                      

    The Davenport Agreement, as amended, also provides that if any amounts due
to Mr. Davenport thereunder (or under any other plan or program of the Company) 
become subject to the "golden parachute" excise tax under Section 4999 of the   
Code, then Mr. Davenport will be entitled to be grossed-up for such excise tax  
on an after-tax basis.                                                          

For purposes of the Davenport Agreement, "Cause" means (i) willful    
misconduct by Mr. Davenport in the performance of his duties to the Company or  
his willful failure to follow the instructions of the Board which has not been  
cured within thirty days; (ii) any act of fraud, theft or dishonesty by Mr.     
Davenport against the Company; or (iii) Mr. Davenport's conviction of (or plead 
of nolo contendere to) any felony, fraud or embezzlement charge. In addition,   
for purposes of the Davenport Agreement, "Change in Control" means (i) any sale,
transfer or other conveyance (other than to the Company or a wholly owned       
subsidiary of the Company), whether direct or indirect, of all or substantially 
all of the assets of the Company, on a consolidated basis, in one transaction or
a series of related transactions, if, immediately after such transaction, any   
"person" or "group" becomes the "beneficial owner," directly or indirectly, of  
more than 50% of the total voting power entitled to vote in the election of     
directors, managers, or trustees of the transferee, (ii) any "person" or "group"
is or becomes the "beneficial owner," directly or indirectly, of more than 50%  
of the total voting power of the Company's voting stock then outstanding, or    
(iii) during any period of 24 consecutive months, individuals who at the        
beginning of such period constituted the Board of Directors of the Company      
(together with any new directors whose election by such Board or whose          
nomination for election by the stockholders of the Company was approved by a    
vote of a majority of the directors then still in office who were either        
directors at the beginning of such period or whose election or nomination for   
election was previously so approved), cease for any reason to constitute a      
majority of the Board of Directors then in office; provided, however, that for  
purposes of the Davenport Agreement, such Change of Control must also result in 
Mr. Davenport ceasing to be the beneficial owner of 10% of the Company's common 
stock. For purposes of the Davenport Agreement, (i) the terms "person" and      
"group" have the meanings used for purposes of Rules 13d and 13d-5 of the       
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable, provided that no "Excluded Person"(as defined below) and no person  
or group controlled by Excluded Persons shall be deemed to be a "person" or     
"group" and (ii) the term "beneficial owner" has the meaning used in Rules 13d-3
and 13d-5 under the Exchange Act, whether or not applicable, except that a      
person shall be deemed to have "beneficial ownership" of all such shares that   
any such person has the right to acquire, whether such right is exercisable     
immediately or only after the passage of time or upon the occurrence of certain 
events. For the purposes of the Davenport Agreement, "Excluded Person" means any
beneficial                                                                      
12

SC 14D9
33rd Page of 46
TOC
1st
Previous
Next
Bottom
Just 33rd

holder of 5% or more of any class of common stock of the Company outstanding    
immediately prior to the consummation of the Company's initial public offering  
in April 1993.                                                                  

     The Merger will result in a Change in Control for purposes of the Davenport
Agreement.                                                                      

   The Davenport Non-Competition Agreement.  As a condition to execution and
delivery of the Merger Agreement, Parent required Chester C. Davenport, the     
Chairman of the Board of the Company, to enter 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-Competition 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-Competition 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 employee of the Company; or   
(iv) otherwise interfere with the employment by the Company of its affiliates   
of, any individual who becomes or would otherwise become an employee of the     
Company. In consideration for such extended non-compete obligations, pursuant to
the Noncompetition 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 Noncompetition Agreement is         
qualified in its entirety by the text of the Noncompetition Agreement, a copy of
which is filed as Exhibit 99(c)(5) to the Schedule 14D-1 and is incorporated    
herein by reference.                                                            

The Thomas Agreement.  Mr. Thomas has an employment agreement with the
Company (the "Thomas Agreement") that provides for a term which expires on April
30, 2000, but which continues for an indefinite period unless either party gives
notice of expiration of the term. The Thomas Agreement provides for a base      
salary of $250,000 per year (which is subject to annual increase in the         
discretion of the Compensation Committee). The Thomas Agreement provides for the
grant to Mr. Thomas of an option for the purchase of 100,000 shares of the      
Company's Class A Common Stock at an exercise price per share equal to the fair 
market value of the Class A Common Stock on the date of grant. The option will  
vest and become immediately exercisable on the first anniversary of the date of 
grant. The option will expire if not exercised on the tenth anniversary of the  
date of grant. The Thomas Agreement provides that if (i) Mr. Thomas' employment 
is terminated for any reason other than by the Company for "Cause" (as defined  
below) or by Mr. Thomas without "Good Reason" (as defined below), the option    
granted under the Thomas Agreement shall vest and become immediately            
exercisable. The Thomas Agreement stipulates that Mr. Thomas will not, during   
the term of his employment and a period of one year thereafter, 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. Under the
Thomas Agreement, upon the consummation of a sale of the Company which          
constitutes a Change in Control (as defined below), Mr. Thomas will receive a   
special bonus in an amount equal to $550,000 plus the product of $100,000       
multiplied by the amount, if any, by which the exercise price of the option     
granted to Mr. Thomas under the Thomas Agreement exceeds $7. The Thomas         
Agreement also provides that in the event of Mr. Thomas' termination of         
employment for any reason other than by the Company for Cause or by Mr. Thomas  
without "Good Reason" (as defined below), Mr. Thomas is entitled to receive a   
lump sum payment equal to the greater of (x) one times annual base salary or (y)
base salary for the remainder of the initial term. In addition, Mr. Thomas is   
entitled to continued participation in all medical,                             
13

SC 14D9
34th Page of 46
TOC
1st
Previous
Next
Bottom
Just 34th

dental, hospitalization, disability and life insurance coverage in which Mr.    
Thomas was participating on the date of termination through the two-year        
anniversary of the date of termination.                                         

  The Thomas Agreement also provides that if any amounts due to Mr. Thomas
thereunder (or under any other plan or program of the Company) become subject to
the "golden parachute" excise tax under Section 4999 of the Code, then Mr.      
Thomas will be entitled to be grossed-up for such excise tax on an after-tax    
basis.                                                                          

     For purposes of the Thomas Agreement, "Cause" means (i) the willful failure
or refusal in bad faith of Mr. Thomas to perform his duties for the Company, or 
material specific resolutions and mandates of the Board of Directors and        
directives of the Chairman of the Board of the Company which are consistent with
Mr. Thomas's duties and responsibilities as set forth in the Thomas Agreement   
(other than by reason of his disability), (ii) the willful breach by Mr. Thomas 
of the terms and conditions of the noncompetition and confidentiality clauses of
the Thomas Agreement; (iii) the willful engaging by Mr. Thomas in conduct that  
is materially injurious to the Company, monetarily or otherwise, including, but 
not limited to, the willful commission of any act of fraud, theft or dishonesty 
against the Company, or (iv) the conviction of Mr. Thomas in a court of law or  
the entering by Mr. Thomas of a plea of guilty or no contest to, any felony or  
any crime involving moral turpitude, dishonesty or theft. In addition, for      
purposes of the Thomas Agreement, "Good Reason" means (i) the occurrence of a   
Change in Control; (ii) the failure by the Company to consummate a sale         
transaction with a third party, which sale transaction constitutes a Change in  
Control, prior to March 31, 1999; (iii) a decision by the Board to cease to     
proceed with the Company's current strategy to enter into a sale transaction    
with a third party, such decision to be deemed made if the Company fails, for   
any period of 120 or more consecutive calendar days during the term of the      
Thomas Agreement, to retain investment bankers in connection with the Company's 
sale efforts; (iv) a default by the Company of a material term of the Thomas    
Agreement; (v) a reduction in the base salary of Mr. Thomas or reduction of any 
employee benefit or perquisite enjoyed by him; (vi) a failure by the Board to   
grant Mr. Thomas the option described above; (vi) the failure to appoint or     
re-appoint Mr. Thomas to the position of Executive Vice President and Chief     
Development Officer or the removal of him from any such position; or (vii) a    
diminution in Mr. Thomas' position, authority, duties or responsibilities or the
assignment to Mr. Thomas of duties which are inconsistent in any respect with   
his position (including status, offices, titles and reporting requirements),    
authority, duties or responsibilities.                                          

 For purposes of the Thomas Agreement, "Change in Control" means (i) any
sale, transfer or other conveyance (other than to the Company or a wholly-owned 
subsidiary of the Company), whether direct or indirect, on a consolidated basis,
in one transaction or a series of related transactions, of (A) all or           
substantially all of the assets of the Company if, immediately after such       
transaction(s), any "person" or "group" (as such terms are defined below)       
becomes the "beneficial owner" (as defined below), directly or indirectly, of   
more than 33% of the voting stock entitled to vote in the election of directors,
managers, or trustees of the transferee; (ii) any "person" or "group" is or     
becomes the "beneficial owner," directly or indirectly of more than 33% of the  
voting stock then outstanding; or (iii) during any period of 24 consecutive     
months, individuals who at the beginning of such period constituted the Board   
(together with any new directors whose election by such Board or whose          
nomination for election by the shareholders of the Company was approved by a    
vote of a majority of the directors then still in the office who were either    
directors at the beginning of such period or whose election or nomination for   
election was previously so approved), cease for any reason to constitute a      
majority of the Board then in office. For purposes of the Thomas Agreement, (i) 
the terms "person" or "group" shall have the meanings used for purposes of Rules
13d and 13d-5 of the Exchange Act, whether or not applicable, provided that no  
"Excluded Person" (as defined below) and no person or group controlled by any   
Excluded Person shall be deemed to be a "person" or "group" and (ii) the term   
"beneficial owner" shall have the meaning used in Rules 13d-3 and 13d-5 under   
the Exchange Act, whether or not applicable, except that a person shall be      
deemed to have "beneficial ownership" of all shares that any such person has the
right to acquire, whether such right is exercisable immediately or only after   
the passage of time or upon the occurrence of certain events. For purposes of   
the Thomas Agreement, "Excluded Person" means any beneficial holder of 5% or    
more of any class of common stock of the Company outstanding immediately        
14

SC 14D9
35th Page of 46
TOC
1st
Previous
Next
Bottom
Just 35th

prior to the consummation of the initial underwritten public offering by the    
Company of 3,400,000 shares of the Company's Class A Common Stock in April 1993.

  The Merger will result in a Change in Control for purposes of the Thomas
Agreement.                                                                      

The Miller Agreement.  Mr. Miller has an employment agreement with the
Company (the "Miller Agreement") 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 Miller 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 Miller 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 Miller 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 five trading day period     
ending thirty days after the date of the initial grant. Such options vest pro   
rata 10% on the six month anniversary of the date of the grant, an additional   
23.33% on the twelve month anniversary of the date of the grant, an additional  
33.33% on the 24 month anniversary of the date of the grant and the final 33.33%
on the thirty-six month anniversary of the date of the grant. The options expire
if not exercised on the tenth anniversary of the date of the grant. The Miller  
Agreement states that if (i) Mr. Miller is terminated by the Company other than 
for "Cause" (as defined below), (ii) Mr. Miller terminates his employment for   
"Good Reason" (as defined below), (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 below), 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 of        
Directors. The Miller 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 Miller Agreement also   
provides for a lump sum payment of Mr. Miller's base salary and bonus, based on 
the remainder of the term of the Miller Agreement, to Mr. Miller, if Mr.        
Miller's employment is terminated by the Company without Cause or by Mr. Miller 
for Good Reason.                                                                

   Mr. Miller is also entitled to be grossed-up for any excise taxes imposed
under Section 4999 of the Code under terms substantially the same as described  
above under the Davenport Agreement.                                            

     For purposes of the Miller Agreement, "Cause" means (i) the willful failure
by Mr. Miller to materially perform his duties with the Company or to follow the
instructions of the Board of Directors (other than any such failure resulting   
from his incapacity due to physical or mental illness), (ii) the willful        
engaging by Mr. Miller in conduct that is materially injurious to the Company,  
monetarily or otherwise, (iii) the commission of any act of fraud, theft or     
dishonesty by Mr. Miller against the Company, (iv) the conviction of Mr. Miller 
of (or the pleading by Mr. Miller of nolo contendere to) any felony, fraud or   
embezzlement or (v) any willful material breach by Mr. Miller of the terms of   
the Miller Agreement. In addition, for purposes of the Miller Agreement, "Good  
Reason" means (i) any material adverse alteration, reduction or diminution in   
titles or positions or duties or responsibilities with the Company; (ii) any    
reduction in base salary; (iii) the Company requiring Mr. Miller to change the  
location of his employment or office to a location more than 25 miles outside of
Sunnyvale, California; (iv) a material breach by the Company of any provision of
the Miller Agreement; (v) the failure for any reason of the Company to grant the
options described in the Miller Agreement (exclusive of discretionary options)  
on the terms set forth in the Miller Agreement; and (vi) the occurrence of a    
"Change in Control."                                                            

     For purposes of the Miller Agreement, the definition of "Change in Control"
is substantially the same as the definition of "Change in Control" used under   
the Davenport Agreement.                                                        

  The Merger will result in a Change in Control for purposes of the Miller
Agreement.                                                                      
15

SC 14D9
36th Page of 46
TOC
1st
Previous
Next
Bottom
Just 36th

The Modi Agreement.  Mr. Modi has an employment agreement (the "Modi  
Agreement") with the Company that provides for a four year employment term. The 
Modi Agreement provides for a base salary of $210,000 per year (which is subject
to an annual increase based upon the change in the Consumer Price Index or 5%,  
whichever is greater). The Modi 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 below), 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.  
The Modi 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. Under  
the Modi Agreement, if (i) the Company terminates the employment of Mr. Modi    
without "Cause" (as defined below), or (ii) during the term there is a "Change  
in Control" (as defined below) of the Company and the successor entity or       
purchaser does not accept an assignment of the Modi Agreement, or (iii) the     
terms of Mr. Modi's employment are materially adversely changed or diminished,  
following a Change in Control or otherwise, or (iv) a Change in Control occurs, 
as a result of which the Company ceases to have any publicly-traded securities, 
whereupon in the cases of clauses (ii), (iii), and (iv), Mr. Modi has the right 
to consider his employment under the Modi Agreement terminated. In addition, in 
such a case, the Company will retain Mr. Modi as a consultant for the longer of 
the remainder of the term of the Modi Agreement and twenty-four months (the     
"Consulting Period"), and Mr. Modi is entitled to receive (a) his base salary   
and all other benefits during the Consulting Period and (b) the pro rata portion
of any bonus earned by Mr. Modi for the final year in which the termination     
occurred. Moreover, all of Mr. Modi's outstanding options will vest and become  
exercisable for a period of ninety days after a Change in Control of the        
Company. The Company has also agreed to provide Mr. Modi during the term of the 
Modi 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 Modi Agreement       
provides for participation of Mr. Modi in the Company's bonus plans, fringe     
benefits, perquisites, benefit programs and other compensation plans.           

   For the purposes of the Modi Agreement, "Cause" is defined as termination
upon (i) the willful failure of Mr. Modi to materially perform his duties with  
the Company or to follow the instructions of the Board of Directors (other than 
any such failure resulting from his incapacity due to physical or mental        
illness), (2) the willful engaging by Mr. Modi in conduct that is materially    
injurious to the Company, monetarily or otherwise, (3) the commission of any act
of fraud, theft or dishonesty against the Company, (4) the conviction of (or the
pleading of nolo contendere to) any felony, fraud or embezzlement or (5) any    
willful breach by Mr. Modi of the terms of the Modi Agreement, unless any such  
breach is corrected in all material respects within thirty days.                

   For purposes of the Modi Agreement, the definition of "Change in Control"
is substantially the same as the definition of "Change in Control" under the    
Davenport Agreement.                                                            

The Merger will result in a Change in Control for purposes of the Modi
Agreement.                                                                      

    The Webb Agreement.  Mr. Webb has an employment agreement with the Company
(the "Webb Agreement") that provides for a two year employment term. The Webb   
Agreement provides for a base salary of $275,000 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 Webb         
Agreement also provides for Mr. Webb to earn an annual target bonus equal to    
100% of base salary, measured against objective financial criteria to be        
determined by the Board. The Webb Agreement provides for the grant to Mr. Webb  
of options under the Company's Stock Option Plan for the purchase of 200,000    
shares of the Company's Class A Common Stock. The exercise price per share 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. Such options vest pro rata 
50% on the first year anniversary of the date of the grant and the remaining 50%
on the second anniversary of the date of the grant. The options expire if not   
exercised on the tenth anniversary of the date of                               
16

SC 14D9
37th Page of 46
TOC
1st
Previous
Next
Bottom
Just 37th

the grant. The Webb Agreement states that in the event of a "Change in Control" 
(as defined below), all options granted to Mr. Webb prior to the date of the    
Change in Control will immediately vest and will be exercisable for the ninety  
day period following such Change in Control. Under the Webb Agreement, if (i)   
the Company terminates the employment of Mr. Webb without "Cause" (as defined   
below), or (ii) during the term there is a Change in Control of the Company and 
the successor entity or purchaser does not accept an assignment of the Webb     
Agreement, or (iii) the terms of Mr. Webb's employment are materially adversely 
changed or diminished, following a Change in Control or otherwise, whereupon in 
the cases of clause (iii), Mr. Webb has the right to consider his employment    
under the Webb Agreement terminated. In addition, in such a case, the Company   
will retain Mr. Webb as a consultant for the longer of the remainder of the term
of the Webb Agreement and six months (the "Consulting Period"), and Mr. Webb is 
entitled to receive (a) his base salary and all other benefits during the       
Consulting Period and (b) the pro rata portion of any bonus earned by Mr. Webb  
for the final year in which the termination occurred. The Webb Agreement        
provides for participation of Mr. Webb in the Company's bonus plans, fringe     
benefits, perquisites, benefit programs and other compensation plans.           

For the purposes of the Webb Agreement, the definition of "Cause" is  
substantially the same as the definition of "Cause" under the Modi Agreement,   
and the definition of "Change in Control" is substantially the same as the      
definition of "Change in Control" under the Davenport Agreement.                

    The Merger will result in a Change in Control for the purposes of the Webb
Agreement.                                                                      

    The Taylor Agreement.  Mr. Taylor has an employment agreement (the "Taylor
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 Taylor Agreement provides for a base salary of     
$182,000 per year (which is subject to an annual increase based upon the change 
in the Consumer Price Index or 5%, whichever is greater). The Taylor 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 Taylor 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. 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 (i) 
Mr. Taylor is terminated other than for "Cause" (as defined below) or (ii)      
during the term there is a "Change in Control" (as defined below) and the       
successor entity does not accept an assignment of the agreement, or (iii) the   
terms of Mr. Taylor's employment are materially adversely changed or his duties 
and responsibilities are materially diminished, following a Change in Control or
otherwise, then (A) the Company must retain Mr. Taylor as a consultant for the  
remainder of the term or 18 months, whichever is longer, (B) Mr. Taylor will be 
entitled to continue to receive payment of his base salary and all other        
benefits during his consulting period and the pro rata portion of any bonus     
earned by him for the fiscal year in which the termination of employment        
occurred. Additionally, all of Mr. Taylor's outstanding options will vest and   
become exercisable for a period of ninety days after a Change in Control of the 
Company. The Company has also agreed to provide Mr. Taylor during the term of   
the Taylor 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 Taylor Agreement provides for participation of   
Mr. Taylor in the Company's bonus plans, fringe benefits, perquisites, benefit  
programs and other compensation plans.                                          

For purposes of the Taylor Agreement, the definition of "Cause" is    
substantially the same as the definition of "Cause" under the Modi Agreement. In
addition, for purposes of the Taylor Agreement, the definition of "Change in    
Control" is substantially the same as the definition of "Change in Control"     
under the Davenport Agreement.                                                  

  The Merger will result in a Change in Control for purposes of the Taylor
Agreement.                                                                      
17

SC 14D9
38th Page of 46
TOC
1st
Previous
Next
Bottom
Just 38th

  The Alston Agreement.  Effective September 30, 1997, the Company entered
into an agreement which was amended June 4, 1998 (as amended, the "Alston       
Agreement") with C. Michael Alston which provides that Mr. Alston will serve as 
Vice President, General Counsel and Secretary of the Company. The Alston        
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   
his employment terminates ("Separation Date"). The Alston Agreement provides for
the Company to pay certain medical, dental and other insurance coverage as well 
as other executive benefits for Mr. Alston until the Separation Date. Under the 
Alston 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 Company granted Mr. Alston an option to purchase 36,667 shares of Class
A common stock, $0.01 at the exercise price of $6.750 per share pursuant to a   
grant letter dated February 12, 1998 (the "Alston Grant Letter"). The option    
will vest one-half on October 24, 1998 and one-half on October 24, 1999. The    
Alston Grant Letter provides that in the event of a "Change in Control" (as     
defined below) of the Company, the option will vest and become exercisable. The 
option will expire if not exercised ten years after the date of grant.          

The Alston Agreement further provides that in the event of a Change of
Control of the Company, or, if earlier, upon the termination of Mr. Alston's    
employment for any reason (alternatively, the "Trigger Date"), Mr. Alston will  
be entitled to (i) a cash lump sum in the amount of $123,751.13 and (ii) a      
continuation of his salary and benefits for the twelve-month period commencing  
on the Trigger Date.                                                            

For purposes of the Alston Grant Letter and the Alston Agreement, the 
definition of "Change in Control" is substantially the same as the definition of
"Change in Control" under the Davenport Agreement.                              

  The Merger will result in a Change in Control for purposes of the Alston
Grant Letter and the Alston Agreement.                                          

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, 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 stockholders of the Company     
approved an amendment to the Plan to increase the shares of Class A Common Stock
reserved for issuance thereunder to 2,330,285. Outside Directors are directors  
who are not employees of the Company, and were not employees for the year prior 
to the first grant of an Option under the Plan, and who, when elected to the    
Board, did not directly or indirectly own or control more than 5% of the        
outstanding Common Stock of the Company (collectively, the "Participating       
Persons"). As of September 30, 1997, Options granted under the Plan were        
outstanding for the purchase of 2,255,625 shares of Class A Common Stock.       

18

SC 14D9
39th Page of 46
TOC
1st
Previous
Next
Bottom
Just 39th

 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 at 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 becomes exercisable for the first time in any calendar year   
exceeds $100,000, such Option shall be treated as an NQSO. The Committee may    
provide that in lieu of purchasing the entire number of shares subject to an    
Option, the Optionee can relinquish all or any part of the unexercised portion  
of the Option for a number of shares of Common Stock equal to the product of (1)
the number of shares of Common Stock subject to the relinquished Option and (2) 
a fraction, (i) the numerator of which is the excess of (A) the current fair    
market value per share of Common Stock subject to the relinquished Option over  
(B) the option price of such relinquished Option, and (ii) the denominator of   
which is the then current fair market value per share of such Common Stock.     

  The Stock Option Plan is administered by the Compensation Committee (the
"Committee"), which must have at least two members at all times. Members of the 
Committee must be "disinterested persons" as that term is defined under Rule    
16b-3 under the Exchange Act. Generally, prior to November 1, 1996, a           
disinterested person was a director who, during the one-year period prior to his
or her service on the Committee, was not granted a stock option or other equity 
security of the Company or any of its affiliates, except as expressly permitted 
under Rule 16b-3. Rule 16b-3 has been revised effective November 1, 1996.       
Subject to the provisions of the Plan, the Committee is empowered to, among     
other things, grant Options under the Plan; determine which employees may be    
granted Options under the Plan, the type of Option granted (ISO or NQSO), the   
number of shares subject to each Option, the time or times at which Options may 
be granted and exercised and the exercise price thereof; construe and interpret 
the Plan; determine the terms of any option agreement pursuant to which Options 
are granted (an "Option Agreement"); and amend any Option Agreement with the    
consent of the recipient of Options (the "Optionee"). The Board 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                                                   
19

SC 14D9
40th Page of 46
TOC
1st
Previous
Next
Bottom
Just 40th

Board, the Company, or any parent or subsidiary, may make or guarantee a loan to
an Optionee to finance the exercise of any Option. Options are not assignable or
transferable other than by will or the laws of descent and distribution. Each   
Option is exercisable, during the Optionee's lifetime, only by the Optionee.    

Unless earlier terminated by the Board of Directors, the Plan will    
terminate in January 2003, 10 years after its effective date. Unless otherwise  
specifically provided in an Optionee's Option Agreement, each Option granted    
under the Plan expires no later than 10 years after the date such Option is     
granted (five years for ISOs granted to 10% Holders). Options may be exercised  
only during the period that the Optionee is an employee (or member of the Board,
for Outside Directors) of the Company and (i) for a period of 30 days after     
termination of employment (or membership on the Board, for Outside Directors)   
other than for cause, without the Company's consent or due to the death of the  
Optionee, (ii) for a period of three months after retirement by the Optionee    
with the consent of the Company, or (iii) for a period of 12 months after the   
death or disability of the Optionee, in each case to the extent the Options are 
then exercisable.                                                               

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

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 engaged 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.                           

20

SC 14D9
41st Page of 46
TOC
1st
Previous
Next
Bottom
Just 41st

REPORT OF THE COMPENSATION COMMITTEE

Executive Compensation                                                      

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

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

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

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

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

Option Repricing                                                            

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

21

SC 14D9
42nd Page of 46
TOC
1st
Previous
Next
Bottom
Just 42nd

TEN-YEAR OPTION/SAR REPRICINGS

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

22

SC 14D9
43rd Page of 46
TOC
1st
Previous
Next
Bottom
Just 43rd

STOCK PRICE PERFORMANCE GRAPH                                                   

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

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

[GRAPH] 

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

23

SC 14D9
44th Page of 46
TOC
1st
Previous
Next
Bottom
Just 44th

COMPENSATION COMMITTEE INTERLOCK 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 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. Ms. Kasten is the  
sole owner of Kasten & Company.                                                 

SECTION 16(A) REPORTING 

    Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and Executive Officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC       
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Executive officers, directors and   
greater than ten percent stockholders are required by SEC regulations to furnish
the Company with copies of all Section 16(a) reports they file.                 

    To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other      
reports were required during the fiscal year ended September 30, 1997, officers,
directors and greater than ten percent beneficial owners timely filed all       
required reports under Section 16(a), with the exception of Mr. Richard P. Webb,
Executive Vice President and Chief Operating Officer of the Company, who failed 
to file a Form 3 on a timely basis.                                             

24

SC 14D9
45th Page of 46
TOC
1st
Previous
Next
Bottom
Just 45th

                                                                        ANNEX II

[CREDIT SUISSE FIRST BOSTON LETTERHEAD] 

Board of Directors                                                              
Envirotest Systems Corp.                                                        
246 Sobrante Way                                                                
Sunnyvale, CA 94086-4807                                                        

August 12, 1998                                                                 

Dear Members of the Board:                                                      

You have asked us to advise you with respect to the fairness to the   
stockholders of Envirotest Systems Corp., a Delaware corporation (the           
"Company"), from a financial point of view, of the consideration to be received 
by such stockholders pursuant to the terms of the Agreement and Plan of Merger, 
dated as of August 12, 1998 (the "Merger Agreement"), between the Company,      
Environmental Systems Products, Inc. ("ESP") and Stone Rivet, Inc., a Delaware  
corporation and a wholly-owned subsidiary of ESP (the "Acquiror"). Pursuant to  
the merger (the "Merger") of Acquiror with and into the Company as set forth in 
the Merger Agreement, each issued and outstanding share of Class A Common Stock,
par value $.01 per share, Class B Common Stock, par value $.01 per share, and   
Class C Common Stock, par value $.01 per share, of the Company (collectively,   
the "Common Shares") will be converted into the right to receive $17.25 in cash.
The terms and conditions of the Merger are set forth in the Merger Agreement.   

 In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company, as well as the      
Merger Agreement. We have also reviewed certain other information, including    
financial forecasts, provided to us by the management of the Company and have   
met with the Company's management to discuss the business and prospects of the  
Company.                                                                        

We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly   
held companies in businesses most comparable to the business of the Company and 
we have considered the financial terms of certain other business combinations   
and other transactions which have recently been effected. We also considered    
such other information, financial studies, analyses and investigations and      
financial, economic and market criteria which we deemed relevant.               

   In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on 
its being complete and accurate in all material respects. With respect to the   
financial forecasts provided by the Company's management, we have assumed that  
such forecasts have been reasonably prepared on bases reflecting the best       
currently available estimates and judgments of the management of the Company as 
to the future financial performance of the Company. In addition, we have not    
been requested to make, and have not made, an independent evaluation or         
appraisal of the assets or liabilities (contingent or otherwise) of the Company,
nor have we been furnished with any such evaluations or appraisals. Our opinion 
is necessarily based upon financial, economic, market, regulatory and other     
conditions as they exist and can be evaluated on the date hereof. In connection 
with our engagement, we approached third parties to solicit indications of      
interest in a possible acquisition of the Company and held discussions with     
certain of these parties prior to the date hereof.                              

  We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which  
is contingent upon the consummation of a business combination, which would      
include the Merger. We will also receive a fee for rendering this opinion. In   
addition, as set forth in our letter to you dated June 18, 1998, a separate     
financing team at Credit Suisse First Boston and its affiliate have agreed to   
act as Arranger, Administrative Agent and Underwriter with respect to the debt  
financing being provided to the Acquiror in connection with the Merger.         

SC 14D9
Last Page of 46
TOC
1st
Previous
Next
Bottom
Just 46th

Envirotest Systems Corp.                                                        
August 12, 1998                                                                 
Page 2                                                                          

    In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of the Company for our and such affiliates'
own accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.                               

  It is understood that this letter is for the information of the Board of
Directors in connection with its consideration of the Merger, does not          
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed Merger, whether such stockholder should tender shares in   
the tender offer contemplated by the Merger Agreement, and is not to be quoted  
or referred to, in whole or in part, in any registration statement, prospectus  
or proxy statement, or in any other document used in connection with the        
offering or sale of securities, nor shall this letter be used for any other     
purposes, without our prior written consent. Our opinion is limited to a        
determination of the fairness, from a financial point of view, of the           
consideration to be received in the Merger and does not express an opinion as to
the merits of the Merger in any other respect or the relative merits of the     
Merger as compared to any other transaction or business strategy of the Company.

    Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the stockholders of the Company
in the Merger is fair to such stockholders, from a financial point of view.     

Very truly yours,                                                               

CREDIT SUISSE FIRST BOSTON CORPORATION                                          

By: /S/ KEN MILLER                                                              
-------------------------------------------------                       
Name: Ken Miller                                                        
Title: Vice Chairman                                                    

Dates Referenced Herein   and   Documents Incorporated By Reference

				Referenced-On Page
This SC 14D9 Filing		Date		First		Last			Other Filings
		3/30/93		30		31
		4/1/93		43
		4/7/93		41
		9/30/93		43
		10/14/93		30
		2/17/94		25
		4/12/94		44
		6/8/94		30
		9/30/94		43
		3/30/95		31
		7/27/95		30
		9/30/95		29		43
		8/26/96		43
		9/24/96		44					DEF 14A
		9/30/96		29		43			10-K, 10-K405/A
		10/31/96		30		31
		11/1/96		39
		5/12/97		28		44
		8/8/97		43
		8/11/97		43
		8/18/97		25					SC 13D/A
		9/17/97		14
		9/22/97		14
		9/30/97		28		44			10-K, 10-K/A, 3, 5
		10/13/97		14
		1/30/98		40
		2/11/98		14
		2/12/98		38
		2/28/98		27
		3/1/98		14
		3/12/98		14		18
		4/21/98		14
		5/6/98		17
		5/7/98		14		17			8-K
		5/8/98		12		19
		5/12/98		14					DEF 14A
		5/15/98		14
		5/28/98		14
		5/29/98		14
		6/1/98		27
		6/4/98		14		38			3
		6/18/98		45
		6/30/98		14					10-Q
		7/7/98		15
		7/9/98		15
		7/13/98		15
		7/15/98		15
		7/20/98		15		17
		7/29/98		15
		7/30/98		15
		7/31/98		15		23
		8/4/98		15					3
		8/11/98		15
		8/12/98		1		46
		8/13/98		16		19			10-Q
Filed On / Filed As Of		8/19/98		1		21			SC 14D1
		9/30/98		21					SC 14D1/A
		10/1/98		25
		10/24/98		38
		12/31/98		9
		1/1/99		37
		1/26/99		35
		3/31/99		34
		10/24/99		38
		4/30/0		33
Top									List All Filings