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Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o


(1)	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act.

(2)	Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price and includes the offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), shall determine.

The information in this preliminary prospectus is not complete and may be changed. Neither Eagle Test nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

This is our initial public offering of common stock. We are offering shares of our common stock. The selling stockholders included in this prospectus are offering an additional shares of common stock. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. No public market currently exists for our common stock.

We anticipate that the initial public offering price will be between $ and $ per share. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol “EGLT.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 6.

The selling stockholders have granted the underwriters a 30-day option to purchase up to additional shares of common stock at the public offering price, less the underwriting discount, to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to purchasers on or about , 2004.

You should rely only on the information contained in this prospectus. We and the selling stockholders have not, and the underwriters have not, authorized anyone to provide you with different information. We and the selling stockholders are not making an offer to sell or seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

Until , 2004, which is 25 days after the date of this prospectus, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Our fiscal year ends on September 30. Accordingly, a reference to “fiscal 2003” in this prospectus, for example, refers to the 12-month period that ended on September 30, 2003.

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors” beginning on page 6, and the consolidated financial statements and notes to those consolidated financial statements, before making an investment decision. Unless the context otherwise requires, we use the terms “Eagle Test,” the “Company,” “we,” “us” and “our” in this prospectus to refer to Eagle Test Systems, Inc. and its subsidiaries.

Eagle Test Systems, Inc.

Overview

We design, manufacture, sell and service high-performance automated test equipment, or ATE, for the semiconductor industry. Our test equipment addresses our customers’ volume production needs and is designed to lower their cost-of-test per device. Our customers, including semiconductor manufacturers and assembly and test subcontractors, use our products to test analog, a combination of digital and analog, known as mixed-signal, and radio frequency, or RF, semiconductors. Our proprietary SmartPin^TM technology enables multiple semiconductor devices to be tested simultaneously, or in parallel, on an individual test system, permitting greater test throughput. We believe that our technology and ATE architecture offer superior test speed and precision, thereby improving production yields. Our modular and scalable test systems are designed to provide our customers with cost-efficient, customized solutions. Semiconductors tested by our systems are incorporated into a wide range of products in high-growth markets, including digital cameras, MP3 players, cellular telephones, video/ multimedia products, automotive electronics, computer peripherals, and notebook and desktop computers.

Semiconductor manufacturers continuously strive for manufacturing and process improvements in order to satisfy the demand for smaller, better performing and lower cost semiconductors. Semiconductor manufacturers are aggressively pursuing strategies to reduce their overall cost-of-test by increasing the throughput of their test systems. Cost-of-test includes the initial ATE and ancillary equipment purchase price, as well as set-up and operating costs, and is often the most significant manufacturing cost, particularly for high-volume, low-cost devices. For these types of devices, ATE throughput, or the number of devices that can be tested in a given unit of time on a single test system, is a key determinant of cost-of-test per device and of a manufacturer’s ability to compete profitably.

We were founded and began providing test solutions in 1976. Since January 1, 2003, we have delivered over 325 test systems to more than 30 customers worldwide including National Semiconductor Corporation, Texas Instruments Incorporated, Intersil Corporation, Fairchild Semiconductor International, Inc. and ChipPAC, Inc. For our fiscal year ended September 30, 2003, we had net revenue of $55.8 million and net income of $9.6 million. For the six months ended March 31, 2004, we had net revenue of $47.2 million and net income of $8.6 million.


	*Our Solution to Lower Cost-of-Test*

Our test systems are designed to enable our customers to lower their overall cost-of-test. By focusing on cost-of-test per device, our test systems lower our customers’ overall cost of semiconductor production and thereby improve their profit opportunity. The aspects of our solution that enable lower cost-of-test include:

• Increased Throughput. Our test systems are designed to reduce the time required to complete the test process for each individual device and to enable high-speed, simultaneous testing across multiple sites on the same test system.

• Improved Yield with Precision and Repeatability. Our proprietary technology and product architecture are designed to achieve superior test precision and repeatable results for analog and digital parameters in order to achieve higher test yields resulting in significant cost savings for our customers.

• Scalable and Flexible Architecture. Our architecture is designed to enable our customers to tailor their test system capabilities to the specific testing needs of their devices, and to quickly and cost-effectively upgrade or reconfigure their ATE as their testing needs evolve.

• Lower Switching Costs. We have developed a proprietary, adaptable interface that enables our test systems to operate using other vendors’ device under test, or DUT, boards, as well as earlier generations of our DUT boards. This allows our customers to easily migrate from competing test platforms or earlier generations of our own product line to a more cost-effective Eagle Test solution.

Our Growth Strategy

Our objective is to strengthen our position as a leading provider of semiconductor test solutions. Key elements of our strategy include:

• Innovate to Lower Overall Cost-of-Test. We intend to leverage our technology and architecture to further enable multi-site, parallel testing, higher throughput and greater test precision, while offering customers the flexibility to upgrade and reconfigure existing test systems as their testing needs evolve.

• Focus on High-Volume, Cost Sensitive Devices. We focus on delivering test systems for high-volume, high-performance analog, mixed-signal, and RF devices. These devices are used in a broad and growing range of high-volume consumer products. Decreasing the cost-of-test will become increasingly important to device manufacturers competing in these markets as their products experience reductions in average selling prices, or ASPs.

• Increase Our Market Share within Our Targeted Markets. We seek to increase our sales to existing customers by expanding the number and types of devices that we test, including additional devices that our customers currently test on competitors’ test systems. We also intend to expand our geographic presence with additional investments in our sales, marketing and service operations in both Asia and Europe.

• Expand Our Addressable Markets by Broadening Test Capabilities. We will continue to expand our addressable markets to include other sectors characterized by high-volume, cost-sensitive products, such as devices for mid to low-end consumer products, discrete devices, and converters. We also believe that longer-term opportunities exist in the video device market, certain RF wireless device markets, the DSL market and the low-end system-on-a-chip, or SoC, market.

• Maintain Profitable Growth Through Our Flexible Business Model. Our modular system architecture is designed to allow us to offer new products and enhancements quickly and at a reduced cost through efficiencies in research and development. We intend to maintain the flexibility of our business in order to rapidly respond to the cyclical changes in our industry.

Our Corporate Information

We were founded as an Illinois corporation in 1976 and will be merged into a newly-formed Delaware corporation immediately prior to this offering. Our principal executive offices are located at 620 S. Butterfield Road, Mundelein, Illinois 60060. The telephone number of our principal executive offices is (847) 367-8282, and we maintain a website at www.eagletest.com. Information contained on our website does not constitute a part of this prospectus.

We own, have rights to, or have applied for the trademarks and trade names that we use in conjunction with our business, including Eagle Test Systems and our logo. All other trademarks and trade names appearing in this prospectus are the property of their respective holders.

THE OFFERING


Common stock offered by Eagle Test		Shares

Common stock offered by the selling stockholders		Shares

Common stock to be outstanding after this offering		Shares

Use of proceeds		We expect to receive net proceeds from the offering of approximately $ million. We intend to use the net proceeds from the offering as follows:

		• approximately $ million to repurchase all of the senior subordinated notes to be outstanding immediately following the conversion of our senior subordinated convertible notes;

		• $32.5 million to redeem all of the shares of redeemable preferred stock to be outstanding immediately following the conversion of our series A convertible preferred stock;

		• general corporate purposes, including working capital; and

		• possible acquisitions and investments.

		We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders.

Proposed Nasdaq National Market symbol		“EGLT”

The number of shares of our common stock to be outstanding following this offering is based on 14,511,535 shares of our common stock outstanding as of June 30, 2004. This number excludes 652,500 shares subject to options granted as of June 30, 2004 at a weighted average exercise price of $8.35 per share, and 31,290 additional shares reserved as of June 30, 2004 for future issuance under our stock-based compensation plans.

Unless otherwise indicated, the share information in this prospectus is as of June 30, 2004 and has been adjusted to reflect or assumes the following:

• a -for- stock split of our common stock to be effected immediately prior to the effectiveness of this offering;

• the conversion of all outstanding shares of our series A convertible preferred stock into 8,590,248 shares of our common stock and 3,436 shares of our redeemable preferred stock immediately prior to the completion of this offering, and the immediate redemption of such redeemable preferred stock;

• the issuance of 525,040 shares of common stock upon the exercise of warrants, with an exercise price of $0.01 per share, to be outstanding immediately prior to the completion of this offering as a result of the conversion of our senior subordinated convertible notes;

• our reincorporation by merger in Delaware immediately prior to the effectiveness of this offering, and the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated by-laws immediately prior to the effectiveness of this offering; and

• no exercise of the underwriters’ over-allotment option.

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

(in thousands, except share and per share data)

The tables below summarize our financial data as of the date and for the periods indicated. You should read the following information together with the more detailed information contained in “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. The unaudited results for the six months ended March 31, 2004 are not necessarily indicative of results expected for the fiscal year ending September 30, 2004, or for any other future period.



												Six Months Ended
			Year Ended September 30,									March 31,

			2001			2002			2003			2003			2004


												(unaudited)
Consolidated Statement of Net Income Data:
Net revenue			$	37,550		$	25,918		$	55,766		$	18,868		$	47,156
Cost of goods sold				12,711			8,556			20,457			7,313			14,938

	Gross profit			24,839			17,362			35,309			11,555			32,218
Operating expenses
	Selling, general and administrative			12,247			10,949			16,491			7,167			9,676
	Research and development			2,607			3,240			3,113			1,447			2,415

		Operating income		9,985			3,173			15,705			2,941			20,127
Interest expense				39			30			31			14			1,945
Increase in value of warrants				—			—			—			—			2,556
Other (income) and expense				(459)			633			(636)			(111)			(279)

		Income before taxes		10,405			2,510			16,310			3,038			15,905
Provision for income taxes				4,047			864			6,706			1,245			7,292

		Net income	$	6,358		$	1,646		$	9,604		$	1,793		$	8,613

Earnings Per Common Share:
Net income per share, basic			$	0.44		$	0.11		$	0.67		$	0.12		$	1.60
Net income per share, diluted				0.44			0.11			0.67			0.12			0.62
Weighted average shares outstanding, basic				14,390,000			14,390,000			14,365,017			14,390,000			5,396,248
Weighted average shares outstanding, diluted				14,390,000			14,390,000			14,390,337			14,390,000			14,010,684

Selected Operating Data:
Gross Margin				66.1	%		67.0	%		63.3	%		61.2	%		68.3	%
Operating Margin				26.6	%		12.2	%		28.2	%		15.6	%		42.7	%

The table below summarizes our consolidated balance sheet as of March 31, 2004 on an actual basis, on a pro forma basis to give effect to the conversion of our series A convertible preferred stock and the conversion of our senior subordinated convertible notes, and on an as adjusted basis to reflect the sale of shares of common stock that we are offering at an assumed initial public offering price of $ per share, and the application of the estimated net proceeds therefrom as described in “Use of Proceeds.”



	As of March 31, 2004 (unaudited)

	Actual			Pro Forma	As Adjusted

Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	12,380
Working capital		28,779
Total assets		59,270
Redeemable warrants (1)		4,274
Senior subordinated convertible notes		28,421
Series A convertible preferred stock		65,000
Redeemable preferred stock		—
Total stockholders’ equity (deficit)		(64,763	)

(1) All warrants will be exercised upon the completion of this offering, and accordingly, this obligation is eliminated on an as adjusted basis.

You should carefully consider the risks described below, together with all of the other information in this prospectus, before deciding to invest in our common stock. If any of these risks actually occurs, our business, financial condition or results of operation may suffer. As a result, the trading price of our common stock could decline and you could lose part or all of your investment in our common stock.

Our business and operating results depend to a significant extent on capital expenditures by companies in the semiconductor industry that purchase our ATE. Historically, the semiconductor industry has been highly cyclical with recurring periods of over-supply. These cycles typically have a disproportionately negative impact on capital equipment manufacturers, including providers of test systems like Eagle Test. In most cases, the decrease in capital expenditures for test systems by our customers is more pronounced than the downturn in the overall semiconductor industry.

While we believe that the semiconductor industry has recently emerged from one of the most significant downturns in its history, downturns will likely recur. Because downturns often occur very rapidly, we cannot adequately foresee the timing and extent of such downturns or their effect on customer orders and revenues. If we do not accurately predict the timing or extent of a downturn, we may not adequately reduce our operating expenses in light of decreased revenue, which will adversely affect our financial performance. During the most recent industry downturn, our net income decreased from $6.4 million in fiscal 2001 to $1.6 million in fiscal 2002. During that downturn we experienced, or in the future we may experience:


	•	decreased customer orders, test systems shipments and revenue;

	•	decreases in backlog;

	•	decreases in ASPs;

	•	delays in order commitments;

	•	lower operating margins;

	•	increases in order cancellations and customer-requested shipment delays;

	•	excess production capacity;

	•	delays in collecting accounts receivable; and

	•	excessive inventory levels.

As a result of these and other factors, any significant downturn will negatively impact our business and financial performance.

In the past we have experienced, and in the future we expect to experience, fluctuations in revenues and results of operations from quarter to quarter. These fluctuations can be caused by a variety of factors including:


	•	rapid shifts in demand for, or acceptance of, our products as a result of the cyclical nature of the semiconductor equipment industry or otherwise, often resulting in sharp reductions in equipment sales during industry downturns and increased equipment sales during periods of industry recovery;

	•	the loss of a significant customer or reduced capital spending by a customer;

	•	delays, cancellations or reschedulings, or other changes in the timing or terms of product shipments;


	•	delays in acceptance of products as a result of our failure to meet customers’ specifications;

	•	the timing of our new product introductions, and market acceptance of our new products and enhanced versions of our existing products;

	•	our competitors’ announcements of new products, services or technological innovations, which can, among other things, render our products less competitive;

	•	competitive pressures resulting in lower ASPs;

	•	lower gross margins in any period due to changes in our product mix or increased prices for components;

	•	our inability to quickly reduce our fixed costs or management’s decision to maintain headcount notwithstanding decreased demand for our products;

	•	disruptions in our manufacturing or in our supply of components, causing us to delay shipment of our products; and

	•	write-offs of excess or obsolete inventory and accounts receivable that are not collectible.

A significant portion of our revenue is derived from the sale of a relatively small number of test systems. Accordingly, a decline in the number, or change in the timing or terms, of the test systems we sell from quarter-to-quarter may also cause significant changes in our results of operations. This, in turn, would likely cause a decline in the market price of our common stock.

We believe that quarter to quarter comparisons of our revenue and operating results are not necessarily meaningful or an accurate indicator of our future performance. Because of this difficulty in predicting future performance, our results of operations may fall below the expectations of securities analysts or investors in future quarters. Our failure to meet these expectations would likely cause a decline in the market price of our common stock.

A small number of customers has accounted for a significant portion of our revenue in any particular period. In the six months ended March 31, 2004, sales to National Semiconductor Corporation and Texas Instruments Incorporated accounted for 47.0% and 23.7% of our net revenue, respectively, and sales to our five largest customers accounted for an aggregate of 82.3% of our net revenue. In fiscal 2003, sales to National Semiconductor Corporation and Intersil Corporation accounted for 38.8% and 20.0% of our net revenue, respectively, and sales to our five largest customers accounted for an aggregate of 72.1% of our net revenue. We expect that we will continue to depend on a small number of customers to account for a significant percentage of our revenue for the foreseeable future. We expect sales to our largest customer, National Semiconductor Corporation, to decline as a percentage of our net revenue in the near term, while also potentially declining in absolute dollars. Our customers, including our most significant customers, are not obligated by long-term contracts to purchase our test systems, and may cancel orders with little regard for potential penalties. If any of our large customers reduces or cancels its purchases from us for any reason, it could have an adverse effect on our revenue and results of operations.

Semiconductor companies typically select one vendor’s systems for testing an entire product family of semiconductors, and make substantial investments to obtain test systems and ancillary equipment, and to develop related test program software. Once a semiconductor company has implemented a test system for a product family of semiconductors, it is often difficult and costly to switch to another vendor’s test system because the test system is often part of the product specifications for a newly developed device. Accordingly, unless our test systems offer substantial performance or cost advantages that materially outweigh a customer’s

Our customers generally take considerable time to evaluate our test systems, and many people are involved in the evaluation and decision-making process. Our product sales cycle typically ranges from six to nine months. Sometimes our sales cycle can be much longer, particularly when the sales process involves developing new test programs for our customers or the introduction of new products. During the sales process, we commit substantial time and financial resources to our sales efforts prior to receiving any revenue. Despite these efforts, we may never receive any revenue from such potential customers. The length of time it takes for us to complete a sale and the extent of our investment depends on many factors, including:


	•	the capital expenditure budgets and capital equipment needs of our customers;

	•	the willingness and ability of customers to incur the expense of adopting new product platforms;

	•	the internal technical capabilities and sophistication of our customers;

	•	the efforts and effectiveness of our sales force; and

	•	the need for and our success in demonstrating our technical and manufacturing capabilities to meet our customers’ requirements.

In addition, if we do make a sale to a new customer, the customer may purchase only one of our test systems, or may evaluate a test system’s performance for a lengthy period of time before considering whether to purchase any additional test systems from us. Variations in the length of the period between purchases by new customers can cause our revenue and results of operations to vary widely from period to period.

We face substantial competition in the ATE market throughout the world. Our principal competitors include Credence Systems Corporation, LTX Corporation and Teradyne, Inc. Some of these competitors have greater financial, engineering, manufacturing and marketing resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which could impair our revenue. Some of these competitors also have broader product offerings, larger installed customer bases and more extensive customer support capabilities than we do. We expect our competitors to continue to improve the performance of and support for their current products and to introduce new products, technologies or services that could adversely affect sales of our current and future products. In addition, other test equipment companies that do not currently focus on our target markets could choose to do so. We may not be able to compete effectively with any new or current competitors, which would have an adverse effect on our revenue and results of operations.

Our competitors may also elect to reduce the prices of their products in order to increase their market share or obtain new customers, leading to a reduction in ASPs throughout our industry. We may be required to react to these and other competitive dynamics. Any decrease in the prices of our test systems or any increase in the discounts granted to our customers could adversely impact our growth, revenue and results of operations.

Our future success depends in large part on the continued service of our key executive officers, including Leonard Foxman, our founder and Chief Executive Officer, Theodore Foxman, our Chief Operating Officer, and Stephen J. Hawrysz, our Chief Financial Officer. Leonard Foxman has managed us since our inception and would be extremely difficult to replace. We are also dependent on the continued service of our key research, engineering, manufacturing, marketing and sales personnel, each of whom possesses unique skills

In addition, some of our existing management personnel have held their current positions for less than one year, including Mr. Hawrysz, our Chief Financial Officer. Our future success depends to a significant extent on the ability of our executive officers and other members of our management team to operate effectively, both individually and as a group. Our business may be harmed if we do not successfully allocate responsibilities among our management team or if some members of our management team do not succeed in their roles.

We have experienced, and continue to experience, rapid growth in our operations. This growth has included hiring key personnel, including our Chief Financial Officer, relocating our manufacturing facility and entering new geographic markets. We anticipate that further expansion of our operations will be required to address potential growth in our customer base and market opportunities. This expansion has placed, and is expected to continue to place, a substantial strain on our management, operational and financial resources. In order to manage future growth, we will be required to improve existing, and implement new, operating and management systems, procedures and controls. We also need to hire, train and manage additional qualified personnel. If we do not effectively manage our growth, the quality of our test systems and our ability to manufacture and ship our test systems on a timely basis could suffer, which would negatively impact our revenue and results of operations.

In order to manage future growth and effectively operate as a public company, we will be required to continue to improve our internal controls and our reporting systems and procedures to provide accurate and timely financial reports and effectively prevent fraud. These systems improvements will require the allocation of significant capital expenditures and valuable management resources. We may not be able to install adequate systems in an efficient or timely manner. The difficulties associated with installing and implementing new systems, procedures and controls will place a significant burden on our management and internal resources. The implementation of new systems is costly, and once implemented, these systems may not perform or generate the results we expect. Additionally, as we have expanded our business, we have found that appropriately capturing and processing all of the financial aspects of our operations is an ongoing challenge, particularly in periods of rapid growth. Continued growth is likely to place a considerable strain on our systems, processes and controls. Any failure to implement, modify and improve these systems, procedures and controls may adversely impact our ability to accurately report our financial results on a timely basis, which may result in non-compliance with Securities and Exchange Commission, or SEC, reporting requirements and with the Sarbanes-Oxley Act of 2002, and a decline in the price of our common stock.

As a closely-held company with no prior public reporting obligations, historically we operated on a cash basis for tax and accounting purposes and had committed limited personnel and resources to the development of our internal financial controls and systems. In the process of converting to accrual basis accounting, we were required to make a significant number of adjustments to our financial statements. We did not engage independent auditors to assess our internal controls or perform an audit of our financial statements prior to

the initiation of the audit for the three years ended September 30, 2003. In connection with this audit, our independent auditors identified a number of areas in our internal accounting and disclosure controls requiring improvement, most significantly relating to timely preparation of accurate financial statements and accounting for inventory. While we have made progress with respect to these areas, we will need to devote significant resources to fully address all such identified areas and to continue to improve our internal accounting and disclosure controls. Upon completion of this offering, we will have had only limited operating experience with the improvements we have made, and we cannot assure you that the measures we have taken or any future measures will enable us to produce accurate financial reports on a timely basis, particularly if we are unable to add resources to our finance department or if we lose personnel in our finance area. Any such development or other problems with our financial systems and controls could cause delays in reporting financial information or future restatements of our financial statements, and adversely affect our business and stock price.

The SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules which will require us to include in our annual reports on Form 10-K, beginning in fiscal 2005, an assessment by management of the effectiveness of our internal controls over financial reporting. In addition, our independent auditors must attest to and report on management’s assessment of the effectiveness of such internal controls over financial reporting. While we intend to diligently and thoroughly document, review, test and improve our internal controls over financial reporting in order to ensure compliance with Section 404 of the Sarbanes-Oxley Act, if our independent auditors are not satisfied with the adequacy of our internal controls over financial reporting, or if the independent auditors interpret the requirements, rules and/or regulations differently than we do, then they may decline to attest to management’s assessment or may issue a report that is qualified. This could result in an adverse reaction in the financial marketplace due to a loss of investor confidence in the reliability of our financial statements, which could negatively impact the price of our common stock.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC, have required changes in the corporate governance practices of public companies. In addition to the final rules and rule proposals of the SEC, the Nasdaq Stock Market revised its requirements for its listed companies. We expect these new rules and regulations will increase our legal, audit and financial compliance costs and make some activities more time consuming and costly. For example, in connection with becoming a public company, we have added, and will continue to seek, additional independent directors, created several board committees, begun implementing additional internal controls and disclosure controls and procedures, retained a transfer agent and a financial printer, and adopted an insider trading policy. Further, as a public company, we will have all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. Some of our current directors and officers have no prior experience with public companies. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.

We operate in an industry that is characterized by evolving industry standards and rapid technological advancements. To remain competitive, we must design, develop and introduce in a timely manner new test systems or improve our existing test systems in order to meet the performance and price demands of our customers and prospective customers. Our success in this regard will depend on many factors, including our ability to:


	•	successfully develop and commercialize innovative products that are differentiated from our competitors’ offerings;


	•	properly and quickly identify customer needs and anticipate technological advances and industry trends;

	•	quickly adjust to changing industry conditions and product announcements by competitors; and

	•	establish manufacturing processes that will enable us to build and timely deliver new or enhanced products to specification in sufficient volumes.

We must devote resources to research and development to remain innovative and competitive with rapidly evolving industry technologies and emerging trends. In light of the long product development cycles inherent in our industry, development of new products generally requires a substantial investment well before commercial viability or the prospect of deriving any revenue from new products. The future success of our new technologies, products and services also depends on broad acceptance among our customers. In addition, new methods of testing semiconductors may be developed. These developments may render our products uncompetitive or obsolete. If we fail to adequately predict our customers’ needs and technological advances, we may invest heavily in the research and development of products and services that do not lead to significant revenue, or we may fail to invest in research and development necessary to satisfy evolving customer demands.

We must develop and deliver reliable customized hardware and software to meet our customers’ specific ATE requirements. The complexity and ongoing development of our products could lead to design or manufacturing problems. If any of our products fails to meet specifications, the customer may delay or reject acceptance of the test system and the recognition of revenue from these sales will be delayed or forfeited. Moreover, if any of our products has reliability or quality problems, we may be required to replace the test system or issue the customer an equipment credit in accordance with the customer’s warranty terms. If these quality problems occur, our reputation could be damaged significantly and customers might be reluctant to buy our products, which could result in a decline in revenue, an increase in product returns, the loss of existing customers and/or the failure to attract new customers.

At March 31, 2004, our backlog, calculated on the basis of unfilled purchase orders with a firm delivery date for all products and services, was $29.3 million, compared with $8.8 million at March 31, 2003. Since customers typically cancel or delay their orders with little regard for potential penalties, and since new order volume may decrease very rapidly, our backlog, if any, at any particular date is not necessarily indicative of our future backlog or actual sales that may be generated for any succeeding period. In the past, our test systems have generally shipped within two to three months from the time we receive a customer’s purchase order. Any change in our manufacturing capacity and the time it takes to ship our products will affect our level of backlog. Historically, our backlog levels have also fluctuated based on our customers’ ordering patterns and our inability to predict order trends in the semiconductor industry with any certainty. During an industry downturn, our backlog could be substantially reduced or eliminated. Accordingly, you should not rely on our level of backlog as an indication of our future revenues. We undertake no obligation to update any backlog information to reflect events or circumstances after the date of such information and do not intend to report our backlog other than annually.

We obtain some of the components and subassemblies included in our test systems from a limited number of, or in some cases sole source, suppliers and subcontractors with whom we do not have long-term, or in some cases written, contracts. These suppliers and subcontractors are under no obligation to supply our requirements. This reliance gives us less control over the manufacturing process and exposes us to significant

risks. Identifying and qualifying new or alternative sources of these materials can be a lengthy and difficult process. From time to time, we may be unable to obtain an adequate supply of components or subassemblies. In addition, the lead time required for shipments of some of our components or subassemblies can be lengthy and such lead time may increase in periods of heightened demand. We may also experience increases in the prices of these components or subassemblies, delays in delivery and poor component or subassembly quality. If we are unable to accurately predict our component and subassembly needs, if our supply is disrupted or delayed, if any of the components or subassemblies on which we rely are discontinued due to obsolescence or otherwise, or if we otherwise experience any other adverse change in our relationships with these suppliers or subcontractors, we would experience a delay in shipments of our test systems, damage to our customer relationships, an increase in our production costs and/or a reduction in our sales, any of which could have an adverse effect on our revenue and results of operations.

Due to the volatile nature of our industry, we cannot predict with certainty future levels of purchase orders. In anticipation of future orders, we typically order components and subassemblies and build some inventory in advance of the receipt of actual purchase orders. If we do not obtain orders as we anticipate, or if orders are cancelled, we could have excess inventory for a specific product that we would not be able to return to our suppliers, potentially resulting in inventory write-offs, which could have an adverse effect on our results of operations. Alternatively, if we underestimate our component and subassembly needs, we may not be able to meet the demand for our test systems on a timely basis and we may miss opportunities for additional sales of our test systems, which could have an adverse effect on our results of operations and customer relationships.

Once we receive subassemblies and other components from our subcontractors and suppliers, we complete the production of all of our test systems in our manufacturing facility located in Buffalo Grove, Illinois. Any prolonged disruption in the operations of our manufacturing facility, whether due to technical or labor difficulties, destruction or damage as a result of a fire or extreme weather conditions or any other reason, could seriously harm our ability to satisfy our customers’ order deadlines. If we cannot deliver our test systems in a timely manner, our reputation, revenue and results of operations could be adversely affected.

To accommodate our growth, we relocated our manufacturing operations from Mundelein, Illinois to a new, temporary facility in Buffalo Grove, Illinois in April 2004, which we are subleasing through January 15, 2005. We incurred significant costs in transitioning our operations to this location. These costs included moving costs and costs associated with the build out and preparation of our temporary space. We expect to relocate our corporate headquarters and manufacturing operations to a new, permanent facility in Buffalo Grove, Illinois, which we have leased and that we anticipate will be completed by the end of 2004. The lease for our current corporate headquarters in Mundelein, Illinois runs through May 2005. We expect to incur moving costs and costs associated with the build out and preparation of our permanent space at the time of this permanent relocation. Any difficulties in the relocation of our operations may also disrupt our manufacturing activities, which could delay product shipment and result in lost revenue and customer dissatisfaction. If there is any significant delay in the construction of our new facility, we may be required to remain in our temporary facility and our Mundelein facility longer than we expect. In this case, we may be required to negotiate an extension to our temporary facility sublease and/or our Mundelein facility lease, which we may be unable to do on acceptable terms, or at all.

Our manufacturing operations involve the use of hazardous substances and are subject to a variety of federal, state and local environmental laws and regulations relating to the storage, use, discharge, disposal, clean-up of, and human exposure to, hazardous substances. Compliance with these laws or regulations may cause us to incur substantial costs and significant liabilities for non-compliance, which could harm our financial condition and results of operations. In addition, our manufacturing operations can result in the release, discharge, emission or disposal of hazardous substances that may cause us to incur substantial liabilities, including costs for investigation and remediation. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We cannot assure you that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of human error, accidents, equipment failure or other causes.

We expect that our existing cash and marketable securities and cash generated from operations and this offering for Eagle Test will be sufficient to meet our cash requirements to fund operations and expected capital expenditures for at least the next twelve months. Our future capital requirements will depend on many factors, including:


	•	the expansion of sales and marketing activities and the hiring of new personnel;

	•	the timing and extent of spending to support product development efforts;

	•	the timing of new product introductions and enhancements to existing products;

	•	the expansion of our manufacturing capabilities and spending on capital equipment; and

	•	potential acquisitions of other businesses, should we decide to pursue such acquisitions.

In the event we need to raise additional financing, we cannot be certain that we will be able to obtain such additional financing on favorable terms, or at all. Future financings may subject us to burdensome restrictions on how we operate our business or significantly dilute existing stockholders. If we cannot raise capital on acceptable terms, if and when needed, we may not be able to develop or enhance our products and services, take advantage of future opportunities, grow our business or respond to competitive pressures, any of which could seriously harm our business.

We may make acquisitions of, or significant investments in, complementary companies, products or technologies, although no acquisitions or investments are currently pending or planned. We may not realize any anticipated benefits from any future acquisitions or realize a positive return on any future investments. Any future acquisitions would subject us to many risks, including:


	•	difficulties in integrating the products, operations or personnel of acquired companies into our business;

	•	diversion of our management’s attention from our ongoing operations;

	•	additional expenses associated with amortization of acquired assets or impairment of acquired goodwill;

	•	difficulties in maintaining uniform standards, controls, procedures and policies;

	•	potential impairment of existing relationships with employees, suppliers and customers as a result of the difficulties in integration of new management personnel; and

	•	dilution to our stockholders in the event we issue stock to finance an acquisition or increased leverage if we incur debt to finance an acquisition.

To date, our management has very limited experience completing acquisitions or managing the integration of acquisitions. Accordingly, we cannot guarantee that we will be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so could harm our business.

Because our products and services are sold worldwide, we are subject to the risks associated with conducting business internationally. The percentage of our net revenue originating outside the U.S. was 77.0% in the six months ended March 31, 2004, 57.9% in fiscal 2003 and 54.2% in fiscal 2002. We anticipate that international sales will continue to account for a significant portion of our revenue for the foreseeable future. Our international operations subject us to many risks, including:


	•	economic and political instability;

	•	compliance with foreign and domestic laws and regulations;

	•	changes in foreign and domestic legal and regulatory requirements or policies resulting in burdensome government controls, tariffs, restrictions, embargoes or export license requirements;

	•	longer payment cycles common in foreign markets;

	•	difficulties in staffing and managing our international operations;

	•	less favorable foreign intellectual property laws making it more difficult to protect our technology from appropriation by competitors;

	•	potentially adverse tax treatment;

	•	difficulties with distributors;

	•	difficulties collecting our accounts receivable; and

	•	natural disasters.

In particular, the economies of Asia have been highly volatile in the past, resulting in significant fluctuations in local currencies and other instabilities. Many countries in Asia recently have experienced weakness in their currency, banking and equity markets as a result of certain events, including the occurrence of severe acute respiratory syndrome, or SARS. These instabilities continue and may recur. Our exposure to the business risks presented by the economies of Asia will increase to the extent that we continue to expand our operations in that region. These instabilities, including those resulting from any additional outbreak of SARS, could delay customer acceptance of our products or prevent us from installing or servicing our products sold in the affected region.

All of our international sales are denominated in U.S. dollars. As a result, if the U.S. dollar rises in relation to foreign currencies, our test systems will become more expensive to customers outside the U.S. and less competitive with systems produced by local competitors. These conditions could adversely impact our international sales volume or force us to lower our prices internationally. In the past, there have been, and in the future there may be, significant fluctuations in the exchange rates between the U.S. dollar and the currencies of countries in which we do business. In addition, competitive conditions in the future may require us to enter into purchase orders denominated in foreign currencies. While we have not entered into foreign currency hedging arrangements in the past, we may do so in the future. We cannot assure you that any hedging transactions we may enter into will be effective or will not result in foreign exchange hedging losses.

The terrorist attacks of September 11, 2001, the United States’ response to these attacks and the resulting decline in consumer confidence has had a substantial impact on already weakened economic conditions. International terrorist activity, the war in Iraq, hostilities in Israel and escalating tensions on the Korean peninsula have contributed to an uncertain global political and economic climate. As we sell products both in the U.S. and internationally, the threat of future terrorist attacks could increase volatility in the U.S. and world financial markets, which could harm the price of our common stock and may limit the capital resources available to us and our customers or suppliers. These conditions may also make it difficult for us and for our customers to accurately forecast and plan future business activities and could have a material adverse effect on our business, financial condition and results of operations.

Third parties may claim that we or our products, systems or operations are infringing their intellectual property rights, and we may be unaware of intellectual property rights of others that may cover some of our assets, technology, products and services. Any litigation regarding patents, trademarks, copyrights or other intellectual property rights could be costly and time consuming, and divert our management and key personnel from operating our business. The complexity of the technology involved and inherent uncertainty and cost of intellectual property litigation increases our risks. If any third party has a meritorious or successful claim that we are infringing its intellectual property rights, we may be forced to change our products, services or manufacturing processes, which may be costly or impractical. Claims of intellectual property infringement might also require us to enter into royalty or license agreements. However, we may not be able to obtain royalty or license agreements on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions that prevent the development and sale of certain of our products or services.

Our success and competitive position depend in large part on our ability to obtain and maintain intellectual property rights protecting our products and services. We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our intellectual property and proprietary rights. We may be required to spend significant resources to establish, monitor and protect our intellectual property rights. We may not be able to detect infringement and we may lose our competitive position in the market before we do so. If we fail to successfully protect our intellectual property rights, or competitors design around our technology or develop competing technologies, our competitive position could suffer, which could harm our results of operations.

We own one patent and we have applied for one patent that has been allowed that we expect should issue shortly. These patents or any new patents may not be sufficient in scope or strength to provide us with a significant competitive advantage, and the validity or scope of the patents may be challenged by third parties. We may not be able to develop additional proprietary technology that is patentable. If we do file patent applications on additional technology, the applications may not be allowed. Moreover, the scope of our patents is limited, which could allow competitors to design around the scope of our patents.

In addition to patent protection, we rely on trade secret protection for our confidential and proprietary information and technology. We routinely enter into confidentiality agreements with our employees and other third parties. However, in the event these agreements may be breached, we may not have adequate available remedies. Our confidential and proprietary information and technology might also be independently developed by or otherwise become known by third parties, which may damage our competitive position.

We have filed federal trademark applications to help protect certain trademarks that we use in conjunction with our business, including EAGLE TEST SYSTEMS, EAGLE TEST SYSTEMS (& design), SMARTPIN, SIMULTEST, CHAMELEON, EAGLE VISION and our Eagle logo. Our pending applications may not be registered by the U.S. Patent and Trademark Office, and third parties may challenge the validity or scope of the trademark applications or registrations.

Despite our proprietary rights, there can be no assurance that others will not develop similar products, duplicate our products or design around our products.

We have not sought patent protection or registered our trademarks outside the U.S., which may impair our ability to use or protect our technology and brand in foreign jurisdictions.

Furthermore, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the U.S. Many U.S. companies have encountered substantial problems in protecting their proprietary rights against copying or infringement in such countries, some of which are countries in which we have sold and continue to sell our systems. There is a risk that our means of protecting our proprietary rights may not be adequate in these countries. Our competitors in these countries may independently develop similar technology or duplicate our test systems, even if unauthorized, thus likely reducing our sales in these countries.

Before this offering, there was no public trading market for our common stock, and we cannot assure you that one will develop or be sustained after this offering. We cannot predict the prices at which our common stock will trade. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay in this offering, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part or all of your investment in our shares of common stock. Factors that could cause fluctuations include, but are not limited to, the following:


	•	quarterly variations in our results of operations;

	•	whether or not our results of operations meet or exceed expectations of analysts or investors;

	•	our inability to accurately predict future downturns in the semiconductor industry;

	•	general economic or market conditions and trends;

	•	significant volatility in the market price and trading volume of ATE companies and other semiconductor equipment companies;

	•	announcements of technical innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors;

	•	catastrophic events;

	•	securing or losing a significant customer or customers;

	•	sales or distributions of large blocks of our stock; or

	•	departures of key personnel.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and the diversion of management’s attention and resources from our business.

Upon completion of this offering we will have shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option, of which our current stockholders will hold shares. If our existing stockholders or their distributees sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly. The perception in the public market that our existing stockholders might sell shares of common stock could also depress the trading price of our common stock. All of our existing stockholders, other than our employee stock ownership plan, will be subject to the lock-up agreements with the underwriters, as described in “Underwriting,” and will be subject to the Rule 144 requirements, as described in “Shares Eligible for Future Sale.” Our underwriters may release all or a portion of the shares subject to the lock-up agreements at their discretion. After all of these lock-up agreements are no longer binding, and applicable holding periods have elapsed, an aggregate of shares will be eligible for sale in the public market. The market price of shares of our common stock may drop significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

If you purchase shares of common stock in this offering, you will experience immediate dilution to the pro forma net tangible book value of the shares you acquire equal to $ per share, because the price that you pay, assuming an initial public offering price of $ per share, would be substantially greater than the pro forma net tangible book value per share of the shares you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares. You will also experience dilution upon the exercise of stock options to purchase common stock granted to our employees under our equity incentive plans.

In September 2003, Eagle Test and its stockholders completed a series of transactions involving TA Associates, Inc., a private equity firm based in Boston, Massachusetts. In connection with these transactions, affiliates of TA Associates purchased from us 3,436 shares of our series A convertible preferred stock and an aggregate of $30.0 million in principal amount of senior subordinated convertible notes. Upon completion of this offering:


	•	the senior subordinated convertible notes will be converted into $29.995 million, plus accrued and unpaid interest of approximately $ million, in principal amount of senior subordinated notes and warrants to purchase an aggregate of 525,040 shares of our common stock; and

	•	the shares of series A convertible preferred stock will automatically convert into 8,590,248 shares of our common stock and 3,436 shares of our redeemable preferred stock.

As required by the terms of the redeemable preferred stock and the senior subordinated notes, we will immediately redeem all of the outstanding shares of redeemable preferred stock upon issuance for an aggregate of $32.5 million and immediately repurchase all of the outstanding senior subordinated notes for an aggregate of approximately $ million. The aggregate of approximately $ million to be paid to affiliates of TA Associates represents an aggregate of approximately % of the estimated net proceeds to be received by us in this offering. See “Certain Relationships and Related Transactions — Arrangements with TA Associates.”

If securities or industry analysts do not regularly publish research reports or financial forecasts about our business, or if they issue an adverse opinion regarding us or other companies in our industry, our stock price could decline.

The trading market for our common stock will be influenced by the research reports and opinions that securities or industry analysts publish about our business. We do not currently have and may never obtain research coverage by these analysts. Investors have numerous investment opportunities and may limit their investments to publicly traded companies that receive thorough research coverage. If no analysts commence coverage of our company or if one or more analysts cease to cover us or fail to publish reports in a regular manner, we could lose visibility in the financial markets, which could cause a significant and prolonged decline in our stock price due to lack of investor awareness.

In the event that we do obtain analyst coverage, if one or more of the analysts downgrade our stock or comment negatively about our prospects or the prospects of other companies operating in our industry, our stock price could decline significantly. There is no guarantee that the equity research organizations affiliated with the underwriters of this offering will elect to initiate or sustain research coverage of us, nor whether such research, if initiated, will be positive towards our stock price or our business prospects.

After repurchase of the senior subordinated notes held by affiliates of TA Associates and the redemption of redeemable preferred stock held by affiliates of TA Associates, we anticipate that the net proceeds we will receive from this offering, after expenses of the offering, to be approximately $ . We have not designated these net proceeds for any specific purposes. Accordingly, we will have discretion in the application of the net proceeds of this offering and you will not have the opportunity to evaluate the economic, financial or other information on which we base our investment decisions. As a result, you and other stockholders may not agree with our use of the proceeds of this offering.

Our principal stockholders, directors and executive officers and entities affiliated with them will beneficially own approximately % of the outstanding shares of our common stock after this offering. As a result, these stockholders will significantly influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other extraordinary transactions. The interests of these stockholders may differ from yours and these stockholders may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.

There has been ongoing public debate whether stock options granted to employees should be treated as a compensation expense and, if so, how to properly value such charges. On March 31, 2004, the Financial Accounting Standards Board, or FASB, issued an Exposure Draft, “Share-Based Payment,” an amendment of FASB statements No. 123 which would require a company to recognize, as an expense, the fair value of stock options and other stock-based compensation to employees beginning in 2005 and subsequent reporting periods. If we elect or are required to record an expense for our stock-based compensation plans using the fair value method as described in the Exposure Draft, we could have significant and ongoing accounting charges. See Notes 2 and 12 of Notes to Consolidated Financial Statements included in this prospectus for a more detailed presentation of accounting for stock-based compensation plans and the impact that using fair value would have on our results of operations.

Our certificate of incorporation and by-laws contain provisions that may make the acquisition of our company more difficult without the approval of our board of directors, including the following:


	•	our board of directors is divided into three classes serving staggered three-year terms;

	•	only our board of directors may call special meetings of our stockholders;

	•	our stockholders may take action only at a meeting of our stockholders and not by written consent;

	•	we have authorized undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

	•	stockholder approval of amendments of our certificate of incorporation or by-laws require a vote of 75% of our outstanding shares;

	•	vacancies on the board of directors may be filled only by the directors;

	•	our directors may be removed only for cause by the affirmative vote of the holders of 75% of the votes that all stockholders would be entitled to cast in the election of directors; and

	•	we require advance notice for stockholder proposals.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions that you desire.

We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that such stockholder became an interested stockholder absent prior approval of our board of directors. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests.

This prospectus contains forward looking statements. Forward looking statements relate to future events or our future financial performance. We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. The outcome of the events described in these forward looking statements is subject to risks, uncertainties and other factors described in “Risk Factors” and elsewhere in this prospectus. Accordingly, you should not rely upon forward looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward looking statements will be achieved or occur, and actual results could differ materially from those projected in the forward looking statements.

The forward looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

This prospectus also contains market data related to our business and industry. This market data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may have a material adverse effect on our business, results of operations and financial condition and the market price of our common stock.

We estimate that the net proceeds of the sale of the common stock that we are offering will be approximately $ million, assuming an initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses that we must pay. We will not receive any of the proceeds of the sale of shares of common stock by the selling stockholders.


	•	approximately $ million to repurchase all of the senior subordinated notes to be outstanding immediately following the conversion of the senior subordinated convertible notes;

	•	$32.5 million to redeem all of the shares of redeemable preferred stock to be outstanding immediately following the conversion of the series A convertible preferred stock;

	•	general corporate purposes, including working capital; and

	•	possible acquisitions and investments.

The senior subordinated convertible notes mature on September 30, 2009 and bear interest at a rate of 12% per annum. The proceeds from the issuance of these senior subordinated convertible notes were used to redeem outstanding shares of common stock from holders of our common stock on September 30, 2003.

Except as set forth above, we have not determined the amount of net proceeds to be used specifically for the foregoing purposes. As a result, our management will have significant discretion in applying our net proceeds from the offering. We currently have no agreements or commitments with respect to any acquisitions or investments. Pending specific application of our net proceeds, we plan to invest our net proceeds in government securities and other short-term, investment-grade, marketable securities.

In connection with the series of transactions involving affiliates of TA Associates, Inc., we paid special cash dividends to all holders of our common stock of $13.5 million in September 2003 and $2.0 million in December 2003. Covenants in the note purchase agreement between the holders of the senior subordinated convertible notes and us impose restrictions on our ability to declare and pay cash dividends. However, these restrictions will terminate upon the repayment of the senior subordinated notes with the proceeds from this offering. Our board of directors will therefore have discretion in determining whether to pay dividends, which will depend upon our financial condition, results of operations, capital requirements and such other factors as the board of directors deems relevant. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business. Accordingly, we do not anticipate declaring or paying any cash dividends for the foreseeable future.


	•	on an actual basis;

	•	on a pro forma basis to give effect to the conversion of our series A convertible preferred stock and the conversion of our senior subordinated convertible notes; and

	•	on an as adjusted basis to reflect the sale of shares of common stock that we are offering at an assumed initial public offering price of $ per share, and the application of the estimated net proceeds therefrom as described in “Use of Proceeds.”

You should read the following table in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.


(1)	These warrants will be issued upon conversion of our senior subordinated convertible notes. See Note 2 below. Immediately after issuance, these warrants will be exercised and, as presented on an as adjusted basis, the redemption obligation will thereafter be eliminated.


(2)	Upon the completion of this offering and as presented on a pro forma basis, the senior subordinated convertible notes will be converted into $29.995 million, plus accrued and unpaid interest of approximately $ million, in principal amount of senior subordinated notes and warrants to purchase an aggregate of 525,040 shares of our common stock. As presented on an as adjusted basis, the senior subordinated notes will then be immediately repurchased for an aggregate of approximately $ million.

(3)	Upon the completion of this offering and as presented on a pro forma basis, the outstanding shares of series A convertible preferred stock will convert into an aggregate of 8,590,248 shares of common stock and 3,436 shares of redeemable preferred stock. As presented on an as adjusted basis, all shares of redeemable preferred stock will be immediately redeemed upon issuance for an aggregate of $32.5 million.

(4)	Excludes 287,500 shares of common stock issuable upon exercise of outstanding stock options and 396,290 additional shares of common stock available for grant under our option plan as of March 31, 2004.

Our pro forma net tangible book value as of June 30, 2004 was a deficit of $ million, or $ per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of common stock outstanding as of June 30, 2004 after giving effect to the conversion of all of our series A convertible preferred stock which will occur automatically upon completion of this offering.

After giving effect to the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our adjusted pro forma net tangible book value as of June 30, 2004 would have been approximately $ million, or approximately $ per share. This amount represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of approximately $ per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price. We determine dilution by subtracting the adjusted pro forma net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock. The following table illustrates this dilution on a per share basis:

The following table summarizes, as of June 30, 2004, the differences between the number of shares purchased from us, the total consideration paid to us and the average price per share that existing stockholders and new investors paid. The calculation below is based on an assumed initial public offering price of $ per share, which is the midpoint of the range listed on the cover page of this prospectus, and before deducting underwriting discounts and commissions and estimated offering expenses that we must pay:

The above discussion and table assume no exercise of stock options after June 30, 2004. As of June 30, 2004, we had outstanding options to purchase a total of 652,500 shares of common stock at a weighted average exercise price of $8.35 per share. To the extent any of these options is exercised, there will be further dilution to new investors.

The following selected consolidated financial data should be read in conjunction with, and is qualified by reference to, our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. The data for the years ended September 30, 2001, 2002 and 2003 and as of September 30, 2002 and 2003 is derived from consolidated financial statements audited by Ernst & Young LLP, an independent registered public accounting firm, and included elsewhere in this prospectus. The data for the years ended September 30, 1999 and 2000 and as of September 30, 1999, 2000 and 2001 is derived from our unaudited consolidated financial statements that are not included in this prospectus. The data for the six months ended March 31, 2003 and 2004 and as of March 31, 2004 is derived from our unaudited consolidated financial statements included elsewhere in this prospectus. We have prepared our unaudited consolidated financial information on a basis consistent with our audited consolidated financial statements. In the opinion of our management, our unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of those statements. Results for the six months ended March 31, 2004 are not necessarily indicative of results expected for the fiscal year ending September 30, 2004, or for any other future period.

You should read the following discussion in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion contains forward looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include those described in “Risk Factors” and elsewhere in this prospectus.

We design, manufacture, sell and service high-performance ATE for the semiconductor industry. Our test equipment addresses our customers’ volume production needs and is designed to lower their overall cost-of-test per device. Our innovative products test analog, mixed-signal and RF semiconductors. Semiconductors tested by our systems are incorporated into a wide range of products in high-growth markets, including digital cameras, MP3 players, cellular telephones, video/multimedia products, automotive electronics, computer peripherals, and notebook and desktop computers.

We were founded and began providing test solutions in 1976. Our customers include semiconductor manufacturers, integrated device manufacturers, or IDMs, fabless design companies, and assembly and test subcontractors, including National Semiconductor Corporation, Texas Instruments Incorporated, Intersil Corporation, Fairchild Semiconductor International, Inc. and ChipPAC, Inc. Since January 1, 2003, we have delivered over 325 test systems to more than 30 customers worldwide.

Our business and operating results depend significantly on the level of capital expenditures by companies in the semiconductor industry. Historically, the semiconductor industry has been highly cyclical with recurring periods of over-supply and under-supply, which has resulted in wide fluctuations in demand for our products and services. These demand fluctuations have resulted in significant variations in our revenue, expenses and results of operations in the periods presented. Fluctuations are likely to continue in future periods.

Our net revenue increased significantly during the six months ended March 31, 2004, to $47.2 million from $18.9 million during the same period in the prior fiscal year, an increase of $28.3 million, or 149.9%, and our net income in this period increased to $8.6 million from $1.8 million, an increase of $6.8 million, or 380.4%. Our business experienced significant growth in fiscal 2003 as our net revenue increased to $55.8 million from $25.9 million in fiscal 2002, an increase of $29.8 million, or 115.2%, and our net income increased to $9.6 million from $1.6 million in fiscal 2003, an increase of $8.0 million, or 483.5%. During fiscal 2002, our business experienced a slowdown as the semiconductor industry declined sharply. From fiscal 2001 to fiscal 2002, our net revenue decreased from $37.6 million to $25.9 million, a decrease of $11.6 million, or 31.0%, and our net income decreased from $6.4 million to $1.6 million, a decrease of $4.7 million, or 74.1%.

Changes in industry conditions often occur very rapidly and can be very difficult to predict. Thus, we cannot forsee the timing and extent of such changes or their effect on our customer orders and revenue with significant accuracy. As part of our strategy to address this volatility and lack of visibility, we outsource a substantial portion of our manufacturing functions to third party subcontractors. The purpose of this strategic outsourcing model is to reduce our fixed costs and working capital requirements, making our expense structure more flexible during downturns. Outsourcing also allows us to increase production rapidly to capitalize on market opportunities during upturns. We believe our outsourcing strategy provides us with the flexibility to respond more rapidly to changes in industry conditions and demand for our test systems.

Historically, a significant portion of our revenue in each quarter and year has been derived from sales to relatively few customers. While we seek to expand and diversify our customer base, we expect our revenue to continue to be derived from a small number of customers. In the six months ended March 31, 2004, sales to National Semiconductor Corporation and Texas Instruments Incorporated accounted for 47.0% and 23.7% of our net revenue, respectively, and sales to our five largest customers accounted for an aggregate of 82.3% of our net revenue. In fiscal 2003, sales to National Semiconductor Corporation and Intersil Corporation

We market and sell our products primarily through our direct sales organization, which consists of sales professionals, application engineers (technical sales support) and technical marketing personnel. In most regions of the U.S. and Asia, we use our direct sales force exclusively. In Europe and in select regions of Asia, such as China and Taiwan, and in the Pacific Northwest region of the U.S., we utilize a combination of direct sales representatives and independent distributors. Our direct sales force earns commissions based on the sales they generate. Our distributors earn commissions based on sales of equipment shipped into their regions or in some cases, we offer our distributors discounts on our products for resale. A significant majority of our sales are generated by our direct sales organization and we expect to continue to expand our sales organization in the future.

We do not have purchase contracts that require any of our customers or distributors to continue to purchase our products, and our customers or distributors could cease purchasing products from us at any time. A delay in product orders or acceptances or a cancellation by any of our large customers could cause quarterly revenue to vary significantly. Our backlog of orders is subject to order cancellations, accelerations, changes and delays, and is not necessarily indicative of future customer purchases or revenue streams.

During a given quarter, a significant portion of our revenue may be derived from the sale of a relatively small number of test systems. Our test systems range widely in average selling price, depending upon many factors such as model, configuration and level of testing resources sold with the system. Consequently, a small change in the number or product mix of systems sold may cause significant changes in our operating results. Thus, we do not believe that period-to-period comparisons of our financial results are necessarily meaningful, and they should not be relied upon as an indication of our future performance.

In September 2003, affiliates of TA Associates purchased 3,436 shares of our series A convertible preferred stock for a total purchase price of $65.0 million. Affiliates of TA Associates also purchased $30.0 million in principal amount of 12% senior subordinated convertible notes due September 30, 2009. We used the $95.0 million of aggregate proceeds from these transactions to redeem shares of common stock from stockholders. Additionally, in connection with and subsequent to these transactions, we paid a special dividend to our common stockholders in an aggregate amount of approximately $15.5 million using existing cash on hand.

In connection with becoming a public company, we expect that we will incur significant additional expenses such as audit fees, professional fees, increased directors and officers insurance, board compensation, and expenses related to hiring additional personnel and expanding our administrative functions. Many of these expenses were not incurred by us as a private company and are not included in our results of operations through fiscal 2003. We began to incur certain of these expenses during the six-month period ended March 31, 2004, and we expect that these expenses will continue to increase.

Net Revenue. Net revenue consists of sales of test systems and individual resource boards, net of returns and allowances. Substantially all of our net revenue is derived from sales of our test systems. Net revenue from sales of individual resource boards has historically not been significant. We expect that this mix of net revenue will continue for the foreseeable future. Net revenue is subject to both quarterly and annual fluctuations as a result of the cyclical nature of the semiconductor industry, as well as product mix and system configuration.

Cost of Goods Sold. Cost of goods sold consists primarily of manufacturing materials, outsourced manufacturing costs, salaries and manufacturing-related overhead, which includes provisions for excess and obsolete inventory reserves. We rely on a limited number of subcontractors and suppliers to provide key components of our products, some of which are sole-sourced. We build products based on forecasts and customer backlog, and purchase materials and supplies to support that demand. Since we focus primarily on final assembly and test of our systems, we are subject to variations in the cost of raw materials, components and subsystems. Because we do not have long-term fixed-price contracts with our suppliers, our costs could fluctuate from period-to-period.

Gross Profit. Our gross profit has varied from period-to-period. Factors that have affected and will continue to affect gross profit in the future include product configuration, product sales mix, manufacturing volume, manufacturing efficiencies, excess and obsolete inventory write-offs, pricing by competitors, subcontractors and suppliers, and new product introductions.

Selling, General and Administrative. Selling, general and administrative, or SG&A, expenses relate to compensation and associated expenses for sales, marketing and applications engineering personnel, sales commissions paid to sales representatives and distributors, outside contractor expenses and other sales and marketing program expenses. In addition, SG&A expenses include travel and professional service expenses, as well as salaries and related expenses for administrative, finance, human resources and executive personnel. SG&A expenses will increase as a result of becoming a public company and as a result of increased lease expense associated with our new headquarters facility, which we expect to be completed by the end of December 2004. It is anticipated that SG&A expenses will increase as a result of increased bonus payments payable to employees in fiscal 2005. SG&A expenses may also increase in absolute dollars as we continue to develop our sales and marketing efforts and expand our administrative functions, and as a result of increased option expenses related to proposed changes in generally accepted accounting principles. In addition, commission expenses included in SG&A expenses can fluctuate with changes in sales volume and customer mix.

Research and Development. Research and development, or R&D, expenses consist primarily of compensation and related expenses for personnel engaged in product development, as well as expenses related to materials, outside contractors, depreciation of equipment used in R&D, and other engineering overhead expenses. R&D costs are expensed as incurred. We believe our R&D expenses will generally increase in absolute dollars as we continue to develop and improve our hardware and software technologies.

Interest Expense. Interest expense consists of interest on our debt and loans. The increase in interest expense beginning in fiscal 2004 resulted from the issuance on September 30, 2003 to affiliates of TA Associates of $30.0 million in principal amount of 12% senior subordinated convertible notes due September 30, 2009. Upon the completion of this offering, the senior subordinated convertible notes held by these affiliates will convert into $29.995 million in principal amount, plus accrued and unpaid interest, of 12% senior subordinated notes due September 30, 2009 and warrants to purchase 525,040 shares of our common stock. These senior subordinated notes will be repurchased upon completion of this offering for an aggregate amount equal to approximately $ million.

Increase in Value of Warrants. Increase in value of warrants is a non-cash charge related to recording the increase in the fair market value of the common stock warrants issuable upon conversion of the 12% senior subordinated convertible notes due September 30, 2009. The warrants enable the holders to put the warrants to us at any time after September 30, 2008 at fair value, and thus the warrants are considered liability instruments that are recorded at fair value based upon independent valuations. We will continue to incur a non-cash charge each quarter, based upon the increase in the fair value of our common stock, until such warrants are exercised. The holders of the warrants intend to exercise the warrants for common stock upon the completion of this offering, and upon such exercise, the right to sell the warrants to us terminates and we will no longer be required to account for such warrants based on fair value.

Other (Income) and Expense. Other (income) and expense consists of income from cash, cash equivalents and marketable securities, realized investment gains, losses and impairments, and miscellaneous other income and expense.

Provision for Income Taxes. We account for income taxes under the asset and liability method whereby the expected future tax consequences of temporary differences between the book value and the tax basis of assets and liabilities are recognized as deferred tax assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to be recognized. A valuation allowance is provided if it is more likely than not that some or all of the entire deferred tax asset will not be realized.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying notes. We base our estimates on historical experience and various other assumptions that we believe to be reasonable. Although these estimates are based on our present best knowledge of the future impact on us of current events and actions, actual results may differ from these estimates, assumptions and judgments.

We consider “critical” those accounting policies that require our most subjective or complex judgments, which often result from a need to make estimates about the effect of matters that are inherently uncertain, and that are among the most important of our accounting policies in the portrayal of our financial condition and results of operations. These critical accounting policies are: revenue recognition, valuation of excess and obsolete inventory, accounting for warranty reserves, and determination of our allowance for sales returns and uncollectables.

Revenue Recognition. We derive revenue primarily from sales of test systems and individual resource boards. Substantially all of our revenue to date has been denominated in United States dollars. Revenue related to test system sales is recognized when:


	•	we have a written sales agreement;

	•	delivery has occurred or services have been rendered;

	•	the price is fixed or determinable; and

	•	collectibility is reasonably assured.

Installation services are generally part of the test system sale, revenue from test system sales are deferred until the test system is delivered, installed and accepted at the customer location.

When sales to a customer involve multiple elements, revenue is recognized on the delivered element, provided that the undelivered element is a standard product, there is a history of acceptance on the product with the customer, and the undelivered element is not essential to the customer’s application. Revenue related to individual resource boards is recognized upon shipment.

In a few instances we have entered into short-term rental agreements with customers for the use of our test systems. We recognize rental revenue ratably over the applicable rental period. Rental revenue is included as a component of test system sales and has been immaterial to date.

Inventory Reserves. We state our inventories at the lower of cost or estimated market value, determined on a first-in, first-out method. We establish inventory reserves when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for test systems or market conditions. We evaluate the ability to realize the value of our inventory based on a combination of factors, including forecasted sales or usage, estimated product end-of-life dates, estimated current and future market value and new product introductions. Purchasing and alternative usage options are also explored to mitigate obsolete inventory exposure. If actual demand for test systems deteriorates or market conditions are less favorable than those we project, additional inventory reserves may be required.

We determine the valuation of excess and obsolete inventory by making our best estimate considering the current quantities of inventory on hand and our forecast of the need for this inventory to support future sales of our test systems. We often have limited information on which to base our forecasts. If future sales differ from these forecasts, the valuation of excess and obsolete inventory may change.

Warranty Reserves. Our test systems are sold with warranty provisions that require us to remedy deficiencies in quality or performance of our test systems. We are also subject to laws and regulations in the various countries in which we sell regarding vendor obligations to ensure product performance. At the time we recognize revenue from a test system’s sale, we determine the reserve for the future cost of meeting our obligations under the standard warranties and product performance laws and regulations by considering our

Allowance for Sales Returns and Uncollectables. We determine our allowance for sales returns and uncollectables by making our best estimate considering our historical accounts receivable collection experience, current economic trends, changes in customer payment terms and recent information that we have about the current status of our accounts receivable balances. If future conditions cause our collections experience to change or if we later obtain different information about the status of any or all of our accounts receivable, additional allowances for sales returns and uncollectables may be required.

The following sets forth certain operating data as a percentage of net revenue for the periods presented:

The following sets forth our net revenue breakdown by geographic region, in thousands and as a percentage of net revenue, during the periods presented. Substantially all of our revenue to date has been denominated in United States dollars.

The following customers accounted for 10% or more of our net revenue in one or more of the periods presented:

Net Revenue. Net revenue was $47.2 million in the six months ended March 31, 2004 and $18.9 million in the same period of fiscal 2003, an increase of $28.3 million, or 149.9%. The significant increase was due to an increase in test system sales as a result of an upturn in the semiconductor industry and due to $16.0 million and $10.8 million increases in test system sales to two of our largest customers, National Semiconductor Corporation and Texas Instruments Incorporated, respectively. In addition, we began generating revenue from our recently introduced ETS-200T platform in the six months ended March 31, 2004.

Cost of Goods Sold. Cost of goods sold was $14.9 million in the six months ended March 31, 2004 and $7.3 million in the same period of fiscal 2003, an increase of 104.3%. The increase in cost of goods sold resulted primarily from increased test system sales.

Gross Profit. Gross profit was $32.2 million, or 68.3% of net revenue, in the six months ended March 31, 2004 and $11.6 million, or 61.2% of net revenue, in the same period in fiscal 2003. The increase in gross profit as a percentage of net revenue was primarily due to increased sales and better utilization of overhead costs and manufacturing personnel due to higher volume production as compared to the same period of fiscal 2003. In addition, in the first six months of fiscal 2003, we experienced additional manufacturing costs and inefficiencies associated with the introduction of our ETS-364 platform in December 2002.

Selling, General and Administrative. SG&A expenses were $9.7 million, or 20.5% of net revenue, in the six months ended March 31, 2004 and $7.2 million, or 38.0% of net revenue, in the same period in fiscal 2003. SG&A expenses increased $2.5 million, or 35.0%, over the same period in the prior year, primarily as a result of increased sales, sales support and application engineering personnel expenses of approximately $1.3 million to support increased test system sales and shipments. Additionally, we increased administrative personnel and administrative infrastructure costs to manage sales and operations growth and we incurred increased expenses of $556,000 in professional fees associated with our preparation to become a public company.

Research and Development. R&D expenses were $2.4 million, or 5.1% of net revenue, in the six months ended March 31, 2004 and $1.4 million, or 7.6% of net revenue, in the same period in fiscal 2003. R&D expenses increased $1.0 million, or 66.9%, over the same period in the prior year. The increase in R&D expenditures was primarily related to an increase in R&D staffing levels, higher compensation expenses and greater cost of product development materials.

Interest Expense. Interest expense was $1.9 million in the six months ended March 31, 2004 due to interest on the senior subordinated convertible notes issued on September 30, 2003. These notes were not outstanding in the same period of the prior year.

Increase in Value of Warrants. Increase in value of warrants was $2.6 million in the six months ended March 31, 2004 due to recording the increase in fair market value of the common stock warrants that, under certain circumstances, require us to purchase these warrants after September 30, 2008. These warrants were not outstanding in the same period of the prior year.

Other (Income) and Expense. Other (income) and expense increased to $(279,000) for the six months ended March 31, 2004 from $(111,000) in the same period in fiscal 2003. This increase was primarily attributable to a $208,000 increase in income from marketable securities and interest on invested cash balances.

Provision for Income Taxes. Our provision for income taxes was $7.3 million, a 45.8% effective tax rate, in the six months ended March 31, 2004 and $1.2 million, a 41.0% effective tax rate, in the same period in fiscal 2003. The increase in tax provision of $6.0 million was primarily a result of an increase in pretax income of $12.9 million. The increase in the effective tax rate was primarily due to an increase in value of warrants in the first six months of fiscal 2004 of $2.6 million, which is not tax-deductible.

Net Revenue. Net revenue was $55.8 million in fiscal 2003 and $25.9 million in fiscal 2002, an increase of $29.8 million, or 115.2%. This increase was due to an increase in test system sales as a result of an upturn in the semiconductor industry in the second half of fiscal 2003 and $13.0 million and $10.0 million increases in test system sales to two of our largest customers, National Semiconductor Corporation and Intersil Corporation, respectively. In addition, we introduced our ETS-364 platform in late fiscal 2002 and began generating significant revenue from it in fiscal 2003.

Cost of Goods Sold. Cost of goods sold was $20.5 million in fiscal 2003 and $8.6 million in fiscal 2002, an increase of 139.1%. The increase in cost of goods sold was primarily the result of costs related to increased test system sales.

Gross Profit. Gross profit was $35.3 million, or 63.3% of net revenue, in fiscal 2003 and $17.4 million, or 67.0% of net revenue, in fiscal 2002. Gross profit as a percentage of net revenue decreased primarily as a result of additional manufacturing expenses incurred in connection with the introduction of our ETS-364 platform during the first quarter of fiscal 2003.

Selling, General and Administrative. SG&A expenses were $16.5 million, or 29.5% of net revenue, in fiscal 2003 and $10.9 million, or 42.3% of net revenue, in fiscal 2002. SG&A expenses increased by $5.5 million, or 50.6%, primarily due to increased sales, sales support and application engineering personnel expenses of approximately $1.3 million to support increased test system shipments, and $1.2 million in increased sales commissions as a result of increased sales. Additionally, we increased administrative personnel and administrative infrastructure costs to manage sales and operations growth.

Research and Development. R&D expenses were $3.1 million, or 5.6% of net revenue, in fiscal 2003 and $3.2 million, or 12.5% of net revenue, in fiscal 2002. R&D expenses decreased $127,000, or 3.9%, primarily as a result of a decrease in product development costs as a result of our ETS-364 platform being released to production in the fourth quarter of fiscal 2002, partially offset by higher development depreciation expense due to equipment additions in fiscal 2003.

Other (Income) and Expense. Other (income) and expense was $(636,000) in fiscal 2003 and $633,000 in fiscal 2002. The net expense in fiscal 2002 was the result of an investment impairment charge of $666,000 for writing down marketable securities that were determined to have other than temporary declines in value, offset in part by earnings on marketable securities and interest earned on invested cash balances. Other (income) and expense for fiscal 2003 primarily relates to income from marketable securities.

Provision for Income Taxes. Provision for income taxes was $6.7 million, a 41.1% effective tax rate, in fiscal 2003 and $864,000, a 34.4% effective tax rate, in fiscal 2002. The increase in tax provision of $5.8 million was primarily a result of an increase in pretax income of $13.8 million. The increase in the effective tax rate was primarily a result of larger tax credits and tax-exempt municipal interest income in fiscal 2002.

Net Revenue. Net revenue was $25.9 million in fiscal 2002 and $37.6 million in fiscal 2001, a decrease of $11.6 million, or 31.0%. This decrease was primarily due to a continued downturn in the semiconductor

Cost of Goods Sold. Cost of goods sold was $8.6 million in fiscal 2002 and $12.7 million in fiscal 2001, a decrease of 32.7%. The decrease was primarily the result of decreased sales of our test systems. In fiscal 2001, we took a one time write-off of $890,000 of inventory component parts related to discontinued products. There was no similar charge taken in fiscal 2002.

Gross Profit. Gross profit was $17.4 million, or 67.0% of net revenue, in fiscal 2002 and $24.8 million, or 66.1% of net revenue, in fiscal 2001. The increase in gross profit as a percentage of net revenue was primarily due to the one-time charge taken in fiscal 2001 for $890,000 in inventory component parts related to discontinued products, or 2.4% of net revenue. After adjusting gross profit for this charge, gross profit percentage would have decreased from fiscal 2001 to fiscal 2002 by 1.5%, primarily as a result of better leverage on manufacturing overhead in fiscal 2001 due to higher test system sales.

Selling, General and Administrative. SG&A expenses were $10.9 million, or 42.3% of net revenue, in fiscal 2002 and $12.2 million, or 32.6% of net revenue, in fiscal 2001. SG&A expenses decreased $1.3 million, or 10.6%, primarily due to approximately $1.3 million in reduced sales commissions as a result of lower test system sales, offset in part by slight increases in personnel costs due to increases in sales and application engineering staffing levels.

Research and Development. R&D expenses were $3.2 million in fiscal 2002, or 12.5% of net revenue, and $2.6 million, or 6.9% of net revenue, in fiscal 2001. R&D expenses increased $633,000, or 24.3%, primarily due to an increase in R&D staffing levels, higher compensation costs and increases in prototyping expenses related to the ETS-364 platform development and depreciation expense related to R&D tools and equipment purchased throughout fiscal 2001 and fiscal 2002.

Other (Income) and Expense. Other (income) and expense was $633,000 in fiscal 2002 and $(459,000) in fiscal 2001. The net expense in fiscal 2002 primarily resulted from an investment impairment charge of $666,000 recorded in fiscal 2002 for writing down investments that were determined to have other than temporary declines in value, offset in part by earnings on marketable securities and interest on invested cash balances. Other (income) in fiscal 2001 primarily consisted of net investment income of $590,000, offset in part by an investment impairment charge of $208,000 recorded in fiscal 2001 for writing down investments that were determined to have other than temporary declines in value.

Provision for Income Taxes. Provision for income taxes was $864,000, a 34.4% effective tax rate, in fiscal 2002 and $4.0 million, a 38.9% effective tax rate, in fiscal 2001. The decrease in tax provision of $3.2 million was primarily a result of a reduction in pretax income of $7.9 million. The decrease in the effective tax rate was primarily a result of larger tax credits and tax-exempt municipal interest income in fiscal 2002.

The following table presents our unaudited quarterly results of operations for each of our last ten quarters ended March 31, 2004. You should read the following table in conjunction with the consolidated financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. This table includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of results of operations for the quarters presented. Results of operations for any quarter are not necessarily indicative of results for any future quarters or for a full year.

The following table presents our historical results for the periods indicated as a percentage of net revenue:

Net Revenue. An industry-wide downturn impacted our results of operations in each of the quarters ended December 31, 2001 and March 31, 2002. Beginning in the quarter ended June 30, 2002, our sales generally began to improve primarily due to two customers increasing demand for our test systems. While the business environment has continued to improve for ATE providers, our quarterly net revenue has varied based upon our major customers’ capital expenditures, capacity requirements and test system ordering patterns. Our

Gross Profit. Gross profit percentage increased sequentially in each of the quarters ended December 31, 2001 through June 30, 2002 due to reduced manufacturing personnel and improvements in product configuration and product mix. Gross profit increased to 72.7% in the quarter ended June 30, 2002 due to a significant increase in sales to two customers that resulted in substantial improvements in utilization of overhead costs and manufacturing personnel. Gross profit declined to 59.4% for the quarter ended December 31, 2002 due to additional manufacturing costs associated with the introduction of a new product, the ETS-364. Gross profit generally trended higher from the quarter ended March 31, 2003 through the quarter ended March 31, 2004 as the overall industry experienced a significant upturn, resulting in increased sales and volume efficiencies in manufacturing and customer orders for test systems with more profitable test system configurations.

Selling, General and Administrative. SG&A expenses have generally increased in absolute dollars over time but have fluctuated and will continue to fluctuate from quarter to quarter as a percentage of net revenue. SG&A spending in absolute dollars has trended upward as a result of our expansion of our sales force, addition of application engineering personnel and entry into new geographic territories. We intend to add experienced sales personnel and applications engineers as we expand our sales offices and the geographic regions that we cover. However, sales commissions paid to employees and sales distributors will fluctuate based upon the number and value of test systems sold. We have added additional administrative employees in response to and in anticipation of the growth of our business and our becoming a public company. The SG&A increase in the quarter ended September 30, 2003 was principally due to the transaction costs expensed in that period in connection with the transaction with TA Associates.

Research and Development. Our research and development expenses have fluctuated from quarter to quarter as a percentage of net revenue, but have generally increased over time in absolute dollars. We believe our R&D expenses will generally increase in absolute dollars as we continue to develop and improve our hardware and software technologies.

Our quarterly results of operations have varied in the past and are likely to do so again in the future primarily due to the cyclical nature of the semiconductor industry. As such, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. In future periods, the market price of our common stock could decline if our revenues and results of operations are below the expectations of analysts and investors. Factors that may cause our revenue and results of operations to fluctuate include those discussed in the “Risk Factors” section of this prospectus.

Since our inception we have financed our operations primarily through cash generated from operations and our existing cash balances. As of March 31, 2004, we had $12.4 million in cash, cash equivalents and marketable securities.

Our balance in cash, cash equivalents and marketable securities decreased from $22.0 million as of September 30, 2003 to $12.4 million as of March 31, 2004. Operating activities during the first six months ended March 31, 2004 used cash of $5.5 million due primarily from increases in accounts receivable and inventories and decreases in accrued income taxes of $7.4 million, $8.2 million and $4.4 million, respectively, offset by net income of $8.6 million and an increase in accounts payable of $2.7 million. Investing activities used cash related to the purchase of capital equipment of $2.3 million. Financing activities used cash of $2.0 million related to a dividend paid to our common stockholders.

From September 30, 2002 to March 31, 2003, our balance in cash, cash equivalents and marketable securities increased from $20.6 million to $22.6 million. Operating activities during this period provided cash of $4.9 million primarily from net income of $1.8 million and decreases in inventories and increases in

Our balance in cash, cash equivalents and marketable securities increased from $20.6 million as of September 30, 2002 to $22.0 million as of September 30, 2003. Operating activities during fiscal 2003 provided cash of $16.3 million primarily from net income of $9.6 million and from increases in accounts payable, deferred revenue, accrued compensation and accrued income taxes of $1.8 million, $2.0 million, $2.3 million and $6.3 million, respectively. These items were offset by an increase in accounts receivable of $2.9 million and a decrease in other accrued expenses of $1.9 million. Investing activities used cash related to the purchase of capital equipment of $2.0 million. Financing activities used cash of $13.5 million from the issuance of Series A convertible preferred stock and senior subordinated convertible notes of $65.0 million and $30.0 million, respectively, to affiliates of TA Associates, offset by a redemption of common stock and dividend payments of $95.0 million and $13.5 million, respectively.

From September 30, 2001 to September 30, 2002, our balance in cash, cash equivalents and marketable securities decreased slightly from $20.9 million to $20.6 million. Operating activities during fiscal 2002 provided cash of $831,000 primarily from net income of $1.6 million, and increases in accounts payable and deferred revenue of $1.8 million and $3.0 million, respectively. These items were offset by an increase in accounts receivable and inventories of $3.5 million and $2.7 million, respectively. Investing activities used cash related to the purchase of capital equipment of $675,000.

Our balance in cash, cash equivalents and marketable securities increased from $16.6 million as of September 30, 2000 to $20.9 million as of September 30, 2001. Operating activities during fiscal 2001 provided cash of $6.8 million primarily from net income of $6.4 million, and a decrease in accounts receivable of $7.0 million, offset primarily by decreases in deferred revenue, accrued compensation, accrued income taxes and other accrued expenses of $852,000, $1.8 million, $2.5 million and $1.1 million, respectively. Investing activities used cash related to the purchase of capital equipment of $697,000.

The following table describes our commitments to settle contractual obligations in cash as of March 31, 2004.


(1)	The senior subordinated notes issuable upon conversion of the senior subordinated convertible notes will be repurchased at the completion of this offering for an aggregate amount equal to approximately $ .

(2)	These warrants will be exercised at the completion of this offering, and upon such exercise, the redemption right terminates.

(3)	The series A convertible preferred stock will be converted into redeemable preferred stock and 8,590,248 shares of common stock at the completion of this offering. All shares of redeemable preferred stock will be redeemed immediately upon issuance for an aggregate of $32.5 million.

We believe our existing cash balance and marketable securities will be sufficient to meet our anticipated cash needs for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, and the continuing market acceptance of our products. To the extent that funds generated by this offering, together with existing cash, cash equivalents and short-term investments balances and any cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through bank lines of credit or public or private equity or debt financing. Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us, or at all.

In November 2002, the Financial Accounting Standards Board, or FASB, issued FASB Interpretation, or FIN, No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN No. 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this standard did not have a material impact on our financial position or results of operations.

In November 2002, the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. We believe that the adoption of EITF Issue No. 00-21 did not have a material impact on our financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standards, or SFAS, No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and further requires that an issuer classify as a liability, or an asset in some circumstances, financial instruments that fall within its scope because that financial instrument embodies an obligation of the issuer. Many of such instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on our financial position or results of operations.

In December 2003, the FASB issued additional guidance clarifying the provisions of FIN No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin, or ARB, No. 51” (“FIN 46-R”). FIN 46-R provides a deferral of FIN 46 for certain entities until after March 15, 2004. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. We believe that the adoption of FIN 46-R did not have a material impact on our financial position or results of operations.

In March 2004, the FASB approved EITF Issue 03-6 “Participating Securities and the Two-Class Method under FAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” and requires the use of the

We historically have invested in a wide range of marketable securities that have been held for resale when we have had cash in excess of our immediate working capital needs. As of March 31, 2004, approximately 45.1% of our marketable securities held for resale were invested in corporate equity securities of publicly traded companies. The remainder of the marketable securities portfolio was primarily invested in government debt securities. Due to the heavy concentration in corporate equity securities that are subject to overall market conditions and general market volatility, a substantial portion of our investments may experience short-term or longer term fluctuations and subject us to a higher than average amount of risk. These investments may subject us to realized investment losses should they decline in value and be liquidated before they recover in value.

We measure our investments against our original cost. If an investment has been permanently impaired based on our judgement, an unrealized impairment loss is recorded on our books and records, and the investment remains written down until the security is sold. In the past we have recorded impairment losses on investments in our equity security portfolio, reflecting volatility of market conditions. For instance, in fiscal 2001 and 2002, we recorded $208,000 and $666,000, respectively, of investment impairments on stocks we held when the market declined from April 2000 through September 2002. In addition, we adjusted the cost of our investments to market through other comprehensive income which is contained in the stockholders’ equity section of our balance sheet. For marketable securities held as of March 31, 2004, the unrealized gains and losses represent a net gain of $1.3 million.

We are in the process of adopting an investment strategy that would eliminate investments in equity securities and limit our investments to government securities and other short-term, investment-grade, marketable securities. This revised investment policy will be substantially more conservative that our current practices and will focus on preservation of principal. It is anticipated that any change in investment strategy will be implemented before the end of July 2004. It is not anticipated that this change in investment strategy will have a material adverse effect on our financial position or results of operations.

Our revenues and expenses are denominated in U.S. dollars. In addition, our sales contracts are also denominated in U.S. dollars. As a result, we have relatively little exposure for currency exchange risks. We do not currently enter into forward exchange contracts to hedge exposure denominated in foreign currencies or any other derivative financial instruments for trading or speculative purposes. In the future, if we feel our foreign currency exposure has increased, we may consider entering into hedging transactions to help mitigate that risk.

We design, manufacture, sell and service high-performance ATE for the semiconductor industry. Our test equipment addresses our customers’ volume production needs and lowers their overall cost-of-test per device. Our innovative products test analog, mixed-signal and RF semiconductors. Semiconductors tested by our systems are incorporated into a wide range of products in high-growth markets, including digital cameras, MP3 players, cellular telephones, video/ multimedia products, automotive electronics, computer peripherals, and notebook and desktop computers.

Our test systems utilize our proprietary SmartPin^TM technology. This technology improves throughput and lowers cost-of-test by increasing the rate of test per device and enabling multiple devices to be tested simultaneously, or in parallel, on an individual test system. Designed to be modular, flexible and scalable, our test systems provide our customers with cost-efficient, customized solutions. Our ATE architecture offers superior test speed and precision that improve production yields and reduce the overall cost-of-test per device. We believe our proprietary technology and ATE architecture enable our customers to bring their high-volume semiconductors to market at a lower overall cost.

We were founded by Leonard Foxman, our Chief Executive Officer, and began providing test solutions in 1976. Our customers include semiconductor manufacturers, IDMs, fabless design companies, and assembly and test subcontractors, including National Semiconductor Corporation, Texas Instruments Incorporated, Intersil Corporation, Fairchild Semiconductor International, Inc. and ChipPAC, Inc. Since January 1, 2003, we have delivered over 325 test systems to more than 30 customers worldwide.

Semiconductor devices are the foundation of the modern electronic world. The Semiconductor Industry Association, or SIA, reports that worldwide semiconductor sales were $166.4 billion in 2003, and expects sales to reach $221.3 billion in 2006. The projected growth of semiconductor sales reflects the continued proliferation of semiconductors in a broad range of commercial and consumer electronic products.

Semiconductors are typically divided into two broad categories, digital and analog. Digital semiconductors, such as microprocessors, digital signal processors, or DSPs, and memory devices, are used to process and store data in a binary format using electrical signals to represent the binary digits, “1” and “0.” In contrast, analog semiconductors, such as amplifiers, RF devices, voltage regulators and other power management devices, are used to measure, control, and transform physical properties, such as light, sound and movement, into a digital format by producing electrical signals that have a continuous range of values. Mixed-signal semiconductors contain both analog and digital elements on a single device but are generally classified as analog semiconductors.

Analog semiconductors are used in a wide and growing range of products and applications. According to the SIA, the total market for analog semiconductors is expected to grow from $26.8 billion in 2003 to $38.8 billion in 2006, a compound annual growth rate of 13.1% per year. Semiconductor prices typically decline as new devices are introduced and as devices advance through their product life cycles. This price compression takes place against a backdrop of increasing device complexity. Consequently, semiconductor device manufacturers, especially those serving high-volume markets, must continually seek cost reductions in all aspects of their manufacturing process.

The process of designing and manufacturing semiconductors is complex and capital intensive. The wafer fabrication process, or “front-end” process, involves numerous and repetitive processing steps during which hundreds or even thousands of copies of a device are formed simultaneously on a single wafer. The subsequent testing and assembly of devices into packaged products ready for sale is commonly referred to as the “back-end” process.

Device testing is a critical part of the semiconductor production process and is a significant component of the cost of manufacturing semiconductors. Test equipment is typically used in the back-end process where each device is often tested several times to validate functional and electrical performance prior to shipment. ATE is generally used in two steps in the back-end semiconductor production process:


	•	Wafer Probe Test. After wafer fabrication, a test system performs electrical testing of individual devices while still in wafer form for initial pass/fail verification by moving the wafer into contact with a wafer probe card. Semiconductors are tested at this stage to avoid the additional costs associated with assembling, packaging and further testing of defective semiconductors.

	•	Final Test. After the individual semiconductor devices, called die, that fail the wafer probe test are discarded, the remaining die are assembled into packages. Manufacturers then test the packaged devices over a range of potential operating conditions to measure their functionality against precise performance specifications. Final test works to ensure that a device meets the manufacturer’s quality standards prior to shipping.

In addition to identifying devices that do not function properly in the back-end process, ATE also generates information that semiconductor manufacturers use to improve the yield of their overall production process and to assist in the semiconductor design and development phase.

Demand for ATE is driven by increases in semiconductor unit production, increases in the complexity of semiconductor devices and the need to improve the overall cost-effectiveness of the semiconductor manufacturing process. The worldwide market for ATE was $3.0 billion in 2003, and is forecasted to grow to $6.6 billion in 2005, representing a compound annual growth rate of 48.1%, according to Gartner/ Dataquest.

Device manufacturers have continually focused on manufacturing and process improvements to satisfy the demand for smaller, better performing and lower cost semiconductors. Technological advances, such as smaller device geometries, higher transistor density and the introduction of larger, 300 mm wafers, have led to significant economies of scale in the front-end process and a general decline in overall manufacturing cost per device. However, as front-end costs have been decreasing, back-end costs, of which testing costs can be the most significant component, have not enjoyed the same rate of improvement. As a result, test cost has become a growing percentage of overall manufacturing cost and can be the most significant cost associated with manufacturing a semiconductor, especially in the case of high-volume devices. Consequently, semiconductor manufacturers are aggressively pursuing strategies to reduce their overall cost-of-test.

In analyzing total cost-of-test, semiconductor manufacturers focus on the initial ATE purchase price, equipment throughput, the range of products that can be effectively tested, costs associated with test application development, ability to upgrade, on-going maintenance and training requirements, and the need for ancillary equipment and floor space. Reducing the total cost-of-test is an important consideration for all device manufacturers, but is of particular significance to vendors of high-volume, low-cost devices for whom overall manufacturing cost is a critical factor in the ability to compete profitably. Significant challenges for device manufacturers in achieving lower overall cost-of-test include:


	•	Need for High Throughput Testing. A test system’s throughput, or the number of devices that can be tested on a single test system in a given period of time, is a principal driver of cost-of-test. Improving throughput allows semiconductor manufacturers to meet increased capacity demands with fewer test systems, and consequently less ancillary equipment. The most effective method of increasing test throughput is to test multiple devices simultaneously on the same test system, or in parallel, on multiple test sites. The benefits are lower overall capital expenditures and less required floor space for a given increment of capacity. Although this multi-site, parallel test approach is widely employed for high volume production of digital and memory devices, it has proved challenging for analog and mixed-signal device testing due to the nature of the electrical properties of analog devices and the current architecture of many analog and mixed-signal test systems.


	•	Demand for Greater Testing Accuracy and Repeatability. The percentage of functioning devices per production run, known as yield, is a key measurement in determining the cost of semiconductor manufacturing. While yield losses can occur at multiple points during the manufacturing process, yield can be particularly affected during the testing process when functioning, or “good,” devices are deemed “bad” by test equipment incapable of making high precision measurements. Since lower yields have a direct impact on profitability, semiconductor manufacturers seek test equipment capable of highly accurate, repeatable results. Greater precision increases the likelihood that good devices will pass and defective devices will fail. In multi-site testing, test accuracy and repeatability can be compromised when electrical signals from a device failure from one site influence the test results at another site. This occurs in conventional test systems because the test instrumentation connected to each device under test, or DUT, is electrically linked by a common signal and power pathway, known as a common ground pathway, in the test system. For this reason, semiconductor manufacturers seek test solutions capable of producing precise, repeatable results and that minimize undesired interaction between devices undergoing simultaneous multi-site test.

	•	Demand for Scalable, Flexible Solutions. ATE providers have traditionally offered test systems that emphasize solutions for the most advanced semiconductors, such as those with high digital pin counts and high operating frequencies. The challenges associated with testing these complex devices have resulted in test systems that are increasingly expensive to acquire, operate and maintain. Often, the functionality of these test systems greatly exceeds the test requirements for many low-priced, high-volume devices and cannot be scaled down in a cost-effective manner to address the specific requirements of these particular devices. In other cases, the test equipment offered at lower prices has proven incapable of providing the multi-site, parallel test capability required to achieve high throughput. Due to the lack of flexibility in traditional ATE architecture, semiconductor manufacturers require test equipment with the capability to cost-effectively scale functionality to meet the test requirements of a wide range of devices.

	•	High Cost of Changing Test Platforms. Although more cost-effective test platforms may be available for testing many devices, the costs associated with migrating, or switching, to a new platform are often significant enough to cause semiconductor manufacturers to stay with their current, less efficient, test platforms. The switching costs associated with replacing an existing test solution include the capital expense of the new test system, the cost of developing and integrating new test programs and associated hardware, the expense associated with investment in ancillary hardware and other accessories, and the re-training and facility improvements necessary to support the new ATE environment. In addition, switching costs decrease the overall efficiency of the test process due to the increased time required for engineering and production staff to evaluate and validate new test systems. These high switching costs often make semiconductor manufacturers reluctant to switch to a new test platform, despite the new platform’s ability to provide higher throughput and lower cost-of-test.

Our products are designed to enable our customers to lower their overall cost-of-test per device. We believe our test systems deliver increased test throughput for high-volume, price-sensitive semiconductors in the analog, mixed signal and RF markets. We offer test systems that increase test accuracy and repeatability, and our flexible system architecture can be easily reconfigured and adapted to meet our customers’ current and evolving testing needs. By focusing on cost-of-test per device, our test systems lower our customers’ overall cost of production, thereby improving their profit opportunity. The aspects of our solution that enable lower cost-of-test include:

Increased Throughput. Our test systems are designed to enable our customers to improve throughput, which lowers total cost-of-test. We improve throughput in the following manner:


	•	Our proprietary SmartPin^TM technology shortens the time required to complete the test routine for each individual device. SmartPin^TM technology enables high-speed, sequential subtests in which the test instrumentation completes an entire range of test parameters without software intervention or the time


		consuming task of opening and closing relays. In addition, with onboard DSP processing technology, SmartPin^TM eliminates the need for data and test results to cross long signal paths in order to be collected and analyzed.

	•	Our test systems optimize simultaneous, or parallel, testing across multiple sites on the same test system. We refer to this capability as SimulTest^TM. Our architecture enables test routine replication across multiple sites by dedicating signal sourcing and measurement resources, for current and voltage, and local signal processing to each pin on the DUT. This permits one test system to effectively test multiple devices simultaneously, which is critical for cost-efficient, multi-site, parallel testing.

Improved Yield with Precision and Repeatability. Our proprietary technology and product architecture are designed to achieve superior test precision and repeatable results in order to deliver higher yields. We believe our solution improves yield in the following ways:


	•	Our equipment allows customers to perform tests with higher precision by narrowing the range of test tolerances, or guard bands. Reduced guard bands improve yield by allowing device manufacturers to measure closer to the established performance limits of the device.

	•	The analog resource boards in our test systems are designed with independent computer interfaces, power supplies and independent ground connections that eliminate the need for a shared communication and electrical pathway. By avoiding the use of a common ground pathway, the test results from one device are isolated and avoid undesirable interactions with devices undergoing simultaneous test within the same test system.

Scalable and Flexible Architecture. Our test system architecture is designed to enable our customers to quickly and cost-effectively upgrade or reconfigure their test systems as their testing needs evolve. Our architecture offers the following benefits:


	•	Our test instruments, or resource boards, provide dedicated functionality and capability, which allow customers to tailor their test system capabilities to the specific testing needs of their devices. Our ATE is designed utilizing modular hardware and off-the-shelf electrical components that allow us to develop new features at the resource board level in a short time period. Our architecture also enables customers to upgrade their test system capability by simply adding another board or replacing an existing board within an existing test system. This is a more cost efficient and less time consuming approach than replacing the entire test system, as is required by many competing systems.

	•	A majority of our analog resource boards can be employed in any of the test platforms we offer, allowing our customers to utilize identical hardware across our entire product line. This approach offers compatibility across a wide range of products, as well as easy replacement and support of individual resource boards. In addition, our entire test system product line operates under a uniform software environment, allowing customers to move seamlessly to different test system types by utilizing a common operating environment.

Lower Switching Costs. We have developed a proprietary, adaptable interface that enables our test systems to operate using other vendors’ DUT boards, as well as earlier generations of our DUT boards, which is a significant advantage to us as our customers’ testing needs change. This proprietary architecture, which we call Chameleon^TM technology enables customers to easily migrate from some competing test platforms or earlier generations of our own product line, to a newer and more cost-effective Eagle Test solution. Our test systems are designed to offer customers a low-cost and time-saving option for migrating test platforms.

Our objective is to strengthen our position as a leading provider of semiconductor test solutions. Key elements of our strategy include:


	•	Innovate to Lower Overall Cost-of-Test. We will continue to offer technologically advanced products and services that improve efficiency and provide superior performance. We intend to leverage our test


		system technology and architecture to further enable multi-site, parallel testing, higher throughput and greater test precision, while offering customers the flexibility to upgrade and reconfigure existing test systems as their testing needs evolve. We plan to continue to engage in research and development activities to extend our SmartPin^TM, SimulTest^TM and Chameleon^TM technologies and other proprietary technologies to enable our customers to achieve the highest return on their investment and decrease their overall cost-of-test.

	•	Focus on High-Volume, Cost Sensitive Devices. We focus on delivering test systems for high-volume, high-performance analog, mixed-signal, and RF devices. These devices are used in a broad and growing range of high-volume consumer products such as cellular telephones, computers, digital cameras and MP3 players. Decreasing the cost-of-test will become increasingly important to device manufacturers competing in these markets as their products experience reductions in ASPs. We believe our focused approach enables us to better serve these markets than vendors who compete across a broader range of markets.

	•	Increase Our Market Share within Our Targeted Markets. We will continue to seek opportunities to increase sales to existing customers by expanding the quantity and types of devices that we are capable of testing, including devices that our customers currently test on competitors’ test systems. In addition, we plan to penetrate new production sites within our customers’ overall manufacturing operations. We believe that we can gain market share from our competitors and obtain new business as new customers seek to reduce cost-of-test across their product lines. We intend to gain share within customer segments that we have not traditionally targeted, such as fabless device manufacturers and test and assembly contractors. Finally, we intend to expand our geographic presence with additional investments in our sales, marketing and service operations in both Asia and Europe.

	•	Expand Our Addressable Market by Broadening Test Capabilities. While we currently focus on the power and battery management sectors of the analog, mixed-signal and RF device markets, we will continue to expand our addressable markets to include other sectors characterized by high-volume, cost-sensitive products, such as devices for mid to low-end consumer products, discrete devices, and converters. We also believe that longer-term opportunities exist in the video device market, certain RF wireless device markets, the DSL market and the low-end system-on-a-chip, or SoC, market.

	•	Maintain Profitable Growth Through Our Flexible Business Model. We outsource a substantial portion of our subassembly manufacturing functions to third parties, and focus our manufacturing efforts on final test, assembly and integration. This allows us to be flexible during industry downturns while maintaining the quality of our products. Our modular system architecture is designed to allow us to offer new products and enhancements in a shorter time and at a lower cost than many of our competitors, through significant cost efficiencies in research and development. We believe that these strategies provide us with a flexible business model and enable us to respond to the cyclical changes in our industry.

We design, manufacture, sell and service a family of high-performance test systems that test analog, mixed-signal and RF semiconductors. Our current products are designed to provide our customers with the optimal level of test performance and functionality for their particular testing needs. The following table sets forth our current product offerings, their features and the devices tested by each product.

ETS-600 and ETS-364. Introduced in 2001, the ETS-600 and ETS-364 offer our highest performance analog, mixed-signal and RF test platforms across a broad range of semiconductors. The systems were designed to maximize throughput capability by enabling SimulTest^TM multi-site testing for up to 64 sites, through our SmartPin^TM technology and our highest digital capabilities. The ETS-600 delivers our highest level of performance and functionality with up to 256 digital pins, over 320 analog channels, and up to 32 RF ports. The ETS-364 delivers up to 128 digital pins, over 160 analog channels, and up to 16 RF ports. The ETS-364 was designed to be fully compatible with the ETS-600 test system. Utilizing a common DUT interface and software command structure, the ETS-600 and ETS-364 offer customers a natural migration path between medium and large-scale, multi-site testing.

ETS-564. We introduced the ETS-564 in 1996 as a low-cost, high-performance analog and mixed-signal test system for smart power and power management devices. The ETS-564 delivers up to 48 digital pins and over 160 analog channels. The system offers SimulTest^TM multi-site testing with up to 64 site capability. The ETS-564 is an attractive production solution for analog and mixed-signal testing for smart power and power management devices. This product is primarily sold to existing ETS-500 users as replacements or to add additional testing capacity.

ETS-500. Introduced in 1992, the ETS-500 is targeted toward high-volume, multi-site applications involving smart power and power management device testing. The ETS-500 was the first of our systems to offer our floating ground architecture and SimulTest^TM multi-site testing capabilities. The ETS-500 offers up to 48 digital pins and over 100 analog channels, with up to 32 site capability. The ETS-500 offers an attractive level of electrical performance and high production throughput at a lower test platform price than many conventional solutions for testing smart power and power management devices.

ETS-300 and ETS-200. We introduced the ETS-300 and ETS-200 in 1998 as low-cost, high-performance analog and mixed-signal test systems. The ETS-300 delivers up to 32 digital pins and over 160 analog channels. This system offers SimulTest^TM multi-site testing with up to 32 site capability. The ETS-300 is an attractive solution for analog applications and applications requiring less significant digital capabilities for testing devices such as switching regulators, power factor controllers, and various automotive devices. The ETS-200 serves a similar market, but delivers up to 16 digital pins and up to 80 analog channels of throughput. The ETS-200 offers SimulTest^TM multi-site testing with up to 16 site capability. The ETS-200 is intended for targeted applications such as operational amplifiers, low dropout regulators, and other analog applications, and/or applications requiring limited digital capabilities. The ETS-200 was designed to be fully compatible with the ETS-300 test system. Utilizing a common DUT interface and software command

ETS-200T. We introduced the ETS-200T in 2003 as a high-performance power field effect transistor, or FET, test system. The ETS-200T is designed to deliver high throughput with up to 16 site capability. We believe the ETS-200T offers the necessary software environment to make FET program development easy and effective. Our ability to test these devices in parallel provides our customers’ with an attractive test solution for the power FET testing market.

ATE operating software is required to design and run test routines, and to record and analyze the results of such test routines. Our Eagle Vision^TM software is a feature-rich, user-friendly software platform, designed to help our customers rapidly develop test programs on our platforms. For example, our plotting tools facilitate quick and easy graphing of response data. Our automatic code generation tools help programmers avoid incorrect entries and our point-and-click status screens allow easy monitoring and adjustment of test system settings. The production environment offers numerous data aggregation options and supports multiple data output formats. Our software includes user-friendly tools for generation and analysis of test data that are enabled by simple point-and-click operations.

We have developed our Eagle Vision^TM software as the uniform operating environment for all of our various test platforms. This approach reduces our customers’ overall cost of ATE ownership by reducing the employee training and platform set-up time usually associated with bringing new test platforms on line. Eagle Vision^TM, when combined with our Chameleon^TM device interface hardware, provides our customers with a compatible test system upgrade path, allowing our customers to migrate devices to our new platforms without abandoning their investment in their existing Eagle Test systems and associated software and device interface hardware.

SmartPin^TM. Our patented SmartPin^TM technology enables our products to generate and measure both current and voltage signals at each device pin. Furthermore, our SmartPin^TM technology enables digital signal processing to be performed locally at each pin, which eliminates the need to move test data through a common signal bus for processing, thereby decreasing processing time, reducing interference and improving accuracy and yield. In addition to these features, SmartPin^TM technology provides the capability to generate multiple signals of various ranges, which allows our customers to execute a full set of test routines with a single starting signal, eliminating the time required for additional software programming commands. In this way, SmartPin^TM technology optimizes simultaneous, or parallel, testing across multiple sites on the same test system. We refer to this capability as SimulTest^TM.

Chameleon^TM. Our Chameleon^TM technology provides interoperability among different test platforms by allowing test application hardware from one test system to be used on another test system. Chameleon^TM provides hardware compatibility among our various test platforms, as well as with test hardware from some of our competitors’ test platforms.

Floating Resources. Our test platform architecture provides electrical separation between disparate test sites on the same piece of test equipment by eliminating the need for our test instrumentation resources to access power or move signals across a common electrical pathway. Because our floating resources have independent ground connections, interference normally associated with a common ground pathway is minimized, allowing each device’s results to remain isolated from the results of other adjacent sites. This leads to better test accuracies and fewer devices failing due to device-to-device errors.

We market and sell our products primarily through our direct sales organization, which consists of sales professionals, application engineers (technical sales support), technical marketing personnel and sales

Our customers generally undertake an extensive evaluation of new test technology prior to adopting such technology. We work with potential customers with the goal of offering them a superior solution for their test requirements. In typical situations, our applications engineers are required to develop a custom test program designed to demonstrate our equipment’s performance and capability to address the customer’s specific needs. In cases involving existing customers, we typically work closely with their respective product development and production groups to help maximize the utility of our test systems throughout their organization and to align our product development efforts with their anticipated test requirements.

We employ a sales model that emphasizes reducing the customer’s total cost-of-test per device rather than the acquisition cost of the individual test system. We demonstrate how a customer’s test costs can be reduced by utilizing our products in lieu of competitors’ test systems. We believe that the system price, throughput, accuracy, reliability, flexibility, size, upgradeability and maintenance costs of our test systems enable our customers to test semiconductors at a reduced overall cost-of-test per device compared with competing systems.

We believe that strong service and support are critical to providing an overall lower cost-of-test solution. In addition to our applications engineering support staff, we maintain a global network of service personnel who seek to maximize test system up-time. We also offer services to enable our customers to maintain and effectively use our test systems, and to enhance our customer relationships. Our standard product warranty includes coverage of hardware products for one year from the date of purchase and warrants against defects in design, materials and workmanship. In order to minimize system down-time in the event of a service requirement, we typically ship a replacement product for any non-functional standard equipment within 24 hours of the service request. We also offer our customers additional support after the warranty period in the form of maintenance contracts or extended warranties.

We target analog, mixed-signal and RF semiconductor manufacturers and related companies that serve a broad range of market segments. Since January 1, 2003, we have delivered over 325 test systems to more than 30 customers. Our customers include many of the world’s leading semiconductor manufacturers, IDMs, fabless design companies, and assembly and test subcontractors. Companies that use our systems include:

Our customers have historically been semiconductor device manufacturers, but our customer base has expanded to include assembly and test subcontractors, such as ChipPAC, Inc. and Amkor Technology, Inc. Semiconductor manufacturers and fabless semiconductor companies utilize these subcontractors to provide incremental capacity and to lower their fixed production costs. We believe that these companies represent a significant opportunity for the ATE industry.

For the fiscal year ended September 30, 2003, two customers, National Semiconductor Corporation and Intersil Corporation, accounted for 38.8% and 20.0%, respectively, of our net revenue. For the six-month

period ended March 31, 2004, two customers, National Semiconductor Corporation and Texas Instruments Incorporated, accounted for 47.0% and 23.7%, respectively, of our net revenue. These customers are the only customers who have accounted for 10% or more of our net revenue during these periods. We expect that a small number of customers will continue to represent a significant portion of our net revenue for the foreseeable future. Sales to customers in the United States accounted for approximately 71.1%, 45.8% and 42.1% of net revenue for the years ended September 30, 2001, 2002 and 2003, respectively. Sales to customers in Malaysia accounted for approximately 15.4%, 37.6% and 33.4% of net revenue for the fiscal years ended September 30, 2001, 2002 and 2003, respectively. Sales to customers in other locations accounted for approximately 13.5%, 16.6% and 24.5% of net revenue for the fiscal years ended September 30, 2001, 2002 and 2003, respectively.

Our test platforms consist of standard products that we custom configure based on each customer’s specific needs. A large portion of our subassembly manufacturing is outsourced to contract manufacturers for PC board fabrication, automated assembly and the supply of machine parts. We believe this selected outsourcing strategy provides us with the flexibility to respond more rapidly to changes in industry conditions or demand for our test systems. We perform mechanical assembly, subassembly testing operations and final systems integration at our Illinois manufacturing facility in order to ensure quality. We focus on quality assurance by monitoring the various stages of the manufacturing process to identify areas for improvement and manage potential manufacturing issues. We are currently expanding our manufacturing capacity to meet increased customer demand and believe that our current and planned manufacturing capacity positions us favorably to respond to an upturn in our industry.

Although our products consist mainly of standard components and prefabricated parts manufactured to our specifications, some components and subassemblies are purchased from a limited number of suppliers or sole source suppliers. We work closely with our suppliers to plan our inventory procurement in quantities that will minimize our inventory risks; however, we cannot be certain that shortages will not develop in the future. We purchase components and subassemblies through separate purchase orders and do not currently have any long-term purchase contracts with our suppliers. We believe our ability to procure components and subassemblies is a key determinant of our ability to provide our customers with quality products on a timely basis and we continue to evaluate alternative sources for the supply of our inventory.

Our continued commitment to research and development and the timely introduction of new products, features and upgrades are integral to maintaining our competitive position. Our research and development efforts seek to address new opportunities and demands within our customer base and the industry. Our efforts are focused on the design of test systems that lower the overall cost-of-test for semiconductor companies. We concentrate on advancements in electrical performance, software tools, parallel test efficiency and test system resource density. We also focus on the design of modular hardware for rapid implementation of new features and a uniform software platform for operating compatibility across our entire line of test systems. This strategy reduces our overall product development cycles and development costs and maximizes our research and development resources. Our research and development activities are directed by individuals with significant expertise and industry experience. As of June 30, 2004, we had 43 employees dedicated to research and development.

We leverage our engineering efforts by utilizing standard components whenever possible. We generally avoid the use of customized components, such as Application-Specific Integrated Circuits, or ASICs, when implementing functionality because it is easier to adapt standard semiconductor designs to changing requirements. This also eliminates high engineering risks and costs associated with ASIC design. We use standard PCs with Microsoft Windows as the main control computer of our test systems. The strategy of using industry standard products has proven successful, allowing us to leverage the significant investments made by the largest companies in the technology field, with minimal cost to us.

Our expenditures for research and development for the six months ended March 31, 2004 were $2.4 million, representing 5.1% of net revenue. Our historical expenditures for fiscal 2003, 2002 and 2001 were $3.1 million, $3.2 million and $2.6 million, respectively, representing 5.6%, 12.5% and 6.9% of net revenue in each of the respective fiscal years.

We face substantial competition in the ATE market throughout the world. Our principal competitors include Credence Systems Corporation, LTX Corporation and Teradyne, Inc. Some of our competitors have greater financial, engineering, manufacturing and marketing resources than we do. As a result, our competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products. Some of our competitors also have broader product offerings, larger installed customer bases and more extensive customer support capabilities than we do. We expect our competitors to continue to improve the performance of and support for their current products and to introduce new products, technologies or services that could adversely affect sales of our current and future products. In addition, other test companies that do not currently focus on our target markets could choose to do so.

We believe the primary competitive factors in the analog, mixed-signal and RF ATE markets are the overall cost-of-test, test accuracy, throughput, yield and support infrastructure. We believe we compete favorably with respect to each of these factors in the markets that we address. We do not currently compete for opportunities to test primarily digital semiconductors, such as memory devices or microprocessors, where more costly test systems with different capabilities are required to compete effectively.

Our success depends in large part on our proprietary technology. We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. As of June 30, 2004, we owned one U.S. patent and had one patent application that had been allowed that we expect will issue shortly. These patents will expire in approximately 18 years. While these patents are important and relate to some of our distinct technology, we have relied primarily on our trade secrets and copyright protection as well as confidentiality provisions to protect our intellectual property. Although most of our software is developed internally, we also rely on industry-standard licenses of intellectual property useful for our business.

There are always risks that third parties may claim that we are infringing upon their intellectual property rights and we could be prevented from selling our products or services, or suffer significant litigation or licensing expenses as a result of these claims. In addition, third parties may infringe or design around our intellectual property rights, and we may expend significant resources enforcing our rights or suffer competitive injury with adverse effects on our results of operations. Our efforts to protect our intellectual property rights may be less effective in some foreign countries where intellectual property rights are not as well protected as in the U.S. For additional, important information, review the information set forth in “Risk Factors — Risks Related to Intellectual Property.”

As of June 30, 2004, we had approximately 237 full time employees. Of our total employees, 43 were dedicated to research and development and 75 were dedicated to sales, marketing and applications. None of our employees located in the United States is represented by a union. Our employees in Europe are represented by workers’ councils. We believe our relationships with our employees are good.

Our corporate headquarters are currently located in Mundelein, Illinois, where we lease approximately 24,000 square feet of commercial space under a lease that expires in May 2005. We use this space for our principal sales, engineering, customer service and administrative purposes. To accommodate our growth, in

We also lease additional offices in Santa Clara, California; Tempe, Arizona; Bedford, New Hampshire; Singapore and Gyeonggi-Do, Korea. We perform various activities, including sales, customer service, training, research and development and applications engineering in some or all of these offices. We do not anticipate significant difficulty in obtaining lease renewals or alternate space as needed, although obtaining renewals or alternate space on acceptable terms cannot be assured. We also own a 12,000 square foot building in Mundelein, Illinois that is used for archival storage and a residence in Vernon Hills, Illinois principally used for travel purposes by out-of-town employees.

In the normal course of our business, we may be a party to legal proceedings. We are not currently a party to any material legal proceedings.

At March 31, 2004, our backlog, calculated on the basis of unfilled purchase orders with a firm delivery date for all products and services was $29.3 million, compared with $8.8 million at March 31, 2003. Since customers may cancel or delay their orders with little regard for potential penalties, and since new order volume may decrease very rapidly, our backlog at any particular date is not necessarily indicative of our future backlog or actual sales that may be generated for any succeeding period. In the past, our test systems have generally shipped within two or three months from the time we receive a customer’s purchase order, and we expect all of our backlog as of March 31, 2004 to ship prior to the end of fiscal 2004. Any change in our manufacturing capacity and the time it takes to ship our products will affect our level of backlog. Historically, our backlog levels have also fluctuated based on our customers’ ordering patterns and our inability to predict order trends in the semiconductor industry with any certainty. We undertake no obligation to update any backlog information to reflect events or circumstances after the date of such information and do not intend to report our backlog other than annually.

The following table sets forth information regarding our directors, executive officers and key employees, including their ages as of June 30, 2004.


(1)	Member of the audit committee.

(2)	Member of the compensation committee.

(3)	Member of the nominating and corporate governance committee.

Leonard Foxman. Mr. Foxman, our founder, has served as a director and as our Chief Executive Officer and President since 1976. Additionally, Mr. Foxman currently oversees our global sales effort. Mr. Foxman began his career in 1964 with Teletype Corporation, a wholly owned subsidiary of Western Electric (later Lucent-Bell Laboratories), where he served for ten years as an electrical engineer. At Teletype, Mr. Foxman was responsible for designing custom semiconductors for use in communications equipment. After leaving Teletype, Mr. Foxman worked as an applications engineer for Fairchild Semiconductor International, Inc., from June 1974 until August 1976, where he was responsible for assisting existing and potential customers with the use and application of Fairchild products. Leonard Foxman is the father of Theodore Foxman. Mr. Foxman holds a B.S. in Bioengineering from the University of Illinois.

Theodore Foxman. Mr. Foxman has served as a director since October 2003, and as our Chief Operating Officer and Executive Vice President since June 2001 with responsibility for overseeing all aspects of our internal operations, including manufacturing, purchasing, legal affairs, information technology, corporate administration and customer service. Mr. Foxman joined us in December 1999 as an Account Specialist with responsibility for acting as the headquarters liaison for customer accounts. In October 2000, he became Corporate Counsel and Human Resources Manager with responsibility for overseeing our legal affairs and personnel matters. Prior to joining us, Mr. Foxman worked as a legal clerk for the law firm of Beerman, Swerdlove, Woloshin, Baresky, Becker, Genin & London. Theodore Foxman is the son of Leonard Foxman. Mr. Foxman holds a B.S. Microbiology from the University of Wisconsin and a J.D. from the DePaul College of Law.

Stephen J. Hawrysz. Mr. Hawrysz has served as our Chief Financial Officer since March 2004. From November 1999 to March 2004, he served as the Chief Financial Officer of Participate Systems, Inc., a privately held software and services company. From August 1990 to May 1999, Mr. Hawrysz was Vice President and Chief Financial Officer of Westell Technologies, Inc., a publicly held telecommunications

Jack E. Weimer. Mr. Weimer has served as our Chief Technical Officer with responsibility for overseeing system architectural design, new product definition and engineering strategy since March 2004. From April 2002 to February 2004, he served as Director of Product Marketing with responsibility for system architectural design and new product definition. From October 1988 to April 2002, Mr. Weimer served as our Manager of Engineering where he oversaw all aspects of product development, including software, electrical and mechanical design. From June 1984 to September 1992, he served as our Manager of Applications Engineering and from December 1980 to June 1984, he served as a Manager in our test department. Mr. Weimer holds degrees from Valparaiso Technical Institute and Trinity International University.

Derek Abramovitch. Mr. Abramovitch has served as our Vice President of Internal Operations since September 2001 with responsibility for direct management of all aspects of the manufacturing process, procurement, customer service and worldwide facilities. From January 2001 to September 2001, Mr. Abramovitch served as our Operations & Process Manager. From September 1998 to December 2000, Mr. Abramovitch worked in the corporate finance department of Ernst & Young LLP. Mr. Abramovitch holds a J.D. from DePaul College of Law, an M.B.A. and Graduate Degree in Asian Studies from McGill University and a Bachelor of Commerce from Concordia University.

Steven R. Dollens. Mr. Dollens has served as our Vice President of Product Development since June 2004 where he oversees our product development activities. From October 2003 to June 2004, he served as our Vice President of Technical Marketing with responsibility for marketing, sales support and engineering management. From January 1997 to September 2003, Mr. Dollens served as our Director of Western Area Operations with responsibility for engineering management and regional office management. From October 1996 to January 1997, he served as an Applications Engineer for us. From June 1989 to September 1996, Mr. Dollens served as Director of Product and Test Engineering for IMP Inc. Mr. Dollens began his career in July 1976 working for Micro Power Systems, where he held numerous engineering and management positions until May 1989.

Michael C. Child. Mr. Child has served as a director since October 2003. Since July 1982, Mr. Child has been employed by TA Associates, Inc., a private equity investment firm, where he currently serves as a Managing Director. Mr. Child currently serves as a director of Finisar Corporation. Mr. Child holds a B.S. in Electrical Engineering from the University of California at Davis and an M.B.A. from the Stanford Graduate School of Business.

Joseph Dox. Mr. Dox has served as a director since June 2004. He is currently retired. From July 1987 to January 1994, Mr. Dox served in a variety of positions at Novellus Systems, Inc., a publicly-traded manufacturer of advanced automated wafer fabrication systems, including Vice President of Finance, Senior Vice President of Finance, and during his final two years with the company, President and Chief Operating Officer. From March 1983 until February 1986, Mr. Dox served as Vice President of Finance for Exel Microelectronics. Mr. Dox has also served as Director of Finance for SEEQ Technologies Inc. and as corporate controller for Applied Materials, Inc., a publicly-traded, wafer-fabrication solutions company. Mr. Dox currently serves on the board of directors, audit committee and compensation committee of Accent Optical Technologies, Inc. Mr. Dox received a B.S. in Accounting from Northern Arizona University and an M.B.A. from Santa Clara University.

Ross W. Manire. Mr. Manire has served as a director since June 2004. Since September 2002, Mr. Manire has served as Chairman and Chief Executive Officer of Clearlinx Network Corporation, a wireless telecommunications infrastructure company. From September 2000 to June 2002, he served as President of the Enclosure Systems Division of Flextronics International, a global electronic manufacturing services company. From March 1999 until September 2000, Mr. Manire served as President and Chief Executive Officer of Chatham Technologies, Inc., a global manufacturer of electronic enclosures and integrated systems for the telecommunications industry. From August 1991 until December 1998, Mr. Manire worked for

Jameson McJunkin. Mr. McJunkin has served as a director since October 2003. Mr. McJunkin has been employed by TA Associates, Inc., a private equity investment firm, since August 2000 where he currently serves as a Vice President. Prior to joining TA Associates, Inc., he worked as a product manager with Cisco Systems and as a management consultant at the Boston Consulting Group. Mr. McJunkin holds an A.B. from the Woodrow Wilson School of Public and International Affairs at Princeton University and an M.B.A. from the Stanford Graduate School of Business.

Dale Buxton. Mr. Buxton has served as our Singapore-based Vice President/ Asia since September 2002 with responsibility for managing our sales, applications and customer service efforts in Asia. Prior to joining us, Mr. Buxton concurrently served as the Business Manager for the Credence ATE product line in Southeast Asia and Technical Sales Manager for the TMT product line for Credence Systems Corporation from April 1999 to August 2002. Prior to Credence Systems Corporation acquiring TMT, Inc., Mr. Buxton served as International Sales Manager for TMT, Inc. From July 1996 to April 1999, he was employed by LTX Corporation as an Account Manager and subsequently the Business Development Manager for Chinese, Japanese and Korean accounts. Mr. Buxton holds a diploma from the Department of Defense Language School for Korean Language Studies, a B.S. in Finance from Touro College, a Master of Japanese Business Studies from Chaminade University, and a Certificate of Advanced Study in international management with a concentration in Mandarin Chinese from the American Graduate School of International Management.

Rene Verhaegen. Mr. Verhaegen has served as our Vice President/ Europe since January 2004 with responsibility for managing our sales and customer service efforts in Europe. Prior to joining us, Mr. Verhaegen was employed by Credence Systems Corporation (and its predecessor Semiconductor Test Systems) from May 1987 to October 1993 and held the positions of Marketing Manager and Vice President of European Operations. In October 1993, Mr. Verhaegen was a member of a group that acquired the European operations from Credence Systems Corporation and formed a new entity called Credence Europa with these operations. Mr. Verhaegen became the Chairman and President of Credence Europa until it was sold back to Credence Systems Corporation in August 2000. Mr. Verhaegen then resumed his employment with Credence Systems Corporation until November 2003 and held the positions of General Manager/ European Field Operations and Senior Director NA East Field Operations. Mr. Verhaegen was also employed by Teradyne, Inc. for 11 years, in various sales and marketing positions. Mr. Verhaegen holds a B.S. in Electronic Engineering from the Rijkshogere Technische School in Hasselt, Belgium.

We currently have six directors, four of whom were elected as directors under board composition provisions of a stockholders agreement or our certificate of incorporation. The board composition provisions of the stockholders agreement and our certificate of incorporation will be terminated upon the closing of this offering. Upon the termination of these provisions, there will be no further contractual obligations regarding the election of our directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their resignation or removal.

Following the offering, the board of directors will be divided into three classes with members of each class of directors serving for staggered three-year terms. The board of directors will consist of two Class I directors (Messrs. Leonard Foxman and Dox), two Class II directors (Messrs. Theodore Foxman and Child) and two Class III directors (Messrs. McJunkin and Manire), whose initial terms will expire at the annual

Leonard Foxman, our Chief Executive Officer and President, and Theodore Foxman, our Chief Operating Officer and Executive Vice President, each serves as a member of our board of directors. Leonard Foxman is the father of Theodore Foxman.

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. The composition and functioning of all of our committees complies with the rules of the SEC and the Nasdaq Stock Market that are currently applicable to us, and we intend to comply with additional requirements to the extent that they become applicable to us.

Audit Committee. Joseph Dox, Michael C. Child, Jameson McJunkin and Ross W. Manire currently serve on the audit committee. The audit committee’s responsibilities include, but are not limited to:


	•	appointing, approving the compensation of, and assessing the independence of our independent auditor;

	•	overseeing the work of our independent auditor, including the receipt and consideration of certain reports from the independent auditor;

	•	resolving disagreements between management and our independent auditor;

	•	pre-approving auditing and permissible non-audit services, and the terms of such services, to be provided by our independent auditor;

	•	reviewing and discussing with management and the independent auditors our annual and quarterly financial statements and related disclosures;

	•	coordinating the oversight of our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics;

	•	discussing our risk management policies;

	•	establishing policies regarding hiring employees from the independent auditor and procedures for the receipt and retention of accounting related complaints and concerns;

	•	meeting independently with our independent auditors and management; and

	•	preparing the audit committee report required by SEC rules to be included in our proxy statements.

Our board of directors has determined that each of Messrs. Dox and Manire qualifies as an “audit committee financial expert” as defined under the Securities Exchange Act of 1934 and the applicable rules of the Nasdaq Stock Market. In making its determination, our board considered the nature and scope of the experiences and responsibilities each of Messrs. Dox and Manire has previously had with reporting companies. Messrs. Dox and Manire are “independent” for audit committee purposes under the applicable rules of the Nasdaq Stock Market and the SEC. As required by applicable rules, within three months of the effective date of the registration statement, Mr. McJunkin will resign from the audit committee, and within twelve months of the effective date of the registration statement, Mr. Child will resign from the audit committee and will be replaced by a third “independent” director.

Compensation Committee. , and currently serve on the compensation committee. The compensation committee’s responsibilities include, but are not limited to:


	•	annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer;


	•	evaluating the performance of our chief executive officer in light of such corporate goals and objectives and determining the compensation of our chief executive officer;

	•	reviewing and approving, or making recommendations to the board with respect to the compensation of our other executive officers;

	•	overseeing an evaluation of our senior executives;

	•	overseeing and administering our incentive-based compensation plans and equity-based plans; and

	•	reviewing and making recommendations to the board with respect to director compensation.

Nominating and Corporate Governance Committee. , and currently serve on the nominating and corporate governance committee. The nominating and corporate governance committee’s responsibilities include, but are not limited to:


	•	developing and recommending to the board criteria for board and committee membership;

	•	establishing procedures for identifying and evaluating director candidates including nominees recommended by stockholders;

	•	identifying individuals qualified to become board members;

	•	establishing procedures for stockholders to submit recommendations for director candidates;

	•	recommending to the board the persons to be nominated for election as directors and to each of the board’s committees;

	•	developing and recommending to the board a set of corporate governance guidelines; and

	•	overseeing the evaluation of the board and management.

Directors who are also our employees receive no additional compensation for their services as directors. Our non-employee directors each receive an annual fee from us of $15,000. In addition, we pay our non-employee directors a fee of $1,000 for each board meeting they attend and $500 for each committee meeting they attend. Each member of the audit committee receives an additional annual fee of $7,500, and each member of our other committees receives an additional annual fee of $2,500. Non-employee directors also are reimbursed for reasonable expenses incurred in connection with attending board and committee meetings. However, our directors who are affiliated with TA Associates, Inc. will forego board and board committee compensation, including the equity compensation described below, for so long as TA Associates, Inc. beneficially owns more than 10% of our common stock.

Upon election to the board of directors, non-employee directors are granted an option to purchase 10,000 shares of our common stock, which is fully vested at the time of grant, and an option to purchase 10,000 shares of our common stock, which vests in equal installments over three years. Additionally, non-employee directors receive an annual option grant of 5,000 shares that vests in equal installments over four years. The exercise price of these stock options is the price determined by the board of directors. The vesting of these stock options will accelerate upon a change of control of Eagle Test.

None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. None of the current members of our compensation committee has ever been an employee of Eagle Test.

The following summarizes the compensation earned during the fiscal year ended September 30, 2003, which we refer to as “fiscal 2003,” by our chief executive officer and our four other most highly compensated executive officers who were serving as executive officers on September 30, 2003 and whose total compensation exceeded $100,000. We refer to these individuals as our “named executive officers.”


(1)	Represents (i) a contribution of $16,702 made by us for the benefit of Mr. Foxman to the Money Purchase Pension Plan, (ii) a contribution of $20,000 made by us for the benefit of Mr. Foxman to the Profit Sharing Plan, (iii) a contribution of $3,298 made by us for the benefit of Mr. Foxman to the Employee Stock Ownership Plan, and (iv) payment of $2,200 for automobile expenses. Does not include $1,450,000 paid to Mr. Foxman by Pacific Support Group, Partners. See “Certain Relationships and Related Transactions — Transactions with Analog Test Institute, Inc. and Pacific Support Group, Partners.”

(2)	Represents (i) a contribution of $16,702 made by us for the benefit of Mr. Foxman to the Money Purchase Pension Plan, (ii) a contribution of $20,000 made by us for the benefit of Mr. Foxman to the Profit Sharing Plan, (iii) a contribution of $3,298 made by us for the benefit of Mr. Foxman to the Employee Stock Ownership Plan, and (iv) payment of $2,050 for automobile expenses. Does not include $1,012,500 paid to Mr. Foxman and immediate family members living in his household by Pacific Support Group, Partners. See “Certain Relationships and Related Transactions — Transactions with Analog Test Institute, Inc. and Pacific Support Group, Partners.”

(3)	Represents (i) a contribution of $15,880 made by us for the benefit of Mr. Weimer to the Money Purchase Pension Plan, (ii) a contribution of $15,493 made by us for the benefit of Mr. Weimer to the Profit Sharing Plan, (iii) a contribution of $2,555 made by us for the benefit of Mr. Weimer to the Employee Stock Ownership Plan, and (iv) payment of $780 for automobile expenses.

(4)	Represents (i) a contribution of $16,702 made by us for the benefit of Mr. Dollens to the Money Purchase Pension Plan, (ii) a contribution of $20,000 made by us for the benefit of Mr. Dollens to the Profit Sharing Plan, (iii) a contribution of $3,298 made by us for the benefit of Mr. Dollens to the Employee Stock Ownership Plan, and (iv) payment of $780 for automobile expenses.

(5)	Represents (i) a contribution of $13,114 made by us for the benefit of Mr. Abramovitch to the Money Purchase Pension Plan, (ii) a contribution of $12,795 made by us for the benefit of Mr. Abramovitch to the Profit Sharing Plan, (iii) a contribution of $2,110 made by us for the benefit of Mr. Abramovitch to the Employee Stock Ownership Plan, and (iv) payment of $417 for automobile expenses.

Stephen J. Hawrysz, our Chief Financial Officer, began his employment with us in March 2004. His annual base salary is $170,000 and he is eligible for an annual performance bonus as well as participation in the Money Purchase Pension Plan, Profit Sharing Plan and Employee Stock Ownership Plan. See “— Agreements with Executive Officers.”

There were no individual grants of stock options to any of the named executive officers during fiscal 2003. In fiscal 2004, we have granted to certain of our named executive officers, other employees and non-employee directors options to purchase an aggregate of 652,500 shares of our common stock under our 2003 Stock Option and Grant Plan. Of these options, Mr. Theodore Foxman was granted an option to purchase 37,500 shares at an exercise price of $6.00 per share and an option to purchase 37,500 shares at an exercise price of $6.60 per share. Mr. Weimer was granted an option to purchase 15,000 shares at an exercise price of $6.00 per share and an option to purchase 55,000 shares at an exercise price of $10.00 per share. Mr. Dollens was granted an option to purchase 40,000 shares at an exercise price of $6.00 per share and an option to purchase 80,000 shares at an exercise price of $10.00 per share. Mr. Abramovitch was granted an option to purchase 20,000 shares at an exercise price of $6.00 per share and an option to purchase 70,000 shares at an exercise price of $10.00 per share. Mr. Hawrysz was granted an option to purchase 50,000 shares at an exercise price of $7.00 per share and an option to purchase 30,000 shares at an exercise price of $10.00 per share. Messrs. Dox and Manire were each granted options to purchase an aggregate of 20,000 shares at an exercise price of $10.00 per share.

None of our named executive officers or directors exercised or held any options during fiscal 2003 or exercised options thus far in fiscal 2004.

Our 2003 Stock Option and Grant Plan, or 2003 Option Plan, was adopted by our board of directors and approved by our stockholders in September 2003. We reserved 683,790 shares of our common stock for the issuance of awards under the 2003 Option Plan.

The 2003 Option Plan is administered by either a committee of at least two directors appointed by our board of directors, or by our full board of directors. The administrator of the 2003 Option Plan has full power and authority to select the individuals to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award, to provide substitute awards and to determine the specific terms and conditions of each award, subject to the provisions of the 2003 Option Plan.

The 2003 Option Plan permits us to make grants of incentive stock options, non-qualified stock options, restricted stock awards and unrestricted stock awards to officers, employees, directors, consultants and other key persons. Stock options granted under the 2003 Option Plan have a maximum term of ten years from the date of grant and incentive stock options have an exercise price of no less than the fair market value of the common stock on the date of grant.

In the event of a merger, sale of assets or dissolution of Eagle Test, or a similar “sale event” in which all awards are not assumed or substituted by the successor entity, all stock options and the 2003 Option Plan will terminate upon the effective time of such sale event following an exercise period. Restricted stock shall be treated as provided in the relevant award agreement. In the event of a sale event in which awards are assumed or substituted by the successor entity, then such award shall become fully vested and exercisable in the event a grantee’s employment or service relationship is terminated within eighteen months following the sale event by Eagle Test or by a successor entity without “cause” or by the grantee for “good reason,” as such terms are defined in the 2003 Option Plan.

In connection with the adoption of our 2004 Stock Option and Incentive Plan, which is discussed in detail below, our board of directors determined not to grant any further awards under the 2003 Option Plan.

Our 2004 Stock Option and Incentive Plan, or 2004 Option Plan, was adopted by our board of directors and approved by our stockholders in , 2004. The 2004 Option Plan permits us to make grants of incentive stock options, non-qualified stock options, stock appreciation rights, deferred stock awards, restricted stock awards, unrestricted stock awards, and dividend equivalent rights. We reserved shares of our common stock for the issuance of awards under the 2004 Option Plan. This number is subject to adjustment in the event of a stock split, stock dividend or other change in our capitalization. Generally, shares that are forfeited or canceled from awards under the 2004 Option Plan also will be available for future awards. As of , 2004, no awards had been granted under the 2004 Option Plan.

The 2004 Option Plan is administered by either a committee of at least two non-employee directors, or by our full board of directors. The administrator of the 2004 Option Plan has full power and authority to select the participants to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award and to determine the specific terms and conditions of each award, subject to the provisions of the 2004 Option Plan.

All full-time and part-time officers, employees, non-employee directors and other key persons (including consultants and prospective employees) are eligible to participate in the 2004 Option Plan, subject to the discretion of the administrator. There are certain limits on the number of awards that may be granted under the 2004 Option Plan. For example, no more than shares of stock may be granted in the form of stock options or stock appreciation rights to any one individual during any one-calendar-year period.

The exercise price of stock options awarded under the 2004 Option Plan may not be less than the fair market value of the common stock on the date of the option grant and the term of each option may not exceed ten years from the date of grant. The administrator will determine at what time or times each option may be exercised and, subject to the provisions of the 2004 Option Plan, the period of time, if any, after retirement, death, disability or other termination of employment during which options may be exercised.

To qualify as incentive options, stock options must meet additional federal tax requirements, including a $100,000 limit on the value of shares subject to incentive options which first become exercisable in any one calendar year, and a shorter term and higher minimum exercise price in the case of certain large stockholders.

Automatic grants of stock options are made to our non-employee directors under the 2004 Option Plan. Each non-employee director, except those directors associated with TA Associates, will automatically be granted upon his or her election to the board, a non-qualified stock option to acquire 10,000 shares of common stock which becomes exercisable immediately, and an additional non-qualified option to acquire 10,000 shares of common stock which becomes exercisable in equal installments over three years. In addition, each non-employee director who is serving as a director of the company on the fifth business day after each annual meeting of stockholders will automatically be granted on such day a non-qualified option to acquire 5,000 shares of common stock which becomes exercisable in equal installments over four years. The exercise price of each of these non-qualified options will be equal to the fair market value of the common stock on the date of grant. These non-qualified options will expire ten years from the date of grant. The administrator also may make discretionary grants of non-qualified options to non-employee directors.

Stock appreciation rights may be granted under our 2004 Option Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. The administrator determines the terms of stock appreciation rights, including when such rights become exercisable and whether to pay the increased appreciation in cash or with shares of our common stock, or a combination thereof.

Restricted stock may be granted under our 2004 Option Plan. Restricted stock awards are shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted stock granted to any employee. The administrator may impose whatever conditions to vesting it determines to be appropriate. For example, the administrator may set restrictions based on the achievement of specific performance goals. Shares of restricted stock that do not vest are subject to our right of repurchase or forfeiture.

Deferred and unrestricted stock awards may be granted under our 2004 Option Plan. Deferred stock awards are units entitling the recipient to receive shares of stock paid out on a deferred basis, and subject to such restrictions and conditions, as the administrator shall determine. Our 2004 Option Plan also gives the administrator discretion to grant stock awards free of any restrictions.

Dividend equivalent rights may be granted under our 2004 Option Plan. Dividend equivalent rights are awards entitling the grantee to current or deferred payments equal to dividends on a specified number of shares of stock. Dividend equivalent rights may be settled in cash or shares and subject to other conditions, as the administrator shall determine.

Unless the administrator provides otherwise, our 2004 Option Plan does not allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime.

In the event of a merger, sale or dissolution of the Eagle Test, or a similar “sale event,” all stock options and stock appreciation rights granted under the 2004 Option Plan will automatically become fully exercisable and all other awards granted under the 2004 Option Plan will become fully vested and non-forfeitable. In addition, upon the effective time of any such sale event, the 2004 Option Plan and all awards will terminate unless the parties to the transaction, in their discretion, provide for appropriate substitutions or assumptions of outstanding awards.

No awards may be granted under the 2004 Option Plan after , 2014. In addition, our board of directors may amend or discontinue the 2004 Option Plan at any time and the administrator may amend or cancel any outstanding award for the purpose of satisfying changes in law or for any other lawful purpose. No such amendment may adversely affect the rights under any outstanding award without the holder’s consent. Other than in the event of a necessary adjustment in connection with a change in the company’s stock or a merger or similar transaction, the administrator may not “reprice” or otherwise reduce the exercise price of outstanding stock options. Further, amendments to the 2004 Option Plan will be subject to approval by our stockholders if the amendment (i) increases the number of shares available for issuance under the 2004 Option Plan, (ii) expands the types of awards available under, the eligibility to participate in, or the duration of, the plan, (iii) materially changes the method of determining fair market value for purposes of the 2004 Option Plan, (iv) is required by the Nasdaq National Market rules, or (v) is required by the Internal Revenue Code to ensure that incentive options are tax-qualified.

Our 2004 Employee Stock Purchase Plan, or 2004 Stock Purchase Plan, was adopted by our board of directors and approved by our stockholders in , 2004 and becomes effective upon the effectiveness of the registration statement of which this prospectus is a part. Our 2004 Stock Purchase Plan authorizes the issuance of up to a total of shares of our common stock to participating employees.

A person or persons appointed by our board of directors administers the 2004 Stock Purchase Plan. The plan administrator has full and exclusive authority to administer and interpret the 2004 Stock Purchase Plan.

All of our employees, including employees of any participating subsidiaries, who have been employed by us for at least 60 days and whose customary employment is for more than 20 hours a week and for more than five months in any calendar year, are eligible to participate in our 2004 Stock Purchase Plan. Any employee who owns 5% or more of the voting power or value of our stock is not eligible to participate in our 2004 Stock Purchase Plan.

We will make one or more offerings to our employees to purchase stock under our 2004 Stock Purchase Plan. The first offering will begin on the date that the registration statement of which this prospectus is a part becomes effective and will end on March 31, 2005. Subsequent offerings will usually begin on each April 1 and October 1 and will continue for a six-month period, referred to as an offering period.

Each employee who is a participant in our 2004 Stock Purchase Plan may purchase shares by authorizing payroll deductions of up to 10% of his or her cash compensation during an offering period. Unless the participating employee has previously withdrawn from the offering, his or her accumulated payroll deductions

The accumulated payroll deductions of any employee who is not a participant on the last day of an offering period will be refunded. An employee’s rights under our 2004 Stock Purchase Plan terminate upon voluntary withdrawal from our 2004 Stock Purchase Plan or when the employee ceases employment for any reason.

Our 2004 Stock Purchase Plan may be terminated or amended by our board of directors at any time. An amendment that increases the number of shares of our common stock that is authorized under the plan and certain other amendments require the approval of our stockholders. Our board of directors may, in its discretion, choose a different offering period for each subsequent offering and also may prospectively change the method for determining the purchase price for shares of common stock under our 2004 Stock Purchase Plan.

We have established and maintained a Profit Sharing Plan for our eligible employees. Eligible employees are defined as those who have completed one year of service and have attained the age 21. We may make an annual discretionary contribution to the Profit Sharing Plan for the benefit of these employees. Employees are fully vested after achieving five years of service. Our Profit Sharing Plan is intended to constitute a qualified plan under Section 401(a) of the Internal Revenue Code and its associated trust is intended to be exempt from federal income taxation under Section 501(a) of the Internal Revenue Code.

We have established and maintained a Money Purchase Pension Plan for our eligible employees. Eligible employees are defined as those who have completed one year of service and have attained the age 21. We make annual contributions to the Money Purchase Pension Plan based on a fixed formula for the benefit of these employees. Employees are fully vested after achieving five years of service. Our Money Purchase Pension Plan is intended to constitute a qualified plan under Section 401(a) of the Internal Revenue Code and its associated trust is intended to be exempt from federal income taxation under Section 501(a) of the Internal Revenue Code. We intend to terminate the Money Purchase Pension Plan prior to the completion of this offering.

We have established and maintained an Employee Stock Ownership Plan for our eligible employees. Eligible employees are defined as those who have completed one year of service and have attained the age 21. We make an annual discretionary contribution to the Employee Stock Ownership Plan in the form of shares of our common stock for the benefit of these employees. The assets of the Employee Stock Ownership Plan are invested primarily in our common stock. Employees are fully vested after achieving five years of service. Our Employee Stock Ownership Plan is intended to constitute a qualified plan under Section 401(a) of the Internal Revenue Code and its associated trust is intended to be exempt from federal income taxation under Section 501(a) of the Internal Revenue Code.

On September 30, 2003, we entered into employment agreements with Messrs. Leonard Foxman and Theodore Foxman. These agreements are automatically renewed upon the completion of the initial one-year

term for successive one-year periods until either we or the officer gives 30 days prior written notice of intent not to extend. Leonard Foxman’s and Theodore Foxman’s employment agreements call for the payment of $350,000 and $400,000 in annual base salary, respectively, rights to participate in bonus plans generally available to executives and the provision of standard insurance and retirement benefits for each of them. The agreements require them to refrain from competing with us and from hiring our employees for a period of five years following the termination of their employment with us for any reason. Their employment agreements also each provide for severance payments to the officer in the event his employment with us is terminated as a result of his disability. In addition, in the case of termination by an officer for good reason, or by us without cause, the officer will receive 100% salary continuation for a period of three years from the date of termination and the partially employer-subsidized continuation of group health plan benefits for the same period.

We also entered into similar employment agreements with Messrs. Hawrysz, Weimer, Dollens and Abramovitch, who pursuant to their respective agreements are to be paid an annual base salary of $170,000, $150,000, $250,000 and $150,000, respectively. Each of these agreements is similar in all material respects to the employment agreements described above, except that each of these agreements requires the officer to refrain from competing with us and from hiring our employees for a period of two years following the termination of the officer’s employment agreement for any reason. Additionally, in the case of termination by an officer for good reason, or by us without cause, the officer will receive continuation of his salary at a rate of 50% of his base salary for a period of two years from the date of termination and partially employer-subsidized continuation of group health plan benefits for twelve months following the date of termination.

In addition to the non-competition provisions contained in Mr. Leonard Foxman’s employment agreement with us, as an inducement to TA Associates, Inc. to invest in us and in consideration of the redemption of his stock by us in connection with TA Associates’ investment in us, we entered into a non-competition agreement with Mr. Leonard Foxman wherein Mr. Foxman agreed to refrain from competing with us and from hiring our employees for a period ending on the later of September 30, 2008 or two years following the termination of his employment with us for any reason.

As permitted by the Delaware General Corporation Law, we have adopted provisions in our certificate of incorporation and by-laws to be in effect at the closing of this offering that limit or eliminate the personal liability of our directors. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:


	•	any breach of the director’s duty of loyalty to us or our stockholders;

	•	any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

	•	any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or

	•	any transaction from which the director derived an improper personal benefit.

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.


	•	we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the Delaware General Corporation Law; and


	•	we will advance expenses, including attorneys’ fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings, subject to limited exceptions.

We have entered into indemnification agreements with each of our directors. These agreements provide that we will indemnify each of our directors to the fullest extent permitted by law and advance expenses to each indemnitee in connection with any proceeding in which indemnification is available .

We also maintain a general liability insurance which covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.

At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.

General. In September 2003, affiliates of TA Associates, Inc. purchased 3,436 shares of our series A convertible preferred stock for a total purchase price of $65.0 million. Affiliates of TA Associates also purchased $30.0 million in principal amount of 12% senior subordinated convertible notes due September 30, 2009. Michael C. Child, one of our directors, is a Managing Director of TA Associates, and Jameson McJunkin, also one of our directors, is a Vice President of TA Associates. TA Associates and its affiliates are collectively referred to in this section as TA Associates.

Series A Convertible Preferred Stock. Our certificate of incorporation contains customary provisions relating to the series A convertible preferred stock regarding liquidation and sale preference, voting rights and required approvals of certain transactions, among others. Upon the completion of this offering, all of the shares of series A convertible preferred stock will convert into an aggregate of 8,590,248 shares of our common stock and 3,436 shares of our redeemable preferred stock. All of the shares of redeemable preferred stock will then be immediately redeemed for an aggregate of $32.5 million.

Convertible Notes; Warrants. The note purchase agreement executed in connection with the issuance of the senior subordinated convertible notes to TA Associates contains covenants, events of default and other customary provisions. Upon the completion of this offering, the senior subordinated convertible notes held by affiliates of TA Associates will convert into $29.995 million in principal amount, plus accrued and unpaid interest, of 12% senior subordinated notes due September 30, 2009 and warrants to purchase 525,040 shares of our common stock. These senior subordinated notes will be immediately repurchased upon issuance for an aggregate of approximately $ million. The warrants to be issued will have an exercise price of $0.01 per share and will expire on September 30, 2013. The holders of the warrants will have a right to sell the warrants to us any time after September 30, 2008, at their election, for the fair market value of the warrants. TA Associates intends to exercise the warrants for common stock prior to the completion of this offering, and upon such exercise, the right to sell the warrants to us terminates. See “Description of Capital Stock — Warrants.”

In connection with the investment in us by TA Associates, we entered into a stockholders agreement, dated as of September 30, 2003, with TA Associates, and Leonard and Theodore Foxman, both of whom are directors, executive officers and significant stockholders, and Jack E. Weimer and Steven R. Dollens, both of whom are executive officers. The stockholders agreement contains customary transfer restrictions, rights of first refusal and co-sale, preemptive rights and voting obligations. The stockholders agreement also enables TA Associates to require all of the other stockholders to participate in a sale event in which it elects to participate. These provisions, as well as most other provisions, of the stockholders agreement terminate upon the closing of this offering. However, certain provisions of the stockholders agreement survive the closing of this offering. In particular, the surviving provisions include our covenant to indemnify TA Associates, including its associated investment funds, subject to exceptions, for damages, expenses, losses or diminutions in value arising out of, based upon or by reason of any third party or governmental claims relating to their status as a security holder, creditor, director, agent, representative or controlling person of us, or otherwise relating to their involvement with us. In addition, we have covenanted to reimburse TA Associates up to an annual limit of $40,000 for costs and expenses incurred in connection with its ongoing investment in us, which covenant also survives the closing of this offering.

In connection with the investment in us by TA Associates, we entered into a registration rights agreement, dated as of September 30, 2003, with TA Associates, Leonard and Theodore Foxman, Jack E. Weimer and Steven R. Dollens. Pursuant to this agreement, under certain circumstances these stockholders are

We used the $95 million of aggregate proceeds from the sale of our series A convertible preferred stock and 12% senior subordinated convertible notes to TA Associates to redeem shares of common stock from Leonard Foxman, Foxman Family LLC, Eagle Test Systems, Inc. Employee Stock Ownership Plan, Jack E. Weimer and Steven R. Dollens as set forth below. The members of Foxman Family LLC are two trusts for the benefit of Theodore Foxman and his descendants, of which Theodore Foxman is trustee and which trusts have an 85.7% economic interest in Foxman Family LLC, and two trusts for the benefit of Mrs. Robin Cleek and her descendants, of which Mrs. Cleek is trustee, and which trusts have a 14.3% economic interest in Foxman Family LLC. Leonard Foxman is the manager of Foxman Family LLC, and is the father of both Theodore Foxman and Robin Cleek. Also, in connection with TA Associates’ investment in us, we paid special dividends to such individuals and entities as set forth below.

Leonard Foxman borrowed an aggregate principal amount of $58,500 pursuant to two loans from us in 1999 to partially fund the purchase of an automobile. These loans bore interest at a rate of 5.0% per annum. On September 29, 2003, Mr. Foxman satisfied these loans in full by repaying an aggregate of $71,130, representing the total principal and interest outstanding under these loans on such date, which amount was the largest amount outstanding under the loans. Mr. Foxman currently has no loans outstanding from us.

Transactions with Analog Test Institute, Inc. and Pacific Support Group, Partners

Commencing in fiscal 2001, we engaged Analog Test Institute, Inc. to provide consulting, management, sales and testing services to us pursuant to a Contract Services Agreement dated as of May 31, 2001. Analog Test Institute is owned and controlled by Leonard Foxman and Theodore Foxman. Under the terms of this agreement, Analog Test Institute received a designated percentage of our annual income before taxes and a percentage of our sales revenue in excess of projections. In fiscal 2001 and 2002, we made payments to Analog Test Institute of $2.0 million and $1.0 million, respectively. We did not make any payments to Analog Test Institute in fiscal 2003. In fiscal 2002, Leonard Foxman received payments from Analog Test Institute in the aggregate of $760,000 and Theodore Foxman received a payment from Analog Test Institute of $60,000. No payments were made by Analog Test Institute to Leonard Foxman or Theodore Foxman in fiscal 2001 or fiscal 2003.

Analog Test Institute assigned this agreement to Pacific Support Group, Partners on March 31, 2003. Pacific Support Group, Partners is controlled by Leonard Foxman and Theodore Foxman, and owned by Leonard Foxman and Theodore Foxman and other immediate family members. We entered into an Amended and Restated Contract Services Agreement with Pacific Support Group, Partners on April 1, 2003, whereby Pacific Support Group, Partners agreed to provide us with consulting, management and support services. We paid $476,000 to Pacific Support Group, Partners in fiscal 2003. This agreement was terminated during fiscal 2003. In fiscal 2003, Leonard Foxman received payments from Pacific Support Group, Partners in the aggregate of $1.5 million, and Theodore Foxman and his immediate family members living in his household received payments from Pacific Support Group, Partners in the aggregate of $1.0 million.

We currently have no agreements or arrangements with either of Analog Test Institute or Pacific Support Group, Partners.

We have agreed to indemnify our directors and officers in certain circumstances. See “Management — Limitation of Liability and Indemnification.” We have also entered into employment agreements and non-competition agreements with our executive officers. See “Management — Agreements with Executive Officers.”

The following table sets forth information with respect to the beneficial ownership of our common stock, as of June 30, 2004, and as adjusted to reflect the sale of common stock offered by us and the selling stockholders in this offering, for:


	•	each beneficial owner of more than 5% of our outstanding common stock;

	•	each of our named executive officers;

	•	each of our directors;

	•	all of our executive officers and directors as a group; and

	•	each of the selling stockholders.

Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of June 30, 2004 are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to such securities. Except as otherwise indicated, all of the shares reflected in the table are shares of common stock and all persons listed below have sole voting and investment power with respect to the shares beneficially owned by them, subject to applicable community property laws. Percentage ownership calculations are based on 13,986,495 shares outstanding as of June 30, 2004, which assumes the conversion of all outstanding shares of our series A convertible preferred stock into an aggregate of 8,590,248 shares of common stock that will occur at the closing of this offering.

The selling stockholders have granted the underwriters an option, exercisable not later than 30 days after the date of this prospectus, to purchase up to an aggregate of shares to cover over-allotments, if any. Information in the following table assumes that the underwriters do not exercise their over-allotment option.


(1)	Except as otherwise indicated, addresses are c/o Eagle Test Systems, Inc., 620 S. Butterfield Road, Mundelein, IL 60060. The address of TA Associates, Inc., Mr. Child and Mr. McJunkin is c/o TA Associates, Inc., High Street Tower, Suite 2500, 125 High Street, Boston, MA 02110.

(2)	Amounts shown reflect the aggregate number of shares of common stock held by TA IX L.P., TA/Atlantic and Pacific IV L.P., TA Strategic Partners Fund A L.P., TA Strategic Partners Fund B L.P., TA Investors LLC and TA Subordinated Debt Fund, L.P. (collectively, the “TA Associates Funds”), assuming the conversion of 3,436 shares of our series A convertible preferred stock into 8,590,248 shares of our common stock. Includes 525,040 shares of our common stock subject to warrants that will be issued upon conversion of our senior subordinated convertible notes.

	Investment and voting control of the TA Associates Funds is held by TA Associates, Inc. No stockholder, director or officer of TA Associates, Inc. has voting or investment power with respect to our shares of common stock held by the TA Associates Funds. Voting and investment power with respect to such shares is vested in a four-person investment committee consisting of the following employees of TA Associates: Messrs. Michael C. Child, Jameson McJunkin, C. Kevin Landry and P. Andrews McLane. Mr. Child is a Managing Director of TA Associates, Inc., the manager of the general partner of TA IX L.P. and TA Subordinated Debt Fund L.P.; the manager of TA Investors LLC; and the general partner of TA/Atlantic and Pacific IV L.P., TA Strategic Partners Fund A L.P. and TA Strategic Partners Fund B L.P. Mr. McJunkin is a Vice President of TA Associates, Inc. See Notes 9 and 12 below.

(3)	Includes 1,731,562 shares held by Foxman Family LLC, of which Leonard Foxman is the manager. Leonard Foxman has voting and investment power with respect to the shares held of record by Foxman Family LLC and is the father of Theodore Foxman and Robin Cleek. Leonard Foxman has no economic interest in Foxman Family LLC. The members of Foxman Family LLC are two trusts for the benefit of Theodore Foxman and his descendants, of which Theodore Foxman is the trustee and which trusts have an 85.7% economic interest in Foxman Family LLC, and two trusts for the benefit of Mrs. Robin Cleek and her descendants, of which Mrs. Cleek is the trustee and which trusts have a 14.3% economic interest in Foxman Family LLC. Also includes 834,565 shares held by the Employee Stock Ownership Plan, of which Leonard Foxman is the trustee, which position has voting and investment power in connection with certain matters with respect to such shares. Leonard Foxman disclaims beneficial ownership of such shares, except to the extent of 27,645 shares which he holds as a participant in the Employee Stock Ownership Plan.

(4)	Includes 10,938 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004. Also includes 5,982 shares Theodore Foxman holds as a participant in the Employee Stock Ownership Plan. Does not include 1,731,562 shares held by Foxman Family LLC, in which trusts for the benefit of Theodore Foxman and his descendants have an 85.7% economic interest, but over which Theodore Foxman does not have voting or investment power. Theodore Foxman is the trustee of such trusts.

(5)	Leonard Foxman is the trustee of the Employee Stock Ownership Plan and has voting or investment power in connection with certain matters with respect to the shares held by such plan. Common stock held by the Employee Stock Ownership Plan on behalf of executive officers are reported in the Employee Stock Ownership Plan’s and the trustee’s common stock ownership listing as well as in the common stock ownership listings for the respective executive officers and for executive officers and directors as a group.

(6)	Includes 4,480 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004. Also includes 34,756 shares which Mr. Weimer holds as a participant in the Employee Stock Ownership Plan.

(7)	Includes 9,167 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004. Also includes 24,662 shares which Mr. Dollens holds as a participant in the Employee Stock Ownership Plan.

(8)	Includes 5,833 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004. Also includes 2,937 shares Mr. Abramovitch holds as a participant in the Employee Stock Ownership Plan.

(9)	Mr. Child is a managing director of TA Associates, Inc. and may be considered to have beneficial ownership of TA Associates, Inc.’s interest in us. Mr. Child disclaims beneficial ownership of all such shares. See Note 2 above.

(10)	Includes 10,556 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004.

(11)	Includes 10,556 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004.

(12)	Mr. McJunkin is a vice president of TA Associates, Inc. and may be considered to have beneficial ownership of TA Associates, Inc.’s interest in us. Mr. McJunkin disclaims beneficial ownership of all such shares. See Note 2 above.

(13)	Includes 51,530 shares subject to options that are immediately exercisable or exercisable within 60 days of June 30, 2004, and includes 525,040 shares of our common stock subject to warrants that will be issued upon conversion of our senior subordinated convertible notes.

Upon completion of this offering, our authorized capital stock will consist of shares of common stock, par value $0.01 per share, and shares of undesignated preferred stock, par value $0.01 per share. The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our amended and restated certificate of incorporation and amended and restated by-laws to be in effect at the closing of this offering, which are filed as exhibits to the registration statement, of which this prospectus forms a part, and to the applicable provisions of the Delaware General Corporation Law. We refer in this section to our amended and restated certificate of incorporation as our certificate of incorporation, and we refer to our amended and restated by-laws as our by-laws.

As of June 30, 2004, there were 5,396,248 shares of our common stock outstanding held by five stockholders of record, 3,436 shares of our series A preferred stock outstanding held by five stockholders of record and options to purchase 652,500 shares of our common stock under our stock option plans. Upon the closing of this offering, each share of our currently outstanding series A preferred stock will be converted into 2,500 shares of common stock and one share of redeemable preferred stock that will be immediately redeemed for $9,459 per share in cash. In addition, at the time of the offering, warrants to purchase 525,040 shares of our common stock will be outstanding.

The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders. The holders of our common stock do not have any cumulative voting rights. Holders of our common stock are entitled to receive proportionally any dividends declared by our board of directors, subject to any preferential dividend rights of any outstanding preferred stock.

In the event of our liquidation or dissolution, holders of our common stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities, subject to the prior rights of any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. All outstanding shares of our common stock are validly issued, fully paid and nonassessable. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable.

Upon completion of this offering, our board of directors will be authorized, without action by the stockholders, to designate and issue up to shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any of its qualifications, limitations or restrictions. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible future financings and acquisitions and other corporate purposes could, under certain circumstances, have the effect of delaying, deferring or preventing a change in control of our company and might harm the market price of our common stock.

Our board of directors will make any determination to issue such shares based on its judgment as to our company’s best interests and the best interests of our stockholders. We have no current plans to issue any shares of preferred stock.

There are currently no outstanding warrants. However, upon the conversion of our senior subordinated convertible notes in connection with the consummation of this offering, we will issue warrants to purchase an aggregate of 525,040 shares of our common stock. These warrants will have an exercise price of $0.01 per

We entered into a registration rights agreement, dated as of September 30, 2003, with affiliates of TA Associates, Leonard Foxman, Foxman Family LLC, Eagle Test Systems, Inc. Employee Stock Ownership Plan, Jack E. Weimer and Steven R. Dollens.

Demand Registration Rights. At any time more than 180 days after the effective date of this offering, subject to exceptions, TA Associates has a right to demand that we file a registration statement covering the offer and sale of our stock held by it and its affiliates. After the completion of this offering, affiliates of TA Associates will own shares of our common stock. If we are eligible to file a registration statement on Form S-3, TA Associates has the right to demand that we file a registration statement on Form S-3 so long as the aggregate amount of securities to be sold under the registration statement exceeds $500,000. We have the ability to delay the filing of a registration statement under specified conditions, such as for a period of time following the effective date of a prior registration statement or if we are in possession of material nonpublic information that it would not be in our best interests to disclose. We are not obligated to file a registration statement on Form S-1 on more than three occasions and are not obligated to file a registration statement on Form S-3 more than twice in any 12-month period. This offering will not count toward these limits.

Piggyback Registration Rights. All parties to the registration rights agreement have piggyback registration rights. Under these provisions, if we register any securities for public sale, including pursuant to any stockholder initiated demand registration, these stockholders will have the right to include their shares in the registration statement, subject to customary exceptions. The underwriters of any underwritten offering will have the right to limit the number of shares having registration rights to be included in the registration statement, and piggyback registration rights are also subject to the priority rights of stockholders having demand registration rights in any demand registration.

Expenses of Registration. We will pay all registration expenses, other than underwriting discounts and commissions, related to any demand or piggyback registration.

Indemnification. The registration rights agreement contains customary cross-indemnification provisions, pursuant to which we are obligated to indemnify the selling stockholders in the event of material misstatements or omissions in the registration statement attributable to us, and they are obligated to indemnify us for material misstatements or omissions attributable to them.

Certain Anti-Takeover Provisions of Our Certificate of Incorporation and By-laws

Our certificate of incorporation and by-laws will, upon completion of this offering, include a number of provisions that may have the effect of delaying, deferring or discouraging another party from acquiring control of us and encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions include the items described below.

Board Composition and Filling Vacancies. In accordance with our certificate of incorporation, our board is divided into three classes serving staggered three-year terms, with one class being elected each year. Our certificate of incorporation also provides that directors may be removed only for cause and then only by the affirmative vote of the holders of 75% or more of the shares then entitled to vote at an election of directors. Furthermore, any vacancy on our board of directors, however occurring, including a vacancy resulting from an increase in the size of our board, may only be filled by the affirmative vote of a majority of our directors then in office even if less than a quorum.

No Written Consent of Stockholders. Our certificate of incorporation provides that all stockholder actions are required to be taken by a vote of the stockholders at an annual or special meeting, and that stockholders may not take any action by written consent in lieu of a meeting. This limit may lengthen the amount of time required to take stockholder actions and would prevent the amendment of our by-laws or removal of directors by our stockholders without holding a meeting of stockholders.

Meetings of Stockholders. Our by-laws provide that only a majority of the members of our board of directors then in office may call special meetings of stockholders and only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting of stockholders. Our by-laws limit the business that may be conducted at an annual meeting of stockholders to those matters properly brought before the meeting.

Advance Notice Requirements. Our by-laws establish advance notice procedures with regard to stockholder proposals relating to the nomination of candidates for election as directors or new business to be brought before meetings of our stockholders. These procedures provide that notice of stockholder proposals must be timely given in writing to our corporate secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the by-laws.

Amendment to By-laws and Certificate of Incorporation. As required by the Delaware General Corporation Law, any amendment of our certificate of incorporation must first be approved by a majority of our board of directors, and if required by law or our certificate of incorporation, thereafter be approved by a majority of the outstanding shares entitled to vote on the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a class, except that the amendment of the provisions relating to stockholder action, directors, limitation of liability and the amendment of our by-laws and certificate of incorporation must be approved by not less than 75% of the outstanding shares entitled to vote on the amendment, and not less than 75% of the outstanding shares of each class entitled to vote thereon as a class. Our by-laws may be amended by the affirmative vote of a majority vote of the directors then in office, subject to any limitations set forth in the by-laws; and may also be amended by the affirmative vote of at least 75% of the outstanding shares entitled to vote on the amendment, or, if the board of directors recommends that the stockholders approve the amendment, by the affirmative vote of the majority of the outstanding shares entitled to vote on the amendment, in each case voting together as a single class.

Undesignated Preferred Stock. Our certificate of incorporation provides for authorized shares of preferred stock. The existence of authorized but unissued shares of preferred stock may enable our board of directors to render more difficult or to discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise. For example, if in the due exercise of its fiduciary obligations, our board of directors were to determine that a takeover proposal is not in the best interests of us or our stockholders, our board of directors could cause shares of preferred stock to be issued without stockholder approval in one or more private offerings or other transactions that might dilute the voting or other rights of the proposed acquirer or insurgent stockholder or stockholder group. In this regard, our certificate of incorporation grants our board of directors broad power to establish the rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares of preferred stock could decrease the amount of earnings and assets available for distribution to holders of shares of common stock. The issuance may also adversely affect the rights and powers, including voting rights, of these holders and may have the effect of delaying, deterring or preventing a change in control of us.

Upon completion of this offering, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a three-year period following the time that this stockholder becomes an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes, among other things, a merger, asset or stock sale or


	•	before the stockholder became interested, the board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

	•	upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the voting stock outstanding, shares owned by persons who are directors and also officers, and employee stock plans, in some instances; or

	•	at or after the time the stockholder became interested, the business combination was approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

We have applied to the Nasdaq National Market for the quotation of our common stock under the trading symbol “EGLT.”

Immediately prior to this offering, there was no public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the perception that such sales may occur, could adversely affect the market price of our common stock. Although we have applied to have our common stock approved for quotation on the Nasdaq National Market, we cannot assure you that there will be an active public market for our common stock.

Upon completion of this offering, we will have outstanding an aggregate of shares of common stock, assuming the issuance of shares of common stock offered hereby and no exercise of options after June 30, 2004. Of these shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to certain limitations and restrictions described below.

The remaining shares of common stock held by existing stockholders were issued and sold by us in reliance on exemptions from the registration requirements of the Securities Act. Of these shares, shares will be subject to “lock-up” agreements described below on the effective date of this offering. The 834,565 shares held by our Employee Stock Ownership Plan are not subject to the lock-up agreements and unless we expressly state otherwise are not included in the discussion below. On the effective date of this offering, there will be no shares which are not subject to lock-up agreements and eligible for sale pursuant to Rule 144(k). Upon expiration of the lock-up agreements 180 days after the effective date of this offering, shares will become eligible for sale, subject in most cases to the limitations of Rule 144. In addition, holders of stock options could exercise such options and sell certain of the shares issued upon exercise as described below.

As of June 30, 2004, there were a total of 652,500 shares of common stock subject to outstanding options under our 2003 Option Plan, approximately 42,656 of which were vested and exercisable. However, all of these shares are subject to lock-up agreements. All options held by our officers and directors are subject to 180 day lock-up agreements. Immediately after the completion of this offering, we intend to file registration statements on Form S-8 under the Securities Act to register all of the shares of common stock issued or reserved for future issuance under the 2003 Option Plan, the 2004 Option Plan and the 2004 Stock Purchase Plan. On the date which is 180 days after the effective date of this offering, a total of approximately shares of common stock subject to outstanding options will be vested and exercisable. After the effective dates of the registration statements on Form S-8, shares purchased pursuant to the 2003 Option Plan, the 2004 Option Plan or the 2004 Stock Purchase Plan generally would be available for resale in the public market.

Our Employee Stock Ownership Plan will not sell any of its shares of our common stock in the offering. Upon completion of the offering, the Employee Stock Ownership Plan will be able to sell or distribute its shares of our common stock under certain circumstances.

All directors, officers and stockholders other than the Employee Stock Ownership Plan have entered into lock-up agreements under which they have agreed not to directly or indirectly transfer, dispose of, or hedge any shares of our common stock or securities convertible into or exchangeable for shares of our common stock until a date that is 180 days after the date of this prospectus. Transfers or dispositions can be made sooner:


	•	by gift, will or intestate succession to immediate family members; and

	•	to any trust for the direct or indirect benefit of the transferor or his or her immediate family.

provided in each case that the recipient of those shares agrees to be bound by the foregoing restrictions for the duration of the 180 days. In addition, transfers or dispositions can be made sooner with the prior written consent of the underwriters.

In addition, we have agreed that, without the prior written consent of the underwriters, we will not, directly or indirectly, offer, sell or dispose of, or enter into any swap or derivatives transaction with respect to, any shares of our common stock, any security convertible into or exchangeable for shares of our common stock until a date that is 180 days after the date of this prospectus. In addition, we have agreed not to cause the Employee Stock Ownership Plan to dispose of any shares of our common stock, including through the termination or amendment of the Employee Stock Ownership Plan without the prior written consent of the underwriter. Our agreement with the underwriters provides, however, that we may, without such consent:


	•	grant options and sell shares pursuant to our currently existing stock plans and employee benefits plans.

In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year, including an affiliate, would be entitled to sell in “broker’s transactions” or to market makers, within any three-month period, a number of shares that does not exceed the greater of:


	•	1% of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or

	•	the average weekly trading volume in our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

Sales under Rule 144 are generally subject to the availability of current public information about us.

Under Rule 144(k), a person who is not deemed to have been an affiliate of ours at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares without having to comply with the manner of sale, public information, volume limitation or notice filing provisions of Rule 144. Therefore, unless otherwise restricted, “144(k) shares” may be sold immediately upon the completion of this offering.

In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period and notice filing requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, volume limitation or notice filing provisions of Rule 144.

The SEC has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, such securities may be sold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates without compliance with the one-year minimum holding period requirement under Rule 144.

Upon completion of this offering, the holders of at least shares of our common stock will be eligible to certain rights with respect to the registration of such shares under the Securities Act. See “Description of Capital Stock — Registration Rights.” Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable.

Under the underwriting agreement, which is filed as an exhibit to the registration statement relating to this prospectus, each of the underwriters named below, for whom Banc of America Securities LLC, Lehman Brothers Inc., Piper Jaffray & Co., Adams, Harkness & Hill, Inc. and Jefferies Broadview, a division of Jefferies & Company, Inc. are acting as representatives, has agreed to purchase from us the number of shares of common stock shown opposite its name below:

The underwriting agreement provides that the underwriters’ obligations to purchase shares of common stock depend on the satisfaction of the conditions contained in the underwriting agreement, including:


	•	the obligation to purchase all of the shares of common stock offered hereby if any of the shares is purchased;

	•	the representations and warranties made by us and the selling stockholders to the underwriters are true;

	•	there is no material change in the financial markets; and

	•	we and the selling stockholders deliver customary closing documents to the underwriters.

The selling stockholders have granted to the underwriters an option to purchase up to an aggregate of additional shares of common stock, exercisable to cover over-allotments, if any, at the public offering price less the underwriting discount shown on the cover page of this prospectus. The underwriters may exercise this option at any time, and from time to time, until 30 days after the date of the underwriting agreement. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to that underwriter’s initial commitment as indicated in the preceding table, and the selling stockholders will be obligated to sell, on a pro rata basis, the additional shares of common stock to the underwriters.

The following table summarizes the underwriting discounts that we and the selling stockholders will pay. The underwriting fee is the difference between the public offering price and the amount the underwriters pay to purchase the shares from the selling stockholders and us.

The underwriters have advised us that they propose to offer the shares of common stock directly to the public at the public offering price presented on the cover page of this prospectus, and to selected dealers, who may include the underwriters, at the public offering price less a selling concession not in excess of $ per

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts, will be approximately $ million. We will pay all costs and expenses of this offering, including expenses of the selling stockholders pursuant to the registration rights agreement described under “Description of Capital Stock — Registration Rights.”

We have agreed that, without the prior written consent of Banc of America Securities LLC and Lehman Brothers Inc., we will not, directly or indirectly, offer, sell or dispose of any common stock or any securities which may be converted into or exchanged for any common stock (other than in connection with this offering and shares issued pursuant to employee benefit plans, qualified stock option plans or other employee compensation plans or pursuant to currently outstanding options, warrants or rights) for a period of 180 days from the date of this prospectus. All of our executive officers and directors, certain other officers, and certain other stockholders who hold significant amounts of our common stock, holding in the aggregate shares of our common stock (which number represents approximately % of our outstanding common stock following the completion of this offering not including the shares sold in this offering), have agreed under lock-up agreements not to, without the prior written consent of Banc of America Securities LLC and Lehman Brothers Inc., directly or indirectly, offer, sell or otherwise dispose of any common stock or any securities which may be converted into or exchanged or exercised for any common stock for a period of 180 days from the date of this prospectus.

Prior to this offering, there has been no public market of our common stock. The initial public offering price will be negotiated between us and the representatives of the underwriters. In determining the initial public offering price of our common stock, we and the representatives will consider:


	•	prevailing market conditions;

	•	our historical performance and capital structure;

	•	estimates of our business potential and earnings prospects;

	•	an overall assessment of our management; and

	•	the consideration of these factors in relation to market valuation of companies in related businesses.

We have agreed to indemnify the underwriters against liabilities relating to the offering, including liabilities under the Securities Act and liabilities arising from breaches of the representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities.

The underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock, in accordance with Regulation M under the Securities Exchange Act of 1934:


	•	Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the


		number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market.

	•	Stabilizing transactions permit bids to purchase common stock so long as the stabilizing bids do not exceed a specified maximum.

	•	Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, creating a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.

	•	Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may raise or maintain the market price of our common stock or prevent or slow a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.

Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor the underwriters makes any representation that the underwriters will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.

If you purchase shares of common stock offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.

There is no directed share program associated with the offering of common stock under this prospectus.

A prospectus in electronic format may be made available on Internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations.

Other than the prospectus in electronic format, information contained in any other web site maintained by an underwriter or selling group member is not part of this prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us and should not be relied on

The underwriters have informed us that they will not confirm sales to accounts over which they exercise discretionary authority in excess of 5% of the total number of shares offered by them.

The underwriters may in the future perform investment banking and advisory services for us from time to time for which they may in the future receive customary fees and expenses. The underwriters may, from time to time, engage in transactions with or perform services for us in the ordinary course of their business. We currently have no agreements or commitments with respect to any such transactions or services.

Goodwin Procter LLP, Boston, Massachusetts has passed upon the validity of the shares of common stock offered hereby. Legal matters relating to this offering will be passed upon for the underwriters by Wilson Sonsini Goodrich & Rosati, P.C.

The consolidated financial statements of Eagle Test Systems, Inc. and its subsidiaries as of September 30, 2003 and 2002, and for each of the three years in the period ended September 30, 2003, appearing in this prospectus and the registration statement, of which this prospectus is a part, have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

We have filed with the SEC a registration statement on Form S-1 (File Number 333- ) under the Securities Act with respect to the shares of common stock we and the selling stockholders are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and to its exhibits. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

Upon the closing of the offering, we will be subject to the informational requirements of the Securities Exchange Act of 1934 and will file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549.

You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1 800 SEC 0330 for further information on the operation of the public reference facilities.

We have audited the accompanying consolidated balance sheets of Eagle Test Systems, Inc. and subsidiaries as of September 30, 2003 and 2002, and the related consolidated statements of net income and comprehensive income, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended September 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eagle Test Systems, Inc. and subsidiaries at September 30, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 2003 in conformity with United States generally accepted accounting principles.

The accompanying notes are an integral part of these consolidated financial statements.

EAGLE TEST SYSTEMS, INC. (“EAGLE” or the “Company”) designs, manufactures, sells and services, automated test equipment (ATE) for the semiconductor industry. The Company’s test systems test analog, mixed-signal and RF (Radio Frequency) semiconductor devices. Semiconductor designers and manufacturers worldwide use semiconductor test systems to test devices at different stages during the manufacturing process. These tested devices are incorporated into a wide range of products, including digital cameras, MP3 players, cellular telephones, video/ multimedia products, automotive electronics, computer peripherals and notebook and desktop computers. The Company is headquartered in Mundelein, Illinois, where the Company develops and manufactures its test systems. The Company also maintains various offices worldwide for sales, service and research to support its customer base directly. The operations of, and net investment in, foreign subsidiaries are not material.

The consolidated financial statements include the accounts of the Company and its wholly-owned foreign subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared by the Company and reflect all adjustments, which, in the opinion of management, are necessary for fair statement of the results. The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting periods. Actual results can differ from those estimates.

The accompanying consolidated balance sheet as of March 31, 2004, the consolidated statements of net income and comprehensive income and consolidated statements of cash flows for the six months ended March 31, 2003 and March 31, 2004 and the consolidated statement of stockholders’ equity (deficit) for the six months ended March 31, 2004 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s financial position and results of operations and cash flows for the six months ended March 31, 2003 and March 31, 2004. The financial data and other information disclosed in these notes to financial statements related to the six-month periods are unaudited. The results for the six months ended March 31, 2004 are not necessarily indicative of the results to be expected for the year ending September 30, 2004, or for any other interim period or for any other future year.

Revenue is recognized by the Company when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price is fixed or determinable and collectibility is reasonably assured.

The Company derives revenue primarily from test system sales. For system sales there are different revenue recognition points, which are described as follows:

Revenue related to systems sales is recognized when: (a) the Company has a written sales agreement; (b) delivery has occurred or services rendered; (c) the price is fixed or determinable; and (d) collectibility is reasonably assured. If installation services are part of a system sale, test system revenue is deferred until the system is delivered, installed and accepted by the customer.

In a few instances, the Company has entered into short-term rental agreements with customers for the use of its systems. The Company recognizes rental revenue ratably over the applicable rental period. Rental revenues are included as a component of product sales and have been immaterial to date.

Shipping and handling costs related to delivery of systems are expensed as incurred and classified as cost of goods sold in the consolidated statements of net income and comprehensive income.

The Company’s systems are sold with warranty provisions that require the Company to remedy deficiencies in quality or performance of its products over a period ranging from 12 to 24 months. The policy of the Company is to establish warranty reserves at the time revenue is recognized at levels that represent the estimate of costs that will be incurred to fulfill those warranty requirements.

Research and development costs consist primarily of compensation and related costs for personnel as well as costs related to materials, outside contractors, equipment depreciation and other engineering overhead costs. All research and development costs are expensed as incurred.

The Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return. Research and development tax credits are recognized for financial reporting purposes to the extent that they can be utilized in the tax return.

The Company considers all highly liquid investments that are readily convertible to cash and that have original maturity dates of three months or less to be cash and cash equivalents. Marketable securities consist of debt and equity securities that are classified as available-for-sale. Securities available for sale include corporate common stocks trading on a major exchange and corporate and governmental obligations with various contractual maturity dates. Governmental obligations include U.S. Government, State, Municipal and Federal Agency securities. Realized gains and losses on sales of marketable securities are determined based on average cost.

Inventories are stated at the lower of cost or market, determined on the first-in, first-out method and include materials, labor and manufacturing overhead.

Property and equipment is recorded at cost. The Company provides for depreciation and amortization on the straight-line method over the estimated useful lives of the related assets. Equipment includes internally manufactured systems used for testing components and engineering and applications development equipment. Repairs and maintenance costs that do not extend the lives of property and equipment are expensed as incurred.

The Company accounts for stock options issued to employees in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” for options issued to employees and directors. Expense associated with stock options issued to nonemployees/nondirectors is recorded in accordance with SFAS No. 123.

Had the Company accounted for its stock options in accordance with SFAS No. 123, pro forma net income and pro forma net income per share for the six months ended March 31, 2004 would have been as follows:

The pro forma disclosure is not likely to be indicative of pro forma results which may be expected in future years because of the fact that options vest over several years; pro forma compensation expense is recognized as the options vest and additional awards may also be granted.

Under SFAS No. 123, the fair value of each option is estimated on the date of grant based on the Black-Scholes option pricing model assuming, among other things, a risk-free interest rate ranging from 3.53% to 3.82%, no dividend yield, expected volatility of 0% (as the Company was privately held at the date of grant) and an expected life of seven years. The weighted average fair value of the options granted during the six months ended March 31, 2004 was $2.16 per share (unaudited).

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, Senior Subordinated Convertible Notes, Mortgage Notes and Series A Convertible Preferred Stock, approximate their fair values due to their short maturities and/or the proximity of the transaction to September 30, 2003. Marketable securities are carried at fair value

based on quoted market prices at period end dates. As of March 31, 2004, the Company’s financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate their fair values due to their short maturities. As of March 31, 2004, the Senior Subordinated Convertible Notes had an approximate fair value of $35.1 million and the Series A Convertible Preferred Stock had an approximate fair value of $102.4 million.

In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN No. 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN No. 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity’s product warranty liabilities. The initial recognition and initial measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements of FIN No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of this standard did not have any material impact on the Company’s financial position or results of operations.

In December 2003, the FASB issued additional guidance clarifying the provisions of FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51” (“FIN 46-R”). FIN 46-R provides a deferral of FIN 46 for certain entities until after March 15, 2004. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company believes that the adoption of this standard did not have any material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” The Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity and further requires that an issuer classify as a liability (or an asset in some circumstances) financial instruments that fall within its scope because that financial instrument embodies an obligation of the issuer. Many of such instruments were previously classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this standard did not have a material impact on the Company’s financial position or results of its operations.

In November 2002, the Emerging Issues Task Force, or EITF, reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (EITF Issue No. 00-21). EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company believes that the adoption of EITF Issue No. 00-21 did not have any material impact on the Company’s financial position or results of operations.

In March 2004, the FASB approved EITF Issue 03-6 “Participating Securities and the Two — Class Method under FAS 128.” EITF Issue 03-6 supersedes the guidance in Topic No. D-95, “Effect of Participating Convertible Securities on the Computation of Basic Earnings per Share,” and requires the use of the two-class method of participating securities. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to

dividends declared (or accumulated) and participation rights in undistributed earnings. In addition, EITF Issue 03-6 addresses other forms of participating securities, including options, warrants, forwards and other contracts to issue an entity’s common stock, with the exception of stock-based compensation (unvested options and restricted stock) subject to the provisions of Opinion 25 and FAS 123. EITF Issue 03-6 is effective for reporting periods beginning after March 31, 2004 and should be applied by restating previously reported EPS. The Company is currently in the process of evaluating the impact, if any, that the adoption of EITF Issue 03-6 will have on its financial position and results of operations.

The market value and amortized cost of marketable securities as of the dates indicated are as follows:

The realized profits, losses and interest are included in income from marketable securities in the consolidated statements of net income and comprehensive income. Unrealized gains and losses are reflected as a separate component of accumulated other comprehensive income and are included in stockholders’ equity (deficit).

Interest income and realized gains from sales of marketable securities are as follows:

The Company recognized impairment losses on marketable securities of $208, $666 and $18 in fiscal 2001, 2002 and 2003, respectively, and $9 (unaudited) and $0 (unaudited) for the six months ended March 31, 2003 and 2004, respectively.

The Company’s policy is to establish inventory reserves when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for products or market conditions. The Company regularly evaluates the ability to realize the value of its inventory based on a combination of factors including the following: forecasted sales or usage, estimated product end-of-life dates, estimated current and future market value and new product introductions. Purchasing and alternative usage options are also explored to mitigate obsolete inventory exposure. When recorded, reserves are intended to reduce the carrying value of inventory to its net realizable value. Inventory of $19.7 million (unaudited) is stated net of inventory reserves of $4.4 million (unaudited) as of March 31, 2004. Inventory of $11.5 million is stated net of inventory reserves of $3.8 million as of September 30, 2003 and inventory of $11.0 million is stated net of inventory reserves of $2.8 million as of September 30, 2002. If actual demand for products deteriorates or market conditions are less favorable than those the Company projects, additional inventory reserves may be required.

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of these assets exceeds the fair value of the assets. There have been no impairments of long-lived assets through March 31, 2004.

Depreciation expense was $263, $420, and $677 for the years ended September 30, 2001, 2002 and 2003, respectively, and $345 (unaudited) and $458 (unaudited) for the six months ended March 31, 2003 and 2004, respectively.

The Company is authorized to issue 15,202,199 shares of capital stock consisting of (i) 15,195,325 shares of Common Stock, par value $0.01 per share; (ii) 3,437 shares of Series A Convertible Preferred Stock, par value $0.01 per share (“Convertible Preferred Stock”); and (iii) 3,437 shares of Redeemable Preferred Stock, par value $0.01 per share (“Redeemable Preferred Stock”).

On December 31, 2003, the Board of Directors met and resolved the following changes to the Company’s capitalization structure:


	Changed Authorized Shares — The Company’s Articles of Incorporation were amended to increase the authorized capital stock of the Company from 14,874 shares to 15,202,199 shares, and authorized common shares from 20,000,000 no par value shares to 15,195,325 $0.01 par value shares.

	Stock Dividend — Declared a common stock split in the form of a stock dividend. The common shares were split on a 2,500:1 basis for common shares outstanding at December 2, 2003.

The effect of the recapitalization has been retroactively reflected in the historical consolidated financial statements and related notes.

Dividends — No dividend may be paid with respect to common stock until payment of preferential dividends to holders of Redeemable Preferred Stock, should any Redeemable Preferred Stock be issued and outstanding. Additionally, any Convertible Preferred Stock shall be entitled to any common stock dividend on an as converted basis.

Voting rights — The holders of common stock are entitled to one vote per share and as long as any shares of Convertible Preferred Stock are issued and outstanding shall vote together with the holders of Convertible Preferred Stock as a single class.

At March 31, 2004, the Company had reserved 683,790 unissued shares of its common stock for possible issuance under a stock-based compensation plan. In addition, at March 31, 2004, the Company has reserved 8,590,248 shares of its common stock for issuance relating to the possible conversion of the Convertible Preferred Stock. Finally, at March 31, 2004, the Company has reserved 525,040 shares of its common stock for possible issuance relating to warrants issuable upon conversion of the Senior Subordinated Convertible Notes (“Notes”).

The Company has designated 3,437 of its shares of Preferred Stock as Convertible Preferred Stock.

Voting — Generally the Convertible Preferred Stock will be entitled to one vote per share on an as converted basis and will vote together with the common stockholders except related to the following items where the Convertible Preferred Stock will vote as a separate class: 1) election of three board members of the Company, 2) declaration or payment of dividends on any shares other than the Convertible Preferred Stock, 3) alteration of the designations, preferences or powers of the Convertible Preferred Stock, 4) issuance of equity or equity-related securities ranking senior to or on parity with the Convertible Preferred Stock, 5) amendment, modification or repeal of any provisions of the Company’s Articles of Incorporation or by-laws, and 6) effectuation of any merger acquisition, liquidating event or asset sale or incurrence of indebtedness over $500,000.

Dividends — The holders of Convertible Preferred Stock are entitled to any common stock dividends on an as converted basis.

Preference — The holders of Convertible Preferred Stock shall be entitled to a preference of $18,925 per share outstanding plus any declared and unpaid dividends prior to any payments to common stockholders in any liquidation or sale of the Company.

Redemption — The holders of Convertible Preferred Stock at any time after September 30, 2009 may elect to cause redemption of up to 50% of the then outstanding shares of the Convertible Preferred Stock by a majority vote. After September 30, 2010, the holders of Convertible Preferred Stock may elect to cause redemption of up to 100% of the then outstanding shares of Convertible Preferred Stock by a majority vote.

Conversion Rights — At any time after issuance upon written election of a majority of the holders of Convertible Preferred Stock, these holders can elect to convert each share of Convertible Preferred Stock into 2,500 (twenty-five hundred) shares of common stock and 1 (one) share of Redeemable Preferred Stock, subject to certain adjustments as defined. In addition, all shares of Convertible Preferred Stock shall

automatically be converted into an aggregate of 8,590,248 shares of common stock and an aggregate of 3,436 shares of Redeemable Preferred Stock, subject to certain adjustments as defined, upon the effectiveness of an underwritten public offering in which the aggregate proceeds to the Company are in excess of $60.0 million and the initial public offering price is at least two times the initial purchase price of the Convertible Preferred Stock shares (as adjusted to reflect any stock splits or similar adjustments). Additionally, such proceeds from the offering must be used or designated to redeem all shares of the Redeemable Preferred Stock at an aggregate value of $32.5 million.

The Company has designated 3,437 shares of Convertible Preferred Stock as Redeemable Preferred Stock.

Voting — The Redeemable Preferred Stock holders will be entitled to only vote as a separate class to elect 1 (one) board member to the Company’s Board of Directors. The Redeemable Preferred Stock holders will have no other voting rights except as required by law.

Dividends — The holders of Redeemable Preferred Stock shall be entitled to a 5% cumulative annual dividend, compounded quarterly for amounts unpaid from issuance.

Preference — The holders of Redeemable Preferred Stock shall be entitled to a preference of $9,458 per share outstanding plus any accumulated and unpaid dividends prior to any payments to common stockholders in any liquidation or sale of the Company.

Redemption — The holders of Redeemable Preferred Stock at any time after September 30, 2009 may elect to cause redemption of up to 50% of the then outstanding shares of the Redeemable Preferred Stock by a majority vote. After September 30, 2010, the Redeemable Preferred Stock holders may elect to cause redemption of up to 100% of the then outstanding shares of the Redeemable Preferred Stock by a majority vote. The Redeemable Preferred Stock is also required to be redeemed in conjunction with any initial public offering meeting the conditions discussed above.

On September 30, 2003, investment funds managed by TA Associates (collectively referred to as the “Investors”) purchased 3,436 shares of Convertible Preferred Stock for $65.0 million. The Company also issued to the Investors Notes aggregating $30.0 million, bearing annual interest of 12%, which mature September 30, 2009. From the date of issuance, at the option of the holders, the Notes are convertible into (i) Senior Subordinated Notes aggregating $29.995 million (plus accrued and unpaid interest) bearing annual interest of 12% and maturing September 30, 2009, and (ii) redeemable warrants to purchase 525,040 shares of common stock at a price of $0.01 per share. The allocated fair value of the warrants has been accounted for as a discount of $1,718 on the Notes and is being amortized to interest expense over the term of the notes. As the warrants enable the holders to put the warrants to the Company at fair value at any time after September 30, 2008, so long as the warrants are outstanding, the warrants are considered liability instruments and recorded at fair value, based on independent valuations. As of March 31, 2004, the common stock warrants were revalued based upon an independent valuation. The change in the value of the warrants was $2,556 (unaudited) for the six months ended March 31, 2004. The value of the warrants was increased to a fair market value of $4,274 (unaudited) and a corresponding expense for the increase in fair market value was recorded in the financial statements as other income and (expense).

The entire proceeds from the Convertible Preferred Stock and Notes were used to redeem 8,993,752 shares of common stock on September 30, 2003 for $95.0 million.

After the above transaction was completed on September 30, 2003, all of the remaining 5,396,248 shares of $0.0004 par value common stock were redesignated as common stock with no par value.

The 15-year mortgage note is secured by the underlying real estate asset and bears interest at a rate of 7.3%. The mortgage note was paid in full in March 2004.

As discussed in Note 7, the Notes were issued in connection with the redemption of common stock. The Notes bear interest at 12%, payable quarterly, and are due on September 30, 2009. The Notes are convertible at the option of the holder into 12% Senior Subordinated Notes and redeemable warrants to purchase 525,040 shares of common stock at a price of $0.01 per share, which are exercisable at the option of the holder until September 30, 2013. The value of the Notes is net of $1,718 assigned to the warrants as a discount which is being amortized to interest expense over the life of the debt. The warrants expire on September 30, 2013.

Basic net income per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted income per common share reflects the maximum dilution that would have resulted from the assumed exercise of convertible preferred stock, warrants and stock options, as applicable, and is computed by dividing net income by the weighted average number of common shares and all dilutive securities outstanding.

A reconciliation between basic and diluted earnings per share EPS is as follows:

The components of the provision (benefit) for income taxes consist of the following:

Reconciliations of the U.S. federal statutory rate to the Company’s effective tax rates are as follows:

The temporary differences that created the deferred tax assets and (liabilities) are as follows:

The Company has an Employee Stock Ownership Plan (“ESOP”) which covers substantially all employees of the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Company’s annual contribution to the ESOP is discretionary. The Company’s contributions to the ESOP are allocated to individual participant accounts which vest on completion of an employee’s fifth year of qualifying service. For the years ended September 30, 2001, 2002 and 2003, approximately $352, $670 and $50, respectively, was expensed for the ESOP contribution. For the six months ended March 31, 2003, approximately $25 (unaudited) was expensed, and for the six months ended March 31, 2004, no amounts were expensed (unaudited). Distributions from the ESOP are made in accordance with the terms of the ESOP Trust Agreement and may be in the form of cash or shares of Company common stock. The ESOP owned 2,225,510, 2,225,510, and 834,565 shares of common stock at

September 30, 2001, 2002, and 2003, respectively, and 2,225,510 and 834,565 shares of common stock at March 31, 2003 and 2004, respectively.

The Company has established a Profit Sharing Plan, which is a discretionary defined contribution plan. Under the Profit Sharing Plan, the Company contributed approximately $3, $0, and $871 for fiscal years 2001, 2002, and 2003, respectively, and $435 (unaudited) and $250 (unaudited) for the six months ended March 31, 2003 and 2004, respectively. Eligible employees are defined as those who have completed one year of service and have attained the age of 21. Employees are fully vested after achieving five years of service.

The Company also has a Pension Plan which is a discretionary defined contribution plan. Under the Pension Plan, the Company contributed approximately $60, $57, and $863, for fiscal years 2001, 2002, and 2003, respectively, and $432 (unaudited) and $250 (unaudited) for the six months ended March 31, 2003 and 2004, respectively. Eligible employees are defined as those who have completed one year of service and have attained the age of 21. Employees are fully vested after achieving five years of service.

In September 2003, the Company adopted the 2003 Stock Option and Grant Plan (the “Plan”). The Plan provides for the issuance of incentive and non-qualified common stock options to employees, directors and consultants of the Company. The Board of Directors reserved 683,790 shares of common stock to be issued in conjunction with the Plan. The term of the options shall be no more than 10 years from the date of grant. Options granted under the Plan generally vest in periods between one and four years, as determined by the Board of Directors.

As of September 30, 2003, the Board of Directors had not granted any stock options under the Plan and there were no options outstanding as of year-end.

During the six months ended March 31, 2004, the Company issued the first stock options under the Plan. In accordance with APB No. 25, the Company has recorded the difference between the exercise price and the fair value, as determined by an independent valuation, of the common stock on the date of grant as deferred compensation totalling $210 and is amortizing such deferred compensation on a straight-line basis over the vesting periods of the options. Expense recognized during the six months ended March 31, 2004 totaled $6. There was no expense recorded in the prior year periods since there were no options outstanding. If the fair value method had been applied, the Company would have recognized compensation costs of $25 (unaudited) for the six months ended March 31, 2004.

The Company’s stock option activity for the six months ended March 31, 2004 (unaudited) under the Plan is as follows:

The following unaudited table summarizes information about all stock options outstanding for the Company as of March 31, 2004:

Subsequent to March 31, 2004, the Company granted 365,000 stock options in June 2004, with an exercise price of $10.00 per share as determined by the Board of Directors.

The Company has concentration of sales with certain major semiconductor manufacturers that represent more than 10% of total revenue. Sales to these major semiconductor manufacturers were as follows:

Major semiconductor manufacturer companies comprise a significant portion of the Company’s trade receivables. Receivables from a major semiconductor manufacturer (National Semiconductor) comprised approximately 54% and 59% of trade receivables as of September 30, 2003 and 2002, respectively. As of March 31, 2004 (unaudited), two customers (National Semiconductor and Texas Instruments) comprised approximately 76% of the Company’s trade receivables balance.

Financial instruments, which potentially subject the Company to concentrations of credit risk, are cash equivalents, marketable securities and accounts receivable. All of the Company’s cash equivalents and marketable securities are held by major financial institutions. Deposits held with financial institutions may exceed the amount of insurance provided on such deposits. Concentration of credit risk with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce its credit risk, the Company routinely assesses the financial strength of its customers. The Company does not require collateral, although the Company obtains letters of credit on sales to certain foreign customers. Write-offs related to accounts receivable have been insignificant over the Company’s operating history. An allowance for doubtful accounts is maintained at a level management believes is sufficient to cover potential credit losses based on past collection history and specific risks identified among uncollectible accounts. Accounts receivable are charged off against the allowance for doubtful accounts when it determines that the receivable will not be collected.

Comprehensive income is comprised of two components, net income and other comprehensive income. The components of other comprehensive income and related tax effects were as follows for the fiscal years ended September 30 and the six months ended March 31:

The Company operates in one industry segment: the design, manufacture and marketing of automated test equipment for the semiconductor industry that are used to test analog, mixed signal and radio frequency devices.

The Company markets its products and related services to customers mainly through a direct sales force. Revenues are attributed to geographic areas based on the country in which the customer is domiciled. The Company’s revenues are generated from sales into the following geographic regions:

On December 1, 2003, the Company signed a lease for a new headquarters building that is being built for the Company. The lease commences when there is substantial completion of the landlord’s work, which is estimated to be in the first calendar quarter of 2005. The non-cancelable lease is for 10 years with several options by the Company to extend. Rent for the first five years is approximately $1.0 million per annum and rent for the next 5 years is approximately $1.1 million per annum.

The Company has operating lease commitments for certain facilities. Minimum lease payments under noncancelable leases are as follows:

Total rental expense for fiscal 2001, 2002, and 2003 was $356, $390 and $529, respectively, and $209 (unaudited) and $349 (unaudited) for the six months ended March 31, 2003 and 2004, respectively.

The Company’s sales agreements indemnify its customers for any expenses or liabilities resulting from claimed infringements of patents, trademarks or copyrights of third parties. The terms of these indemnification agreements are generally indefinite after execution of the agreement. The maximum amount of potential future indemnification is unlimited. However, to date, the Company has not paid any claims or been required to defend any lawsuits with respect to any claim.

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. In the opinion of management, there are no pending claims of which the outcome is expected to result in a material adverse effect on the financial position, results of operations or cash flows of the Company.

During 2002 and 2001, the Company was a party to a service agreement to utilize the services of Analog Test Institute (“ATI”), a company owned and controlled by two individuals who are officers, directors and significant stockholders of the Company. Under the terms of the service agreement, ATI provided the Company with consulting, management, sales and testing services. Total net fees related to ATI included in selling, general & administrative expenses were $1.0 million and $2.0 million for the years ended September 30, 2002 and 2001, respectively. During 2002 the ATI service agreement was terminated. As of September 30, 2002, $2.4 million was due to ATI, no amounts were due to ATI as of September 30, 2003 and March 31, 2004.

In 2003, the Company entered into a service agreement to utilize the services of Pacific Support Group Partners (“PSG”), a company owned and controlled by two individuals who are officers, directors and significant stockholders of the Company. Under the terms of this service agreement, PSG provided the Company with consulting, management and support services. Total fees paid to PSG included in selling, general & administrative expenses were $476 for the year ended September 30, 2003. Prior to September 30, 2003, the service agreement with PSG was terminated.

The following table sets forth the costs and expenses, other than the underwriting discount, payable by us in connection with the sale of common stock being registered. All amounts are estimated except the SEC registration fee and the NASD filing fees.

Section 145(a) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Section 145(b) of the Delaware General Corporation Law provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other adjudicating court shall deem proper.

Section 145(g) of the Delaware General Corporation Law provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the Delaware General Corporation Law.

Article VII of our Second Amended and Restated Certificate of Incorporation, as amended to date (the “Charter”), provides that no director of our company shall be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (1) for any breach of the director’s duty of loyalty to us or our stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) in respect of unlawful dividend payments or stock redemptions or repurchases, or (4) for any transaction from which the director derived an improper personal benefit. In addition, our Charter provides that if the Delaware General Corporation Law is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of our company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

Article VII of the Charter further provides that any repeal or modification of such article by our stockholders or an amendment to the Delaware General Corporation Law will not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts or omissions occurring before such repeal or modification of a director serving at the time of such repeal or modification.

Article V of our Amended and Restated By-Laws, as amended to date (the “By-Laws”), provides that we will indemnify each of our directors and officers and, in the discretion of our board of directors, certain employees, to the fullest extent permitted by the Delaware General Corporation Law as the same may be amended (except that in the case of an amendment, only to the extent that the amendment permits us to provide broader indemnification rights than the Delaware General Corporation Law permitted us to provide prior to such the amendment) against any and all expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by the director, officer or such employee or on the director’s, officer’s or employee’s behalf in connection with any threatened, pending or completed proceeding or any claim, issue or matter therein, to which he or she is or is threatened to be made a party because he or she is or was serving as a director, officer or employee of our company, or at our request as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of our company and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Article V of the By-Laws further provides for the advancement of expenses to each of our directors and, in the discretion of the board of directors, to certain officers and employees.

In addition, Article V of the By-Laws provides that the right of each of our directors and officers to indemnification and advancement of expenses shall be a contract right and shall not be exclusive of any other right now possessed or hereafter acquired under any statute, provision of the Charter or By-Laws, agreement, vote of stockholders or otherwise. Furthermore, Article V of the By-Laws authorizes us to provide insurance for our directors, officers and employees, against any liability, whether or not we would have the power to indemnify such person against such liability under the Delaware General Corporation Law or the provisions of Article V of the By-Laws.

We have entered into indemnification agreements with each of our directors and with TA Associates, Inc. and each of its associated investment funds. These agreements provide that we will indemnify each of our directors and such entities to the fullest extent permitted by law. In addition, our stockholders agreement provides indemnification to TA Associates and its associated investment funds for damages, expenses, losses or dimunitions in value arising out of, based upon or by reason of any third party or governmental claims relating to their status as a security holder, creditor, director, agent, representative or controlling person of Eagle Test, or otherwise relating to their involvement with Eagle Test.

We also maintain a general liability insurance policy which covers certain liabilities of directors and officers of our company arising out of claims based on acts or omissions in their capacities as directors or officers.

In any underwriting agreement we enter into in connection with the sale of common stock being registered hereby, the underwriters will agree to indemnify, under certain conditions, us, our directors, our

During the past three years, we have sold and issued the following unregistered securities:


	(1) On September 30, 2003, we sold 3,436 shares of our series A convertible preferred stock, convertible into 3,436 shares of our redeemable preferred stock and 8,590,248 shares of our common stock, to affiliates of TA Associates, Inc. for an aggregate purchase price of $65,000,000.

	(2) Also on September 30, 2003, as part of the transaction described in item (1) above, we sold to affiliates of TA Associates, Inc. $30,000,000 of 12% senior subordinated convertible notes, which are convertible into (i) $29,995,000 of 12% senior subordinated notes, plus accrued and unpaid interest, and (ii) warrants to purchase an aggregate of 525,040 shares of our common stock.

	(3) In December 2003, March 2004 and June 2004, pursuant to our 2003 Stock Option and Grant Plan, we issued an aggregate of 652,500 options to purchase shares of our common stock to certain of our named executive officers, other employees and non-employee directors at exercise prices ranging from $6.00 to $10.00.

The sales of securities described in items (1) and (2) above were deemed to be exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. The issuances of the securities described in item (3) above were deemed to be exempt from registration pursuant to either Rule 701 promulgated under the Securities Act as transactions pursuant to compensatory benefit plans approved by the registrant’s board of directors or Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. The recipients of securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients either received adequate information about us or had adequate access, through their relationship with us, to information about us. There were no underwriters employed in connection with any of the transactions set forth in Item 15.

(a) See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.

The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by the controlling precedent, submit to a court of appropriate jurisdiction the question whether such


	(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

	(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Mundelein, State of Illinois, on July 9, 2004.


	By:	/s/ LEONARD FOXMAN



	Leonard Foxman
	Chief Executive Officer, President and Director

We, the undersigned directors and/or officers of Eagle Test Systems, Inc. (the “Company”), hereby severally constitute and appoint Leonard Foxman and Steve Hawrysz, and each of them singly, our true and lawful attorneys, with full power to any of them, and to each of them singly, to sign for us and in our names in the capacities indicated below the registration statement on Form S-1 filed herewith, and any and all pre-effective and post-effective amendments to said registration statement, and any registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, in connection with the registration under the Securities Act of 1933, as amended, of equity securities of the Company, and to file or cause to be filed the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as each of them might or could do in person, and hereby ratifying and confirming all that said attorneys, and each of them, or their substitute or substitutes, shall do or cause to be done by virtue of this Power of Attorney.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on July 9, 2004:

We have audited the consolidated financial statements of Eagle Test Systems, Inc. as of September 30, 2003 and 2002, and for each of the three years in the period ended September 30, 2003, and have issued our report thereon dated June 8, 2004 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedule listed in Item 16(b) of this Registration Statement. This schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.


†	Confidential treatment has been requested for certain provisions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act.

EX-4.2 2 c86449exv4w2.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.2 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT BY AND AMONG EAGLE TEST SYSTEMS, INC., THE INVESTORS AS DEFINED HEREIN AND THE STOCKHOLDERS AS DEFINED HEREIN DATED AS OF SEPTEMBER 30, 2003 TABLE OF CONTENTS

i REGISTRATION RIGHTS AGREEMENT THIS AGREEMENT is dated as of the 30th day of September, 2003, by and among Eagle Test Systems, Inc., an Illinois corporation (the "Company"), the persons designated as Investors on the signature pages hereto and any assignees thereof (each, an "Investor" and collectively, the "Investors") and the persons designated as Stockholders on the signature pages hereto and any assignees thereof (each, a "Stockholder" and collectively the "Stockholders"). WHEREAS, the Company and certain of the Investors and the Stockholders are simultaneously entering into a certain Stock Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"), whereby such Investors have agreed to purchase shares of Series A Convertible Preferred Stock, par value $.01 per share, of the Company (the "Series A Preferred Stock"); WHEREAS, on the date hereof, certain of the Investors will lend to the Company $30,000,000 pursuant to the terms of that certain Note Purchase Agreement dated as of the date hereof (the "Note Purchase Agreement"), in return for convertible secured subordinated debentures (collectively, the "Convertible Subordinated Notes") which are convertible into secured subordinated promissory notes of the Company (collectively, the "Subordinated Notes") and warrants to acquire shares of Common Stock of the Company (the "Warrants"); and WHEREAS, the execution and delivery of this Agreement is an inducement and a condition precedent to the purchase by the Investors of the Series A Preferred Stock and the Convertible Subordinated Notes under the Purchase Agreement and Note Purchase Agreement, as applicable. NOW, THEREFORE, in consideration of the premises, as an inducement to the Investors to consummate the transactions contemplated by the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company, the Investors and the Stockholders hereby covenant and agree with each other as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the following respective meanings: "BOARD OF DIRECTORS" means the Board of Directors of the Company. "COMMISSION" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act and the Exchange Act. "COMMON STOCK" shall mean the Common Stock, no par value, of the Company and any other securities into which or for which any of the securities described above may be 1 converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "COMPANY" shall have the meaning set forth in the preamble and shall include any successor or successors thereto. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "MAJORITY INTEREST" means the Investors holding not less than a majority in interest in the outstanding Registrable Securities held by all Investors. "PERSON" shall mean an individual, a corporation, a partnership, a joint venture, a trust, an unincorporated organization, a limited liability company or partnership, a government and any agency or political subdivision thereof. "REGISTRABLE SECURITIES" shall mean (i) any shares of Common Stock held by the Investors or Stockholders, or subject to acquisition by any Investor upon conversion of the Series A Preferred Stock or exercise of the Warrants (it being understood that for purposes of this Agreement, an Investor will be deemed to be a holder of Registrable Securities whenever such Investor has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected) and (ii) any other securities issued and issuable with respect to any such shares described in clause (i) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; provided, however, that if an Investor owns Series A Preferred Stock, the Investor may exercise its registration rights hereunder by converting the shares to be sold under the relevant registration statement into Common Stock as of the closing of the relevant offering and shall not be required to cause such Series A Preferred Stock to be converted to Common Stock until and unless such closing occurs, it being understood that the Company shall at the request of the relevant Investor effect the reconversion of Common Stock into Series A Preferred Stock, if, notwithstanding the foregoing, such a conversion occurs and the relevant offering does not close; and provided, further, that any Common Stock that is sold in a registered sale pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder without restriction as to volume or otherwise pursuant to Rule 144(k) under the Securities Act shall not be deemed Registrable Securities. "REGISTRATION EXPENSES" shall mean the expenses so described in Section 6 hereof. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended from time to time, or any similar successor federal statute, and the rules and regulations of the Commission thereunder. 2 2. DEMAND REGISTRATIONS. (a) At any time after 180 days of the effective date of a registration statement filed in connection with the initial public offering of the Company's Common Stock under the Securities Act (the "IPO"), a Majority Interest may request that the Company register under the Securities Act all or any portion of the Registrable Securities held by such requesting Investors. Upon receipt of such request, the Company shall promptly deliver notice of such request to all Investors holding Registrable Securities, if any, who shall then have thirty (30) days to notify the Company in writing of their desire to be included in such registration. If the request for registration contemplates an underwritten public offering, the Company shall state such in the written notice and in such event the right of any Investor to participate in such registration shall be conditioned upon their participation in such underwritten public offering and the inclusion of their Registrable Securities in the underwritten public offering to the extent provided herein. The Company will use its best efforts to expeditiously effect the registration of all Registrable Securities whose holders request participation in such registration under the Securities Act and to qualify such Registrable Securities for sale under any state blue sky law; provided, however, that the Company shall not be required to effect registration pursuant to a request under this Section 2 more than three (3) times for the holders of the Registrable Securities as a group. Notwithstanding anything to the contrary contained herein, no request may be made under this Section 2 within ninety (90) days after the effective date of a registration statement filed by the Company covering a firm commitment underwritten public offering. The Company may postpone the filing or the effectiveness of any registration statement pursuant to this Section 2 for a reasonable time period, provided that such postponements shall not exceed ninety (90) days in the aggregate during any twelve (12) month period, if (i) the Company has been advised by legal counsel that such filing or effectiveness would require disclosure of a material financing, acquisition or other corporate transaction, and the Board of Directors of the Company determines in good faith that such disclosure is not in the best interests of the Company and its shareholders or (ii) the Board of Directors of the Company determines in good faith that there is a valid business purpose or reason for delaying filing or effectiveness. A registration will not count as a requested registration under this Section 2(a) until the registration statement relating to such registration has been declared effective by the Commission at the request of the initiating Investors; provided, however, that if a majority interest of the participating Investors of Registrable Securities shall request, in writing, that the Company withdraw a registration statement that has been filed under this Section 2(a) but not yet been declared effective because of a material adverse change in the condition, business or prospects of the Company and such request is made promptly after the requesting Investors learn of such change, a majority interest of such Investors may thereafter request the Company to reinstate such registration statement, if permitted under the Securities Act, or to file another registration statement, in accordance with the procedures set forth herein and unless the requesting Investors agree to pay the incremental costs associated with such withdrawal and subsequent reinstatement or filing, it will count as one (1) requested registration. (b) If a requested registration involves an underwritten public offering and the managing underwriter of such offering determines in good faith that the number of securities sought to be offered should be limited due to market conditions, then the number of securities to 3 be included in such underwritten public offering shall be reduced to a number deemed satisfactory by such managing underwriter; provided, however, that the shares to be excluded shall be determined in the following sequence: (i) first, securities held by any other Persons (other than the Investors holding Registrable Securities) not having registration rights or having contractual, incidental "piggy back" rights to include such securities in the registration statement, (ii) second, shares sought to be registered by the Company, (iii) third, Registrable Securities of Investors who did not make the original request for registration, and (iv) fourth, Registrable Securities of Investors who requested such registration pursuant to Section 2(a), it being understood that no shares shall be registered for the account of the Company or any shareholder other than the Investors unless all Registrable Securities for which Investors have requested registration have been registered. If there is a reduction of the number of Registrable Securities pursuant to clauses (i), (iii) or (iv), such reduction shall be made on a pro rata basis (based upon the aggregate number of shares of Common Stock or Registrable Securities held by the holders in each tranche and subject to the priorities set forth in the preceding sentence). (c) With respect to a request for registration pursuant to Section 2(a) that is for an underwritten public offering, the managing underwriter shall be chosen by the Investors holding not less than a majority of the Registrable Securities to be sold in such offering, subject to the Company's consent, which such consent shall not be unreasonably withheld. The Company may not cause any other registration of securities for sale for its own account (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable) to become effective within one hundred eighty (180), days following the effective date of any registration required pursuant to this Section 2 or such lesser period as may be consented to by the managing underwriter. (d) An Investor requesting registration pursuant to Section 2(a) shall provide all such information and materials and shall take all such actions as may be reasonably required in order to permit the Company to comply with all applicable requirements of the Commission and to obtain any desired acceleration of such registration statement. Specifically, the Company may require such Investor to furnish the Company with such information regarding the Investor and the distribution of its securities as the Company may from time to time reasonably request and as required by the Securities Act, the Exchange Act or the Commission. 3. FORM S-3. If the Company becomes eligible to use Form S-3 (or any comparable successor form) under the Securities Act, the Company shall use its best efforts to qualify and remain qualified to register securities on Form S-3 (or any comparable successor form) under the Securities Act. For so long as the Company is qualified to register securities on Form S-3 (or any comparable successor form), an Investor or Investors holding Registrable Securities anticipated to have an aggregate sale price (net of underwriting discounts and commissions, if any) in excess of $500,000 shall have the right, on one or more occasions, to request registration on Form S-3 (or any comparable successor form) for the Registrable Securities held by such requesting Investor or Investors; provided, however, that there shall not be more than two registrations under this Section 3 in any twelve (12) month period. Such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such Investor or Investors. The Company shall give notice to all other Investors holding Registrable Securities of the receipt of a request for 4 registration pursuant to this Section 3 and such Investors shall then have thirty (30) days to notify the Company in writing of their desire to participate in the registration. The Company shall use its best efforts to effect promptly the registration of all shares on Form S-3 (or any comparable successor form) to the extent requested by such Investor or Investors; provided, however, the Company may postpone the filing or the effectiveness of any registration statement pursuant to this Section 3 for a reasonable period of time, provided that such postponements shall not exceed ninety (90) days in the aggregate during any twelve (12) month period, if (i) the Company has been advised by legal counsel that such filing or effectiveness would require disclosure of a material financing, acquisition or other corporate transaction, and the Board of Directors of the Company determines in good faith that such disclosure is not in the best interests of the Company and its stockholders or (ii) the Board of Directors determines in good faith that there is a valid business purpose or reason for delaying filing or effectiveness. 4. PIGGYBACK REGISTRATION. If at any time or times, the Company shall propose to register any of its Common Stock or securities convertible into or exchangeable or exercisable for any of its Common Stock under the Securities Act for sale to the public (whether in connection with a public offering of securities by the Company (a "primary offering"), a public offering of securities by shareholders (a "secondary offering"), or both, including pursuant to a demand under Section 2 hereof, as provided therein, and except (i) with respect to registration statements on Forms S-4, S-8 or another form not available for registering the Registrable Securities for sale to the public, and (ii) in connection with a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any other similar rule of the Commission under the Securities Act is applicable), the Company shall promptly give written notice at the applicable address of record to each Investor and each Stockholder then holding Registrable Securities of its intention to do so. Upon the written request of any of such Investors or Stockholders, given within thirty (30) days after receipt by such Investors or Stockholders of such notice, the Company shall, subject to the limits contained in this Section 4, use its best efforts to cause all such Registrable Securities of said requesting Investors and/or Stockholders to be registered under the Securities Act and qualified for sale under any state blue sky law, all to the extent required to permit such sale or other disposition of said Registrable Securities; provided, however, that if the Company is advised in writing in good faith by any managing underwriter of the Company's securities being offered in a public offering pursuant to such registration statement that the amount to be sold by Persons other than the Company (collectively, "Selling Stockholders") is greater than the amount that can be offered without adversely affecting the offering, the Company may reduce the amount offered for the accounts of Selling Stockholders (including such Investors and/or Stockholders holding shares of Registrable Securities) to a number deemed satisfactory by such managing underwriter; and provided further, that the shares to be excluded shall be determined in the following sequence: (i) first, securities held by any Persons not having any such contractual, incidental registration rights, (ii) second, securities held by any Persons having contractual, incidental registration rights pursuant to an agreement other than this Agreement, (iii) third, in a registration requested pursuant to Section 2, all Registrable Securities other than those held by the initiating Investor or Investors, (iv) fourth, the Registrable Securities sought to be included by the Stockholders and (v) fifth, the Registrable Securities sought to be included by the Investors; provided, however, that so long as the Investors, upon the sale of the Registrable Securities held by the Investors included in such 5 offering, would receive net proceeds (after underwriting commissions and discounts) that, when added together with the net proceeds received by the Investors pursuant to all other sales of Registrable Securities under this Section 4 or Sections 2 and 3 below (including proceeds received in connection with the redemption by the Company of the Investors' shares of Redeemable Preferred Stock), would equal or exceed $65,000,000, the securities held by each Person described in clauses (iv) and (v) above sought to be included in such registration statement in connection with such underwritten public offering shall be excluded on a pro rata basis (based upon the aggregate holdings of securities of the holders thereof requesting inclusion of such Registrable Securities in such registration statement) holders thereof requesting registration, as determined on a pro rata basis in accordance with their holdings. 5. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of its securities under the Securities Act, the Company will, as expeditiously as possible: (a) prepare and file with the Commission a registration statement on the appropriate form under the Securities Act with respect to such securities, which form shall comply as to form in all respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its best efforts to cause such registration statement to become and remain effective until completion of the proposed offering; (b) prepare and file with the Commission such amendments, post-effective amendments, and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective until the earlier of (i) the date on which all Registrable Securities covered by such Registration Statement are sold or (ii) nine (9) months after the effective date of the registration statement and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such registration statement whenever the seller or sellers of such securities shall desire to sell or otherwise dispose of the same, but only to the extent provided in this Agreement; (c) furnish to each selling holder and the underwriters, if any, such number of copies of such registration statement, any amendments thereto, any documents incorporated by reference therein, the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as such selling holder may reasonably request in order to facilitate the public sale or other disposition of the securities owned by such selling holder; (d) register or qualify the securities covered by such registration statement under the securities or state "blue sky" laws of such jurisdictions as each selling holder may reasonably request, and do any and all other acts and things that may be necessary under such state securities or "blue sky" laws to enable such selling holder to consummate the public sale or other disposition in such jurisdictions of the securities owned by such selling holder; provided that the Company shall not be required to register or qualify the securities in any jurisdictions which require it to qualify to do business or subject itself to general service of process therein; 6 (e) within a reasonable time before each filing of the registration statement or prospectus or amendments or supplements thereto with the Commission, furnish to counsel selected by the holders of Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the approval of such counsel, which shall not be unreasonably withheld; (f) immediately notify each selling holder of Registrable Securities, such selling holders' counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, of the happening of any event that makes any statement made in the registration statement or related prospectus untrue, or which requires the making of any changes in such registration statement or prospectus so that they will not contain any untrue statement of a material fact, or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and thereafter, prepare and file with the Commission and furnish a supplement or amendment to such prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (g) use its best efforts to prevent the issuance of any order suspending the effectiveness of a registration statement, and if one is issued, immediately notify each selling holder of Registrable Securities of the receipt of such notice and use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a registration statement at the earliest possible moment; (h) if requested by the managing underwriter or underwriters (if any), any selling holder, or such selling holder's counsel, promptly incorporate in a prospectus supplement or post-effective amendment such information as such Person requests to be included therein with respect to the selling holder or the securities being sold, including, without limitation, with respect to the securities being sold by such selling holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and with respect to any other terms of an underwritten offering of the securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (i) make available to each selling holder, any underwriter participating in any disposition pursuant to a registration statement, and any attorney, accountant or other agent or representative retained by any such selling holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such registration statement subject, in each case, to such confidentiality agreements as the Company shall reasonably request; (j) enter into any reasonable underwriting agreement required by the proposed managing underwriter or underwriter(s) for the selling holders, if any, and use its best 7 efforts to facilitate the public offering of the securities; provided, however, that no Investor or Stockholder shall be required to make any representations or warranties other than with respect to its title to the Registrable Securities and any written information provided by it to the Company specifically for use in the registration statement, and if the proposed managing underwriter or underwriter(s) require that representations or warranties be made and that indemnification be provided, the Company shall make all such representations and warranties and provide all such indemnities, including, without limitation, in respect of the Company's business, operations and financial information and the disclosures relating thereto in the prospectus; (k) cause the securities covered by such registration statement to be listed on the securities exchange or quoted on the quotation system on which the similar securities issued by the Company are then listed or quoted (or, if the Common Stock is not yet listed or quoted, then on such exchange or quotation system as the selling holders of Registrable Securities and the Company shall determine); (l) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its shareholders, in each case as soon as practicable, but not later than 30 days after the close of the period covered thereby, an earnings statement of the Company that will satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any comparable successor provisions); and (m) otherwise cooperate with the underwriter(s), the Commission and other regulatory agencies and take all reasonable actions and execute and deliver or cause to be executed and delivered all documents reasonably necessary to effect the registration of any securities under this Agreement. (n) during the period when the prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act; (o) appoint a transfer agent and registrar for all Registrable Securities covered by a registration statement not later than the effective date of such registration statement; (p) in connection with an underwritten offering, to the extent reasonably requested by the managing underwriter for the offering or the selling holders, participate in and support customary efforts to sell the securities in the offering, including, without limitation, participating in "road shows". 6. EXPENSES. All expenses incurred by the Company, the Investors and the Stockholders in effecting the registrations provided for in Sections 2, 3 and 4, including, without limitation, all registration and filing fees, exchange or NASDAQ listing fees, printing expenses, reasonable fees and disbursements of counsel for the Company and one counsel for the Investor or Investors and/or Stockholder or Stockholders participating in such registration as a group (selected by a majority in interest of the holders of Registrable Securities who participate in the registration), underwriting expenses (other than commissions or discounts), expenses of any 8 audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdictions (all of such expenses referred to as "Registration Expenses"), shall be paid by the Company. 7. INDEMNIFICATION. (a) Incident to any registration statement referred to in this Agreement, and subject to applicable law, the Company shall indemnify and hold harmless each underwriter and each Investor and Stockholder (including its partners (including partners of partners and stockholders of any such partners), and directors, officers, employees and agents of any of them, and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (a "Controlling Person") (each an "Indemnified Party" and collectively, the "Indemnified Parties") who offers or sells any such Registrable Securities in connection with such registration statement, from and against any and all losses, claims, expenses, damages or liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), as the same are incurred to which they, or any of them, may become subject under the Securities Act, the Exchange Act, other federal or state statutory law or regulation, at common law, or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or action in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which such securities were registered under the Securities Act (including any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto), (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation by the Company of the Securities Act, any state securities or "blue sky" laws or any rule or regulation thereunder in connection with such registration, and except as otherwise provided in Section 7(d), the Company shall reimburse each such Indemnified Party in connection with investigating or defending any such liability as expenses in connection with the same are incurred; provided, however, that the Company shall not be liable to any Indemnified Party in any such case to the extent that any such liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, preliminary or final prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Party specifically for use therein; and provided further, that the Company shall not be required to indemnify any Indemnified Party against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability that arises out of the failure of any Indemnified Party to deliver a prospectus as required by the Securities Act. (b) Each selling holder, if any, selling Registrable Securities included in such registration being effected shall indemnify and hold harmless each underwriter, the Company (including its directors, officers, employees and agents), and each other Selling Stockholder (including its partners (including partners of partners and stockholders of such partners) and directors, officers, employees and agents of any of them), and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, 9 from and against any and all losses, claims, damages, expenses and liabilities, joint or several, to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law, or otherwise to the same extent provided in Section 7(a) above, insofar as such liability (or actions in respect thereof) arises out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any registration statement under which securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any omission or alleged omission by such selling holder to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in the case of (i) and (ii) to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in such registration statement, preliminary or final prospectus, amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to the Company by such selling holder specifically for use therein. Subject to the foregoing limitation, such selling holder, if any, shall reimburse any Indemnified Party for any legal fees incurred in investigating or defending any such liability; provided, however, in no event, however, shall the liability of any selling holder for indemnification under this Section 7 in its capacity as a seller or Registrable Securities exceed the lesser of (i) that proportion of the total of such losses, claims, damages, expenses or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such selling holder, or (ii) the amount equal to the proceeds to such selling holder of the securities sold in any such registration; and provided further, that no selling holder shall be required to indemnify any Person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any Person to deliver a prospectus as required by the Securities Act. (c) If the indemnification provided for in this Section 7 for any reason is held by a court of competent jurisdiction to be unavailable to an Indemnified Party in respect of any losses, claims, damages, expenses or liabilities referred to therein, then each indemnifying party under this Section 7, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the selling holders and the underwriters from the offering of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the other selling holders and the underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, the selling holders and the underwriters shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company, and the selling holders and the underwriting discount received by the underwriters, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities. The relative fault of the Company, the selling holders and the 10 underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the selling holders or the underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Investors, the Stockholders and the underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In no event, however, shall a selling holder be required to contribute any amount under this Section 7(d) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages, expenses or liabilities indemnified against equal to the proportion of the total Registrable Securities sold under such registration statement that are being sold by such selling holder or (ii) the proceeds received by such selling holder from its sale of Registrable Securities under such registration statement. No Person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation. 11 (d) The amount paid by an indemnifying party or payable to an indemnified party as a result of the losses, claims, damages, expenses and liabilities referred to in this Section 7 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim, payable as the same are incurred. The indemnification and contribution provided for in this Section 7 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified parties or any officer, director, employee, agent or controlling person of the indemnified parties. 8. COMPLIANCE WITH RULE 144. In the event that the Company (i) registers a class of securities under Section 12 of the Exchange Act or (ii) shall commence to file reports under Section 13 or 15(d) of the Exchange Act, the Company will use its best efforts thereafter to file with the Commission such information as is required under the Exchange Act for so long as there are holders of Registrable Securities; and in such event, the Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 or Rule 144A under the Securities Act (or any comparable successor rules). The Company shall furnish to any holder of Registrable Securities upon request a written statement executed by the Company as to the steps it has taken to comply with the current public information requirement of Rule 144 or Rule 144A (or such comparable successor rules). After the occurrence of the first underwritten public offering of Common Stock pursuant to an offering registered under the Securities Act on Form S-1 or Form SB-1 (or any comparable successor forms), subject to the limitations on transfers imposed by this Agreement, the Company shall use its best efforts to facilitate and expedite transfers of Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities Act, which efforts shall include timely notice to its transfer agent to expedite such transfers of Registrable Securities. 9. AMENDMENTS. The provisions of this Agreement may be amended only with the written consent of the Company and a Majority Interest; provided, however, that any amendment to Sections 4 or 7 that adversely affects the rights of the Stockholders shall require the prior written consent of a majority in interest of the outstanding Registrable Securities held by Stockholders. 10. TRANSFERABILITY OF REGISTRATION RIGHTS. The registration rights set forth in this Agreement are transferable to each permitted transferee of Registrable Securities. Each subsequent holder of Registrable Securities must consent in writing to be bound by the terms and conditions of this Agreement in order to acquire the rights granted pursuant to this Agreement. The transferor of Registrable Securities shall give the Company written notice at the time of such transfer stating the name and address of the transferee and identifying the Registrable Securities transferred. 11. RIGHTS WHICH MAY BE GRANTED TO SUBSEQUENT INVESTORS. Other than permitted transferees of Registrable Securities under Section 10 hereof, the Company shall not, without the prior written consent of a Majority Interest, (a) allow purchasers of the Company's securities to become a party to this Agreement or (b) grant any other registration rights to any third parties other than subordinate piggyback registration rights. 12 12. DAMAGES. The Company recognizes and agrees that each holder of Registrable Securities will not have an adequate remedy if the Company fails to comply with the terms and provisions of this Agreement and that damages will not be readily ascertainable, and the Company expressly agrees that, in the event of such failure, it shall not oppose an application by any holder of Registrable Securities or any other Person entitled to the benefits of this Agreement requiring specific performance of any and all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement. 13. MISCELLANEOUS. (a) All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), telegraphed, sent by express overnight courier service or electronic facsimile transmission (with a copy by mail), or delivered to the applicable party at the addresses indicated below: If to the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelein, IL 60060-4483 Telecopy No.: (847) 367-8640 with a copy to: Katten Muchin Zavis Rosenman 525 West Monroe, Suite 1600 Chicago, IL 60661-3693 Attention: Howard S. Lanznar Telecopy No.: (312) 902-1061 If to the Investors: TA Associates, Inc. 125 High Street Suite 2500 Boston, MA 02110 Attention: Michael C. Child and Jameson J. McJunkin Telecopy No.: (617) 574-6728 If to any other holder of Registrable Securities: At such Person's address for notice as set forth in the books and records of the Company: 13 or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to other parties complying as to delivery with the terms of this subsection (a). All such notices, requests, demands and other communications shall, when mailed, telegraphed or sent, respectively, be effective (i) two days after being deposited in the mails or (ii) one day after being delivered to the telegraph company, deposited with the express overnight courier service or sent by electronic facsimile transmission, respectively, addressed as aforesaid. (b) This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without giving effect to conflict of laws principles thereof. (c) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (d) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such illegal, invalid or unenforceable provision were not contained herein. 14. DISPUTE RESOLUTION. All disputes, claims, or controversies arising out of or relating to this Agreement, or any other agreement executed and delivered pursuant to this Agreement, or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby, that are not resolved by mutual agreement shall be resolved in accordance with the provisions set forth in Sections 6.7 and 6.8 of the Purchase Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] 14 IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed as of the date first set forth above. THE COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ----------------------------------- Name: Leonard Foxman Title: President [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] LEONARD FOXMAN By: /s/ Leonard Foxman ----------------------------------- Leonard Foxman FOXMAN FAMILY, LLC By: /s/ Leonard Foxman ----------------------------------- Leonard Foxman Its: Manager EAGLE TEST SYSTEMS, INC. EMPLOYEE STOCK OWNERSHIP PLAN By: /s/ Leonard Foxman ----------------------------------- Leonard Foxman, not in his individual capacity or in his capacity as shareholder, director or officer of the Corporation, but solely as trustee of the Eagle Test Systems Employee Stock Ownership Plan JACK WEIMER By: /s/ Jack Weimer ----------------------------------- Jack Weimer STEVE DOLLENS By: /s/ Steve Dollens ----------------------------------- Steve Dollens [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] INVESTORS: TA IX L.P. By: TA Associates IX LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ----------------------------------- Name: Michael C. Child Its: Managing Director TA/ATLANTIC AND PACIFIC IV L.P. By: TA Associates AP IV L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ----------------------------------- Name: Michael C. Child Its: Managing Director TA STRATEGIC PARTNERS FUND A L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ----------------------------------- Name: Michael C. Child Its: Managing Director [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] TA STRATEGIC PARTNERS FUND B L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ----------------------------------- Name: Michael C. Child Its: Managing Director TA INVESTORS LLC By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ----------------------------------- Name: Michael C. Child Its: Managing Director TA SUBORDINATED DEBT FUND, L.P. By: TA Associates SDF LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ----------------------------------- Name: Michael C. Child Its: Managing Director [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] EX-10.1 3 c86449exv10w1.txt 2003 STOCK OPTION AND GRANT PLAN EXHIBIT 10.1 EAGLE TEST SYSTEMS, INC. 2003 STOCK OPTION AND GRANT PLAN SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS The name of the plan is the Eagle Test Systems, Inc. 2003 Stock Option and Grant Plan (the "Plan"). The purpose of the Plan is to encourage and enable the officers, employees, directors, consultants and other key persons of Eagle Test Systems, Inc., an Illinois corporation (the "Company") and its Subsidiaries, upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company's welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company's behalf and strengthening their desire to remain with the Company. The following terms shall be defined as set forth below: "Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder. "Award" or "Awards," except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, or any combination of the foregoing. "Board" means the Board of Directors of the Company or its successor entity. "Cause" means a vote of the Board resolving that the grantee should be dismissed as a result of (i) the commission of any act by a grantee constituting financial dishonesty against the Company (which act would be chargeable as a crime under applicable law); (ii) a grantee's engaging in any other act of dishonesty, fraud, intentional misrepresentation, moral turpitude, illegality or harassment which, as determined in good faith by the Board, would: (A) materially adversely affect the business or the reputation of the Company with its current or prospective customers, suppliers, lenders and/or other third parties with whom it does or might do business; or (B) expose the Company to a risk of civil or criminal legal damages, liabilities or penalties; (iii) the repeated failure by a grantee to follow the directives of the Company's chief executive officer or Board or (iv) any material misconduct, violation of the Company's policies, or willful and deliberate non-performance of duty by the grantee in connection with the business affairs of the Company. "Code" means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations. "Committee" has the meaning specified in Section 2. "Effective Date" means the date on which the Plan is approved by shareholders as set forth at the end of this Plan. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder. "Fair Market Value" of the Stock on any given date means the fair market value of the Stock determined in good faith by the Committee; provided, however, that (i) if the Stock trades on a national securities exchange, the Fair Market Value on any given date is the closing sale price on such date; (ii) if the Stock does not trade on any national securities exchange but is admitted to trading on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date is the closing sale price as reported by NASDAQ on such date; or if no such closing sale price information is available, the average of the highest bid and lowest asked prices for the Stock reported on such date. For any date that is not a trading day, the Fair Market Value of the Stock for such date will be determined by using the closing sale price or the average of the highest bid and lowest asked prices, as appropriate, for the immediately preceding trading day. The Committee can substitute a particular time of day or other measure of closing sale price if appropriate because of changes in exchange or market procedures. Notwithstanding the foregoing, if the date for which Fair Market Value is determined is the first day when trading prices for the Stock are reported on NASDAQ or trading on a national securities exchange, the Fair Market Value shall be the "Price to the Public" (or equivalent) set forth on the cover page for the final prospectus relating to the Company's Initial Public Offering. "Good Reason" means the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the grantee's responsibilities, authorities, powers, functions or duties; (ii) a reduction in the grantee's annual base salary except for across-the-board salary reductions similarly affecting all or substantially all management employees; or (iii) the relocation of the offices at which the grantee is principally employed to a location more than 50 miles from such offices. "Incentive Stock Option" means any Stock Option designated and qualified as an "incentive stock option" as defined in Section 422 of the Code. "Initial Public Offering" means the consummation of the first fully underwritten, firm commitment public offering pursuant to an effective registration statement under the Act covering the offer and sale by the Company of its equity securities, as a result of or following which the shares of Stock shall be publicly held. "Non-Qualified Stock Option" means any Stock Option that is not an Incentive Stock Option. "Option" or "Stock Option" means any option to purchase shares of Stock granted pursuant to Section 5. "Restricted Stock Award" means Awards granted pursuant to Section 6. 2 "Stock" means the Common Stock, no par value, of the Company, subject to adjustments pursuant to Section 3. "Subsidiary" means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning with the Company if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50 percent or more of the economic interest or 50 percent or more of the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain. "Unrestricted Stock Award" means any Award granted pursuant to Section 7. SECTION 2. ADMINISTRATION OF PLAN; COMMITTEE AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS (a) Administration of Plan. The Plan shall be administered by the Board, or at the discretion of the Board, by a committee of the Board, comprised, except as contemplated by Section 2(c), of not less than two Directors. All references herein to the Committee shall be deemed to refer to the group then responsible for administration of the Plan at the relevant time (i.e., either the Board of Directors or a committee or committees of the Board, as applicable). (b) Powers of Committee. The Committee shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority: (i) to select the individuals to whom Awards may from time to time be granted; (ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Restricted Stock Awards, Unrestricted Stock Awards, or any combination of the foregoing, granted to any one or more grantees; (iii) to determine the number of shares of Stock to be covered by any Award; (iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of written instruments evidencing the Awards; (v) to accelerate at any time the exercisability or vesting of all or any portion of any Award; (vi) to impose any limitations on Awards granted under the Plan, including limitations on transfers, repurchase provisions and the like and to exercise repurchase rights or obligations; (vii) subject to the provisions of Section 5(a)(ii), to extend at any time the period in which Stock Options may be exercised; 3 (viii) to determine at any time whether, to what extent, and under what circumstances distribution or the receipt of Stock and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the grantee and whether and to what extent the Company shall pay or credit amounts constituting interest (at rates determined by the Committee) or dividends or deemed dividends on such deferrals; and (ix) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan. All decisions and interpretations of the Committee shall be binding on all persons, including the Company and Plan grantees. (c) Delegation of Authority to Grant Awards. The Committee, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Committee's authority and duties with respect to the granting of Awards at Fair Market Value, and in the event of such delegation, such Chief Executive Officer shall be deemed a one-person Committee of the Board. Any such delegation by the Committee shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Option, the conversion ratio or price of other Awards and the vesting criteria. The Committee may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Committee's delegate or delegates that were consistent with the terms of the Plan. (d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegatee thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegatee thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys' fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors' and officers' liability insurance coverage which may be in effect from time to time. SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION (a) Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 273.516 shares of Common Stock, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, canceled, reacquired by the Company, satisfied without the issuance of Stock or otherwise terminated (other than by exercise) shall be added back to the shares of Stock available for issuance under the Plan. Subject to such overall limitation, shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that from and after the date the Company becomes subject to the deduction limit imposed by Section 162(m) of the Code, Stock Options with respect to no more than the number of shares of 4 Stock allowed thereunder may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company and held in its treasury. (b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company's capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger, consolidation or sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Committee shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, (ii) the number of Stock Options that can be granted to any one individual grantee, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the exercise price and/or exchange price for each share subject to any then outstanding Stock Options under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options ) as to which such Stock Options remain exercisable. The adjustment by the Committee shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Committee in its discretion may make a cash payment in lieu of fractional shares. The Committee may also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Committee that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code. (c) Mergers and Other Sale Events. In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for securities of the successor entity and the holders of the Company's outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, (iv) the sale of all or a majority of the outstanding capital stock of the Company to an unrelated person or entity or (v) any other transaction in which, the owners of the Company's outstanding voting power prior to such transaction do not own at least a majority of the outstanding voting power of the successor entity immediately upon completion of the transaction (in each case, regardless of the form thereof, a "Sale Event"), unless otherwise provided in the Award agreement, the Plan and all outstanding Options issued hereunder shall terminate upon the effective time of any such 5 Sale Event, unless provision is made in connection with such transaction in the sole discretion of the parties thereto for the assumption or continuation of Options theretofore granted (after taking into account any acceleration hereunder) by the successor entity, or the substitution of such Options with new Options of the successor entity or a parent or subsidiary thereof, with such adjustment as to the number and kind of shares and the per share exercise prices as such parties shall agree (after taking into account any acceleration if any, hereunder). In the event of such termination, each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Committee, to exercise all outstanding Options held by such grantee that are then exercisable or will become exercisable as of the effective time of the Sale Event; provided, however, that the exercise of Options not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event. (The treatment of Restricted Stock Award in connection with any such transaction shall be as specified in the relevant Award agreement.) Notwithstanding anything herein to the contrary, in the event that provision is made in connection with the Sale Event for the assumption or continuation of Awards, or the substitution of such Awards with new Awards of the successor entity or parent thereof, then, except as the Committee may otherwise determine with respect to particular Awards, any Award so assumed or continued or substituted therefor shall be deemed vested and exercisable in full upon the date on which the grantee's employment or service relationship with the Company and its subsidiaries or successor entity, as the case may be, terminates if such termination occurs (i) within 18 months after such Sale Event and (ii) such termination is by the Company or its Subsidiaries or successor entity without Cause or by the grantee for Good Reason. Notwithstanding anything to the contrary in this Plan or in any Award, in the event of a Sale Event pursuant to which holders of the Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding vested Options, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Committee of the consideration payable per share of Stock pursuant to the Sale Event (the "Sale Price") times the number of shares of Stock subject to such outstanding Options (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options. (d) Substitute Awards. The Committee may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with a merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Committee may direct that the substitute awards be granted on such terms and conditions as the Committee considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a). (e) The terms of any Award approved by the Committee shall govern such Award to the extent of any inconsistency between the Plan, such Award being deemed an amendment to the Plan with respect to such Award only. 6 SECTION 4. ELIGIBILITY Grantees in the Plan will be such full or part-time officers, employees, directors, consultants and other key persons (including prospective employees) of the Company and its Subsidiaries who are responsible for, or contribute to, the management, growth or profitability of the Company and its Subsidiaries as are selected from time to time by the Committee in its sole discretion. SECTION 5. STOCK OPTIONS Any Stock Option granted under the Plan shall be pursuant to a Stock Option Agreement which shall be in such form as the Committee may from time to time approve. Option agreements need not be identical. Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a "subsidiary corporation" within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option. No Incentive Stock Option shall be granted under the Plan after the date which is ten years from the date the Plan is approved by the Board. (a) Terms of Stock Options. Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable. If the Committee so determines, Stock Options may be granted in lieu of cash compensation at the grantee's election, subject to such terms and conditions as the Committee may establish, as well as in addition to other compensation. (i) Exercise Price. The exercise price per share for the Stock covered by a Stock Option shall be determined by the Committee at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant in the case of Incentive Stock Options. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date. (ii) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than ten years after the date the Stock Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Stock Option shall be no more than five years from the date of grant. 7 (iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Committee at or after the grant date. The Committee may at any time accelerate the exercisability of all or any portion of any Stock Option. An grantee shall have the rights of a shareholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options. (iv) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Award agreement or as otherwise provided by the Committee: (A) In cash, by certified or bank check, or other instrument acceptable to the Committee in U.S. funds payable to the order of the Company in an amount equal to the purchase price of such Option Shares; (B) If permitted by the Committee, through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the grantee on the open market or have been beneficially owned by the grantee for at least six months and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date; (C) If permitted by the Committee, by the grantee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company to pay the purchase price; provided that in the event the grantee chooses to pay the purchase price as so provided, the grantee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Committee shall prescribe as a condition of such payment procedure. Payment instruments will be received subject to collection. No certificates for shares of Stock so purchased will be issued to grantee until the Company has completed all steps required by law to be taken in connection with the issuance and sale of the shares, including without limitation (i) receipt of a representation from the grantee at the time of exercise of the Option that the grantee is purchasing the shares for the grantee's own account and not with a view to any sale or distribution thereof, (ii) the legending of any certificate representing the shares to evidence the foregoing representations and restrictions, and (iii) obtaining from grantee payment or provision for all withholding taxes due as a result of the exercise of the Option. The delivery of certificates representing the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the grantee (or a purchaser acting in his or her stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws. In the event an grantee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the shares of Stock transferred to the grantee upon the exercise of the Stock Option shall be net of the number of shares attested to. 8 (b) Annual Limit on Incentive Stock Options. To the extent required for "incentive stock option" treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an grantee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option. (c) Non-transferability of Options. No Stock Option shall be transferable by the grantee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the grantee's lifetime, only by the grantee, or by the grantee's legal representative or guardian in the event of the grantee's incapacity. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide in the Award agreement regarding a given Option that the grantee may transfer, without consideration for the transfer, his or her Non-Qualified Stock Options to members of his or her immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option. SECTION 6. RESTRICTED STOCK AWARDS (a) Nature of Restricted Stock Awards. A Restricted Stock Award is an Award pursuant to which the Company may, in its sole discretion, grant or sell, at such purchase price as determined by the Committee, in its sole discretion, shares of Stock subject to such restrictions and conditions as the Committee may determine at the time of grant ("Restricted Stock"), which purchase price shall be payable in cash or other form of consideration acceptable to the Committee. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The terms and conditions of each such agreement shall be determined by the Committee, and such terms and conditions may differ among individual Awards and grantees. (b) Rights as a Stockholder. Upon execution of a written instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Committee shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in subsection (d) below of this Section, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank. (c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement. If a grantee's employment (or other service relationship) with the Company and its Subsidiaries terminates under the conditions specified in the relevant instrument relating to the Award, or upon such other event or events as may be stated in the instrument evidencing the Award, the Company or its assigns shall have the right or shall agree, 9 as may be specified in the relevant instrument, to repurchase some or all of the shares of Stock subject to the Award at such purchase price as is set forth in such instrument. (d) Vesting of Restricted Stock. The Committee at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which Restricted Stock shall become vested, subject to such further rights of the Company or its assigns as may be specified in the instrument evidencing the Restricted Stock Award. (e) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock Award agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock. SECTION 7. UNRESTRICTED STOCK AWARDS (a) Grant or Sale of Unrestricted Stock. The Committee may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Committee) an Unrestricted Stock Award to any grantee, pursuant to which such grantee may receive shares of Stock free of any vesting restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of any cash compensation due to such individual. (b) Elections to Receive Unrestricted Stock In Lieu of Compensation. Upon the request of a grantee and with the consent of the Committee, each such grantee may, pursuant to an advance written election delivered to the Company no later than the date specified by the Committee, receive a portion of the cash compensation otherwise due to such grantee in the form of shares of Unrestricted Stock either currently or on a deferred basis. (c) Restrictions on Transfers. The right to receive shares of Unrestricted Stock on a deferred basis may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution. SECTION 8. TAX WITHHOLDING (a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Committee regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company's obligation to deliver stock certificates to any grantee is subject to and conditioned on tax obligations being satisfied by the grantee. (b) Payment in Stock. Subject to approval by the Committee, a grantee may elect to have the minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is 10 effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the minimum withholding amount due. SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC. For purposes of the Plan, the following events shall not be deemed a termination of employment: (a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or (b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee's right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Committee otherwise so provides in writing. SECTION 10. AMENDMENTS AND TERMINATION The Board may, at any time, amend or discontinue the Plan and the Committee may, at any time, amend or cancel any outstanding Award (or provide substitute Awards at the same or reduced exercise or purchase price or with no exercise or purchase price in a manner not inconsistent with the terms of the Plan), but such price, if any, must satisfy the requirements that would apply to the substitute or amended Award if it were then initially granted under this Plan for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder's consent. If and to the extent determined by the Committee to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code, Plan amendments shall be subject to approval by the Company's shareholders who would be eligible to vote at a meeting of shareholders on such matter. Nothing in this Section 10 shall limit the Board's or Committee's authority to take any action permitted pursuant to Section 3(c). SECTION 11. STATUS OF PLAN With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Committee shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the Company's obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence. SECTION 12. GENERAL PROVISIONS (a) No Distribution; Compliance with Legal Requirements. The Committee may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. No shares of Stock shall be issued pursuant to an Award until all applicable securities 11 law and other legal and stock exchange or similar requirements have been satisfied. The Committee may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate. (b) Delivery of Stock Certificates. Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee's last known address on file with the Company. (c) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary. (d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to such Company's insider-trading-policy-related restrictions, terms and conditions as may be established by the Committee, or in accordance with policies set by the Committee, from time to time. (e) Loans to Award Recipients. The Company shall have the authority to make loans to recipients of Awards hereunder (including to facilitate the purchase of shares) and shall further have the authority to issue shares for promissory notes hereunder. (f) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee's death. Any such designation shall be on a form provided for that purpose by the Committee and shall not be effective until received by the Committee. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee's estate. SECTION 13. EFFECTIVE DATE OF PLAN This Plan shall become effective upon approval by the shareholders in accordance with applicable law. Subject to such approval by the shareholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board. 12 SECTION 14. GOVERNING LAW This Plan and all Awards and actions taken thereunder shall be governed by Illinois law, applied without regard to conflict of law principles. ADOPTED BY BOARD OF DIRECTORS: September 29, 2003 APPROVED BY SHAREHOLDERS: September 29, 2003 13 EX-10.4 4 c86449exv10w4.txt EMPLOYEE STOCK OWNERSHIP PLAN EXHIBIT 10.4 EAGLE TEST SYSTEMS EMPLOYEE STOCK OWNERSHIP PLAN . . . TABLE OF CONTENTS ARTICLE I - DEFINITIONS................................................... 1 1.1 "Act"......................................................... 1 1.2 "Administrator"............................................... 1 1.3 "Affiliated Employer"......................................... 1 1.4 "Aggregate Account"........................................... 2 1.5 "Anniversary Date"............................................ 2 1.6 "Beneficiary"................................................. 2 1.7 "Code"........................................................ 2 1.8 "Company Stock"............................................... 2 1.9 "Company Stock Account"....................................... 2 1.10 "Compensation"................................................ 2 1.11 "Contract" or "Policy"........................................ 3 1.12 "Early Retirement Date"....................................... 3 1.13 "Eligible Employee"........................................... 3 1.14 "Employee".................................................... 3 1.15 "Employer".................................................... 4 1.16 "ESOP"........................................................ 4 1.17 "Fiduciary"................................................... 4 1.18 "Fiscal Year"................................................. 4 1.19 "Forfeiture".................................................. 4 1.20 "Former Participant".......................................... 4 1.21 "415 Compensation"............................................ 4 1.22 "Highly Compensated Employee"................................. 5 1.23 "Highly Compensated Participant".............................. 6 1.24 "Hour of Service"............................................. 6 1.25 "Income"...................................................... 7 1.26 "Investment Manager".......................................... 7 1.27 "Key Employee"................................................ 7 1.28 "Late Retirement Date"........................................ 8 1.29 "Leased Employee"............................................. 8 1.30 "Non-Highly Compensated Participant".......................... 8 1.31 "Non-Key Employee"............................................ 8 1.32 "Normal Retirement Age"....................................... 9 1.33 "Normal Retirement Date"...................................... 9 1.34 "1-Year Break in Service"..................................... 9 1.35 "Other Investments Account"................................... 9 1.36 "Participant"................................................. 9 1.37 "Participant's Account"....................................... 9 1.38 "Plan"........................................................ 9 1.39 "Plan Year"................................................... 9 1.40 "Regulation".................................................. 10 1.41 "Retired Participant"......................................... 10 1.42 "Retirement Date"............................................. 10 1.43 "Terminated Participant"...................................... 10

i 1.44 "Top Heavy Plan".............................................. 10 1.45 "Top Heavy Plan Year"......................................... 10 1.46 "Total and Permanent Disability".............................. 10 1.47 "Trustee"..................................................... 10 1.48 "Trust Fund".................................................. 10 1.49 "Valuation Date".............................................. 10 1.50 "Vested"...................................................... 10 1.51 "Year of Service"............................................. 10 ARTICLE II - ADMINISTRATION............................................... 11 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER................... 11 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY....................... 12 2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES................. 12 2.4 POWERS AND DUTIES OF THE ADMINISTRATOR........................ 12 2.5 RECORDS AND REPORTS........................................... 13 2.6 APPOINTMENT OF ADVISERS....................................... 14 2.7 PAYMENT OF EXPENSES........................................... 14 2.8 CLAIMS PROCEDURE.............................................. 14 2.9 CLAIMS REVIEW PROCEDURE....................................... 14 ARTICLE III - ELIGIBILITY................................................. 15 3.1 CONDITIONS OF ELIGIBILITY..................................... 15 3.2 EFFECTIVE DATE OF PARTICIPATION............................... 15 3.3 DETERMINATION OF ELIGIBILITY.................................. 15 3.4 TERMINATION OF ELIGIBILITY.................................... 15 3.5 OMISSION OF ELIGIBLE EMPLOYEE................................. 15 3.6 INCLUSION OF INELIGIBLE EMPLOYEE.............................. 15 3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE....................... 16 3.8 ELECTION NOT TO PARTICIPATE................................... 17 ARTICLE IV - CONTRIBUTION AND ALLOCATION.................................. 17 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION................. 17 4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION...................... 17 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.......... 17 4.4 MAXIMUM ANNUAL ADDITIONS...................................... 20 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS..................... 22 4.6 DIRECTED INVESTMENT ACCOUNT................................... 23 4.7 QUALIFIED MILITARY SERVICE.................................... 24 ARTICLE V - FUNDING AND INVESTMENT POLICY................................. 24 5.1 INVESTMENT POLICY............................................. 24 5.2 TRANSACTIONS INVOLVING COMPANY STOCK.......................... 25 ARTICLE VI - VALUATIONS................................................... 26 6.1 VALUATION OF THE TRUST FUND................................... 26 6.2 METHOD OF VALUATION........................................... 26

ii ARTICLE VII - DETERMINATION AND DISTRIBUTION OF BENEFITS.................. 26 7.1 DETERMINATION OF BENEFITS UPON RETIREMENT..................... 26 7.2 DETERMINATION OF BENEFITS UPON DEATH.......................... 26 7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY.............. 28 7.4 DETERMINATION OF BENEFITS UPON TERMINATION.................... 28 7.5 DISTRIBUTION OF BENEFITS...................................... 30 7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED.......................... 33 7.7 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY............. 34 7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN................ 34 7.9 RIGHT OF FIRST REFUSALS....................................... 34 7.10 STOCK CERTIFICATE LEGEND...................................... 35 7.11 PRE-RETIREMENT DISTRIBUTION................................... 35 7.12 ADVANCE DISTRIBUTION FOR HARDSHIP............................. 36 7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION............... 36 ARTICLE VIII - TRUSTEE.................................................... 37 8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE......................... 37 8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE................... 37 8.3 OTHER POWERS OF THE TRUSTEE................................... 38 8.4 LOANS TO PARTICIPANTS......................................... 41 8.5 VOTING COMPANY STOCK.......................................... 42 8.6 DUTIES OF THE TRUSTEE REGARDING PAYMENTS...................... 43 8.7 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES................. 43 8.8 ANNUAL REPORT OF THE TRUSTEE.................................. 43 8.9 AUDIT......................................................... 44 8.10 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE................ 44 8.11 TRANSFER OF INTEREST.......................................... 45 8.12 TRUSTEE INDEMNIFICATION....................................... 45 8.13 DIRECT ROLLOVER............................................... 45 ARTICLE IX - AMENDMENT, TERMINATION AND MERGERS........................... 46 9.1 AMENDMENT..................................................... 46 9.2 TERMINATION................................................... 47 9.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS................... 47 ARTICLE X - TOP HEAVY..................................................... 47 10.1 TOP HEAVY PLAN REQUIREMENTS................................... 47 10.2 DETERMINATION OF TOP HEAVY STATUS............................. 48 ARTICLE XI - MISCELLANEOUS................................................ 50 11.1 PARTICIPANT'S RIGHTS.......................................... 50 11.2 ALIENATION.................................................... 50 11.3 CONSTRUCTION OF PLAN.......................................... 51 11.4 GENDER AND NUMBER............................................. 51 11.5 LEGAL ACTION.................................................. 51 11.6 PROHIBITION AGAINST DIVERSION OF FUNDS........................ 51 11.7 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE.................... 52

iii 11.8 INSURER'S PROTECTIVE CLAUSE................................... 52 11.9 RECEIPT AND RELEASE FOR PAYMENTS.............................. 52 11.10 ACTION BY THE EMPLOYER........................................ 52 11.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY............ 53 11.12 HEADINGS...................................................... 53 11.13 APPROVAL BY INTERNAL REVENUE SERVICE.......................... 53 11.14 UNIFORMITY.................................................... 53 11.15 SECURITIES AND EXCHANGE COMMISSION APPROVAL................... 53 ARTICLE XII - PARTICIPATING EMPLOYERS..................................... 54 12.1 ADOPTION BY OTHER EMPLOYERS................................... 54 12.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS....................... 54 12.3 DESIGNATION OF AGENT.......................................... 54 12.4 EMPLOYEE TRANSFERS............................................ 54 12.5 PARTICIPATING EMPLOYER CONTRIBUTION AND FORFEITURES........... 54 12.6 AMENDMENT..................................................... 55 12.7 DISCONTINUANCE OF PARTICIPATION............................... 55 12.8 ADMINISTRATOR'S AUTHORITY..................................... 55

iv EAGLE TEST SYSTEMS EMPLOYEE STOCK OWNERSHIP PLAN THIS AGREEMENT, hereby made and entered into this 19th day of September 2002, by and between Eagle Test Systems, Inc. (herein referred to as the "Employer") and Leonard Foxman (herein referred to as the "Trustee"). WITNESSETH: WHEREAS, the Employer heretofore established an Employee Stock Ownership Plan effective October 1, 1995, (hereinafter called the "Effective Date") known as Eagle Test Systems Employee Stock Ownership Plan (herein referred to as the "Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended; and WHEREAS, contributions to the Plan will be made by the Employer and such contributions made to the trust will be invested primarily in the capital stock of the Employer; NOW, THEREFORE, effective October 1, 2001, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and restate the Plan to provide as follows: ARTICLE I - DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). 1 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 10.2. 1.5 "Anniversary Date" means the last day of the Plan Year. 1.6 "Beneficiary" means the person (or entity) to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 7.2 and 7.5. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.8 "Company Stock" means common stock issued by the Employer (or by a corporation which is a member of the controlled group of corporations of which the Employer is a member) which is readily tradeable on an established securities market. If there is no common stock which meets the foregoing requirement, the term "Company Stock" means common stock issued by the Employer (or by a corporation which is a member of the same controlled group) having a combination of voting power and dividend rights equal to or in excess of: (A) that class of common stock of the Employer (or of any other such corporation) having the greatest voting power, and (B) that class of common stock of the Employer (or of any other such corporation) having the greatest dividend rights. Noncallable preferred stock shall be deemed to be "Company Stock" if such stock is convertible at any time into stock which constitutes "Company Stock" hereunder and if such conversion is at a conversion price which (as of the date of the acquisition by the Trust) is reasonable. For purposes of the preceding sentence, pursuant to Regulations, preferred stock shall be treated as noncallable if after the call there will be a reasonable opportunity for a conversion which meets the requirements of the preceding sentence. 1.9 "Company Stock Account" means the account of a Participant which is credited with the shares of Company Stock purchased and paid for by the Trust Fund or contributed to the Trust Fund. 1.10 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401(a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For purposes of this Section, the determination of Compensation shall be made by: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4) for Plan Years beginning after December 31, 2000, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 2 For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year. Compensation in excess of $150,000 (or such other amount provided in the Code) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401 (a)(1 7)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). For Plan Years beginning after December 31, 1996, for purposes of determining Compensation, the family member aggregation rules of Code Section 401 (a)(1 7) and Code Section 414(q)(6) (as in effect prior to the Small Business Job Protection Act of 1996) are eliminated. For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan. 1.11 "Contract" or "Policy" means any life insurance policy, retirement income policy or annuity policy (group or individual) issued pursuant to the terms of the Plan. In the event of any conflict between the terms of this Plan and the terms of any contract purchased hereunder, the Plan provisions shall control. 1.12 "Early Retirement Date" means the first day of the month (prior to the Normal Retirement Date) coinciding with or following the date on which a Participant or Former Participant attains age Sixty, and has completed at least Five Years of Service with the Employer (Early Retirement Age). A Participant shall become fully Vested upon satisfying this requirement if still employed at Early Retirement Age. A Former Participant who separates from service after satisfying the service requirement for Early Retirement and who thereafter reaches the age requirement contained herein shall be entitled to receive benefits under this Plan. 1.13 "Eligible Employee" means any Employee. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. Employees classified by the Employer as independent contractors who are subsequently determined by the Internal Revenue Service to be Employees shall not be Eligible Employees. 1.14 "Employee" means any person who is employed by the Employer or Affiliated Employer, and excludes any person who is employed as an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and 3 such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.15 "Employer" means Eagle Test Systems, Inc. and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employer is a corporation with principal offices in the State of Illinois. In addition, where appropriate, the term Employer shall include any Participating Employer (as defined in Section 12.1) which shall adopt this Plan. 1.16 "ESOP" means an employee stock ownership plan that meets the requirements of Code Section 4975(e)(7) and Regulation 54.4975-11. 1.17 "Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan. 1.18 "Fiscal Year" means the Employer's accounting year of 12 months commencing on October 1 of each year and ending the following September 30. 1.19 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of: (a) the distribution of the entire Vested portion of the Participant's Account of a Former Participant who has severed employment with the Employer. For purposes of this provision, if the Former Participant has a Vested benefit of zero, then such Former Participant shall be deemed to have received a distribution of such Vested benefit as of the year in which the severance of employment occurs, or (b) the last day of the Plan Year in which a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service. Regardless of the preceding provisions, if a Former Participant is eligible to share in the allocation of Employer contributions or Forfeitures in the year in which the Forfeiture would otherwise occur, then the Forfeiture will not occur until the end of the first Plan Year for which the Former Participant is not eligible to share in the allocation of Employer contributions or Forfeitures. Furthermore, the term "Forfeiture" shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 1.20 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.21 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401 (a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 4 6051 (a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401 (a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401 (a)(2)). For "limitation years" beginning after December 31, 1997, for purposes of this Section, the determination of "415 Compensation" shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Sections 125, 132(f)(4) for "limitation years" beginning after December 31, 2000 and 457. 1.22 "Highly Compensated Employee" means, for Plan Years beginning after December 31, 1996, an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means any Employee who: (a) was a "five percent owner" as defined in Section 1.27(c) at any time during the "determination year" or the "look-back year"; or (b) for the "look-back year" had "415 Compensation" from the Employer in excess of $80,000. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996. The "determination year" means the Plan Year for which testing is being performed, and the "look back year" means the immediately preceding twelve (12) month period. However, for purposes of (b) above, the "look-back year" shall be the calendar year beginning within the twelve-month period immediately preceding the "determination year." A highly compensated former Employee is based on the rules applicable to determining Highly-Compensated Employee status as in effect for the "determination year," in accordance with Regulation 1.414(q)-1T, A-4 and IRS Notice 97-45 (or any superseding guidance). In determining whether an Employee is a Highly Compensated Employee for a Plan Year beginning in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect for years beginning in 1996. For purposes of this Section, for Plan Years beginning prior to January 1, 1998, the determination of "415 Compensation" shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(e)(3), 402(h)(1)(B) and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911 (d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861 (a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code 5 Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." 1.23 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the component of the Plan being tested. 1.24 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding (2) above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of (2) above, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 6 1.25 "Income" means the income or losses allocable to which amount shall be allocated in the same manner as income or losses are allocated pursuant to Section 4.3(d). 1.26 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.27 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of the Employee's or former Employee's Beneficiaries) is considered a Key Employee if the Employee's or former Employee's, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1 %) of the outstanding stock of the Employer or stock possessing more than one percent (1 %) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1 %) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000,"415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. 7 For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4) for Plan Years beginning after December 31, 2000, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.28 "Late Retirement Date" means a Participant's actual Retirement Date after having reached Normal Retirement Date. 1.29 "Leased Employee" means, for Plan Years beginning after December 31, 1996, any person (other than an Employee of the recipient Employer) who pursuant to an agreement between the recipient Employer and any other person or entity ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Furthermore, Compensation for a Leased Employee shall only include Compensation from the leasing organization that is attributable to services performed for the recipient Employer. A Leased Employee shall not be considered an Employee of the recipient Employer: (a) if such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but for Plan Years beginning prior to January 1, 1998, including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions, and for Plan Years beginning prior to January 1, 2001, excluding amounts that are not includible in gross income under Code Section 132(f)(4); (2) immediate participation; (3) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient Employer's nonhighly compensated work force. 1.30 "Non-Highly Compensated Participant" means, for Plan Years beginning after December 31, 1996, any Participant who is not a Highly Compensated Employee. 1.31 "Non-Key Employee" means any Employee or former Employee (and such Employee's or former Employee's Beneficiaries) who is not, and has never been, a Key Employee. 8 1.32 "Normal Retirement Age" means the Participant's 62 birthday, or the Participant's 5 anniversary of joining the Plan, if later. A Participant shall become fully Vested in the Participant's Account upon attaining Normal Retirement Age. 1.33 "Normal Retirement Date" means the Participant's Normal Retirement Age. 1.34 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of absence" shall not exceed the number of Hours of Service needed to prevent the Employee from incurring a 1-Year Break in Service. 1.35 "Other Investments Account" means the account of a Participant which is credited with such Participant's share of the net gain (or loss) of the Plan and Employer contributions in other than Company Stock and which is debited with payments made to pay for Company Stock. 1.36 "Participant" means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan. 1.37 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to such Participant's total interest in the Plan and Trust resulting from the Employer contributions. 1.38 "Plan" means this instrument, including all amendments thereto. 1.39 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on October 1 of each year and ending the following September 30. 9 1.40 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or a delegate of the Secretary of the Treasury, and as amended from time to time. 1.41 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.42 "Retirement Date" means the date as of which a Participant retires for reasons other than Total and Permanent Disability, whether such retirement occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date (see Section 7.1). 1.43 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death, Total and Permanent Disability or retirement. 1.44 "Top Heavy Plan" means a plan described in Section 10.2(a). 1.45 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.46 "Total and Permanent Disability" means a physical or mental condition of a Participant resulting from bodily injury, disease, or mental disorder which renders such Participant incapable of continuing usual and customary employment with the Employer. The disability of a Participant shall be determined by a licensed physician chosen by the Administrator. The determination shall be applied uniformly to all Participants. 1.47 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 1.48 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.49 "Valuation Date" means the Anniversary Date and may include any other date or dates deemed necessary or appropriate by the Administrator for the valuation of the Participant's accounts during the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the Trustee or the Employer or any stock exchange used by such agent, are open for business. 1.50 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.51 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1 -Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee 10 first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate. For vesting purposes, the computation periods shall be the Plan Year, including periods prior to the Effective Date of the Plan. The computation period shall be the Plan Year if not otherwise set forth herein. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year. Years of Service with any Affiliated Employer shall be recognized. ARTICLE II - ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER. (a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer. (b) The Employer may, by written agreement or designation, appoint at its option an Investment Manager (qualified under the Investment Company Act of 1940 as amended), investment adviser, or other agent to provide direction to the Trustee with respect to any or all of the Plan assets. Such appointment shall be given by the Employer in writing in a form acceptable to the Trustee and shall specifically identify the Plan assets with respect to which the Investment Manager or other agent shall have authority to direct the investment. (c) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute 11 a directive to the Trustee as to the investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (d) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. (e) The Employer will furnish Plan Fiduciaries and Participants with notices and information statements when voting rights must be exercised pursuant to Section 8.5. 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY. The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor. 2.3 ALLOCATION AND DELEGATION OF RESPONSIBILITIES. If more than one person is appointed as Administrator, the responsibilities of each Administrator may be specified by the Employer and accepted in writing by each Administrator. In the event that no such delegation is made by the Employer, the Administrators may allocate the responsibilities among themselves, in which event the Administrators shall notify the Employer and the Trustee in writing of such action and specify the responsibilities of each Administrator. The Trustee thereafter shall accept and rely upon any documents executed by the appropriate Administrator until such time as the Employer or the Administrators file with the Trustee a written revocation of such designation. 2.4 POWERS AND DUTIES OF THE ADMINISTRATOR. The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish the Administrator's duties under the Plan. 12 The Administrator shall be charged with the duties of the general administration of the Plan as set forth under the terms of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all nondiscretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to establish and communicate to Participants a procedure for allowing each Participant to direct the Trustee as to the distribution of such Participant's Company Stock Account pursuant to Section 4.6; (j) to establish and communicate to Participants a procedure and method to insure that each Participant will vote Company Stock allocated to such Participant's Company Stock Account pursuant to Section 8.5; (k) to determine the validity of, and take appropriate action with respect to, any qualified domestic relations order received by it; and (l) to assist any Participant regarding the Participant's rights, benefits, or elections available under the Plan. 2.5 RECORDS AND REPORTS. The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 13 2.6 APPOINTMENT OF ADVISERS. The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries. 2.7 PAYMENT OF EXPENSES. All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any Named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, and other specialists and their agents, the costs of any bonds required pursuant to Act Section 412, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. 2.8 CLAIMS PROCEDURE. Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within 90 days after the application is filed, or such period as is required by applicable law or Department of Labor regulation. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.9 CLAIMS REVIEW PROCEDURE. Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.8 shall be entitled to request the Administrator to give further consideration to a claim by filing with the Administrator a written request for a hearing. Such request, together with a written statement of the reasons why the claimant believes the claim should be allowed, shall be filed with the Administrator no later than sixty (60) days after receipt of the written notification provided for in Section 2.8. The Administrator shall then conduct a hearing within the next sixty (60) days, at which the claimant may be represented by an attorney or any other representative of such claimant's choosing and expense and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of the claim. At the hearing (or prior thereto upon five (5) business days written notice to the Administrator) the claimant or the claimant's representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within sixty (60) days of receipt of the appeal (unless there has been an extension of sixty (60) days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the sixty (60) day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific 14 reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. ARTICLE III - ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY. Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. 3.2 EFFECTIVE DATE OF PARTICIPATION. An Eligible Employee shall become a Participant effective as of the first day of the Plan Year in which such Employee met the eligibility requirements of Section 3.1. 3.3 DETERMINATION OF ELIGIBILITY. The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review pursuant to Section 2.9. 3.4 TERMINATION OF ELIGIBILITY. In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in the Plan for each Year of Service completed while a noneligible Employee, until such time as the Participant's Account shall be forfeited or distributed pursuant to the terms of the Plan. Additionally, the Former Participant's interest in the Plan shall continue to share in the earnings of the Trust Fund. 3.5 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made and allocated, then the Employer shall make a subsequent contribution, if necessary after the application of Section 4.3(e), so that the omitted Employee receives a total amount which the Employee would have received (including both Employer contributions and earnings thereon) had the Employee not been omitted. Such contribution shall be made regardless of whether it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.6 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such inclusion is not made until after a contribution for the year has been made and allocated, the Employer shall be entitled to recover the contribution made with respect to the ineligible person provided the error is discovered within twelve (12) months of the date on which it was made. Otherwise, the amount contributed with respect to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is made. 15 3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE. (a) If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed by the Employer before a 1-Year Break in Service occurs, the Former Participant shall become a Participant as of the reemployment date. (b) If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed after a 1-Year Break in Service has occurred, Years of Service shall include Years of Service prior to the 1-Year Break in Service subject to the following rules: (1) In the case of a Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions, Years of Service before a period of 1-Year Break in Service will not be taken into account if the number of consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of pre-break Years of Service. Such aggregate number of Years of Service will not include any Years of Service disregarded under the preceding sentence by reason of prior 1-Year Breaks in Service. (2) A Former Participant who has not had Years of Service before a 1 Year Break in Service disregarded pursuant to (1) above, and completes a Year of Service for eligibility purposes shall participate in the Plan as of the date immediately following completion of a Year of Service. (c) After a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service, the Vested portion of said Former Participant's Account attributable to pre-break service shall not be increased as a result of post-break service. In such case, separate accounts will be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing the Participant's Employer derived account balance in the Plan attributable to post-break service. (d) If any Participant becomes a Former Participant due to severance of employment with the Employer and is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received a distribution of the entire Vested interest prior to reemployment, then the forfeited account shall be reinstated only if the Former Participant repays the full amount which had been distributed. Such repayment must be made before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution. If a distribution occurs for any reason other than a severance of employment, the time for repayment may not end earlier than five (5) years after the date of distribution. In the event the Former Participant does repay the full amount distributed, the undistributed forfeited portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date preceding the distribution. The source for such reinstatement may be Forfeitures occurring 16 during the Plan Year. If such source is insufficient, then the Employer will contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year, such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.3. If a non-Vested Former Participant was deemed to have received a distribution and such Former Participant is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, then such Participant will be deemed to have repaid the deemed distribution as of the date of reemployment. 3.8 ELECTION NOT TO PARTICIPATE. An Employee may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be communicated to the Employer, in writing, within a reasonable period of time. before the beginning of a Plan Year. ARTICLE IV - CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION. (a) For each Plan Year, the Employer shall contribute to the Plan such amount as shall be determined by the Employer. (b) The Employer contribution shall not be limited to years in which the Employer has current or accumulated net profit. Additionally, to the extent necessary, the Employer shall contribute to the Plan the amount necessary to provide the top heavy minimum contribution. All contributions by the Employer shall be made in cash or in such property as is acceptable to the Trustee. 4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION. The Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines. If the Employer makes a contribution for a particular Plan Year after the close of that Plan Year, the Employer will designate to the Trustee the Plan Year for which the Employer is making its contribution. 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS. (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date, or other Valuation Date, all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contributions for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. 17 Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the discretionary contribution for the year. (c) The Company Stock Account of each Participant shall be credited as of each Anniversary Date with the Participant's allocable share of Company Stock (including fractional shares) purchased and paid for by the Plan or contributed in kind by the Employer. Stock dividends on Company Stock held in the Participant's Company Stock Account shall be credited to the Participant's Company Stock Account when paid to the Plan. Cash dividends on Company Stock held in the Participant's Company Stock Account shall be credited to the Participant's Other Investments Account when paid to the Plan. (d) As of each Valuation Date, before the current valuation period allocation of Employer contributions, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts (other than each Participant's Company Stock Account) bear to the total of all Participants' and Former Participants' nonsegregated accounts (other than each Participant's Company Stock Account) as of such date. (e) On or before each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date may be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 3.7(d), be used to satisfy any contribution that may be required pursuant to Section 3.5 and/or 7.8, or used to pay any administrative expenses of the Plan. The remaining Forfeitures, if any, shall be used to reduce the contribution of the Employer hereunder for the Plan Year in which such Forfeitures occur. (f) For any Top Heavy Plan Year, Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.3(h) if eligible pursuant to the provisions of Section 4.3(j). (g) Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Retirement (Early, Normal or Late) or death shall not share in the allocation of contributions for that Plan Year. (h) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions allocated to the Participant's Account of each Employee shall be equal to at least three percent (3%) of such Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Employee in any defined contribution plan included with this Plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions allocated to the Participant's Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401 (a)(4) or 410, the sum of the Employer contributions allocated to the Participant's Account of each Employee shall be equal to the largest percentage allocated to the Participant's Account of any Key Employee. 18 However, no such minimum allocation shall be required in this Plan for any Employee who participates in another defined contribution plan subject to Code Section 412 included with this Plan in a Required Aggregation Group. (i) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Account of any Key Employee shall be equal to the ratio of the sum of the Employer contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. (j) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Account of all Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Employees who have (1) failed to complete a Year of Service; and (2) declined to make mandatory contributions (if required) to the Plan. (k) For the purposes of this Section, "415 Compensation" in excess of $150,000 (or such other amount provided in the Code) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401 (a)(1 7)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. If "415 Compensation" for any prior determination period is taken into account in determining a Participant's minimum benefit for the current Plan Year, the "415 Compensation" for such determination period is subject to the applicable annual "415 Compensation" limit in effect for that prior period. For this purpose, in determining the minimum benefit in Plan Years beginning on or after January 1, 1989, the annual "415 Compensation" limit in effect for determination periods beginning before that date is $200,000 (or such other amount as adjusted for increases in the cost of living in accordance with Code Section 415(d) for determination periods beginning on or after January 1, 1989, and in accordance with Code Section 401 (a)(1 7)(B) for determination periods beginning on or after January 1, 1994). For determination periods beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). (l) Notwithstanding anything in this Section to the contrary, all information necessary to properly reflect a given transaction may not be available until after the date specified herein for processing such transaction, in which case the transaction will be reflected when such information is received and processed. Subject to express limits that may be imposed under the Code, the processing of any contribution, distribution or other transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and the correction for errors or omissions or the errors or omissions of any service provider). The processing date of a transaction will be binding for all purposes of the Plan. (m) Notwithstanding anything to the contrary, if this is a Plan that would otherwise fail to meet the requirements of Code Section 410(b)(1)(B) and the Regulations 19 thereunder because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who shall become eligible under the terms of this paragraph shall be those who have not separated from service prior to the last day of the Plan Year and have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution for the Plan Year shall be further expanded to include the minimum number of Participants who have separated from service prior to the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. (3) Nothing in this Section shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. (4) Notwithstanding the foregoing, if the portion of the Plan which is not a Code Section 401(k) plan would fail to satisfy Code Section 410(b) if the coverage tests were applied by treating those Participants whose only allocation would otherwise be provided under the top heavy formula as if they were not currently benefiting under the Plan, then, for purposes of this Section 4.3(m), such Participants shall be treated as not benefiting and shall therefore be eligible to be included in the expanded class of Participants who will share in the allocation provided under the Plan's non top heavy formula. 4.4 MAXIMUM ANNUAL ADDITIONS. (a) Notwithstanding the foregoing, for "limitation year" beginning after December 31, 1994, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." If the Employer contribution that would otherwise be contributed or allocated to the Participant's accounts would cause the "annual additions" for the "limitation year" to exceed the maximum "annual additions," the amount contributed or allocated will be reduced so that the "annual additions" for the "limitation year" 20 will equal the maximum "annual additions," and any amount in excess of the maximum "annual additions," which would have been allocated to such Participant may be allocated to other Participants. For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after March 31, 1984, to an individual medical account, as defined in Code Section 415(1)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(l)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the following are not Employee contributions for the purposes of Section 4.4(b): (1) rollover contributions (as defined in Code Sections 402(a)(5), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411 (a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411 (a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (e) For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (f) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (g) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, each Employer who maintains this Plan will be considered to be a separate Employer. 21 (h) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (i) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder. 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS. (a) If, as a result of a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.4 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the "excess amount" will be disposed of in one of the following manners, as uniformly determined by the Administrator for all Participants similarly situated. (1) If the Participant is covered by the Plan at the end of the "limitation year," the "excess amount" will be used to reduce the Employer contribution for such Participant in the next "limitation year," and each succeeding "limitation year" if necessary; (2) If, after the application of subparagraph (1) above, an "excess amount" still exists, and the Participant is not covered by the Plan at the end of the "limitation year," the "excess amount" will be held unallocated in a "Section 415 suspense account." The "Section 415 suspense account will be applied to reduce future 22 Employer contributions for all remaining Participants in the next "limitation year," and each succeeding "limitation year" if necessary; (3) If a "Section 415 suspense account" is in existence at any time during the "limitation year" pursuant to this Section, it will not participate in the allocation of investment gains and losses of the Trust Fund. If a "Section 415 suspense account" is in existence at any time during a particular "limitation year," all amounts in the "Section 415 suspense account" must be allocated and reallocated to Participants' accounts before any Employer contributions or any Employee contributions may be made to the Plan for that "limitation year." "Excess amounts" may not be distributed to Participants or Former Participants. (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to the Participant's account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.4. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." 4.6 DIRECTED INVESTMENT ACCOUNT. (a) Each "Qualified Participant" may elect within ninety (90) days after the close of each Plan Year during the "Qualified Election Period" to direct the Trustee in writing as to the distribution in cash of 25 percent of the total number of shares of Company Stock acquired by or contributed to the Plan that have ever been allocated to such "Qualified Participant's" Company Stock Account (reduced by the number of shares of Company Stock previously distributed in cash pursuant to a prior election). In the case of the election year in which the last election can be made by the Participant, the preceding sentence shall be applied by substituting "50 percent" for "25 percent." If the "Qualified Participant" elects to direct the Trustee as to the distribution of the Participant's Company Stock Account, such direction shall be effective no later than 180 days after the close of the Plan Year to which such direction applies. Notwithstanding the above, if the fair market value (determined pursuant to Section 6.1 at the Plan Valuation Date immediately preceding the first day on which a "Qualified Participant" is eligible to make an election) of Company Stock acquired by or contributed to the Plan and allocated to a "Qualified Participant's" Company Stock Account is $500 or less, then such Company Stock shall not be subject to this paragraph. For purposes of determining whether the fair market value exceeds $500, Company Stock held in accounts of all employee stock ownership plans (as defined in Code Section 4975(e)(7)) and tax credit employee stock ownership plans (as defined in Code Section 409(a)) maintained by the Employer or any Affiliated Employer shall be considered as held by the Plan. (b) For the purposes of this Section the following definitions shall apply: 23 (1) "Qualified Participant" means any Participant or Former Participant who has completed ten (10) Years of Service as a Participant and has attained age 55. (2) "Qualified Election Period" means the six (6) Plan Year period beginning with the later of (i) the first Plan Year in which the Participant first became a "Qualified Participant," or (ii) the first Plan Year beginning after December 31, 1986. 4.7 QUALIFIED MILITARY SERVICE. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service will be provided in accordance with Code Section 414(u). ARTICLE V - FUNDING AND INVESTMENT POLICY 5.1 INVESTMENT POLICY. (a) The Plan is designed to invest primarily in Company Stock. (b) With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in other property described in the Trust or in life insurance policies to the extent permitted by subparagraph (c) below, or the Trustee may hold such funds in cash or cash equivalents. (c) With due regard to subparagraph (a) above, the Administrator may also direct the Trustee to invest funds under the Plan in insurance policies on the life of any "keyman" Employee. The proceeds of a "keyman" insurance policy may not be used for the repayment of any indebtedness owed by the Plan which is secured by Company Stock. In the event any "keyman" insurance is purchased by the Trustee, the premiums paid thereon during any Plan Year, net of any policy dividends and increases in cash surrender values, shall be treated as the cost of Plan investment and any death benefit or cash surrender value received shall be treated as proceeds from an investment of the Plan. (d) The Plan may not obligate itself to acquire Company Stock from a particular holder thereof at an indefinite time determined upon the happening of an event such as the death of the holder. (e) The Plan may not obligate itself to acquire Company Stock under a put option binding upon the Plan. However, at the time a put option is exercised, the Plan may be given an option to assume the rights and obligations of the Employer under a put option binding upon the Employer. (f) All purchases of Company Stock shall be made at a price which, in the judgment of the Administrator, does not exceed the fair market value thereof. All sales of Company Stock shall be made at a price which, in the judgment of the Administrator, is not less than the fair market value thereof. The valuation rules set forth in Article VI shall be applicable. 24 5.2 TRANSACTIONS INVOLVING COMPANY STOCK. (a) No portion of the Trust Fund attributable to (or allocable in lieu of) Company Stock acquired by the Plan in a sale to which Code Section 1042 applies may accrue or be allocated directly or indirectly under any plan maintained by the Employer meeting the requirements of Code Section 401(a): (1) during the "Nonallocation Period," for the benefit of (i) any taxpayer who makes an election under Code Section 1042(a) with respect to Company Stock, (ii) any individual who is related to the taxpayer (within the meaning of Code Section 267(b)), or (2) for the benefit of any other person who owns (after application of Code Section 318(a) applied without regard to the employee trust exception in Code Section 318(a)(2)(B)(i)) more than 25 percent of (i) any class of outstanding stock of the Employer or Affiliated Employer which issued such Company Stock, or (ii) the total value of any class of outstanding stock of the Employer or Affiliated Employer. (b) Except, however, subparagraph (a)(1)(ii) above shall not apply to lineal descendants of the taxpayer, provided that the aggregate amount allocated to the benefit of all such lineal descendants during the "Nonallocation Period" does not exceed more than five (5) percent of the Company Stock (or amounts allocated in lieu thereof) held by the Plan which are attributable to a sale to the Plan by any person related to such descendants (within the meaning of Code Section 267(c)(4)) in a transaction to which Code Section 1042 is applied. (c) A person shall be treated as failing to meet the stock ownership limitation under paragraph (a)(2) above if such person fails such limitation: (1) at any time during the one (1) year period ending on the date of sale of Company Stock to the Plan, or (2) on the date as of which Company Stock is allocated to Participants in the Plan. (d) For purposes of this Section, "Nonallocation Period" means the period beginning on the date of the sale of the Company Stock and ending on the date which is ten (10) years after the date of sale. 25 ARTICLE VI - VALUATIONS 6.1 VALUATION OF THE TRUST FUND. The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value (or their contractual value in the case of a Contract or Policy) as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. 6.2 METHOD OF VALUATION. Valuations must be made in good faith and based on all relevant factors for determining the fair market value of securities. In the case of a transaction between a Plan and a disqualified person, value must be determined as of the date of the transaction. For all other Plan purposes, value must be determined as of the most recent Valuation Date under the Plan. An independent appraisal will not in itself be a good faith determination of value in the case of a transaction between the Plan and a disqualified person. However, in other cases, a determination of fair market value based on at least an annual appraisal independently arrived at by a person who customarily makes such appraisals and who is independent of any party to the transaction will be deemed to be a good faith determination of value. Company Stock not readily tradeable on an established securities market shall be valued by an independent appraiser meeting requirements similar to the requirements of the Regulations prescribed under Code Section 170(a)(1). ARTICLE VII - DETERMINATION AND DISTRIBUTION OF BENEFITS 7.1 DETERMINATION OF BENEFITS UPON RETIREMENT. Every Participant may terminate employment with the Employer and retire for the purposes hereof on the Participant's Normal Retirement Date or Early Retirement Date. However, a Participant may postpone the termination of employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.3, shall continue until such Participant's Late Retirement Date. Upon a Participant's Retirement Date or attainment of Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the Participant, all amounts credited to such Participant's Account in accordance with Sections 7.5 and 7.6. 7.2 DETERMINATION OF BENEFITS UPON DEATH. (a) Upon the death of a Participant before the Participant's Retirement Date or other termination of employment, all amounts credited to such Participant's Account shall become fully Vested. If elected, distribution of the Participant's Account shall commence not later than one (1) year after the close of the Plan Year in which such Participant's death occurs. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 7.5 and 7.6, to distribute any remaining 26 Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the death benefit. (d) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (e) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than the spouse if: (1) the spouse has waived the right to be the Participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke a designation of a Beneficiary or change a Beneficiary by filing written (or in such other form as permitted by the Internal Revenue Service) notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in. writing (or in such other form as permitted by the Internal Revenue Service) to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. (f) In the event no valid designation of Beneficiary exists, or if the Beneficiary is not alive at the time of the Participant's death, the death benefit will be paid to the Participant's estate. If the Beneficiary does not predecease the Participant, but dies prior to distribution of the death benefit, the death benefit will be paid to the Beneficiary's estate. (g) Notwithstanding anything in this Section to the contrary, if a Participant has designated the spouse as a Beneficiary, then a divorce decree or a legal separation that relates to such spouse shall revoke the Participant's designation of the spouse as a Beneficiary unless the decree or a qualified domestic relations order (within the meaning of Code Section 414(p)) provides otherwise. 27 (h) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing (or in such other form as permitted by the Internal Revenue Service), must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 7.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY. In the event of a Participant's Total and Permanent Disability prior to the Participant's Retirement Date or other termination of employment, all amounts credited to such Participant's Account shall become fully Vested. In the event of a Participant's Total and Permanent Disability, the Administrator, in accordance with the provisions of Sections 7.5 and 7.6, shall direct the distribution to such Participant of all Vested amounts credited to such Participant's Account. If such Participant elects, distribution shall commence not later than one (1) year after the close of the Plan Year in which Total and Permanent Disability occurs. 7.4 DETERMINATION OF BENEFITS UPON TERMINATION. (a) If a Participant's employment with the Employer is terminated for any reason other than death, Total and Permanent Disability or retirement, then such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section 7.4. If a portion of a Participant's Account is forfeited, Company Stock allocated to the Participant's Company Stock Account must be forfeited only after the Participant's Other Investments Account has been depleted. If interest in more than one class of Company Stock has been allocated to a Participant's Account, the Participant must be treated as forfeiting the same proportion of each such class. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Total and Permanent Disability, Early or Normal Retirement). However, at the election of the Participant, the Administrator shall direct the Trustee that the entire Vested portion of the Terminated Participant's Account attributable to Company Stock to be payable to such Terminated Participant one (1) year after the close of the Plan Year which is the fifth Plan Year following the Plan Year in which the Participant otherwise separates from service. However, if such Terminated Participant is reemployed by the Employer before distribution is required to be made under this paragraph, such distribution shall be postponed. Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411 (a)(11) and the Regulations thereunder. If, for Plan Years beginning after August 5, 1997, the value of a Terminated Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997) and, if the distribution is made prior to March 22, 1999, has never exceeded $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997) at the time of any prior distribution, then the Administrator shall direct the 28 Trustee to cause the entire Vested benefit to be paid to such Participant in a single lump sum. For purposes of this Section 7.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to the Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule: VESTING SCHEDULE
YEARS OF SERVICE PERCENTAGE ~~Less than 5 0% 5 100%~~
(c) Notwithstanding the vesting schedule provided for in paragraph (b) above, for any Top Heavy Plan Year, the Vested portion of the Participant's Account of any Participant who has an Hour of Service after the Plan becomes top heavy shall be a percentage of the total amount credited to the Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule: VESTING SCHEDULE
YEARS OF SERVICE PERCENTAGE Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 100%
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the Administrator shall revert to the vesting schedule in effect before this Plan became a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment pursuant to the terms of the Plan. 29 (d) Notwithstanding the vesting schedule above, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement. (e) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer contributions to the Plan or upon any full or partial termination of the Plan, all amounts then credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (f) The computation of a Participant's nonforfeitable percentage of such Participant's interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. In the event that the Plan is amended to change or modify any vesting schedule, or if the Plan is amended in any way that directly or indirectly affects the computation of the Participant's nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to a top heavy vesting schedule then each Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have such Participant's nonforfeitable percentage computed under the Plan without regard to such amendment or change. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (g) In determining Years of Service for purposes of vesting under the Plan, Years of Service prior to the vesting computation period in which an Employee attains age eighteen shall be excluded. 7.5 DISTRIBUTION OF BENEFITS. (a) The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or such Participant's Beneficiary any amount to which the Participant is entitled under the Plan in one lump-sum payment. (b) Any distribution to a Participant, for Plan Years beginning after August 5, 1997, who has a benefit which exceeds $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997) or, if the distribution is made prior to March 22, 1999, has ever exceeded $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997) at the time of any prior distribution, shall require such Participant's written (or in such other form as permitted by the Internal Revenue Service) consent if such distribution occurs prior to the time the benefit is "immediately distributable." A benefit is "immediately distributable" if any part of the benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of the Participant's Normal Retirement Age or age 62. With regard to this required consent: 30 (1) The Participant must be informed of the right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the distribution of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 7.5(e). (2) Notice of the rights specified under this paragraph shall be provided no less than thirty (30) days and no more than ninety (90) days before the date the distribution commences. (3) Written (or such other form as permitted by the Internal Revenue Service) consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than ninety (90) days before the date the distribution commences. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. Any such distribution may commence less than thirty (30) days after the notice required under Regulation 1.411(a)-11(c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. (c) Notwithstanding anything herein to the contrary, the Administrator may direct that cash dividends on shares of Company Stock allocable to Participants' Company Stock Accounts be: (1) Paid by the Employer directly in cash to the Participants in the Plan or their Beneficiaries. (2) Paid to the Plan and distributed in cash to Participants in the Plan or their Beneficiaries no later than ninety (90) days after the close of the Plan Year in which paid. (3) Allocated to Participants' Other Investment Accounts. (d) Any part of a Participant's benefit which is retained in the Plan after the Anniversary Date on which the Participant's participation ends will continue to be treated as a Company Stock Account or as an Other Investments Account (subject to Section 7.4(a)) as provided in Article IV. However, neither account will be credited with any further Employer contributions. (e) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits made on or after January 1, 1997 shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401 (a)(9) and the Regulations thereunder (including Regulation 1.401 (a)(9)-2), the provisions of which are incorporated herein by reference: 31 (1) A Participant's benefits shall be distributed or must begin to be distributed not later than the April 1st of the calendar year following the calendar year in which the Participant attains age 70 1/2. Such distribution shall be equal to or greater than any required distribution. (2) Distributions to a Participant and the Participant's Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401 (a)(9)(G) and the Regulations thereunder. With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of Code Section 401 (a)(9) in accordance with the Regulations under Code Section 401 (a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final Regulations under Code Section 401 (a)(9) or such other date specified in guidance published by the Internal Revenue Service. (f) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401 (a)(9) and the Regulations thereunder. If it is determined, pursuant to Regulations, that the distribution of a Participant's interest has begun and the Participant dies before the entire interest has been distributed, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 7.5 as of the date of death. If a Participant dies before receiving any distributions of the interest in the Plan or before distributions are deemed to have begun pursuant to Regulations, then the death benefit shall be distributed to the Participant's Beneficiaries by December 31st of the calendar year in which the fifth anniversary of the Participant's date of death occurs. However, the 5-year distribution requirement of the preceding paragraph shall not apply to any portion of the deceased Participant's interest which is payable to or for the benefit of a designated Beneficiary. In such event, such portion shall be distributed over a period not extending beyond the life expectancy of such designated Beneficiary provided such distribution begins not later than December 31st of the calendar year immediately following the calendar year in which the Participant died. However, in the event the Participant's spouse (determined as of the date of the Participant's death) is the designated Beneficiary, the requirement that distributions commence within one year of a Participant's death shall not apply. In lieu thereof, distributions must commence on or before the later of: (1) December 31st of the calendar year immediately following the calendar year in which the Participant died; or (2) December 31st of the calendar year in which the Participant would have attained age 70 1/2. If the surviving spouse dies before distributions to such spouse begin, then the 5-year distribution requirement of this Section shall apply as if the spouse was the Participant. (g) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse shall be redetermined annually in accordance with Regulations. Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. 32 (h) Except as limited by Sections 7.5 and 7.6, whenever the Trustee is to make a distribution, the distribution may be made on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall occur not later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs: (1) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (2) the tenth (10th) anniversary of the year in which the Participant commenced participation in the Plan; or (3) the date the Participant terminates his service with the Employer. (i) If a distribution is made to a Participant who has not severed employment and who is not fully Vested in the Participant's Account and the Participant may increase the Vested percentage in such account, then, at any relevant time the Participant's Vested portion of the account will be equal to an amount ("X") determined by the formula: r X equals P(AB plus D) - D For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, and D is the amount of distribution. 7.6 HOW PLAN BENEFIT WILL BE DISTRIBUTED. (a) Distribution of a Participant's benefit may be made in cash or Company Stock or both, provided, however, that if a Participant or Beneficiary so demands, such benefit shall be distributed only in the form of Company Stock. Prior to making a distribution of benefits, the Administrator shall advise the Participant or the Participant's Beneficiary, in writing (or such other form as permitted by the Internal Revenue Service), of the right to demand that benefits be distributed solely in Company Stock. (b) If a Participant or Beneficiary demands that benefits be distributed solely in Company Stock, distribution of a Participant's benefit will be made entirely in whole shares or other units of Company Stock. Any balance in a Participant's Other Investments Account will be applied to acquire for distribution the maximum number of whole shares or other units of Company Stock at the then fair market value. Any fractional unit value unexpended will be distributed in cash. If Company Stock is not available for purchase by the Trustee, then the Trustee shall hold such balance until Company Stock is acquired and then make such distribution, subject to Sections 7.5(h) and 7.5(e). (c) The Trustee will make distribution from the Trust only on instructions from the Administrator. (d) Notwithstanding anything contained herein to the contrary, if the Employer charter or by-laws restrict ownership of substantially all shares of Company Stock to 33 Employees and the Trust Fund, as described in Code Section 409(h)(2)(B)(ii)(I), then the Administrator shall distribute a Participant's Account entirely in cash without granting the Participant the right to demand distribution in shares of Company Stock. (e) Except as otherwise provided herein, Company Stock distributed by the Trustee may be restricted as to sale or transfer by the by-laws or articles of incorporation of the Employer, provided restrictions are applicable to all Company Stock of the same class. If a Participant is required to offer the sale of Company Stock to the Employer before offering to sell Company Stock to a third party, in no event may the Employer pay a price less than that offered to the distributee by another potential buyer making a bona fide offer and in no event shall the Trustee pay a price less than the fair market value of the Company Stock. 7.7 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY. In the event a distribution is to be made to a minor or incompetent Beneficiary, then the Administrator may direct that such distribution be paid to the legal guardian, or if none in the case of a minor Beneficiary, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 7.8 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. In the event that all, or any portion, of the distribution payable to a Participant or Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. Notwithstanding the foregoing, effective October 1, 2001, or if later, the adoption date of this amendment and restatement, if the value of a Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997), then the amount distributable may, in the sole discretion of the Administrator, either be treated as a Forfeiture, or be paid directly to an individual retirement account described in Code Section 408(a) or individual retirement annuity described in Code Section 408(b) at the time it is determined that the whereabouts of the Participant or the Participant's Beneficiary cannot be ascertained. In the event a Participant or Beneficiary is located subsequent to the Forfeiture, such benefit shall be restored, first from Forfeitures, if any, and then from -an additional Employer contribution if necessary. However, regardless of the preceding, a benefit which is lost by reason of escheat under applicable state law is not treated as a Forfeiture for purposes of this Section nor as an impermissible forfeiture under the Code. 7.9 RIGHT OF FIRST REFUSALS. (a) If any Participant, the Participant's Beneficiary or any other person to whom shares of Company Stock are distributed from the Plan (the "Selling Participant") shall, at any time, desire to sell some or all of such shares (the "Offered Shares") to a third party (the "Third Party"), the Selling Participant shall give written notice of such desire to the Employer 34 and the Administrator, which notice shall contain the number of shares offered for sale, the proposed terms of the sale and the names and addresses of both the Selling Participant and Third Party. Both the Trust Fund and the Employer shall each have the right of first refusal for a period of fourteen (14) days from the date the Selling Participant gives such written notice to the Employer and the Administrator (such fourteen (14) day period to run concurrently against the Trust Fund and the Employer) to acquire the Offered Shares. As between the Trust Fund and the Employer, the Trust Fund shall have priority to acquire the shares pursuant to the right of first refusal. The selling price and terms shall be the same as offered by the Third Party. (b) If the Trust Fund and the Employer do not exercise their right of first refusal within the required fourteen (14) day period provided above, the Selling Participant shall have the right, at any time following the expiration of such fourteen (14) day period, to dispose of the Offered Shares to the Third Party; provided, however, that (i) no disposition shall be made to the Third Party on terms more favorable to the Third Party than those set forth in the written notice delivered by the Selling Participant above, and (ii) if such disposition shall not be made to a third party on the terms offered to the Employer and the Trust Fund, the offered Shares shall again be subject to the right of first refusal set forth above. (c) The closing pursuant to the exercise of the right of first refusal under Section 7.9(a) above shall take place at such place agreed upon between the Administrator and the Selling Participant, but not later than ten (10) days after the Employer or the Trust Fund shall have notified the Selling Participant of the exercise of the right of first refusal. At such closing, the Selling Participant shall deliver certificates representing the Offered Shares duly endorsed in blank for transfer, or with stock powers attached duly executed in blank with all required transfer tax stamps attached or provided for, and the Employer or the Trust Fund shall deliver the purchase price, or an appropriate portion thereof, to the Selling Participant. 7.10 STOCK CERTIFICATE LEGEND. Certificates for shares distributed pursuant to the Plan shall contain the following legend: "The shares represented by this certificate are transferable only upon compliance with the terms of EAGLE TEST SYSTEMS EMPLOYEE STOCK OWNERSHIP PLAN effective as of October 1, 2001, which grants to Eagle Test Systems, Inc. a right of first refusal, a copy of said Plan being on file in the office of the Company." 7.11 PRE-RETIREMENT DISTRIBUTION. At such time as a Participant shall have attained the age of 62 years, the Administrator, at the election of the Participant who has not severed employment with the Employer, shall direct the Trustee to distribute all or a portion of the amount then credited to the accounts maintained on behalf of the Participant. However, no distribution from the Participant's account shall occur prior to 100% vesting. No distribution shall be made from the Participant's account unless the Participant has completed five years of participation in the Plan. In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent 35 with Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411 (a)(11) and the Regulations thereunder. 7.12 ADVANCE DISTRIBUTION FOR HARDSHIP. (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of the Vested Participant's Account valued as of the last Valuation Date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the Participant's Account shall be reduced accordingly. Withdrawal under this Section shall be authorized if the distribution is on account of: (1) Medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse, or any of the Participant's dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care as described in Code Section 213(d); (2) The costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (3) Funeral expenses for a member of the Participant's family; (4) Payment of tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for the Participant, and the Participant's spouse, children, or dependents; (5) Payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence; or (6) An immediate and heavy financial need of the Participant provided that the Administrator applies the need to all Participants in a uniform and nondiscriminatory manner. (b) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6, including, but not limited to, all notice and consent requirements of Code Section 411 (a)(11) and the Regulations thereunder. 7.13 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION. All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). 36 ARTICLE VIII - TRUSTEE 8.1 BASIC RESPONSIBILITIES OF THE TRUSTEE. (a) The Trustee shall have the following categories of responsibilities: (1) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of the Employer or an Investment Manager appointed by the Employer or any agent of the Employer; (2) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; and (3) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report pursuant to Section 8.8. (b) In the event that the Trustee shall be directed by the Employer, or an Investment Manager or other agent appointed by the Employer with respect to the investment of any or all-Plan assets, the Trustee shall have no liability with respect to the investment of such assets, but shall be responsible only to execute such investment instructions as so directed. (1) The Trustee shall be entitled to rely fully on the written (or other form acceptable to the Administrator and the Trustee, including, but not limited to, voice recorded) instructions of the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets. (2) The Trustee may delegate the duty of executing such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative. (c) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 8.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE. (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, open-end or close-end mutual funds, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other 37 property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as an Employee Stock Ownership Plan and Trust. (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. (c) The Trustee may transfer to a common, collective, pooled trust fund or money market fund maintained by any corporate Trustee or affiliate thereof hereunder, all or such part of the Trust Fund as the Trustee may deem advisable, and such part or all of the Trust Fund so transferred shall be subject to all the terms and provisions of the common, collective, pooled trust fund or money market fund which contemplate the commingling for investment purposes of such trust assets with trust assets of other trusts. The Trustee may transfer any part of the Trust Fund intended for temporary investment of cash balances to a money market fund. The Trustee may withdraw from such common, collective, pooled trust fund or money market fund all or such part of the Trust Fund as the Trustee may deem advisable. (d) In the event the Trustee invests any part of the Trust Fund, pursuant to the directions of the Administrator, in any shares of stock issued by the Employer, and the Administrator thereafter directs the Trustee to dispose of such investment, or any part thereof, under circumstances which, in the opinion of counsel for the Trustee, require registration of the securities under the Securities Act of 1933 and/or qualification of the securities under the Blue Sky laws of any state or states, then the Employer at its own expense, will take or cause to be taken any and all such action as may be necessary or appropriate to effect such registration and/or qualification. 8.3 OTHER POWERS OF THE TRUSTEE. The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any 38 assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies; (d) To cause any securities or other property to be registered in the Trustee's own name or in the name of one or more of the Trustee's nominees, in a clearing corporation, in a depository, or in entry form or in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; 39 (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest or in cash or cash balances without liability for interest thereon, including the specific authority to invest in any type of deposit of the Trustee (or of a financial institution related to a Trustee); (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940. (o) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations including the specific authority to make deposit into any savings accounts or certificates of deposit of the Trustee (or a financial institution related to the Trustee); (p) To vote Company Stock as provided in Section 8.5; (q) To consent to or otherwise participate in reorganizations, recapitalizations, consolidations, mergers and similar transactions with respect to Company Stock or any other securities and to pay any assessments or charges in connection therewith; (r) To deposit such Company Stock (but only if such deposit does not violate the provisions of Section 8.5 hereof) or other securities in any voting trust, or with any protective or like committee, or with a trustee or with depositories designated thereby; (s) To sell or exercise any options, subscription rights and conversion privileges and to make any payments incidental thereto; (t) To exercise any of the powers of an owner, with respect to such Company Stock and other securities or other property comprising the Trust Fund. The Administrator, with the Trustee's approval, may authorize the Trustee to act on any administrative matter or class of matters with respect to which direction or instruction to the Trustee by the Administrator is called for hereunder without specific direction or other instruction from the Administrator; (u) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange regardless of whether such options are covered; (v) To do all such acts and exercise all such rights and privileges, although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. 40 8.4 LOANS TO PARTICIPANTS. (a) The Trustee may, in the Trustee's discretion, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) loans shall provide for periodic repayment over a reasonable period of time. (b) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) may, in accordance with a uniform and nondiscriminatory policy established by the Administrator, be limited to the lesser of: (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (2) one-half (1/2) of the present value of the non-forfeitable accrued benefit of the Participant under the Plan. For purposes of this limit, all plans of the Employer shall be considered one plan. (c) Loans shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed five (5) years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a "principal residence" of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five (5) years. For this purpose, a "principal residence" has the same meaning as a "principal residence" under Code Section 1034. Loan repayments may be suspended under this Plan as permitted under Code Section 414(u)(4). (d) Any loans granted or renewed shall be made pursuant to a Participant loan program. Such loan program shall be established in writing and must include, but need not be limited to, the following: (1) the identity of the person or positions authorized to administer the Participant loan program; (2) a procedure for applying for loans; (3) the basis on which loans will be approved or denied; (4) limitations, if any, on the types and amounts of loans offered; (5) the procedure under the program for determining a reasonable rate of interest; 41 (6) the types of collateral which may secure a Participant loan; and (7) the events constituting default and the steps that will be taken to preserve Plan assets. Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section. (e) Notwithstanding anything in this Plan to the contrary, if a Participant or Beneficiary defaults on a loan made pursuant to this Section, then the loan default will be a distributable event to the extent permitted by the Code and Regulations. (f) Notwithstanding anything in this Section to the contrary, any loans made prior to the date this amendment and restatement is adopted shall be subject to the terms of the plan in effect at the time such loan was made. 8.5 VOTING COMPANY STOCK. The Trustee shall vote all Company Stock held by it as part of the Plan assets at such time and in such manner as the Administrator shall direct. Provided, however, that if any agreement entered into by the Trust provides for voting of any shares of Company Stock pledged as security for any obligation of the Plan, then such shares of Company Stock shall be voted in accordance with such agreement. If the Administrator fails or refuses to give the Trustee timely instructions as to how to vote any Company Stock as to which the Trustee otherwise has the right to vote, the Trustee shall not exercise its power to vote such Company Stock and shall consider the Administrator's failure or refusal to give timely instructions as an exercise of the Administrator's rights and a directive to the Trustee not to vote said Company Stock. Notwithstanding the foregoing, if the Employer has a registration-type class of securities, each Participant or Beneficiary shall be entitled to direct the Trustee as to the manner in which the Company Stock which is entitled to vote and which is allocated to the Company Stock Account of such Participant or Beneficiary is to be voted. If the Employer does not have a registration-type class of securities, each Participant or Beneficiary in the Plan shall be entitled to direct the Trustee as to the manner in which voting rights on shares of Company Stock which are allocated to the Company Stock Account of such Participant or Beneficiary are to be exercised with respect to any corporate matter which involves the voting of such shares with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business, or such similar transaction as prescribed in Regulations. For purposes of this Section the term "registration-type class of securities" means: (A) a class of securities required to be registered under Section 12 of the Securities Exchange Act of 1934; and (B) a class of securities which would be required to be so registered except for the exemption from registration provided in subsection (g)(2)(H) of such Section 12. If the Employer does not have a registration-type class of securities and the by-laws of the Employer require the Plan to vote an issue in a manner that reflects a one-man, one-vote 42 philosophy, each Participant or Beneficiary shall be entitled to cast one vote on an issue and the Trustee shall vote the shares held by the Plan in proportion to the results of the votes cast on the issue by the Participants and Beneficiaries. 8.6 DUTIES OF THE TRUSTEE REGARDING PAYMENTS. At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 8.7 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES. The Trustee shall be paid such reasonable compensation as set forth in the Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon in writing by the Employer and the Trustee. However, an individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 8.8 ANNUAL REPORT OF THE TRUSTEE. (a) Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer contribution for each Plan Year, the Trustee, or its agent, shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (1) the net income, or loss, of the Trust Fund; (2) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; (3) the increase, or decrease, in the value of the Trust Fund; (4) all payments and distributions made from the Trust Fund; and (5) such further information as the Trustee and/or Administrator deems appropriate. (b) The Employer, promptly upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding on the Employer and the Trustee as to all matters contained in the statement to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties. However, nothing 43 contained in this Section shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 8.9 AUDIT. (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of the audit setting forth the accountant's opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. (b) All auditing and accounting fees shall be an expense of and may, at the election of the Employer, be paid from the Trust Fund. (c) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated, supervised, and subject to periodic examination by a state or federal agency, then it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103(b) within one hundred twenty (120) days after the end of the Plan Year or by such other date as may be prescribed under regulations of the Secretary of Labor. 8.10 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE. (a) Unless otherwise agreed to by both the Trustee and the Employer, a Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of resignation. (b) Unless otherwise agreed to by both the Trustee and the Employer, the Employer may remove a Trustee at any time by delivering to the Trustee, at least thirty (30) days before its effective date, a written notice of such Trustee's removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been named as Trustee herein immediately upon the death, resignation, incapacity, or removal of the predecessor. 44 (e) Whenever any Trustee hereunder ceases to serve as such, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which the individual or entity served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 8.8 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 8.8 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 8.8 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 8.8 and this subparagraph. 8.11 TRANSFER OF INTEREST. Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of a Participant to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made. 8.12 TRUSTEE INDEMNIFICATION. The Employer agrees to indemnify and hold harmless the Trustee against any and all claims, losses, damages, expenses and liabilities the Trustee may incur in the exercise and performance of the Trustee's power and duties hereunder, unless the same are determined to be due to gross negligence or willful misconduct. 8.13 DIRECT ROLLOVER. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a "distributor's" election under this Section, a "distributee" may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an "eligible rollover distribution" that is equal to at least $500 paid directly to an "eligible retirement plan" specified by the "distributee" in a "direct rollover." (b) For purposes of this Section the following definitions shall apply: (1) An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the "distributee," except that an "eligible rollover distribution" does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the "distributee" or the joint lives (or joint life expectancies) of the "distributee" and the "distributee's" designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401 (a)(9); the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); any hardship distribution described in Code Section 45 401(k)(2)(B)(i)(IV) made after December 31, 1999; and any other distribution that is reasonably expected to total less than $200 during a year. (2) An "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the "distributee's" "eligible rollover distribution." However, in the case of an "eligible rollover distribution" to the surviving spouse, an "eligible retirement plan" is an individual retirement account or individual retirement annuity. (3) A "distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are "distributees" with regard to the interest of the spouse or former spouse. (4) A "direct rollover is a payment by the Plan to the "eligible retirement plan" specified by the "distributee." ARTICLE IX - AMENDMENT, TERMINATION AND MERGERS 9.1 AMENDMENT. (a) The Employer shall have the right at any time to amend this Plan subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee or Administrator, may only be made with the Trustee's or Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4) or other IRS guidance, no Plan amendment or transaction, having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates or reduces any "Section 411 (d)(6) protected benefit" or adds or modifies conditions relating to "Section 411 (d)(6) protected benefits" which results in a further restriction on such benefit unless such "Section 411 (d)(6) protected benefits" are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411 (d)(6) protected benefits" are benefits described in Code Section 411 (d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. A Plan amendment that eliminates or restricts the ability of a Participant to receive payment of the Participant's interest 46 in the Plan under a particular optional form of benefit will be permissible if the amendment satisfies the conditions in (1) and (2) below: (1) The amendment provides a single-sum distribution form that is otherwise identical to the optional form of benefit eliminated or restricted. For purposes of this condition (1), a single-sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement. (2) The amendment is not effective unless the amendment provides that the amendment shall not apply to any distribution with an annuity starting date earlier than the earlier of: (i) the ninetieth (90th) day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the Act requirements at 29 CFR 2520.104b-3 (relating to a summary of material modifications) or (ii) the first day of the second Plan Year following the Plan Year in which the amendment is adopted. 9.2 TERMINATION. (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Accounts shall become 100% Vested as provided in Section 7.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts, including Forfeitures, shall be allocated to the accounts of all Participants in accordance with the provisions hereof. (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Sections 7.5 and 7.6. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411 (d)(6) protected benefits" in accordance with Section 9.1(c) 9.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS. This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 9.1(c). ARTICLE X - TOP HEAVY 10.1 TOP HEAVY PLAN REQUIREMENTS. For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 7.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.3 of the Plan. 47 10.2 DETERMINATION OF TOP HEAVY STATUS. (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy Plan. (b) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) the Participant's Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date. (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date. Notwithstanding anything herein to the contrary, all distributions, including distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. 48 (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (c) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401 (a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401 (a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. 49 (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (d) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (e) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411 (b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (f) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants. ARTICLE XI - MISCELLANEOUS 11.1 PARTICIPANT'S RIGHTS. This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon the Employee as a Participant of this Plan. 11.2 ALIENATION. (a) Subject to the exceptions provided below, and as otherwise permitted by the Code and Act, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or the Participant's Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. 50 (b) Subsection (a) shall not apply to the extent a Participant or Beneficiary is indebted to the Plan by reason of a loan made pursuant to Section 8.4, as a result of a loan from the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount to be distributed as shall equal such indebtedness shall be paid to the Plan, to apply against or discharge such indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such indebtedness is to be so paid in whole or part from the Participant's Account. If the Participant or Beneficiary does not agree that the indebtedness is a valid claim against the Vested Participant's Account, the Participant or Beneficiary shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.8 and 2.9. (c) Subsection (a) shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so created by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. (d) Subsection (a) shall not apply to an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, in accordance with Code Sections 401 (a)(13)(C) and (D). 11.3 CONSTRUCTION OF PLAN. This Plan and Trust shall be construed and enforced according to the Code, the Act and the laws of the State of Illinois, other than its laws respecting choice of law, to the extent not pre-empted by the Act. 11.4 GENDER AND NUMBER. Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 11.5 LEGAL ACTION. In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 11.6 PROHIBITION AGAINST DIVERSION OF FUNDS. (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any Trust Fund maintained pursuant to 51 the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Former Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. (c) Except for Sections 3.5, 3.6, and 4.1(b), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the final determination of the disallowance, whether by agreement with the Internal Revenue Service or by final decision of a competent jurisdiction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year following the disallowance. Earnings of the Plan attributable to the contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 11.7 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE. The Employer, Administrator and Trustee, and their successors, shall not be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 11.8 INSURER'S PROTECTIVE CLAUSE. Except as otherwise agreed upon in writing between the Employer and the insurer, an insurer which issues any Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 11.9 RECEIPT AND RELEASE FOR PAYMENTS. Any payment to any Participant, the Participant's legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 11.10 ACTION BY THE EMPLOYER. Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 52 11.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY. The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator and (3) the Trustee, and (4) any Investment Manager appointed hereunder. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan including, but not limited to, any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy and method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall have the sole responsibility for the administration of the Plan, including, but not limited to, the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. 11.12 HEADINGS. The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 11.13 APPROVAL BY INTERNAL REVENUE SERVICE. Notwithstanding anything herein to the contrary, if, pursuant to an application for qualification filed by or on behalf of the Plan by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date that the Secretary of the Treasury may prescribe, the Commissioner of Internal Revenue Service or the Commissioner's delegate should determine that the Plan does not initially qualify as a tax-exempt plan under Code Sections 401 and 501, and such determination is not contested, or if contested, is finally upheld, then if the Plan is a new plan, it shall be void ab initio and all amounts contributed to the Plan by the Employer, less expenses paid, shall be returned within one (1) year and the Plan shall terminate, and the Trustee shall be discharged from all further obligations. If the disqualification relates to an amended plan, then the Plan shall operate as if it had not been amended. 11.14 UNIFORMITY. All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. 11.15 SECURITIES AND EXCHANGE COMMISSION APPROVAL. The Employer may request an interpretative letter from the Securities and Exchange Commission stating that 53 the transfers of Company Stock contemplated hereunder do not involve transactions requiring a registration of such Company Stock under the Securities Act of 1933. In the event that a favorable interpretative letter is not obtained, the Employer reserves the right to amend the Plan and Trust retroactively to their Effective Dates in order to obtain a favorable interpretative letter or to terminate the Plan. ARTICLE XII - PARTICIPATING EMPLOYERS 12.1 ADOPTION BY OTHER EMPLOYERS. Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 12.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS. (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. (c) Any expenses of the Plan which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 12.3 DESIGNATION OF AGENT. Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 12.4 EMPLOYEE TRANSFERS. In the event an Employee is transferred between Participating Employers, accumulated service and eligibility shall be carried with the Employee involved. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 12.5 PARTICIPATING EMPLOYER CONTRIBUTION AND FORFEITURES. Any contribution or Forfeiture subject to allocation during each Plan Year shall be determined and allocated separately by each Participating Employer, and shall be allocated only among the Participants eligible to share of the Employer or Participating Employer making the contribution or by which the forfeiting Participant was employed. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of 54 each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof. 12.6 AMENDMENT. Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 12.7 DISCONTINUANCE OF PARTICIPATION. Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan at any time. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust Fund assets allocable to the Participants of such Participating Employer to such new trustee as shall have been designated by such Participating Employer, in the event that it has established a separate qualified retirement plan for its Employees provided, however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 411 (d)(6) protected benefits" as described in Section 9.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted for purposes other than for the exclusive benefit of the Employees of such Participating Employer. 12.8 ADMINISTRATOR'S AUTHORITY. The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate. the purpose of this Article. 55 IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. Eagle Test Systems, Inc. By /s/ Leonard Foxman ----------------------- EMPLOYER Leonard Foxman By /s/ Leonard Foxman ----------------------- TRUSTEE ATTEST /s/ Theodore Foxman ------------------- 56 EX-10.5 5 c86449exv10w5.txt PROFIT SHARING PLAN AND TRUST EXHIBIT 10.5 EAGLE TEST SYSTEMS, INC. PROFIT SHARING PLAN AND TRUST . . . TABLE OF CONTENTS
Page ---- ARTICLE I DEFINITIONS............................................ 1 1.1 "Act".................................................... 1 1.2 "Administrator".......................................... 1 1.3 "Affiliated Employer".................................... 1 1.4 "Aggregate Account"...................................... 1 1.5 "Anniversary Date"....................................... 2 1.6 "Beneficiary"............................................ 2 1.7 "Code"................................................... 2 1.8 "Compensation"........................................... 2 1.9 "Contract" or "Policy"................................... 3 1.10 "Early Retirement Date".................................. 3 1.11 "Eligible Employee"...................................... 3 1.12 "Employee"............................................... 3 1.13 "Employer"............................................... 3 1.14 Fiduciary"............................................... 3 1.15 "Fiscal Year"............................................ 3 1.16 "Forfeiture"............................................. 3 1.17 "Former Participant"..................................... 4 1.18 "415 Compensation"....................................... 4 1.19 "Highly Compensated Employee"............................ 4 1.20 "Highly Compensated Participant"......................... 5 1.21 "Hour of Service"........................................ 5 1.22 "Investment Manager"..................................... 6 1.23 "Key Employee"........................................... 6 1.24 "Late Retirement Date"................................... 7 1.25 "Leased Employee"........................................ 7 1.26 Non-Highly Compensated Participant"...................... 8 1.27 "Non-Key Employee"....................................... 8 1.28 "Normal Retirement Age".................................. 8 1.29 "Normal Retirement Date"................................. 8 1.30 "1-Year Break in Service"................................ 8 1.31 "Participant"............................................ 9 1.32 "Participant's Account".................................. 9 1.33 "Participant's Transfer/Rollover Account"................ 9 1.34 "Plan"................................................... 9 1.35 "Plan Year".............................................. 9 1.36 "Regulation"............................................. 9 1.37 "Retired Participant".................................... 9 1.38 "Retirement Date"........................................ 9 1.39 "Terminated Participant"................................. 9 1.40 "Top Heavy Plan"......................................... 9 1.41 "Top Heavy Plan Year".................................... 9
(i) TABLE OF CONTENTS 1.42 "Trustee"............................................... 9 1.43 "Trust Fund"............................................ 10 1.44 "Valuation Date"........................................ 10 1.45 "Vested"................................................ 10 1.46 "Year of Service"....................................... 10 ARTICLE II ADMINISTRATION........................................ 10 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER............. 10 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY................. 11 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR.................. 11 2.4 RECORDS AND REPORTS..................................... 12 2.5 APPOINTMENT OF ADVISERS................................. 12 2.6 PAYMENT OF EXPENSES..................................... 13 2.7 CLAIMS PROCEDURE........................................ 13 2.8 CLAIMS REVIEW PROCEDURE................................. 13 ARTICLE III ELIGIBILITY........................................... 13 3.1 CONDITIONS OF ELIGIBILITY............................... 13 3.2 EFFECTIVE DATE OF PARTICIPATION......................... 14 3.3 DETERMINATION OF ELIGIBILITY............................ 14 3.4 TERMINATION OF ELIGIBILITY.............................. 14 3.5 OMISSION OF ELIGIBLE EMPLOYEE........................... 14 3.6 INCLUSION OF INELIGIBLE EMPLOYEE........................ 14 3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE................. 14 3.8 ELECTION NOT TO PARTICIPATE............................. 16 ARTICLE IV CONTRIBUTION AND ALLOCATION........................... 16 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION........... 16 4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION................ 16 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS.... 16 4.4 MAXIMUM ANNUAL ADDITIONS................................ 19 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS............... 21 4.6 ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLAN 22 4.7 QUALIFIED MILITARY SERVICE.............................. 23 ARTICLE V VALUATIONS............................................ 24 5.1 VALUATION OF THE TRUST FUND............................. 24 5.2 METHOD OF VALUATION..................................... 24 ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS............ 24 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT............... 24 6.2 DETERMINATION OF BENEFITS UPON DEATH.................... 24 6.3 DISABILITY RETIREMENT BENEFITS.......................... 26 6.4 DETERMINATION OF BENEFITS UPON TERMINATION.............. 26 6.5 DISTRIBUTION OF BENEFITS................................ 28

(ii) 6.6 DISTRIBUTION OF BENEFITS UPON DEATH.......................... 30 6.7 TIME OF SEGREGATION OR DISTRIBUTION.......................... 30 6.8 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY............ 30 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN............... 31 6.10 PRE-RETIREMENT DISTRIBUTION.................................. 31 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP............................ 31 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION.............. 32 ARTICLE VII TRUSTEE.................................................... 32 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE........................ 32 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE.................. 33 7.3 OTHER POWERS OF THE TRUSTEE.................................. 33 7.4 LOANS TO PARTICIPANTS........................................ 36 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS..................... 37 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES................ 37 7.7 ANNUAL REPORT OF THE TRUSTEE................................. 37 7.8 AUDIT........................................................ 38 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE............... 38 7.10 TRANSFER OF INTEREST......................................... 39 7.11 TRUSTEE INDEMNIFICATION...................................... 39 7.12 DIRECT ROLLOVER.............................................. 40 ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS......................... 40 8.1 AMENDMENT.................................................... 40 8.2 TERMINATION.................................................. 41 8.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS.................. 42 ARTICLE IX TOP HEAVY.................................................. 42 9.1 TOP HEAVY PLAN REQUIREMENTS.................................. 42 9.2 DETERMINATION OF TOP HEAVY STATUS............................ 42 ARTICLE X MISCELLANEOUS.............................................. 45 10.1 PARTICIPANT'S RIGHTS......................................... 45 10.2 ALIENATION................................................... 45 10.3 CONSTRUCTION OF PLAN......................................... 46 10.4 GENDER AND NUMBER............................................ 46 10.5 LEGAL ACTION................................................. 46 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS....................... 46 10.7 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE................... 47 10.8 INSURER'S PROTECTIVE CLAUSE.................................. 47 10.9 RECEIPT AND RELEASE FOR PAYMENTS............................. 47 10.10 ACTION BY THE EMPLOYER....................................... 47 10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY........... 47 10.12 HEADINGS..................................................... 48 10.13 APPROVAL BY INTERNAL REVENUE SERVICE......................... 48 10.14 UNIFORMITY................................................... 48

(iii) ARTICLE XI PARTICIPATING EMPLOYERS.................................... 48 11.1 ADOPTION BY OTHER EMPLOYERS.................................. 48 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS...................... 48 11.3 DESIGNATION OF AGENT......................................... 49 11.4 EMPLOYEE TRANSFERS........................................... 49 11.5 PARTICIPATING EMPLOYER CONTRIBUTION AND FORFEITURES.......... 49 11.6 AMENDMENT.................................................... 49 11.7 DISCONTINUANCE OF PARTICIPATION.............................. 49 11.8 ADMINISTRATOR'S AUTHORITY.................................... 50

(iv) EAGLE TEST SYSTEMS, INC. PROFIT SHARING PLAN AND TRUST THIS AGREEMENT, hereby made and entered into this ____ day of ____________________________, by and between Eagle Test Systems, Inc. and Analog Test Institute, Inc. (herein jointly referred to as the "Employer") and Leonard Foxman (herein referred to as the "Trustee"). W I T N E S S E T H: WHEREAS, the Employer heretofore established a Profit Sharing Plan and Trust effective October 1, 1982, (hereinafter called the "Effective Date") known as Eagle Test Systems, Inc. Profit Sharing Plan and Trust (herein referred to as the "Plan") in recognition of the contribution made to its successful operation by its employees and for the exclusive benefit of its eligible employees; and WHEREAS, under the terms of the Plan, the Employer has the ability to amend the Plan, provided the Trustee joins in such amendment if the provisions of the Plan affecting the Trustee are amended; NOW, THEREFORE, effective October 1, 2001, except as otherwise provided, the Employer and the Trustee in accordance with the provisions of the Plan pertaining to amendments thereof, hereby amend the Plan in its entirety and restate the Plan to provide as follows: ARTICLE I DEFINITIONS 1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it may be amended from time to time. 1.2 "Administrator" means the Employer unless another person or entity has been designated by the Employer pursuant to Section 2.2 to administer the Plan on behalf of the Employer. 1.3 "Affiliated Employer" means any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b)) which includes the Employer; any trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c)) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Code Section 414(m)) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Regulations under Code Section 414(o). 1.4 "Aggregate Account" means, with respect to each Participant, the value of all accounts maintained on behalf of a Participant, whether attributable to Employer or Employee contributions, subject to the provisions of Section 9.2. 1 1.5 "Anniversary Date" means the last day of the Plan Year. 1.6 "Beneficiary" means the person (or entity) to whom the share of a deceased Participant's total account is payable, subject to the restrictions of Sections 6.2 and 6.6. 1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced from time to time. 1.8 "Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401 (a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. Compensation must be determined without regard to any rules under Code Section 3401 (a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For purposes of this Section, the determination of Compensation shall be made by: (a) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4)for Plan Years beginning after December 31, 2000, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. For a Participant's initial year of participation, Compensation shall be recognized for the entire Plan Year. Compensation in excess of $150,000 (or such other amount provided in the Code) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. For any short Plan Year the Compensation limit shall be an amount equal to the Compensation limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). For Plan Years beginning after December 31, 1996, for purposes of determining Compensation, the family member aggregation rules of Code Section 401(a)(17) and Code Section 414(q)(6) (as in effect prior to the Small Business Job Protection Act of 1996) are eliminated. For purposes of this Section, if the Plan is a plan described in Code Section 413(c) or 414(f) (a plan maintained by more than one Employer), the limitation applies separately with respect to the Compensation of any Participant from each Employer maintaining the Plan. 1.9 "Contract" or "Policy" means any life insurance policy, retirement income policy or annuity contract (group or individual) issued pursuant to the terms of the Plan. In the event of 2 any conflict between the terms of this Plan and the terms of any contract purchased hereunder, the Plan provisions shall control. 1.10 "Early Retirement Date" means the first day of the month (prior to the Normal Retirement Date) coinciding with or following the date on which a Participant or Former Participant attains age 60, and has completed at least five (5) Years of Service with the Employer (Early Retirement Age). A Participant shall become fully Vested upon satisfying this requirement if still employed at Early Retirement Age. A Former Participant who separates from service after satisfying the service requirement for Early Retirement and who thereafter reaches the age requirement contained herein shall be entitled to receive benefits under this Plan. 1.11 "Eligible Employee" means any Employee. Employees of Affiliated Employers shall not be eligible to participate in this Plan unless such Affiliated Employers have specifically adopted this Plan in writing. Employees classified by the Employer as independent contractors who are subsequently determined by the Internal Revenue Service to be Employees shall not be Eligible Employees. 1.12 "Employee" means any person who is employed by the Employer or Affiliated Employer, and excludes any person who is employed as an independent contractor. Employee shall include Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and such Leased Employees do not constitute more than 20% of the recipient's non-highly compensated work force. 1.13 "Employer" means Eagle Test Systems, Inc. and Analog Test Institute, Inc. and any successor which shall maintain this Plan; and any predecessor which has maintained this Plan. The Employers are corporations with principal offices in the State of Illinois. 1.14 Fiduciary" means any person who (a) exercises any discretionary authority or discretionary control respecting management of the Plan or exercises any authority or control respecting management or disposition of its assets, (b) renders investment advice for a fee or other compensation, direct or indirect, with respect to any monies or other property of the Plan or has any authority or responsibility to do so, or (c) has any discretionary authority or discretionary responsibility in the administration of the Plan. 1.15 "Fiscal Year" means the Employer's accounting year of 12 months commencing on October 1st of each year and ending the following September 30th. 1.16 "Forfeiture" means that portion of a Participant's Account that is not Vested, and occurs on the earlier of: (a) the distribution of the entire Vested portion of the Participant's Account of a Former Participant who has severed employment with the Employer. For purposes of this provision, if the Former Participant has a Vested benefit of zero, then such Former Participant 3 shall be deemed to have received a distribution of such Vested benefit as of the year in which the severance of employment occurs, or (b) the last day of the Plan Year in which a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service. Regardless of the preceding provisions, if a Former Participant is eligible to share in the allocation of Employer contributions or Forfeitures in the year in which the Forfeiture would otherwise occur, then the Forfeiture will not occur until the end of the first Plan Year for which the Former Participant is not eligible to share in the allocation of Employer contributions or Forfeitures. Furthermore, the term "Forfeiture" shall also include amounts deemed to be Forfeitures pursuant to any other provision of this Plan. 1.17 "Former Participant" means a person who has been a Participant, but who has ceased to be a Participant for any reason. 1.18 "415 Compensation" with respect to any Participant means such Participant's wages as defined in Code Section 3401 (a) and all other payments of compensation by the Employer (in the course of the Employer's trade or business) for a Plan Year for which the Employer is required to furnish the Participant a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 Compensation" must be determined without regard to any rules under Code Section 3401 (a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)). For "limitation years" beginning after December 31, 1997, for purposes of this Section, the determination of "415 Compensation" shall include any elective deferral (as defined in Code Section 402(g)(3)), and any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Participant by reason of Code Sections 125, 132(f)(4) for "limitation years" beginning after December 31, 2000 or 457. 1.19 "Highly Compensated Employee" means, for Plan Years beginning after December 31, 1996, an Employee described in Code Section 414(q) and the Regulations thereunder, and generally means any Employee who: (a) was a "five percent owner" as defined in Section 1.23(c) at any time during the "determination year" or the "look-back year"; or (b) for the "look-back year" had "415 Compensation" from the Employer in excess of $80,000. The $80,000 amount is adjusted at the same time and in the same manner as under Code Section 415(d), except that the base period is the calendar quarter ending September 30, 1996. The "determination year" means the Plan Year for which testing is being performed, and the "look-back year" means the immediately preceding twelve (12) month period. 4 Notwithstanding the above, for the first Plan Year beginning after December 31, 1996, the "look-back year" shall be the calendar year ending with or within the Plan Year for which testing is being performed, and the "determination year" (if applicable) shall be the period of time, if any, which extends beyond the "look-back year" and ends on the last day of the Plan Year for which testing is being performed (the "lag period"). A highly compensated former Employee is based on the rules applicable to determining Highly Compensated Employee status as in effect for the "determination year," in accordance with Regulation 1.414(q)-1T, A-4 and IRS Notice 97-45 (or any superseding guidance). In determining whether an Employee is a Highly Compensated Employee for a Plan Year beginning in 1997, the amendments to Code Section 414(q) stated above are treated as having been in effect for years beginning in 1996. For purposes of this Section, for Plan Years beginning prior to January 1, 1998, the determination of "415 Compensation" shall be made by including amounts that would otherwise be excluded from a Participant's gross income by reason of the application of Code Sections 125, 402(e)(3), 402(h)(1)(B), and, in the case of Employer contributions made pursuant to a salary reduction agreement, Code Section 403(b). In determining who is a Highly Compensated Employee, Employees who are non-resident aliens and who received no earned income (within the meaning of Code Section 911(d)(2)) from the Employer constituting United States source income within the meaning of Code Section 861(a)(3) shall not be treated as Employees. Additionally, all Affiliated Employers shall be taken into account as a single employer and Leased Employees within the meaning of Code Sections 414(n)(2) and 414(o)(2) shall be considered Employees unless such Leased Employees are covered by a plan described in Code Section 414(n)(5) and are not covered in any qualified plan maintained by the Employer. The exclusion of Leased Employees for this purpose shall be applied on a uniform and consistent basis for all of the Employer's retirement plans. Highly Compensated Former Employees shall be treated as Highly Compensated Employees without regard to whether they performed services during the "determination year." 1.20 "Highly Compensated Participant" means any Highly Compensated Employee who is eligible to participate in the component of the Plan being tested. 1.21 "Hour of Service" means (1) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer for the performance of duties (these hours will be credited to the Employee for the computation period in which the duties are performed); (2) each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer (irrespective of whether the employment relationship has terminated) for reasons other than performance of duties (such as vacation, holidays, sickness, jury duty, disability, lay-off, military duty or leave of absence) during the applicable computation period (these hours will be calculated and credited pursuant to Department of Labor regulation 2530.200b-2 which is incorporated herein by reference); (3) each hour for which back pay is awarded or agreed to by the Employer without regard to mitigation of damages (these hours will be credited to the Employee for the computation period 5 or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made). The same Hours of Service shall not be credited both under (1) or (2), as the case may be, and under (3). Notwithstanding (2) above, (i) no more than 501 Hours of Service are required to be credited to an Employee on account of any single continuous period during which the Employee performs no duties (whether or not such period occurs in a single computation period); (ii) an hour for which an Employee is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed is not required to be credited to the Employee if such payment is made or due under a plan maintained solely for the purpose of complying with applicable worker's compensation, or unemployment compensation or disability insurance laws; and (iii) Hours of Service are not required to be credited for a payment which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. For purposes of (2) above, a payment shall be deemed to be made by or due from the Employer regardless of whether such payment is made by or due from the Employer directly, or indirectly through, among others, a trust fund, or insurer, to which the Employer contributes or pays premiums and regardless of whether contributions made or due to the trust fund, insurer, or other entity are for the benefit of particular Employees or are on behalf of a group of Employees in the aggregate. For purposes of this Section, Hours of Service will be credited for employment with other Affiliated Employers. The provisions of Department of Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference. 1.22 "Investment Manager" means an entity that (a) has the power to manage, acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility to the Plan in writing. Such entity must be a person, firm, or corporation registered as an investment adviser under the Investment Advisers Act of 1940, a bank, or an insurance company. 1.23 "Key Employee" means an Employee as defined in Code Section 416(i) and the Regulations thereunder. Generally, any Employee or former Employee (as well as each of the Employee's or former Employee's Beneficiaries) is considered a Key Employee if the Employee, at any time during the Plan Year that contains the "Determination Date" or any of the preceding four (4) Plan Years, has been included in one of the following categories: (a) an officer of the Employer (as that term is defined within the meaning of the Regulations under Code Section 416) having annual "415 Compensation" greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for any such Plan Year. (b) one of the ten employees having annual "415 Compensation" from the Employer for a Plan Year greater than the dollar limitation in effect under Code Section 415(c)(1)(A) for the calendar year in which such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than one-half percent interest and the largest interests in the Employer. (c) a "five percent owner" of the Employer. "Five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more 6 than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than five percent (5%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. (d) a "one percent owner" of the Employer having an annual "415 Compensation" from the Employer of more than $150,000. "One percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer or, in the case of an unincorporated business, any person who owns more than one percent (1%) of the capital or profits interest in the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Code Sections 414(b), (c), (m) and (o) shall be treated as separate employers. However, in determining whether an individual has "415 Compensation" of more than $150,000, "415 Compensation" from each employer required to be aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken into account. For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(fl(4)for Plan Years beginning after December 31, 2000, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 1.24 "Late Retirement Date" means a Participant's actual Retirement Date after having reached Normal Retirement Date. 1.25 "Leased Employee" means, for Plan Years beginning after December 31, 1996, any person (other than an Employee of the recipient Employer) who pursuant to an agreement between the recipient Employer and any other person or entity ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by the recipient Employer. Furthermore, Compensation for a Leased Employee shall only include Compensation from the leasing organization that is attributable to services performed for the recipient Employer. A Leased Employee shall not be considered an Employee of the recipient Employer: (a) if such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but for Plan Years beginning prior to January 1, 1998, including amounts which are contributed by the Employer pursuant to 7 a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions, and for Plan Years beginning prior to January 1, 2001, excluding amounts that are not includible in gross income under Code Section 132(f)(4); (2) immediate participation; (3) full and immediate vesting; and (b) if Leased Employees do not constitute more than 20% of the recipient Employer's nonhighly compensated work force. 1.26 Non-Highly Compensated Participant" means, for Plan Years beginning after December 31, 1996, any Participant who is not a Highly Compensated Employee. 1.27 "Non-Key Employee" means any Employee or former Employee (and such Employee's or former Employee's Beneficiaries) who is not, and has never been a Key Employee. 1.28 "Normal Retirement Age" means the Participant's 62nd birthday. A Participant shall become fully Vested in the Participant's Account upon attaining Normal Retirement Age. 1.29 "Normal Retirement Date" means the Participant's Normal Retirement Age. 1.30 "1-Year Break in Service" means the applicable computation period during which an Employee has not completed more than 500 Hours of Service with the Employer. Further, solely for the purpose of determining whether a Participant has incurred a 1-Year Break in Service, Hours of Service shall be recognized for "authorized leaves of absence" and "maternity and paternity leaves of absence." Years of Service and 1-Year Breaks in Service shall be measured on the same computation period. "Authorized leave of absence" means an unpaid, temporary cessation from active employment with the Employer pursuant to an established nondiscriminatory policy, whether occasioned by illness, military service, or any other reason. A "maternity or paternity leave of absence" means an absence from work for any period by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or any absence for the purpose of caring for such child for a period immediately following such birth or placement. For this purpose, Hours of Service shall be credited for the computation period in which the absence from work begins, only if credit therefore is necessary to prevent the Employee from incurring a 1-Year Break in Service, or, in any other case, in the immediately following computation period. The Hours of Service credited for a "maternity or paternity leave of absence" shall be those which would normally have been credited but for such absence, or, in any case in which the Administrator is unable to determine such hours normally credited, eight (8) Hours of Service per day. The total Hours of Service required to be credited for a "maternity or paternity leave of 8 absence" shall not exceed the number of Hours of Service needed to prevent the Employee from incurring a 1-Year Break in Service. 1.31 "Participant" means any Eligible Employee who participates in the Plan and has not for any reason become ineligible to participate further in the Plan. 1.32 "Participant's Account" means the account established and maintained by the Administrator for each Participant with respect to such Participant's total interest in the Plan and Trust resulting from the Employer contributions. 1.33 "Participant's Transfer/Rollover Account" means the account established and maintained by the Administrator for each Participant with respect to the Participant's total interest in the Plan resulting from amounts transferred to this Plan from a direct plan-to-plan transfer and/or with respect to such Participant's interest in the Plan resulting from amounts transferred from another qualified plan or "conduit" Individual Retirement Account in accordance with Section 4.6. A separate accounting shall be maintained with respect to that portion of the Participant's Transfer/Rollover Account attributable to transfers (within the meaning of Code Section 414(1)) and "rollovers." 1.34 "Plan" means this instrument, including all amendments thereto. 1.35 "Plan Year" means the Plan's accounting year of twelve (12) months commencing on October 1st of each year and ending the following September 30th. 1.36 "Regulation" means the Income Tax Regulations as promulgated by the Secretary of the Treasury or a delegate of the Secretary of the Treasury, and as amended from time to time. 1.37 "Retired Participant" means a person who has been a Participant, but who has become entitled to retirement benefits under the Plan. 1.38 "Retirement Date" means the date as of which a Participant retires whether such retirement occurs on a Participant's Normal Retirement Date, Early or Late Retirement Date (see Section 6.1). 1.39 "Terminated Participant" means a person who has been a Participant, but whose employment has been terminated other than by death or retirement. 1.40 "Top Heavy Plan" means a plan described in Section 9.2(a). 1.41 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top Heavy Plan. 1.42 "Trustee" means the person or entity named as trustee herein or in any separate trust forming a part of this Plan, and any successors. 9 1.43 "Trust Fund" means the assets of the Plan and Trust as the same shall exist from time to time. 1.44 "Valuation Date" means the Anniversary Date and may include any other date or dates deemed necessary or appropriate by the Administrator for the valuation of the Participants' accounts during the Plan Year, which may include any day that the Trustee, any transfer agent appointed by the Trustee or the Employer or any stock exchange used by such agent, are open for business. 1.45 "Vested" means the nonforfeitable portion of any account maintained on behalf of a Participant. 1.46 "Year of Service" means the computation period of twelve (12) consecutive months, herein set forth, during which an Employee has at least 1000 Hours of Service. For purposes of eligibility for participation, the initial computation period shall begin with the date on which the Employee first performs an Hour of Service. The participation computation period beginning after a 1-Year Break in Service shall be measured from the date on which an Employee again performs an Hour of Service. The participation computation period shall shift to the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service. An Employee who is credited with the required Hours of Service in both the initial computation period (or the computation period beginning after a 1-Year Break in Service) and the Plan Year which includes the anniversary of the date on which the Employee first performed an Hour of Service, shall be credited with two (2) Years of Service for purposes of eligibility to participate. For vesting purposes, the computation periods shall be the Plan Year, excluding periods prior to the Effective Date of the Plan. The computation period shall be the Plan Year if not otherwise set forth herein. Notwithstanding the foregoing, for any short Plan Year, the determination of whether an Employee has completed a Year of Service shall be made in accordance with Department of Labor regulation 2530.203-2(c). However, in determining whether an Employee has completed a Year of Service for benefit accrual purposes in the short Plan Year, the number of the Hours of Service required shall be proportionately reduced based on the number of full months in the short Plan Year. Years of Service with any Affiliated Employer shall be recognized. ARTICLE II ADMINISTRATION 2.1 POWERS AND RESPONSIBILITIES OF THE EMPLOYER. (a) In addition to the general powers and responsibilities otherwise provided for in this Plan, the Employer shall be empowered to appoint and remove the Trustee and the Administrator from time to time as it deems necessary for the proper administration of the Plan 10 to ensure that the Plan is being operated for the exclusive benefit of the Participants and their Beneficiaries in accordance with the terms of the Plan, the Code, and the Act. The Employer may appoint counsel, specialists, advisers, agents (including any nonfiduciary agent) and other persons as the Employer deems necessary or desirable in connection with the exercise of its fiduciary duties under this Plan. The Employer may compensate such agents or advisers from the assets of the Plan as fiduciary expenses (but not including any business (settlor) expenses of the Employer), to the extent not paid by the Employer. (b) The Employer shall establish a "funding policy and method," i.e., it shall determine whether the Plan has a short run need for liquidity (e.g., to pay benefits) or whether liquidity is a long run goal and investment growth (and stability of same) is a more current need, or shall appoint a qualified person to do so. The Employer or its delegate shall communicate such needs and goals to the Trustee, who shall coordinate such Plan needs with its investment policy. The communication of such a "funding policy and method" shall not, however, constitute a directive to the Trustee as to the investment of the Trust Funds. Such "funding policy and method" shall be consistent with the objectives of this Plan and with the requirements of Title I of the Act. (c) The Employer shall periodically review the performance of any Fiduciary or other person to whom duties have been delegated or allocated by it under the provisions of this Plan or pursuant to procedures established hereunder. This requirement may be satisfied by formal periodic review by the Employer or by a qualified person specifically designated by the Employer, through day-to-day conduct and evaluation, or through other appropriate ways. 2.2 DESIGNATION OF ADMINISTRATIVE AUTHORITY. The Employer shall be the Administrator. The Employer may appoint any person, including, but not limited to, the Employees of the Employer, to perform the duties of the Administrator. Any person so appointed shall signify acceptance by filing written acceptance with the Employer. Upon the resignation or removal of any individual performing the duties of the Administrator, the Employer may designate a successor. 2.3 POWERS AND DUTIES OF THE ADMINISTRATOR. The primary responsibility of the Administrator is to administer the Plan for the exclusive benefit of the Participants and their Beneficiaries, subject to the specific terms of the Plan. The Administrator shall administer the Plan in accordance with its terms and shall have the power and discretion to construe the terms of the Plan and to determine all questions arising in connection with the administration, interpretation, and application of the Plan. Any such determination by the Administrator shall be conclusive and binding upon all persons. The Administrator may establish procedures, correct any defect, supply any information, or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan; provided, however, that any procedure, discretionary act, interpretation or construction shall be done in a nondiscriminatory manner based upon uniform principles consistently applied and shall be consistent with the intent that the Plan shall continue to be deemed a qualified plan under the terms of Code Section 401(a), and shall comply with the terms of the Act and all regulations issued pursuant thereto. The Administrator shall have all powers necessary or appropriate to accomplish the Administrator's duties under the Plan. 11 The Administrator shall be charged with the duties of the general administration of the Plan as set forth under the terms of the Plan, including, but not limited to, the following: (a) the discretion to determine all questions relating to the eligibility of Employees to participate or remain a Participant hereunder and to receive benefits under the Plan; (b) to compute, certify, and direct the Trustee with respect to the amount and the kind of benefits to which any Participant shall be entitled hereunder; (c) to authorize and direct the Trustee with respect to all discretionary or otherwise directed disbursements from the Trust; (d) to maintain all necessary records for the administration of the Plan; (e) to interpret the provisions of the Plan and to make and publish such rules for regulation of the Plan as are consistent with the terms hereof; (f) to determine the size and type of any Contract to be purchased from any insurer, and to designate the insurer from which such Contract shall be purchased; (g) to compute and certify to the Employer and to the Trustee from time to time the sums of money necessary or desirable to be contributed to the Plan; (h) to consult with the Employer and the Trustee regarding the short and long-term liquidity needs of the Plan in order that the Trustee can exercise any investment discretion in a manner designed to accomplish specific objectives; (i) to determine the validity of, and take appropriate action with respect to, any qualified domestic relations order received by it; and (j) to assist any Participant regarding the Participant's rights, benefits, or elections available under the Plan. 2.4 RECORDS AND REPORTS. The Administrator shall keep a record of all actions taken and shall keep all other books of account, records, policies, and other data that may be necessary for proper administration of the Plan and shall be responsible for supplying all information and reports to the Internal Revenue Service, Department of Labor, Participants, Beneficiaries and others as required by law. 2.5 APPOINTMENT OF ADVISERS. The Administrator, or the Trustee with the consent of the Administrator, may appoint counsel, specialists, advisers, agents (including nonfiduciary agents) and other persons as the Administrator or the Trustee deems necessary or desirable in connection with the administration of this Plan, including but not limited to agents and advisers to assist with the administration and management of the Plan, and thereby to provide, among such other duties as the Administrator may appoint, assistance with maintaining Plan records and the providing of investment information to the Plan's investment fiduciaries. 12 2.6 PAYMENT OF EXPENSES. All expenses of administration may be paid out of the Trust Fund unless paid by the Employer. Such expenses shall include any expenses incident to the functioning of the Administrator, or any person or persons retained or appointed by any named Fiduciary incident to the exercise of their duties under the Plan, including, but not limited to, fees of accountants, counsel, Investment Managers, and other specialists and their agents, the costs of any bonds required pursuant to Act Section 412, and other costs of administering the Plan. Until paid, the expenses shall constitute a liability of the Trust Fund. 2.7 CLAIMS PROCEDURE. Claims for benefits under the Plan may be filed in writing with the Administrator. Written notice of the disposition of a claim shall be furnished to the claimant within ninety (90) days after the application is filed, or such period as is required by applicable law or Department of Labor regulation. In the event the claim is denied, the reasons for the denial shall be specifically set forth in the notice in language calculated to be understood by the claimant, pertinent provisions of the Plan shall be cited, and, where appropriate, an explanation as to how the claimant can perfect the claim will be provided. In addition, the claimant shall be furnished with an explanation of the Plan's claims review procedure. 2.8 CLAIMS REVIEW PROCEDURE. Any Employee, former Employee, or Beneficiary of either, who has been denied a benefit by a decision of the Administrator pursuant to Section 2.7 shall be entitled to request the Administrator to give further consideration to a claim by filing with the Administrator a written request for a hearing. Such request, together with a written statement of the reasons why the claimant believes the claim should be allowed, shall be filed with the Administrator no later than sixty (60) days after receipt of the written notification provided for in Section 2.7. The Administrator shall then conduct a hearing within the next sixty (60) days, at which the claimant may be represented by an attorney or any other representative of such claimant's choosing and expense and at which the claimant shall have an opportunity to submit written and oral evidence and arguments in support of the claim. At the hearing (or prior thereto upon five (5) business days written notice to the Administrator) the claimant or the claimant's representative shall have an opportunity to review all documents in the possession of the Administrator which are pertinent to the claim at issue and its disallowance. Either the claimant or the Administrator may cause a court reporter to attend the hearing and record the proceedings. In such event, a complete written transcript of the proceedings shall be furnished to both parties by the court reporter. The full expense of any such court reporter and such transcripts shall be borne by the party causing the court reporter to attend the hearing. A final decision as to the allowance of the claim shall be made by the Administrator within sixty (60) days of receipt of the appeal (unless there has been an extension of sixty (60) days due to special circumstances, provided the delay and the special circumstances occasioning it are communicated to the claimant within the sixty (60) day period). Such communication shall be written in a manner calculated to be understood by the claimant and shall include specific reasons for the decision and specific references to the pertinent Plan provisions on which the decision is based. ARTICLE III ELIGIBILITY 3.1 CONDITIONS OF ELIGIBILITY. Any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the 13 date such Employee has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. 3.2 EFFECTIVE DATE OF PARTICIPATION. An Eligible Employee shall become a Participant effective as of the date on which the Employee satisfies the eligibility requirements of Section 3.1. 3.3 DETERMINATION OF ELIGIBILITY. The Administrator shall determine the eligibility of each Employee for participation in the Plan based upon information furnished by the Employer. Such determination shall be conclusive and binding upon all persons, as long as the same is made pursuant to the Plan and the Act. Such determination shall be subject to review pursuant to Section 2.8. 3.4 TERMINATION OF ELIGIBILITY. In the event a Participant shall go from a classification of an Eligible Employee to an ineligible Employee, such Former Participant shall continue to vest in the Plan for each Year of Service completed while a noneligible Employee, until such time as the Participant's Account is forfeited or distributed pursuant to the terms of the Plan. Additionally, the Former Participant's interest in the Plan shall continue to share in the earnings of the Trust Fund. 3.5 OMISSION OF ELIGIBLE EMPLOYEE. If, in any Plan Year, any Employee who should be included as a Participant in the Plan is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made and allocated, then the Employer shall make a subsequent contribution, if necessary after the application of Section 4.3(c), so that the omitted Employee receives a total amount which the Employee would have received (including both Employer contributions and earnings thereon) had the Employee not been omitted. Such contribution shall be made regardless of whether it is deductible in whole or in part in any taxable year under applicable provisions of the Code. 3.6 INCLUSION OF INELIGIBLE EMPLOYEE. If, in any Plan Year, any person who should not have been included as a Participant in the Plan is erroneously included and discovery of such inclusion is not made until after a contribution for the year has been made and allocated, the Employer shall be entitled to recover the contribution made with respect to the ineligible person provided the error is discovered within twelve (12) months of the date on which it was made. Otherwise, the amount contributed with respect to the ineligible person shall constitute a Forfeiture for the Plan Year in which the discovery is made. 3.7 REHIRED EMPLOYEES AND BREAKS IN SERVICE. (a) If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed by the Employer before a 1-Year Break in Service occurs, the Former Participant shall become a Participant as of the reemployment date. (b) If any Participant becomes a Former Participant due to severance from employment with the Employer and is reemployed after a 1-Year Break in Service has occurred, Years of Service shall include Years of Service prior to the 1-Year Break in Service subject to the following rules: 14 (1) In the case of a Former Participant who under the Plan does not have a nonforfeitable right to any interest in the Plan resulting from Employer contributions, Years of Service before a period of 1-Year Break in Service will not be taken into account if the number of consecutive 1-Year Breaks in Service equal or exceed the greater of (A) five (5) or (B) the aggregate number of pre-break Years of Service. Such aggregate number of Years of Service will not include any Years of Service disregarded under the preceding sentence by reason of prior 1-Year Breaks in Service. (2) A Former Participant who has not had Years of Service before a 1-Year Break in Service disregarded pursuant to (1) above, and completes a Year of Service for eligibility purposes, shall participate in the Plan as of the date immediately following completion of a Year of Service. (c) After a Former Participant who has severed employment with the Employer incurs five (5) consecutive 1-Year Breaks in Service, the Vested portion of said Former Participant's Account attributable to pre-break service shall not be increased as a result of post-break service. In such case, separate accounts will be maintained as follows: (1) one account for nonforfeitable benefits attributable to pre-break service; and (2) one account representing the Participant's Employer derived account balance in the Plan attributable to post-break service. (d) If any Participant becomes a Former Participant due to severance of employment with the Employer and is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, and such Former Participant had received a distribution of the entire Vested interest prior to reemployment, then the forfeited account shall be reinstated only if the Former Participant repays the full amount which had been distributed. Such repayment must be made before the earlier of five (5) years after the first date on which the Participant is subsequently reemployed by the Employer or the close of the first period of five (5) consecutive 1-Year Breaks in Service commencing after the distribution. If a distribution occurs for any reason other than a severance of employment, the time for repayment may not end earlier than five (5) years after the date of distribution. In the event the Former Participant does repay the full amount distributed, the undistributed forfeited portion of the Participant's Account must be restored in full, unadjusted by any gains or losses occurring subsequent to the Valuation Date preceding the distribution. The source for such reinstatement may be Forfeitures occurring during the Plan Year. If such source is insufficient, then the Employer will contribute an amount which is sufficient to restore any such forfeited Accounts provided, however, that if a discretionary contribution is made for such year, such contribution shall first be applied to restore any such Accounts and the remainder shall be allocated in accordance with Section 4.3. If a non-Vested Former Participant was deemed to have received a distribution and such Former Participant is reemployed by the Employer before five (5) consecutive 1-Year Breaks in Service, then such Participant will be deemed to have repaid the deemed distribution as of the date of reemployment. 15 3.8 ELECTION NOT TO PARTICIPATE. An Employee, for Plan Years beginning on or after the later of the adoption date or effective date of this amendment and restatement, may, subject to the approval of the Employer, elect voluntarily not to participate in the Plan. The election not to participate must be irrevocable and communicated to the Employer, in writing, within a reasonable period of time before the beginning of the first Plan Year. ARTICLE IV CONTRIBUTION AND ALLOCATION 4.1 FORMULA FOR DETERMINING EMPLOYER CONTRIBUTION. (a) For each Plan Year, the Employer shall contribute to the Plan such amount as shall be determined by the Employer. (b) The Employer contribution shall not be limited to years in which the Employer has current or accumulated net profit. Additionally, to the extent necessary, the Employer shall contribute to the Plan the amount necessary to provide the top heavy minimum contribution. All contributions shall be made in cash or in such property as is acceptable to the Trustee. 4.2 TIME OF PAYMENT OF EMPLOYER CONTRIBUTION. The Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines. If the Employer makes a contribution for a particular Plan Year after the close of that Plan Year, the Employer will designate to the Trustee the Plan Year for which the Employer is making its contribution. 4.3 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS. (a) The Administrator shall establish and maintain an account in the name of each Participant to which the Administrator shall credit as of each Anniversary Date, or other Valuation Date, all amounts allocated to each such Participant as set forth herein. (b) The Employer shall provide the Administrator with all information required by the Administrator to make a proper allocation of the Employer contribution for each Plan Year. Within a reasonable period of time after the date of receipt by the Administrator of such information, the Administrator shall allocate such contribution to each Participant's Account in the same proportion that each such Participant's Compensation for the year bears to the total Compensation of all Participants for such year. (c) On or before each Anniversary Date any amounts which became Forfeitures since the last Anniversary Date may be made available to reinstate previously forfeited account balances of Former Participants, if any, in accordance with Section 3.7(d), be used to satisfy any contribution that may be required pursuant to Section 3.5 and/or 6.9, or be used to pay any administrative expenses of the Plan. The remaining Forfeitures, if any, shall be used to reduce the contribution of the Employer hereunder for the Plan Year in which such Forfeitures occur. 16 (d) Participants shall be eligible to share in the allocation of contributions for a Plan Year in accordance with the following: (1) Only Participants who have completed a Year of Service during the Plan Year and are actively employed on the last day of the Plan Year shall be eligible to share in the allocation of contributions for that Plan Year. (2) Notwithstanding the foregoing, Participants who are not actively employed on the last day of the Plan Year due to Retirement (Early, Normal or Late) or death shall not be eligible to share in the allocation of contributions for that Plan Year. (3) For any Top Heavy Plan Year, Employees not otherwise eligible to share in the allocation of contributions as provided above, shall receive the minimum allocation provided for in Section 4.3(f) if eligible pursuant to the provisions of Section 4.3(h). (e) As of each Valuation Date, before the current valuation period allocation of Employer contributions, any earnings or losses (net appreciation or net depreciation) of the Trust Fund shall be allocated in the same proportion that each Participant's and Former Participant's nonsegregated accounts bear to the total of all Participants' and Former Participants' nonsegregated accounts as of such date. Participants' transfers from other qualified plans deposited in the general Trust Fund shall share in any earnings and losses (net appreciation or net depreciation) of the Trust Fund in the same manner provided above. Each segregated account maintained on behalf of a Participant shall be credited or charged with its separate earnings and losses. (f) Minimum Allocations Required for Top Heavy Plan Years: Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of the Employer contributions allocated to the Participant's Account of each Employee shall be equal to at least three percent (3%) of such Employee's "415 Compensation" (reduced by contributions and forfeitures, if any, allocated to each Employee in any defined contribution plan included with this Plan in a Required Aggregation Group). However, if (1) the sum of the Employer contributions allocated to the Participant's Account of each Key Employee for such Top Heavy Plan Year is less than three percent (3%) of each Key Employee's "415 Compensation" and (2) this Plan is not required to be included in an Aggregation Group to enable a defined benefit plan to meet the requirements of Code Section 401(a)(4) or 410, the sum of the Employer contributions allocated to the Participant's Account of each Employee shall be equal to the largest percentage allocated to the Participant's Account of any Key Employee. However, no such minimum allocation shall be required in this Plan for any Employee who participates in another defined contribution plan subject to Code Section 412 included with this Plan in a Required Aggregation Group. (g) For purposes of the minimum allocations set forth above, the percentage allocated to the Participant's Account of any Key Employee shall be equal to the ratio of the sum of the Employer contributions allocated on behalf of such Key Employee divided by the "415 Compensation" for such Key Employee. 17 (h) For any Top Heavy Plan Year, the minimum allocations set forth above shall be allocated to the Participant's Account of all Employees who are Participants and who are employed by the Employer on the last day of the Plan Year, including Employees who have (1) failed to complete a Year of Service; (2) declined to make mandatory contributions (if required) to the Plan; and (3) been excluded from participation because of their level of Compensation. (i) For the purposes of this Section, "415 Compensation" in excess of $150,000 (or such other amount provided in the Code) shall be disregarded. Such amount shall be adjusted for increases in the cost of living in accordance with Code Section 401(a)(17)(B), except that the dollar increase in effect on January 1 of any calendar year shall be effective for the Plan Year beginning with or within such calendar year. If "415 Compensation" for any prior determination period is taken into account in determining a Participant's minimum benefit for the current Plan Year, the "415 Compensation" for such determination period is subject to the applicable annual "415 Compensation" limit in effect for that prior period. For this purpose, in determining the minimum benefit in Plan Years beginning on or after January 1, 1989, the annual "415 Compensation" limit in effect for determination periods beginning before that date is $200,000 (or such other amount as adjusted for increases in the cost of living in accordance with Code Section 415(d) for determination periods beginning on or after January 1, 1989, and in accordance with Code Section 401(a)(17)(B) for determination periods beginning on or after January 1, 1994). For determination periods beginning prior to January 1, 1989, the $200,000 limit shall apply only for Top Heavy Plan Years and shall not be adjusted. For any short Plan Year the "415 Compensation" limit shall be an amount equal to the "415 Compensation" limit for the calendar year in which the Plan Year begins multiplied by the ratio obtained by dividing the number of full months in the short Plan Year by twelve (12). (j) Notwithstanding anything in this Section to the contrary, all information necessary to properly reflect a given transaction may not be available until after the date specified herein for processing such transaction, in which case the transaction will be reflected when such information is received and processed. Subject to express limits that may be imposed under the Code, the processing of any contribution, distribution or other transaction may be delayed for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive values or prices, and the correction for errors or omissions or the errors or omissions of any service provider). The processing date of a transaction will be binding for all purposes of the Plan. (k) Notwithstanding anything to the contrary, if this is a Plan that would otherwise fail to meet the requirements of Code Section 410(b)(1) and the Regulations thereunder because Employer contributions would not be allocated to a sufficient number or percentage of Participants for a Plan Year, then the following rules shall apply: (1) The group of Participants eligible to share in the Employer's contribution for the Plan Year shall be expanded to include the minimum number of Participants who would not otherwise be eligible as are necessary to satisfy the applicable test specified above. The specific Participants who shall become eligible under the terms of this paragraph shall be those who have not separated from service prior to the last day 18 of the Plan Year and have completed the greatest number of Hours of Service in the Plan Year. (2) If after application of paragraph (1) above, the applicable test is still not satisfied, then the group of Participants eligible to share in the Employer's contribution for the Plan Year shall be further expanded to include the minimum number of Participants who have separated from service prior to the last day of the Plan Year as are necessary to satisfy the applicable test. The specific Participants who shall become eligible to share shall be those Participants who have completed the greatest number of Hours of Service in the Plan Year before terminating employment. (3) Nothing in this Section shall permit the reduction of a Participant's accrued benefit. Therefore any amounts that have previously been allocated to Participants may not be reallocated to satisfy these requirements. In such event, the Employer shall make an additional contribution equal to the amount such affected Participants would have received had they been included in the allocations, even if it exceeds the amount which would be deductible under Code Section 404. Any adjustment to the allocations pursuant to this paragraph shall be considered a retroactive amendment adopted by the last day of the Plan Year. (4) Notwithstanding the foregoing, if the plan would fail to satisfy Code Section 410(b) if the coverage tests were applied by treating those Participants whose only allocation would otherwise be provided under the top heavy formula as if they were not currently benefiting under the Plan, then, for purposes of this Section 4.3(k), such Participants shall be treated as not benefiting and shall therefore be eligible to be included in the expanded class of Participants who will share in the allocation provided under the Plan's non top heavy formula. 4.4 MAXIMUM ANNUAL ADDITIONS. (a) Notwithstanding the foregoing, for "limitation years" beginning after December 31, 1994, the maximum "annual additions" credited to a Participant's accounts for any "limitation year" shall equal the lesser of: (1) $30,000 adjusted annually as provided in Code Section 415(d) pursuant to the Regulations, or (2) twenty-five percent (25%) of the Participant's "415 Compensation" for such "limitation year." If the Employer contribution that would otherwise be contributed or allocated to the Participant's accounts would cause the "annual additions" for the "limitation year" to exceed the maximum "annual additions," the amount contributed or allocated will be reduced so that the "annual additions" for the "limitation year" will equal the maximum "annual additions," and any amount in excess of the maximum "annual additions," which would have been allocated to such Participant may be allocated to other Participants. For any short "limitation year," the dollar limitation in (1) above shall be reduced by a fraction, the numerator of which is the number of full months in the short "limitation year" and the denominator of which is twelve (12). (b) For purposes of applying the limitations of Code Section 415, "annual additions" means the sum credited to a Participant's accounts for any "limitation year" of (1) Employer contributions, (2) Employee contributions, (3) forfeitures, (4) amounts allocated, after 19 March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer and (5) amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Except, however, the "415 Compensation" percentage limitation referred to in paragraph (a)(2) above shall not apply to: (1) any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an "annual addition," or (2) any amount otherwise treated as an "annual addition" under Code Section 415(1)(1). (c) For purposes of applying the limitations of Code Section 415, the transfer of funds from one qualified plan to another is not an "annual addition." In addition, the following are not Employee contributions for the purposes of Section 4.4(b)(2): (1) rollover contributions (as defined in Code Sections 402(e)(6), 403(a)(4), 403(b)(8) and 408(d)(3)); (2) repayments of loans made to a Participant from the Plan; (3) repayments of distributions received by an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs); (4) repayments of distributions received by an Employee pursuant to Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee contributions to a simplified employee pension excludable from gross income under Code Section 408(k)(6). (d) For purposes of applying the limitations of Code Section 415, the "limitation year" shall be the Plan Year. (e) For the purpose of this Section, all qualified defined contribution plans (whether terminated or not) ever maintained by the Employer shall be treated as one defined contribution plan. (f) For the purpose of this Section, if the Employer is a member of a controlled group of corporations, trades or businesses under common control (as defined by Code Section 1563(a) or Code Section 414(b) and (c) as modified by Code Section 415(h)), is a member of an affiliated service group (as defined by Code Section 414(m)), or is a member of a group of entities required to be aggregated pursuant to Regulations under Code Section 414(o), all Employees of such Employers shall be considered to be employed by a single Employer. (g) For the purpose of this Section, if this Plan is a Code Section 413(c) plan, each Employer who maintains this Plan will be considered to be a separate Employer. (h) (1) If a Participant participates in more than one defined contribution plan maintained by the Employer which have different Anniversary Dates, the maximum "annual additions" under this Plan shall equal the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited to such Participant's accounts during the "limitation year." (2) If a Participant participates in both a defined contribution plan subject to Code Section 412 and a defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, "annual 20 additions" will be credited to the Participant's accounts under the defined contribution plan subject to Code Section 412 prior to crediting "annual additions" to the Participant's accounts under the defined contribution plan not subject to Code Section 412. (3) If a Participant participates in more than one defined contribution plan not subject to Code Section 412 maintained by the Employer which have the same Anniversary Date, the maximum "annual additions" under this Plan shall equal the product of (A) the maximum "annual additions" for the "limitation year" minus any "annual additions" previously credited under subparagraphs (1) or (2) above, multiplied by (B) a fraction (i) the numerator of which is the "annual additions" which would be credited to such Participant's accounts under this Plan without regard to the limitations of Code Section 415 and (ii) the denominator of which is such "annual additions" for all plans described in this subparagraph. (i) Notwithstanding anything contained in this Section to the contrary, the limitations, adjustments and other requirements prescribed in this Section shall at all times comply with the provisions of Code Section 415 and the Regulations thereunder. 4.5 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS. (a) If, as a result of a reasonable error in estimating a Participant's Compensation, a reasonable error in determining the amount of elective deferrals (within the meaning of Code Section 402(g)(3)) that may be made with respect to any Participant under the limits of Section 4.4 or other facts and circumstances to which Regulation 1.415-6(b)(6) shall be applicable, the "annual additions" under this Plan would cause the maximum "annual additions" to be exceeded for any Participant, the "excess amount" will be disposed of in one of the following manners, as uniformly determined by the Administrator for all Participants similarly situated. (1) If the Participant is covered by the Plan at the end of the "limitation year," the "excess amount" will be used to reduce the Employer contribution for such Participant in the next "limitation year," and each succeeding "limitation year" if necessary; (2) If, after the application of subparagraph (1) above, an "excess amount" still exists, and the Participant is not covered by the Plan at the end of the "limitation year," the "excess amount" will be held unallocated in a "Section 415 suspense account." The "Section 415 suspense account" will be applied to reduce future Employer contributions for all remaining Participants in the next "limitation year," and each succeeding "limitation year" if necessary; (3) If a "Section 415 suspense account" is in existence at any time during the "limitation year" pursuant to this Section, it will not participate in the allocation of investment gains and losses of the Trust Fund. If a "Section 415 suspense account" is in existence at any time during a particular "limitation year," all amounts in the "Section 415 suspense account" must be allocated and reallocated to Participants' accounts before any Employer contributions or any Employee contributions may be made 21 to the Plan for that "limitation year." "Excess amounts" may not be distributed to Participants or Former Participants. (b) For purposes of this Article, "excess amount" for any Participant for a "limitation year" shall mean the excess, if any, of (1) the "annual additions" which would be credited to the Participant's account under the terms of the Plan without regard to the limitations of Code Section 415 over (2) the maximum "annual additions" determined pursuant to Section 4.4. (c) For purposes of this Section, "Section 415 suspense account" shall mean an unallocated account equal to the sum of "excess amounts" for all Participants in the Plan during the "limitation year." 4.6 ROLLOVERS AND PLAN-TO-PLAN TRANSFERS FROM QUALIFIED PLANS. (a) With the consent of the Administrator, amounts may be transferred (within the meaning of Code Section 414(1)) to this Plan from other tax qualified plans under Code Section 401 (a) by Eligible Employees, provided the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or Trust or create adverse tax consequences for the Employer. Prior to accepting any transfers to which this Section applies, the Administrator may require an opinion of counsel that the amounts to be transferred meet the requirements of this Section. The amounts transferred shall be set up in a separate account herein referred to as a Participant's Transfer/Rollover Account. Furthermore, for vesting purposes, the Participant's portion of the Participant's Transfer/Rollover Account attributable to any transfer shall be subject to Section 6.4(b). Except as permitted by Regulations (including Regulation 1.411(d)-4), amounts attributable to elective contributions (as defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as elective contributions, which are transferred from another qualified plan in a plan-to-plan transfer (other than a direct rollover) shall be subject to the distribution limitations provided for in Regulation 1.401(k)-1(d). (b) With the consent of the Administrator, the Plan may accept a "rollover" by Eligible Employees, provided the "rollover" will not jeopardize the tax exempt status of the Plan or create adverse tax consequences for the Employer. Prior to accepting any "rollovers" to which this Section applies, the Administrator may require the Employee to establish (by providing opinion of counsel or otherwise) that the amounts to be rolled over to this Plan meet the requirements of this Section. The amounts rolled over shall be set up in a separate account herein referred to as a "Participant's Transfer/Rollover Account." Such account shall be fully Vested at all times and shall not be subject to Forfeiture for any reason. For purposes of this Section, the term "qualified plan" shall mean any tax qualified plan under Code Section 401(a), or, any other plans from which distributions are eligible to be rolled over into this Plan pursuant to the Code. The term "rollover" means: (i) amounts transferred to this Plan directly from another qualified plan; (ii) distributions received by an Employee from other "qualified plans" which are eligible for tax-free rollover to a "qualified plan" and which are 22 transferred by the Employee to this Plan within sixty (60) days following receipt thereof; (iii) amounts transferred to this Plan from a conduit individual retirement account provided that the conduit individual retirement account has no assets other than assets which (A) were previously distributed to the Employee by another "qualified plan," (B) were eligible for tax-free rollover to a "qualified plan" and (C) were deposited in such conduit individual retirement account within sixty (60) days of receipt thereof; (iv) amounts distributed to the Employee from a conduit individual retirement account meeting the requirements of clause (iii) above, and transferred by the Employee to this Plan within sixty (60) days of receipt thereof from such conduit individual retirement account; and (v) any other amounts which are eligible to be rolled over to this Plan pursuant to the Code. (c) Amounts in a Participant's Transfer/Rollover Account shall be held by the Trustee pursuant to the provisions of this Plan and may not be withdrawn by, or distributed to the Participant, in whole or in part, except as provided in paragraph (d) of this Section. The Trustee shall have no duty or responsibility to inquire as to the propriety of the amount, value or type of assets transferred, nor to conduct any due diligence with respect to such assets; provided, however, that such assets are otherwise eligible to be held by the Trustee under the terms of this Plan. (d) The Administrator, at the election of the Participant, shall direct the Trustee to distribute all or a portion of the amount credited to the Participant's Transfer/Rollover Account. Any distributions of amounts held in a Participant's Transfer/Rollover Account shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. Furthermore, such amounts shall be considered as part of a Participant's benefit in determining whether an involuntary cash-out of benefits may be made without Participant consent. (e) The Administrator may direct that Employee transfers and rollovers made after a Valuation Date be segregated into a separate account for each Participant until such time as the allocations pursuant to this Plan have been made, at which time they may remain segregated or be invested as part of the general Trust Fund. (f) This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a)(11) and the Regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant. (g) Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the elimination or reduction of any "Section 411(d)(6) protected benefit" as described in Section 8.1. 4.7 QUALIFIED MILITARY SERVICE. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service will be provided in accordance with Code Section 414(u). 23 ARTICLE V VALUATIONS 5.1 VALUATION OF THE TRUST FUND. The Administrator shall direct the Trustee, as of each Valuation Date, to determine the net worth of the assets comprising the Trust Fund as it exists on the Valuation Date. In determining such net worth, the Trustee shall value the assets comprising the Trust Fund at their fair market value (or their contractual value in the case of a Contract or Policy) as of the Valuation Date and shall deduct all expenses for which the Trustee has not yet obtained reimbursement from the Employer or the Trust Fund. 5.2 METHOD OF VALUATION. In determining the fair market value of securities held in the Trust Fund which are listed on a registered stock exchange, the Administrator shall direct the Trustee to value the same at the prices they were last traded on such exchange preceding the close of business on the Valuation Date. If such securities were not traded on the Valuation Date, or if the exchange on which they are traded was not open for business on the Valuation Date, then the securities shall be valued at the prices at which they were last traded prior to the Valuation Date. Any unlisted security held in the Trust Fund shall be valued at its bid price next preceding the close of business on the Valuation Date, which bid price shall be obtained from a registered broker or an investment banker. In determining the fair market value of assets other than securities for which trading or bid prices can be obtained, the Trustee may appraise such assets itself, or in its discretion, employ one or more appraisers for that purpose and rely on the values established by such appraiser or appraisers. ARTICLE VI DETERMINATION AND DISTRIBUTION OF BENEFITS 6.1 DETERMINATION OF BENEFITS UPON RETIREMENT. Every Participant may terminate employment with the Employer and retire for the purposes hereof on the Participant's Normal Retirement Date or Early Retirement Date. However, a Participant may postpone the termination of employment with the Employer to a later date, in which event the participation of such Participant in the Plan, including the right to receive allocations pursuant to Section 4.3, shall continue until such Participant's Late Retirement Date. Upon a Participant's Retirement Date or attainment of Normal Retirement Date without termination of employment with the Employer, or as soon thereafter as is practicable, the Trustee shall distribute, at the election of the Participant, all amounts credited to such Participant's Account in accordance with Section 6.5. 6.2 DETERMINATION OF BENEFITS UPON DEATH. (a) Upon the death of a Participant before the Participant's Retirement Date or other termination of employment, all amounts credited to such Participant's Account shall become fully Vested. The Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute the value of the deceased Participant's accounts to the Participant's Beneficiary. (b) Upon the death of a Former Participant, the Administrator shall direct the Trustee, in accordance with the provisions of Sections 6.6 and 6.7, to distribute any remaining 24 Vested amounts credited to the accounts of a deceased Former Participant to such Former Participant's Beneficiary. (c) Any security interest held by the Plan by reason of an outstanding loan to the Participant or Former Participant shall be taken into account in determining the amount of the death benefit. (d) The Administrator may require such proper proof of death and such evidence of the right of any person to receive payment of the value of the account of a deceased Participant or Former Participant as the Administrator may deem desirable. The Administrator's determination of death and of the right of any person to receive payment shall be conclusive. (e) The Beneficiary of the death benefit payable pursuant to this Section shall be the Participant's spouse. Except, however, the Participant may designate a Beneficiary other than the spouse if: (1) the spouse has waived the right to be the Participant's Beneficiary, or (2) the Participant is legally separated or has been abandoned (within the meaning of local law) and the Participant has a court order to such effect (and there is no "qualified domestic relations order" as defined in Code Section 414(p) which provides otherwise), or (3) the Participant has no spouse, or (4) the spouse cannot be located. In such event, the designation of a Beneficiary shall be made on a form satisfactory to the Administrator. A Participant may at any time revoke a designation of a Beneficiary or change a Beneficiary by filing written (or in such other form as permitted by the Internal Revenue Service) notice of such revocation or change with the Administrator. However, the Participant's spouse must again consent in writing (or in such other form as permitted by the Internal Revenue Service) to any change in Beneficiary unless the original consent acknowledged that the spouse had the right to limit consent only to a specific Beneficiary and that the spouse voluntarily elected to relinquish such right. (f) In the event no valid designation of Beneficiary exists, or if the Beneficiary is not alive at the time of the Participant's death, the death benefit will be paid in the following order of priority: (1) the Participant's surviving spouse; (2) the Participant's children, including adopted children, per stirpes; (3) the Participant's surviving parents, in equal shares; or (4) the Participant's estate. 25 If the Beneficiary does not predecease the Participant, but dies prior to distribution of the death benefit, the death benefit will be paid to the Beneficiary's estate. (g) Notwithstanding anything in this Section to the contrary, if a Participant has designated the spouse as a Beneficiary, then a divorce decree or a legal separation that relates to such spouse shall revoke the Participant's designation of the spouse as a Beneficiary unless the decree or a qualified domestic relations order (within the meaning of Code Section 414(p)) provides otherwise. (h) Any consent by the Participant's spouse to waive any rights to the death benefit must be in writing (or in such other form as permitted by the Internal Revenue Service), must acknowledge the effect of such waiver, and be witnessed by a Plan representative or a notary public. Further, the spouse's consent must be irrevocable and must acknowledge the specific nonspouse Beneficiary. 6.3 DISABILITY RETIREMENT BENEFITS. No disability benefits, other than those payable upon termination of employment, are provided in this Plan. 6.4 DETERMINATION OF BENEFITS UPON TERMINATION. (a) If a Participant's employment with the Employer is terminated for any reason other than death or retirement, then such Participant shall be entitled to such benefits as are provided hereinafter pursuant to this Section 6.4. Distribution of the funds due to a Terminated Participant shall be made on the occurrence of an event which would result in the distribution had the Terminated Participant remained in the employ of the Employer (upon the Participant's death, Early or Normal Retirement). Any distribution under this paragraph shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. For purposes of this Section 6.4, if the value of a Terminated Participant's Vested benefit is zero, the Terminated Participant shall be deemed to have received a distribution of such Vested benefit. (b) The Vested portion of any Participant's Account shall be a percentage of the total amount credited to the Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Years of Service Percentage ~~Less than 5 0% 5 100%~~
(c) Notwithstanding the vesting provided for in paragraph (b) above, for any Top Heavy Plan Year, the Vested portion of the Participant's Account of any Participant who has an Hour of Service after the Plan becomes top heavy shall be a percentage of the total amount 26 credited to the Participant's Account determined on the basis of the Participant's number of Years of Service according to the following schedule:
Vesting Schedule Years of Service Percentage Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 100%
If in any subsequent Plan Year, the Plan ceases to be a Top Heavy Plan, the Administrator shall revert to the vesting schedule in effect before this Plan became a Top Heavy Plan. Any such reversion shall be treated as a Plan amendment pursuant to the terms of the Plan. (d) Notwithstanding the vesting schedule above, the Vested percentage of a Participant's Account shall not be less than the Vested percentage attained as of the later of the effective date or adoption date of this amendment and restatement. (e) Notwithstanding the vesting schedule above, upon the complete discontinuance of the Employer contributions to the Plan or upon any full or partial termination of the Plan, all amounts then credited to the account of any affected Participant shall become 100% Vested and shall not thereafter be subject to Forfeiture. (f) The computation of a Participant's nonforfeitable percentage of such Participant's interest in the Plan shall not be reduced as the result of any direct or indirect amendment to this Plan. In the event that the Plan is amended to change or modify any vesting schedule, or if the Plan is amended in any way that directly or indirectly affects the computation of the Participant's nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to a top heavy vesting schedule, then each Participant with at least three (3) Years of Service as of the expiration date of the election period may elect to have such Participant's nonforfeitable percentage computed under the Plan without regard to such amendment or change. If a Participant fails to make such election, then such Participant shall be subject to the new vesting schedule. The Participant's election period shall commence on the adoption date of the amendment and shall end sixty (60) days after the latest of: (1) the adoption date of the amendment, (2) the effective date of the amendment, or (3) the date the Participant receives written notice of the amendment from the Employer or Administrator. (g) In determining Years of Service for purposes of vesting under the Plan, Years of Service prior to the Effective Date of the Plan and prior to the vesting computation period in which an Employee attains age eighteen (18) shall be excluded. 27 6.5 DISTRIBUTION OF BENEFITS. (a) The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to a Participant or such Participant's Beneficiary any amount to which the Participant is entitled under the Plan in one lump-sum payment in cash. (b) Any distribution to a Participant, for Plan Years beginning after August 5, 1997, who has a benefit which exceeds $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997) or, if the distribution is made prior to March 22, 1999, has ever exceeded $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997) at the time of any prior distribution, shall require such Participant's written (or in such other form as permitted by the Internal Revenue Service) consent pursuant to this Section if such distribution occurs prior to the time the benefit is "immediately distributable." A benefit is "immediately distributable" if any part of the benefit could be distributed to the Participant (or surviving spouse) before the Participant attains (or would have attained if not deceased) the later of the Participant's Normal Retirement Age or age 62. (c) The following rules will apply to the consent requirements set forth in subsection (b): (1) The Participant must be informed of the right to defer receipt of the distribution. If a Participant fails to consent, it shall be deemed an election to defer the distribution of any benefit. However, any election to defer the receipt of benefits shall not apply with respect to distributions which are required under Section 6.5(d). (2) Notice of the rights specified under this paragraph shall be provided no less than thirty (30) days and no more than ninety (90) days before the date the distribution commences. (3) Written (or such other form as permitted by the Internal Revenue Service) consent of the Participant to the distribution must not be made before the Participant receives the notice and must not be made more than ninety (90) days before the date the distribution commences. (4) No consent shall be valid if a significant detriment is imposed under the Plan on any Participant who does not consent to the distribution. Any such distribution may commence less than thirty (30) days after the notice required under Regulation 1.411 (a)-11(c) is given, provided that: (1) the Administrator clearly informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and (2) the Participant, after receiving the notice, affirmatively elects a distribution. (d) Notwithstanding any provision in the Plan to the contrary, the distribution of a Participant's benefits made on or after January 1, 1997 shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the 28 Regulations thereunder (including Regulation 1.401(a)(9)-2), the provisions of which are incorporated herein by reference: (1) A Participant's benefits shall be distributed or must begin to be distributed not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the Plan Year ending with or within the calendar year in which such owner attains age 70 1/2. Such distributions shall be equal to or greater than any required distribution. (2) Distributions to a Participant and the Participant's Beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the Regulations thereunder. With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2002, the Plan will apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the Regulations under Code Section 401(a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final Regulations under Code Section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service. (e) For purposes of this Section, the life expectancy of a Participant and a Participant's spouse shall not be redetermined in accordance with Code Section 40 1 (a)(9)(D). Life expectancy and joint and last survivor expectancy shall be computed using the return multiples in Tables V and VI of Regulation 1.72-9. (f) The restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have retirement benefits paid in an alternative method acceptable under Code Section 401(a)(9) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982. (g) All annuity Contracts under this Plan shall be non-transferable when distributed. Furthermore, the terms of any annuity Contract purchased and distributed to a Participant or spouse shall comply with all of the requirements of the Plan. (h) If a distribution is made to a Participant who has not severed employment and who is not fully Vested in the Participant's Account and the Participant may increase the Vested percentage in such account, then, at any relevant time the Participant's Vested portion of the account will be equal to an amount ("X") determined by the formula: X equals P(AB plus D) - D For purposes of applying the formula: P is the Vested percentage at the relevant time, AB is the account balance at the relevant time, and D is the amount of distribution. 29 6.6 DISTRIBUTION OF BENEFITS UPON DEATH. (a) The death benefit payable pursuant to Section 6.2 shall be paid to the Participant's Beneficiary in one lump-sum payment in cash subject to the rules of Section 6.6(b). (b) Notwithstanding any provision in the Plan to the contrary, distributions upon the death of a Participant shall be made in accordance with the following requirements and shall otherwise comply with Code Section 401(a)(9) and the Regulations thereunder. If it is determined, pursuant to Regulations, that the distribution of a Participant's interest has begun and the Participant dies before the entire interest has been distributed, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 6.5 as of the date of death. If a Participant dies before receiving any distributions of the interest in the Plan or before distributions are deemed to have begun pursuant to Regulations, then the death benefit shall be distributed to the Participant's Beneficiaries by December 31st of the calendar year in which the fifth anniversary of the Participant's date of death occurs. (c) For purposes of this Section, any amount paid to a child of the Participant will be treated as if it had been paid to the surviving spouse if the amount becomes payable to the surviving spouse when the child reaches the age of majority. (d) Subject to the spouse's right of consent afforded under the Plan, the restrictions imposed by this Section shall not apply if a Participant has, prior to January 1, 1984, made a written designation to have death benefits paid in an alternative method acceptable under Code Section 401(a)(9) as in effect prior to the enactment of the Tax Equity and Fiscal Responsibility Act of 1982. 6.7 TIME OF SEGREGATION OR DISTRIBUTION. Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to make a distribution the distribution may be made on such date or as soon thereafter as is practicable. However, unless a Former Participant elects in writing to defer the receipt of benefits (such election may not result in a death benefit that is more than incidental), the payment of benefits shall occur not later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs: (a) the date on which the Participant attains the earlier of age 65 or the Normal Retirement Age specified herein; (b) the tenth (10th) anniversary of the year in which the Participant commenced participation in the Plan; or (c) the date the Participant terminates service with the Employer. Notwithstanding the foregoing, the failure of a Participant to consent to a distribution that is "immediately distributable" (within the meaning of Section 6.5), shall be deemed to be an election to defer the commencement of payment of any benefit sufficient to satisfy this Section. 6.8 DISTRIBUTION FOR MINOR OR INCOMPETENT BENEFICIARY. In the event a distribution is to be made to a minor or incompetent Beneficiary, then the Administrator may direct that such distribution be paid to the legal guardian, or if none in the case of a minor Beneficiary, to a parent of such Beneficiary or a responsible adult with whom the Beneficiary maintains residence, or to the custodian for such Beneficiary under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted by the laws of the state in which said Beneficiary 30 resides. Such a payment to the legal guardian, custodian or parent of a minor Beneficiary shall fully discharge the Trustee, Employer, and Plan from further liability on account thereof. 6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN. In the event that all, or any portion, of the distribution payable to a Participant or Beneficiary hereunder shall, at the later of the Participant's attainment of age 62 or Normal Retirement Age, remain unpaid solely by reason of the inability of the Administrator, after sending a registered letter, return receipt requested, to the last known address, and after further diligent effort, to ascertain the whereabouts of such Participant or Beneficiary, the amount so distributable shall be treated as a Forfeiture pursuant to the Plan. Notwithstanding the foregoing, effective October 1, 2001, or if later, the adoption date of this amendment and restatement, if the value of a Participant's Vested benefit derived from Employer and Employee contributions does not exceed $5,000 ($3,500 for Plan Years beginning prior to August 6, 1997), then the amount distributable may, in the sole discretion of the Administrator, either be treated as a Forfeiture, or be paid directly to an individual retirement account described in Code Section 408(a) or an individual retirement annuity described in Code Section 408(b) at the time it is determined that the whereabouts of the Participant or the Participant's Beneficiary cannot be ascertained. In the event a Participant or Beneficiary is located subsequent to the Forfeiture, such benefit shall be restored, first from Forfeitures, if any, and then from an additional Employer contribution if necessary. However, regardless of the preceding, a benefit which is lost by reason of escheat under applicable state law is not treated as a Forfeiture for purposes of this Section nor as an impermissable forfeiture under the Code. 6.10 PRE-RETIREMENT DISTRIBUTION. Unless otherwise provided, at such time as a Participant shall have attained the age of 62 years, the Administrator, at the election of the Participant who has not severed employment with the Employer, shall direct the Trustee to distribute all or a portion of the amount then credited to the accounts maintained on behalf of the Participant. However, no distribution from the Participant's Account shall occur prior to 100% vesting. No distribution shall be made from the Participant's account unless the Participant has completed five (5) years of participation in the Plan. In the event that the Administrator makes such a distribution, the Participant shall continue to be eligible to participate in the Plan on the same basis as any other Employee. Any distribution made pursuant to this Section shall be made in a manner consistent with Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. 6.11 ADVANCE DISTRIBUTION FOR HARDSHIP. (a) The Administrator, at the election of the Participant, shall direct the Trustee to distribute to any Participant in any one Plan Year up to the lesser of 100% of the Participant's Account valued as of the last Valuation Date or the amount necessary to satisfy the immediate and heavy financial need of the Participant. Any distribution made pursuant to this Section shall be deemed to be made as of the first day of the Plan Year or, if later, the Valuation Date immediately preceding the date of distribution, and the Participant's Account shall be reduced accordingly. Withdrawal under this Section is deemed to be on account of an immediate and heavy financial need of the Participant if the withdrawal is for: 31 (1) Medical expenses described in Code Section 213(d) incurred by the Participant, the Participant's spouse, or any of the Participant's dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care as described in Code Section 213(d); (2) The costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; (3) Funeral expenses for a member of the Participant's family; (4) Payment of tuition, related educational fees, and room and board expenses for the next twelve (12) months of post-secondary education for the Participant and the Participant's spouse, children, or dependents; (5) Payments necessary to prevent the eviction of the Participant from the Participant's principal residence or foreclosure on the mortgage on that residence; or (6) An immediate and heavy financial need of the Participant provided that the Administrator applies the need to all the Participants in a uniform and nondiscriminatory manner. (b) No such distribution shall be made from the Participant's Account until such Account has become fully Vested. (c) Any distribution made pursuant to this Section shall be made in a manner which is consistent with and satisfies the provisions of Section 6.5, including, but not limited to, all notice and consent requirements of Code Section 411(a)(11) and the Regulations thereunder. 6.12 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION. All rights and benefits, including elections, provided to a Participant in this Plan shall be subject to the rights afforded to any "alternate payee" under a "qualified domestic relations order." Furthermore, a distribution to an "alternate payee" shall be permitted if such distribution is authorized by a "qualified domestic relations order," even if the affected Participant has not separated from service and has not reached the "earliest retirement age" under the Plan. For the purposes of this Section, "alternate payee," "qualified domestic relations order" and "earliest retirement age" shall have the meaning set forth under Code Section 414(p). ARTICLE VII TRUSTEE 7.1 BASIC RESPONSIBILITIES OF THE TRUSTEE. (a) The Trustee shall have the following categories of responsibilities: (1) Consistent with the "funding policy and method" determined by the Employer, to invest, manage, and control the Plan assets subject, however, to the direction of the Employer or an Investment Manager if the Trustee should appoint such manager as to all or a portion of the assets of the Plan; 32 (2) At the direction of the Administrator, to pay benefits required under the Plan to be paid to Participants, or, in the event of their death, to their Beneficiaries; and (3) To maintain records of receipts and disbursements and furnish to the Employer and/or Administrator for each Plan Year a written annual report pursuant to Section 7.7. (b) In the event that the Trustee shall be directed by the Employer, or an Investment Manager with respect to the investment of any or all Plan assets, the Trustee shall have no liability with respect to the investment of such assets, but shall be responsible only to execute such investment instructions as so directed. (1) The Trustee shall be entitled to rely fully on the written (or other form acceptable to the Administrator and the Trustee, including, but not limited to, voice recorded) instructions of the Employer, or any Fiduciary or nonfiduciary agent of the Employer, in the discharge of such duties, and shall not be liable for any loss or other liability, resulting from such direction (or lack of direction) of the investment of any part of the Plan assets. (2) The Trustee may delegate the duty of executing such instructions to any nonfiduciary agent, which may be an affiliate of the Trustee or any Plan representative. (c) If there shall be more than one Trustee, they shall act by a majority of their number, but may authorize one or more of them to sign papers on their behalf. 7.2 INVESTMENT POWERS AND DUTIES OF THE TRUSTEE. (a) The Trustee shall invest and reinvest the Trust Fund to keep the Trust Fund invested without distinction between principal and income and in such securities or property, real or personal, wherever situated, as the Trustee shall deem advisable, including, but not limited to, stocks, common or preferred, open-end or closed-end mutual funds, bonds and other evidences of indebtedness or ownership, and real estate or any interest therein. The Trustee shall at all times in making investments of the Trust Fund consider, among other factors, the short and long-term financial needs of the Plan on the basis of information furnished by the Employer. In making such investments, the Trustee shall not be restricted to securities or other property of the character expressly authorized by the applicable law for trust investments; however, the Trustee shall give due regard to any limitations imposed by the Code or the Act so that at all times the Plan may qualify as a qualified Profit Sharing Plan and Trust. (b) The Trustee may employ a bank or trust company pursuant to the terms of its usual and customary bank agency agreement, under which the duties of such bank or trust company shall be of a custodial, clerical and record-keeping nature. 7.3 OTHER POWERS OF THE TRUSTEE. The Trustee, in addition to all powers and authorities under common law, statutory authority, including the Act, and other provisions of 33 the Plan, shall have the following powers and authorities, to be exercised in the Trustee's sole discretion: (a) To purchase, or subscribe for, any securities or other property and to retain the same. In conjunction with the purchase of securities, margin accounts may be opened and maintained; (b) To sell, exchange, convey, transfer, grant options to purchase, or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement; (c) To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges, subscription rights or other options, and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities, or other property. However, the Trustee shall not vote proxies relating to securities for which it has not been assigned full investment management responsibilities. In those cases where another party has such investment authority or discretion, the Trustee will deliver all proxies to said party who will then have full responsibility for voting those proxies; (d) To cause any securities or other property to be registered in the Trustee's own name, in the name of one or more of the Trustee's nominees, in a clearing corporation, in a depository, or in book entry form or in bearer form, but the books and records of the Trustee shall at all times show that all such investments are part of the Trust Fund; (e) To borrow or raise money for the purposes of the Plan in such amount, and upon such terms and conditions, as the Trustee shall deem advisable; and for any sum so borrowed, to issue a promissory note as Trustee, and to secure the repayment thereof by pledging all, or any part, of the Trust Fund; and no person lending money to the Trustee shall be bound to see to the application of the money lent or to inquire into the validity, expediency, or propriety of any borrowing; (f) To keep such portion of the Trust Fund in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Plan, without liability for interest thereon; (g) To accept and retain for such time as the Trustee may deem advisable any securities or other property received or acquired as Trustee hereunder, whether or not such securities or other property would normally be purchased as investments hereunder; (h) To make, execute, acknowledge, and deliver any and all documents of transfer and conveyance and any and all other instruments that may be necessary or appropriate to carry out the powers herein granted; 34 (i) To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings; (j) To employ suitable agents and counsel and to pay their reasonable expenses and compensation, and such agent or counsel may or may not be agent or counsel for the Employer; (k) To apply for and procure from responsible insurance companies, to be selected by the Administrator, as an investment of the Trust Fund such annuity, or other Contracts (on the life of any Participant) as the Administrator shall deem proper; to exercise, at any time or from time to time, whatever rights and privileges may be granted under such annuity, or other Contracts; to collect, receive, and settle for the proceeds of all such annuity or other Contracts as and when entitled to do so under the provisions thereof; (l) To invest funds of the Trust in time deposits or savings accounts bearing a reasonable rate of interest or in cash or cash balances without liability for interest thereon; (m) To invest in Treasury Bills and other forms of United States government obligations; (n) To invest in shares of investment companies registered under the Investment Company Act of 1940; (o) To sell, purchase and acquire put or call options if the options are traded on and purchased through a national securities exchange registered under the Securities Exchange Act of 1934, as amended, or, if the options are not traded on a national securities exchange, are guaranteed by a member firm of the New York Stock Exchange regardless of whether such options are covered; (p) To deposit monies in federally insured savings accounts or certificates of deposit in banks or savings and loan associations; (q) To pool all or any of the Trust Fund, from time to time, with assets belonging to any other qualified employee pension benefit trust created by the Employer or any Affiliated Employer, and to commingle such assets and make joint or common investments and carry joint accounts on behalf of this Plan and Trust and such other trust or trusts, allocating undivided shares or interests in such investments or accounts or any pooled assets of the two or more trusts in accordance with their respective interests; (r) To do all such acts and exercise all such rights and privileges although not specifically mentioned herein, as the Trustee may deem necessary to carry out the purposes of the Plan. 35 7.4 LOANS TO PARTICIPANTS. (a) The Trustee may, in the Trustee's discretion, make loans to Participants and Beneficiaries under the following circumstances: (1) loans shall be made available to all Participants and Beneficiaries on a reasonably equivalent basis; (2) loans shall not be made available to Highly Compensated Employees in an amount greater than the amount made available to other Participants and Beneficiaries; (3) loans shall bear a reasonable rate of interest; (4) loans shall be adequately secured; and (5) loans shall provide for periodic repayment over a reasonable period of time. (b) Loans made pursuant to this Section (when added to the outstanding balance of all other loans made by the Plan to the Participant) may, in accordance with a uniform and nondiscriminatory policy established by the Administrator, be limited to the lesser of: (1) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (2) one-half (1/2) of the present value of the non-forfeitable accrued benefit of the Participant under the Plan. For purposes of this limit, all plans of the Employer shall be considered one plan. Additionally, with respect to any loan made prior to January 1, 1987, the $50,000 limit specified in (1) above shall be unreduced. (c) Loans shall provide for level amortization with payments to be made not less frequently than quarterly over a period not to exceed five (5) years. However, loans used to acquire any dwelling unit which, within a reasonable time, is to be used (determined at the time the loan is made) as a "principal residence" of the Participant shall provide for periodic repayment over a reasonable period of time that may exceed five (5) years. For this purpose, a "principal residence" has the same meaning as a "principal residence" under Code Section 1034. Loan repayments may be suspended under this Plan as permitted under Code Section 414(u)(4). (d) Any loans granted or renewed shall be made pursuant to a Participant loan program. Such loan program shall be established in writing and must include, but need not be limited to, the following: (1) the identity of the person or positions authorized to administer the Participant loan program; (2) a procedure for applying for loans; (3) the basis on which loans will be approved or denied; (4) limitations, if any, on the types and amounts of loans offered; 36 (5) the procedure under the program for determining a reasonable rate of interest; (6) the types of collateral which may secure a Participant loan; and (7) the events constituting default and the steps that will be taken to preserve Plan assets. Such Participant loan program shall be contained in a separate written document which, when properly executed, is hereby incorporated by reference and made a part of the Plan. Furthermore, such Participant loan program may be modified or amended in writing from time to time without the necessity of amending this Section. (e) Notwithstanding anything in this Plan to the contrary, if a Participant or Beneficiary defaults on a loan made pursuant to this Section, then the loan default will be a distributable event to the extent permitted by the Code and Regulations. (f) Notwithstanding anything in this Section to the contrary, any loans made prior to the date this amendment and restatement is adopted shall be subject to the terms of the plan in effect at the time such loan was made. 7.5 DUTIES OF THE TRUSTEE REGARDING PAYMENTS. At the direction of the Administrator, the Trustee shall, from time to time, in accordance with the terms of the Plan, make payments out of the Trust Fund. The Trustee shall not be responsible in any way for the application of such payments. 7.6 TRUSTEE'S COMPENSATION AND EXPENSES AND TAXES. The Trustee shall be paid such reasonable compensation as set forth in the Trustee's fee schedule (if the Trustee has such a schedule) or as agreed upon in writing by the Employer and the Trustee. However, an individual serving as Trustee who already receives full-time pay from the Employer shall not receive compensation from the Plan. In addition, the Trustee shall be reimbursed for any reasonable expenses, including reasonable counsel fees incurred by it as Trustee. Such compensation and expenses shall be paid from the Trust Fund unless paid or advanced by the Employer. All taxes of any kind whatsoever that may be levied or assessed under existing or future laws upon, or in respect of, the Trust Fund or the income thereof, shall be paid from the Trust Fund. 7.7 ANNUAL REPORT OF THE TRUSTEE. (a) Within a reasonable period of time after the later of the Anniversary Date or receipt of the Employer contribution for each Plan Year, the Trustee, or its agent, shall furnish to the Employer and Administrator a written statement of account with respect to the Plan Year for which such contribution was made setting forth: (1) the net income, or loss, of the Trust Fund; (2) the gains, or losses, realized by the Trust Fund upon sales or other disposition of the assets; 37 (3) the increase, or decrease, in the value of the Trust Fund; (4) all payments and distributions made from the Trust Fund; and (5) such further information as the Trustee and/or Administrator deems appropriate. (b) The Employer, promptly upon its receipt of each such statement of account, shall acknowledge receipt thereof in writing and advise the Trustee and/or Administrator of its approval or disapproval thereof. Failure by the Employer to disapprove any such statement of account within thirty (30) days after its receipt thereof shall be deemed an approval thereof. The approval by the Employer of any statement of account shall be binding on the Employer and the Trustee as to all matters contained in the statement to the same extent as if the account of the Trustee had been settled by judgment or decree in an action for a judicial settlement of its account in a court of competent jurisdiction in which the Trustee, the Employer and all persons having or claiming an interest in the Plan were parties. However, nothing contained in this Section shall deprive the Trustee of its right to have its accounts judicially settled if the Trustee so desires. 7.8 AUDIT. (a) If an audit of the Plan's records shall be required by the Act and the regulations thereunder for any Plan Year, the Administrator shall direct the Trustee to engage on behalf of all Participants an independent qualified public accountant for that purpose. Such accountant shall, after an audit of the books and records of the Plan in accordance with generally accepted auditing standards, within a reasonable period after the close of the Plan Year, furnish to the Administrator and the Trustee a report of the audit setting forth the accountant's opinion as to whether any statements, schedules or lists that are required by Act Section 103 or the Secretary of Labor to be filed with the Plan's annual report, are presented fairly in conformity with generally accepted accounting principles applied consistently. (b) All auditing and accounting fees shall be an expense of and may, at the election of the Employer, be paid from the Trust Fund. (c) If some or all of the information necessary to enable the Administrator to comply with Act Section 103 is maintained by a bank, insurance company, or similar institution, regulated, supervised, and subject to periodic examination by a state or federal agency, then it shall transmit and certify the accuracy of that information to the Administrator as provided in Act Section 103 (b) within one hundred twenty (120) days after the end of the Plan Year or such other date as may be prescribed under regulations of the Secretary of Labor. 7.9 RESIGNATION, REMOVAL AND SUCCESSION OF TRUSTEE. (a) Unless otherwise agreed to by both the Trustee and the Employer, a Trustee may resign at any time by delivering to the Employer, at least thirty (30) days before its effective date, a written notice of resignation. 38 (b) Unless otherwise agreed to by both the Trustee and the Employer, the Employer may remove a Trustee at any time by delivering to the Trustee, at least thirty (30) days before its effective date, a written notice of such Trustee's removal. (c) Upon the death, resignation, incapacity, or removal of any Trustee, a successor may be appointed by the Employer; and such successor, upon accepting such appointment in writing and delivering same to the Employer, shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as a Trustee herein. Until such a successor is appointed, the remaining Trustee or Trustees shall have full authority to act under the terms of the Plan. (d) The Employer may designate one or more successors prior to the death, resignation, incapacity, or removal of a Trustee. In the event a successor is so designated by the Employer and accepts such designation, the successor shall, without further act, become vested with all the powers and responsibilities of the predecessor as if such successor had been originally named as Trustee herein immediately upon the death, resignation, incapacity, or removal of the predecessor. (e) Whenever any Trustee hereunder ceases to serve as such, the Trustee shall furnish to the Employer and Administrator a written statement of account with respect to the portion of the Plan Year during which the individual or entity served as Trustee. This statement shall be either (i) included as part of the annual statement of account for the Plan Year required under Section 7.7 or (ii) set forth in a special statement. Any such special statement of account should be rendered to the Employer no later than the due date of the annual statement of account for the Plan Year. The procedures set forth in Section 7.7 for the approval by the Employer of annual statements of account shall apply to any special statement of account rendered hereunder and approval by the Employer of any such special statement in the manner provided in Section 7.7 shall have the same effect upon the statement as the Employer's approval of an annual statement of account. No successor to the Trustee shall have any duty or responsibility to investigate the acts or transactions of any predecessor who has rendered all statements of account required by Section 7.7 and this subparagraph. 7.10 TRANSFER OF INTEREST. Notwithstanding any other provision contained in this Plan, the Trustee at the direction of the Administrator shall transfer the Vested interest, if any, of a Participant to another trust forming part of a pension, profit sharing or stock bonus plan maintained by such Participant's new employer and represented by said employer in writing as meeting the requirements of Code Section 401(a), provided that the trust to which such transfers are made permits the transfer to be made. 7.11 TRUSTEE INDEMNIFICATION. The Employer agrees to indemnify and hold harmless the Trustee against any and all claims, losses, damages, expenses and liabilities the Trustee may incur in the exercise and performance of the Trustee's power and duties hereunder, unless the same are determined to be due to gross negligence or willful misconduct. 39 7.12 DIRECT ROLLOVER. (a) Notwithstanding any provision of the Plan to the contrary that would otherwise limit a "distributee's" election under this Section, a "distributee" may elect, at the time and in the manner prescribed by the Administrator, to have any portion of an "eligible rollover distribution" that is equal to at least $500 paid directly to an "eligible retirement plan" specified by the "distributee" in a "direct rollover." (b) For purposes of this Section the following definitions shall apply: (1) An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the "distributee," except that an "eligible rollover distribution" does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the "distributee" or the joint lives (or joint life expectancies) of the "distributee" and the "distributee's" designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); any hardship distribution described in Code Section 401 (k)(2)(B)(i)(IV) made after December 31, 1999; and any other distribution that is reasonably expected to total less than $200 during a year. (2) An "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the "distributee's" "eligible rollover distribution." However, in the case of an "eligible rollover distribution" to the surviving spouse, an "eligible retirement plan" is an individual retirement account or individual retirement annuity. (3) A "distributee" includes an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are "distributees" with regard to the interest of the spouse or former spouse. (4) A "direct rollover" is a payment by the Plan to the "eligible retirement plan" specified by the "distributee." ARTICLE VIII AMENDMENT, TERMINATION AND MERGERS 8.1 AMENDMENT. (a) The Employer shall have the right at any time to amend this Plan, subject to the limitations of this Section. However, any amendment which affects the rights, duties or responsibilities of the Trustee or Administrator may only be made with the Trustee's or 40 Administrator's written consent. Any such amendment shall become effective as provided therein upon its execution. The Trustee shall not be required to execute any such amendment unless the amendment affects the duties of the Trustee hereunder. (b) No amendment to the Plan shall be effective if it authorizes or permits any part of the Trust Fund (other than such part as is required to pay taxes and administration expenses) to be used for or diverted to any purpose other than for the exclusive benefit of the Participants or their Beneficiaries or estates; or causes any reduction in the amount credited to the account of any Participant; or causes or permits any portion of the Trust Fund to revert to or become property of the Employer. (c) Except as permitted by Regulations (including Regulation 1.411(d)-4) or other IRS guidance, no Plan amendment or transaction having the effect of a Plan amendment (such as a merger, plan transfer or similar transaction) shall be effective if it eliminates or reduces any "Section 411(d)(6) protected benefit" or adds or modifies conditions relating to "Section 411(d)(6) protected benefits" which results in a further restriction on such benefits unless such "Section 411(d)(6) protected benefits" are preserved with respect to benefits accrued as of the later of the adoption date or effective date of the amendment. "Section 411(d)(6) protected benefits" are benefits described in Code Section 411(d)(6)(A), early retirement benefits and retirement-type subsidies, and optional forms of benefit. A Plan amendment that eliminates or restricts the ability of a Participant to receive payment of the Participant's interest in the Plan under a particular optional form of benefit will be permissible if the amendment satisfies the conditions in (1) and (2) below: (1) The amendment provides a single-sum distribution form that is otherwise identical to the optional form of benefit eliminated or restricted. For purposes of this condition (1), a single-sum distribution form is otherwise identical only if it is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the Participant) except with respect to the timing of payments after commencement. (2) The amendment is not effective unless the amendment provides that the amendment shall not apply to any distribution with an annuity starting date earlier than the earlier of: (i) the ninetieth (90th) day after the date the Participant receiving the distribution has been furnished a summary that reflects the amendment and that satisfies the Act requirements at 29 CFR 2520.104b-3 (relating to a summary of material modifications) or (ii) the first day of the second Plan Year following the Plan Year in which the amendment is adopted. 8.2 TERMINATION. (a) The Employer shall have the right at any time to terminate the Plan by delivering to the Trustee and Administrator written notice of such termination. Upon any full or partial termination, all amounts credited to the affected Participants' Accounts shall become 100% Vested as provided in Section 6.4 and shall not thereafter be subject to forfeiture, and all unallocated amounts, including Forfeitures, shall be allocated to the accounts of all Participants in accordance with the provisions hereof. 41 (b) Upon the full termination of the Plan, the Employer shall direct the distribution of the assets of the Trust Fund to Participants in a manner which is consistent with and satisfies the provisions of Section 6.5. Distributions to a Participant shall be made in cash or through the purchase of irrevocable nontransferable deferred commitments from an insurer. Except as permitted by Regulations, the termination of the Plan shall not result in the reduction of "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). 8.3 MERGER, CONSOLIDATION OR TRANSFER OF ASSETS. This Plan and Trust may be merged or consolidated with, or its assets and/or liabilities may be transferred to any other plan and trust only if the benefits which would be received by a Participant of this Plan, in the event of a termination of the Plan immediately after such transfer, merger or consolidation, are at least equal to the benefits the Participant would have received if the Plan had terminated immediately before the transfer, merger or consolidation, and such transfer, merger or consolidation does not otherwise result in the elimination or reduction of any "Section 411(d)(6) protected benefits" in accordance with Section 8.1(c). ARTICLE IX TOP HEAVY 9.1 TOP HEAVY PLAN REQUIREMENTS. For any Top Heavy Plan Year, the Plan shall provide the special vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan and the special minimum allocation requirements of Code Section 416(c) pursuant to Section 4.3 of the Plan. 9.2 DETERMINATION OF TOP HEAVY STATUS. (a) This Plan shall be a Top Heavy Plan for any Plan Year in which, as of the Determination Date, (1) the Present Value of Accrued Benefits of Key Employees and (2) the sum of the Aggregate Accounts of Key Employees under this Plan and all plans of an Aggregation Group, exceeds sixty percent (60%) of the Present Value of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key Employees under this Plan and all plans of an Aggregation Group. If any Participant is a Non-Key Employee for any Plan Year, but such Participant was a Key Employee for any prior Plan Year, such Participant's Present Value of Accrued Benefit and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a Top Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top Heavy Group). In addition, if a Participant or Former Participant has not performed any services for any Employer maintaining the Plan at any time during the five year period ending on the Determination Date, any accrued benefit for such Participant or Former Participant shall not be taken into account for the purposes of determining whether this Plan is a Top Heavy Plan. (b) Aggregate Account: A Participant's Aggregate Account as of the Determination Date is the sum of: (1) the Participant's Account balance as of the most recent valuation occurring within a twelve (12) month period ending on the Determination Date. 42 (2) an adjustment for any contributions due as of the Determination Date. Such adjustment shall be the amount of any contributions actually made after the Valuation Date but due on or before the Determination Date, except for the first Plan Year when such adjustment shall also reflect the amount of any contributions made after the Determination Date that are allocated as of a date in that first Plan Year. (3) any Plan distributions made within the Plan Year that includes the Determination Date or within the four (4) preceding Plan Years. However, in the case of distributions made after the Valuation Date and prior to the Determination Date, such distributions are not included as distributions for top heavy purposes to the extent that such distributions are already included in the Participant's Aggregate Account balance as of the Valuation Date. Notwithstanding anything herein to the contrary, all distributions, including distributions made prior to January 1, 1984, and distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group, will be counted. Further, distributions from the Plan (including the cash value of life insurance policies) of a Participant's account balance because of death shall be treated as a distribution for the purposes of this paragraph. (4) any Employee contributions, whether voluntary or mandatory. However, amounts attributable to tax deductible qualified voluntary employee contributions shall not be considered to be a part of the Participant's Aggregate Account balance. (5) with respect to unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), if this Plan provides the rollovers or plan-to-plan transfers, it shall always consider such rollovers or plan-to-plan transfers as a distribution for the purposes of this Section. If this Plan is the plan accepting such rollovers or plan-to-plan transfers, it shall not consider such rollovers or plan-to-plan transfers as part of the Participant's Aggregate Account balance. However, rollovers or plan-to-plan transfers accepted prior to January 1, 1984 shall be considered as part of the Participant's Aggregate Account balance. (6) with respect to related rollovers and plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), if this Plan provides the rollover or plan-to-plan transfer, it shall not be counted as a distribution for purposes of this Section. If this Plan is the plan accepting such rollover or plan-to-plan transfer, it shall consider such rollover or plan-to-plan transfer as part of the Participant's Aggregate Account balance, irrespective of the date on which such rollover or plan-to-plan transfer is accepted. (7) For the purposes of determining whether two employers are to be treated as the same employer in (5) and (6) above, all employers aggregated under Code Section 414(b), (c), (m) and (o) are treated as the same employer. (c) "Aggregation Group" means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. 43 (1) Required Aggregation Group: In determining a Required Aggregation Group hereunder, each plan of the Employer in which a Key Employee is a participant in the Plan Year containing the Determination Date or any of the four preceding Plan Years, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410, will be required to be aggregated. Such group shall be known as a Required Aggregation Group. In the case of a Required Aggregation Group, each plan in the group will be considered a Top Heavy Plan if the Required Aggregation Group is a Top Heavy Group. No plan in the Required Aggregation Group will be considered a Top Heavy Plan if the Required Aggregation Group is not a Top Heavy Group. (2) Permissive Aggregation Group: The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Sections 401(a)(4) and 410. Such group shall be known as a Permissive Aggregation Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top Heavy Plan if the Permissive Aggregation Group is not a Top Heavy Group. (3) Only those plans of the Employer in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are Top Heavy Plans. (4) An Aggregation Group shall include any terminated plan of the Employer if it was maintained within the last five (5) years ending on the Determination Date. (d) "Determination Date" means (a) the last day of the preceding Plan Year, or (b) in the case of the first Plan Year, the last day of such Plan Year. (e) Present Value of Accrued Benefit: In the case of a defined benefit plan, the Present Value of Accrued Benefit for a Participant other than a Key Employee, shall be as determined using the single accrual method used for all plans of the Employer and Affiliated Employers, or if no such single method exists, using a method which results in benefits accruing not more rapidly than the slowest accrual rate permitted under Code Section 411(b)(1)(C). The determination of the Present Value of Accrued Benefit shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date except as provided in Code Section 416 and the Regulations thereunder for the first and second plan years of a defined benefit plan. (f) "Top Heavy Group" means an Aggregation Group in which, as of the Determination Date, the sum of: 44 (1) the Present Value of Accrued Benefits of Key Employees under all defined benefit plans included in the group, and (2) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds sixty percent (60%) of a similar sum determined for all Participants. ARTICLE X MISCELLANEOUS 10.1 PARTICIPANT'S RIGHTS. This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon the Employee as a Participant of this Plan. 10.2 ALIENATION. (a) Subject to the exceptions provided below, and as otherwise permitted by the Code and the Act, no benefit which shall be payable out of the Trust Fund to any person (including a Participant or the Participant's Beneficiary) shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void; and no such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to attachment or legal process for or against such person, and the same shall not be recognized by the Trustee, except to such extent as may be required by law. (b) Subsection (a) shall not apply to the extent a Participant or Beneficiary is indebted to the Plan, by reason of a loan made pursuant to Section 7.4. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, such proportion of the amount to be distributed as shall equal such indebtedness shall be paid to the Plan, to apply against or discharge such indebtedness. Prior to making a payment, however, the Participant or Beneficiary must be given written notice by the Administrator that such indebtedness is to be so paid in whole or part from the Participant's Account. If the Participant or Beneficiary does not agree that the indebtedness is a valid claim against the Vested Participant's Account, the Participant or Beneficiary shall be entitled to a review of the validity of the claim in accordance with procedures provided in Sections 2.7 and 2.8. (c) Subsection (a) shall not apply to a "qualified domestic relations order" defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Administrator under the provisions of the Retirement Equity Act of 1984. The Administrator shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent 45 provided under a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. (d) Subsection (a) shall not apply to an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, in accordance with Code Sections 401(a)(13)(C) and (D). 10.3 CONSTRUCTION OF PLAN. This Plan and Trust shall be construed and enforced according to the Act and the laws of the State of Illinois, other than its laws respecting choice of law, to the extent not pre-empted by the Act. 10.4 GENDER AND NUMBER. Wherever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 10.5 LEGAL ACTION. In the event any claim, suit, or proceeding is brought regarding the Trust and/or Plan established hereunder to which the Trustee, the Employer or the Administrator may be a party, and such claim, suit, or proceeding is resolved in favor of the Trustee, the Employer or the Administrator, they shall be entitled to be reimbursed from the Trust Fund for any and all costs, attorney's fees, and other expenses pertaining thereto incurred by them for which they shall have become liable. 10.6 PROHIBITION AGAINST DIVERSION OF FUNDS. (a) Except as provided below and otherwise specifically permitted by law, it shall be impossible by operation of the Plan or of the Trust, by termination of either, by power of revocation or amendment, by the happening of any contingency, by collateral arrangement or by any other means, for any part of the corpus or income of any Trust Fund maintained pursuant to the Plan or any funds contributed thereto to be used for, or diverted to, purposes other than the exclusive benefit of Participants, Former Participants, or their Beneficiaries. (b) In the event the Employer shall make an excessive contribution under a mistake of fact pursuant to Act Section 403(c)(2)(A), the Employer may demand repayment of such excessive contribution at any time within one (1) year following the time of payment and the Trustees shall return such amount to the Employer within the one (1) year period. Earnings of the Plan attributable to the contributions may not be returned to the Employer but any losses attributable thereto must reduce the amount so returned. (c) Except for Sections 3.5, 3.6, and 4.1(b), any contribution by the Employer to the Trust Fund is conditioned upon the deductibility of the contribution by the Employer under the Code and, to the extent any such deduction is disallowed, the Employer may, within one (1) year following the final determination of the disallowance, whether by agreement with the Internal Revenue Service or by final decision of a competent jurisdiction, demand repayment of such disallowed contribution and the Trustee shall return such contribution within one (1) year 46 following the disallowance. Earnings of the Plan attributable to the contribution may not be returned to the Employer, but any losses attributable thereto must reduce the amount so returned. 10.7 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE. The Employer, Administrator and Trustee, and their successors, shall not be responsible for the validity of any Contract issued hereunder or for the failure on the part of the insurer to make payments provided by any such Contract, or for the action of any person which may delay payment or render a Contract null and void or unenforceable in whole or in part. 10.8 INSURER'S PROTECTIVE CLAUSE. Except as otherwise agreed upon in writing between the Employer and the insurer, an insurer which issues any Contracts hereunder shall not have any responsibility for the validity of this Plan or for the tax or legal aspects of this Plan. The insurer shall be protected and held harmless in acting in accordance with any written direction of the Trustee, and shall have no duty to see to the application of any funds paid to the Trustee, nor be required to question any actions directed by the Trustee. Regardless of any provision of this Plan, the insurer shall not be required to take or permit any action or allow any benefit or privilege contrary to the terms of any Contract which it issues hereunder, or the rules of the insurer. 10.9 RECEIPT AND RELEASE FOR PAYMENTS. Any payment to any Participant, the Participant's legal representative, Beneficiary, or to any guardian or committee appointed for such Participant or Beneficiary in accordance with the provisions of the Plan, shall, to the extent thereof, be in full satisfaction of all claims hereunder against the Trustee and the Employer, either of whom may require such Participant, legal representative, Beneficiary, guardian or committee, as a condition precedent to such payment, to execute a receipt and release thereof in such form as shall be determined by the Trustee or Employer. 10.10 ACTION BY THE EMPLOYER. Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 10.11 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY. The "named Fiduciaries" of this Plan are (1) the Employer, (2) the Administrator, (3) the Trustee and (4) any Investment Manager appointed hereunder. The named Fiduciaries shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan including, but not limited to, any agreement allocating or delegating their responsibilities, the terms of which are incorporated herein by reference. In general, the Employer shall have the sole responsibility for making the contributions provided for under Section 4.1; and shall have the authority to appoint and remove the Trustee and the Administrator; to formulate the Plan's "funding policy find method"; and to amend or terminate, in whole or in part, the Plan. The Administrator shall gave the sole responsibility for the administration of the Plan, including, but not limited to, the items specified in Article II of the Plan, as the same may be allocated or delegated thereunder. The Trustee shall have the sole responsibility of management of the assets held under the Trust, except to the extent directed pursuant to Article II or with respect to those assets, the management of which has been assigned to an Investment Manager, who shall be solely responsible for the management of the assets assigned to it, all as specifically provided in the Plan. Each named Fiduciary warrants that any directions given, information furnished, or 47 action taken by it shall be in accordance with the provisions of the Plan, authorizing or providing for such direction, information or action. Furthermore, each named Fiduciary may rely upon any such direction, information or action of another named Fiduciary as being proper under the Plan, and is not required under the Plan to inquire into the propriety of any such direction, information or action. It is intended under the Plan that each named Fiduciary shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan as specified or allocated herein. No named Fiduciary shall guarantee the Trust Fund in any manner against investment loss or depreciation in asset value. Any person or group may serve in more than one Fiduciary capacity. 10.12 HEADINGS. The headings and subheadings of this Plan have been inserted for convenience of reference and are to be ignored in any construction of the provisions hereof. 10.13 APPROVAL BY INTERNAL REVENUE SERVICE. Notwithstanding anything herein to the contrary, if, pursuant to an application for qualification filed by or on behalf of the Plan by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date that the Secretary of the Treasury may prescribe, the Commissioner of Internal Revenue Service or the Commissioner's delegate should determine that the Plan does not initially qualify as a tax-exempt plan under Code Sections 401 and 501, and such determination is not contested, or if contested, is finally upheld, then if the Plan is a new plan, it shall be void ab initio and all amounts contributed to the Plan by the Employer, less expenses paid, shall be returned within one (1) year and the Plan shall terminate, and the Trustee shall be discharged from all further obligations. If the disqualification relates to an amended plan, then the Plan shall operate as if it had not been amended. 10.14 UNIFORMITY. All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. In the event of any conflict between the terms of this Plan and any Contract purchased hereunder, the Plan provisions shall control. ARTICLE XI PARTICIPATING EMPLOYERS 11.1 ADOPTION BY OTHER EMPLOYERS. Notwithstanding anything herein to the contrary, with the consent of the Employer and Trustee, any other corporation or entity, whether an affiliate or subsidiary or not, may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by a properly executed document evidencing said intent and will of such Participating Employer. 11.2 REQUIREMENTS OF PARTICIPATING EMPLOYERS (a) Each such Participating Employer shall be required to use the same Trustee as provided in this Plan. (b) The Trustee may, but shall not be required to, commingle, hold and invest as one Trust Fund all contributions made by Participating Employers, as well as all increments thereof. 48 (c) Any expenses of the Plan which are to be paid by the Employer or borne by the Trust Fund shall be paid by each Participating Employer in the same proportion that the total amount standing to the credit of all Participants employed by such Employer bears to the total standing to the credit of all Participants. 11.3 DESIGNATION OF AGENT. Each Participating Employer shall be deemed to be a party to this Plan; provided, however, that with respect to all of its relations with the Trustee and Administrator for the purpose of this Plan, each Participating Employer shall be deemed to have designated irrevocably the Employer as its agent. Unless the context of the Plan clearly indicates the contrary, the word "Employer" shall be deemed to include each Participating Employer as related to its adoption of the Plan. 11.4 EMPLOYEE TRANSFERS. In the event an Employee is transferred between Participating Employers, accumulated service and eligibility shall be carried with the Employee involved. No such transfer shall effect a termination of employment hereunder, and the Participating Employer to which the Employee is transferred shall thereupon become obligated hereunder with respect to such Employee in the same manner as was the Participating Employer from whom the Employee was transferred. 11.5 PARTICIPATING EMPLOYER CONTRIBUTION AND FORFEITURES. Any contribution or Forfeiture subject to allocation during each Plan Year shall be determined and allocated separately by each Participating Employer, and shall be allocated only among the Participants eligible to share of the Employer or Participating Employer making the contribution or by which the forfeiting Participant was employed. On the basis of the information furnished by the Administrator, the Trustee shall keep separate books and records concerning the affairs of each Participating Employer hereunder and as to the accounts and credits of the Employees of each Participating Employer. The Trustee may, but need not, register Contracts so as to evidence that a particular Participating Employer is the interested Employer hereunder, but in the event of an Employee transfer from one Participating Employer to another, the employing Employer shall immediately notify the Trustee thereof. 11.6 AMENDMENT. Amendment of this Plan by the Employer at any time when there shall be a Participating Employer hereunder shall only be by the written action of each and every Participating Employer and with the consent of the Trustee where such consent is necessary in accordance with the terms of this Plan. 11.7 DISCONTINUANCE OF PARTICIPATION. Any Participating Employer shall be permitted to discontinue or revoke its participation in the Plan at any time. At the time of any such discontinuance or revocation, satisfactory evidence thereof and of any applicable conditions imposed shall be delivered to the Trustee. The Trustee shall thereafter transfer, deliver and assign Contracts and other Trust Fund assets allocable to the Participants of such Participating Employer to such new trustee or insurer as shall have been designated by such Participating Employer, in the event that it has established a separate qualified retirement plan for its employees provided, however, that no such transfer shall be made if the result is the elimination or reduction of any "Section 411(d)(6) protected benefits" as described in Section 8.1(c). If no successor is designated, the Trustee shall retain such assets for the Employees of said Participating Employer pursuant to the provisions of Article VII hereof. In no such event shall 49 any part of the corpus or income of the Trust as it relates to such Participating Employer be used for or diverted for purposes other than for the exclusive benefit of the Employees of such Participating Employer. 11.8 ADMINISTRATOR'S AUTHORITY. The Administrator shall have authority to make any and all necessary rules or regulations, binding upon all Participating Employers and all Participants, to effectuate the purpose of this Article. 50 IN WITNESS WHEREOF, this Plan has been executed the day and year first above written. Eagle Test Systems, Inc. By /s/ Leonard Foxman --------------------------------- EMPLOYER Analog Test Institute, Inc. By /s/ Theodore Foxman ---------------------------------- EMPLOYER /s/ Leonard Foxman ------------------------------------- TRUSTEE 51 EX-10.6 6 c86449exv10w6.txt STOCK PURCHASE AGREEMENT EXHIBIT 10.6 EXECUTION COPY STOCK PURCHASE AGREEMENT BY AND AMONG EAGLE TEST SYSTEMS, INC., THE STOCKHOLDERS NAMED HEREIN AND THE INVESTORS NAMED HEREIN DATED AS OF SEPTEMBER 30, 2003 INDEX
Page ---- SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION........................................................ 2 1.1 Description of Securities...................................................................... 2 1.2 Sale and Purchase.............................................................................. 2 1.3 Redemption of Stockholders' Stock.............................................................. 2 1.4 Charter; Bylaws; Subordinated Debt............................................................. 2 1.5 Use of Proceeds................................................................................ 3 1.6 Closing........................................................................................ 3 1.7 Transfer Taxes................................................................................. 3 1.8 Further Assurances............................................................................. 3 1.9 Extraordinary Dividend......................................................................... 3 SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS............................. 4 2.1 Organization and Corporate Power............................................................... 5 2.2 Authorization and Non-Contravention............................................................ 5 2.3 Corporate Records.............................................................................. 6 2.4 Capitalization................................................................................. 6 2.5 Subsidiaries; Investments...................................................................... 8 2.6 Financial Statements; Projections.............................................................. 8 2.7 Absence of Undisclosed Liabilities............................................................. 9 2.8 Absence of Certain Developments................................................................ 9 2.9 Accounts Receivable; Accounts Payable; Inventories............................................. 10 2.10 Transactions with Affiliates................................................................... 11 2.11 Properties..................................................................................... 11 2.12 Tax Matters.................................................................................... 12 2.13 Certain Contracts and Arrangements............................................................. 13 2.14 Intellectual Property.......................................................................... 14 2.15 Litigation..................................................................................... 16 2.16 Labor Matters.................................................................................. 17 2.17 Permits; Compliance with Laws.................................................................. 17 2.18 Employee Benefit Programs...................................................................... 18 2.19 Insurance Coverage............................................................................. 19 2.20 Investment Banking; Brokerage.................................................................. 19 2.21 Environmental Matters.......................................................................... 19 2.22 Customers, Distributors and Partners........................................................... 19 2.23 Suppliers...................................................................................... 20 2.24 Warranty and Related Matters................................................................... 20 2.25 Illegal Payments............................................................................... 20 2.26 Solvency....................................................................................... 20 2.27 Privacy of Customer Information................................................................ 20 2.28 Backlog........................................................................................ 21
i 2.29 Health Matters................................................................................. 21 2.30 Disclosure..................................................................................... 21 SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS................................................ 21 3.1 Investment Status.............................................................................. 21 3.2 Authority and Non-Contravention................................................................ 22 SECTION 4. CLOSING CONDITIONS AND DELIVERIES.............................................................. 22 4.1 Transactions to Occur Prior to Closing......................................................... 22 4.2 Authorization.................................................................................. 23 4.3 Approvals, Consents and Waivers................................................................ 23 4.4 Deliveries by the Company and the Stockholders to the Investors................................ 23 4.5 Closing Deliveries by the Investors to the Company............................................. 25 4.6 Closing Deliveries by the Stockholders to the Company.......................................... 25 4.7 All Proceedings Satisfactory................................................................... 25 4.8 No Litigation.................................................................................. 25 4.9 No Violation or Injunction..................................................................... 25 SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; TRANSACTION RELATED INDEMNIFICATION................ 26 5.1 Survival of Representations, Warranties and Covenants.......................................... 26 5.2 Transaction Related Indemnification............................................................ 26 5.3 Limitations on Transaction Related Indemnification............................................. 27 5.4 Notice; Payment of Losses; Defense of Third-Party Claims....................................... 28 5.5 Limitation on Contribution and Certain Other Rights............................................ 29 SECTION 6. GENERAL........................................................................................ 30 6.1 Waivers and Consents; Amendments............................................................... 30 6.2 Legend on Securities........................................................................... 30 6.3 Governing Law.................................................................................. 30 6.4 Section Headings; Construction................................................................. 30 6.5 Counterparts................................................................................... 31 6.6 Notices and Demands............................................................................ 31 6.7 Dispute Resolution............................................................................. 31 6.8 Consent to Jurisdiction........................................................................ 32 6.9 Remedies; Severability......................................................................... 32 6.10 Integration.................................................................................... 33 6.11 Assignability; Binding Agreement............................................................... 33 6.12 Release........................................................................................ 33 6.13 Confidentiality................................................................................ 34 6.14 Expenses....................................................................................... 34 6.15 Certain Definitions............................................................................ 34

ii EXHIBITS Exhibit A-1 - Schedule of Foxman Stockholders Exhibit A-2 - Schedule of Other Stockholders Exhibit B - Schedule of Investors Exhibit C - Amended and Restated Articles of Incorporation Exhibit D - Form of Bylaws Exhibit E - Form of Stock Option Plan Exhibit F - Form of Stockholders' Agreement Exhibit G - Form of Registration Rights Agreement Exhibit H - Redemption of Common Stock Exhibit I - Management Rights Letter Exhibit J - Form of Non-Competition Agreement Exhibit K - Form of Employee Agreement Exhibit L - Form of Opinion of Counsel Exhibit M - Form of Director Indemnification Agreement DISCLOSURE SCHEDULE Section 2.1 - Foreign Qualifications Section 2.4 - Capitalization Section 2.5 - Subsidiaries and Investments Section 2.6 - Financial Statements; Projections Section 2.7 - Undisclosed Liabilities Section 2.8 - Certain Developments Section 2.9 - Inventories Section 2.12 - Tax Matters Section 2.13 - Material Contracts Section 2.14 - Intellectual Property Section 2.15 - Litigation Section 2.16 - Labor Matters Section 2.18 - Employee Benefit Programs Section 2.19 - Insurance Coverage Section 2.20 - Investment Banking; Brokerage Section 2.22 - Customers; Distributors and Partners Section 2.24 - Warranty and Related Matters iii EXHIBIT 10.6 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into as of September 30, 2003, by and among Eagle Test Systems, Inc., an Illinois corporation (the "COMPANY"), the shareholders of the Company named in Exhibit A-1 attached hereto (the "FOXMAN STOCKHOLDERS," and each individually, a "FOXMAN STOCKHOLDER"), the shareholders of the Company named in Exhibit A-2 attached hereto (the "OTHER STOCKHOLDERS," and collectively with the Foxman Stockholders, the "STOCKHOLDERS") and the investment partnerships and other investors named in Exhibit B attached hereto (each, an "INVESTOR," and, collectively, the "INVESTORS"). WHEREAS, the Investors desire to purchase from the Company, and the Company desires to issue and sell to the Investors, 3,436.099 shares of the Company's Series A Convertible Preferred Stock, par value $.01 per share (the "CONVERTIBLE PREFERRED STOCK"), for an aggregate purchase price of $65,000,000; WHEREAS, contemporaneously with the Closing (as defined below), TA Subordinated Debt Fund, L.P. and TA Investors, LLC (the "Lenders") will lend to the Company $30,000,000 (the "SUBORDINATED DEBT") pursuant to the terms of a Note Purchase Agreement (the "NOTE PURCHASE AGREEMENT") in return for convertible subordinated debentures (collectively, the "CONVERTIBLE SUBORDINATED NOTES") which are convertible into subordinated notes (collectively, the "SUBORDINATED NOTES") and warrants (the "WARRANTS") to acquire shares of Common Stock, no par value, of the Company (the "COMMON STOCK"); WHEREAS, the Company shall use the proceeds from the purchase and sale of the Convertible Preferred Stock and the Subordinated Debt for the Redemption (as defined below) and for payment of certain expenses at or immediately subsequent to the Closing; and WHEREAS, in connection with and as a condition precedent to the consummation of the transactions contemplated hereby, among other things (i) the Company has amended and restated its articles of incorporation in the form attached hereto as Exhibit C (the "ARTICLES OF INCORPORATION"), and has amended and restated its bylaws in the form attached hereto as Exhibit D (the "BYLAWS"), (ii) the Company has adopted the 2003 Stock Option and Grant Plan in the form attached hereto as Exhibit E (the "STOCK OPTION PLAN") pursuant to which the Company has reserved for issuance thereunder 273.516 shares of Common Stock, (iii) the Company, the Stockholders and the Investors will enter into a Stockholders Agreement in substantially the form attached hereto as Exhibit F (the "STOCKHOLDERS AGREEMENT") and (iv) the Company and the Investors will enter into a Registration Rights Agreement in substantially the form attached hereto as Exhibit G (the "REGISTRATION RIGHTS AGREEMENT"). NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION 1.1 DESCRIPTION OF SECURITIES. The Company's authorized capital stock consists of Common Stock and, upon consummation of transactions contemplated by this Agreement, Convertible Preferred Stock and Redeemable Preferred Stock, par value $.01 per share ("REDEEMABLE PREFERRED STOCK"). The Common Stock, Convertible Preferred Stock and Redeemable Preferred Stock will, upon consummation of transactions contemplated by this Agreement, have the rights, preferences and other terms set forth in Exhibit C attached hereto. Immediately prior to the Closing, all of the issued and outstanding equity securities of the Company are owned beneficially and of record by the shareholders as set forth on Exhibit A-1 and A-2 attached hereto. For purposes of this Agreement, the shares of Convertible Preferred Stock to be acquired by the Investors from the Company hereunder are sometimes referred to as the "CONVERTIBLE PREFERRED SHARES," the shares of Redeemable Preferred Stock issuable upon conversion of the Convertible Preferred Stock are referred to as the "PREFERRED CONVERSION SHARES," the shares of Common Stock issuable upon conversion of the Convertible Preferred Shares are referred to as the "COMMON CONVERSION SHARES," the Preferred Conversion Shares and Common Conversion Shares are referred to as the "CONVERSION SHARES," and the Convertible Preferred Shares, the Preferred Conversion Shares and the Common Conversion Shares are sometimes referred to herein as the "SECURITIES." The Company will, upon consummation of transactions contemplated by this Agreement, have authorized and reserved, and covenants to continue to reserve, a sufficient number of shares of Common Stock and Redeemable Preferred Stock necessary to satisfy the rights of conversion of the holders of Convertible Preferred Stock as set forth in Exhibit C hereto. 1.2 SALE AND PURCHASE. Upon the terms and subject to the conditions herein, and in reliance on the representations and warranties made by the Company and the Stockholders herein, each of the Investors, severally but not jointly, hereby agrees to purchase from the Company, and the Company hereby agrees to issue and sell to each of the Investors, the number of Convertible Preferred Shares set forth opposite the name of each such Investor on Exhibit B hereto, free and clear of any and all Claims (as defined herein), for a total aggregate purchase price of $65,000,000 (the "PURCHASE PRICE"), and the Company hereby grants the Investors the rights set forth herein and in the agreements referred to herein. 1.3 REDEMPTION OF STOCKHOLDERS' STOCK. At and concurrently with the Closing, and following the purchase and sale of the Convertible Preferred Shares as provided herein, and upon the terms and subject to the conditions herein, and in reliance on the representations and warranties made by the Company and the Stockholders to the Investors herein, the Company shall redeem, and the Stockholders, severally but not jointly, hereby agree to sell, transfer and convey to the Company, the number of shares of Common Stock (the "REDEMPTION") set forth opposite the name of such Stockholder on Exhibit H attached hereto, in each case for the redemption price set forth opposite such Stockholder's name on Exhibit H attached hereto, for an aggregate redemption price of $95,000,000 (the "REDEMPTION PRICE") payable by wire transfer of immediately available funds. 1.4 CHARTER; BYLAWS; SUBORDINATED DEBT. Immediately prior to or contemporaneously with the Closing, the Company shall have (a) filed with the Secretary of -2- State of Illinois the Articles of Incorporation, and the same shall have become effective in accordance with Illinois law, (b) adopted the Bylaws and Stock Option Plan, (c) executed and delivered the Note Purchase Agreement and the Subordinated Notes to the Lenders for which it shall receive proceeds of $30,000,000. 1.5 USE OF PROCEEDS. The Company shall apply the proceeds from the sale of the Convertible Preferred Shares and the Subordinated Debt to the Redemption. 1.6 CLOSING. The closing of the purchase and sale of the Convertible Preferred Shares (the "CLOSING") shall take place at a mutually agreeable location on the date hereof (the "CLOSING DATE"), and promptly following the Closing and on the same day, the closing of the Redemption shall occur. At the Closing, the Company shall deliver or cause to be delivered to each of the Investors stock certificates representing all of the Convertible Preferred Shares issued hereunder, free and clear of any and all liens, claims, options, charges, pledges, security interests, deeds of trust, voting agreements (except as provided herein), voting trusts, encumbrances, rights or restrictions of any nature ("CLAIMS"), and the Company shall apply the proceeds of the purchase and sale of the Convertible Preferred Stock and the Subordinated Debt to the Redemption. At the closing of the Redemption, the Stockholders agree with the Company and the Investors that they shall transfer to the Company the shares of Common Stock to be redeemed hereunder free and clear of all Claims and the Company shall pay to the Stockholders the redemption price for such shares. All cash payments hereunder shall be made by wire transfer of same day available funds. 1.7 TRANSFER TAXES. All transfer taxes, fees and duties under applicable law incurred in connection with the sale and transfer of the Convertible Preferred Shares under this Agreement will be borne and paid by the Company and it shall promptly reimburse the Investors for any such tax, fee or duty which any of them is required to pay under applicable law. 1.8 FURTHER ASSURANCES. The Stockholders, the Company, and the Investors from time to time after the Closing at the request of any other party hereto and without further consideration shall execute and deliver further instruments of transfer and assignment and take such other action as a party may reasonably require to more effectively transfer and assign to, and vest in, the Investors, the Securities and all rights thereto, and to fully implement the provisions of this Agreement. 1.9 EXTRAORDINARY DIVIDEND. (a) The Company shall prepare in good faith and deliver to the Investors at Closing a statement setting forth the Company's determination of its cash and cash equivalents as of the Closing (the "Estimated Cash Amount"). Immediately prior to the Closing, the Company made an extraordinary cash dividend in the aggregate amount of $13,500,000 to the Stockholders (on a pro-rata basis based on their relative holdings of Common Stock as of immediately prior to the Closing), which amount is equal to ninety percent (90%) of the positive difference between the Estimated Cash Amount and $20,000,000 (the "Extraordinary Dividend"). For purposes of Section 1.9(c) below, the term "Dividend Holdback Amount" shall mean an amount equal to $1,500,000, which amount equals ten percent (10%) of the positive difference between the Estimated Cash Amount and $20,000,000. -3- (b) As soon as practicable after the Closing, the Company shall deliver to the Investors a balance sheet for the Company as of the Closing Date which shall be prepared in accordance with generally accepted accounting principles of the United States (except as set forth in Section 2.6 of the Disclosure Schedule) applied on a consistent basis (the "Final Closing Date Balance Sheet") and a statement based on such Final Closing Date Balance Sheet setting forth the Company's determination of its cash and cash equivalents as of the Closing Date (the "Final Cash Amount"), (c) Subject to subsection (d) below, on the later of (i) the date which is thirty (30) days after the Closing Date and (ii) the date which is seven (7) days after the delivery of the Final Closing Date Balance Sheet by the Company to the Investors, the Company and the Investors shall reconcile the extraordinary dividend amount as set forth below in this subsection (c). In the event that the Final Cash Amount is greater than the Estimated Cash Amount (the positive difference being the "Excess Cash Amount"), then the Company shall within five (5) business days of such determination make a cash payment to the Stockholders (on a pro-rata basis based on their relative holdings of Common Stock as of immediately prior to the Closing) equal to the sum of the Dividend Holdback Amount and the Excess Cash Amount. In the event that the Final Cash Amount is equal to the Estimated Cash Amount, then the Company shall within five (5) business days of such determination make a cash payment to the Stockholders (on a pro-rata basis based on their relative holdings of Common Stock as of immediately prior to the Closing) equal to the Dividend Holdback Amount. In the event that the Final Cash Amount is less than the Estimated Cash Amount (the negative difference being the "Cash Shortfall Amount"), then the Company shall within five (5) business days of such determination make a cash payment to the Stockholders (on a pro-rata basis based on their relative holdings of Common Stock as of immediately prior to the Closing) equal to the positive difference between the Dividend Holdback Amount and the Cash Shortfall Amount; provided, however, in the event that the Cash Shortfall Amount exceeds the Dividend Holdback Amount, each of the Stockholders (on a pro-rata basis based on their relative holdings of Common Stock as of immediately prior to the Closing) hereby agrees to promptly pay the Company an amount equal to the difference between the Cash Shortfall Amount and the Dividend Holdback Amount. (d) Notwithstanding the above, in the event that the Investors do not agree on the Final Closing Date Balance Sheet or the Final Cash Amount prepared by the Company, any disputes shall be resolved by an independent Big 4 accounting firm (the "Accountant"). The final determination by the Accountant of the Final Closing Date Balance Sheet and Final Cash Amount shall (i) be made no later than thirty (30) days following retention of such firm by the parties, (ii) be set forth in writing, (iii) be conclusive and binding upon the parties, (iv) not be subject to dispute or review and (v) be the final determination of such matters. The Company shall pay the fees and expenses of such accounting firm. SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS In order to induce the Investors to enter into this Agreement and consummate the transactions contemplated hereby, the Company and the Foxman Stockholders, on a joint and -4- several basis, hereby make to the Investors the representations and warranties contained in this Section 2; provided that the representations and warranties set forth in Sections 2.2(b) and 2.4(b) are made solely by each Stockholder severally and not jointly. Such representations and warranties are subject to the qualifications and exceptions set forth in the disclosure schedule delivered to the Investors pursuant to this Agreement (the "DISCLOSURE SCHEDULE"). For purposes hereof unless otherwise indicated, all references to the Company shall include all Subsidiaries (as defined herein) of the Company and predecessors, if any. References to the knowledge or awareness of the Company are deemed to mean the actual knowledge of the officers of the Company and the Foxman Stockholders after due inquiry. 2.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly organized, validly existing and in good standing under the laws of Illinois, and is duly qualified or registered to do business as a foreign corporation (a) in each jurisdiction listed in Section 2.1 of the Disclosure Schedule and (b) in each jurisdiction in which the failure to be so duly qualified or registered has had, or could have, a material adverse effect on the assets, liabilities, condition (financial or other), business or results of operations of the Company (a "MATERIAL ADVERSE EFFECT"). The Company has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement and the agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby, including the issuance of the Securities. The copies of the Articles of Incorporation, as amended as of the Closing Date and certified by the Secretary of State of Illinois, and the Bylaws, as amended as of the Closing Date and certified by the Secretary of the Company, have been furnished to the Investors by the Company, are correct and complete as of the date hereof, and the Company is not in violation of any term of its Articles of Incorporation or Bylaws. 2.2 AUTHORIZATION AND NON-CONTRAVENTION. (a) This Agreement and all agreements, documents and instruments executed and delivered by the Company pursuant hereto are valid and binding obligations of the Company, enforceable in accordance with their respective terms, except: (x) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (y) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The execution, delivery and performance of this Agreement and all agreements, documents and instruments executed and delivered by the Company pursuant hereto, the issuance and delivery of the Convertible Preferred Shares, and, upon conversion of the Convertible Preferred Shares, the issuance and delivery of the Conversion Shares, have been duly authorized by all necessary corporate or other action of the Company. The execution and delivery of this Agreement and all agreements, documents and instruments executed and delivered by the Company pursuant hereto, the issuance and delivery of the Convertible Preferred Shares, and, upon conversion of the Convertible Preferred Shares, the issuance and delivery of the Conversion Shares and the performance of the transactions contemplated by this Agreement and such other agreements, documents and instruments, do not and will not: (i) violate or result in a violation of, conflict with or constitute or result in a violation of or default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which the Company is a party or by which its assets are bound, or any provision of the Articles of Incorporation or Bylaws, or cause the -5- creation of any Claim upon any of the assets of the Company; (ii) violate, conflict with or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to the Company; (iii) based, and in reliance, upon the accuracy of the Investors' representations and warranties set forth in Section 3.3, require from the Company any notice to, declaration or filing with, or consent or approval of any governmental authority or other third party; or (iv) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which the Company is a party or by which the Company is bound. (b) This Agreement and all agreements, documents and instruments executed and delivered by any Stockholder pursuant hereto are valid and binding obligations of such Stockholder enforceable in accordance with their respective terms, except: (x) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (y) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. Each Stockholder has full right, authority, power and capacity to enter into this Agreement and all agreements, documents and instruments executed and delivered by such Stockholder pursuant hereto and to carry out the transactions contemplated hereby and thereby. The execution, delivery and performance by each Stockholder of this Agreement and all agreements, documents and instruments executed and delivered by such Stockholder pursuant hereto and the performance of the transactions contemplated by this Agreement and such other agreements, documents and instruments do not and will not: (i) violate or result in a violation of, conflict with or constitute or result in a violation of or default (whether after the giving of notice, lapse of time or both) under, accelerate any obligation under, or give rise to a right of termination of, any contract, agreement, obligation, permit, license or authorization to which the Company or such Stockholder is a party or by which any of them or their respective assets are bound, or any provision of such Stockholder's organizational documents, if applicable; (ii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to the Company or such Stockholder; (iii) require from the Company or such Stockholder any notice to, declaration or filing with, or consent or approval of, any governmental authority or other third party, or (iv) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which the Company or such Stockholder is a party or by which the Company or such Stockholder is bound. 2.3 CORPORATE RECORDS. The corporate record books of the Company accurately reflect all corporate action taken by its shareholders and board of directors and committees. The copies of the corporate records of the Company, as delivered to the Investors, are true and complete copies of the originals of such documents. 2.4 CAPITALIZATION. -6- (a) Immediately prior to giving effect to the transactions contemplated hereby, the authorized capital stock of the Company consisted of (i) 8,000 shares of Common Stock of which 5,756 shares were issued and outstanding, (ii) 3,437 shares of Convertible Preferred Stock, of which no shares were issued and outstanding and (iii) 3,437 shares of Redeemable Preferred Stock, of which no shares were issued and outstanding. As of the Closing and after giving effect to the transactions contemplated hereby, the authorized capital stock of the Company consists of (i) 8,000 shares of Common Stock, of which 2,158.500 shares are issued and outstanding, (ii) 3,437 shares of Convertible Preferred Stock, of which 3,436.099 shares are issued and outstanding and (iii) 3,437 shares of Redeemable Preferred Stock, of which no shares are issued and outstanding. The relative rights, preferences and other provisions relating to the Convertible Preferred Stock, the Redeemable Preferred Stock and the Common Stock are as set forth in the Articles of Incorporation, and such rights and preferences are valid and enforceable in accordance with their terms under the laws of the State of Illinois. Except as contemplated by the Transaction Documents, there are no outstanding subscriptions, options, warrants, commitments, preemptive rights, agreements, arrangements or commitments of any kind relating to the issuance or sale of, or outstanding securities convertible into or exercisable or exchangeable for, any shares of capital stock of any class or other equity interests of the Company. Except as provided herein, the Company has no obligation to purchase, redeem, or otherwise acquire any of its capital stock or any interests therein, and has not redeemed any shares of its capital stock in the past three (3) years. As of the Closing, and after giving effect to the transactions contemplated hereby, all of the outstanding shares of capital stock of the Company will have been duly and validly authorized and issued, fully paid and non-assessable, and will have been offered, issued, sold and delivered in compliance with applicable federal and state securities laws without giving rise to preemptive rights of any kind. The Company has duly and validly authorized and reserved (A) 273.516 shares of Common Stock (subject to adjustment) for issuance in connection with awards granted or exercised under the Stock Option Plan, (B) 3,436.099 shares of Common Stock and 3,436.099 shares of Redeemable Preferred Stock (subject to adjustment), all for issuance upon conversion of the Convertible Preferred Stock, and (C) 210.016 shares of Common Stock (subject to adjustment) for issuance upon exercise of the Warrants, and the shares of Common Stock so issued will, upon such grant, exercise or conversion, be validly issued, fully paid and non-assessable. As of the Closing, and after giving effect to the transactions contemplated hereby, other than rights set forth herein or in the Articles of Incorporation, the Registration Rights Agreement or the Stockholders' Agreement, there are (1) no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Company's capital stock or any interests therein, (2) no rights to have the Company's capital stock registered for sale to the public in connection with the laws of any jurisdiction and (3) no documents, instruments or agreements relating to the voting of the Company's voting securities or restrictions on the transfer of the Company's capital stock. (b) Immediately prior to the Closing, the Stockholders are the sole record and beneficial owners of the shares of Common Stock set forth opposite their names on Exhibit A attached hereto, free and clear of any Claims including Claims of spouses, former spouses and other family members. After giving effect to the transactions contemplated hereby, the Common Stock and the Convertible Preferred Stock will be held as set forth on Section 2.4(b) of the -7- Disclosure Schedule free and clear of any Claims (other than restrictions imposed by securities laws applicable to unregistered securities generally). 2.5 SUBSIDIARIES; INVESTMENTS. The Company does not own or control, directly or indirectly, any interest in any other corporation, partnership, limited liability company, association or other business entity, except as set forth in Section 2.5 of the Disclosure Schedule. The Company has not made any investment and does not hold any interest in or have any outstanding loan or advance to or from, any person, including, without limitation, any officer, director or stockholder of the Company. 2.6 FINANCIAL STATEMENTS; PROJECTIONS. (a) The Company has previously furnished to the Investors and attached hereto on Section 2.6(a) of the Disclosure Schedule copies of the following financial statements: (i) the Company's balance sheets for the fiscal years ended September 30, 2002 (the "BASE BALANCE SHEET") , September 30, 2001 and September 30, 2000 and the related statements of income, for the fiscal years then ended, and (ii) the Company's unaudited balance sheet as of August 31, 2003 and the related unaudited statements of income, for the eleven-month period then ended. Subject to Section 2.6(a) of the Disclosure Schedule such financial statements were prepared in conformity with generally accepted accounting principles of the United States applied on a consistent basis, are consistent in all material respects with the books and records of the Company and fairly present the financial position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods shown therein. The Company has not entered into any transactions involving the factoring of receivables, synthetic leases, off balance sheet research and development arrangements or the use of special purpose entities for any off balance sheet activity. Except as set forth in Section 2.6 of the Disclosure Schedule, the Company's revenue recognition policies and the application of those policies are in compliance with applicable standards under generally accepted accounting principles of the United States applied on a consistent basis. Nothing has come to the attention of the Company or the Foxman Stockholders since such respective dates that would indicate that such financial statements are not true and correct in all material respects as of the date thereof. (b) The projections delivered to the Investors at Closing represent good faith estimates of the performance of the Company for the periods stated therein based upon assumptions that were believed in good faith to be reasonable when made and continue to be reasonable as of the date hereof; provided however, that the foregoing is not a guarantee that such projections will be achieved. (c) As of immediately prior to the Closing and prior to giving effect to the transactions contemplated hereby, the Company has at least $20 million in cash and cash equivalents. (d) The Company's net working capital as of the Closing and prior to giving effect to the transactions contemplated hereby is not materially different from the net working capital of the Company as of July 31, 2003 (except as reduced by the Extraordinary Dividend (including any post closing adjustments thereto)). Since the date of the Base Balance Sheet, the Company has paid its accounts payable in the ordinary course of its business and in a manner -8- that is consistent with its past practices. Since the date of the Base Balance Sheet, the Company has collected its accounts receivable in the ordinary course of its business and in a manner that is consistent with past practices and has not accelerated any such collections. 2.7 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any material liabilities or obligations of any nature, whether accrued, absolute, contingent, asserted, unasserted or otherwise, except liabilities or obligations (i) stated or adequately reserved against in the Base Balance Sheet, (ii) incurred as a result of or arising out of the transactions contemplated under this Agreement, or (iii) incurred in the ordinary course of business since the date of the Base Balance Sheet. 2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Since the date of the Base Balance Sheet, the Company has conducted its business only in the ordinary course consistent with past practice and, except with respect to the Extraordinary Dividend or as set forth in Section 2.8 of the Disclosure Schedule, there has not been: (a) any change in the assets, liabilities, condition (financial or other), properties, business or operations of the Company, which change by itself or in conjunction with all other such changes, whether or not arising in the ordinary course of business, has had or could be reasonably likely to have a Material Adverse Effect; (b) any mortgage, lien or other encumbrance placed on any of the properties of the Company, other than purchase money liens and liens for taxes not yet due and payable; (c) any purchase, sale or other disposition, or any agreement or other arrangement for the purchase, sale or other disposition, of any properties or assets by the Company, including any of its Intellectual Property Assets (as defined below), involving the payment or receipt of more than $100,000 other than sales of goods and services by the Company in the ordinary course of business; (d) any damage, destruction or loss, whether or not covered by insurance, that has had or could be reasonably likely to have a Material Adverse Effect; (e) except for the Redemption, any declaration, setting aside or payment of any dividend by the Company, or the making of any other distribution in respect of the capital stock of the Company, or any direct or indirect redemption, purchase or other acquisition by the Company of its own capital stock; (f) any labor trouble or claim of unfair labor practices involving the Company, any change in the compensation payable or to become payable by the Company to any of its officers or employees other than normal merit increases to such employees in accordance with its usual practices, or any bonus payment or arrangement made to or with any of such officers or employees or any establishment or creation of any employment, deferred compensation or severance arrangement or employee benefit plan other than the Stock Option Plan with respect to such persons or the amendment of any of the foregoing; -9- (g) any resignation, termination or removal of any officer of the Company or material loss of personnel of the Company or material change in the terms and conditions of the employment of the Company's officers or key personnel; (h) any payment or discharge of a material lien or liability of the Company that was not shown on the audited balance sheet of the Company as of the date of the Base Balance Sheet or incurred in the ordinary course of business thereafter; (i) any contingent liability incurred by the Company as guarantor or otherwise with respect to the obligations of others or any cancellation of any material debt or claim owing to, or waiver of any material right of, the Company, including any write-off or compromise of any accounts receivable other than write-offs or compromises of accounts receivable that are in the ordinary course of business in amounts consistent with past practice; (j) any obligation or liability incurred by the Company to any of its officers, directors, shareholders or employees, or any loans or advances made by the Company to any of its officers, directors, shareholders or employees, except normal compensation and expense allowances payable to officers or employees in the ordinary course of business; (k) any change in accounting methods or practices, collection policies, pricing policies or payment policies of the Company; (l) any loss, or any known development that could reasonably be expected to result in a loss, of any significant supplier, customer, distributor or account of the Company; (m) any amendment or termination of any material contract or agreement to which the Company is a party or by which it is bound; (n) any arrangements relating to any royalty or similar payment based on the revenues, profits or sales volume of the Company, whether as part of the terms of the Company's capital stock or by any separate agreement; (o) any transaction or agreement involving fixed price terms or fixed volume arrangements; (p) any other transaction entered into by the Company other than transactions in the ordinary course of business; (q) except as provided in this Agreement, any amendment to the Company's articles of incorporation or by-laws; (r) any agreement or understanding whether in writing or otherwise, for the Company to take any of the actions specified in paragraphs (a) through (q) above. 2.9 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE; INVENTORIES. (a) All of the accounts receivable of the Company are valid claims, subject to no set-off or counterclaim, and, to its knowledge, fully collectible in the normal course of -10- business; provided, however, that the foregoing is not a guarantee that such accounts receivable will be fully collected. The reserve for doubtful accounts stated in the Base Balance Sheet is in accordance with generally accepted accounting principles of the United States and is believed in good faith to be reasonable and appropriate. The Company does not have any accounts receivable or loans receivable from any person with whom it is affiliated or any of its directors, officers, employees or shareholders. (b) All accounts payable and notes payable of the Company arose in bona fide arm's length transactions in the ordinary course of business and no such account payable or note payable is delinquent in its payment, except for such account payable or note payable that is subject to a bona fide dispute or payment arrangement. The Company has no account payable to any person with whom it is affiliated or any of its directors, officers, employees or shareholders. (c) The values of the inventories stated in the Base Balance Sheet reflect the normal inventory valuation policies of the Company and were determined in accordance with generally accepted accounting principles of the United States, consistently applied. Any inventory writedowns have been done in the ordinary course of business consistent with the Company's historical inventory practices. Purchase commitments for raw materials and parts are not in excess of normal requirements and none are at prices materially in excess of current market prices. All of the Company's inventory items are of a quality and quantity salable in the ordinary course of its business at profit margins consistent with the Company's experience in prior years, taking into account fluctuations and trends in the market in which its goods and services are sold. Since the date of the Base Balance Sheet, no inventory items have been sold or disposed of except through sales in the ordinary course of business at profit margins consistent with the Company's experience in prior years taking into account fluctuations and trends in the market in which its goods and services are sold, and all sales commitments made for the Company's products are at prices not less than inventory values plus selling expenses and said profit margins. 2.10 TRANSACTIONS WITH AFFILIATES. There are no loans, leases or other agreements or transactions between the Company or any present or former shareholder, director, officer or employee of the Company, or to the knowledge of the Company, any member of such officer's, director's, employee's or stockholder's immediate family, or any person controlled by such officer, director, employee or stockholder or his or her immediate family. No shareholder, director, officer or employee of the Company, or to the knowledge of the Company any of their respective spouses or family members, owns directly or indirectly, on an individual or joint basis, any interest in, or serves as an officer or director or in another similar capacity of, any competitor, customer or supplier of the Company, or any organization which has a material contract or arrangement with the Company. 2.11 PROPERTIES. The Company has good, valid and (if applicable) marketable title to all assets material to its business and to those assets reflected on the Base Balance Sheet or acquired by it after the date thereof (except for properties disposed of since that date in the ordinary course of business), free and clear of Claims, except for liens for Taxes (as hereinafter defined) not yet due and payable, and minor liens and encumbrances that do not materially detract from the value of the property subject thereto or impair the operations of the Company. All equipment included in such properties that is necessary to the business of the Company is in -11- good condition and repair (ordinary wear and tear excepted) and all leases of real or personal property to which the Company is a party are fully effective and afford the Company peaceful and undisturbed possession of the subject matter to the lease. The property and assets of the Company are sufficient for the conduct of its business as presently conducted. 2.12 TAX MATTERS. (a) The Company has timely and properly filed all federal, state, local and foreign tax returns required to be filed by it through the date hereof, and all such tax returns filed by the Company are true, correct and complete in all material respects. The Company has paid or caused to be paid all material federal, state, local, foreign and other taxes, including without limitation, income taxes, estimated taxes, alternative minimum taxes, excise taxes, sales taxes, franchise taxes, employment and payroll related taxes, withholding taxes, transfer taxes, and all deficiencies, or other additions to tax, interest, fines and penalties owed by it (collectively, "TAXES"), required to be paid by it through the date hereof whether disputed or not, except Taxes that have not yet accrued or the payment for which has not otherwise become due. The provisions for payment of any accrued and unpaid Taxes of the Company in the Base Balance Sheet are sufficient as of its date for the payment of any accrued and unpaid Taxes of any nature of the Company, and since the date of the Base Balance Sheet the Company has incurred no Taxes other than in the ordinary course of its business. All Taxes and other assessments and levies that the Company was or is required to withhold or collect have been withheld and collected and have been paid over to the proper governmental authorities. The Company has delivered to the Investors correct and complete copies of all annual tax returns, examination reports, and statements of deficiencies filed by, assessed against, or agreed to by the Company since December 31, 1995. The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax payment, assessment, deficiency or collection. Except as set forth in Section 2.12 of the Disclosure Schedule: (i) the Company has never received notice of any audit or of any proposed deficiencies from the Internal Revenue Service (the "IRS") or any other taxing authority (other than routine audits undertaken in the ordinary course and which have been resolved on or prior to the date hereof); (ii) there are in effect no waivers of applicable statutes of limitations or agreements as to any extension of time with respect to any Tax payment, assessment, deficiency or collection. with respect to any Taxes owed by the Company for any year; (iii) neither the IRS nor any other taxing authority is now asserting or, to the knowledge of the Company, threatening to assert against the Company any deficiency or claim for additional Taxes or interest thereon or penalties in connection therewith; (iv) the Company has never been a member of an affiliated group of corporations filing a combined federal income Tax return nor does the Company have any liability for Taxes of any other Person under Treasury Regulations Section 1.1502-6 (or any similar provision of foreign, state or local law) or otherwise; and (v) the Company has not filed a consent under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "CODE"), concerning collapsible corporations. The Company has never been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company is not a party to any Tax allocation or sharing arrangement. The Company is not a party to any contract, agreement, plan or arrangement covering any employee or former employee thereof, that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant -12- to Section 280G or Section 162 of the Code. The Company is not a "FOREIGN PERSON" within the meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2. (b) The taxable year of the Company for federal and state income tax purposes is the fiscal year ended December 31st. (c) The Company has never been (i) a passive foreign investment company, (ii) a foreign personal holding company, (iii) a foreign sales corporation, (iv) a foreign investment company or (v) a person other than a United States person, each within the meaning of the Code. 2.13 CERTAIN CONTRACTS AND ARRANGEMENTS. Except as set forth in Section 2.13 of the Disclosure Schedule (with true and correct copies of each agreement referred to therein provided to the Investors) or as contemplated by this Agreement, the Company is not a party or subject to or bound by: (a) any contract or agreement involving a potential commitment or payment by the Company in excess of $100,000; (b) any contract, lease or agreement that is not cancelable by the Company without penalty on not less than ninety (90) days notice; (c) any contract containing covenants directly or explicitly limiting in any respect the freedom of the Company to compete in any line of business or with any person or entity; (d) any contract or agreement relating to the licensing, distribution, development, purchase, sale or servicing of its software or hardware products except in the ordinary course of business consistent with past practices or any of its Intellectual Property Assets; (e) any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing or any pledge or security arrangement; (f) any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Company, including, without limitation, any agreement with any shareholder of the Company which includes anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions; (g) any pension, profit sharing, retirement or stock option plans; (h) any royalty, dividend or similar arrangement based on the revenues or profits of the Company or any contract or agreement involving fixed price or fixed volume arrangements; (i) any joint venture, partnership, manufacturer, development or supply agreement or other agreement that involves a sharing of revenues, profits, losses, costs or liabilities by the Company with any other Person; -13- (j) any acquisition, merger or similar agreement; (k) any collective bargaining agreement or other agreement with any labor union or other employee representative of a group of employees; (l) any contract with any governmental or quasi governmental entity; (m) any contract not executed in the ordinary course of business; or (n) any other material contract. All such contracts, agreements, leases and instruments are valid and are in full force and effect and constitute legal, valid and binding obligations of the Company and, to the knowledge of the Company, of the other parties thereto, and are enforceable in accordance with their respective terms, except: (x) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (y) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The Company has no knowledge of any notice or threat to terminate any such contracts, agreements, leases or instruments, which termination could reasonably be expected to have a Material Adverse Effect. Neither the Company nor, to the knowledge of the Company, any other party is in default in complying with any provisions of any such contract, agreement, lease or instrument, or any other contract, agreement, lease or instrument, the breach of which could reasonably be expected to have a Material Adverse Effect, and no condition or event or fact exists which, with notice, lapse of time or both, could constitute a default thereunder on the part of the Company, except for any such default, condition, event or fact that, individually or in the aggregate, that could not reasonably be expected to have a Material Adverse Effect. 2.14 INTELLECTUAL PROPERTY. (a) Section 2.14 of the Disclosure Schedule contains a complete and accurate list of all Patents owned by the Company or otherwise used in the Business ("Company Patents"), Marks owned by the Company or otherwise used in the Business ("Company Marks") and Copyrights owned by the Company or otherwise used in and, in either case, material to the Business ("Company Copyrights"). Except as set forth on Section 2.14 of the Disclosure Schedule: (i) the Company exclusively owns or possesses adequate and enforceable rights to use, without payment to a third party, all of the Intellectual Property Assets necessary for the operation of the Business, free and clear of all mortgages, pledges, charges, liens, equities, security interests, or other encumbrances or similar agreements; (ii) all Company Patents, Company Marks and Company Copyrights that are issued by or registered with, as applicable, the United States Patent and Trademark Office, the United States Copyright Office or in any similar office or agency anywhere in the world are currently in compliance with formal legal requirements -14- (including without limitation, as applicable, payment of filing, examination and maintenance fees, proofs of working or use, timely post-registration filing of affidavits of use and incontestability and renewal applications) and are valid and enforceable; (iii) there are no pending, or, to the Company's knowledge threatened claims against the Company or any of its employees alleging that any of the Company Intellectual Property Assets or the Business, infringes or conflicts with the rights of others under any Intellectual Property Assets ("THIRD PARTY RIGHTS"); (iv) to the Company's knowledge, neither the Business nor any Company Intellectual Property Asset infringes or conflicts with any Third Party Right; (v) the Company has not received any communications alleging that the Company has violated or, by conducting the Business, would violate any Third Party Rights or that any of the Company Intellectual Property Assets is invalid or unenforceable; (vi) no current or former employee or consultant of the Company owns any rights in or to any of the Company Intellectual Property Assets; (vii) the Company is not aware of any violation or infringement by a third party of any of the Company Intellectual Property Assets; (viii) the Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all Trade Secrets used in the Business (the "Company Trade Secrets"), including, without limitation, requiring all Company employees and consultants and all other persons with access to Company Trade Secrets to execute a binding confidentiality agreement, copies or forms of which have been provided to the Investors and, to the Company's knowledge, there has not been any breach by any party to such confidentiality agreements; (ix) (A) the Company has not directly or indirectly granted any rights, licenses or interests in the source code of the Products, and (B) since the Company developed the source code of the Products, the Company has not provided or disclosed the source code of the Products to any person or entity; (x) in the ordinary course of business, the Products perform in accordance with their documented specifications and as Company has warranted to its customers; (xi) in the ordinary course of business, the Products do not contain any "viruses", "time-bombs", "key-locks", or any other devices created that could disrupt or interfere with the operation of the Products or the integrity of the data, information or signals they produce in a manner adverse to the Company or any licensee or recipient; and -15- (xii) the Company has (A) not unlawfully collected any personally identifiable information from any third parties and (B) complied with all applicable regulations relating to the collection, storage and onward transfer of all personally identifiable information collected by the Company or by third parties having authorized access to Company's databases or other records. (b) For purposes of this Agreement, (i) "Business" means the business of the Company as currently conducted and proposed to be conducted. (ii) "Company Intellectual Property Assets" means all Intellectual Property Assets owned by the Company or used in the Business. "Company Intellectual Property Assets" includes, without limitation, the Products, Company Patents, Company Marks, Company Copyrights and Company Trade Secrets. (iii) "Intellectual Property Assets" means: (A) patents, patent applications, patent rights, and inventions and discoveries and invention disclosures (whether or not patented) (collectively, "Patents"); (B) trade names, trade dress, logos, packaging design, slogans, Internet domain names, registered and unregistered trademarks and service marks and related registrations and applications for registration (collectively, "Marks"); (C) copyrights in both published and unpublished works, including without limitation all compilations, databases and computer programs, manuals and other documentation and all copyright registrations and applications, and all derivatives, translations, adaptations and combinations of the above (collectively, "Copyrights"); (D) know-how, trade secrets, confidential or proprietary information, research in progress, algorithms, data, designs, processes, formulae, drawings, schematics, blueprints, flow charts, models, strategies, prototypes, techniques, Beta testing procedures and Beta testing results (collectively, "Trade Secrets"); and (E) goodwill, franchises, licenses, permits, consents, approvals, and claims of infringement against third parties. (iv) "Products" means those computer programs and/or services and related documentation designed, manufactured, marketed, sold and/or distributed by the Company. A complete list of the Products owned by Seller is provided on Schedule 2.16(b)(iv) attached hereto. 2.15 LITIGATION. There is no litigation or governmental or administrative proceeding or investigation pending or, to the knowledge of the Company, threatened against the Company or -16- affecting the properties or assets of the Company, or, as to matters related to the Company, against any officer, director, shareholder or key employee of the Company in their respective capacities in such positions, nor, to the knowledge of the Company, has there occurred any event nor does there exist any condition on the basis of which any such claim may be asserted. Section 2.15 of the Disclosure Schedule includes a description of all litigation, claims, proceedings or, to the Company's knowledge, investigations involving the Company or any of its officers, directors, shareholders or key employees in connection with the business of the Company occurring, arising or existing during the past three (3) years. 2.16 LABOR MATTERS. The Company employs approximately one hundred seventy six (176) full-time and five (5) part-time employees and generally enjoys good employer-employee relationships. The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for the Company as of the date hereof or amounts required to be reimbursed to such employees. The Company is and heretofore has been in compliance in all material respects with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment, occupational safety and health, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work, or any other concerted interference with normal operations existing, pending or, to the knowledge of the Company, threatened against or involving the Company. The Company is, and at all times the Company has been, in compliance in all material respects with the requirements of the Immigration Reform Control Act of 1986. There are no changes pending or, to the knowledge of the Company, threatened with respect to (including, without limitation, the resignation of) the senior management or key supervisory personnel or key independent contractors of the Company nor has the Company received any notice or information concerning any prospective change with respect to such senior management or key supervisory personnel. The Company has never implemented any plant closing or mass layoff of employees as those terms are defined in the Worker Adjustment Retraining and Notification Act of 1988, amended, or any similar state or local law or regulation, and no layoffs that could implicate such laws or regulations are currently contemplated. 2.17 PERMITS; COMPLIANCE WITH LAWS. The Company has all franchises, authorizations, approvals, orders, consents, licenses, certificates, permits, registrations, qualifications or other rights and privileges (collectively "PERMITS") necessary to permit it to own its property and to conduct its business as it is presently conducted or proposed to be conducted and all such Permits are valid and in full force and effect. No Permit is subject to termination as a result of the execution of this Agreement or consummation of the transactions contemplated hereby. The Company is now and has heretofore been in compliance in all material respects with all applicable statutes, ordinances, orders, rules and regulations promulgated by any U.S. federal, state, municipal, non-U.S. or other governmental authority, which apply to the conduct of its business. The Company has never entered into or been subject to any judgment, consent decree, compliance order or administrative order with respect to any aspect of the business, affairs, properties or assets of the Company or received any request for information, notice, demand letter, administrative inquiry or formal or informal complaint or claim from any regulatory agency with respect to any aspect of the business, affairs, properties or assets of the Company. -17- 2.18 EMPLOYEE BENEFIT PROGRAMS. (a) The Company does not maintain or contribute to and for the past five (5) years has not maintained or contributed to, any employee benefit plan within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any material fringe benefit, stock option, equity-based compensation, phantom stock, bonus or incentive plan, severance pay policy or agreement, retirement, pension, profit sharing or deferred compensation plan or agreement, or any similar plan or agreement or any plan or arrangement providing compensation to employees or non-employee directors (an "EMPLOYEE BENEFIT PROGRAM") other than the Employee Benefit Programs identified and described in Section 2.18(a) of the Disclosure Schedule attached hereto. A brief description of each Employee Benefit Program has been provided to the Investors. The terms and operation of each such Employee Benefit Program comply and have heretofore complied in all material respects with all applicable laws and regulations relating to each such Employee Benefit Program. There are no unfunded obligations of the Company under any Employee Benefit Program that have not been accrued unless such accrual is not necessary under generally accepted accounting principles of the United States. The Company is not required to make any payments or contributions to any Employee Benefit Program pursuant to any collective bargaining agreement or, to the knowledge of the Company, any applicable labor relations law, and all Employee Benefit Programs are terminable at the discretion of the Company without liability to the Company upon or following such termination, except for benefits accrued under the terms of such Employee Benefit Programs. Except as described in Section 2.18(a) of the Disclosure Schedule, the Company has never maintained or contributed to any Employee Benefit Program providing or promising any health or other nonpension benefits to employees after their employment terminates other than as required by part 6 of subtitle B of Title I of ERISA. With respect to any Employee Benefit Program, to the knowledge of the Company, there has occurred no "prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of the Code, or breach of any duty under ERISA or other applicable law that could result, directly or indirectly, in any Taxes, penalties or other liability to the Company. No litigation, arbitration or governmental administrative proceeding (or investigation) or other proceeding (other than those relating to routine claims for benefits) is pending or, to the knowledge of the Company, threatened with respect to any such Employee Benefit Program. (b) Each Employee Benefit Program that has been intended to qualify under Section 401(a) or 501(c)(9) of the Code has received a favorable determination or approval letter from the IRS regarding its qualification under such section or the time period for submitting a determination letter request and adopting retroactive amendments under Code Section 401(b) and the corresponding regulations is open as of the Closing Date and, to the Company's Knowledge, each such Employee Benefit Plan has, in fact been qualified under the applicable section of the Code from the effective date of such Employee Benefit Program through and including the Closing Date (or, if earlier, the date that all of such Employee Benefit Program's assets were distributed). Except as set forth in Section 2.18(b) of the Disclosure Schedule, the Company has never maintained any Employee Benefit Program which has been subject to Title IV of ERISA or Code Section 412, including, but not limited to, any "multiemployer plan" (as defined in Section 3(37) or Section 4001(a)(3) of ERISA). Each reference to "Company" in this Section 2.18 also refers to any other entity that is considered a single employer with the -18- Company under ERISA Section 4001(b) or part of the same "Controlled Group" as the Company for purposes of ERISA Section 302(d)(8)(C). The Company's Employee Stock Ownership Plan is not leveraged and is an "employee stock ownership plan" within the meaning of Section 407(d)(6) of ERISA. 2.19 INSURANCE COVERAGE. The Company has in full force and effect general commercial, general liability, product liability, professional liability, specified director's and officer's liability, workers compensation and employee's liability, fire and casualty and such other appropriate insurance policies with coverages customary for similarly situated companies in the same or similar industries and as required by applicable law. Section 2.19 of the Disclosure Schedule contains an accurate listing of the insurance policies currently maintained by the Company. There are currently no claims pending against the Company under any insurance policies currently in effect and covering the property, business or employees of the Company, and all premiums due and payable with respect to the policies maintained by the Company have been paid to date. To the Company's knowledge, there is no threatened termination of any such policies or arrangements. 2.20 INVESTMENT BANKING; BROKERAGE. Except as set forth on Section 2.20 of the Disclosure Schedule, there are no claims for investment banking fees, brokerage commissions, broker's or finder's fees or similar compensation in connection with the transactions contemplated by this Agreement payable by the Company or based on any arrangement or agreement made by or on behalf of the Company. 2.21 ENVIRONMENTAL MATTERS. Except as set forth on Section 2.21 of the Disclosure Schedule, no hazardous waste, substance or material, and no oil, petroleum, petroleum product, asbestos, toxic substance, pollutant or contaminant (collectively, "HAZARDOUS MATERIAL"), has been generated, transported, used, handled, processed, disposed, stored or treated on any real property owned, leased or operated by the Company. Except as set forth on Section 2.21 of the Disclosure Schedule, no Hazardous Material has been spilled, released, discharged, disposed, or transported from any real property owned, leased or operated by the Company, and no Hazardous Material is present in, on, or under any such property. The Company is, and at all times has been, in compliance in all material respects with all applicable environmental, health and safety laws, rules, ordinances, by-laws and regulations, and with all permits, registrations and approvals required under such laws, rules, ordinances, by-laws and regulations (collectively, "ENVIRONMENTAL LAWS"). Except as set forth on Section 2.21 of the Disclosure Schedule, the Company is not aware of any fact or circumstance that could involve the Company in any litigation, or impose upon the Company any liability, arising under any Environmental Laws. 2.22 CUSTOMERS, DISTRIBUTORS AND PARTNERS. Section 2.22 of the Disclosure Schedule sets forth the name of each customer and distributor of the Company who accounted for more than five percent (5%) of the revenues of the Company for each of the fiscal years ended September 30, 2001 and September 30, 2002 and/or for the eleven months ended August 31, 2003 (the "CUSTOMERS" and "DISTRIBUTORS," respectively) together with the names of any persons or entities with which the Company has a material strategic partnership or similar relationship ("PARTNERS"). Since the date of the Base Balance Sheet, no Customer, Distributor or Partner of the Company has canceled or otherwise terminated its relationship with the Company or has materially decreased its usage or purchase of the services or products of the Company. No -19- Customer, Distributor or Partner has, to the knowledge of the Company, any plan or intention to terminate, cancel or otherwise materially and adversely modify its relationship with the Company or to decrease materially or limit its usage, purchase or distribution of the services or products of the Company. 2.23 SUPPLIERS. The Company's relationships with its major suppliers are good commercial working relationships, and, within the last twelve months, no supplier that the Company has paid or is under contract to pay $100,000 or more has canceled, materially modified, or otherwise terminated its relationship with the Company, or materially decreased its services, supplies or materials to the Company, nor to the knowledge of the Company, does any supplier have any plan or intention to do any of the foregoing. 2.24 WARRANTY AND RELATED MATTERS. Section 2.24 of the Disclosure Schedule sets forth a complete list of all outstanding product and service warranties and guarantees on any of the products or services that the Company distributes, services, markets, sells or produces for itself, a customer or a third party (each such product or service shall be referred to herein as a "COMPANY PRODUCT"). There are no existing or, to the knowledge of the Company, threatened, claims against the Company relating to any work performed by the Company, product liability, warranty or other similar claims against the Company alleging that any Company Product is defective or fails to meet any product or service warranties. There are (a) no inherent design defects or systemic or chronic problems in any Company Product other than in connection with Company Products that are in testing or development stages and (b) no liabilities for warranty or other claims or returns with respect to any Company Product relating to any such defects or problems that could reasonably be expected to have a Material Adverse Effect. 2.25 ILLEGAL PAYMENTS. Neither the Company nor, to the Company's knowledge, any Person affiliated with the Company has ever offered, made or received on behalf of the Company any illegal payment or contribution of any kind, directly or indirectly, including, without limitation, payments, gifts or gratuities, to any person, entity, or United States or foreign national, state or local government officials, employees or agents or candidates therefor or other persons. 2.26 SOLVENCY. The Company has not: (a) made a general assignment for the benefit of creditors; (b) filed any voluntary petition in bankruptcy or suffered the filing of any involuntary petition by its creditors; (c) suffered the appointment of a receiver to take possession of all, or substantially all, of its assets; (d) suffered the attachment or other judicial seizure of all, or substantially all, of its assets; (e) admitted in writing its inability to pay its debts as they come due; or (f) made an offer of settlement, extension or composition to its creditors generally. 2.27 PRIVACY OF CUSTOMER INFORMATION. The Company has not used and does not currently use any of the consumer or customer information that it has received or currently receives through its website or otherwise in an unlawful manner. The Company has not collected any customer information through its website or otherwise in an unlawful manner. The Company has commercially reasonable security measures in place to protect the consumer or customer information it receives through its website or otherwise and, which it stores in its computer systems, from illegal use by third parties or use by third parties in a manner violative of the rights of privacy of its customers. -20- 2.28 BACKLOG. The Company has a backlog of purchase orders for the sale of its products and services as set forth in Section 2.28 of the Disclosure Schedule. None of such orders has been cancelled or materially reduced, and each of such orders on backlog is at a price and on terms (including margin) consistent with the Company's past practices and the ordinary course of business. 2.29 HEALTH MATTERS. To the Company's knowledge, each of Leonard Foxman and Ted Foxman is in good health as of the Closing. 2.30 DISCLOSURE. The representations and warranties made or contained in this Agreement, the Disclosure Schedule and exhibits hereto and the certificates and statements executed or delivered in connection herewith, when taken together, do not and shall not contain any untrue statement of a material fact and do not and shall not omit to state a material fact required to be stated herein or therein or necessary in order to make such representations, warranties or other material not misleading in the light of the circumstances in which they were made or delivered. To the knowledge of the Company, there is no material fact directly relating to the assets, liabilities, business, operations or condition (financial or other) of the Company (including any competitive developments other than facts that relate to general economic or industry trends or conditions) that materially adversely affects the same. No officer or director of the Company has been: (a) subject to voluntary or involuntary petition under the federal bankruptcy laws or any state insolvency law or the appointment of a receiver, fiscal agent or similar officer by a court for his or her business or property or that of any partnership of which he or she was a general partner or any corporation or business association of which he or she was an executive officer; (b) convicted in a criminal proceeding or named as a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses) or been otherwise accused of any act of moral turpitude; (c) the subject of any order, judgment, or decree (not subsequently reversed, suspended or vacated) of any court of competent jurisdiction permanently or temporarily enjoining him or her from, or otherwise imposing limits or conditions on his or her ability to engage in any securities, investment advisory, banking, insurance or other type of business or acting as an officer or director of a public company; (d) found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission ("SEC") or the Commodity Futures Trading Commission to have violated any federal or state commodities, securities or unfair trade practices law, which judgment or finding has not been subsequently reversed, suspended, or vacated; or (e) has engaged in other conduct that would be required to be disclosed in a prospectus under Item 401(f) of SEC Regulation S-K. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS In order to induce the Company to enter into this Agreement, each Investor severally but not jointly represents and warrants to the Company the following: 3.1 INVESTMENT STATUS. Each Investor is an "accredited investor," as such term is defined in Rule 501 under the Securities Act of 1933, as amended (the "Securities Act"). Each Investor is purchasing the Securities for its own account, for investment only and not with a view to, or any present intention of, effecting a distribution of such securities or any part thereof except pursuant to a registration or an available exemption under applicable law. Each Investor -21- acknowledges that its respective Securities have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and cannot be disposed of unless they are subsequently registered under the Securities Act and any applicable state laws or an exemption from such registration is available. 3.2 AUTHORITY AND NON-CONTRAVENTION. Each Investor has full right, authority and power under its charter, by-laws or governing partnership agreement, as applicable, to enter into this Agreement and all agreements, documents and instruments executed by such Investor pursuant hereto and to carry out the transactions contemplated hereby and thereby. This Agreement and all agreements, documents and instruments executed by each Investor pursuant hereto are valid and binding obligations of each of the Investors enforceable in accordance with their respective terms, except: (x) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (y) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. The execution, delivery and performance of this Agreement and all agreements, documents and instruments executed by each such Investor pursuant hereto have been duly authorized by all necessary action under each such Investor's charter, by-laws or governing partnership agreement, as applicable. The execution, delivery and performance by each Investor of this Agreement and all agreements, documents and instruments to be executed and delivered by each such Investor pursuant hereto do not and will not: (a) violate or result in a violation of, conflict with or constitute or result in a default (whether after the giving of notice, lapse of time or both) under, accelerate any obligation under, or give rise to a right of termination of, any material contract, agreement, obligation, permit, license or authorization to which each such Investor is a party or by which such Investor or its assets is bound, or any provision of each such Investor's organizational documents; (b) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to each such Investor; or (c) require from each such Investor any notice to, declaration or filing with, or consent or approval of, any governmental authority or other third party (that has not already been obtained). SECTION 4. CLOSING CONDITIONS AND DELIVERIES The obligations of each Investor to purchase and pay for its pro rata portion of the Convertible Preferred Shares shall be subject to the fulfillment by the Company and the Stockholders to the Investors' reasonable satisfaction or waiver on or before the Closing of the following conditions: 4.1 TRANSACTIONS TO OCCUR PRIOR TO CLOSING. Immediately prior to Closing the Company shall have completed the following transactions on terms satisfactory to the Investors: (a) the Company shall have adopted the Articles of Incorporation and the Bylaws, respectively, and such Articles of Incorporation shall have been filed and become effective under the laws of the State of Illinois; and, (b) the Company shall have adopted the Stock Option and Grant Plan; and -22- (c) the Company shall have executed and delivered the Note Purchase Agreement, issued the Subordinated Notes to the Lenders and received $30,000,000 in proceeds. 4.2 AUTHORIZATION. The Board of Directors and shareholders of the Company shall have duly adopted resolutions in the form reasonably satisfactory to the Investors and shall have taken all action necessary for the purpose of authorizing the Company to consummate all of the transactions contemplated hereby (including, without limitation, (a) the issuance of the Convertible Preferred Shares and, upon conversion thereof the Conversion Shares, (b) the issuance of the Convertible Subordinated Notes and the Warrants and the Common Stock issuable upon exercise thereon, and (c) approving such purchases by the Investors for purposes of Section 16 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and Rule 16b-3 thereunder). 4.3 APPROVALS, CONSENTS AND WAIVERS. The Company and the Stockholders shall have made all filings with and notifications of governmental authorities, regulatory agencies and other entities required to be made by such parties in connection with the execution and delivery of this Agreement, the performance of the transactions contemplated hereby and the continued operation of the business of the Company subsequent to the Closing and the Investors shall have received copies of all authorizations, waivers, consents and permits, in form and substance reasonably satisfactory to the Investors, including any and all notices, consents and waivers required from all third parties, including, without limitation, applicable governmental authorities, regulatory agencies, lessors, lenders and contract parties, required to permit the continuation of the business of the Company and the consummation of the transactions contemplated by this Agreement and to avoid a breach, default, termination, acceleration or modification of any indenture, loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award as a result of, or in connection with, the execution and performance of this Agreement. 4.4 DELIVERIES BY THE COMPANY AND THE STOCKHOLDERS TO THE INVESTORS. At the Closing, the Company and the Stockholders, as the case may be, shall have delivered, or shall have caused to be delivered, to the Investors, all in form and substance satisfactory to the Investors, the following: (a) the Stockholders' Agreement executed by the Company and the shareholders of the Company named therein; (b) the Registration Rights Agreement executed by the Company; (c) a Management Rights Letter in the form attached as Exhibit I; (d) a Non-competition Agreement in the form attached as Exhibit J executed by the Company, the Investors, and each of Leonard Foxman and the Foxman Family LLC; (e) an Employment Agreement in the form attached as Exhibit K (an "EMPLOYMENT AGREEMENT") executed by the Company and each of Theodore Foxman, Leonard Foxman, Jack Weimer, Steve Dollens and Derek Abramovitch; -23- (f) Certificates issued by (i) the Secretary of State of the State of Illinois certifying that the Company has legal existence and is in good standing; and (ii) the Secretary of State (or similar authority) of each jurisdiction in which the Company has qualified to do business as a foreign corporation (or is required to be so qualified) as to such foreign qualification; (g) A certificate issued by the Secretary of State of the State of Illinois certifying that the Articles of Incorporation have been filed and are effective; (h) A certificate executed by the Secretary of the Company certifying (i) the names of the officers of the Company authorized to sign this Agreement and the other agreements, documents and instruments executed by the Company pursuant hereto, together with the true signatures of such officers; (ii) copies of consent actions taken by the Board of Directors and shareholders of the Company authorizing the appropriate officers of the Company to execute and deliver this Agreement and all agreements, documents and instruments executed by the Company pursuant hereto, and to consummate the transactions contemplated hereby and thereby, including, without limitation: (A) the adoption of the Articles of Incorporation and Bylaws; (B) the issuance of the Convertible Preferred Shares; (C) upon conversion of the Convertible Preferred Shares, the issuance of the Common Conversion Shares; and (iii) the effectiveness, and setting forth a copy of, the Articles of Incorporation; (i) An opinion of Katten Muchin Zavis Rosenman, dated as of the Closing Date, substantially in the form attached hereto as Exhibit L; (j) Stock certificates evidencing the Convertible Preferred Shares acquired from the Company hereunder; (k) the Note Purchase Agreement and the Convertible Subordinated Notes each executed by the Company in favor of the Lenders, respectively; (l) Director Indemnification Agreements executed by the Company in favor of Michael C. Child, Jameson J. McJunkin, Leonard Foxman, and Theodore Foxman, substantially in the form attached hereto as Exhibit M; and (m) Such other supporting documents and certificates as the Investors may reasonably request or as may be required pursuant to this Agreement including, but not limited to: (i) evidence of the full release of that certain lien on all of the assets of the Company held by American National Bank and Trust Company of Chicago ("ANB"); (ii) evidence of the termination of those certain Incentive Bonus/Stock Option/Restriction/Non-Compete Agreements by and among the Company, Leonard Foxman and Jack Weimer or Steve Dollens, as applicable; -24- (iii) evidence of the amendment of that certain assignment agreement between the Company and Eagle Test Systems, YH; (iv) evidence of the consent to the transactions contemplated hereby of ANB, the landlord with respect to the property located at 5020 South Ash Avenue, Tempe, AZ and the landlord with respect to the property located at 620 Butterfield Road, Mundelein, Illinois; and (v) evidence of the termination of that certain Service Agreement between the Company and Pacific Support Group Partners. 4.5 CLOSING DELIVERIES BY THE INVESTORS TO THE COMPANY. At the Closing, the Investors shall deliver, or shall have caused to be delivered, to the Company, the following: (a) A wire transfer of immediately available funds by the Investors to the Company in respect of the purchase price for the Convertible Preferred Shares in the aggregate amount of $65,000,000; (b) The Stockholders' Agreement executed by each of the Investors; (c) The Registration Rights Agreement executed by each of the Investors; and (d) Such other supporting documents and certificates as the Company may reasonably request and as may be required pursuant to this Agreement. 4.6 CLOSING DELIVERIES BY THE STOCKHOLDERS TO THE COMPANY. At the Closing, the Stockholders shall deliver, or shall have caused to be delivered, to the Company, the stock certificates evidencing the shares of Common Stock being redeemed by the Company in the Redemption duly endorsed in blank or accompanied by stock powers duly executed in blank. 4.7 ALL PROCEEDINGS SATISFACTORY. All corporate and other proceedings of the Company taken prior to or at the Closing in connection with the transactions contemplated by this Agreement, and all documents and evidences incident thereto, shall be reasonably satisfactory in form and substance to the Investors. 4.8 NO LITIGATION. No action or proceeding by or before any court, administrative body or governmental agency shall have been instituted or threatened which seeks to enjoin, restrain or prohibit, or might result in damages in respect of, this Agreement or consummation of the transactions contemplated by this Agreement. No law or regulation shall be in effect and no court order shall have been entered in any action or proceeding instituted by any party that enjoins, restrains or prohibits this Agreement or the complete consummation of the transactions contemplated in this Agreement. 4.9 NO VIOLATION OR INJUNCTION. The consummation of the transactions contemplated by this Agreement shall not be in violation of any law or regulation, and shall not be subject to any injunction, stay or restraining order. -25- SECTION 5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; TRANSACTION RELATED INDEMNIFICATION 5.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) All representations, warranties, covenants, and agreements of the Company, the Stockholders and the Investors made in this Agreement, in the Disclosure Schedule delivered to the Investors and all agreements, documents and instruments executed and delivered in connection herewith (i) are material, shall be deemed to have been relied upon by the party or parties to whom they are made, and shall survive the Closing regardless of any investigation on the part of such party or its representatives, with all parties hereto reserving their respective rights hereunder and (ii) shall bind the parties' successors and assigns (including, without limitation, any successor to the Company by way of acquisition, merger or otherwise), whether so expressed or not, and, except as otherwise provided in this Agreement, all such representations, warranties, covenants and agreements shall inure to the benefit of the parties (subject to Section 6.11 below) and their respective successors and assigns and to their transferees of Securities, whether so expressed or not. (b) The representations and warranties contained in Section 2 hereof shall expire and terminate and be of no further force and effect after the date which is sixty (60) days following the Investors' receipt of the Company's audited financial statements as of and for the fiscal year ending September 30, 2004, except that any written claim for breach thereof made prior to such expiration date and delivered to the party against whom such indemnification is sought shall survive thereafter and, as to any such claim, such applicable expiration will not effect the rights to indemnification of the party making such claim; provided, however, that any such written claim by the Investors with respect to a breach of the representations and warranties of the Stockholders or the Company may (i) with respect to a breach of the representations or warranties contained in Section 2.1, Section 2.2, Section 2.4 or with respect to fraud or intentional misrepresentation by the Company or the Stockholders, be given at any time and (ii) with respect to a breach of the representations or warranties contained in Section 2.12 and Section 2.20 and the items set forth in Sections 5.2(a)(ii)-(iv) be given at any time prior to the expiration of the applicable statute of limitations. 5.2 TRANSACTION RELATED INDEMNIFICATION. (a) Each of the Stockholders acknowledges and agrees that the Investors have relied on the representations, warranties, covenants and other agreements of the Stockholders and the Company contained herein in connection with their acquisition of the Convertible Preferred Stock and willingness to provide the Company with the proceeds required to consummate the Redemption. Accordingly, the Stockholders severally and not jointly, on his, her or its own behalf and on behalf of his, her or its successors, executors, administrators, estate, heirs and assigns (collectively, for the purposes of this Section 5.2, the "STOCKHOLDER PARTIES", and each individually, a "STOCKHOLDER PARTY") (or, at the sole option of the Investors with respect to any matter subject to indemnification under this Section 5.2, the Company) agree (on a pro-rata basis based on the relative proceeds received by each such Stockholder in the Redemption), to defend, indemnify and hold the Investors, their respective affiliates and direct and indirect partners -26- (including partners of partners and stockholders and members of partners), members, stockholders, directors, officers, employees and agents and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, (collectively, the "INVESTOR PARTIES" and, individually, an "INVESTOR PARTY") harmless from and against any and all damages, liabilities, losses, claims, diminution in value, obligations, liens, assessments, judgments, Taxes, fines, penalties, reasonable costs and expenses (including, without limitation, reasonable fees of a single counsel representing the Investor Parties), as the same are incurred, of any kind or nature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing and consequential damages) ("LOSSES") that may be sustained or suffered by any such Investor Party based upon, arising out of, or by reason of (i) any breach of any representation or warranty made by the Company or such Stockholders, as applicable, in Section 2 of this Agreement; (ii) the generation, transport, use, handling, processing, disposal, storage, release or treatment of the substance 1, 1, 1 trichloroethylene (TCE) ("TCE") at the property located at 1353 Armour Boulevard, Mundelein, Illinois; (iii) any settlement, judgment or other payment by the Company or any of its subsidiaries in excess of $250,000 with respect to the Company's dispute with Schmidt Scientific Pte Ltd. ("Schmidt") in connection with services performed by Schmidt for the Company, or (iv) any trademark infringement claims by White Eagle Systems Technology, Inc. (or its successors or assigns) with respect to the use by the Company of the name "Eagle Test Systems" or a derivative thereof. (b) The Investor Parties jointly and severally agree to defend, indemnify and hold the Stockholder Parties harmless from and against any and all Losses that may be sustained or suffered by any such Stockholder Party based upon, arising out of, or by reason of any breach of any representation or warranty made by the Investors in Section 3 of this Agreement. 5.3 LIMITATIONS ON TRANSACTION RELATED INDEMNIFICATION. Notwithstanding anything in Section 5.2 to the contrary, (a) the Stockholder Indemnifying Parties shall not be obligated to provide indemnification for Losses in respect of claims made by any Investor Party for indemnification under Section 5.2 above unless the total of all Losses in respect of claims made by the Investor Parties for indemnification shall exceed $750,000 (the "DEDUCTIBLE") in the aggregate, whereupon the total amount of such Losses in excess of the Deductible shall be recoverable by the Investor Parties in accordance with the terms hereof, and (b) the maximum amount payable by the Stockholder Parties to all Investor Parties for Losses in respect of claims made by the Investor Parties for indemnification under Section 5.2 shall not exceed $35,000,000; provided, however, that the Investor Parties shall not be subject to any limitation pursuant to this Section 5.3 or otherwise, and shall be entitled to recovery from a Stockholder Party (or, at the sole option of the Investors with respect to any matter subject to indemnification under Section 5.2, from the Company for all Losses) for Losses in connection with (i) fraud or intentional misrepresentation by the Stockholders or the Company, (ii) the breach by the Company or the Stockholders of any of the representations or warranties contained in Section 2.1, Section 2.2, Section 2.4, Section 2.6(c) and (d), Section 2.8, Section 2.12, or Section 2.20; (iii) the generation, transport, use, handling, processing, disposal, storage, release or treatment of TCE at the property located at 1353 Armour Boulevard, Mundelein, Illinois; (iii) any settlement, judgment or other payment by the Company or any of its subsidiaries in excess of $250,000 with respect to the Company's dispute with Schmidt in connection with services performed by -27- Schmidt for the Company, or (iv) any trademark infringement claims by White Eagle Systems Technology, Inc. (or its successors or assigns) with respect to the use by the Company of the name "Eagle Test Systems" or a derivative thereof. 5.4 NOTICE; PAYMENT OF LOSSES; DEFENSE OF THIRD-PARTY CLAIMS. (a) An Indemnified Party (as defined below) shall give written notice of a claim for indemnification under Section 5.2 to an Indemnifying Party (as defined below) promptly after receipt of any written claim by any third party and in any event not later than twenty (20) business days after receipt of any such written claim (or not later than ten (10) business days after the receipt of any such written claim in the event such written claim is in the form of a formal complaint filed with a court of competent jurisdiction and served on the Indemnified Party), specifying in reasonable detail the amount, nature and source of the claim, and including therewith copies of any notices or other documents received from third parties with respect to such claim; provided, however, that failure to give such notice shall not limit the right of an Indemnified Party to recover indemnity or reimbursement except to the extent that the Indemnifying Party suffers any material prejudice or material harm with respect to such claim as a result of such failure. The Indemnified Party shall also provide the Indemnifying Party with such further information concerning any such claims as the Indemnifying Party may reasonably request by written notice. (b) Within five (5) business days after receiving notice of a claim for indemnification or reimbursement, the Indemnifying Party shall, by written notice to the Indemnified Party, either (i) concede or deny liability for the claim in whole or in part, or (ii) in the case of a claim asserted by a third party, advise that the matters set forth in the notice are, or will be, subject to contest or legal proceedings not yet finally resolved. If the Indemnifying Party concedes liability in whole or in part, it shall, within twenty (20) business days of such concession, pay the amount of the claim to the Indemnified Party to the extent of the liability conceded. Any such payment shall be made in immediately available funds equal to the amount of such claim so payable. If the Indemnifying Party denies liability in whole or in part or advises that the matters set forth in the notice are, or will be, subject to contest or legal proceedings not yet finally resolved, then the Indemnifying Party shall make no payment (except for the amount of any conceded liability payable as set forth above) until the matter is resolved in accordance with this Agreement. (c) In the case of any third party claim, if within five (5) business days after receiving the notice described in the preceding paragraph (a), the Indemnifying Party gives written notice to the Indemnified Party stating that the Indemnifying Party would be liable under the provisions hereof for indemnity in the amount of such claim if such claim were valid and that the Indemnifying Party disputes and intends to defend against such claim, liability or expense at the Indemnifying Party's own cost and expense, then counsel for the defense shall be selected by the Indemnifying Party (subject to the consent of such Indemnified Party which consent shall not be unreasonably withheld) and such Indemnifying Party shall not be required to make any payment to the Indemnified Party with respect to such claim, liability or expense as long as the Indemnifying Party is conducting a good faith and diligent defense at its own expense; provided, however, that the assumption of defense of any such matters by the Indemnifying Party shall relate solely to the claim, liability or expense that is subject or potentially subject to -28- indemnification. If the Indemnifying Party assumes such defense in accordance with the preceding sentence, it shall have the right, with the consent of such Indemnified Party, which consent shall not be unreasonably withheld, to settle all indemnifiable matters related to claims by third parties which are susceptible to being settled provided the Indemnifying Party's obligation to indemnify such Indemnified Party therefor will be fully satisfied only by payment of money by the Indemnifying Party pursuant to a settlement which includes a complete release of such Indemnified Party. The Indemnifying Party shall keep such Indemnified Party apprised of the status of the claim, liability or expense and any resulting suit, proceeding or enforcement action, shall furnish such Indemnified Party with all documents and information that such Indemnified Party shall reasonably request and shall consult with such Indemnified Party prior to acting on major matters, including settlement discussions. Notwithstanding anything herein stated, such Indemnified Party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however, if the named parties to the action or proceeding include both the Indemnifying Party and the Indemnified Party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the reasonable expense of separate counsel for such Indemnified Party shall be paid by the Indemnifying Party provided that such Indemnifying Party shall be obligated to pay for only one counsel for the Indemnified Party in any jurisdiction. If no such notice of intent to dispute and defend is given by the Indemnifying Party, or if such diligent good faith defense is not being or ceases to be conducted, such Indemnified Party may undertake the defense of (with counsel selected by such Indemnified Party), and shall have the right to compromise or settle, such claim, liability or expense (exercising reasonable business judgment) with the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. If such claim, liability or expense is one that by its nature cannot be defended solely by the Indemnifying Party, then such Indemnified Party shall make available all information and assistance that the Indemnifying Party may reasonably request and shall cooperate with the Indemnifying Party in such defense. For purposes of this Section 5.4 "Indemnifying Party" shall refer to the Stockholder Party for indemnification under Section 5.1(a) and the Investor Party for indemnification under Section 5.2(b). "Indemnified Party" shall refer to the Investor Party for indemnification under Section 5.2(a) and the Stockholder Party for indemnification under Section 5.2(b). 5.5 LIMITATION ON CONTRIBUTION AND CERTAIN OTHER RIGHTS. The Company and the Stockholders hereby agree that if, following the Closing, any claim is made by any Stockholder, or otherwise becomes due from any Stockholder, pursuant to Section 5.2 in respect of any Losses (a "LOSS PAYMENT"), such Stockholders shall have no rights against the Company, or any director, officer or employee thereof (in their capacity as such), whether by reason of contribution, indemnification, subrogation or otherwise, in respect of any such Loss Payment, and shall not take any action against the Company or any such person with respect thereto; provided, however, that the foregoing limitation shall not apply to any claim against the Company's directors, officers or employees for fraud. -29- SECTION 6. GENERAL 6.1 WAIVERS AND CONSENTS; AMENDMENTS. (a) For the purposes of this Agreement and all agreements, documents and instruments executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof. No covenant or provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision as contemplated herein. (b) No amendment to this Agreement may be made without the written consent of the Company and holders of a majority in interest of the outstanding Securities (a "MAJORITY INTEREST"); provided that no amendment may be made to Sections 1.3, 2, 4.6, or 5 hereof or this Section 6.1(b) without the written consent of the holders of a majority in interest of the outstanding Common Stock held by the Stockholders; and provided further that no amendment that by its terms disproportionately and adversely affects any party hereto to may be made without the written consent of that party. (c) Any actions required to be taken with respect to consents, approvals or waivers required or contemplated to be given by the Investors hereunder shall require a vote of Investors holding a Majority Interest, and any such action by such Majority Interest shall bind all of the Investors. 6.2 LEGEND ON SECURITIES. The Company and the Investors acknowledge and agree that the following legend shall be typed on each certificate evidencing any of the securities issued hereunder held at any time by the Investors: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. 6.3 GOVERNING LAW. This Agreement shall be deemed to be a contract made under, and shall be construed in accordance with, the laws of Illinois, without giving effect to conflict of laws principles thereof. 6.4 SECTION HEADINGS; CONSTRUCTION. The descriptive headings in this Agreement have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter, and vice versa, as the context may require. The parties have participated jointly in the negotiation and -30- drafting of this Agreement and the other agreements, documents and instruments executed and delivered in connection herewith with counsel sophisticated in investment transactions. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the agreements, documents and instruments executed and delivered in connection herewith shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement and the agreements, documents and instruments executed and delivered in connection herewith. 6.5 COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document. 6.6 NOTICES AND DEMANDS. Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered in writing by hand, telecopy, telex or other method of facsimile, or five (5) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two (2) days after being sent by overnight delivery providing receipt of delivery, to the following addresses: if to the Company or the Stockholders, Eagle Test Systems, 620 S. Butterfield Road, Mundelein, IL 60060-4483, Attention: Len Foxman and Ted Foxman, Facsimile: (847) 367-8640, or at any other address designated by the Company, to the Investors and the other parties hereto in writing; if to the Investors, TA Associates, Inc., 125 High Street, Suite 2500, Boston, MA 02110, Attention Michael C. Child and Jameson J. McJunkin, Facsimile: (617) 574-6728, or at any other address designated by the Investors to the Company in writing. 6.7 DISPUTE RESOLUTION (a) All disputes, claims, or controversies arising out of or relating to (i) this Agreement, the Stockholders' Agreement, the Registration Rights Agreement, or any other agreement executed and delivered pursuant to this Agreement or the negotiation, breach, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, (ii) the rights of the Investors and their successors and the obligations of the Company set forth in the Articles of Incorporation or (iii) the Investors' ongoing investment in the Company, that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration to be conducted before J.A.M.S./Endispute, Inc. in Chicago, Illinois before a single arbitrator (the "ARBITRATOR"). The parties understand and agree that this arbitration shall apply equally to claims of fraud or fraud in the inducement. (b) The parties covenant and agree that the arbitration shall commence within one hundred and eighty (180) days of the date on which a written demand for arbitration is filed by any party hereto (the "FILING DATE"). In connection with the arbitration proceeding, the Arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the Arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the Arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than seven (7) business days before the date of the -31- arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party's witnesses or experts. The Arbitrator's decision and award shall be made and delivered within two hundred and forty (240) days of the Filing Date. The Arbitrator's decision shall set forth a reasoned basis for any award of damages or finding of liability. The Arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages. (c) The parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided in Section 5.2 of this Agreement, (i) bear their own attorneys' fees, costs and expenses in connection with the arbitration, and (ii) share equally in the fees and expenses charged by the Arbitrator. Any party unsuccessfully refusing to comply with an order of the Arbitrators shall be liable for costs and expenses, including attorneys' fees, incurred by the other party in enforcing the award. This Section 6.7 applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce its rights under any non-competition covenants. 6.8 CONSENT TO JURISDICTION. Except as provided in Section 6.7(c) and 6.9, each of the parties hereto irrevocably and unconditionally consents to the jurisdiction of J.A.M.S./Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to (i) this Agreement, the Stockholders' Agreement, the Registration Rights Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, breach, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, (ii) the rights of the Investors and their successors and the obligations of the Company set forth in the Articles of Incorporation or (iii) the Investors' ongoing investment in the Company, and further consents to the sole and exclusive jurisdiction of the courts of Illinois and California for the purposes of enforcing the arbitration provisions of Section 6.7 of this Agreement. Each party further irrevocably waives any objection to proceeding before the Arbitrator based upon lack of personal jurisdiction or to the laying of venue and further irrevocably and unconditionally waives and agrees not to make a claim in any court that arbitration before the Arbitrator has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 6.9 REMEDIES; SEVERABILITY. Notwithstanding Sections 6.7 and 6.8 above, it is specifically understood and agreed that any breach of the provisions of this Agreement, the Stockholders' Agreement, the Registration Rights Agreement, or any other agreement executed and delivered pursuant to this Agreement, or of the provisions of the Articles of Incorporation, by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for specific performance (to the extent permitted by law). Whenever possible, each -32- provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement. 6.10 INTEGRATION. This Agreement, including the exhibits, documents and instruments referred to herein or therein constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, including, without limitation, the provisions of the letter of intent between the parties hereto in respect of the transactions contemplated herein, which provisions of the letter of intent shall be completely superseded by the representations, warranties, covenants and agreements of the Company contained herein. 6.11 ASSIGNABILITY; BINDING AGREEMENT. Each Investor may assign any or all of its rights hereunder to any transferee of its shares. This Agreement may not otherwise be assigned by any party hereto without the prior written consent of each other party hereto. This Agreement (including, without limitation, the provisions of Section 5) shall be binding upon and enforceable by, and shall inure to the benefit of, the parties hereto and their respective successors, heirs, executors, administrators and permitted assigns, and no others. Notwithstanding the foregoing and except as provided in Section 5.3 hereof, nothing in this Agreement is intended to give any Person not named herein the benefit of any legal or equitable right, remedy or claim under this Agreement, except as expressly provided herein. 6.12 RELEASE. (a) For and in consideration of the amount to be paid to each Stockholder under this Agreement, and the additional covenants and promises set forth in this Agreement, each Stockholder, on behalf of itself and its assigns, heirs, beneficiaries, creditors, representatives, agents and affiliates (the "Releasing Parties"), hereby fully, finally and irrevocably releases, acquits and forever discharges the Company, and each of the Investors, and the officers, directors, partners, general partners, limited partners, managing directors, members, stockholders, trustees, shareholders, representatives, employees, principals, agents, Affiliates, parents, subsidiaries, joint ventures, predecessors, successors, assigns, beneficiaries, heirs, executors, personal or legal representatives, insurers and attorneys of any of them, including without limitation Michael C. Child and Jameson J. McJunkin (collectively, the "Released Parties") from any and all commitments, actions, debts, claims, counterclaims, suits, causes of action, damages, demands, liabilities, obligations, costs, expenses, and compensation of every kind and nature whatsoever, at law or in equity, whether known or unknown, contingent or otherwise, that such Releasing Parties, or any of them, had, has, or may have had at any time in the past until and including the date of this Agreement based on events or occurrences through the date of this Agreement against the Released Parties, or any of them, including but not limited to any claims that relate to or arise out of such Releasing Party's prior relationship with the Company or its rights or status as a shareholder, officer or director of the Company (collectively, for the purposes of this Section 6.12, "Causes of Action"). In executing this Agreement, each Stockholder acknowledges that it has been informed that the Company and/or its Subsidiaries may from time to time enter into agreements for additional types of financing, including without -33- limitation recapitalizations, mergers and initial public offerings of capital stock of the Company and/or its Subsidiaries, and also may pursue acquisitions or enter into agreements for the sale of the Company and/or its Subsidiaries or all or a portion of the Company's or its Subsidiaries' assets, which may result in or reflect an increase in equity value or enterprise value. (b) Each Stockholder hereby represents to the Released Parties that such Stockholder (i) has not assigned any Causes of Action or possible Causes of Action against any Released Party, (ii) fully intends to release all Causes of Action against the Released Parties including, without limitation, unknown and contingent Causes of Action (other than those specifically reserved above), and (iii) has consulted with counsel with respect to the execution and delivery of this general release and has been fully apprised of the consequences hereof. Furthermore, each Stockholder further agrees not to institute any litigation, lawsuit, claim or action against any Released Party with respect to the released Causes of Action. (c) Each Stockholder hereby represents and warrants that it has access to adequate information regarding the terms of this Agreement, the scope and effect of the releases set forth herein, and all other matters encompassed by this Agreement to make an informed and knowledgeable decision with regard to entering into this Agreement. The Stockholder further represents and warrants that it has not relied upon the Company, the Investors or the Released Parties in deciding to enter into this Agreement and has instead made its own independent analysis and decision to enter into this Agreement. 6.13 CONFIDENTIALITY. Notwithstanding anything herein or any other express or implied agreement, arrangement or understanding to the contrary, the parties acknowledge and agree that (i) any obligations of confidentiality contained herein and therein do not apply and have not applied from the commencement of discussions between the parties to the tax treatment and tax structure of the transactions contemplated by this Agreement (and any related transactions or agreements) and (ii) each party to this Agreement (and each of its employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure. This authorization to disclose the tax treatment and tax structure is limited to the extent that confidentiality is required to comply with any applicable securities laws. 6.14 EXPENSES. The Company and the Stockholders shall each be responsible for fifty percent (50%) of all (i) broker and banker fees incurred by the Stockholders and the Company in connection with transactions contemplated by this Agreement and (ii) the reasonable costs and expenses (including, but not limited to, accounting and legal fees and disbursements and other out of pocket expenses) incurred by the Investors, the Stockholders and the Company in connection with the preparation, negotiation, execution and delivery of this Agreement, all other transaction documents contemplated hereby, and the transactions contemplated hereby and thereby. 6.15 CERTAIN DEFINITIONS. For purposes of this Agreement, the term: -34- (a) "AFFILIATE" of a Person shall mean (i) with respect to a Person, any member of such Person's family (including any child, step-child, parent, step-parent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law); (ii) with respect to an entity, any officer, director, stockholder, partner or investor in such entity or of or in any affiliate of such entity; and (iii) with respect to a Person or entity, any Person or entity which directly or indirectly controls, is controlled by, or is under common control with such Person or entity; (b) "CONTROL" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, or as trustee or executor, of the power to direct or cause the direction of the management policies of a Person, whether through the ownership of stock, as trustee or executor, by contract or credit arrangement or otherwise; (c) "PERSON" means an individual, corporation, partnership, association, trust, any unincorporated organization or any other entity; and (d) "SUBSIDIARY" of a Person means any corporation more than fifty (50%) percent of whose outstanding voting securities, or any partnership, limited liability company joint venture or other entity more than fifty percent (50%) of whose total equity interest, is directly or indirectly owned by such Person. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -35- IN WITNESS WHEREOF, the parties have executed this Agreement or have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. THE COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ------------------------------ Name: Leonard Foxman Title: President [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] LEONARD FOXMAN By: /s/ Leonard Foxman ------------------------------ Leonard Foxman FOXMAN FAMILY, LLC By: /s/ Leonard Foxman ------------------------------ Leonard Foxman Its: Manager EAGLE TEST SYSTEMS, INC. EMPLOYEE STOCK OWNERSHIP PLAN By: /s/ Leonard Foxman ------------------------------ Leonard Foxman, not in his individual capacity or in his capacity as shareholder, director or officer of the Corporation, but solely as trustee of the Eagle Test Systems Employee Stock Ownership Plan JACK WEIMER By: /s/ Jack Weimer ------------------------------ Jack Weimer STEVE DOLLENS By: /s/ Steve Dollens ------------------------------ Steve Dollens INVESTORS: TA IX L.P. By: TA Associates IX LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child -------------------------------------- Name: Michael C. Child Its: Managing Director TA/ATLANTIC AND PACIFIC IV L.P. By: TA Associates AP IV L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child -------------------------------------- Name: Michael C. Child Its: Managing Director TA STRATEGIC PARTNERS FUND A L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child -------------------------------------- Name: Michael C. Child Its: Managing Director TA STRATEGIC PARTNERS FUND B L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child -------------------------------------- Name: Michael C. Child Its: Managing Director TA INVESTORS LLC By: TA Associates, Inc., its Manager By: /s/ Michael C. Child -------------------------------------- Name: Michael C. Child Its: Managing Director TA SUBORDINATED DEBT FUND, L.P. By: TA Associates SDF LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child -------------------------------------- Name: Michael C. Child Its: Managing Director EX-10.7 7 c86449exv10w7.txt STOCKHOLDERS AGREEMENT EXHIBIT 10.7 EXECUTION COPY STOCKHOLDERS AGREEMENT By And Among Eagle Test Systems, Inc., The Existing Stockholders as defined herein and The Investors as defined herein Dated as of September 30, 2003 TABLE OF CONTENTS
Page ---- SECTION I. DEFINITIONS...................................................................... 2 1.1. Construction of Terms..................................................... 2 1.2. Terms Not Defined......................................................... 2 1.3. Number of Shares of Stock................................................. 2 1.4. Defined Terms............................................................. 2 SECTION II. REPRESENTATIONS AND WARRANTIES.................................................. 4 2.1. Representations and Warranties of the Stockholders........................ 4 SECTION III. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL; CO-SALE PROVISIONS........... 5 3.1. Restrictions on Transfer.................................................. 5 3.2. Permitted Transfers....................................................... 5 3.3. Right of First Refusal.................................................... 6 3.4. Co-Sale Option of Investors............................................... 7 3.5. Contemporaneous Transfers................................................. 9 3.6. Effect of Prohibited Transfers............................................ 9 SECTION IV. RIGHTS AND OBLIGATIONS TO SELL.................................................. 10 4.1. Drag-Along Rights......................................................... 10 4.2. Procedure................................................................. 10 4.3. Bring-Along Rights........................................................ 10 SECTION V. RIGHTS TO PURCHASE............................................................... 10 5.1. Right to Participate in Certain Sales of Additional Securities............ 10 5.2. Eligible Stockholder Acceptance........................................... 11 5.3. Calculation of Pro Rata Allotment......................................... 11 5.4. Sale to Third Party....................................................... 11 5.5. Exceptions to Pre-Emptive Rights.......................................... 11 5.6. Assignment of Rights...................................................... 12 SECTION VI. ELECTION OF DIRECTORS........................................................... 12 6.1. Board Composition......................................................... 12 6.2. Assignment................................................................ 13 SECTION VII. COVENANTS OF THE COMPANY AND STOCKHOLDERS...................................... 13 7.1. Financial Statements, Reports, Etc........................................ 13 7.2. Corporate Existence....................................................... 14 7.3. Properties, Business Insurance............................................ 14 7.4. Key Person Insurance...................................................... 14 7.5. Directors and Officers' Insurance......................................... 14 7.6. Inspection, Consultation and Advice....................................... 14 7.7. Compensation of Investor Nominees......................................... 15
7.8. By-laws................................................................... 15 7.9. Employee Agreements....................................................... 15 7.10. Compliance with Laws, Payment of Taxes.................................... 15 7.11. Keeping of Records and Books of Account................................... 15 7.12. Indemnification........................................................... 16 7.13. Term...................................................................... 17 SECTION VIII. MISCELLANEOUS PROVISIONS...................................................... 17 8.1. Reliance.................................................................. 17 8.2. Legend on Securities...................................................... 17 8.3. Amendment and Waiver; Actions of the Board................................ 17 8.4. Notices................................................................... 18 8.5. Headings.................................................................. 18 8.6. Counterparts.............................................................. 18 8.7. Entire Agreement.......................................................... 18 8.8. Law Governing............................................................. 19 8.9. Successors and Assigns.................................................... 19 8.10. Dispute Resolution........................................................ 19 8.11. Remedies; Severability.................................................... 19 8.12. Termination............................................................... 19 8.13. Confidentiality........................................................... 19

EXHIBITS Exhibit A - Form of Joinder Agreement Exhibit B - Form of Employee Nondisclosure, Noncompetition and Assignment Agreement SCHEDULES Schedule A - Existing Stockholders and Investors STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (the "Agreement") is made as of September 30, 2003, by and among Eagle Test Systems, Inc., an Illinois corporation (the "Company"), the individuals identified on Schedule A hereto as Existing Stockholders (collectively, the "Existing Stockholders," and each individually, an "Existing Stockholder"), the Persons identified on Schedule A hereto as investors (each, an "Investor" and collectively, the "Investors"), and any other shareholder or option holder who from time to time becomes party to this Agreement by execution of a Joinder Agreement in substantially the form attached hereto as Exhibit A (the "Joinder Agreement"). For the purpose of this Agreement, a shareholder or an option holder who joins this Agreement pursuant to a Joinder Agreement shall be included in the term "Existing Stockholder" or "Investor" as specified in such Joinder Agreement. The Existing Stockholders and the Investors are sometimes referred to herein collectively as the "Stockholders," and each individually, a "Stockholder." WHEREAS, on the date hereof, certain Investors (the "Series A Investors") are purchasing shares of the Company's Series A Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), pursuant to that certain Stock Purchase Agreement dated as of the date hereof by and among the Company and the Series A Investors (the "Purchase Agreement"); WHEREAS, the Existing Stockholders hold shares of the Company's common stock, no par value (the "Common Stock"), as set forth in Schedule A of this Agreement; WHEREAS, on the date hereof, TA Subordinated Debt Fund, L.P. and TA Investors, LLC (the "Lenders") will lend to the Company $30,000,000 pursuant to the terms of that certain Note Purchase Agreement dated as of the date hereof (the "Note Purchase Agreement"), in return for convertible subordinated debentures (collectively, the "Convertible Subordinated Notes") which are convertible into subordinated promissory notes of the Company (collectively, the "Subordinated Notes") and warrants to acquire shares of Common Stock of the Company (the "Warrants"); WHEREAS, it is a condition to the obligations of the Investors under the Purchase Agreement and the Note Purchase Agreement that this Agreement be executed by the parties hereto, and the parties are willing to execute this Agreement and be bound by the provisions hereof; WHEREAS, the parties hereto desire to agree upon the terms on which the securities of the Company, now or hereafter outstanding and held by them, will be held, transferred and voted. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: SECTION I. DEFINITIONS 1.1. CONSTRUCTION OF TERMS. As used herein, the masculine, feminine or neuter gender, and the singular or plural number, shall be deemed to be or to include the other genders or number, as the case may be, whenever the context so indicates or requires. Any reference to "day" shall mean a calendar day unless indicated otherwise. 1.2. TERMS NOT DEFINED. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Purchase Agreement. 1.3. NUMBER OF SHARES OF STOCK. Whenever any provision of this Agreement calls for any calculation based on a number of shares of capital stock issued and outstanding or held by a Stockholder, the number of shares deemed to be issued and outstanding or held by that Stockholder, unless specifically stated otherwise, as applicable, shall be the total number of shares of Common Stock then issued and outstanding or owned by the Stockholder, as applicable, plus, without duplication, the total number of shares of Common Stock issuable upon the conversion of any convertible Preferred Stock or exercise of any warrants then issued and outstanding or owned by such Stockholder, as applicable. 1.4. DEFINED TERMS. The following capitalized terms, as used in this Agreement, shall have the meanings set forth below. "Affiliate" shall mean with respect to any Person (as defined below), any Person which, directly or indirectly, controls, is controlled by or is under common control with such Person, including, without limitation, any partner, officer, director, member or employee of such Person and, with respect to any Person that is a venture capital fund, any investment fund now or hereafter existing which is controlled by or under common control with one or more general partners of such Person. "Board of Directors" means the Board of Directors of the Company. "Charter" means the Company's Amended and Restated Articles of Incorporation in effect as of the date hereof, as amended from time to time. "Code" means the Internal Revenue Code of 1986, as amended. "Common Stock" means the Common Stock and any other common equity securities issued by the Company, and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization). "Company" means Eagle Test Systems, Inc., an Illinois corporation and any successors thereto. "Competitor" means any one of Advantest America Corporation, Agilent Technologies, Credence Systems Corporation, LTX Corporation, Nextest Systems Corporation, NPTest Inc., 2 Teradyne Inc. and Yokogawa Electric Corporation. The Company and/or the Existing Stockholders may reasonably amend the foregoing list from time to time by written notice delivered in accordance with Section 8.4. "Equity Incentive Plan" means the Company's 2003 Stock Option and Grant Plan, as amended from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Stockholders" means those individuals identified as Existing Stockholders on Schedule A hereto. "Investors" means those Persons identified as investors on Schedule A hereto. "Majority Interest" means the Investors holding not less than a majority of the outstanding Shares held by all of the Investors, calculated in accordance with Section 1.3 hereof. "Material Adverse Effect" means a material adverse effect on the assets, liabilities, condition (financial or other), business or results of operations of the Company (a "Material Adverse Effect"). "Person" means an individual, a corporation, an association, a joint venture, a partnership, a limited liability company, an estate, a trust, an unincorporated organization and any other entity or organization, governmental or otherwise. "Preferred Stock" means the Redeemable Preferred Stock and the Series A Convertible Preferred Stock, together with any shares issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or in replacement of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization). "Proceeding" means any complaint, lawsuit or similar legal action filed in any court, any investigation, formal or informal, by any Person, regulatory or self-regulatory authority. "Qualified Public Offering" has the meaning set forth in the Charter. "Redeemable Preferred Stock" means the Company's Redeemable Preferred Stock, par value $.01 per share. "Securities Act" means the Securities Act of 1933, as amended. "Series A Convertible Preferred Stock" means the Company's Series A Convertible Preferred Stock, par value $.01 per share. "Shares" means, at any time, shares of (i) Common Stock, (ii) Preferred Stock, and (iii) any other equity securities (including the Warrants) now or hereafter issued by the Company, together with any options thereon and any other shares of stock issued or issuable 3 with respect thereto (whether by way of a stock dividend, stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, recapitalization, merger, consolidation or other corporate reorganization). At all times, the number of Shares deemed issued and outstanding or held or to be voted by any Stockholder shall be calculated in accordance with Section 1.3. "Stockholders" means, collectively, the Investors and the Existing Stockholders. "Third Party Buyer" means any Person who, immediately prior to the contemplated transaction, (i) is not a Person who directly or indirectly owns in excess of 5% of the outstanding Shares (a "5% Owner"), (ii) is not controlling, controlled by or under common control with any such 5% Owner, (iii) is not the spouse or descendant (by birth or adoption) of any such 5% Owner or a trust for the benefit of such 5% Owner and/or such other Persons, and (iv) is neither a portfolio company of any such 5% Owner nor a Subsidiary of any portfolio company of any such 5% Owner. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall have the meaning given to such term in the definition of "Affiliate." "Transaction Documents" means the Agreement, the Purchase Agreement, the Note Purchase Agreement, the Convertible Subordinated Notes, the Subordinated Notes, the Warrants and the Registration Rights Agreement, including all exhibits and schedules hereto. "Transfer" means any direct or indirect transfer, donation, sale, assignment, pledge, hypothecation, grant of a security interest in or other disposal or attempted disposal of all or any portion of a security, any interest or rights in a security, or any rights under this Agreement. "Transferred" means the accomplishment of a Transfer, and "Transferee" means the recipient of a Transfer. SECTION II. REPRESENTATIONS AND WARRANTIES 2.1. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of the Stockholders, individually and not jointly, hereby represents, warrants and covenants to the Company and the other Stockholders as follows: (a) such Stockholder has full authority, power and capacity to enter into this Agreement and perform its obligations hereunder; (b) this Agreement constitutes the valid and binding obligation of such Stockholder enforceable against him in accordance with its terms, except: (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions may be limited by applicable federal or state securities laws; and (c) the execution, delivery and performance by such Stockholder of this Agreement: (i) does not and will not violate any laws, rules or regulations of the United States or any state or other jurisdiction applicable to such Stockholder, or require such Stockholder to obtain any approval, consent or waiver of, or to make any filing with, any Person that has not been obtained or made; and (ii) does not and will not result in a breach of, constitute a default under, accelerate any 4 obligation under or give rise to a right of termination of any indenture or loan or credit agreement or any other material agreement, contract, instrument, mortgage, lien, lease, permit, authorization, order, writ, judgment, injunction, decree, determination or arbitration award to which such Stockholder is a party or by which the property of such Stockholder is bound or affected, or result in the creation or imposition of any mortgage, pledge, lien, security interest or other charge or encumbrance on any of the assets or properties of such Stockholder. SECTION III. RESTRICTIONS ON TRANSFER; RIGHT OF FIRST REFUSAL; CO-SALE PROVISIONS 3.1. RESTRICTIONS ON TRANSFER. (a) Each Existing Stockholder agrees that such Existing Stockholder will not, without the prior written consent of a Majority Interest, Transfer all or any portion of the Shares now owned or hereafter acquired by such Existing Stockholder, except in compliance with the conditions of this Section III. (b) Each Investor agrees that such Investor will not, without the prior written consent of the Existing Stockholders holding a majority of the outstanding Shares held by all of the Existing Stockholders (calculated in accordance with Section 1.3 hereof), Transfer all or any portion of the Shares now owned or hereafter acquired by such Investor to any Competitor unless such Transfer is made in connection with (i) the termination or dissolution of such Investor's partnership or investment fund and the Shares transferred comprise less than 25% of the aggregate value of the securities being transferred to such competitor pursuant to such termination or dissolution or (ii) any transaction in which Leonard Foxman and the Foxman Family LLC are given the opportunity to sell or transfer all of the Shares held by them as of the date of such proposed Transfer. 3.2. PERMITTED TRANSFERS. Notwithstanding anything herein to the contrary, the provisions of Sections 3.3 and 3.4 shall not apply to either of the Transfers listed below, provided that in each case the Transferee shall have entered into a Joinder Agreement in substantially the form attached hereto as Exhibit A providing that all Shares so Transferred shall continue to be subject to all provisions of this Agreement as if such Shares were still held by such Existing Stockholder, except that no further Transfer shall thereafter be permitted hereunder except in compliance with Sections 3.3 and 3.4: (a) Transfers by any Existing Stockholder to the spouse, children or siblings of such Existing Stockholder or to a trust or family limited partnership for the exclusive benefit of any of them; and (b) Transfers upon the death of any Existing Stockholder to such Existing Stockholder's heirs, executors or administrators or to a trust under such Existing Stockholder's will, or Transfers between such Existing Stockholder and such Existing Stockholder's guardian or conservator. 5 Notwithstanding anything to the contrary in this Agreement or any failure by a Transferee under this Section 3.2 to execute a Joinder Agreement, such Transferee shall take any Shares so Transferred subject to all provisions of this Agreement as if such Shares were still held by the Existing Stockholder making such Transfer, whether or not they so agree in writing. 3.3. RIGHT OF FIRST REFUSAL. In the event that any of the Existing Stockholders entertains a bona fide offer to purchase all or any portion of the Shares held by such Existing Stockholder (a "Transaction Offer") from any other Person (a "Buyer"), such Existing Stockholder (a "Transferring Stockholder") may, subject to the provisions of Section 3.4 hereof, Transfer such Shares pursuant to and in accordance with the following provisions of this Section 3.3: (a) Offer Notice. The Transferring Stockholder shall cause the Transaction Offer and all of the terms thereof to be reduced to writing and shall promptly notify the Company and each of the Investors of such Transferring Stockholder's desire to effect the Transaction Offer and otherwise comply with the provisions of this Section 3.3 and, if applicable, Section 3.4 (such notice, the "Offer Notice"). The Transferring Stockholder's Offer Notice shall constitute an irrevocable offer to sell all but not less than all of the Shares that are the subject of the Transaction Offer (the "Offered Shares") to the Investors, on the basis described below, at a purchase price equal to the price contained in, and on the same terms and conditions of, the Transaction Offer. The Offer Notice shall be accompanied by a true copy of the Transaction Offer (which shall identify the Buyer and all relevant information in connection therewith). (b) Investors' Option. At any time within thirty (30) days after receipt by the Investors of the Offer Notice (the "Investor Option Period"), each Investor or its Affiliates, including future funds that have affiliated but not identical general partners, may elect to accept the offer to purchase with respect to any or all of the Offered Shares and shall give written notice of such election (the "Investor Acceptance Notice") to the Transferring Stockholder and each Investor within the Investor Option Period, which notice shall indicate the maximum number of Offered Shares that the Investor is willing to purchase, including the number of Offered Shares it would purchase if one or more other Investors do not elect to purchase their Pro Rata Fractions (as defined in paragraph (c) below). The Transferring Stockholder shall notify the Investors promptly if any Investor fails to offer to purchase all of its Pro Rata Fraction. If the Investors collectively do not elect to purchase all of the Offered Shares, the Offer Notice shall be deemed to have been rejected. If the Investors collectively elect to purchase all of the Offered Shares, the Offer Notice shall be deemed to have been accepted, and each Investor Acceptance Notice shall constitute a valid, legally binding and enforceable agreement for the sale and purchase of the Offered Shares covered by such Investor Acceptance Notice subject to any necessary adjustments as provided in Section 3.3(c). The closing for the purchase of Offered Shares by the Investors under this Section 3.3(b) shall take place within thirty (30) days following the expiration of the Investor Option Period, at the offices of the Company or on such other date or at such other place as may be agreed to by the Transferring Stockholder and such Investors. (c) Allocation of Offered Shares among Investors. If the Offer Notice is deemed accepted, upon the expiration of the Investor Option Period, the number of Offered 6 Shares to be purchased by each Investor shall be determined as follows: (i) first, there shall be allocated to each Investor electing to purchase, a number of Offered Shares equal to the lesser of (A) the number of Offered Shares as to which such Investor accepted as set forth in its respective Investor Acceptance Notice or (B) such Investor's Pro Rata Fraction (as defined below), and (ii) second, the balance, if any, not allocated under clause (i) above, shall be allocated to those Investors who within the Investor Option Period delivered an Investor Acceptance Notice that set forth a number of Offered Shares that exceeded their respective Pro Rata Fractions, in each case on a pro rata basis in proportion to the number of Shares held by each such Investor up to the amount of such excess. An Investor's Pro Rata Fraction shall be equal to the product obtained by multiplying the total number of Offered Shares by a fraction, the numerator of which is the total number of Shares owned by such Investor (other than any shares of Redeemable Preferred Stock), and the denominator of which is the total number of Shares held by all Investors (other than any shares of Redeemable Preferred Stock), in each case calculated as of the date of the Offer Notice. (d) Valuation of Property. In the event that the price set forth in the Offer Notice is stated in consideration other than cash or cash equivalents, the Transferring Stockholder, the Company and a Majority Interest shall mutually determine the fair market value of such consideration, reasonably and in good faith, and the Investors may effect their purchase under this Section 3.3 by payment of such fair market value in cash or cash equivalents. (e) Sale to Third Party. In the event that the Investors do not elect to exercise the rights to purchase under this Section 3.3 with respect to all of the Offered Shares proposed to be sold, the Transferring Stockholder may sell all of the Offered Shares to the Buyer on the terms and conditions set forth in the Offer Notice, subject to the provisions of Section 3.4. Promptly after such Transfer, the Transferring Stockholder shall notify the Company and the Investors of the consummation thereof and shall furnish such evidence of the completion and time of completion of the Transfer and of the terms thereof as may reasonably be requested by a Majority Interest. Prior to the effectiveness of any Transfer to a Buyer hereunder, such Buyer shall have entered into a Joinder Agreement in substantially the form attached hereto as Exhibit A, and such Buyer shall have all the rights and obligations hereunder as if such Buyer were an Existing Stockholder. If the Transferring Stockholder's sale to a Buyer is not consummated in accordance with the terms of the Transaction Offer on or before sixty (60) calendar days after the latest of: (i) the expiration of the Investor Option Period, (ii) the expiration of the Co-Sale Election Period set forth in Section 3.4 below, if applicable, and (iii) the satisfaction of all governmental approval or filing requirements, the Transaction Offer shall be deemed to lapse, and any Transfers of Shares pursuant to such Transaction Offer shall be in violation of the provisions of this Agreement unless the Transferring Stockholder sends a new Offer Notice and once again complies with the provisions of this Section 3.3 with respect to such Transaction Offer or such lapse is waived in writing by a Majority Interest. 3.4. CO-SALE OPTION OF INVESTORS. In the event that the Investors do not exercise their rights under Section 3.3 with respect to all of the Offered Shares proposed to be so Transferred by the Transferring Stockholder in connection with a Transaction Offer, the Transferring 7 Stockholder may Transfer such Offered Shares to a Buyer only pursuant to and in accordance with the following provisions of this Section 3.4: (a) Co-Sale Notice. As soon as practicable following the expiration of the Investor Option Period, and in no event later than five (5) days thereafter, the Transferring Stockholder shall provide notice to each of the Investors (the "Co-Sale Notice") of its right to participate in the Transaction Offer on a pro rata basis with the Transferring Stockholder (the "Co-Sale Option"). To the extent one or more Investors exercise their Co-Sale Option in accordance with this Section 3.4, the number of Shares that the Transferring Stockholder may Transfer in the Transaction Offer shall be correspondingly reduced. (b) Investor Acceptance. Each of the Investors shall have the right to exercise its Co-Sale Option by giving written notice of such intent to participate (the "Co-Sale Acceptance Notice") to the Transferring Stockholder within ten (10) days after receipt by such Investor of the Co-Sale Notice (the "Co-Sale Election Period"). Each Co-Sale Acceptance Notice shall indicate the maximum number of Shares subject thereto that the Investor wishes to sell, including the number of Shares it would sell if one or more other Investors do not elect to participate in the sale on the terms and conditions stated in the Offer Notice. Any Investor holding Preferred Stock shall be permitted to sell to the relevant Buyer in connection with any exercise of the Co-Sale Option, at its option, (i) shares of Common Stock acquired upon conversion of such Preferred Stock, (ii) an option to acquire Common Stock when such Investor receives the same upon conversion of such Preferred Stock, with the same effect as if Common Stock were being conveyed, or (iii) shares of Preferred Stock, provided, that in the case of the sale of shares of Preferred Stock, the Buyer shall pay for each such share the relevant price per share of the underlying shares of Common Stock. (c) Allocation of Shares. Each Investor shall have the right to sell a portion of its Shares pursuant to the Transaction Offer that is equal to or less than the product obtained by multiplying the total number of Shares available for sale to the Buyer subject to the Transaction Offer by a fraction, the numerator of which is the total number of Shares owned by such Investor and the denominator of which is the total number of Shares held by all Investors and the Transferring Stockholder, in each case as of the date of the Offer Notice, subject to increase as hereinafter provided. In the event any Investor does not elect to sell the full amount of such Shares which such Investor is entitled to sell pursuant to this Section 3.4, then any Investors who have elected to sell Shares shall have the right to sell, on a pro-rata basis (based on the number of Shares held by each such Investor) with any other Investors and up to the maximum number of Shares stated in each such Investor's Co-Sale Acceptance Notice, any Shares not elected to be sold by such Investor. (d) Co-Sale Closing. Within ten (10) calendar days after the end of the Co-Sale Election Period, the Transferring Stockholder shall promptly notify each participating Investor of the number of Shares held by such Investor that will be included in the sale and the date on which the sale contemplated by the Transaction Offer will be consummated, which shall be no later than the later of (i) sixty (60) calendar days after the end of the Co-Sale Election Period and (ii) the satisfaction of any governmental approval or filing requirements, if any. Each participating Investor may effect its participation in any Transaction Offer hereunder by delivery 8 to the Buyer, or to the Transferring Stockholder for delivery to the Buyer, of one or more instruments or certificates, properly endorsed for transfer, representing the Shares it elects to sell pursuant thereto. The Transferring Stockholder shall assign to each participating Investor, so much of its interest in the agreement of sale as such Investor is entitled and each such Investor shall assume, and hold the Transferring Stockholder harmless from, the obligations under the agreement of sale with respect to the portion so assigned. At the time of consummation of the Transaction Offer, the Buyer shall remit directly to each participating Investor that portion of the sale proceeds to which the participating Investor is entitled by reason of its participation with respect thereto. No Shares may be purchased by the Buyer from the Transferring Stockholder unless the Buyer simultaneously purchases from the participating Investors all of the Shares that they have elected to sell pursuant to this Section 3.4. (e) Sale to Third Party. Any Shares held by a Transferring Stockholder that are the subject of a Transaction Offer and that the Transferring Stockholder desires to Transfer to a Buyer following compliance with this Section 3.4, may be sold to such Buyer only during the period specified in Section 3.4(d) and only on terms no more favorable to the Transferring Stockholder than those contained in the Offer Notice. Promptly after such Transfer, the Transferring Stockholder shall notify the Company and the Investors of the consummation thereof and shall furnish such evidence of the completion and time of completion of the Transfer and of the terms thereof as may reasonably be requested by a Majority Interest. Prior to the effectiveness of any Transfer to a Buyer hereunder, such Buyer shall have entered into a Joinder Agreement in substantially the form attached hereto as Exhibit A, and such Buyer shall have all the rights and obligations hereunder as if such Buyer were an Existing Stockholder. In the event that the Transaction Offer is not consummated within the period required by this Section 3.4 or the Buyer fails timely to remit to each participating Investor its respective portion of the sale proceeds, the Transaction Offer shall be deemed to lapse, and any Transfer of Shares pursuant to such Transaction Offer shall be in violation of the provisions of this Agreement unless the Transferring Stockholder sends a new Offer Notice with respect to such Offered Shares and once again complies with the provisions of Section 3.3 and Section 3.4 with respect to such Transaction Offer or such lapse is waived in writing by a Majority Interest. 3.5. CONTEMPORANEOUS TRANSFERS. If two or more Existing Stockholders propose concurrent Transfers that are subject to this Section III, then the relevant provisions of Sections 3.3 and 3.4, as applicable, shall apply separately to each such proposed Transfer. 3.6. EFFECT OF PROHIBITED TRANSFERS. If any Transfer by any Existing Stockholder is made or attempted contrary to the provisions of this Agreement, such purported Transfer shall be void ab initio; the Company, the Investors and the other parties hereto shall have, in addition to any other legal or equitable remedies which they may have, the right to enforce the provisions of this Agreement by actions for specific performance (to the extent permitted by law); and the Company shall have the right to refuse to recognize any Transferee of any Existing Stockholder for any purpose. 9 SECTION IV. RIGHTS AND OBLIGATIONS TO SELL. 4.1. DRAG-ALONG RIGHTS. In the event of a Sale Event (as defined below), each Existing Stockholder shall be obligated to and shall upon the written request of a Majority Interest: (i) sell, transfer and deliver, or cause to be sold, transferred and delivered, to the Third-Party Buyer a pro rata portion of, his, her or its Shares on substantially the same terms applicable to the Investors (including the terms of any indemnification); and (ii) execute and deliver such instruments of conveyance and transfer and take such other action, including voting such Shares in favor of any Sale Event proposed by a Majority Interest and executing any purchase agreements, merger agreements, indemnity agreements, escrow agreements or related documents, as such Investors or the Third-Party Buyer may reasonably require in order to carry out the terms and provisions of this Section 4.1 (the "Drag-Along Right"). For purposes of this Section IV, a "Sale Event" shall mean a bona fide negotiated transaction in which a Majority Interest has determined (i) to sell or otherwise dispose of all or substantially all of the assets of the Company, or (ii) to sell sufficient capital stock of the Company to constitute a change in control of the Company or (iii) to cause the Company to merge with or into or consolidate with any non-Affiliate(s) of the Company. 4.2. PROCEDURE. Not less than thirty (30) days prior to the date proposed for the closing of any Sale Event, the Investor shall give notice to the Existing Stockholder, setting forth in reasonable detail the name or names of the Third-Party Buyer, the terms and conditions of the Sale Event, including the purchase price, and the proposed closing date and whether the Investor is exercising the Drag-Along Right. In furtherance of the provisions of this Section IV, upon request by a Majority Interest, each Existing Stockholder shall execute a power-of-attorney and proxy which (i) irrevocably appoints TA Associates, Inc., as its agent and attorney-in-fact (the "Agent") (with full power of substitution) to execute all agreements, instruments and certificates and take all actions necessary or desirable to effectuate the Sale Event proposed hereunder; and (ii) grants to the Agent a proxy to vote the Shares held by the Existing Stockholder in favor of the Sale Event proposed hereunder. 4.3. BRING-ALONG RIGHTS. If in a Sale Event where the aggregate proceeds to be received by the Investors on a per share basis is greater than or equal to the original purchase price paid by such Investors with respect to any shares being sold in such Sale Event, a Majority Interest does not exercise the Drag-Along Right, any Existing Stockholder may, by delivering written notice to the Investors and the Company within ten (10) days of its receipt of the notice provided in Section 4.2, elect to sell his, her or its Shares as part of the Sale Event on substantially the same terms applicable to the Investors. SECTION V. RIGHTS TO PURCHASE 5.1. RIGHT TO PARTICIPATE IN CERTAIN SALES OF ADDITIONAL SECURITIES. The Company agrees that it will not sell or issue or agree to sell or issue: (a) any shares of capital stock of the Company, (b) securities convertible into or exercisable or exchangeable for capital stock of the 10 Company or (c) options, warrants or rights carrying any rights to purchase capital stock of the Company, unless the Company first submits a written notice to each Stockholder identifying the terms of the proposed sale (including price, number or aggregate principal amount of securities and all other material terms), and offers to each Stockholder who is an "accredited investor," as such term is defined in Rule 501 under the Securities Act (an "Eligible Stockholder"), the opportunity to purchase its Pro Rata Allotment (as hereinafter defined) of the securities (subject to increase for over-allotment if some Eligible Stockholders do not fully exercise their rights) on terms and conditions, including price, not less favorable than those on which the Company proposes to sell such securities to a third party or parties (a "Pre-Emptive Right Notice"). The Company's offer pursuant to this Section 5.1 shall remain open and irrevocable for a period of twenty (20) days following receipt by the Eligible Stockholders of such written notice. 5.2. ELIGIBLE STOCKHOLDER ACCEPTANCE. Each of the Eligible Stockholders shall have the right to purchase its Pro Rata Allotment by giving written notice of such intent to participate (the "Pre-emptive Right Acceptance Notice") to the Company within twenty (20) days after receipt by such Eligible Stockholder of the Pre-Emptive Right Notice (the "Pre-Emptive Right Acceptance Election Period"). Each Pre-Emptive Right Acceptance Notice shall indicate the maximum number of Shares subject thereto which the Eligible Stockholder wishes to buy, including the number of Shares it would buy if one or more other Eligible Stockholders do not elect to participate in the sale on the terms and conditions stated in the Pre-Emptive Right Notice. 5.3. CALCULATION OF PRO RATA ALLOTMENT. Each Eligible Stockholder's "Pro Rata Allotment" of such securities shall be based on the ratio which the number of Shares owned by such Eligible Stockholder bears to all of the issued and outstanding Shares as of the date of such written offer. If one or more Eligible Stockholders do not elect to purchase their respective Pro Rata Allotment, each of the electing Eligible Stockholders may purchase such Shares of such Eligible Stockholders' allotments taking into account the maximum amount each is wishing to purchase on a pro rata basis, based upon the relative holdings of Shares of each of the electing Eligible Stockholders in the case of over-subscription. 5.4. SALE TO THIRD PARTY. Any securities so offered that are not purchased by the Eligible Stockholders pursuant to the offer set forth in Section 5.1 above, may be sold by the Company, but only on terms and conditions not more favorable to the purchaser than those set forth in the notice to Eligible Stockholders, at any time after five (5) days but within sixty (60) days following the termination of the above-referenced 30-day period, but may not be sold to any other Person or on terms and conditions, including price, that are more favorable to the purchaser than those set forth in such offer or after such 60-day period without renewed compliance with this Section V. 5.5. EXCEPTIONS TO PRE-EMPTIVE RIGHTS. Notwithstanding the foregoing, the right to purchase granted under this Section V shall be inapplicable with respect to: (i) the issuance of shares of Common Stock (as appropriately adjusted for any stock split, combination, reorganization, recapitalization, reclassification, stock distribution, stock dividend or similar event) issued or issuable in connection with, or upon the exercise of, options or other awards granted or to be granted to employees, officers or directors of the Company pursuant to the 11 Company's equity incentive plans, including shares of Common Stock issued in replacement of shares of such Common Stock repurchased or issuable upon the exercise of any options to purchase shares of such Common Stock, to the extent permitted under the equity incentive plans; (ii) securities issued as a result of any stock split, stock dividend, reclassification or reorganization or similar event with respect to the Shares; (iii) shares of Common Stock issued upon conversion of, or as a dividend on, the Preferred Stock; (iv) securities issued as consideration for the purchase of stock or assets in any acquisition, merger, joint venture, partnership or other strategic alliance; (v) securities issued in connection with any debt financing or refinancing of the Company or (vi) securities issued with the approval of a Majority Interest provided that no Investor or affiliate of any Investor is acquiring any of the securities in such issuance. 5.6. ASSIGNMENT OF RIGHTS. Subject to Section 8.11 hereof, each Eligible Stockholder shall have the right to assign its rights under this Section V to any Transferee of such Eligible Stockholder's Shares, and shall further have the right to assign and transfer such Eligible Stockholder's right to accept any particular offer under Section 5.1 hereof, and any such Transferee shall be deemed within the definition of an "Eligible Stockholder" for purposes of this Section V. SECTION VI. ELECTION OF DIRECTORS 6.1. BOARD COMPOSITION. (a) For so long as the Existing Stockholders own at least five percent (5%) of the outstanding capital stock of the Company, each Stockholder agrees to vote all its shares of the Company's capital stock having voting power (and any other shares over which it exercises voting control whether directly or indirectly) in connection with the election of Directors and to take such other actions as are necessary so as to elect and continue in the office two (2) individuals nominated by a majority-in-interest of the Existing Stockholders, who shall initially be Leonard Foxman and Theodore Foxman. (b) For so long as the Existing Stockholders own at least five percent (5%) of the outstanding capital stock of the Company, each Stockholder agrees to vote all of its shares of the Company's capital stock having voting power (and any other shares over which it exercises voting control whether directly or indirectly) for the removal of any Director nominated by the Existing Stockholders, as provided herein upon the request of a majority-in-interest of the Existing Stockholders and for the election to the Board of Directors of a substitute designated by such Existing Stockholders in accordance with the provisions of Section 6.1(a). (c) Each of the Stockholders agrees and acknowledges that pursuant to the terms of the Charter, the holders of Series A Convertible Preferred Stock are entitled to elect three Directors and to vote on an as converted basis with all other holders of capital stock of the Company in all elections of the Directors. 12 6.2. ASSIGNMENT. Each Investor and each Stockholder agrees, as a condition to any transfer of its Shares to cause the transferee to agree to the provisions of this Article VI, whereupon such transferee shall be subject to the provisions hereof as an Investor or Stockholder, as applicable, in connection with its ownership of the shares Transferred for purposes of this Article VI. SECTION VII. COVENANTS OF THE COMPANY AND STOCKHOLDERS The Company covenants and agrees with each of the Investors that: 7.1. FINANCIAL STATEMENTS, REPORTS, ETC. The Company shall furnish to each Investor the following reports: (a) Annual Financial Statements. Within one hundred and twenty (120) days after the end of the fiscal year ended September 30, 2003 and thereafter within ninety (90) days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of such fiscal year and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal year then ended, prepared in accordance with generally accepted accounting principles and certified by a firm of independent public accountants of recognized national standing selected by the Board of Directors of the Company; (b) Quarterly Financial Statements. Within forty-five (45) days after the end of the first three fiscal quarters of each fiscal year, a consolidated balance sheet of the Company and its subsidiaries, if any, and the related consolidated statements of income, shareholders' equity and cash flows, unaudited but prepared in accordance with generally accepted accounting principles and certified by the Chief Financial Officer of the Company, such consolidated balance sheet to be as of the end of such quarter and such consolidated statements of income, shareholders' equity and cash flows to be for such quarter and for the period from the beginning of the fiscal year to the end of such quarter, in each case with comparative statements for the prior fiscal year; (c) Monthly Financial Statements. Within thirty (30) days after the end of each month in each fiscal year (other than the last month in each fiscal year), a consolidated balance sheet of the Company and its subsidiaries, if any, and the related consolidated statements of income, shareholders' equity and cash flows, unaudited but prepared in accordance with generally accepted accounting principles (omitting footnotes) and certified by the Chief Financial Officer of the Company, such consolidated balance sheet to be as of the end of such month and such consolidated statements of income, shareholders' equity and cash flows to be for such month and for the period from the beginning of the fiscal year to the end of such month, in each case with comparative statements for the prior fiscal year; (d) Budget. No later than thirty (30) days prior to the start of each fiscal year, consolidated capital and operating expense budgets, cash flow projections and income and loss projections for the Company and its subsidiaries in respect of such fiscal year, all itemized in 13 reasonable detail and prepared on a monthly basis, and, promptly after preparation, any revisions to any of the foregoing; (e) Accountant's Letters. Promptly following receipt by the Company, each audit response letter, accountant's management letter and other written report submitted to the Company by its independent public accountants in connection with an annual or interim audit of the books of the Company or any of its subsidiaries; and (f) Other Information. Promptly, from time to time, such other information regarding the business, prospects, financial condition, operations, property or affairs of the Company and its subsidiaries as such Investor reasonably may request. 7.2. CORPORATE EXISTENCE. The Company shall maintain and cause each of its subsidiaries, if any, to maintain, their respective corporate existence. 7.3. PROPERTIES, BUSINESS INSURANCE. The Company shall obtain and maintain and cause each of its subsidiaries, if any, to maintain as to their respective properties and business, with financially sound and reputable insurers, insurance against such casualties, contingencies and other risks and hazards and of such types and in such amounts as is customary for companies similarly situated. 7.4. KEY PERSON INSURANCE. The Company shall maintain, "key person" term life insurance policies of at least $3,000,000 on the life of each of Leonard Foxman and Jack Weimer which shall name the Company as beneficiary. 7.5. DIRECTORS AND OFFICERS' INSURANCE. The Company shall, as promptly as practicable following the date hereof, obtain and maintain directors and officers' liability insurance coverage on terms satisfactory to the Investor Nominees of at least $10,000,000 per occurrence, to the fullest extent permitted by law covering, among other things, violations of federal or state securities laws. The Company shall use its reasonable best efforts prior to any initial public offering of the Company's capital stock to increase its directors' and officers' liability insurance to at least $15,000,000 per occurrence, including coverage of claims under the Securities Act and the Exchange Act. 7.6. INSPECTION, CONSULTATION AND ADVICE. The Company shall permit and cause each of its subsidiaries, if any, to permit each Investor and such persons as each Investor may designate, at such Investor's expense, to visit and inspect any of the properties of the Company and its subsidiaries, examine their books and take copies and extracts therefrom, discuss the affairs, finances and accounts of the Company and its subsidiaries with their officers, employees and public accountants (and the Company hereby authorizes said accountants to discuss with such Investor and such designees such affairs, finances and accounts), and consult with and advise the management of the Company and its subsidiaries as to their affairs, finances and accounts, all at reasonable times and upon reasonable notice during normal business hours. The foregoing shall be in addition to, and not in lieu of, the Investors' rights under applicable law. 14 7.7. COMPENSATION OF INVESTOR NOMINEES. The Company shall pay or promptly reimburse in full each Investor Nominee for all of his reasonable out-of-pocket expenses incurred in attending each meeting of the Board of Directors or any Committee thereof. The Company shall also pay or promptly reimburse the Investors for reasonable out-of-pocket expenses and costs incurred by them in connection with their ongoing investment in the Company up to a maximum of $40,000 per year. 7.8. BY-LAWS. The Company shall at all times maintain provisions in its Bylaws and certificate of incorporation indemnifying all directors against liability and absolving all directors from liability to the Company and its shareholders to the maximum extent permitted under the laws of the State of Illinois. 7.9. EMPLOYEE AGREEMENTS. The Company shall obtain, and shall cause its subsidiaries, if any, to obtain, an Employee Nondisclosure, Noncompetition and Assignment Agreement in substantially the form of Exhibit B attached hereto from all current and future officers and employees and any consultants who will have access to confidential information of the Company or any of its subsidiaries, upon commencement of their employment or consulting arrangement by the Company or any of its subsidiaries or for current officers, employees and consultants, within a reasonable period of time after the date hereof. The Company shall not amend, modify, terminate, waive or otherwise alter, in whole or in part, the form of Employee Nondisclosure, Noncompetition and Assignment Agreement, now or in the future in effect, without the approval of the Board of Directors, including the Investor Nominees. 7.10. COMPLIANCE WITH LAWS, PAYMENT OF TAXES. The Company shall comply, and cause each subsidiary to comply, with all applicable laws, rules, regulations and orders, noncompliance with which could have a Material Adverse Effect. The Company shall comply with all applicable federal and state securities laws in connection with the offer, issuance, sale or redemption of any shares of its capital stock. The Company will pay and discharge all lawful Taxes as defined in the Purchase Agreement, assessments and governmental charges or levies imposed upon it or upon its income or property before the same shall become in default as well as all lawful claims for labor, materials and supplies which, if not paid when due, might become a lien or charge upon its property or any part thereof; provided, however, that the Company shall not be required to pay and discharge any such Tax, assessment, charge, levy or claim so long as the validity thereof is being contested by the Company in good faith by appropriate proceedings and an adequate reserve therefore has been established on its books. 7.11. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall keep, and cause each subsidiary, if any, to keep, adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and such subsidiary, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made. 15 7.12. INDEMNIFICATION. (a) Without limitation of any other provision of this Agreement or any other agreement connection herewith the Company agrees to defend, indemnify and hold each Investor, its respective Affiliates and direct and indirect partners (including partners of partners and stockholders and members of partners), members, stockholders, directors, officers, employees and agents and each person who controls any of them within the meaning of Section 15 of the Securities Act, or Section 20 of the Exchange Act (collectively, the "Investor Indemnified Parties" and, individually, an "Investor Indemnified Party") harmless from and against any and all damages, liabilities, losses, Taxes, fines, penalties, diminution in value, reasonable costs and expenses (including, without limitation, reasonable fees of a single counsel representing all the Investor Indemnified Parties or, if the representation of all the Investor Indemnified Parties by the same counsel would be inappropriate under applicable standards of professional conduct, then as many counsel as may be needed under such standards of professional conduct to represent all of the Investor Indemnified parties), as the same are incurred, of any kind or nature whatsoever (whether or not arising out of third-party claims and including all amounts paid in investigation, defense or settlement of the foregoing and consequential damages) ("Losses") sustained or suffered by any such Investor Indemnified Party, which may be based upon, relating to, arising out of, or by reason of any third party or governmental claims relating in any way to such Investor Indemnified Party's status as a security holder, creditor, director, agent, representative or controlling person of the Company or otherwise relating to such Investor Indemnified Party's involvement with the Company (including, without limitation, any and all Losses under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, which relate directly or indirectly to the registration, purchase, sale or ownership of any securities of the Company or to any fiduciary obligation owed with respect thereto), including, without limitation, in connection with any third party or governmental action or claim relating to any action taken or omitted to be taken or alleged to have been taken or omitted to have been taken by any Investor Indemnified Party as security holder, director, agent, representative or controlling person of the Company or otherwise, alleging so-called control person liability or securities law liability; provided, however, that the Company will not be liable to any Investor Indemnified Party to the extent that such Losses arise from and are based on (A) an untrue statement or omission or alleged untrue statement or omission in a registration statement or prospectus that is made in reliance on and in conformity with written information furnished to the Company by or on behalf of such Investor Indemnified Party, or (B) conduct by such Investor Indemnified Party that is found to be fraud or willful misconduct in a non-appealable, final judgment. (b) If the indemnification provided for in Section 7.12(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an Investor Indemnified Party in respect of any Losses referred to therein, then the Company, in lieu of indemnifying such Investor Indemnified Party thereunder, shall contribute to the amount paid or payable by such Investor Indemnified Party as a result of such Losses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Investors, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law then in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the 16 relative fault of the Company and the Investors in connection with the action or inaction which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault of the Company and the Investors shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Investors and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (c) Each of the Company and the Investors agrees that it would not be just and equitable if contribution pursuant to Section 7.12(b) were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. 7.13. TERM. Except as provided below, the covenants set forth in this Section VII shall terminate upon the closing of a Qualified Public Offering. Notwithstanding the foregoing, the covenants set forth in Sections 7.5 and 7.7 hereof shall continue for so long as any Investor Nominee is a member of the Board of Directors, and the covenants set forth in Sections 7.12 hereof shall continue until the expiration of the applicable statute of limitations. SECTION VIII. MISCELLANEOUS PROVISIONS 8.1. RELIANCE. Each of the parties hereto agrees that each representation, warranty, covenant and agreement made by it in this Agreement or in any certificate, instrument or other document delivered pursuant to this Agreement is material, shall be deemed to have been relied upon by the other parties and shall remain operative and in full force and effect after the date hereof regardless of any investigation. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties hereto and their respective successors and permitted assigns to the extent contemplated herein. 8.2. LEGEND ON SECURITIES. The Company and the Stockholders acknowledge and agree that in addition to any other legend on the certificates representing Shares held by them, substantially the following legend shall be typed on each certificate evidencing any of the Shares held at any time by any of the Stockholders: THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A CERTAIN STOCKHOLDERS AGREEMENT, DATED AS OF SEPTEMBER 30, 2003, INCLUDING CERTAIN RESTRICTIONS ON TRANSFER SET FORTH THEREIN. A COMPLETE AND CORRECT COPY OF SUCH AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST AND WITHOUT CHARGE. 8.3. AMENDMENT AND WAIVER; ACTIONS OF THE BOARD. Any party may waive any provision hereof intended for its benefit in writing. No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof. The 17 remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to any party hereto at law or in equity or otherwise. This Agreement may be amended with the prior written consent of the Company and a Majority Interest, provided, however, that any such amendment that adversely affects the Existing Stockholders shall require a prior written consent of a majority-in-interest of the Existing Stockholders (based upon the number of Shares held by each Existing Stockholder). Any consent given as provided in the preceding sentence shall be binding on all Stockholders. 8.4. NOTICES. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given, delivered and received (a) if delivered personally or (b) if sent by facsimile, registered or certified mail (return receipt requested) postage prepaid, or by courier providing next day delivery, in each case to the party to whom it is directed, which if to the Company, shall be at Eagle Test Systems, 620 S. Butterfield Road, Mundelein, Illinois 60060-4483, and if to any Investor or Existing Stockholder, at the addresses set forth below such party's signature hereto (or at such other address for any party as shall be specified by notice given in accordance with the provisions hereof, provided that notices of a change of address shall be effective only upon receipt thereof). Notices delivered personally shall be effective on the day so delivered, notices sent by registered or certified mail shall be effective five days after mailing, notices sent by facsimile shall be effective when receipt is acknowledged, and notices sent by courier providing next day delivery shall be effective on the earlier of the second business day after timely deposit with the courier or the day of actual delivery by the courier. 8.5. HEADINGS. The Section headings used or contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement and the other agreements, documents and instruments executed and delivered in connection herewith with counsel sophisticated in investment transactions. In the event an ambiguity or question of intent or interpretation arises, this Agreement and the agreements, documents and instruments executed and delivered in connection herewith shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement and the agreements, documents and instruments executed and delivered in connection herewith. 8.6. COUNTERPARTS. This Agreement may be executed in one or more counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement. 8.7. ENTIRE AGREEMENT. This Agreement, together with the other Transaction Documents, is intended by the parties as a final expression of their agreement and intended to be complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. 18 8.8. LAW GOVERNING. This Agreement shall be construed and enforced in accordance with and governed by the laws of the Illinois (without giving effect to principles of conflicts of law). 8.9. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto as contemplated herein, and any successor to the Company by way of merger or otherwise shall specifically agree to be bound by the terms hereof as a condition of such successor. The rights of the Investors hereunder shall be binding upon and inure to the benefit of their Transferees of their Shares as contemplated herein. This Agreement may not be assigned by any Existing Stockholder except as provided herein, and any such attempted Transfer that is not as provided herein shall be null and void. 8.10. DISPUTE RESOLUTION. All disputes, claims, or controversies arising out of or relating to this Agreement, or any other agreement executed and delivered pursuant to this Agreement, or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby, that are not resolved by mutual agreement shall be resolved in accordance with the provisions set forth in Sections 6.7 and 6.8 of the Purchase Agreement. 8.11. REMEDIES; SEVERABILITY. Notwithstanding Section 8.10 above, it is specifically understood and agreed that any breach of the provisions of this Agreement, or any other agreement executed and delivered pursuant to this Agreement, by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for specific performance (to the extent permitted by law). Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement. 8.12. TERMINATION. Sections III, IV, V and VI shall terminate upon a Qualified Public Offering. 8.13. CONFIDENTIALITY. Notwithstanding anything herein or any other express or implied agreement, arrangement or understanding to the contrary, the parties acknowledge and agree that (i) any obligations of confidentiality contained herein and therein do not apply and have not applied from the commencement of discussions between the parties to the tax treatment and tax structure of the transactions contemplated by this Agreement (and any related transactions or agreements) and (ii) each party to this Agreement (and each of its employees, representatives or other agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure. This authorization to disclose the tax treatment and tax structure is 19 limited to the extent that confidentiality is required to comply with any applicable securities laws. [SIGNATURE PAGE FOLLOWS] 20 IN WITNESS WHEREOF, the parties hereto have caused this Stockholders Agreement to be duly executed as of the date first set forth above. THE COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ---------------------------------------- Name: Leonard Foxman Title: President EXISTING STOCKHOLDERS: LEONARD FOXMAN By: /s/ Leonard Foxman ---------------------------------------- Leonard Foxman Address for Notice: 1929 Browning Ct. Highland Park, IL 60035 FOXMAN FAMILY, LLC By: /s/ Leonard Foxman ---------------------------------------- Leonard Foxman Its: Manager Address for Notice: 1929 Browning Ct. Highland Park, IL 60035 EAGLE TEST SYSTEMS, INC. EMPLOYEE STOCK OWNERSHIP PLAN By: /s/ Leonard Foxman ---------------------------------------- Leonard Foxman, not in his individual capacity or in his capacity as shareholder, director or officer of the Corporation, but solely as trustee of the Eagle Test Systems Employee Stock Ownership Plan Address for Notice: 1929 Browning Ct. Highland Park, IL 60035 JACK WEIMER By: /s/ Jack Weimer ---------------------------------------- Jack Weimer Address for Notice: 646 N. Lake St. Grayslake, IL 60030 STEVE DOLLENS By: /s/ Steve Dollens ---------------------------------------- Steve Dollens Address for Notice: 3591 Pine Ridge Way San Jose, CA 95127 INVESTORS: TA IX L.P. By: TA Associates IX LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ---------------------------------------- Name: Michael C. Child Its:Managing Director TA/ATLANTIC AND PACIFIC IV L.P. By: TA Associates AP IV L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ---------------------------------------- Name: Michael C. Child Its:Managing Director TA STRATEGIC PARTNERS FUND A L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ---------------------------------------- Name:Michael C. Child Its:Managing Director TA STRATEGIC PARTNERS FUND B L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ---------------------------------------- Name: Michael C. Child Its:Managing Director TA INVESTORS LLC By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ---------------------------------------- Name: Michael C. Child Its:Managing Director TA SUBORDINATED DEBT FUND, L.P. By: TA Associates SDF LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ---------------------------------------- Name: Michael C. Child Its:Managing Director Address for Notice (including those investors listed above): Attn: Michael C. Child and Jameson J. McJunkin 125 High Street Suite 2500 Boston, MA 02110 EX-10.8 8 c86449exv10w8.txt NOTE PURCHASE AGREEMENT Exhibit 10.8 EXECUTION COPY ================================================================================ NOTE PURCHASE AGREEMENT Among EAGLE TEST SYSTEMS, INC., as borrower AND TA SUBORDINATED DEBT FUND, L.P. AND TA INVESTORS, LLC as Noteholders Dated as of September 30, 2003 ================================================================================ \ EAGLE TEST SYSTEMS, INC., Note Purchase Agreement Dated as of September 30, 2003 TABLE OF CONTENTS ARTICLE I - DEFINITIONS........................................................................... 1 1.1. Definitions..................................................................... 1 1.2. Accounting Terms................................................................ 6 ARTICLE II - AUTHORIZATION, PURCHASE, SALE AND TERMS OF CONVERTIBLE NOTES; PAYMENTS............... 6 2.1. The Securities.................................................................. 6 2.2. Purchase of the Convertible Notes; Conversion into Notes and Warrants........... 7 2.3. Issue Price; Original Issue Discount............................................ 8 2.4. Use of Proceeds................................................................. 8 2.5. Payments and Endorsements....................................................... 8 2.6. Redemptions and Mandatory Repurchase............................................ 8 2.7. Default Rate of Interest........................................................ 10 2.8. Maximum Legal Rate of Interest.................................................. 10 2.9. Payment on Non-Business Days.................................................... 10 2.10. Transfer and Exchange of Convertible Notes or Notes............................. 10 2.11. Replacement of Convertible Notes or Notes....................................... 10 2.12. Other Notices................................................................... 11 2.13. Taxes........................................................................... 12 ARTICLE III - CONDITIONS TO NOTEHOLDERS' OBLIGATIONS.............................................. 14 3.1. Representations and Warranties.................................................. 14 3.2. Documentation at Closing........................................................ 14 3.3. Use of Proceeds................................................................. 15 3.4. Compliance with this Agreement.................................................. 15 3.5. No Material Judgment or Order................................................... 15 ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE NOTEHOLDERS.................................... 16 4.1. Representations and Warranties of the Noteholders............................... 16 ARTICLE V - REPRESENTATIONS AND WARRANTIES........................................................ 17 5.1. Authority....................................................................... 17 5.2. Governmental Approvals.......................................................... 18 5.3. No Event of Default............................................................. 18 5.4. Government Regulation........................................................... 18

(i) 5.5. Absence of Financing Statements, etc............................................ 19 5.6. Use of Proceeds................................................................. 19 5.7. Securities Act.................................................................. 19 5.8. Representations and Warranties Incorporated from Stock Purchase Agreement....... 19 5.9. No Materially Adverse Judgments, etc............................................ 19 ARTICLE VI - AFFIRMATIVE COVENANTS OF THE COMPANY................................................. 20 6.1. Payment of Taxes and Claims..................................................... 20 6.2. Maintenance of Insurance, Financial Records and Corporate Existence............. 20 6.3. Business Conducted.............................................................. 21 6.4. Litigation...................................................................... 21 6.5. Taxes........................................................................... 21 6.6. Financial and Business Information.............................................. 21 6.7. Officers' Certificates.......................................................... 22 6.8. Inspection...................................................................... 23 6.9. Tax Returns and Reports......................................................... 23 6.10. Material Adverse Development.................................................... 23 6.11. Places of Business.............................................................. 23 6.12. Notice of Action................................................................ 23 6.13. Verification of Information..................................................... 23 6.14. Commercial Tort Claim........................................................... 24 ARTICLE VII - NEGATIVE COVENANTS OF THE COMPANY................................................... 24 7.1. Merger, Consolidation, Dissolution or Liquidation............................... 24 7.2. Liens and Encumbrances.......................................................... 24 7.3. Guarantees...................................................................... 24 7.4. Indebtedness.................................................................... 25 7.5. Loans to Other Persons.......................................................... 25 7.6. Subordinated Debt Payments...................................................... 25 7.7. Distributions................................................................... 25 ARTICLE VIII - DEFAULT............................................................................ 25 8.1. Events of Default............................................................... 25 8.2. Cure............................................................................ 28 8.3. Rights and Remedies on Default.................................................. 28 8.4. Nature of Remedies.............................................................. 28 8.5. Set-Off......................................................................... 29 8.6. Distribution of Proceeds........................................................ 29 ARTICLE IX - MISCELLANEOUS........................................................................ 29 9.1. No Waiver; Cumulative Remedies.................................................. 29 9.2. Amendments, Waivers and Consents................................................ 30 9.3. Addresses for Notices, Etc...................................................... 30 9.4. Costs, Expenses and Taxes....................................................... 31

(ii) 9.5. Assignability; Binding Agreement................................................ 31 9.6. Payments in Respect of Convertible Notes or Notes............................... 31 9.7. Indemnification................................................................. 32 9.8. Survival of Representations and Warranties...................................... 32 9.9. Prior Agreements................................................................ 33 9.10. Severability.................................................................... 33 9.11. Governing Law................................................................... 33 9.12. Jury Waiver..................................................................... 33 9.13. Counterparts.................................................................... 34 9.14. Further Assurances.............................................................. 34 9.15. Specific Performance............................................................ 34 9.16. Actions by Noteholders.......................................................... 34 9.17. Limitation of Liability......................................................... 34

(iii) SCHEDULES, EXHIBITS & ANNEXES Exhibits Exhibit A Form of Joinder Agreement Exhibit 2.1 Form of Convertible Note Exhibit 2.1(i) Form of Note Exhibit 2.1(ii) Form of Warrant Exhibit 2.2 Allocation of Convertible Note Purchase Amount Exhibit 2.2(a) Allocation of Note Purchase Amount Exhibit 2.2(b) Allocation of Warrant Shares Exhibit 2.3 Issue Price Exhibit 6.6 Form of CEO Certificate Schedules Schedule 1 Schedule of Noteholders Schedule 5.5 Permitted Liens Schedule 7.3 Permitted Guarantees Disclosure Schedules (iv) EAGLE TEST SYSTEMS, INC., Dated as of September 30, 2003 To the Noteholders Named in Schedule 1 Hereto Ladies and Gentlemen: EAGLE TEST SYSTEMS, INC., a Delaware corporation (the "Company"), hereby agrees with you as follows: ARTICLE I - DEFINITIONS 1.1. Definitions. As used herein, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account" means (a) payments and all rights to receive payments owing to the Company from an Obligor arising in connection with services provided or arranged for by the Company, (b) all accounts, general intangibles, rights, remedies, guarantees, supporting obligations, letter of credit rights and security interests in respect of the foregoing, all rights of enforcement and collection, all books and records evidencing or related to the payments and rights described in clause (a) of this definition, and all rights under this Agreement in respect of the foregoing, (c) all information and data compiled or derived by the Company or to which the Company is entitled in respect of such accounts receivable, and (d) all proceeds of any of the foregoing. "Affiliate" shall mean any Person that would be considered to be an affiliate of the Company under Rule 144 of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Company were issuing securities; provided that the term "Affiliate" shall not include any Noteholder. "Agreement" shall mean this Note Purchase Agreement as from time to time amended and in effect between the parties. "Applicable Law" shall mean all laws, statutes and rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof which is applicable to Company, its subsidiaries, or any business conducted by such Persons. "Business Day" shall mean any day other than a Saturday, Sunday or public holiday or the equivalent for banks under the laws of the State of New York. "Closing" shall have the meaning assigned to that term in Section 2.2. "Closing Date" shall have the meaning assigned to that term in Section 2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Common Stock" includes (i) the Company's common stock, no par value, as authorized on the date of this Agreement, (ii) any other common stock of any class or classes (however designated) of the Company, authorized on or after the date hereof, and (iii) any other securities into which or for which any of the securities described in (i) or (ii) above may be converted or exchanged pursuant to a plan of recapitalization, reorganization, merger, sale of assets or otherwise. "Company" shall have the meaning assigned to that term in the first paragraph of this Agreement. "Competitor" shall mean any one of Advantest America Corporation, Agilent Technologies, Credence Systems Corporation, LTX Corporation, Nextest Systems Corporation, NPTest Inc., Teradyne Inc. and Yokogawa Electric Corporation. The Company may reasonably amend the foregoing list from time to time. "Consolidated" or "consolidated" shall mean with respect to any term defined herein that term as applied to the accounts of the Company and its Subsidiaries, consolidated in accordance with GAAP. "Convertible Notes" shall have the meaning assigned to that term in Section 2.1. "Distribution" means (a) dividends or other distributions on capital stock or other equity interests of the Company and (b) the redemption, repurchase or acquisition of such stock or equity interests or of warrants, rights or other options to purchase such stock or equity interest. "ERISA" shall mean part 6 subtitle B of title I of the Employee Retirement Income Security Act of 1974, as amended. "Event of Default" shall have the meaning assigned to that term in Section 8.1. "Fiscal Quarter" shall mean each quarterly accounting period during any Fiscal Year; provided that for purposes hereof, all references to the Fiscal Quarter ending December 31, March 31, June 30 or September 30 shall mean the first, second, third or fourth Fiscal Quarter of the applicable Fiscal Year, respectively, irrespective of the actual date on which such Fiscal Quarter may end. "Fiscal Year" or "fiscal year" shall mean the fiscal year of the Company ending on September 30 of each calendar year. "GAAP" or "generally accepted accounting principles" shall mean principles that are (A) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (B) consistently applied with past financial statements of the Company adopting the same 2 principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would, insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. "Indebtedness" as applied to a Person shall mean, without duplication: (i) all items which in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person as at the date as of which Indebtedness is to be determined, (ii) all obligations of other Persons which such Person has guaranteed, (iii) all reimbursement obligations in connection with letters of credit or letter of credit guaranties issued for the account of such Person, (iv) in the case of the Company or any of its Subsidiaries (without duplication), the Noteholder Obligations; and (v) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices. "Mandatory Repurchase Event" shall mean the occurrence of any one of any of the following events after the Closing Date: (a) any Person together with all affiliates and associates of such Person (other than a Person, or the Affiliates and associates of such Person, who is a shareholder on the date hereof), shall become the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors; (b) Persons who constitute the Company's Board of Directors as of the date hereof cease for any reason other than as currently provided under the Restated Articles and the Stockholders' Agreement, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board; (c) the Board of Directors or shareholders of the Company shall approve (i) any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own, directly or indirectly, shares representing in the aggregate 50% or more of the voting shares of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any), (ii) any sale of all or substantially all of the assets of the Company, and (iii) any plan or proposal for the liquidation or dissolution of the Company; (d) the Company's initial public offering of its capital stock or (e) notwithstanding subsection (a) above, Leonard Foxman or the Foxman Family, LLC becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities having the right to vote in an election of the Company's Board of Directors. 3 "Material Adverse Effect" shall mean a material adverse effect on the assets, liabilities, condition (financial or other), business or results of operations of the Company and its Subsidiaries, taken as a whole. "Noteholder Obligations" shall mean all indebtedness, obligations and liabilities of the Company and its Subsidiaries to any of the Noteholders, individually or collectively, existing on the date of this Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement or any of the Convertible Notes or Notes, or other instruments at any time evidencing any thereof. "Noteholders" shall mean the holder or holders from time to time of the Convertible Notes or Notes, as applicable. "Notes" shall have the meaning assigned to that term in Section 2.1. "Obligor" means any Person that is obligated to Company on or under an Account. "Permitted Liens" shall mean liens, security interests and other encumbrances set forth on Schedule 5.5 together with (a) any lien created under any Subordinated Notes Documents; (b) liens for taxes, fees, assessments or other governmental charges (i) that are not delinquent or remain payable without penalty, or (ii) that are being contested in good faith and by appropriate proceedings diligently prosecuted and for which adequate reserves in accordance with GAAP are being maintained; (c) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar liens arising in the ordinary course of business that are not delinquent for more than ninety (90) days or remain payable without penalty or that are being contested in good faith and by appropriate proceedings diligently prosecuted, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto and for which adequate reserves in accordance with GAAP are being maintained; (d) liens (other than any lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation or to secure the performance of tenders, statutory obligations, surety, stay, customs and appeals bonds, bids, leases, governmental contract, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or to secure liability to insurance carriers; (e) liens consisting of judgment or judicial attachment liens, provided that the enforcement of such liens is effectively stayed and the judgment in respect thereof does not cause an Event of Default under Section 8.1.9; (f) easements, rights-of-way, zoning and other restrictions, minor defects or other irregularities in title, and other similar encumbrances incurred in the ordinary course of business which, either individually or, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere in any 4 material respect with the ordinary conduct of the businesses of Company or any of its Subsidiaries; (g) liens on any Property acquired or held by Company or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing (or refinancing) all or any part of the cost of acquiring such Property and permitted under Section 7.4; provided that (i) such lien attaches solely to the Property so acquired in such transaction, and (ii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such Property; (h) any interest or title of a lessor or sublessor under any lease; and (i) liens arising from precautionary uniform commercial code financing statements filed under any lease. "Person" shall mean any individual, corporation, partnership, limited liability company, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. "Preferred Stock" shall mean the Company's Series A Convertible Preferred Stock, par value $.01 per share. "Property" shall mean any interest in any kind or property or asset, whether real, personal or mixed, or tangible or intangible. "Redemption" shall have the meaning set forth in the Stock Purchase Agreement. "Registration Rights Agreement" shall mean the Registration Rights Agreement of even date herewith by and among the Company and the Investors (as defined therein). "Restated Articles" shall mean those certain Amended and Restated Articles of Incorporation of the Company dated as of September 30, 2003. "Securities" shall mean collectively the Convertible Notes, the Notes, the Warrants and the Warrant Shares. "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute, and the rules and regulations of the Securities and Exchange Commission thereunder, all as the same shall be in effect at the time. "Stockholders Agreement" shall mean the Stockholders Agreement of even date herewith among the Company, the Investors (as defined therein) and the Stockholders (as defined therein), as amended, modified or supplemented from time to time in accordance with its terms and the terms hereof. "Stock Option Plan" shall mean the 2003 Stock Option and Grant Plan created under an instrument effective as of the date hereof. "Stock Option Agreements" shall mean the Stock Option Agreements executed from time to time in accordance with the terms of the Stock Option Plan. 5 "Stock Purchase Agreement" shall mean the Stock Purchase Agreement of even date herewith by and among the Company, the Investors (as defined therein) and the Stockholders (as defined therein), as amended, modified or supplemented from time to time in accordance with its terms. "Subordinated Notes Documents" shall mean this Agreement and the Securities. "Subsidiary" shall mean any Person which the Company shall, directly or indirectly through a Subsidiary or Subsidiaries, have the power to vote or direct the voting of sufficient securities to elect a majority of directors (or persons performing similar functions) or with respect to which the Company, directly or indirectly through a Subsidiary or Subsidiaries, acts as a general partner or managing member or otherwise controls the day-to-day operations of such Person. Any reference herein to a Subsidiary of the Company shall include any Subsidiary of the Company as of the Closing Date or at any time thereafter. "Transaction Documents" shall mean the Subordinated Notes Documents, the Stock Purchase Agreement, the Stockholders Agreement and the Registration Rights Agreement, the Stock Option Plan, and the Stock Option Agreements. "Unmatured Event of Default" means an event which with the passage of time, giving of notice or both, would become an Event of Default. "Warrants" shall have the meaning assigned to that term in Section 2.1(ii). "Warrant Shares" shall have the meaning assigned to that term in Section 2.1(ii). 1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data submitted pursuant to this Agreement and all financial tests to be calculated in accordance with this Agreement shall be prepared and calculated in accordance with GAAP. All financial tests relating to the Company shall be calculated with respect to the Company and its Subsidiaries on a consolidated basis. ARTICLE II - AUTHORIZATION, PURCHASE, SALE AND TERMS OF CONVERTIBLE NOTES; PAYMENTS 2.1. The Securities. The Company has authorized the issuance of its Senior Subordinated Secured Convertible Notes due September 30, 2009 in the aggregate original principal amount of $30,000,000. The Senior Subordinated Secured Convertible Notes shall be in the form set forth as Exhibit 2.1 attached hereto and are herein referred to individually as a "Convertible Note" and collectively as the "Convertible Notes", which terms shall also include any notes delivered in exchange or replacement therefor. The Convertible Notes shall (a) be payable on September 30, 2009 and (b) bear interest compounded quarterly (based on a 360-day year of twelve 30-day months) on the unpaid 6 principal amount thereof until due at the rate of 12% per annum, payable in cash quarterly in arrears on March 31, June 30, September 30 and December 31 in each year, commencing September 30, 2003, and at maturity or prior prepayment of the Convertible Notes in full. The Convertible Notes shall be convertible at any time, in whole or in part, in the sole discretion of the Noteholder thereof, upon such Noteholder's delivery of notice to the Company of its intent to convert, into (i) Senior Subordinated Secured Notes due September 30, 2009 in the aggregate principal amount of $29,995,000 (or such lower amount determined on a pro-rata basis in the event of any in part conversion) plus any interest owed in arrears on the Convertible Notes on the date of conversion, in the form set forth as Exhibit 2.1(i) attached hereto (referred to herein individually as a "Note" and collectively as the "Notes", which terms shall also include any notes delivered in exchange or replacement therefor), and (ii) Common Stock Purchase Warrants of the Company for the purchase (subject to adjustment as provided for therein) of an aggregate of 210.016 (or such lower amount determined on a pro-rata basis in the event of any in part conversion) of the Company's Common Stock (the "Warrant Shares") exercisable at a price per share of $.01 (subject to adjustment), in the form set forth as Exhibit 2.1(ii) attached hereto (referred to herein individually as a "Warrant" and collectively as the "Warrants", which terms shall also include any warrants delivered in exchange or replacement therefor). The Notes shall (Y) payable on September 30, 2009, and (Z) bear interest compounded quarterly (based on a 360-day year of twelve 30-day months) on the unpaid principal amount thereof plus any interest owed in arrears on the Convertible Note as of the Conversion Date (as defined in Section 2.2) until due at the rate of 12% per annum, payable in cash quarterly in arrears on March 31, June 30, September 30, and December 31 in each year commencing on the Conversion Date, and at maturity or prior prepayment of the Notes in full. The Company has authorized the issuance to the Noteholders of the Convertible Notes, and upon conversion thereof, the Notes and the Warrants, and upon exercise of the Warrants the issuance and sale of the Warrant Shares. 2.2. Purchase of the Convertible Notes; Conversion into Notes and Warrants. Subject to and in reliance upon the representations, warranties, terms and conditions of this Agreement, each Noteholder severally agrees to purchase Convertible Notes from the Company in the principal amount set forth opposite such Noteholder's name on Exhibit 2.2 attached hereto. The Convertible Notes shall be purchased at a closing (the "Closing") to be held at such location as agreed to by the Company and the Noteholders, at 10:00 a.m. local time, on the date on which this Agreement is executed and delivered and upon satisfaction of the conditions described in Article III (the "Closing Date"). At the Closing, the Company will initially issue one Convertible Note to each Noteholder, payable to such Noteholder or its registered assigns, in the principal amount set forth opposite such Noteholder's name on Exhibit 2.2, against receipt of immediately available funds by wire transfer to an account or accounts designated by the Company prior to the Closing in the amount set forth next to such Noteholder's name on Exhibit 2.2 (or in such other manner as is set forth on Exhibit 2.2). On the date that a Noteholder delivers notice to the Company of its intent to convert a Convertible Note (the "Conversion Date"), the Convertible Note shall be deemed as of such date to be converted into (a) a Note in the 7 principal amount set forth opposite such Noteholder's name on Exhibit 2.2(a) attached hereto, and (b) a Warrant to purchase the number of Warrant Shares set forth opposite such Noteholder's name on Exhibit 2.2(b) attached hereto. On the Conversion Date, the Company will immediately execute and deliver the Note(s) and the Warrant(s) to the applicable Noteholder(s), and thereafter any Convertible Notes so converted shall be deemed to be canceled and of no further force or effect. 2.3. Issue Price; Original Issue Discount. The issue price of each Convertible Note, within the meaning of Section 1273 of the Code, is as set forth on Exhibit 2.3 attached hereto. The Company and each Noteholder recognize and agree that (i) the Convertible Notes will not be issued with original issue discount within the meaning of Section 1273 of the Code, and (ii) the issue price of any Note issued by the Company, within the meaning of Section 1273 of the Code, will be determined in accordance with the rules in Section 1273(b)(3) or 1273(b)(4), as applicable, at the time of the conversion of the Convertible Note in respect of which such Note is issued. The Company and each Noteholder agree to comply with all tax, accounting, regulatory and other reporting requirements in a manner which is consistent with the foregoing. 2.4. Use of Proceeds. The Company agrees to use the full proceeds of the Convertible Notes, together with the $65,000,000 of Preferred Stock, for the Redemption. 2.5. Payments and Endorsements. (a) Payments of principal, interest and premium, if any, on the Convertible Notes or the Notes, as applicable, shall be made without set off or counterclaim, directly by wire transfer to an account designated in writing by each Noteholder, without any presentment or notation of payment, except that prior to any transfer of any Convertible Note or Note, as applicable, the holder thereof shall endorse on such Convertible Note or Note, as applicable, a record of the date to which interest has been paid and all payments made on account of principal of such Convertible Note or Note, as applicable. All payments and prepayments of principal of and interest on the Convertible Note or Notes, as applicable, shall be applied (to the extent thereof) to all of the Convertible Notes or Notes, as applicable, pro rata based on the principal amount outstanding and held by each holder thereof. (b) The obligations of the Company under Sections 2.5 and 2.13 shall survive the payment in full of all amounts due hereunder or under the Convertible Notes or Notes, as applicable. 2.6. Redemptions and Mandatory Repurchase. 2.6.1. Required Redemption. On the stated or accelerated maturity of the Convertible Notes or the Notes, as applicable, the Company will pay the principal amount of the Convertible Notes or the Notes, as applicable, then outstanding together with all accrued and unpaid interest thereon. No redemption of less than all of the 8 Convertible Notes or the Notes, as applicable, shall affect the obligation of the Company to make the redemption required by this sub-section. 2.6.2. Optional Redemptions. In addition to the redemption of the Convertible Notes or the Notes, as applicable, required under sub-Section 2.6.1, the Company may at any time and from time to time, voluntarily redeem the Convertible Notes or the Notes, as applicable, in whole, or in part (in integral multiples of $500,000), together with all accrued and unpaid interest on the amount so redeemed through the date of redemption, at a redemption price (expressed as a percentage of the sum of the principal amount to be redeemed) equal to the price indicated below corresponding to the period in which any redemption occurs:
Period Redemption Price ------ ---------------- Closing Date through September 29, 2004 103.00% September 30, 2004 through September 29, 2005 102.50% September 30, 2005 through September 29, 2006 102.00% September 30, 2006 through September 29, 2009 100.00%
2.6.3. Notice of Redemptions; Pro Rata Redemptions. Written notice of any redemption pursuant to sub-section 2.6.1 or sub-section 2.6.2 shall be given to all holders of the Convertible Notes and the Notes, as applicable, at least twenty (20) Business Days prior to the date of any such redemption and if any such redemption relates to the Convertible Notes such notice shall also state that the Noteholders have the right to convert the Convertible Notes at any time prior to such redemption. Each redemption of the Convertible Notes and the Notes, as applicable, pursuant to sub-sections 2.6.1 and 2.6.2 shall be made so that the Convertible Notes and the Notes, as applicable, then held by each holder shall be redeemed in a principal amount which shall bear the same ratio to the total unpaid principal amount being redeemed on all the Convertible Notes and the Notes, as applicable, as the unpaid principal amount of the Convertible Notes and the Notes, as applicable, then held by such holder bears to the aggregate unpaid principal amount of the Convertible Notes and the Notes, as applicable, then outstanding. 2.6.4. Mandatory Repurchase of Notes. As soon as possible, and in any event within five (5) Business Days after the occurrence of a Mandatory Repurchase Event, the Company shall furnish to each Noteholder written notice setting forth in reasonable detail the facts and circumstances underlying such Mandatory Repurchase Event and shall also state if the Convertible Notes are still outstanding that the Noteholders have the right to convert the Convertible Notes at any time. The occurrence of any such Mandatory Repurchase Event shall constitute an irrevocable offer (subject to the last sentence of this sub-section 2.6.4) by the Company to purchase all of the Convertible Notes or the Notes, as applicable, held by such Noteholder, at the price set forth in Section 2.6.2 as though the mandatory redemption were an optional redemption 9 by the Company, on a date to be specified by the Company, which date shall be not less than thirty (30) days nor more than ninety (90) days after the occurrence of such Mandatory Repurchase Event together with all accrued and unpaid interest on the amount so purchased through the date of purchase. Following receipt of any offer to purchase the Convertible Notes or the Notes, as applicable, hereunder, each Noteholder shall advise the Company, by written notice, within ten (10) Business Days after receipt of such offer, as to whether it desires to sell all or any of the Convertible Notes or the Notes, as applicable, held by it (in integral multiples of $500,000), specifying the principal amount of the Convertible Notes or the Notes, as applicable, to be sold by it. If a Noteholder accepts such offer but does not specify an amount it wishes to receive, it will be deemed to have elected to sell all of the Convertible Notes or the Notes, as applicable, held by it. If a Noteholder fails to respond to such offer by the Company within the ten (10) Business Day acceptance period, such offer shall expire in accordance with its terms and the Company shall not be obligated to purchase any Convertible Note or Note, as applicable, of such Noteholder. 2.7. Default Rate of Interest. If an Event of Default has occurred and is continuing, from and after the date such Event of Default has occurred, the entire outstanding unpaid principal balance of the Convertible Notes or the Notes, as applicable, and any unpaid interest from time to time in default shall bear interest, payable on demand in cash, at the rate of 15% per annum, compounded quarterly, or such lower rate as then may be the maximum rate permitted by applicable law; provided, however, that upon the cessation or cure of such Event of Default, if no other Event of Default is then continuing, the Convertible Notes or the Notes, as applicable, shall again bear interest at the rate of 12% per annum as set forth in Section 2.1. 2.8. Maximum Legal Rate of Interest. Nothing in this Agreement or in the Convertible Notes or Notes, as applicable, shall require the Company to pay interest at a rate in excess of the maximum rate permitted by applicable law. 2.9. Payment on Non-Business Days. Whenever any payment to be made shall be due on a day which is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest due. 2.10. Transfer and Exchange of Convertible Notes or Notes. The holder of any Convertible Note or Note, as applicable, may, prior to maturity or prepayment thereof, surrender such Convertible Note or Note, as applicable, or Convertible Notes or Notes, as applicable, at the principal office of the Company for transfer or exchange. Any holder desiring to transfer or exchange any Convertible Note or Note, as applicable, shall first notify the Company in writing at least five (5) days in advance of such transfer or exchange; provided, however, that each Noteholder agrees that such Noteholder will not, without the prior written consent of a majority of members of the Board of Directors who are not nominated by the Noteholders or their affilates, transfer any Convertible Notes or Notes held by such Noteholder to any Competitor unless such transfer is made in 10 connection with (i) the termination or dissolution of such Investor's partnership or investment fund and the Convertible Notes or Notes transferred comprise less than 25% of the aggregate value of the securities being transferred to such Competitor pursuant to such termination or dissolution or (ii) any transaction in which Leonard Foxman and the Foxman Family LLC are given the opportunity to sell or transfer all shares of capital stock held by them as of the date of such proposed transfer. Within a reasonable time after such notice to the Company from a holder of its intention to make such exchange and without expense (other than transfer taxes, if any) to such holder, the Company shall issue in exchange therefor another Convertible Note or Note, as applicable, or Convertible Notes or Notes, as applicable, in denominations of $100,000 and multiples thereof, except in the case of a Convertible Note or Note, as applicable, for the balance of the aggregate amount of the Convertible Note or Note, as applicable, or Convertible Notes or Notes, as applicable, so transferred which shall be in a minimum denomination of $100,000, all as requested by the holder, for the same aggregate principal amount, as of the date of such issuance, as the unpaid principal amount of the Convertible Note or Note, if applicable, or Convertible Notes or Notes, as applicable, so surrendered and having the same maturity and rate of interest, containing the same provisions and subject to the same terms and conditions as the Convertible Note or Note, as applicable, or Convertible Notes or Notes, as applicable, so surrendered (provided that no minimum shall apply to a liquidating distribution of Convertible Notes or Notes, as applicable, to investors in a Noteholder and any Convertible Notes or Notes, as applicable, so distributed may be subsequently transferred by such investor and its successors in the original denomination thereof without restriction under this sentence). Each new Convertible Note or Note, as applicable, shall be made payable to such Person or Persons, or assigns, as the holder of such surrendered Convertible Note or Note, as applicable, or Convertible Notes or Notes, as applicable, may designate, and such transfer or exchange shall be made in such a manner that no gain or loss of principal or interest shall result therefrom. The Company shall have no obligation hereunder or under any Convertible Note or Note, as applicable, to any person other than the registered holder of each such Convertible Note or Note, as applicable. Notwithstanding anything to the contrary contained herein, no Noteholder shall be permitted to transfer any of its Convertible Notes or Notes, as applicable, unless such Noteholder's transferee has agreed in writing to be bound by the terms of this Agreement and the other Subordinated Notes Documents to which such Noteholder is a party, including the representations and warranties set forth in Section 4.1 hereof. 2.11. Replacement of Convertible Notes or Notes. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Convertible Note or Note, as applicable, and, if requested in the case of any such loss, theft or destruction, upon delivery of an indemnity bond or other agreement or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of such Convertible Note or Note, as applicable, the Company will issue a new Convertible Note or Note, as applicable, of like tenor and amount and dated the date to which interest has been paid, in lieu of such lost, stolen, destroyed or 11 mutilated Convertible Note or Note, as applicable; provided, however, if any Convertible Note or Note, as applicable, of which a Noteholder, its nominee, or any of its partners is the holder is lost, stolen or destroyed, the affidavit of an authorized partner or officer of such holder setting forth the circumstances with respect to such loss, theft or destruction shall be accepted as satisfactory evidence thereof, and no indemnity bond or other security shall be required as a condition to the execution and delivery by the Company of a new Convertible Note or Note, as applicable, in replacement of such lost, stolen or destroyed Convertible Note or Note, as applicable, other than such holder's written agreement to indemnify the Company. 2.12. Other Notices. So long as any Convertible Notes are outstanding, the Company shall provide written notice to each Noteholder at least thirty (30) Business Days prior to the occurrence or closing of a Mandatory Repurchase Event or a public offering of securities by the Company setting forth in reasonable detail the facts and circumstances underlying such Mandatory Repurchase Event or public offering and also stating that the Noteholders have the right to convert the Convertible Notes at any time. 2.13. Taxes. 2.13.1. General. Anything herein to the contrary notwithstanding, if any changes in present or future Applicable Law shall impose on the Company any obligation with respect to any amount payable by it hereunder or under any of the other Transaction Documents to withhold or deduct any taxes, levies, imposts, duties, charges, fees, deductions or withholdings (the Taxes"), the Company will pay to the Noteholders, on the date on which such amount is due and payable hereunder or under such other Transaction Document, such additional amount in United States Dollars as shall be necessary to enable the Noteholders to receive the same net amount which the Noteholders would have received on such due date if no such obligation had been imposed upon the Company. 2.13.2. Indemnification. Subject to subsection 2.13.5, provided that the applicable Noteholder notifies the Company within one year of the later of (a) becoming aware of any such liability and (b) incurring such Taxes, Company shall indemnify and hold harmless each Noteholder for the full amount of Taxes paid by such Noteholder and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto. Payment under this indemnification shall be made within thirty (30) days from the date any Noteholder makes written demand therefore. 2.13.3. Payment. If Company shall be required by law to deduct or withhold any Taxes from or in respect of any sum payable under any Subordinated Notes Documents to any Noteholder, then, subject to subsection 2.13.5: (a) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Noteholder receives an amount equal to the sum it would have received had no such deductions been made; (b) Company shall make such deductions; and (c) Company shall 12 pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. 2.13.4. Foreign Noteholders. Each Noteholder that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall deliver to the Company two copies of each U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or any subsequent versions thereof or successors thereto, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a "bank" for purposes of Section 881(c) of the Code, is not a ten percent (10%) shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of Company and is not a controlled foreign corporation related to Company (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by Company under any Subordinated Notes Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement and/or holder of any Securities. In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify Company at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Company (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this subsection, a Non-U.S. Lender shall not be required to deliver any form pursuant to this subsection that such Non-U.S. Lender is not legally able to deliver. 2.13.5. No Obligation to Pay Taxes. Company shall not be required to pay any additional amounts in respect of United States Federal income tax pursuant to subsection 2.13.3 to any Noteholder: (a) if the obligation to pay such additional amounts would not have arisen but for a failure by such Noteholder to comply with its obligations under subsection 2.13.4; (b) if such Noteholder shall have delivered to the Company a Form W-8BEN and/or Form W-8ECI (or any subsequent versions thereof or successors thereto) and such Noteholder shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company under any Subordinated Notes Documents for any reason other than a change in United States law, treaty or regulations or in the official interpretation of such law or regulations by any governmental authority charged with the interpretation or 13 administration thereof (whether or not having the force of law) after the date of delivery of such Form W-8BEN and/or Form W-8ECI (or any subsequent versions thereof or successors thereto); or (c) if such Noteholder shall have delivered to the Company a Form W-8 (or any subsequent versions thereof or successors thereto) and such Noteholder shall not at any time be entitled to exemption from deduction or withholding of United States Federal income tax in respect of payments by the Company under any Subordinated Notes Documents for any reason other than a change in the United States law or regulations or any applicable tax treaty or regulations or in the official interpretation of any such law, treaty or regulations by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of law) after the date of delivery of such Form W-8 (or subsequent versions thereof or successors thereto). ARTICLE III - CONDITIONS TO NOTEHOLDERS' OBLIGATIONS The obligation of the Noteholders to purchase the Convertible Notes at the Closing is subject to the following conditions, all or any of which may be waived in writing by the Noteholders: 3.1. Representations and Warranties. Each of the representations and warranties of the Company set forth in Article V hereof shall be true and correct in all respects at the time of, and immediately after giving effect to, the purchase of the Convertible Notes. 3.2. Documentation at Closing. The Noteholders shall have received prior to or at the Closing all of the following, each in form and substance satisfactory to the Noteholders and their special counsel: (a) Certified copies of all charter documents of the Company and its Subsidiaries; certified copies of the resolutions of the boards of directors and, to the extent required, the shareholders of the Company and its Subsidiaries evidencing approval of this Agreement, the other Transaction Documents and all other matters contemplated hereby and thereby; and certified copies of the By laws of the Company; certified copies of all documents evidencing other necessary corporate or other action and governmental approvals, if any, with respect to this Agreement, the other Transaction Documents and all other matters contemplated hereby or thereby. (b) A certificate of the Secretary of the Company and its Subsidiaries which shall certify the names of the officers of the Company and its Subsidiaries authorized to sign this Agreement, the other Transaction Documents and any other documents or certificates to be delivered pursuant hereto or thereto by the Company and its Subsidiaries or any of their respective officers, together with the true signatures of such officers. The Noteholders may conclusively rely on such certificate(s) until they 14 shall receive a further certificate of the Secretary of the Company and its Subsidiaries canceling or amending the prior certificate and submitting the signatures of the officers named in such further certificate. (c) A certificate from a duly authorized officer of the Company stating that (i) the representations and warranties contained in Article V hereof and otherwise made by the Company in writing in connection with the transactions contemplated hereby are true and correct, (ii) no condition or event has occurred or is continuing or will result from the execution and delivery of this Agreement or the Transaction Documents which constitutes an Event of Default or Unmatured Event of Default and (iii) all the conditions set forth in this Article III have been satisfied (other than those, if any, waived by the Noteholders in writing). (d) The Convertible Notes duly executed by the Company and registered in the name of the Noteholders. (e) Payment for the costs, expenses, taxes and filing fees identified in Section 9.4 as to which the Noteholder gives the Company notice prior to or at the Closing. (f) A solvency certificate from the chief executive officer of the Company addressed to the Noteholder and dated the Closing Date and supporting the conclusion, that, after giving effect to the transactions contemplated in the Stock Purchase Documents, the Subordinated Notes Documents and the incurrence of all financing contemplated herein and therein, the Company will not be left with unreasonably small capital with which to engage in its business and will not have incurred debts beyond its ability to pay such debts in the ordinary course as they mature and become due. (g) Such other documents referenced in any Exhibit hereto or relating to the transactions contemplated by this Agreement as the Noteholders or its special counsel may reasonably request. 3.3. Use of Proceeds. The Company shall have used, or simultaneously with the Closing shall use, funds from the sale of the Preferred Stock and the Convertible Notes for the purposes described in Section 2.4. 3.4. Compliance with this Agreement. The Company shall have performed and complied with all of its agreements and satisfied the conditions set forth or contemplated herein that are required to be performed or complied with or satisfied by it on or before the Closing Date. 3.5. No Material Judgment or Order. There shall not be on the Closing Date any judgment or order of a court of competent jurisdiction or any ruling of any governmental authority or any condition under Applicable Law which, in the judgment of 15 the Noteholders would prohibit the purchase of the Convertible Notes hereunder or subject the Noteholders to any penalty or other onerous condition under or pursuant to Applicable Law if the Convertible Notes were to be purchased hereunder. ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE NOTEHOLDERS 4.1. Representations and Warranties of the Noteholders. Each Noteholder, for itself only, hereby represents and warrants, which representations and warranties shall survive the closing, that: (a) Such Noteholders have duly authorized, executed and delivered this Agreement and such of the Transaction Documents as require execution by such Noteholder, and each constitutes the valid and binding obligation of such Noteholders enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. (b) Such Noteholders are acquiring the Securities for its own account, and not as nominee or agent. (c) The Securities are being and will be acquired for the purpose of investment and not with a view to distribution or resale thereof; subject, nevertheless, to the condition that, except as otherwise provided herein or in the Stockholder's Agreement and subject to compliance with applicable securities laws, the disposition of the property of such Noteholders shall at all times be within its control. Such Noteholders were not formed solely for the purpose of making an investment in the Company or its Subsidiaries. (d) Such Noteholders understand that it must bear the economic risk of its investment for an indefinite period of time because the Securities are not, and will not be, registered under the Securities Act or any applicable state securities laws, except as may be provided in this Agreement and the Stockholders Agreement, and may not be resold unless subsequently registered under the Securities Act and such other laws or unless an exemption from such registration is available. Such Noteholders acknowledge that, in issuing the Securities, the Company is relying on the representations and warranties of such Noteholders in this Section 4.1. (e) No Person has or will have, as a result of the transactions contemplated by this Agreement, any rights, interest or valid claim against or upon the Company or any of its Subsidiaries for any commission, fee or other compensation as a 16 finder or broker because of any act or omission by such Noteholders or any agent of such Noteholder. (f) Such Noteholders hereby acknowledge that the Securities (unless no longer required in the opinion of counsel, which opinion and counsel shall be reasonably satisfactory to the Company, it being agreed that Goodwin Procter LLP shall be satisfactory) shall bear a legend substantially in the following form (in addition to any other legend required by the Transaction Documents): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS. The acquisition by such Noteholders of the Securities shall constitute a confirmation by it of the foregoing representations. ARTICLE V - REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Noteholders as of the Closing Date as follows (which representations and warranties shall survive the Closing but shall not be deemed re-made as of any date subsequent to the Closing Date), after giving effect to the transactions contemplated by this Agreement and the other Transaction Documents: 5.1. Authority. 5.1.1. Incorporation; Good Standing Each of the Company and its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, (ii) has all requisite corporate power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation and is duly authorized to do business in each jurisdiction where such qualification is necessary, except where a failure to be so qualified has not had and would not reasonably be expected to result in a Material Adverse Effect. 5.1.2. Authorization. The execution, delivery and performance of the Subordinated Notes Documents and the transactions contemplated thereby (a) are within the authority of such Person, (b) have been duly authorized by all necessary proceedings, 17 including, without limitation, the authorization of the issuance and delivery of the Convertible Notes, and upon conversion thereof, the issuance and delivery of the Notes and the Warrants, and upon exercise of the Warrants, the issuance and delivery of the Warrant Shares, (c) do not violate, conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Company or any of its Subsidiaries is subject or any judgment, order, writ, injunction, license or permit applicable to the Company or any of its Subsidiaries and (d) do not violate, conflict with, or result in the creation of any Lien on the properties or assets of the Company or any of its Subsidiaries under, any provision of the charter or bylaws (or similar governing instruments) of, or any material agreement or other material instrument binding upon, the Company or any of its Subsidiaries. Sufficient shares of authorized but unissued Common Stock have been reserved by appropriate action in connection with the prospective exercise of the Warrants. None of the purchase of the Convertible Notes, or issuance of the Notes and Warrants, or the issuance of shares of Common Stock upon the exercise of the Warrants, is subject to preemptive or other similar statutory or contractual rights (except for such rights under the Stockholders Agreement). 5.1.3. Enforceability. The execution and delivery of the Subordinated Notes Documents will result in valid and legally binding obligations of the Company enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability and the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 5.2. Governmental Approvals. The execution, delivery and performance by the Company and its Subsidiaries of the Subordinated Notes Documents and the transactions contemplated thereby, including the issuance and delivery of the Convertible Notes and upon conversion thereof, the issuance and delivery of the Notes and Warrants, and upon exercise of the Warrants the issuance and delivery of the Warrant Shares, do not require the approval or consent of, or filing with, any governmental agency or authority other than the filing of the Restated Articles with the Secretary of the State of Illinois and the filings that will be made and the consents that will be obtained under state securities laws. 5.3. No Event of Default. No Event of Default or Unmatured Event of Default has occurred and is continuing. 5.4. Government Regulation. Neither the Company nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940; nor is it subject to regulation under the 18 Federal Power Act, the Interstate Commerce Act or any other requirement and law which purports to regulate or restrict its ability to borrow money. 5.5. Absence of Financing Statements, etc. Except with respect to Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of the Company or any of its Subsidiaries or any rights relating thereto. 5.6. Use of Proceeds. The proceeds of the Convertible Notes shall be used for the purposes described in Section 2.4. 5.7. Securities Act. None of the Company nor any other Person authorized to act on its behalf has offered or will offer to sell the Securities or similar securities to, or solicit offers with respect thereto from, or enter into any preliminary conversations or negotiations relating thereto with, any Person, so as to bring the issuance and sale of the Securities to the Noteholders outside the exemptions from the registration requirements of the Securities Act. Assuming the accuracy of the representations and warranties of each Noteholder set forth herein, the issuance of the Securities to the Noteholders pursuant to this Agreement is not required to be registered under the Securities Act or applicable state securities law. 5.8. Representations and Warranties Incorporated from Stock Purchase Agreement. As of the date hereof, each of the representations and warranties given by the Company and, to the knowledge of the Company, each of the representations and warranties given by the Stockholders (as defined therein) in the Stock Purchase Agreement is true and correct, other than those that speak as of a specified date, in which case such representations and warranties are true and correct as of such date or those that are limited by materiality or other like qualifier or exception, in which case such representations are true and correct to such extent. Each of the representations and warranties given by the Company and, to the knowledge of the Company, each of the representations and warranties given by the Stockholders (as defined therein) in the Stock Purchase Agreement is incorporated herein as if such representations and warranties were set forth fully herein and for purposes of this Agreement. 5.9. No Materially Adverse Judgments, etc. Neither the Company nor any of its Subsidiaries is subject to any judgment, decree, order, rule or regulation that has had or would reasonably be expected to result in a Material Adverse Effect. None of the Company or any of its Subsidiaries is a party to any contract or agreement that has had or would reasonably be expected to result in any Material Adverse Effect. 19 ARTICLE VI - AFFIRMATIVE COVENANTS OF THE COMPANY The Company covenants and agrees that so long as any of the Convertible Notes or Notes are outstanding: 6.1. Payment of Taxes and Claims. The Company shall pay, before they become delinquent, all taxes, assessments and governmental charges or levies imposed upon it or upon its Property, except for those being contested in good faith with due diligence by appropriate proceedings and for which appropriate reserves have been maintained under GAAP. 6.2. Maintenance of Insurance, Financial Records and Corporate Existence. 6.2.1. Property Insurance. The Company shall maintain or cause to be maintained insurance on its Property against fire, flood, casualty and such other hazards in such amounts, with such deductibles and with such insurers as are customarily used by companies operating in the same industry as the Company. The policies of all such casualty insurance shall contain standard lender loss payable provisions and additional insured clauses issued in favor of the Noteholders pursuant to which all losses thereunder shall be paid to the Noteholders as the Noteholders' interests may appear. Such policies shall expressly provide that the requisite insurance cannot be altered or canceled without thirty (30) days prior written notice to the Noteholders and shall insure the Noteholders notwithstanding the act or neglect of the insured. At or prior to Closing, the Company shall furnish the Noteholders with insurance certificates evidencing the policies then being maintained by the Company. In the event the Company fails to procure or cause to be procured any such insurance or to timely pay or cause to be paid the premiums) on any such insurance, the Noteholders may do so for the Company, but the Company shall continue to be liable for the same. The Company may later cancel any insurance purchased by Noteholders, but only after providing evidence the Company has obtained insurance as required by this Agreement. 6.2.2. Public Liability and Business Interruption Insurance. The Company shall maintain, and shall deliver to the Noteholders' upon their request evidence of public liability and business interruption insurance in aggregate amount not less than $3,000,000 and per occurrence amount not less than $1,000,000. 6.2.3. Financial Records. The Company shall keep current and accurate books of records and accounts in which full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. The Company shall not change its respective fiscal year end date without prior written notice to the Noteholders. 6.2.4. Existence and Rights. The Company shall do (or cause to be done) all things necessary to preserve and keep in full force and effect its legal existence, good standing, rights and franchises (other than with respect to foreign qualification to the 20 extent failure to maintain same would not reasonably be likely to result in a Material Adverse Effect). 6.2.5. Compliance with Laws. The Company shall be in compliance with any and all laws, ordinances, governmental rules and regulations, and court or administrative orders or decrees to which it is subject, whether federal, state or local, (including without limitation environmental or environmental related laws, statutes, ordinances, rules, regulations and notices), and shall obtain and maintain any and all licenses, permits, franchises, certificates of need, or other governmental authorizations necessary to the ownership of its Property or to the conduct of its businesses, which violation or failure to comply with or obtain would reasonably be likely to result in a Material Adverse Effect. 6.3. Business Conducted. The Company shall continue in the business presently operated by it using its best efforts to maintain its customers. The Company shall not engage, directly or indirectly, in any material respect in any line of business substantially different from the businesses conducted by it immediately prior to the Closing Date. 6.4. Litigation. The Company shall give prompt notice to the Noteholders' of any litigation or investigation claiming in excess of $250,000 from the Company, or which may otherwise have a Material Adverse Effect. 6.5. Taxes. The Company shall pay all Taxes, if any, in connection with the transactions contemplated by this Agreement and/or the recording of any financing statements or other document to be executed in connection therewith subject to subsection 2.13.5. The Noteholder Obligations of the Company under this Section shall survive the payment of its Noteholder Obligations under this Agreement and under the Convertible Notes and Notes and the termination of this Agreement. 6.6. Financial and Business Information. The Company shall deliver to the Noteholders' each of the following (all to be in form and substance satisfactory to the Noteholders): 6.6.1. Financial Statements. (a) As soon as available but in any event, within one hundred and twenty (120) days after the end of the Fiscal Year ended September 30, 2003 and thereafter within ninety (90) days after the end of each Fiscal Year of the Company, deliver to the Noteholders, financial statements of the Company for such year that present fairly the Company's financial condition, including the balance sheet of the Company as at the end of such fiscal year and a statement of cash flows and income statement for such fiscal year, all on a consolidated and consolidating basis, setting forth in the consolidated statements in comparative form, the corresponding figures as at the end of and for the previous fiscal year, all in reasonable detail, including all supporting schedules, and 21 audited by independent public accountants of recognized standing, selected by the Company and reasonably satisfactory to the Noteholders, and prepared in accordance with GAAP. (b) As soon as available but in any event within forty-five (45) days after the end of the first three Fiscal Quarters of each Fiscal Year, deliver to the Noteholders the Company's internally prepared quarterly consolidated and consolidating financial statements, along with year to date information, including balance sheet, income statement and statements of cash flows with respect to the periods measured. (c) Promptly upon request, deliver such other information concerning the Company as the Noteholders may from time to time reasonably request, including annual reports, security law filings and reports to any security holders. (d) By the first day of each fiscal year annual consolidated and consolidating projections for the Company for the fiscal year then beginning, including balance sheet, income statements and statements of cash flow, all prepared on a monthly basis. (e) Contemporaneously with delivery of the annual financial statements referred to in subsection 6.7.1(a) above, a good standing certificate from the Company's jurisdiction of organization evidencing that the Company remains in good standing in, and continues to be organized under the laws of, such jurisdiction. (f) Such other data, reports, statements and information (financial or otherwise) as the Noteholders may reasonably request. 6.6.2. Notice of Event of Default. Promptly upon becoming aware of the existence of any condition or event which constitutes an Event of Default or Unmatured Event of Default under this Agreement, a written notice specifying the nature and period of existence thereof and what action the Company is taking (and proposes to take) with respect thereto. 6.6.3. Notice of Claimed Default. Promptly upon receipt by the Company, notice of default, oral or written, given to the Company by any creditor for borrowed money in excess of $250,000. 6.7. Officers' Certificates. Along with the set of financial statements delivered to the Noteholders at the end of each fiscal quarter and fiscal year pursuant to Section 6.6 hereof, deliver to the Noteholders a certificate in the form of Exhibit 6.7 attached hereto from the Chief Financial Officer or Treasurer of the Company setting forth that he, in his capacity as an officer of the Company has reviewed the relevant terms of this Agreement, and has made (or caused to be made under his supervision) a review of the transactions and conditions of the Company from the beginning of the accounting period covered by the financial statements being delivered therewith to the date of the certificate, and that 22 such review has not disclosed the existence during such period of any condition or event which constitutes an Event of Default or Unmatured Event of Default or if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Company has taken or proposes to take with respect thereto. 6.8. Inspection. With reasonable notice, the Company will permit any of the Noteholders' officers or other representatives to visit and inspect the Company's location(s) or where any Property is kept during regular business hours to examine and audit all of the Company's books of account, records, reports and other papers, to make copies and extracts therefrom and to discuss its affairs, finances and accounts with its officers, employees and independent certified public accountants and attorneys. The Company shall pay to the Noteholders all reasonable fees and out-of-pocket expenses for such inspections; provided, however, that so long as no Event of Default or Unmatured Event of Default has occurred and is continuing, the Company shall not be responsible for costs, fees and expenses associated with more than two (2) such inspections in any twelve (12) consecutive month period. 6.9. Tax Returns and Reports. At the Noteholders' request from time to time, the Company shall promptly furnish the Noteholders with copies of the annual federal and state income tax returns of the Company. 6.10. Material Adverse Development. The Company agrees that immediately upon it or any of its officers becoming aware of any development or other information that would reasonably be expected to result in a Material Adverse Effect, it shall give to the Noteholders telephonic or facsimile notice of the nature of such development or information and such anticipated effect. In addition, if such notice is verbal, it shall be confirmed by written notice thereof to the Noteholders on the next Business Day after such verbal notice is given. 6.11. Places of Business. The Company shall give thirty (30) days prior written notice to the Noteholders of any changes in (a) its jurisdiction of organization or (b) the location of its chief executive office or any other places of business, or the establishment of any new, or the discontinuance of any existing place of business. 6.12. Notice of Action. The Company will promptly notify the Noteholders in the event of any legal action, dispute, setoff, counterclaim, defense or reduction that is or may be asserted by an Obligor with respect to any material Account that may have a material adverse effect on the collectibility of a material portion of such Account or all Accounts collectively. 6.13. Verification of Information. At the reasonable request of the Noteholders, the Company will promptly provide and verify the accuracy of information concerning it and its Affiliates of the type provided to the Noteholders in connection with their decision to enter into this Agreement and such other information concerning the Company and its Affiliates as the Noteholders may reasonably request, including, without limitation, all 23 information necessary to provide full and complete disclosure of all material facts pertaining to an investment in the Securities in compliance with federal and state securities and blue sky laws. Such information will be true and complete in all material respects and will not omit to state a material fact necessary to make the statements contained in such information, in light of the circumstances under which they were made, not misleading. 6.14. Commercial Tort Claim. The Company shall provide written notice to the Noteholders of any material commercial tort claim (as defined in the Uniform Commercial Code) to which the Company is or becomes a party or which otherwise inures to the benefit of the Company. Such notice shall contain a sufficient description of the commercial tort claim including the parties, the court in which the claim was commenced (if applicable), the docket number assigned to the case (if applicable), and a detailed explanation of the events giving rise to such claim. ARTICLE VII - NEGATIVE COVENANTS OF THE COMPANY The Company covenants and agrees that so long as any of the Convertible Notes or Notes are outstanding: 7.1. Merger, Consolidation, Dissolution or Liquidation. (a) The Company shall not sell, lease, license, transfer or otherwise or dispose of its Property other than (i) equipment or inventory sold or disposed of in the ordinary course or ordinary operation of the Company's business or (ii) dispositions of assets for fair market value, the aggregate amount of which dispositions shall not exceed $500,000 in a Fiscal Year, without the Noteholders' prior written consent. (b) The Company shall not merge or consolidate with, or acquire, any other Person or commence a dissolution or liquidation without the Noteholders' prior written consent, except that any Subsidiary may merge with, or dissolve or liquidate into the Company or another Subsidiary. 7.2. Liens and Encumbrances. The Company shall not permit to exist any lien on its Property other than Permitted Liens. 7.3. Guarantees. Except as set forth on Schedule 7.3 attached hereto and excepting (a) the endorsement in the ordinary course of business of negotiable instruments for deposit or collection, (b) obligations arising in the ordinary course of business with respect to surety and appeal bonds, performance bonds and other similar obligations, (c) obligations arising under indemnity agreements to title insurers for title insurance policies, indemnification obligations arising under the Transaction Documents and (d) guarantees by the Company of obligations of any Subsidiary, the Company shall 24 not become or be liable, directly or indirectly, primary or secondary, matured or contingent, in any manner, whether as guarantor, surety, accommodation maker, or otherwise, for the existing or future indebtedness of any kind of any other Person. 7.4. Indebtedness. Without the Noteholders' prior written consent, the Company shall not create, incur, assume or suffer to exist any Indebtedness (exclusive of trade debt) except in respect of (a) Indebtedness to the Noteholders or to any lender pursuant to a senior credit facility approved by the Board of Directors, (b) Indebtedness existing on the Closing Date, including extensions and refinancings thereof that do not increase the principal amount of such Indebtedness, (c) Indebtedness associated with capital leases with an aggregate amount payable during any fiscal year not to exceed Five Hundred Thousand Dollars ($500,000), (d) items permitted under Section 5.5 to the extent they constitute Indebtedness and (e) other unsecured Indebtedness not exceeding $500,000 in the aggregate at any time outstanding. 7.5. Loans to Other Persons. The Company shall not make or be permitted to have outstanding any loans, advances or extensions of credit to any Person; provided, however, that the Company may make loans and advances to (i) Subsidiaries or (ii) employees that in each case do not exceed Fifty Thousand Dollars ($50,000) and in the aggregate do not exceed Five Hundred Thousand Dollars ($500,000). 7.6. Subordinated Debt Payments. The Company shall not make any payment in contravention of the terms and conditions of any subordination agreements. 7.7. Distributions. The Company shall not declare or pay or make any forms of Distributions to its shareholders (other than Distributions made solely in its common stock or other equity securities or pursuant to any of the Company's equity incentive plans), their successors or assigns without the prior written consent of the Noteholders. ARTICLE VIII - DEFAULT 8.1. Events of Default. Each of the following events shall constitute an event of default ("Event of Default") and the Noteholders shall thereupon have the option to declare the Noteholder Obligations under this Agreement and the Convertible Notes and Notes immediately due and payable, all without demand, notice, presentment or protest or further action of any kind (it also being understood that the occurrence of any of the events or conditions set forth in any of sub-sections 8.1.10-8.1.12 shall automatically cause an acceleration of such Noteholder Obligations): 8.1.1. Payment. if with respect to the Convertible Notes or Notes the Company fails to make any payment of (a) principal on the date when such payment is due and payable or (b) interest on the date when such payment is due and payable and such failure continues for a period of three (3) Business Days; provided, however, that the three (3) Business Day grace period shall not be applicable if such payments are due 25 and payable due to maturity, acceleration or demand, whether following an Event of Default or otherwise; or 8.1.2. Other Charges. if the Company fails to pay any other charges, fees, expenses or other monetary obligations owing to the Noteholders, arising out of or incurred in connection with this Agreement on the date when such payment is due and payable, whether upon maturity, acceleration, demand or otherwise and such failure continues for a period of ten (10) Business Days after the earlier of the Company becoming aware of such failure or the Company receiving written notice of such failure; provided, however, that the ten (10) Business Day grace period shall not be applicable if such payments are due and payable due to maturity, acceleration or demand, whether following an Event of Default, or otherwise; or 8.1.3. Particular Covenant Defaults. if the Company fails to perform, comply with or observe any covenant or undertaking contained in this Agreement and not otherwise described in Section 8.1; provided, however, that with respect to failures to perform, comply with or observe the covenants set forth in Sections 6.1, 6.2.3, 6.13 or 6.14, the Company shall have a grace a period of thirty (30) Business Days after the earlier of the Company becoming aware of such failure or the Company receiving written notice of such failure to cure such failure; or 8.1.4. Financial Information. if any statement, report, financial statement, or certificate made or delivered by the Company or any of its officers, employees or agents, to the Noteholders is not true and correct, in all material respects, when made; or 8.1.5. Uninsured Loss. if there shall occur any uninsured damage to or loss, theft, or destruction in excess of Five Hundred Thousand Dollars ($500,000) with respect to any portion of the Company's Property, or 8.1.6. Warranties or Representations. if any warranty, representation or other statement by or on behalf of the Company contained in or pursuant to this Agreement, or in any document, agreement or instrument furnished in compliance with, relating to, or in reference to this Agreement, is false, erroneous, or misleading in any material respect when made; or 8.1.7. Agreements with Others. if the Company shall default beyond any grace period under any agreement with any creditor for borrowed money and (a) such default consists of the failure to pay any principal, premium or interest with respect to such indebtedness or (b) such default consists of the failure to perform any covenant or agreement(s) with respect to such indebtedness, which indebtedness in the case of either (a) or (b) exceeds Five Hundred Thousand Dollars ($500,000) in the aggregate if the effect of such default is to cause or permit the Company's obligations which are the subject thereof to become due prior to its maturity date or prior to its regularly scheduled date of payment; or 26 8.1.8. Other Agreements with the Noteholders. if the Company breaches or violates the terms of, or if a default or an event of default (after the expiration of any applicable grace or cure period), occurs under, any other existing or future agreement (related or unrelated) between or among the Company and any of the Noteholders; or 8.1.9. Judgments. if any final judgment for the payment of money in excess of Five Hundred Thousand Dollars ($500,000) which is not fully and unconditionally covered by insurance, stayed pending appeal, or for which the Company has not established a cash or cash equivalent reserve in the amount of such judgment, shall be rendered; or 8.1.10. Assignment for Benefit of Creditors, Etc. if the Company makes or proposes an assignment for the benefit of creditors generally, offers a composition or extension to creditors, or makes or sends notice of an intended bulk sale of any business or assets now or hereafter owned or conducted by the Company which might materially and adversely affect the Company, or 8.1.11. Bankruptcy, Dissolution. Etc. upon the commencement of any action for the dissolution or liquidation of the Company, or the commencement of any bankruptcy, insolvency or liquidation proceeding to avoid any transaction entered into by the Company with Noteholders or the commencement of any case or proceeding for reorganization or liquidation of the Company's debts under the Bankruptcy Code or any other state or federal law, now or hereafter enacted for the relief of debtors, whether instituted by or against the Company, provided, however, that the Company shall have forty-five (45) days to obtain the dismissal or discharge of involuntary proceedings filed against the Company, it being understood that during such forty-five (45) day period, the Noteholders may seek adequate protection in any bankruptcy proceeding; or 8.1.12. Receiver. upon the appointment of a receiver, liquidator, custodian, trustee or similar official or fiduciary for the Company or for any of its Property; or 8.1.13. Execution Process, Seizure. Etc. the issuance of any execution or distraint process against the Company, or any material Property of the Company is seized by any governmental entity, federal, state or local; or 8.1.14. Termination of Business. if the Company ceases any material portion of its business operations as presently conducted; provided, however, that the cessation of certain products or the termination of particular product lines as may occur from time to time in the ordinary course of business shall not constitute termination of material operations hereunder; or 8.1.15. Pension Benefits. Etc. if the Company fails to comply with ERISA, so that grounds exist to permit the appointment of a trustee under ERISA to administer its employee plans or to allow the Pension Benefit Guaranty Corporation to institute 27 proceedings to appoint a trustee to administer such plan(s), or to permit the entry of a lien to secure any deficiency or claim in excess of $250,000. 8.2. Cure. Nothing contained in this Agreement or the Transaction Documents shall be deemed to compel the Noteholders to accept a cure of any Event of Default hereunder. 8.3. Rights and Remedies on Default. (a) Upon the occurrence and during the continuance of an Event of Default, Noteholders holding greater than 50%, voting together as a single class, in principal amount of the Convertible Notes and Notes, as applicable, may, by notice to the Company, declare the entire unpaid principal amount of the Convertible Notes and/or Notes, as applicable, plus all interest accrued and unpaid thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Convertible Notes or Notes, as applicable, all such accrued interest and all such amounts shall become and be forthwith due and payable (unless there shall have occurred an Event of Default under sub-sections 8.1.10 or .11, in which case all such amounts shall automatically become due and payable), without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company. (b) In the case of an Event of Default under sub-sections 8.1.1 or .2, each Noteholder may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceeding either for specific performance of any covenant, provision or condition contained or incorporated by reference in this Agreement or in aid of the exercise of any power granted in this Agreement. (c) In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Noteholders shall have accelerated the maturity of the Convertible Notes or Notes, as applicable, pursuant to sub-section 8.3(a), each Noteholder, if owed any amount with respect to the Convertible Notes or Notes, as applicable, may proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement and the other Subordinated Notes Documents or any instrument pursuant to which the Noteholder Obligations to such Noteholders are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Noteholder. No remedy herein conferred upon any Noteholder is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 8.4. Nature of Remedies. All rights and remedies granted to the Noteholders hereunder and under the Transaction Documents, or otherwise available at law or in 28 equity, shall be deemed concurrent and cumulative, and not alternative remedies, and the Noteholders may proceed with any number of remedies at the same time until all Noteholder Obligations are satisfied in full. The exercise of any one right or remedy shall not be deemed a waiver or release of any other right or remedy, and the Noteholders, upon or at any time after the occurrence of an Event of Default, may proceed against the Company at any time, under any agreement, with any available remedy and in any order. 8.5. Set-Off. If any bank account or other Property held by or with the Noteholders, or any Affiliate of the Noteholders, or any participant is attached or otherwise liened or levied upon by any third party, the Noteholders (and such participant) shall have and be deemed to have, without notice to the Company, the immediate right of set-off and may apply the funds or other amounts or property thus set off against any of the Company's Noteholder Obligations hereunder. 8.6. Distribution of Proceeds. In the event that following the occurrence or during the continuance of any Event of Default or Unmatured Event of Default, any Noteholder receives any monies with respect to the amounts due hereunder, such monies shall be distributed for application as follows: (a) First, to the payment of, or (as the case may be) the reimbursement of the Noteholders for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Noteholders in connection with the collection of such monies by the Noteholders, for the exercise, protection or enforcement by the Noteholders of all or any of the rights, remedies, powers and privileges of the Noteholders under this Agreement or any of the other Subordinated Notes Documents pro rata based on the relative amount so incurred or sustained; (b) Second, to all other Noteholder Obligations in such order or preference as the Noteholders may determine; provided, however, that distributions shall be made among the Noteholders pro rata; and (c) Third, the excess, if any, shall be returned to the Company or to such other Persons as are entitled thereto. ARTICLE IX - MISCELLANEOUS 9.1. No Waiver; Cumulative Remedies. No failure or delay on the part of any Noteholder, in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 29 9.2. Amendments, Waivers and Consents. Any provision in this Agreement, the Convertible Notes or Notes, as applicable, or the other Subordinated Notes Documents to the contrary notwithstanding, changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may be omitted or waived, if the Company shall, as long as any Convertible Notes or Notes, as applicable, are outstanding, obtain consent thereto in writing from the holder or holders of at least greater than 50%, voting together as a single class, in principal amount of all Convertible Notes or Notes, as applicable, then outstanding, and shall, in any case, deliver copies of such consent in writing to all other holders of Convertible Notes or Notes, as applicable; provided that no such consent shall be effective to reduce or to postpone the date fixed for the payment of the principal (including any required redemption) or interest payable on any Convertible Note or Note, as applicable, without the consent of the holder thereof, or to alter or amend any provisions relating to prepayments, mandatory purchase or the terms of subordination, or to alter or amend the consent mechanism provided for under this Section 9.2. 9.3. Addresses for Notices, Etc. All notices, requests, demands and other communications provided for hereunder shall be in writing and mailed (by first class registered or certified mail, postage prepaid), sent by express overnight courier service or electronic facsimile transmission with a copy by mail, or delivered to the applicable party at the addresses indicated below: If to the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelin, IL 60060-4483 Attention: Leonard Foxman Theodore Foxman Telecopy No.: (847) 367-8640 With a copy to: Katten Muchin Zavis Rosenman 525 West Monroe Street Suite 1600 Chicago, IL 60661-3693 Attention: Howard S. Lanznar Telecopy No.: (312) 9002-1061 30 If to the Noteholders on the date hereof: TA Associates, Inc. High Street Tower Suite 2500 Boston, MA Attention: Michael C. Child and Jameson J. McJunkin Telecopy No.: (617) 574-6728 If to any subsequent Noteholders: at such holder's address for notice as set forth in the transfer records of the Company or, as to each of the foregoing, at such other address as shall be designated by such Person in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall, when mailed or sent, respectively, be effective (i) three (3) days after being deposited in the mails or (ii) one Business Day after being deposited with the express overnight courier service or sent by electronic facsimile transmission (with receipt confirmed), respectively, addressed as aforesaid. 9.4. Costs, Expenses and Taxes. The Company agrees to pay on demand all reasonable costs and expenses of the Noteholders in connection with the preparation, execution and delivery of this Agreement, the Securities, the other Subordinated Notes Documents and other instruments and documents to be delivered hereunder, and in connection with the consummation of the transactions contemplated hereby and thereby, as well as all reasonable costs and expenses of the Noteholders in connection with the amendment, waiver (whether or not such amendment or waiver becomes effective) or enforcement of this Agreement, the Securities, the other Subordinated Notes Documents, and other instruments and documents to be delivered hereunder and thereunder, including without limitation the expenses of the Noteholders under Section 6.8 hereof at any time after a Default has occurred and is continuing. 9.5. Assignability; Binding Agreement. This Agreement may not be assigned by any party hereto without the prior written consent of each other party hereto; provided, however, that any Noteholder may assign this Agreement freely without consent to any transferee permitted under Section 2.10. This Agreement shall be binding upon and enforceable by, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns, and no others. Notwithstanding the foregoing, nothing in this Agreement is intended to give any Person not named herein the benefit of any legal or equitable right, remedy or claim under this Agreement. 9.6. Payments in Respect of Convertible Notes or Notes. Each Noteholder and any successor holder of the Convertible Notes or Notes, as applicable, by their 31 acceptance thereof, agree that, with respect to all sums received by them applicable to the payment of principal of or interest on the Convertible Notes or Notes, as applicable, equitable adjustment will be made among them so that, in effect, all such sums shall be shared ratably by all of the holders of the Convertible Notes or Notes, as applicable, whether received by voluntary payment, by the exercise of the right of set off, by counterclaim or cross-action or by the enforcement of any or all of the Convertible Notes or Notes, as applicable. If any holder of the Convertible Notes or Notes, as applicable, receives any payment on its Convertible Notes or Notes, as applicable, in excess of its pro rata portion, then such holder receiving such excess payment shall purchase for cash from the other holders an interest in their Convertible Notes or Notes, as applicable, in such amounts as shall result in a ratable participation by all of the holders in the aggregate unpaid amount of Convertible Notes or Notes, as applicable, then outstanding. The Company shall not have any obligation to any Person under this Section 9.6. 9.7. Indemnification. In addition to the payment of expenses pursuant to Section 9.4, whether or not the transactions contemplated hereby shall be consummated, the Company agrees to indemnify, pay and hold each Noteholder and the partners, members, officers, directors, employees and agents of each Noteholder (collectively, the "Indemnitees") harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceedings, whether or not such Indemnitees shall be designated a party thereto), which may be imposed on, incurred by, or asserted against such Indemnitee, in any manner relating to or arising out of (i) this Agreement, the Convertible Notes or Notes, and the other Transaction Documents, (ii) the Noteholders' agreement to purchase the Convertible Notes, or the use or intended use of the proceeds of the Convertible Notes hereunder, or (iii) the violation of any securities law by the Company, or any of its Subsidiaries, or (iv) the failure by the Company to comply with any law, rule or regulation applicable to the transactions contemplated thereby (the "Indemnified Liabilities"); provided that the Company shall have no obligation to an Indemnitee hereunder with respect to Indemnified Liabilities which are determined by a final court decision to have resulted from the gross negligence or willful misconduct of that Indemnitee. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Company shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. 9.8. Survival of Representations and Warranties. All representations and warranties made to the Noteholders in this Agreement, the Convertible Notes or Notes, the Transaction Documents or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof and thereof (but 32 shall not be deemed to be remade as of any date subsequent to the Closing Date), regardless of any investigation made by the Noteholders or on behalf of the Noteholders. 9.9. Prior Agreements. This Agreement and the Transaction Documents constitutes the entire agreement between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof or thereof. 9.10. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. 9.11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applied to contracts to be performed wholly within the State of New York. Any judicial proceeding brought by or against the Company with respect to any of the Noteholder Obligations, this Agreement, the other Subordinated Note Documents or any related agreement may be brought in any court of competent jurisdiction in the State of New York, United States of America, and, by execution and delivery of this Agreement, the Company accepts for itself and in connection with its properties, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. The Company hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to the Company at its address set forth in Section 9.3 and service so made shall be deemed completed five (5) days after the same shall have been so deposited in the mails of the United States of America. Nothing herein shall affect the right to serve process in any manner permitted by law or shall limit the right of any Noteholder to bring proceedings against the Company in the courts of any other jurisdiction. The Company waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company waives the right to remove any judicial proceeding brought against the Company in any state court to any federal court. Any judicial proceeding by the Company against any Noteholder involving, directly or indirectly, any matter or claim in any way arising out of, related to or connected with this Agreement or any related agreement, shall be brought only in a federal or state court located in the County of Cook, State of Illinois. 9.12. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE 33 TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 9.13. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document. 9.14. Further Assurances. From and after the date of this Agreement, upon the request of the Noteholders, the Company and its Subsidiaries shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of the Subordinated Notes Documents. 9.15. Specific Performance. Upon breach or default by the Company with respect to any obligation hereunder or under the Convertible Notes or Notes, each Noteholder shall be entitled to protect and enforce its rights at law, or in equity or by other appropriate proceedings for specific performance of such obligation, or for an injunction against such breach or default, or in aid of the exercise of any power or remedy granted hereby or thereby or by law. 9.16. Actions by Noteholders. Except as provided in Section 9.2, wherever in this Agreement action is required or permitted to be taken by, or consent is required of, or a matter requires the satisfaction of, the Noteholders, such action may be taken by, and/or such consent may be obtained from, and/or such satisfaction may be expressed by, the holders of greater than 50%, voting together as a single class, of the principal amount of all Convertible Notes or Notes, as applicable, then outstanding. 9.17. Limitation of Liability. No Noteholder shall have any liability to the Company and its Subsidiaries (whether sounding in tort, contract, or otherwise) for consequential damages suffered by the Company and its Subsidiaries in connection with, arising out of, or in any way related to the transactions or relationships contemplated by the Subordinated Notes Documents, or any act, omission or event occurring in connection therewith, or for any special exemplary or punitive damages, and the Company and its Subsidiaries hereby waive, to the maximum extent not prohibited by law, any right they may have to claim or recover any of the foregoing. [THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY] 34 IN WITNESS WHEREOF, the parties hereto have executed this Note Purchase Agreement as of the date first above written. BORROWER: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman --------------------------------------------- Name: Leonard Foxman Title: President NOTEHOLDER: TA SUBORDINATED DEBT FUND, L.P. By: TA Associates SDF LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child --------------------------------------------- Name: Michael C. Child Its: Managing Director TA INVESTORS LLC By: TA Associates, Inc., its Manager By: /s/ Michael C. Child --------------------------------------------- Name: Michael C. Child Its: Managing Director EX-10.9 9 c86449exv10w9.txt SENIOR SUBORDINATED CONVERTIBLE NOTE EXHIBIT 10.9 SENIOR SUBORDINATED CONVERTIBLE NOTE $ 588,000.00 SEPTEMBER 30, 2003 FOR VALUE RECEIVED, the undersigned, Eagle Test Systems, Inc., an Illinois corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of TA Investors, LLC (the "NOTEHOLDER") the principal sum of $ 588,000.00, together with interest on the unpaid principal amount from time to time outstanding at the rate or rates and computed and payable at the times as described in the Note Purchase Agreement (as hereinafter defined). Payments of the principal hereof shall be made as provided in the Note Purchase Agreement. Notwithstanding any other provision of this note, the entire balance of principal and accrued and unpaid interest shall be paid in full on September 30, 2009. This note is one of the Convertible Notes referred to in the Note Purchase Agreement dated as of September 30, 2003 (as the same may be amended, modified or supplemented from time to time, the "NOTE PURCHASE AGREEMENT") among the Borrower, the Noteholder and certain other Noteholders named therein. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Note Purchase Agreement. The Noteholder may convert this note at any time pursuant to the terms of the Note Purchase Agreement into (a) a Senior Subordinated Note due September 30, 2009 in the principal amount of $ 587,902.00 plus any interest owed in arrears on this note on the Conversion Date, in the form attached hereto as Exhibit A, and (b) a Common Stock Purchase Warrant of the Borrower for the purchase of 4.116 shares of the Borrower's Common Stock (subject to adjustment as provided for therein), exercisable at a price per share of $.01 (subject to adjustment as provided for therein) in the form attached hereto as Exhibit B, all as further described in the Note Purchase Agreement. Subject to, and at all times in accordance with, the provisions of the Note Purchase Agreement (i) the Borrower shall have the right, at any time, to voluntarily prepay all or any part of the outstanding principal amount of this note, and (ii) the Noteholder shall have the right to require the Borrower to repurchase this note upon the occurrence of a Mandatory Repurchase Event. In addition to the payment of interest as provided above, the Borrower shall, on demand, pay interest on any overdue installments of principal and, to the extent permitted by applicable law, on overdue installments of interest at the rate set forth in, and in accordance with the provisions of, the Note Purchase Agreement. The holder of this note is entitled to all the benefits and rights of a Noteholder under the Note Purchase Agreement to which reference is hereby made for a statement of the terms and conditions under which the entire unpaid balance of this note, or any portion thereof, shall become immediately due and payable. Notwithstanding anything in this note to the contrary, the terms and provisions of this note shall at all times be governed by and subject to all of the terms and provisions of the Note Purchase Agreement. To the extent that there is any conflict with, or inconsistency between, the terms and provisions of this note and the terms and provisions of the Note Purchase Agreement, the terms and provisions of the Note Purchase Agreement shall at all times govern and control. The Borrower hereby waives presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this note. No delay or omission on the part of the holder of this note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. The terms and provisions of this note are subject to the dispute resolution provisions contained in Sections 9.11 and 9.12 of the Note Purchase Agreement. This note shall be deemed to be under seal, and all rights and obligations hereunder shall be governed by the laws of the State of New York (without giving effect to any conflicts of law provisions contained therein). EAGLE TEST SYSTEMS, INC. By: Leonard Foxman --------------------------------- Name: Leonard Foxman Title: President EX-10.10 10 c86449exv10w10.txt FORM OF WARRANT TO PURCHASE COMMON STOCK EXHIBIT 10.10 Warrant No. ___ _______________ ___, 200_ FORM OF WARRANT TO PURCHASE COMMON STOCK OF EAGLE TEST SYSTEMS, INC. THIS WARRANT AND THE UNDERLYING SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT RELATING TO THE DISPOSITION OF SECURITIES AND (2) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. Eagle Test Systems, Inc., an Illinois corporation (together with its successors, the "COMPANY"), hereby certifies that, for value received, __________ (together with its successors and assigns and any transferee of this Warrant, and its successors and assigns, the "HOLDER"), is entitled, subject to the terms and conditions set forth in this warrant (this "WARRANT"), to purchase from the Company, at any time or times on or after the date hereof, but not after 5:00 P.M., Boston, Massachusetts time on September 30, 2013 (the "EXPIRATION DATE"), _______________ duly authorized, validly issued, fully paid, nonassessable shares of Common Stock (as defined below) (as further defined below, the "WARRANT SHARES"), which shall be adjusted or readjusted from time to time as provided in this Warrant, at an initial purchase price per share equal to $0.01 (the "INITIAL WARRANT PRICE"), which shall be adjusted or readjusted from time to time in connection with any stock splits, stock dividends, recaptializations or like transactions affecting the Common Stock (as adjusted, the "WARRANT PRICE"); provided; however, that notwithstanding the foregoing, in no event shall the Warrant Price be reduced to a number that is less than the par value of the Common Stock at the date of exercise of this Warrant. This Warrant is a Common Stock purchase warrant (each, a "WARRANT," and collectively, the "WARRANTS," with such term to include any warrants issued in substitution therefor) issued in connection with the conversion of the Senior Subordinated Secured Convertible Notes due September 30, 2009 issued by the Company (the "CONVERTIBLE NOTES") pursuant to that certain Note Purchase Agreement dated as of September 30, 2003 (the "CLOSING DATE") (as it may be amended from time to time, the "PURCHASE AGREEMENT") among the Company and the Noteholders named therein. The Warrants represent a right to purchase an aggregate of 210.016 shares of the Company's common stock, no par value (the "COMMON STOCK"), subject to adjustment as provided herein. For purposes of this Warrant Certificate, "Holders" shall mean the holders of the Warrants and "Warrant Shares" shall mean shares of the Company's Common Stock; provided, however, that if, in accordance with Section 2 hereof, the securities issuable upon exercise of the Warrants are issued by an entity other than the Company or there is a change in the class of securities so issuable, then the "Warrant Shares" shall mean the securities so issuable by such entity or the securities of the class of securities so issuable. All capitalized terms used herein that are not otherwise defined shall have the meanings set forth in the Purchase Agreement. SECTION 1. EXERCISE; EXCHANGE OF WARRANT 1.1. MANNER OF EXERCISE; EXCHANGE. (a) Exercise. The Holder may exercise this Warrant, in whole or in part (except as to a fractional share), at any time and from time to time during normal business hours on any Business Day on or prior to the Expiration Date, by (i) delivering to the Company a written notice, in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), duly executed by the Holder, specifying the number of Warrant Shares (without giving effect to any adjustment thereto) to be issued to the Holder as a result of such exercise, (ii) surrendering this Warrant to the Company, properly endorsed by the Holder (or if this Warrant has been destroyed, stolen or has otherwise been misplaced, by delivering to the Company an affidavit of loss duly executed by the Holder), and (iii) by tendering payment for the shares of Common Stock designated by the Exercise Notice in lawful money of the United States in the form of cash, bank or certified check made payable to the order of the Company, or by wire transfer of immediately available funds, or [by the cancellation of indebtedness] of the Company owed to the Holder, including by surrender of any of the Company's Senior Subordinated Secured Notes due September 30, 2009 (the "NOTES"), or in any combination thereof, of an amount equal to the product of (A) the Warrant Price and (B) the number of Warrant Shares (without giving effect to any adjustment thereof) as to which this Warrant is being exercised. (b) Net Exchange. The Holder may, in lieu of exercising or converting this Warrant pursuant to the terms of Section 1.1(a), elect to exchange this Warrant, in whole or in part (except as to a fractional share), at any time and from time to time during normal business hours on any Business Day on or prior to the Expiration Date by (i) delivering to the Company a written notice, in the form attached hereto as Exhibit B (the "EXCHANGE NOTICE"), duly executed by the Holder, specifying the number of Warrant Shares (without giving effect to any adjustment thereto) to be issued to the Holder as a result of such exchange, and (ii) surrendering this Warrant to the Company, properly endorsed by the Holder (or if this Warrant has been destroyed, stolen or has otherwise been misplaced, by delivering to the Company an affidavit of loss duly executed by the Holder), and the Holder shall thereupon be entitled to receive the number of Warrant Shares equal to the product of (A) the number of Warrant Shares issuable upon exercise of this Warrant (or, if only a portion of this Warrant is being exercised, issuable upon the exercise of such portion) for cash, determined as provided in Section 2, and (B) a fraction, the numerator of which is the Fair Market Value per share of Common Stock at the time of such exercise minus the Warrant Price in effect at the time of such exercise, and the denominator of which is the Fair Market Value per share of Common Stock at the time of such exercise, such number of shares so issuable upon such exchange to be rounded up or down to the nearest whole number of shares of Common Stock. 2 (c) The "exchange" of this Warrant pursuant to Section 1.1(b) is intended to qualify as a recapitalization within the meaning of Section 368(a)(1)(E) of the Code. (d) For all purposes of this Warrant (other than this Section 1.1), any reference herein to the "exercise" of this Warrant shall be deemed to include a reference to the exchange of this Warrant into Common Stock in accordance with the terms of Section 1.1(b), and any reference to an "EXERCISE NOTICE" shall be deemed to include a reference to an Exchange Notice in accordance with the terms of Section 1.1(b). 1.2. WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the Business Day on which this Warrant shall be deemed to have been surrendered to the Company as provided in Section 1.1, and at such time the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such exercise as provided in Section 1.3 shall be deemed to have become the Holder or Holders of record thereof. 1.3. DELIVERY OF STOCK CERTIFICATES UPON EXERCISE. As soon as practicable after exercise of this Warrant in accordance with this Section 1, but in no event later than five (5) Business Days after such exercise, the Company shall at its expense cause to be issued in the name of and delivered to the Holder or, subject to Section 5 of this Warrant, as the Holder may direct: (a) a certificate or certificates for the number of Warrant Shares, determined as provided in Section 2 of this Warrant, to which the Holder shall be entitled upon such exercise and, (b) unless this Warrant has expired or has been exercised in full, a new Warrant (or Warrants) substantially in the form of, and on the terms in, this Warrant, for the number of Warrant Shares remaining following such exercise (without giving effect to any adjustment thereto), and shall be subject to adjustment as provided for in this Warrant as of the date hereof. Exercise of the Warrant shall be subject to compliance, if necessary, with applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the Company shall make and cooperate with the Holder in making any filings required thereunder. SECTION 2. ADJUSTMENTS TO NUMBER AND TYPE OF WARRANT SHARES 2.1. GENERAL. The number of Warrant Shares that the Holder shall be entitled to receive upon exercise of this Warrant shall be determined by multiplying the number of Warrant Shares that would otherwise (but for the provisions of this Section 2) be issuable upon such exercise, as designated by the Holder in the Exercise Notice, by a fraction, (i) the numerator of which shall be $18,916.802 (the "TARGET PRICE"), and (ii) the denominator of which shall be the "Antidilution Price" in effect for this Warrant on the date of such exercise. The initial Antidilution Price for this Warrant shall be the Target Price, which Antidilution Price shall be subject to adjustment as provided in this Section 2. If any of the events as described in this Section 2 shall occur after the Closing Date, but prior to the issuance of this Warrant upon conversion of the Convertible Notes, the number of Warrant Shares or other securities purchasable upon exercise of the Warrant shall be adjusted to the same extent as if this Warrant was outstanding as of the Closing Date. 2.2. ADJUSTMENTS. 3 (a) Subdivision or Combination of Common Stock. If the Company shall at any time after the Closing Date subdivide its outstanding shares of Common Stock into a greater number of shares (by any stock split, stock dividend or otherwise), then the Antidilution Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, if the Company shall at any time after the Closing Date combine its outstanding shares of Common Stock into a smaller number of shares (by any reverse stock split or otherwise), then the Antidilution Price in effect immediately prior to such combination shall be proportionately increased. (b) Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Company shall be effected at any time after the Closing Date in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby the Holder shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the Warrant Shares immediately theretofore receivable upon the exercise of this Warrant in full, as the case may be, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such exercise of this Warrant in full had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Antidilution Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. (c) Dividends and Distributions. (i) Stock Dividends. If the Company at any time or from time to time after the Closing Date declares a dividend or makes any other distribution upon any stock of the Company other than its Common Stock, that is payable in Common Stock, Options or Convertible Securities, then any such Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration, and the Antidilution Price shall be adjusted pursuant to Section 2.2(d); provided, however, that no adjustment shall be made to the Antidilution Price as a result of such dividend or distribution if holders of not less than two-thirds of the Warrant Shares then issuable with respect to outstanding Warrants, on behalf of themselves and all other Holders, each of whom shall be bound thereby, (a "TWO-THIRDS INTEREST") elect to receive and actually receive such dividend or distribution in the manner contemplated by Section 2.2(c)(ii)(B); provided, further, that if any adjustment is made to the Antidilution Price as a result of the declaration of a dividend and such dividend is not effected, the Antidilution Price shall be appropriately readjusted. (ii) Other Dividends and Distributions. If the Company at any time or from time to time after the Closing Date makes or issues, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in: 4 (A) securities or other property of the Company other than shares of Common Stock, Options or Convertible Securities, then in each such event provision shall be made so that the Holder of this Warrant shall receive upon exercise thereof, in addition to the number of shares of Common Stock purchasable thereupon, the amount of such other securities of the Company or the value of such other property that they would have received had this Warrant been exercised for Common Stock on the record date of such event and had such Holder thereafter, during the period from the date of such event to and including the exercise date, retained such securities or other property receivable by such Holder during such period giving application to all adjustments called for during such period under Section 2 with respect to the rights of such Holder; and, provided, further, however, that no such adjustment shall be made if the Holder of this Warrant receives simultaneously with all other recipients, upon the election of a Two-Thirds Interest, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as such Holder would have received if this Warrant had been exercised for Common Stock on the record date of such event and, upon such election, the Holder shall receive such dividend or distribution as if the Holders had exercised all of the Warrants in full on the date such record is taken; and (B) Common Stock, Options or Convertible Securities, then a Two-Thirds Interest shall be entitled to elect to receive such dividend or distribution as if the Holders had exercised all of the Warrants in full on the date such record is taken; provided, however, that in the event a Two-Thirds Interest so elects and all of the Holders actually receive such dividend or distribution, the Antidilution Price shall not be adjusted pursuant to the provisions of Section 2.2 with respect to such dividend or distribution. In the event no such election is made, the provisions of Section 2.2(d) shall apply with respect to such dividend or distribution. (d) Issuances. Except as provided in Sections 2.2(c) and 2.2(d)(vii) and except in the case of an event described in Section 2.2(a), if at any time after the Closing Date, the Company issues or sells, or is, in accordance with this Section 2.2(d), deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Antidilution Price in effect immediately prior to such issuance or sale, then, upon such issuance or sale (or deemed issuance or sale), the Antidilution Price shall be reduced to the price determined by dividing (x) the sum of (A) the Common Stock Deemed Outstanding (as defined below) immediately prior to such issuance or sale (or deemed issuance or sale) multiplied by the Antidilution Price then in effect and (B) the consideration, if any, received by the Company upon such issuance or sale (or deemed issuance or sale) by (y) the Common Stock Deemed Outstanding immediately after such issuance or sale (or deemed issuance or sale). For purposes of this Section 2.2(d), the following shall also be applicable: (i) Issuance of Rights or Options. If the Company, at any time after the Closing Date, in any manner, grants (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options to 5 purchase, shares of Common Stock or any stock or security convertible into or exercisable or exchangeable for Common Stock (such warrants, rights or options being called "OPTIONS" and such convertible or exercisable or exchangeable stock or securities being called "CONVERTIBLE SECURITIES"), in each case for consideration per share (determined as provided in this paragraph and in Section 2.2(d)(iv)) less than the Antidilution Price then in effect, whether or not such Options or Convertible Securities are immediately exercisable, convertible or exchangeable, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options, or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon exercise of such Options, shall be deemed to have been issued as of the date of granting of such Options, at a price per share equal to the amount determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the issuance of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus, in the case of such Options that relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issuance or sale of such Convertible Securities and upon the conversion or exchange of Convertible Securities, by (B) the total maximum number of shares of Common Stock deemed to have been so issued. Except as otherwise provided in Section 2.2(d)(iii), no adjustment of the Antidilution Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. If the Company, at any time after the Closing Date, in any manner, issues or sells any Convertible Securities for consideration per share (determined as provided in this paragraph and in Section 2.2(d)(iv)) less than the Antidilution Price then in effect, whether or not the right to exchange or convert any such Convertible Securities is immediately exercisable, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the date of the issuance or sale of such Convertible Securities, at a price per share equal to the amount determined by dividing (A) the total amount, if any, received or receivable by the Company as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock deemed to have been so issued; provided, however, that (1) except as otherwise provided in Section 2.2(d)(iii), no adjustment of the Antidilution Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (2) if any such issuance or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities, no further adjustment of the Antidilution Price shall be made by reason of such issuance or sale. (iii) Change in Option Price or Conversion Rate; Termination of Options or Convertible Securities. If at any time after the Closing Date a change occurs in (A) the maximum number of shares of Common Stock issuable in connection with any Option referred to in Section 2.2(d)(i) or any Convertible Securities referred to in Section 2.2(d)(i) or (ii), (B) the purchase price provided for in any Option referred to in Section 2.2(d)(i), (C) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Section 2.2(d)(i) or (ii), or (D) the rate at which Convertible Securities 6 referred to in Section 2.2(d)(i) or (ii) are convertible into or exchangeable for Common Stock (in each case, other than in connection with an event described in Section 2.2(a)(vii)), then the Antidilution Price in effect at the time of such event shall be readjusted to the Antidilution Price that would have been in effect at such time had such Options or Convertible Securities that remain outstanding provided for such changed maximum number of shares, purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold. Upon the termination of any such Option or any such right to convert or exchange such Convertible Securities, the Antidilution Price then in effect hereunder shall be increased to the Antidilution Price that would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination (i.e., to the extent that fewer than the number of shares of Common Stock deemed to have been issued in connection with such Option or Convertible Securities were actually issued), never been issued or been issued at such higher price, as the case may be. (iv) Consideration for Stock. In case any shares of Common Stock are issued or sold, or deemed issued or sold, at any time after the Closing Date for cash, the consideration received therefor shall be deemed to be the amount received or to be received by the Company therefor (determined with respect to deemed issuances and sales in connection with Options and Convertible Securities in accordance with clause (A) of Section 2.2(d)(i) or Section 2.2(d)(ii), as appropriate) determined in the manner set forth below in this Section 2.2(d)(iv). If any shares of Common Stock are issued or sold, or deemed issued or sold, for a consideration other than cash, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration received or to be received by the Company (determined with respect to deemed issuances and sales in connection with Options and Convertible Securities in accordance with clause (A) of Section 2.2(d)(i) or Section 2.2(d)(ii), as appropriate) as determined in good faith by the Board of Directors of the Company (the "BOARD OF DIRECTORS") and Holders holding a Two-Thirds Interest. If any Options are issued in connection with the issuance and sale of other securities of the Company, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors and a Two-Thirds Interest; provided, that if the Company and a Two-Thirds Interest are unable to reach agreement as to the value of such consideration, then the value thereof will be determined by an independent appraisal by a mutually agreed to investment banker, the fees of which shall be paid by the Company. (v) Other Issuances or Sales; Indeterminable Amounts. In calculating any adjustment to the Antidilution Price pursuant to this Section 2.2(d), any Options or Convertible Securities that provide, as of the effective date of such adjustment, for the issuance upon exercise or conversion thereof of an indeterminable number of shares of Common Stock shall (together with the shares of Common Stock issuable upon exercise or conversion thereof) be disregarded for purposes of the calculation of Common Stock Deemed Outstanding; provided, that at such time as a number of shares of Common Stock issuable upon exercise or conversion of such Options or Convertible Securities becomes determinable, then the Antidilution Price shall be adjusted as provided in Section 2.2(d)(iii). 7 (vi) Common Stock Deemed Outstanding. The term "COMMON STOCK DEEMED OUTSTANDING" shall mean the sum of (A) the number of shares of Common Stock outstanding immediately prior to the Closing Date reduced by the number of shares of Common Stock to be redeemed by the Company upon consummation of the Redemption (as such term is defined in that certain Stock Purchase Agreement dated as of the Closing Date by and among the Company, the Stockholders (as defined therein) and the Investors (as defined therein)) (including for this purpose all shares of Common Stock issuable upon exercise or conversion of any outstanding Options or Convertible Securities outstanding or renewed for issuance under the Company's 2003 Stock Option and Grant Plan immediately prior to the Closing Date), plus (B) the number of shares of Common Stock issued or sold (or deemed issued or sold) after the date hereof, the issuance or sale of which resulted in an adjustment to the Antidilution Price pursuant to Section 2.2(d), plus (C) the number of shares of Common Stock deemed issued or sold pursuant to Section 2.2(d)(v)(A) above; provided, that Common Stock Deemed Outstanding shall not include shares of Series A Convertible Preferred Stock of the Company or any shares of Common Stock issuable upon exercise of the Convertible Securities or the Warrants. (vii) Certain Issues of Common Stock Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Antidilution Price in the case of the issuance from and after the Closing Date of (i) shares of Common Stock upon conversion of shares of Series A Convertible Preferred Stock of the Company or exercise of the Warrants; (ii) shares of Common Stock or options therefor (appropriately adjusted for stock splits, stock dividends, recapitalizations and the like) to directors, officers, employees or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants by the Company, in each case authorized by the Board of Directors and issued pursuant to the Company's equity incentive plans; (iii) securities issued as consideration for the purchase of stock or assets in any acquisition, merger, joint venture, partnership or other strategic alliance, (iv) securities issued in connection with any debt financing or refinancing of the Company or (v) securities issued that are deemed in writing by the holders of a majority of the Warrant Shares issuable upon exercise of the Warrants to constitute Excluded Shares (collectively, "EXCLUDED SHARES"). (e) Adjustment for Merger or Consolidation, etc. (i) Upon any merger or consolidation of the Company with or into another corporation (or other legal entity), or any sale of all or substantially all of the assets of the Company to another corporation (or other legal entity), this Warrant shall thereafter be exercisable (or shall be converted into a security that shall be exercisable) for the kind and amount of shares of stock or other securities or property to which a Holder of the number of shares of Common Stock of the Company deliverable upon the exercise of this Warrant in full would have been entitled upon such merger, consolidation, or asset sale (and any distribution of assets to stockholders following such asset sale); and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in Section 2.2 set forth with respect to the rights and interests thereafter of the Holder, to the end that the provisions set forth in Section 2.2 (including provisions with respect to changes in and 8 other adjustments of the Antidilution Price) shall thereafter be applicable, as nearly as possible, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (ii) The Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor (if other than the Company) resulting from such consolidation or merger or the person purchasing such assets shall assume by written instrument executed and delivered to the Holder, the obligation to deliver to the Holder such shares, securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to receive upon the exercise of this Warrant (or the security into which such Warrant is to be converted in connection with the consummation of such transaction). (f) Record Date. If the Company takes a record of the Holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (g) Other Dilutive Events. In case any event shall occur after the Closing Date as to which, but for this Section 2.2(g), the provisions of this Section 2 are not directly applicable, and the failure to make any adjustment would not in the opinion of a Two-Thirds Interest fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles of such sections, then, in each case, at the request of a Two-Thirds Interest, the Company shall appoint a firm of independent investment bankers of recognized national standing (which shall be completely independent of the Company and shall be satisfactory to a Two-Thirds Interest), which shall give its opinion upon the adjustment, if any, on the basis consistent with the essential intent and principles established in this Section 2, necessary to preserve, without dilution, the purchase rights by this Warrant. Upon receipt of such opinion, the Company shall promptly mail a copy thereof to the Holder and shall make the adjustments described therein. SECTION 3. REDEMPTION AND CANCELLATION OF WARRANTS 3.1. PUT RIGHT. (a) At any time after September 30, 2008, the Holder may require that the Company purchase this Warrant in whole at the Redemption Price (as defined below) by delivery of a written notice to the Company (the date such notice is delivered to the Company shall hereinafter be referred to as, the "PUT DEMAND DATE"). The Company shall pay the Redemption Price to such Holders as soon as reasonably practicable (the "PUT PAYMENT DATE"), but in no event later than ten (10) days after the Put Demand Date (the "PUT DEMAND PERIOD"), upon surrender of this Warrant to the Company or, if requested by such Holder without surrender of this Warrant, by wire transfer of immediately available funds to an account or accounts designated in writing by the Holder. 9 (b) Upon surrender of this Warrant in accordance with the procedures set forth in Section 3.1(a), the right to purchase shares of Common Stock represented by this Warrant shall terminate, and this Warrant shall represent the right of the Holder to receive only the applicable Redemption Price from the Company in accordance with Section 3.1. The Holder's right to demand redemption of this Warrant pursuant to this Section 3.1 shall be referred to herein as the Holder's "PUT RIGHT." 3.2. DEFAULT; AUTOMATIC CONVERSION INTO DEBT. In the event that the Company fails to purchase this Warrant prior to the expiration of the Put Demand Period, then the exercise by the Holder of the Put Right pursuant to this Section 3 shall automatically be rescinded, unless prior to the expiration of the Put Demand Period the Holder elects to irrevocably convert without any further action or acknowledgment on the part of the Company or any other Holder all of the rights heretofore represented by this Warrant, including the Holder's right to purchase shares of Common Stock represented by this Warrant, into an unsecured obligation of the Company to pay to such Holder, within one (1) year of the Put Demand Date, an amount equal to the Redemption Price, together with accrued interest (based on a 360-day year of 30-day months) on the unpaid principal amount thereof at a rate of twelve percent (12%) per annum, accruing daily in arrears and compounding quarterly until such obligation is paid or prepaid in full, provided that the Company shall use its best efforts to repay obligation in full as soon as possible. The rate of interest payable on such obligation shall increase by one percent (1%) as of the end of each ninety (90) day period after the Put Demand Period until such obligation is paid or prepaid in full or until such interest rate reaches the maximum rate permitted by applicable law, provided, however, that in the event that fulfillment of any provision hereof results in such rate of interest being in excess of such maximum rate, the amount of interest required to be paid hereunder shall automatically be reduced to eliminate such excess. Nothing in this Section 3 shall require the Company to pay interest at a rate in excess of the maximum rate permitted by applicable law. The obligation of the Company created pursuant to this Section 3.2 may be prepaid by the Company at any time without premium or penalty. All payments of principal and interest on such obligation shall be made by wire transfer of immediately available funds to an account or accounts designated in writing by the Holder. All payments made under this Section 3 shall be made pro-rata to all Holders who have exercised their right to convert the Warrant into a debt obligation of the Company pursuant to this Section 3, based on the aggregate amount of outstanding principal with respect to such obligations. SECTION 4. COVENANTS OF THE COMPANY 4.1. The Company covenants and agrees that: (a) all shares of Common Stock that may be issued upon the exercise of the rights represented by this Warrant shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable; (b) during the period within which this Warrant may be exercised, it will at all times have authorized and reserved a sufficient number of shares of Common Stock to provide for the exercise of rights represented by this Warrant; 10 (c) if any shares of Common Stock reserved or to be reserved to provide for the exercise of this Warrant require registration with or approval of any governmental or self-regulatory authority under any federal or state law or stock exchange or NASDAQ rule before such shares may be validly issued, then it shall in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be; (d) if it shall have filed a registration statement pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or a registration statement pursuant to the requirements of the Securities Act, the Company shall comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act and will comply with all other public information reporting requirements the securities and exchange commission (including Rule 144 promulgated by such commission under the Securities Act) from time to time in effect and relating to the availability of an exemption from the Securities Act for the sale of any restricted securities; and (e) it shall not, by amendment to its certificate of incorporation (whether by way of merger, operation of law, or otherwise) or reorganization, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, agreement or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company and shall at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder against impairment as if the Holder was a shareholder of the Company entitled to the benefit of fiduciary duties afforded to stockholders under Illinois law. Any successor to the Company shall agree in writing, as a condition to such succession, to carry out and observe the obligations of the Company hereunder with respect to this Warrant. SECTION 5. TRANSFER 5.1. REGISTRATION. (a) Registration. The Company shall number and register the Warrants in a register maintained at the principal office of the Company (the "OFFICE"). The Company shall be entitled to treat the Holder of the Warrants as the owner thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrants on the part of any other person. Any Warrant may be transferred or endorsed to another party in whole or in part by surrendering to the Company, or its duly authorized agent, for cancellation the existing warrant certificate evidencing the Warrant to be transferred, endorsed or accompanied by a written instrument of transfer, in form reasonably satisfactory to the Company, duly executed by the Holder thereof in person or by a duly authorized representative, agent or attorney-in-fact appointed in writing. 5.2. RESTRICTIVE LEGEND. (a) This Warrant and the Warrant Shares issuable upon exercise thereof, are subject to the terms of that certain Stockholders Agreement, dated as of the date hereof, by and 11 among the Company and the Stockholders and Investors party thereto (the "STOCKHOLDERS AGREEMENT"). Each certificate representing shares of Common Stock issued upon exercise of this Warrant and each certificate representing shares of Common Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the form as follows: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE SECURITIES ACT OR TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (2) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. (b) If at any time any securities other than shares of Common Stock shall be issuable upon the exercise of this Warrant, such securities shall bear a legend similar to the one set forth above. Whenever the legend requirement imposed by the Stockholders Agreement shall terminate, the Holder shall be entitled to receive within five (5) Business Days from the Company, at the Company's expense, a new Warrant certificate or certificates and new stock certificates representing Common Stock issued upon exercise of this Warrant, in each case, without such legends. 5.3. REGISTRATION OF WARRANTS AND COMMON STOCK. The shares of Common Stock issuable upon exercise of this Warrant shall constitute Registrable Securities (as such term is defined in the Registration Rights Agreement dated as of the date hereof by and among the parties therein). Each holder of any shares of Common Stock (and other securities) issued upon exercise of this Warrant shall be entitled to all of the benefits afforded to a holder of any such Registrable Securities under the Registration Rights Agreement and such holder, by its acceptance of this Warrant, agrees to be bound by and to comply with the terms and conditions of the Registration Rights Agreement applicable to such holder as a holder of such Registrable Securities. At any such time as Common Stock is listed on any national securities exchange, the Company will, at its sole expense, obtain promptly and maintain the approval for listing on each such exchange, upon official notice of issuance, the shares of Common Stock issuable upon exercise of the then outstanding Warrants and maintain the listing of such shares after their issuance; and the Company will also list on such national securities exchange, and will maintain such listing of, any other securities that at any time are issuable upon exercise of the Warrants, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Company. SECTION 6. MISCELLANEOUS 6.1. NOTICE OF ADJUSTMENTS. 12 (a) In each case of any adjustment or readjustment in the Warrant Price and the Warrant Shares issuable upon exercise of this Warrant, the Company shall promptly thereafter compute such adjustment or readjustment in accordance with the terms of this Warrant and provide written report thereof certified by the Chief Financial Officer or Treasurer of the Company to the Holder stating the number of Warrant Shares and the Warrant Price, after giving effect to such adjustment or readjustment, and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (b) The Company shall, within (10) days of receipt of a written request by a Two-Thirds Interest, cause independent certified public accountants of recognized national standing, which may be the regular auditors of the Company, selected by the Company to verify such computations reported pursuant to Section 6.1(a), other than any computation that pursuant to the provisions of this Warrant are to be determined reasonably and in good faith by the Board of Directors. The Company shall promptly prepare, and remit to the Holders, a copy of such independent accountant's report setting forth such adjustment or readjustment, showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including a statement of: (i) the consideration received or to be received by the Company for any shares of Common Stock, Options, or Convertible Securities issued or sold or deemed to have been issued; (ii) the Common Stock Deemed Outstanding; and (iii) the Antidilution Price in effect immediately prior to such issuance or sale and as adjusted or readjusted. (c) The Company shall also keep copies of all such reports generated pursuant to this Section 6.1 at its principal offices and will cause the same to be available for inspection at such offices during normal business hours by the Holder or any prospective purchaser of this Warrant designated by Holder. 6.2. NOTICE OF CERTAIN EVENTS. In case at any time: (a) the Company shall pay any dividend upon, or make any distribution in respect of, its stock of the Company; (b) the Company shall propose to register any of its equity securities under the Securities Act in connection with a public offering; (c) there shall be any proposed capital reorganization, or reclassification of the capital stock, of the Company, or consolidation or merger of the Company with, or sale of all or substantially all of its assets to, another person; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; 13 then, in any one (1) or more of said cases, the Company shall give notice to Holder of the date on which (i) the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights, or (ii) such public offering, reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall be given not less than ten (10) days prior to the record date or the date on which the transfer books of the Company are to be closed in respect thereto in the case of an action specified in clause (i) and at least twenty (20) days prior to the action in question in the case of an action specified in clause (ii). 6.3. NOTICE. Any notice that is required or provided to be given under this Warrant shall be deemed to have been sufficiently given and received for all purposes when delivered in writing by hand, telecopy, telex or other method of facsimile, or five (5) days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two (2) days after being sent by overnight delivery providing receipt of delivery, to the following addresses: if to the Company, Eagle Test Systems, Inc., 620 South Butterfield Road, Mundelin, IL 60060-4483, Attention: Len Foxman and Ted Foxman, Facsimile: (847) 367-8640, with a copy to Katten Muchin Zavis Rosenman, 525 West Monroe Street, Suite 1600, Chicago, IL 60661-3693, Attention: Howard S. Lanznar, Facsimile: (312) 902-1061, or at any other address designated by the Company, to Holder; if to Holder, c/o TA Associates, Inc., 125 High Street, Suite 2500, Boston, MA 02110, Attention: Michael C. Child and Jameson J. McJunkin, Facsimile: (617) 574-6728, or at any other address designated by Holder to the Company in writing. 6.4. NO CHANGE IN WARRANT TERMS ON ADJUSTMENT. Irrespective of any adjustment in the Antidilution Price or the number of shares of Common Stock, this Warrant, whether theretofore or thereafter issued or reissued, may continue to express the same price and number of shares of Common Stock as are stated herein and the Antidilution Price and such number of Common Stock shares specified herein shall be deemed to have been so adjusted. 6.5. ISSUANCE AND TRANSFER TAXES. The issuance of certificates for shares of Common Stock upon any exercise of this Warrant shall be made without charge to Holder for any issuance tax in respect thereto. 6.6. EXCHANGE OF WARRANT. This Warrant is exchangeable at no cost to the Holder upon the surrender hereof by Holder at such office or agency of the Company, for a new warrant of like tenor representing in the aggregate the right to subscribe for and purchase the number of shares that may be subscribed for and purchased hereunder from time to time after giving effect to all the provisions hereof, each of such new warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by said Holder hereof at the time of such surrender. 6.7. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost, stolen, mutilated or destroyed, the Company shall at no cost to the Holder, on such terms as to indemnity or otherwise as it may in its discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. Any such new warrant shall constitute an original contractual obligation of the Company, whether or not the allegedly lost, stolen, mutilated or destroyed Warrant shall be at any time enforceable by anyone. 14 6.8. GOVERNING LAW. This Warrant shall be deemed to be a contract made under, and shall be construed in accordance with, the laws of the State of Illinois, without giving effect to conflict of laws principles thereof. 6.9. SECTION HEADINGS; CONSTRUCTION. The descriptive headings in this Warrant have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof. The parties have participated jointly in the negotiation and drafting of this Warrant and the other agreements, documents and instruments executed and delivered in connection herewith with counsel sophisticated in investment transactions. In the event an ambiguity or question of intent or interpretation arises, this Warrant shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Warrant and the agreements, documents and instruments executed and delivered in connection herewith. 6.10. DISPUTE RESOLUTION. All disputes, claims, or controversies arising out of or relating to this Warrant or the negotiation, breach, validity or performance hereof that are not resolved by mutual agreement shall be resolved solely and exclusively in accordance with the arbitration provisions set forth in Section 8.10 of the Stockholders Agreement. The parties understand and agree that this arbitration shall apply equally to claims of fraud or fraud in the inducement. 6.11. CONSENT TO JURISDICTION. Except as provided in Section 6.10, each of the parties hereto irrevocably and unconditionally consents to the jurisdiction of J.A.M.S./Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Warrant or the negotiation, breach, validity or performance hereof, and further consents to the sole and exclusive jurisdiction of (a) the United States District Court for the Northern District of Illinois and (b) the federal courts of the State of California for the purposes of enforcing the arbitration provisions of Section 6.10 of this Warrant. Each party further irrevocably waives any objection to proceeding before the Arbitrator based upon lack of personal jurisdiction or to the laying of venue and further irrevocably and unconditionally waives and agrees not to make a claim in any court that arbitration before the Arbitrator has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 6.12. REMEDIES; SEVERABILITY. Notwithstanding Sections 6.10 and 6.11, it is specifically understood and agreed that any breach of the provisions of this Warrant by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for specific performance (to the extent permitted by law). Whenever possible, each provision of this Warrant shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, 15 and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Warrant. 6.13. INTEGRATION. This Warrant, the Stockholders Agreement, the Registration Rights Agreement and the Purchase Agreement, including the exhibits referred to herein and therein, constitute the entire agreement and supersede all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. 6.14. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Except as expressly set forth herein, nothing contained in this Warrant shall be construed as conferring upon the Holder any rights as a shareholder of the Company or as imposing any obligation on the Holder to purchase any securities or as imposing any liabilities on the Holder as a shareholder of the Company, whether such obligation or liabilities are asserted by the Company or creditors of the Company. 6.15. WAIVERS AND CONSENTS; AMENDMENTS. (a) For the purposes of this Warrant and all documents executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof or thereof. No covenant or provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision contemplated herein. (b) No amendment to this Warrant may be made without the written consent of the Company and the Holder. 6.16. CERTAIN DEFINITIONS. The following terms as used in this Warrant shall have the following meanings: (a) "APPRAISER" means an independent nationally recognized investment bank or other qualified financial institution acceptable to the Company and the Noteholders (as such term is defined in the Purchase Agreement). (b) "BUSINESS DAY" means any day other than a Saturday or a Sunday or a day on which commercial banking institutions in the State of New York are authorized or obligated by law or executive order to be closed. Any reference to "days" (unless Business Days are specified) shall mean calendar days. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "FAIR MARKET VALUE" means either (i) the Market Price, if any, of a share of Common Stock or (ii) if no Market Price exists, the value (which shall not take into effect any minority discounts) of a share of Common Stock as determined by a nationally recognized investment banking firm or accounting firm designated by Holders representing a majority of the Warrant Shares issuable upon exercise of the Warrants and reasonably acceptable to the Company; provided that if the parties cannot agree on such a firm, each party shall choose a nationally recognized investment banking firm, which shall choose a third nationally recognized 16 firm and that third firm shall determine the Fair Market Value, which determination shall be final and binding. The cost relating to retaining any such firm(s) pursuant to this definition shall be borne by the Company. (e) "MARKET PRICE" of any security means the value determined in accordance with the following provisions: (i) if such security is listed on a national securities exchange registered under the Exchange Act, a price equal to the average of the closing sales prices for such security on such exchange for each day during the twenty (20) consecutive trading days immediately preceding the date in question; and (ii) not so listed, and such security is quoted on NASDAQ, a price equal to the average of the closing bid and asked prices for such security quoted on such system each day during the 20 consecutive trading days immediately preceding the date in question. (f) "REDEMPTION PRICE" means the greater of (i) the Fair Market Value of the Warrant as of the Put Demand Date and (ii) the Fair Market Value of the Warrant as of the Put Payment Date (or if the Company fails to pay the Redemption Price on the Put Payment Date, the first day following the Put Demand Period), as determined by an Appraiser (as defined above) and based upon on independent valuation of the Company. In arriving at its determination, the Appraiser shall base any valuation upon, in the case of the Market Price of the Common Stock, the Market Price of the Company assuming (A) the exercise of all outstanding warrants, options or rights to subscribe for or purchase Common Stock (or other securities) of the Company or other securities immediately exercisable or convertible into Common Stock (or other securities) of the Company and (B) the Company were sold as a going concern, without regard to the existence of any control block, the anticipated impact upon current market prices of any such sale, any discount for minority ownership or the lack or depth of a market for the Common Stock, the Warrants or other securities of the Company, or any other factors concerning the liquidity or marketability of the Common Stock, the Warrants, or other securities of the Company. 6.17. OTHER DEFINITIONAL PROVISIONS. (a) Except as otherwise specified herein, all references herein: (i) to any person other than the Company, shall be deemed to include such person's successors and assigns; (ii) to the Company shall be deemed to include the Company's successors; and (iii) to any applicable law defined or referred to herein, shall be deemed references to such applicable law as the same may have been or may be amended or supplemented from time to time. 17 (b) When used in this Warrant, the words "herein", "hereof' and "hereunder", and words of similar import, shall refer to this Warrant as a whole and not to any provision of this Warrant, and the words "Section" and "Exhibit" shall refer to Sections of, and Exhibits to, this Warrant unless otherwise specified. (c) Whenever the context so requires the neuter gender includes the masculine or feminine, and the singular number includes the plural, and vice versa. [Execution page follows] 18 IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its duly authorized as of the date first written above. EAGLE TEST SYSTEMS, INC. By: _____________________________ Name: Title: EX-10.11 11 c86449exv10w11.txt SENIOR SUBORDINATED CONVERTIBLE NOTE EXHIBIT 10.11 SENIOR SUBORDINATED CONVERTIBLE NOTE $ 29,412,000.00 SEPTEMBER 30, 2003 FOR VALUE RECEIVED, the undersigned, Eagle Test Systems, Inc., an Illinois corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of TA Subordinated Debt Fund, L.P. (the "NOTEHOLDER") the principal sum of $ 29,412,000.00, together with interest on the unpaid principal amount from time to time outstanding at the rate or rates and computed and payable at the times as described in the Note Purchase Agreement (as hereinafter defined). Payments of the principal hereof shall be made as provided in the Note Purchase Agreement. Notwithstanding any other provision of this note, the entire balance of principal and accrued and unpaid interest shall be paid in full on September 30, 2009. This note is one of the Convertible Notes referred to in the Note Purchase Agreement dated as of September 30, 2003 (as the same may be amended, modified or supplemented from time to time, the "NOTE PURCHASE AGREEMENT") among the Borrower, the Noteholder and certain other Noteholders named therein. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Note Purchase Agreement. The Noteholder may convert this note at any time pursuant to the terms of the Note Purchase Agreement into (a) a Senior Subordinated Note due September 30, 2009 in the principal amount of $ 29,407,098.00 plus any interest owed in arrears on this note on the Conversion Date, in the form attached hereto as Exhibit A, and (b) a Common Stock Purchase Warrant of the Borrower for the purchase of 205.900 shares of the Borrower's Common Stock (subject to adjustment as provided for therein), exercisable at a price per share of $.01 (subject to adjustment as provided for therein) in the form attached hereto as Exhibit B, all as further described in the Note Purchase Agreement. Subject to, and at all times in accordance with, the provisions of the Note Purchase Agreement (i) the Borrower shall have the right, at any time, to voluntarily prepay all or any part of the outstanding principal amount of this note, and (ii) the Noteholder shall have the right to require the Borrower to repurchase this note upon the occurrence of a Mandatory Repurchase Event. In addition to the payment of interest as provided above, the Borrower shall, on demand, pay interest on any overdue installments of principal and, to the extent permitted by applicable law, on overdue installments of interest at the rate set forth in, and in accordance with the provisions of, the Note Purchase Agreement. The holder of this note is entitled to all the benefits and rights of a Noteholder under the Note Purchase Agreement to which reference is hereby made for a statement of the terms and conditions under which the entire unpaid balance of this note, or any portion thereof, shall become immediately due and payable. Notwithstanding anything in this note to the contrary, the terms and provisions of this note shall at all times be governed by and subject to all of the terms and provisions of the Note Purchase Agreement. To the extent that there is any conflict with, or inconsistency between, the terms and provisions of this note and the terms and provisions of the Note Purchase Agreement, the terms and provisions of the Note Purchase Agreement shall at all times govern and control. The Borrower hereby waives presentment, demand, notice, protest and other demands and notices in connection with the delivery, acceptance or enforcement of this note. No delay or omission on the part of the holder of this note in exercising any right hereunder shall operate as a waiver of such right or of any other right under this note, and a waiver, delay or omission on any one occasion shall not be construed as a bar to or waiver of any such right on any future occasion. The terms and provisions of this note are subject to the dispute resolution provisions contained in Sections 9.11 and 9.12 of the Note Purchase Agreement. This note shall be deemed to be under seal, and all rights and obligations hereunder shall be governed by the laws of the State of New York (without giving effect to any conflicts of law provisions contained therein). EAGLE TEST SYSTEMS, INC. By: Leonard Foxman ------------------------------ Name: Leonard Foxman Title: CEO EX-10.12 12 c86449exv10w12.txt NON-COMPETITION AGREEMENT EXHIBIT 10.12 EXECUTION COPY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is dated as of this 30th day of September, 2003, by and among Eagle Test Systems, Inc., an Illinois corporation (the "Company"), Leonard A. Foxman (the "Stockholder") and the parties set forth on the signature pages hereto as Investors (the "Investors"). WITNESSETH WHEREAS, the Stockholder owns a direct equity interest in the Company (the "Equity Interest"); WHEREAS, the Company is in the business of designing, producing and distributing automated test systems for use in the semiconductor industry (the "Company Business"); WHEREAS, the Company's business is conducted throughout the United States and the rest of the world and the reputation and goodwill of the Company are an integral part of its business success; WHEREAS pursuant to the terms of that certain Stock Purchase Agreement by and among the Company, the Stockholders named therein and the Investors named therein, dated as of the date hereof (the "Purchase Agreement"), (a) certain of the Investors are purchasing shares of the Company's Series A Convertible Preferred Stock, par value $.01 per share, for an aggregate purchase price of $65,000,000 and (b) the Stockholder is receiving proceeds in the amount of $48,339,484.10 pursuant to the redemption by the Company of a portion of the Equity Interest; WHEREAS, pursuant to the terms of that certain Note Purchase Agreement by and among the Company and certain of the Investors dated as of the date hereof (the "Note Purchase Agreement"), such Investors are lending to the Company $30,000,000 in return for convertible subordinated notes of the Company which are convertible into subordinated notes of the Company and warrants to acquire shares of Common Stock, par value $1.00 per share, of the Company; WHEREAS, as a material inducement to the Investors to enter into the Purchase Agreement and Note Purchase Agreement and in consideration of the covenants and agreements set forth therein, and in order to provide the Investors with the full benefits of their investment, the Stockholder has agreed to execute and deliver this Agreement; and WHEREAS, the execution and delivery by the Stockholder of this Agreement is a condition precedent to the Investors' willingness to consummate the transactions described in the Purchase Agreement and the Note Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: Section 1. Non-Competition; Non-Solicitation. In view of the fact that any activity of the Stockholder in violation of the terms hereof would adversely affect the Company and any subsidiaries and would deprive the Investors under the Purchase Agreement and the Note Purchase Agreement of the benefits of their bargains thereunder, and to preserve the goodwill associated with the Company's business, the Stockholder hereby agrees to the following restrictions on his activities: (a) Non-Competition and Non-Solicitation. The Stockholder hereby agrees that during the period commencing on the date hereof and ending on the date which is the later of five (5) years after the date hereof or two (2) years after termination of Stockholder's employment with the Company, if any, it will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country where the Company has conducted business, is conducting business or is presently contemplating conducting business, (a) engage in any activity which is or (b) participate or invest in, provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity) any business, organization or person other than the Company (or any subsidiary of the Company), including any such business, organization or person involving, or which is, a family member of the Stockholder, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or any of its subsidiaries, which business, activities, products and services shall include in any event and without limitation the Company Business. Without implied limitation, the forgoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Stockholder or any such competitor any officer or employee of the Company or any of its subsidiaries, or any former employee of the Company and any of its subsidiaries who was employed during the six (6) month period immediately preceding the date hereof, (b) encouraging for or on behalf of the Stockholder or any such competitor any such officer or employee to terminate its relationship or employment with the Company or any of its subsidiaries, (c) soliciting for or on behalf of the Stockholder or any such competitor any client of the Company or any of its subsidiaries and (d) diverting to any person any client or business opportunity of the Company or any of any of its subsidiaries. Notwithstanding anything herein to the contrary, the Stockholder may make passive investments in any publicly traded enterprise if such investment constitutes less than one percent (2%) of the equity of such enterprise. Neither the Stockholder nor any business entity controlled by the Stockholder is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary of the Company from carrying on its business or restrain or restrict the Stockholder from performing the Stockholder's employment obligations, and, as of the date of this Agreement, the Stockholder has no business interests whatsoever in or relating to the industries in which the Company and its subsidiaries currently engage other than the Stockholder's interest in the Company and other than interests in public companies of less than one percent (2%). 2 For purposes of this Agreement, any reference to a (i) "subsidiary" or "subsidiaries" of the Company shall be deemed to include any entities directly or indirectly controlled by it through an ownership of more than fifty percent (50%) of the voting interests and (ii) the term "person" shall mean an individual, a corporation, an association, a partnership, a limited liability company, an estate, a trust, and any other entity or organization. Section 2. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of this Agreement have been specifically negotiated by sophisticated commercial parties, and they agree that (a) all such provisions are reasonable under the circumstances of the transactions contemplated hereby, (b) are given as an integral and essential part of the transactions contemplated hereby and (c) but for the covenants of the Stockholder contained in this Agreement, the Company and the Investors would not have entered into or consummated the transactions contemplated hereby. The Stockholder has independently consulted with his counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. Section 3. Confidentiality. The Stockholder agrees that all information, whether or not in writing, concerning the Company Business or the Company's technology, business relationships or financial affairs which the Company has not released to the general public (collectively, "Proprietary Information") is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties. The Stockholder hereby agrees that it will not, at any time, without the Company's prior written permission, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company, if applicable. The Stockholder hereby agrees to cooperate with the Company and use is best efforts to prevent the unauthorized disclosure of all Proprietary Information. Section 4. Certain Remedies; Severability. It is specifically understood and agreed that any breach of the provisions of this Agreement by the Stockholder or any of his affiliates will result in irreparable injury to the Company and its subsidiaries, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company and, upon authorization by the Board of Directors of the Company, its subsidiaries shall be entitled to enforce the specific performance of this Agreement by the Stockholder 3 through both temporary and permanent injunctive relief without the necessity of proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Stockholder may have against the Company or any of its subsidiaries shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. Section 5. Jurisdiction. The parties hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the State of Illinois to construe and enforce the covenants contained in this Agreement. In the event that the courts of any state shall hold such covenants unenforceable (in whole or in part) by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination shall not bar or in any way affect the right of the Company or, upon authorization by the Board of Directors of the Company, any of its subsidiaries to the relief provided for herein in the courts of any other state within the geographic scope of such covenants, as to breaches of such covenants in such other respective states, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants. Section 6. Notices. Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, telecopy, telex or other method of facsimile, or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses (or at such other address for any party as shall be specified by notice given in accordance with the provisions hereof, provided that notices of a change of address shall be effective only upon receipt thereof): If to the Company Eagle Test Systems, Inc. 620 South Butterfield Road Mundelein, Illinois 60060 Attention : Leonard A. Foxman If to the Investors: c/o TA Associates, Inc. 125 High Street, Suite 2500 Boston, Massachusetts 02110 Attention: Michael C. Child and Jameson J. McJunkin Facsimile: (617) 574-6728 4 If to the Stockholder: Leonard A. Foxman 1929 Browning Ct. Highland Park, IL 60035 Section 7. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois and shall not be modified or discharged in whole or in part except by an agreement in writing signed by the Company, the Investors and the Stockholder. The failure of any of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon, successors of the Company by way of merger, consolidation or transfer of substantially all the assets of the Company, and may not be assigned by the Stockholder. This Agreement supersedes all prior understandings and agreements between the parties relating to the subject matter hereof. [SIGNATURE PAGES FOLLOW] 5 IN WITNESS WHEREOF, the parties have executed this Non-Competition Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ----------------------------- Name: Leonard Foxman Title: President LEONARD FOXMAN: : /s/ Leonard Foxman ---------------------------- INVESTORS: TA IX L.P. By: TA Associates IX LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA/ATLANTIC AND PACIFIC IV L.P. By: TA Associates AP IV L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA STRATEGIC PARTNERS FUND A L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA STRATEGIC PARTNERS FUND B L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA INVESTORS LLC By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA SUBORDINATED DEBT FUND, L.P. By: TA Associates SDF LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director EX-10.13 13 c86449exv10w13.txt NON-COMPETITION AGREEMENT EXHIBIT 10.13 EXECUTION COPY NON-COMPETITION AGREEMENT THIS NON-COMPETITION AGREEMENT is dated as of this 30th day of September, 2003, by and among Eagle Test Systems, Inc., an Illinois corporation (the "Company"), Foxman Family LLC (the "Stockholder") and the parties set forth on the signature pages hereto as Investors (the "Investors"). WITNESSETH WHEREAS, the Stockholder owns a direct equity interest in the Company (the "Equity Interest"); WHEREAS, the Company is in the business of designing, producing and distributing automated test systems for use in the semiconductor industry (the "Company Business"); WHEREAS, the Company's business is conducted throughout the United States and the rest of the world and the reputation and goodwill of the Company are an integral part of its business success; WHEREAS pursuant to the terms of that certain Stock Purchase Agreement by and among the Company, the Stockholders named therein and the Investors named therein, dated as of the date hereof (the "Purchase Agreement"), (a) certain of the Investors are purchasing shares of the Company's Series A Convertible Preferred Stock, par value $.01 per share, for an aggregate purchase price of $65,000,000 and (b) the Stockholder is receiving proceeds in the amount of $30,483,842.95 pursuant to the redemption by the Company of a portion of the Equity Interest; WHEREAS, pursuant to the terms of that certain Note Purchase Agreement by and among the Company and certain of the Investors dated as of the date hereof (the "Note Purchase Agreement"), such Investors are lending to the Company $30,000,000 in return for convertible subordinated notes of the Company which are convertible into subordinated notes of the Company and warrants to acquire shares of Common Stock, par value $1.00 per share, of the Company; WHEREAS, as a material inducement to the Investors to enter into the Purchase Agreement and Note Purchase Agreement and in consideration of the covenants and agreements set forth therein, and in order to provide the Investors with the full benefits of their investment, the Stockholder has agreed to execute and deliver this Agreement; and WHEREAS, the execution and delivery by the Stockholder of this Agreement is a condition precedent to the Investors' willingness to consummate the transactions described in the Purchase Agreement and the Note Purchase Agreement. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: Section 1. Non-Competition; Non-Solicitation. In view of the fact that any activity of the Stockholder in violation of the terms hereof would adversely affect the Company and any subsidiaries and would deprive the Investors under the Purchase Agreement and the Note Purchase Agreement of the benefits of their bargains thereunder, and to preserve the goodwill associated with the Company's business, the Stockholder hereby agrees to the following restrictions on his activities: (a) Non-Competition and Non-Solicitation. The Stockholder hereby agrees that during the period commencing on the date hereof and ending on the date which is the later of five (5) years after the date hereof, it will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country where the Company has conducted business, is conducting business or is presently contemplating conducting business, (a) engage in any activity which is or (b) participate or invest in, provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity) any business, organization or person other than the Company (or any subsidiary of the Company), including any such business, organization or person involving, or which is, a family member of the Stockholder, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or any of its subsidiaries, which business, activities, products and services shall include in any event and without limitation the Company Business. Without implied limitation, the forgoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Stockholder or any such competitor any officer or employee of the Company or any of its subsidiaries, or any former employee of the Company and any of its subsidiaries who was employed during the six (6) month period immediately preceding the date hereof, (b) encouraging for or on behalf of the Stockholder or any such competitor any such officer or employee to terminate its relationship or employment with the Company or any of its subsidiaries, (c) soliciting for or on behalf of the Stockholder or any such competitor any client of the Company or any of its subsidiaries and (d) diverting to any person any client or business opportunity of the Company or any of any of its subsidiaries. Notwithstanding anything herein to the contrary, the Stockholder may make passive investments in any publicly traded enterprise if such investment constitutes less than one percent (2%) of the equity of such enterprise. Neither the Stockholder nor any business entity controlled by the Stockholder is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary of the Company from carrying on its business or restrain or restrict the Stockholder from performing the Stockholder's employment obligations, and, as of the date of this Agreement, the Stockholder has no business interests whatsoever in or relating to the industries in which the Company and its subsidiaries currently engage other than the Stockholder's interest in the Company and other than interests in public companies of less than one percent (2%). 2 For purposes of this Agreement, any reference to a (i) "subsidiary" or "subsidiaries" of the Company shall be deemed to include any entities directly or indirectly controlled by it through an ownership of more than fifty percent (50%) of the voting interests and (ii) the term "person" shall mean an individual, a corporation, an association, a partnership, a limited liability company, an estate, a trust, and any other entity or organization. Section 2. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of this Agreement have been specifically negotiated by sophisticated commercial parties, and they agree that (a) all such provisions are reasonable under the circumstances of the transactions contemplated hereby, (b) are given as an integral and essential part of the transactions contemplated hereby and (c) but for the covenants of the Stockholder contained in this Agreement, the Company and the Investors would not have entered into or consummated the transactions contemplated hereby. The Stockholder has independently consulted with his counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. Section 3. Confidentiality. The Stockholder agrees that all information, whether or not in writing, concerning the Company Business or the Company's technology, business relationships or financial affairs which the Company has not released to the general public (collectively, "Proprietary Information") is and will be the exclusive property of the Company. By way of illustration, Proprietary Information may include information or material which has not been made generally available to the public, such as: (a) corporate information, including plans, strategies, methods, policies, resolutions, negotiations or litigation; (b) marketing information, including strategies, methods, customer identities or other information about customers, prospect identities or other information about prospects, or market analyses or projections; (c) financial information, including cost and performance data, debt arrangements, equity structure, investors and holdings, purchasing and sales data and price lists; and (d) operational and technological information, including plans, specifications, manuals, forms, templates, software, designs, procedures, formulas, discoveries, inventions, improvements, concepts and ideas; and (e) personnel information, including personnel lists, reporting or organizational structure, resumes, personnel data, compensation structure, performance evaluations and termination arrangements or documents. Proprietary Information also includes information received in confidence by the Company from its customers or suppliers or other third parties. The Stockholder hereby agrees that it will not, at any time, without the Company's prior written permission, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company, if applicable. The Stockholder hereby agrees to cooperate with the Company and use is best efforts to prevent the unauthorized disclosure of all Proprietary Information. Section 4. Certain Remedies; Severability. It is specifically understood and agreed that any breach of the provisions of this Agreement by the Stockholder or any of his affiliates will result in irreparable injury to the Company and its subsidiaries, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company and, upon authorization by the Board of Directors of the Company, its subsidiaries shall be entitled to enforce the specific performance of this Agreement by the Stockholder 3 through both temporary and permanent injunctive relief without the necessity of proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Stockholder may have against the Company or any of its subsidiaries shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. Section 5. Jurisdiction. The parties hereby irrevocably submit to the non-exclusive jurisdiction of the courts of the State of Illinois to construe and enforce the covenants contained in this Agreement. In the event that the courts of any state shall hold such covenants unenforceable (in whole or in part) by reason of the breadth of such scope or otherwise, it is the intention of the parties hereto that such determination shall not bar or in any way affect the right of the Company or, upon authorization by the Board of Directors of the Company, any of its subsidiaries to the relief provided for herein in the courts of any other state within the geographic scope of such covenants, as to breaches of such covenants in such other respective states, the above covenants as they relate to each state being, for this purpose, severable into diverse and independent covenants. Section 6. Notices. Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, telecopy, telex or other method of facsimile, or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses (or at such other address for any party as shall be specified by notice given in accordance with the provisions hereof, provided that notices of a change of address shall be effective only upon receipt thereof): If to the Company Eagle Test Systems, Inc. 620 South Butterfield Road Mundelein, Illinois 60060 Attention: Leonard A. Foxman If to the Investors: c/o TA Associates, Inc. 125 High Street, Suite 2500 Boston, Massachusetts 02110 Attention: Michael C. Child and Jameson J. McJunkin Facsimile: (617) 574-6728 4 If to the Stockholder: Foxman Family LLC 1929 Browning Ct. Highland Park, IL 60035 Section 7. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois and shall not be modified or discharged in whole or in part except by an agreement in writing signed by the Company, the Investors and the Stockholder. The failure of any of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon, successors of the Company by way of merger, consolidation or transfer of substantially all the assets of the Company, and may not be assigned by the Stockholder. This Agreement supersedes all prior understandings and agreements between the parties relating to the subject matter hereof. [SIGNATURE PAGES FOLLOW] 5 IN WITNESS WHEREOF, the parties have executed this Non-Competition Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ----------------------------- Name: Leonard Foxman Title: President STOCKHOLDER: FOXMAN FAMILY LLC By: /s/ Leonard Foxman ----------------------------- Name: Leonard Foxman Title: Manager INVESTORS: TA IX L.P. By: TA Associates IX LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA/ATLANTIC AND PACIFIC IV L.P. By: TA Associates AP IV L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA STRATEGIC PARTNERS FUND A L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA STRATEGIC PARTNERS FUND B L.P. By: TA Associates SPF L.P., its General Partner By: TA Associates, Inc., its General Partner By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA INVESTORS LLC By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director TA SUBORDINATED DEBT FUND, L.P. By: TA Associates SDF LLC, its General Partner By: TA Associates, Inc., its Manager By: /s/ Michael C. Child ------------------------------------ Name: Michael C. Child Title: Managing Director EX-10.14 14 c86449exv10w14.txt EMPLOYMENT AGREEMENT EXHIBIT 10.14 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th day of September, 2003 by and between Leonard Foxman (the "Employee") and Eagle Test Systems, Inc., an Illinois corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee and the Employee desires to obtain employment with the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. Subject to the provisions of Section 6, the Company hereby employs Employee and Employee accepts such employment upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions of Section 6, the term of Employee's employment pursuant to this Agreement shall commence on and as of the date hereof (the "Effective Date") and shall terminate on the first anniversary of the Effective Date (such period, the "Term"). Notwithstanding the foregoing, the Term shall automatically extend for an additional year on each anniversary of the Effective Date unless either party provides written notice to the other party within thirty (30) days of the date on which the Term would expire that he or it chooses not to extend the Term. 3. Duties; Extent of Service. During Employee's employment under this Agreement, Employee (i) shall serve as an employee of the Company with the title and position of Chief Executive Officer, reporting to the Board of Directors of the Company, (ii) shall have such executive responsibilities as the Board of Directors of the Company shall from time to time designate and in all cases Employee shall be subject to the oversight and supervision of the Board of Directors of the Company in the performance of his duties, (iii) upon the request of the Board of Directors of the Company, shall serve as an officer and/or director of any of the Company's subsidiaries, and (iv) shall render all services reasonably incident to the foregoing. Employee hereby accepts such employment, agrees to serve the Company in the capacities indicated, and agrees to use Employee's best efforts in, and shall devote Employee's full working time, attention, skill and energies to, the advancement of the interests of the Company and its subsidiaries and the performance of Employee's duties and responsibilities hereunder. The foregoing, however, shall not be construed as preventing Employee from engaging in religious, charitable or other community or non-profit activities that do not impair Employee's ability to fulfill Employee's duties and responsibilities under this Agreement. 4. Salary and Bonus. (a) During Employee's employment under this Agreement, the Company shall pay Employee a salary at the annual rate of $350,000 per annum (the "Base Salary"). Such Base Salary shall be subject to withholding under applicable law, shall be pro rated for partial years and shall be payable in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time. (b) For each fiscal year beginning with the year ending September 30, 2004 during Employee's employment under this Agreement, Employee shall be eligible to a bonus up to 150% of Base Salary based upon the Company achieving the performance targets set forth in the plan to be established by the Board of Directors for each applicable fiscal year (the "Incentive Bonus"). 5. Benefits. (a) During Employee's employment under this Agreement, Employee shall be entitled to participate in any and all ESOP, medical, pension, stock option, profit sharing, dental and life insurance plans and disability income plans, retirement arrangements and other employment benefits as in effect from time to time for executive officers of the Company generally. Such participation shall be subject to (i) the terms of the applicable plan documents (including, as applicable, provisions granting discretion to the Board of Directors of the Company or any administrative or other committee provided for therein or contemplated thereby) and (ii) generally applicable policies of the Company. Employee shall be eligible to participate in all such plans and other benefits as of the Effective Date. (b) During Employee's employment under this Agreement, Employee shall receive paid vacation annually in accordance with the Company's practices for executive officers, as in effect from time to time. (c) The Company shall promptly reimburse Employee for all reasonable business expenses incurred by Employee during Employee's employment hereunder in accordance with the Company's practices for senior executive officers of the Company, as in effect from time to time. (d) Compliance with the provisions of this Section 5 shall in no way create or be deemed to create any obligation, express or implied, on the part of the Company or any of its affiliates with respect to the continuation of any particular benefit or other plan or arrangement maintained by them or their subsidiaries as of or prior to the date hereof or the creation and maintenance of any particular benefit or other plan or arrangement at any time after the date hereof, except as contemplated by Section 5(b) and 5(c). 2 6. Termination and Termination Benefits. Notwithstanding the provisions of Section 2, Employee's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Company for Cause. Employee's employment under this Agreement may be terminated for cause without further liability on the part of the Company effective immediately upon a vote of the Board of Directors and written notice to Employee. Only the following shall constitute "cause" for such termination: (i) dishonest statements or acts of Employee with respect to the Company or any affiliate of the Company; (ii) the commission by Employee of, or indictment of Employee for, (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud ("indictment," for these purposes, meaning an indictment, probable cause hearing or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made); (iii) the commission, in the reasonable judgment of the Board of Directors, of an act involving a material violation of procedures or policies of the Company; (iv) a material and sustained failure of Employee to perform the duties and responsibilities assigned or delegated under this Agreement, as determined by the Board of the Directors, which such failure continues for an unreasonable period of time, as determined by the Board of Directors, after written notice has been given to the Employee by the Board of Directors; (v) gross negligence, willful misconduct or insubordination of Employee with respect to the Company or any affiliate of the Company; or (vi) breach by Employee of any of Employee's obligations under this Agreement. (b) Termination by Employee Other than for Good Reason. Employee's employment under this Agreement may be terminated by Employee by written notice to the Board of Directors at least sixty (60) days prior to such termination. (c) Termination by Employee for Good Reason. Subject to the payment of Termination Benefits pursuant to Section 6(e) below, Employee's employment under this Agreement also may be terminated by Employee for Good Reason (as defined below) (which termination must be within ninety (90) days of the occurrence of the events giving rise to such Good Reason) by written notice to the Board of Directors 3 setting forth such Good Reason and giving the Company a reasonable period of time, not less than ten (10) business days, to eliminate such Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Employee's responsibilities, authorities, powers, functions or duties under this Agreement; (ii) a reduction in the Employee's annual base salary except for an across-the-board salary reduction similarly affecting all or substantially all management employees; or (iii) the relocation of the offices at which the Employee is principally employed to a location more than seventy (75) miles from such offices. (d) Termination by the Company Without Cause. Subject to the payment of Termination Benefits pursuant to Section 6(e), Employee's employment under this Agreement may be terminated without cause by the Company by a vote of the Board of Directors upon written notice to Employee. It is expressly agreed and understood that if this Agreement is terminated by the Company without cause as provided in this Section 6(d), it shall not impair or otherwise affect Employee's Continuing Obligations (as defined below). (e) Certain Termination Benefits. Unless otherwise specifically provided in this Agreement or otherwise required by law, all compensation and benefits payable to Employee under this Agreement shall terminate on the date of termination of Employee's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of Employee's employment with the Company pursuant to Section 6(c) or Section 6(d) above, the Company shall provide to Employee the following termination benefits ("Termination Benefits"): (i) continuation of salary at a rate equal to 100% of Employee's Base Salary as in effect on the date of termination for a period of three (3) years from the date of termination (payment shall be subject to withholding under applicable law and shall be made in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time); and (ii) continuation of group health plan benefits during the time in which Employee is receiving payments pursuant to subsection (i) above, to the extent authorized by and consistent with 29 U.S.C. Section 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and Employee as in effect on the date of termination. The Company shall have the right to terminate all of Termination Benefits set forth in (i) and (ii) in the event that Employee fails to comply with Employee's Continuing Obligations under this Agreement. The Company's liability for Base Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay due or otherwise paid to Employee pursuant to any severance pay plan or stay bonus plan of the 4 Company. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect Employee's right to receive COBRA continuation entirely at Employee's own cost to the extent that Employee may continue to be entitled to COBRA continuation after Employee's right to cost sharing under Section 6(e)(ii) ceases. The Company and Employee agree that the Termination Benefits paid by the Company to Employee under this Section 6(e) shall be in full satisfaction, compromise and release of any claims arising out of any termination of Employee's employment pursuant to Section 6(d), and that the payment of the Termination Benefits shall be contingent upon Employee's delivery of a general release of any and all claims (other than those arising under this Agreement) upon termination of employment in a form reasonably satisfactory to the Company, it being understood that no Termination Benefits shall be provided unless and until Employee executes and delivers such release. (f) Disability. If Employee shall be disabled so as to be unable to perform the essential functions of Employee's then existing position or positions under this Agreement with or without reasonable accommodation, the Board of Directors may remove Employee from any responsibilities and/or reassign Employee to another position with the Company for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, Employee shall continue to receive Employee's full Base Salary (less any disability pay or sick pay benefits to which Employee may be entitled under the Company's policies) and benefits under Section 4 of this Agreement (except to the extent that Employee may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the lesser of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period Employee is disabled so as to be unable to perform the essential functions of Employee's then existing position or positions with or without reasonable accommodation, Employee may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom Employee or Employee's guardian has no reasonable objection as to whether Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and Employee shall fail to submit such certification, the Company's determination of such issue shall be binding on Employee. Nothing in this Section 6(e) shall be construed to waive Employee's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. Section 2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq. (g) Death. Employee's employment and all obligations of the Company hereunder shall terminate in the event of the death of the Employee other than any obligation to pay earned but unpaid Base Salary. (h) Notwithstanding termination of this Agreement as provided in this Section 6 or any other termination of Employee's employment with the Company, Employee's obligations under Section 7 hereof (the "Continuing Obligations") shall 5 survive any termination of Employee's employment with the Company at any time and for any reason. 7. Non-Competition; Non-Solicitation; Confidentiality; Proprietary Rights. (a) The Employee hereby agrees that during the period commencing on the date hereof and ending on the date that is five years following the date of the termination of Employee's employment with the Company (the "Noncompetition Period"), the Employee will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country in which the Company has conducted business, is conducting business or is presently contemplating conducting business, engage in any activity which is, or participate or invest in, or provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity), any business, organization or person other than the Company (or any subsidiary or affiliate of the Company), and including any such business, organization or person involving, or which is, a family member of the Employee, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or its subsidiaries or affiliates during any period in which the Employee serves as an officer or employee of the Company or any of its subsidiaries or affiliates. Without implied limitation, the foregoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Employee or any such competitor any officer or employee of the Company or any of its direct and/or indirect subsidiaries and affiliates, or any former employee of the Company and any of its direct and/or indirect subsidiaries and affiliates who was employed during the six (6) month period immediately preceding the date of such attempt to hire or engage, (b) encouraging for or on behalf of the Employee or any such competitor any such officer or employee to terminate his or her relationship or employment with the Company or any of its direct or indirect subsidiaries and affiliates, (c) soliciting for or on behalf of Employee or any such competitor any client of the Company or any of its direct or indirect subsidiaries and affiliates, or any former client of the Company or any of its direct or indirect subsidiaries and affiliates who was a client during the six (6) month period immediately preceding the date of such solicitation and (d) diverting to any person (as hereinafter defined) any client or business opportunity of the Company or any of any of its direct or indirect subsidiaries and affiliates. Notwithstanding anything herein to the contrary, the Employee may make passive investments in any enterprise the shares of which are publicly traded if such investment constitutes less than two percent (2%) of the equity of such enterprise. Neither the Employee nor any business entity controlled by the Employee is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary or affiliate of the Company from carrying on its business or restrain or restrict the Employee from performing his employment obligations, and as of the date of this Agreement the 6 Employee has no business interests whatsoever in or relating to the industries in which the Company or its subsidiaries or affiliates currently engage, and other than passive investments in the shares of public companies of less than two percent (2%). (b) In the course of performing services hereunder, on behalf of the Company (for purposes of this Section 7 including all predecessors of the Company) and its affiliates, Employee has had and from time to time will have access to Confidential Information (as defined below). Employee agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose the Confidential Information to any person (other than in the regular business of the Company or its affiliates), and (c) not to use, directly or indirectly, any of the Confidential Information for any purpose other than on behalf of the Company and its affiliates. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, that are furnished to Employee by the Company or are produced by Employee in connection with Employee's employment will be and remain the sole property of the Company. Upon the termination of Employee's employment with the Company for any reason and as and when otherwise requested by the Company, all Confidential Information (including, without limitation, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters) in Employee's possession or control, shall be immediately returned to the Company. (c) Employee hereby confirms that Employee is not bound by the terms of any agreement with any previous employer or other party that restricts in any way Employee's use or disclosure of information or Employee's engagement in any business. Employee represents to the Company that Employee's execution of this Agreement, Employee's employment with the Company and the performance of Employee's proposed duties for the Company will not violate any obligations Employee may have to any such previous employer or other party. In Employee's work for the Company, Employee will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and Employee will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (d) During and after Employee's employment, Employee shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while Employee was employed by the Company. Employee's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Employee's employment, Employee also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to 7 events or occurrences that transpired while Employee was employed by the Company. The Company shall reimburse Employee for any reasonable out-of-pocket expenses incurred in connection with Employee's performance of obligations pursuant to this Section 7(d). (e) Employee recognizes that the Company and its affiliates possess a proprietary interest in all of the information described in Section 7(b) and have the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas and concepts described therein to the exclusion of Employee, except as otherwise agreed between the Company and Employee in writing. Employee expressly agrees that any products, inventions, discoveries or improvements made by Employee or Employee's agents or affiliates in the course of Employee's employment, including any of the foregoing which is based on or arises out of the information described in Section 7(b), shall be the property of and inure to the exclusive benefit of the Company. Employee further agrees that any and all products, inventions, discoveries or improvements developed by Employee (whether or not able to be protected by copyright, patent or trademark) during the course of his employment, or involving the use of the time, materials or other resources of the Company or any of its affiliates, shall be promptly disclosed to the Company and shall become the exclusive property of the Company, and Employee shall execute and deliver any and all documents necessary or appropriate to implement the foregoing. Pursuant to the Illinois Employee Patent Act, this paragraph does not apply to any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates to (i) the business of the Company or (ii) the Company's actually or demonstrably anticipated research or development or (b) the invention results from any work performed by the undersigned for the Company. (f) Employee agrees, while he is employed by the Company, to offer or otherwise make known or available to it, as directed by the Board of Directors of the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that Employee may discover, find, develop or otherwise have available to Employee in the Company's general industry and further agrees that any such prospects, contacts or other business opportunities shall be the property of the Company. (g) Employee acknowledges that the provisions of this Section 7 are an integral part of Employee's employment arrangements with the Company. (h) For purposes of this Agreement: (i) the term "Confidential Information" shall mean information belonging to the Company which is of value to the Company or with respect to which Company has right in the course of conducting its business and the disclosure of which could result in a competitive or other 8 disadvantage to the Company. Confidential Information includes information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including, by way of example and without limitation, trade secrets, ideas, concepts, designs, configurations, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts processes, techniques, formulas, software, improvements, inventions, data, know-how, discoveries, copyrightable materials, marketing plans and strategies, sales and financial reports and forecasts, customer lists, studies, reports, records, books, contracts, instruments, surveys, computer disks, diskettes, tapes, computer programs and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company. Confidential Information includes information developed by Employee in the course of Employee's employment by the Company, as well as other information to which Employee may have access in connection with Employee's employment. Confidential Information also includes the confidential information of others with which the Company has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of Employee's duties under Section 7(b). 8. Parties in Interest; Certain Remedies. It is specifically understood and agreed that this Agreement is intended to confer a benefit, directly or indirectly, on the Company and its direct and indirect subsidiaries and affiliates, and that any breach of the provisions of this Agreement by the Employee or any of the Employee's affiliates will result in irreparable injury to the Company and its subsidiaries and affiliates, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company or its subsidiaries and affiliates shall be entitled to enforce the specific performance of this Agreement by the Employee through both temporary and permanent injunctive relief without the necessity of posting a bond or proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. 9. Dispute Resolution. (a) All disputes, claims, or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration to be conducted before JAMS/Endispute, Inc. or its successor. The arbitration shall be held in Chicago, Illinois before a single 9 arbitrator and shall be conducted in accordance with the rules and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified herein. (b) The parties covenant and agree that the arbitration shall commence within one hundred eighty (180) days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party's witness or expert. The arbitrator's decision and award shall be made and delivered within six (6) months of the selection of the arbitrator. The arbitrator's decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages. (c) The parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided below, (i) bear their own attorneys' fees, costs and expenses in connection with the arbitration, and (ii) share equally in the fees and expenses charged by JAMS/Endispute, Inc. The arbitrator may in his or her discretion assess costs and expenses (including the reasonable legal fees and expenses of the prevailing party) against any party to a proceeding. Any party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorneys' fees, incurred by the other party in enforcing the award. This Section 9(c) applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce the provisions of Section 7. (d) Each of the parties hereto irrevocably and unconditionally consents to the exclusive jurisdiction of JAMS/Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof, or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, and further consents to the sole and exclusive jurisdiction of the courts of State of California and/or the State of Illinois for the purposes of enforcing the arbitration provisions of Section 8 of this Agreement. Each party further irrevocably waives any objection to proceeding before JAMS/Endispute, Inc. based upon lack of personal jurisdiction or to the laying of venue and further irrevocably 10 and unconditionally waives and agrees not to make a claim in any court that arbitration before JAMS/Endispute, Inc. has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelin, IL 60060-4483 Attention: Board of Directors To Employee: Leonard Foxman 1929 Browning Ct. Highland Park, IL 60035 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 11. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of Section 7 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable under the circumstances of the transactions contemplated hereby, and are given as an integral and essential part of the transactions contemplated hereby. The Employee has independently consulted with counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries and affiliates, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. 12. Severability. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Employee may have against the Company or any of its subsidiaries or affiliates shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. 11 13. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois, without consideration of its choice of law provisions, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by both of the parties hereto. The failure of either of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon and assignable to, successors of the Company by way of merger, consolidation or sale and may not be assigned by Employee. This Agreement supersedes and terminates all prior understandings and agreements between the parties (or their predecessors) relating to the subject matter hereof. For purposes of this Agreement, the term "person" means an individual, corporation, partnership, association, trust or any unincorporated organization; a "subsidiary" means any corporation more than 50 percent of whose outstanding voting securities, or any partnership, joint venture or other entity more than 50 percent of whose total equity interest, is directly or indirectly owned by such person; and an "affiliate" of a person shall mean, with respect to a person or entity, any person or entity which directly or indirectly controls, is controlled by, or is under common control with such person or entity. [Remainder of Page Intentionally Left Blank] 12 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ------------------------------------ Name: Leonard Foxman Title: President EMPLOYEE: /s/ Leonard Foxman ------------------------------ Leonard Foxman EX-10.15 15 c86449exv10w15.txt EMPLOYMENT AGREEMENT EXHIBIT 10.15 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th day of September, 2003 by and between Theodore Foxman (the "Employee") and Eagle Test Systems, Inc., an Illinois corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee and the Employee desires to obtain employment with the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. Subject to the provisions of Section 6, the Company hereby employs Employee and Employee accepts such employment upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions of Section 6, the term of Employee's employment pursuant to this Agreement shall commence on and as of the date hereof (the "Effective Date") and shall terminate on the first anniversary of the Effective Date (such period, the "Term"). Notwithstanding the foregoing, the Term shall automatically extend for an additional year on each anniversary of the Effective Date unless either party provides written notice to the other party within thirty (30) days of the date on which the Term would expire that he or it chooses not to extend the Term. 3. Duties; Extent of Service. During Employee's employment under this Agreement, Employee (i) shall serve as an employee of the Company with the title and position of President, reporting to the Board of Directors of the Company, (ii) shall have such executive responsibilities as the Board of Directors of the Company shall from time to time designate and in all cases Employee shall be subject to the oversight and supervision of the Board of Directors of the Company in the performance of his duties, (iii) upon the request of the Board of Directors of the Company, shall serve as an officer and/or director of any of the Company's subsidiaries, and (iv) shall render all services reasonably incident to the foregoing. Employee hereby accepts such employment, agrees to serve the Company in the capacities indicated, and agrees to use Employee's best efforts in, and shall devote Employee's full working time, attention, skill and energies to, the advancement of the interests of the Company and its subsidiaries and the performance of Employee's duties and responsibilities hereunder. The foregoing, however, shall not be construed as preventing Employee from engaging in religious, charitable or other community or non-profit activities that do not impair Employee's ability to fulfill Employee's duties and responsibilities under this Agreement. 4. Salary and Bonus. (a) During Employee's employment under this Agreement, the Company shall pay Employee a salary at the annual rate of $400,000 per annum (the "Base Salary"). Such Base Salary shall be subject to withholding under applicable law, shall be pro rated for partial years and shall be payable in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time. (b) For each fiscal year beginning with the year ending September 30, 2004 during Employee's employment under this Agreement, Employee shall be eligible to a bonus up to 150% of Base Salary based upon the Company achieving the performance targets set forth in the plan to be established by the Board of Directors for each applicable fiscal year (the "Incentive Bonus"). 5. Benefits. (a) During Employee's employment under this Agreement, Employee shall be entitled to participate in any and all ESOP, medical, pension, stock option, profit sharing, dental and life insurance plans and disability income plans, retirement arrangements and other employment benefits as in effect from time to time for executive officers of the Company generally. Such participation shall be subject to (i) the terms of the applicable plan documents (including, as applicable, provisions granting discretion to the Board of Directors of the Company or any administrative or other committee provided for therein or contemplated thereby) and (ii) generally applicable policies of the Company. Employee shall be eligible to participate in all such plans and other benefits as of the Effective Date. (b) During Employee's employment under this Agreement, Employee shall receive paid vacation annually in accordance with the Company's practices for executive officers, as in effect from time to time. (c) The Company shall promptly reimburse Employee for all reasonable business expenses incurred by Employee during Employee's employment hereunder in accordance with the Company's practices for senior executive officers of the Company, as in effect from time to time. (d) Compliance with the provisions of this Section 5 shall in no way create or be deemed to create any obligation, express or implied, on the part of the Company or any of its affiliates with respect to the continuation of any particular benefit or other plan or arrangement maintained by them or their subsidiaries as of or prior to the date hereof or the creation and maintenance of any particular benefit or other plan or arrangement at any time after the date hereof, except as contemplated by Section 5(b) and 5(c). 2 6. Termination and Termination Benefits. Notwithstanding the provisions of Section 2, Employee's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Company for Cause. Employee's employment under this Agreement may be terminated for cause without further liability on the part of the Company effective immediately upon a vote of the Board of Directors and written notice to Employee. Only the following shall constitute "cause" for such termination: (i) dishonest statements or acts of Employee with respect to the Company or any affiliate of the Company; (ii) the commission by Employee of, or indictment of Employee for, (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud ("indictment," for these purposes, meaning an indictment, probable cause hearing or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made); (iii) the commission, in the reasonable judgment of the Board of Directors, of an act involving a material violation of procedures or policies of the Company; (iv) a material and sustained failure of Employee to perform the duties and responsibilities assigned or delegated under this Agreement, as determined by the Board of the Directors, which such failure continues for an unreasonable period of time, as determined by the Board of Directors, after written notice has been given to the Employee by the Board of Directors; (v) gross negligence, willful misconduct or insubordination of Employee with respect to the Company or any affiliate of the Company; or (vi) breach by Employee of any of Employee's obligations under this Agreement. (b) Termination by Employee Other than for Good Reason. Employee's employment under this Agreement may be terminated by Employee by written notice to the Board of Directors at least sixty (60) days prior to such termination. (c) Termination by Employee for Good Reason. Subject to the payment of Termination Benefits pursuant to Section 6(e) below, Employee's employment under this Agreement also may be terminated by Employee for Good Reason (as defined below) (which termination must be within ninety (90) days of the occurrence of the events giving rise to such Good Reason) by written notice to the Board of Directors 3 setting forth such Good Reason and giving the Company a reasonable period of time, not less than ten (10) business days, to eliminate such Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Employee's responsibilities, authorities, powers, functions or duties under this Agreement; (ii) a reduction in the Employee's annual base salary except for an across-the-board salary reduction similarly affecting all or substantially all management employees; or (iii) the relocation of the offices at which the Employee is principally employed to a location more than seventy (75) miles from such offices. (d) Termination by the Company Without Cause. Subject to the payment of Termination Benefits pursuant to Section 6(e), Employee's employment under this Agreement may be terminated without cause by the Company by a vote of the Board of Directors upon written notice to Employee. It is expressly agreed and understood that if this Agreement is terminated by the Company without cause as provided in this Section 6(d), it shall not impair or otherwise affect Employee's Continuing Obligations (as defined below). (e) Certain Termination Benefits. Unless otherwise specifically provided in this Agreement or otherwise required by law, all compensation and benefits payable to Employee under this Agreement shall terminate on the date of termination of Employee's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of Employee's employment with the Company pursuant to Section 6(c) or Section 6(d) above, the Company shall provide to Employee the following termination benefits ("Termination Benefits"): (i) continuation of salary at a rate equal to 100% of Employee's Base Salary as in effect on the date of termination for a period of three (3) years from the date of termination (payment shall be subject to withholding under applicable law and shall be made in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time); and (ii) continuation of group health plan benefits during the time in which Employee is receiving payments pursuant to subsection (i) above, to the extent authorized by and consistent with 29 U.S.C. Section 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and Employee as in effect on the date of termination. The Company shall have the right to terminate all of Termination Benefits set forth in (i) and (ii) in the event that Employee fails to comply with Employee's Continuing Obligations under this Agreement. The Company's liability for Base Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay due or otherwise paid to Employee pursuant to any severance pay plan or stay bonus plan of the 4 Company. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect Employee's right to receive COBRA continuation entirely at Employee's own cost to the extent that Employee may continue to be entitled to COBRA continuation after Employee's right to cost sharing under Section 6(e)(ii) ceases. The Company and Employee agree that the Termination Benefits paid by the Company to Employee under this Section 6(e) shall be in full satisfaction, compromise and release of any claims arising out of any termination of Employee's employment pursuant to Section 6(d), and that the payment of the Termination Benefits shall be contingent upon Employee's delivery of a general release of any and all claims (other than those arising under this Agreement) upon termination of employment in a form reasonably satisfactory to the Company, it being understood that no Termination Benefits shall be provided unless and until Employee executes and delivers such release. (f) Disability. If Employee shall be disabled so as to be unable to perform the essential functions of Employee's then existing position or positions under this Agreement with or without reasonable accommodation, the Board of Directors may remove Employee from any responsibilities and/or reassign Employee to another position with the Company for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, Employee shall continue to receive Employee's full Base Salary (less any disability pay or sick pay benefits to which Employee may be entitled under the Company's policies) and benefits under Section 4 of this Agreement (except to the extent that Employee may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the lesser of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period Employee is disabled so as to be unable to perform the essential functions of Employee's then existing position or positions with or without reasonable accommodation, Employee may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom Employee or Employee's guardian has no reasonable objection as to whether Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and Employee shall fail to submit such certification, the Company's determination of such issue shall be binding on Employee. Nothing in this Section 6(e) shall be construed to waive Employee's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. Section 2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq. (g) Death. Employee's employment and all obligations of the Company hereunder shall terminate in the event of the death of the Employee other than any obligation to pay earned but unpaid Base Salary. (h) Notwithstanding termination of this Agreement as provided in this Section 6 or any other termination of Employee's employment with the Company, Employee's obligations under Section 7 hereof (the "Continuing Obligations") shall 5 survive any termination of Employee's employment with the Company at any time and for any reason. 7. Non-Competition; Non-Solicitation; Confidentiality; Proprietary Rights. (a) The Employee hereby agrees that during the period commencing on the date hereof and ending on the date that is five years following the date of the termination of Employee's employment with the Company (the "Noncompetition Period"), the Employee will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country in which the Company has conducted business, is conducting business or is presently contemplating conducting business, engage in any activity which is, or participate or invest in, or provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity), any business, organization or person other than the Company (or any subsidiary or affiliate of the Company), and including any such business, organization or person involving, or which is, a family member of the Employee, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or its subsidiaries or affiliates during any period in which the Employee serves as an officer or employee of the Company or any of its subsidiaries or affiliates. Without implied limitation, the foregoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Employee or any such competitor any officer or employee of the Company or any of its direct and/or indirect subsidiaries and affiliates, or any former employee of the Company and any of its direct and/or indirect subsidiaries and affiliates who was employed during the six (6) month period immediately preceding the date of such attempt to hire or engage, (b) encouraging for or on behalf of the Employee or any such competitor any such officer or employee to terminate his or her relationship or employment with the Company or any of its direct or indirect subsidiaries and affiliates, (c) soliciting for or on behalf of Employee or any such competitor any client of the Company or any of its direct or indirect subsidiaries and affiliates, or any former client of the Company or any of its direct or indirect subsidiaries and affiliates who was a client during the six (6) month period immediately preceding the date of such solicitation and (d) diverting to any person (as hereinafter defined) any client or business opportunity of the Company or any of any of its direct or indirect subsidiaries and affiliates. Notwithstanding anything herein to the contrary, the Employee may make passive investments in any enterprise the shares of which are publicly traded if such investment constitutes less than two percent (2%) of the equity of such enterprise. Neither the Employee nor any business entity controlled by the Employee is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary or affiliate of the Company from carrying on its business or restrain or restrict the Employee from performing his employment obligations, and as of the date of this Agreement the 6 Employee has no business interests whatsoever in or relating to the industries in which the Company or its subsidiaries or affiliates currently engage, and other than passive investments in the shares of public companies of less than two percent (2%). (b) In the course of performing services hereunder, on behalf of the Company (for purposes of this Section 7 including all predecessors of the Company) and its affiliates, Employee has had and from time to time will have access to Confidential Information (as defined below). Employee agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose the Confidential Information to any person (other than in the regular business of the Company or its affiliates), and (c) not to use, directly or indirectly, any of the Confidential Information for any purpose other than on behalf of the Company and its affiliates. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, that are furnished to Employee by the Company or are produced by Employee in connection with Employee's employment will be and remain the sole property of the Company. Upon the termination of Employee's employment with the Company for any reason and as and when otherwise requested by the Company, all Confidential Information (including, without limitation, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters) in Employee's possession or control, shall be immediately returned to the Company. (c) Employee hereby confirms that Employee is not bound by the terms of any agreement with any previous employer or other party that restricts in any way Employee's use or disclosure of information or Employee's engagement in any business. Employee represents to the Company that Employee's execution of this Agreement, Employee's employment with the Company and the performance of Employee's proposed duties for the Company will not violate any obligations Employee may have to any such previous employer or other party. In Employee's work for the Company, Employee will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and Employee will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (d) During and after Employee's employment, Employee shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while Employee was employed by the Company. Employee's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Employee's employment, Employee also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to 7 events or occurrences that transpired while Employee was employed by the Company. The Company shall reimburse Employee for any reasonable out-of-pocket expenses incurred in connection with Employee's performance of obligations pursuant to this Section 7(d). (e) Employee recognizes that the Company and its affiliates possess a proprietary interest in all of the information described in Section 7(b) and have the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas and concepts described therein to the exclusion of Employee, except as otherwise agreed between the Company and Employee in writing. Employee expressly agrees that any products, inventions, discoveries or improvements made by Employee or Employee's agents or affiliates in the course of Employee's employment, including any of the foregoing which is based on or arises out of the information described in Section 7(b), shall be the property of and inure to the exclusive benefit of the Company. Employee further agrees that any and all products, inventions, discoveries or improvements developed by Employee (whether or not able to be protected by copyright, patent or trademark) during the course of his employment, or involving the use of the time, materials or other resources of the Company or any of its affiliates, shall be promptly disclosed to the Company and shall become the exclusive property of the Company, and Employee shall execute and deliver any and all documents necessary or appropriate to implement the foregoing. Pursuant to the Illinois Employee Patent Act, this paragraph does not apply to any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates to (i) the business of the Company or (ii) the Company's actually or demonstrably anticipated research or development or (b) the invention results from any work performed by the undersigned for the Company. (f) Employee agrees, while he is employed by the Company, to offer or otherwise make known or available to it, as directed by the Board of Directors of the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that Employee may discover, find, develop or otherwise have available to Employee in the Company's general industry and further agrees that any such prospects, contacts or other business opportunities shall be the property of the Company. (g) Employee acknowledges that the provisions of this Section 7 are an integral part of Employee's employment arrangements with the Company. (h) For purposes of this Agreement: (i) the term "Confidential Information" shall mean information belonging to the Company which is of value to the Company or with respect to which Company has right in the course of conducting its business and the disclosure of which could result in a competitive or other 8 disadvantage to the Company. Confidential Information includes information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including, by way of example and without limitation, trade secrets, ideas, concepts, designs, configurations, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts processes, techniques, formulas, software, improvements, inventions, data, know-how, discoveries, copyrightable materials, marketing plans and strategies, sales and financial reports and forecasts, customer lists, studies, reports, records, books, contracts, instruments, surveys, computer disks, diskettes, tapes, computer programs and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company. Confidential Information includes information developed by Employee in the course of Employee's employment by the Company, as well as other information to which Employee may have access in connection with Employee's employment. Confidential Information also includes the confidential information of others with which the Company has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of Employee's duties under Section 7(b). 8. Parties in Interest; Certain Remedies. It is specifically understood and agreed that this Agreement is intended to confer a benefit, directly or indirectly, on the Company and its direct and indirect subsidiaries and affiliates, and that any breach of the provisions of this Agreement by the Employee or any of the Employee's affiliates will result in irreparable injury to the Company and its subsidiaries and affiliates, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company or its subsidiaries and affiliates shall be entitled to enforce the specific performance of this Agreement by the Employee through both temporary and permanent injunctive relief without the necessity of posting a bond or proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. 9. Dispute Resolution. (a) All disputes, claims, or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration to be conducted before JAMS/Endispute, Inc. or its successor. The arbitration shall be held in Chicago, Illinois before a single 9 arbitrator and shall be conducted in accordance with the rules and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified herein. (b) The parties covenant and agree that the arbitration shall commence within one hundred eighty (180) days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party's witness or expert. The arbitrator's decision and award shall be made and delivered within six (6) months of the selection of the arbitrator. The arbitrator's decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages. (c) The parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided below, (i) bear their own attorneys' fees, costs and expenses in connection with the arbitration, and (ii) share equally in the fees and expenses charged by JAMS/Endispute, Inc. The arbitrator may in his or her discretion assess costs and expenses (including the reasonable legal fees and expenses of the prevailing party) against any party to a proceeding. Any party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorneys' fees, incurred by the other party in enforcing the award. This Section 9(c) applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce the provisions of Section 7. (d) Each of the parties hereto irrevocably and unconditionally consents to the exclusive jurisdiction of JAMS/Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof, or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, and further consents to the sole and exclusive jurisdiction of the courts of State of California and/or the State of Illinois for the purposes of enforcing the arbitration provisions of Section 8 of this Agreement. Each party further irrevocably waives any objection to proceeding before JAMS/Endispute, Inc. based upon lack of personal jurisdiction or to the laying of venue and further irrevocably 10 and unconditionally waives and agrees not to make a claim in any court that arbitration before JAMS/Endispute, Inc. has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelin, IL 60060-4483 Attention: Board of Directors To Employee: Theodore Foxman 2600 Hybernia Dr. Highland Park, IL 60035 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 11. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of Section 7 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable under the circumstances of the transactions contemplated hereby, and are given as an integral and essential part of the transactions contemplated hereby. The Employee has independently consulted with counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries and affiliates, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. 12. Severability. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Employee may have against the Company or any of its subsidiaries or affiliates shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. 11 13. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois, without consideration of its choice of law provisions, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by both of the parties hereto. The failure of either of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon and assignable to, successors of the Company by way of merger, consolidation or sale and may not be assigned by Employee. This Agreement supersedes and terminates all prior understandings and agreements between the parties (or their predecessors) relating to the subject matter hereof. For purposes of this Agreement, the term "person" means an individual, corporation, partnership, association, trust or any unincorporated organization; a "subsidiary" means any corporation more than 50 percent of whose outstanding voting securities, or any partnership, joint venture or other entity more than 50 percent of whose total equity interest, is directly or indirectly owned by such person; and an "affiliate" of a person shall mean, with respect to a person or entity, any person or entity which directly or indirectly controls, is controlled by, or is under common control with such person or entity. [Remainder of Page Intentionally Left Blank] 12 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ------------------------------------ Name: Leonard Foxman Title: President EMPLOYEE: /s/ Theodore Foxman -------------------------- Theodore Foxman EX-10.16 16 c86449exv10w16.txt EMPLOYMENT AGREEMENT EXHIBIT 10.16 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 1st day of March, 2004 by and between Steve Hawrysz (the "Employee") and Eagle Test Systems, Inc., an Illinois corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee and the Employee desires to obtain employment with the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. Subject to the provisions of Section 6, the Company hereby employs Employee and Employee accepts such employment upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions of Section 6, the term of Employee's employment pursuant to this Agreement shall commence on and as of the date hereof (the "Effective Date") and shall terminate on the first anniversary of the Effective Date (such period, the "Term"). Notwithstanding the foregoing, the Term shall automatically extend for an additional year on each anniversary of the Effective Date unless either party provides written notice to the other party within thirty (30) days of the date on which the Term would expire that he or it chooses not to extend the Term. 3. Duties; Extent of Service. During Employee's employment under this Agreement, Employee (i) shall serve as an employee of the Company with the title and position of Chief Financial Officer, reporting to the Chief Executive Officer of the Company, (ii) shall have such executive responsibilities as the Chief Executive Officer of the Company shall from time to time designate, provided that, in all cases Employee shall be subject to the oversight and supervision of the Board of Directors of the Company in the performance of his duties, (iii) upon the request of the Chief Executive Officer of the Company, shall serve as an officer and/or director of any of the Company's subsidiaries, and (iv) shall render all services reasonably incident to the foregoing. Employee hereby accepts such employment, agrees to serve the Company in the capacities indicated, and agrees to use Employee's best efforts in, and shall devote Employee's full working time, attention, skill and energies to, the advancement of the interests of the Company and its subsidiaries and the performance of Employee's duties and responsibilities hereunder. The foregoing, however, shall not be construed as preventing Employee from engaging in religious, charitable or other community or non-profit activities that do not impair Employee's ability to fulfill Employee's duties and responsibilities under this Agreement. 4. Salary and Bonus. (a) During Employee's employment under this Agreement, the Company shall pay Employee a salary at the annual rate of $170,000 per annum (the "Base Salary"). Such Base Salary shall be subject to withholding under applicable law, shall be pro rated for partial years and shall be payable in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time. (b) For each one-year period or portion thereof during Employee's employment under this Agreement, Employee shall be eligible to participate in any bonus or other performance plan established by the Board of Directors from time to time for executive officers of the Company (the "Incentive Bonus"). 5. Benefits. (a) During Employee's employment under this Agreement, Employee shall be entitled to participate in any and all ESOP, medical, pension, stock option, profit sharing, dental and life insurance plans and disability income plans, retirement arrangements and other employment benefits as in effect from time to time for executive officers of the Company generally. Such participation shall be subject to (i) the terms of the applicable plan documents (including, as applicable, provisions granting discretion to the Board of Directors of the Company or any administrative or other committee provided for therein or contemplated thereby) and (ii) generally applicable policies of the Company. Unless otherwise provided in the applicable plan documents, Employee shall be eligible to participate in all such plans and other benefits as of the Effective Date. (b) During Employee's employment under this Agreement, Employee shall receive paid vacation annually in accordance with the Company's practices for executive officers, as in effect from time to time. (c) The Company shall promptly reimburse Employee for all reasonable business expenses incurred by Employee during Employee's employment hereunder in accordance with the Company's practices for senior executive officers of the Company, as in effect from time to time. (d) Compliance with the provisions of this Section 5 shall in no way create or be deemed to create any obligation, express or implied, on the part of the Company or any of its affiliates with respect to the continuation of any particular benefit or other plan or arrangement maintained by them or their subsidiaries as of or prior to the date hereof or the creation and maintenance of any particular benefit or other plan or arrangement at any time after the date hereof, except as contemplated by Section 5(b) and 5(c). 2 6. Termination and Termination Benefits. Notwithstanding the provisions of Section 2, Employee's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Company for Cause. Employee's employment under this Agreement may be terminated for cause without further liability on the part of the Company effective immediately upon a vote of the Board of Directors or a determination by the Chief Executive Officer and written notice to Employee. Only the following shall constitute "cause" for such termination: (i) dishonest statements or acts of Employee with respect to the Company or any affiliate of the Company; (ii) the commission by Employee of, or indictment of Employee for, (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud ("indictment," for these purposes, meaning an indictment, probable cause hearing or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made); (iii) the commission, in the reasonable judgment of the Board of Directors, of an act involving a material violation of procedures or policies of the Company; (iv) a material and sustained failure of Employee to perform the duties and responsibilities assigned or delegated under this Agreement, as determined by the Board of the Directors, which such failure continues for an unreasonable period of time, as determined by the Board of Directors, after written notice has been given to the Employee by the Board of Directors; (v) gross negligence, willful misconduct or insubordination of Employee with respect to the Company or any affiliate of the Company; or (vi) breach by Employee of any of Employee's obligations under this Agreement. (b) Termination by Employee Other than for Good Reason. Employee's employment under this Agreement may be terminated by Employee by written notice to the Board of Directors at least sixty (60) days prior to such termination. (c) Termination by Employee for Good Reason. Subject to the payment of Termination Benefits pursuant to Section 6(e) below, Employee's employment under this Agreement also may be terminated by Employee for Good Reason (as defined below) (which termination must be within ninety (90) days of the occurrence 3 of the events giving rise to such Good Reason) by written notice to the Board of Directors setting forth such Good Reason and giving the Company a reasonable period of time, not less than ten (10) business days, to eliminate such Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Employee's responsibilities, authorities, powers, functions or duties under this Agreement; (ii) a reduction in the Employee's annual base salary except for an across-the-board salary reduction similarly affecting all or substantially all management employees; or (iii) the relocation of the offices at which the Employee is principally employed to a location more than seventy (75) miles from such offices. (d) Termination by the Company Without Cause. Subject to the payment of Termination Benefits pursuant to Section 6(e), Employee's employment under this Agreement may be terminated without cause by the Company by a vote of the Board of Directors or a determination by the Chief Executive Officer upon written notice to Employee. It is expressly agreed and understood that if this Agreement is terminated by the Company without cause as provided in this Section 6(d), it shall not impair or otherwise affect Employee's Continuing Obligations (as defined below). (e) Certain Termination Benefits. Unless otherwise specifically provided in this Agreement or otherwise required by law, all compensation and benefits payable to Employee under this Agreement shall terminate on the date of termination of Employee's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of Employee's employment with the Company pursuant to Section 6(c) or Section 6(d) above, the Company shall provide to Employee the following termination benefits ("Termination Benefits"): (i) continuation of salary at a rate equal to fifty percent (50%) of Employee's Base Salary as in effect on the date of termination for a period of two years from the date of termination (payment shall be subject to withholding under applicable law and shall be made in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time); and (ii) continuation of group health plan benefits during the first twelve (12) months in which Employee is receiving payments pursuant to subsection (i) above, to the extent authorized by and consistent with 29 U.S.C. Section 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and Employee as in effect on the date of termination. The Company shall have the right to terminate all of Termination Benefits set forth in (i) and (ii) in the event that Employee fails to comply with Employee's Continuing Obligations under this Agreement. The Company's liability for Base Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay due or 4 otherwise paid to Employee pursuant to any severance pay plan or stay bonus plan of the Company. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect Employee's right to receive COBRA continuation entirely at Employee's own cost to the extent that Employee may continue to be entitled to COBRA continuation after Employee's right to cost sharing under Section 6(e)(ii) ceases. The Company and Employee agree that the Termination Benefits paid by the Company to Employee under this Section 6(e) shall be in full satisfaction, compromise and release of any claims arising out of any termination of Employee's employment pursuant to Section 6(d), and that the payment of the Termination Benefits shall be contingent upon Employee's delivery of a general release of any and all claims (other than those arising under this Agreement) upon termination of employment in a form reasonably satisfactory to the Company, it being understood that no Termination Benefits shall be provided unless and until Employee executes and delivers such release. (f) Disability. If Employee shall be disabled so as to be unable to perform the essential functions of Employee's then existing position or positions under this Agreement with or without reasonable accommodation, the Board of Directors may remove Employee from any responsibilities and/or reassign Employee to another position with the Company for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, Employee shall continue to receive Employee's full Base Salary (less any disability pay or sick pay benefits to which Employee may be entitled under the Company's policies) and benefits under Section 4 of this Agreement (except to the extent that Employee may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the lesser of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period Employee is disabled so as to be unable to perform the essential functions of Employee's then existing position or positions with or without reasonable accommodation, Employee may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom Employee or Employee's guardian has no reasonable objection as to whether Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and Employee shall fail to submit such certification, the Company's determination of such issue shall be binding on Employee. Nothing in this Section 6(e) shall be construed to waive Employee's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. Section 2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq. (g) Death. Employee's employment and all obligations of the Company hereunder shall terminate in the event of the death of the Employee other than any obligation to pay earned but unpaid Base Salary. (h) Notwithstanding termination of this Agreement as provided in this Section 6 or any other termination of Employee's employment with the Company, 5 Employee's obligations under Section 7 hereof (the "Continuing Obligations") shall survive any termination of Employee's employment with the Company at any time and for any reason. 7. Non-Competition; Non-Solicitation; Confidentiality; Proprietary Rights. (a) The Employee hereby agrees that during the period commencing on the date hereof and ending on the date that is two years following the date of the termination of Employee's employment with the Company (the "Noncompetition Period"), the Employee will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country in which the Company has conducted business, is conducting business or is presently contemplating conducting business, engage in any activity which is, or participate or invest in, or provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity), any business, organization or person other than the Company (or any subsidiary or affiliate of the Company), and including any such business, organization or person involving, or which is, a family member of the Employee, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or its subsidiaries or affiliates during any period in which the Employee serves as an officer or employee of the Company or any of its subsidiaries or affiliates. Without implied limitation, the foregoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Employee or any such competitor any officer or employee of the Company or any of its direct and/or indirect subsidiaries and affiliates, or any former employee of the Company and any of its direct and/or indirect subsidiaries and affiliates who was employed during the six (6) month period immediately preceding the date of such attempt to hire or engage, (b) encouraging for or on behalf of the Employee or any such competitor any such officer or employee to terminate his or her relationship or employment with the Company or any of its direct or indirect subsidiaries and affiliates, (c) soliciting for or on behalf of Employee or any such competitor any client of the Company or any of its direct or indirect subsidiaries and affiliates, or any former client of the Company or any of its direct or indirect subsidiaries and affiliates who was a client during the six (6) month period immediately preceding the date of such solicitation and (d) diverting to any person (as hereinafter defined) any client or business opportunity of the Company or any of any of its direct or indirect subsidiaries and affiliates. Notwithstanding anything herein to the contrary, the Employee may make passive investments in any enterprise the shares of which are publicly traded if such investment constitutes less than two percent (2%) of the equity of such enterprise. Neither the Employee nor any business entity controlled by the Employee is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary or affiliate of the Company from carrying on its business or restrain or restrict the Employee from 6 performing his employment obligations, and as of the date of this Agreement the Employee has no business interests whatsoever in or relating to the industries in which the Company or its subsidiaries or affiliates currently engage, and other than passive investments in the shares of public companies of less than two percent (2%). (b) In the course of performing services hereunder, on behalf of the Company (for purposes of this Section 7 including all predecessors of the Company) and its affiliates, Employee has had and from time to time will have access to Confidential Information (as defined below). Employee agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose the Confidential Information to any person (other than in the regular business of the Company or its affiliates), and (c) not to use, directly or indirectly, any of the Confidential Information for any purpose other than on behalf of the Company and its affiliates. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, that are furnished to Employee by the Company or are produced by Employee in connection with Employee's employment will be and remain the sole property of the Company. Upon the termination of Employee's employment with the Company for any reason and as and when otherwise requested by the Company, all Confidential Information (including, without limitation, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters) in Employee's possession or control, shall be immediately returned to the Company. (c) Employee hereby confirms that Employee is not bound by the terms of any agreement with any previous employer or other party that restricts in any way Employee's use or disclosure of information or Employee's engagement in any business. Employee represents to the Company that Employee's execution of this Agreement, Employee's employment with the Company and the performance of Employee's proposed duties for the Company will not violate any obligations Employee may have to any such previous employer or other party. In Employee's work for the Company, Employee will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and Employee will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (d) During and after Employee's employment, Employee shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while Employee was employed by the Company. Employee's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Employee's employment, Employee also shall cooperate fully with the Company in connection with any investigation or review of any 7 federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Employee was employed by the Company. The Company shall reimburse Employee for any reasonable out-of-pocket expenses incurred in connection with Employee's performance of obligations pursuant to this Section 7(d). (e) Employee recognizes that the Company and its affiliates possess a proprietary interest in all of the information described in Section 7(b) and have the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas and concepts described therein to the exclusion of Employee, except as otherwise agreed between the Company and Employee in writing. Employee expressly agrees that any products, inventions, discoveries or improvements made by Employee or Employee's agents or affiliates in the course of Employee's employment, including any of the foregoing which is based on or arises out of the information described in Section 7(b), shall be the property of and inure to the exclusive benefit of the Company. Employee further agrees that any and all products, inventions, discoveries or improvements developed by Employee (whether or not able to be protected by copyright, patent or trademark) during the course of his employment, or involving the use of the time, materials or other resources of the Company or any of its affiliates, shall be promptly disclosed to the Company and shall become the exclusive property of the Company, and Employee shall execute and deliver any and all documents necessary or appropriate to implement the foregoing. Pursuant to the Illinois Employee Patent Act, this paragraph does not apply to any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates to (i) the business of the Company or (ii) the Company's actually or demonstrably anticipated research or development or (b) the invention results from any work performed by the undersigned for the Company. (f) Employee agrees, while he is employed by the Company, to offer or otherwise make known or available to it, as directed by the Board of Directors of the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that Employee may discover, find, develop or otherwise have available to Employee in the Company's general industry and further agrees that any such prospects, contacts or other business opportunities shall be the property of the Company. (g) Employee acknowledges that the provisions of this Section 7 are an integral part of Employee's employment arrangements with the Company. (h) For purposes of this Agreement: (i) the term "Confidential Information" shall mean information belonging to the Company which is of value to the Company or with respect to which Company has right in the course of conducting its 8 business and the disclosure of which could result in a competitive or other disadvantage to the Company. Confidential Information includes information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including, by way of example and without limitation, trade secrets, ideas, concepts, designs, configurations, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts processes, techniques, formulas, software, improvements, inventions, data, know-how, discoveries, copyrightable materials, marketing plans and strategies, sales and financial reports and forecasts, customer lists, studies, reports, records, books, contracts, instruments, surveys, computer disks, diskettes, tapes, computer programs and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company. Confidential Information includes information developed by Employee in the course of Employee's employment by the Company, as well as other information to which Employee may have access in connection with Employee's employment. Confidential Information also includes the confidential information of others with which the Company has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of Employee's duties under Section 7(b). 8. Parties in Interest; Certain Remedies. It is specifically understood and agreed that this Agreement is intended to confer a benefit, directly or indirectly, on the Company and its direct and indirect subsidiaries and affiliates, and that any breach of the provisions of this Agreement by the Employee or any of the Employee's affiliates will result in irreparable injury to the Company and its subsidiaries and affiliates, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company or its subsidiaries and affiliates shall be entitled to enforce the specific performance of this Agreement by the Employee through both temporary and permanent injunctive relief without the necessity of posting a bond or proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. 9. Dispute Resolution. (a) All disputes, claims, or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration to be conducted before JAMS/Endispute, Inc. or its successor. The arbitration shall be held in Chicago, Illinois before a single 9 arbitrator and shall be conducted in accordance with the rules and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified herein. (b) The parties covenant and agree that the arbitration shall commence within one hundred eighty (180) days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party's witness or expert. The arbitrator's decision and award shall be made and delivered within six (6) months of the selection of the arbitrator. The arbitrator's decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages. (c) The parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided below, (i) bear their own attorneys' fees, costs and expenses in connection with the arbitration, and (ii) share equally in the fees and expenses charged by JAMS/Endispute, Inc. The arbitrator may in his or her discretion assess costs and expenses (including the reasonable legal fees and expenses of the prevailing party) against any party to a proceeding. Any party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorneys' fees, incurred by the other party in enforcing the award. This Section 9(c) applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce the provisions of Section 7. (d) Each of the parties hereto irrevocably and unconditionally consents to the exclusive jurisdiction of JAMS/Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof, or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, and further consents to the sole and exclusive jurisdiction of the courts of State of California and/or the State of Illinois for the purposes of enforcing the arbitration provisions of Section 8 of this Agreement. Each party further irrevocably waives any objection to proceeding before JAMS/Endispute, Inc. based upon lack of personal jurisdiction or to the laying of venue and further irrevocably 10 and unconditionally waives and agrees not to make a claim in any court that arbitration before JAMS/Endispute, Inc. has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelin, IL 60060-4483 Attention: Leonard Foxman To Employee: Steve Hawrysz 15636 Plum Tree Drive Orland Park, IL 60462 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 11. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of Section 7 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable under the circumstances of the transactions contemplated hereby, and are given as an integral and essential part of the transactions contemplated hereby. The Employee has independently consulted with counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries and affiliates, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. 12. Severability. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Employee may have against the Company or any of its subsidiaries or affiliates shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. 11 13. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois, without consideration of its choice of law provisions, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by both of the parties hereto. The failure of either of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon and assignable to, successors of the Company by way of merger, consolidation or sale and may not be assigned by Employee. This Agreement supersedes and terminates all prior understandings and agreements between the parties (or their predecessors) relating to the subject matter hereof. For purposes of this Agreement, the term "person" means an individual, corporation, partnership, association, trust or any unincorporated organization; a "subsidiary" means any corporation more than 50 percent of whose outstanding voting securities, or any partnership, joint venture or other entity more than 50 percent of whose total equity interest, is directly or indirectly owned by such person; and an "affiliate" of a person shall mean, with respect to a person or entity, any person or entity which directly or indirectly controls, is controlled by, or is under common control with such person or entity. [Remainder of Page Intentionally Left Blank] 12 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman -------------------------------- Name: Leonard Foxman Title: President EMPLOYEE: /s/ Steve Hawrysz ------------------------------------ Steve Hawrysz EX-10.17 17 c86449exv10w17.txt EMPLOYMENT AGREEMENT EXHIBIT 10.17 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th day of September, 2003 by and between Jack Weimer (the "Employee") and Eagle Test Systems, Inc., an Illinois corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee and the Employee desires to obtain employment with the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. Subject to the provisions of Section 6, the Company hereby employs Employee and Employee accepts such employment upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions of Section 6, the term of Employee's employment pursuant to this Agreement shall commence on and as of the date hereof (the "Effective Date") and shall terminate on the first anniversary of the Effective Date (such period, the "Term"). Notwithstanding the foregoing, the Term shall automatically extend for an additional year on each anniversary of the Effective Date unless either party provides written notice to the other party within thirty (30) days of the date on which the Term would expire that he or it chooses not to extend the Term. 3. Duties; Extent of Service. During Employee's employment under this Agreement, Employee (i) shall serve as an employee of the Company with the title and position of Technical Marketing Director, reporting to the Chief Executive Officer of the Company, (ii) shall have such executive responsibilities as the Chief Executive Officer of the Company shall from time to time designate, provided that, in all cases Employee shall be subject to the oversight and supervision of the Board of Directors of the Company in the performance of his duties, (iii) upon the request of the Chief Executive Officer of the Company, shall serve as an officer and/or director of any of the Company's subsidiaries, and (iv) shall render all services reasonably incident to the foregoing. Employee hereby accepts such employment, agrees to serve the Company in the capacities indicated, and agrees to use Employee's best efforts in, and shall devote Employee's full working time, attention, skill and energies to, the advancement of the interests of the Company and its subsidiaries and the performance of Employee's duties and responsibilities hereunder. The foregoing, however, shall not be construed as preventing Employee from engaging in religious, charitable or other community or non-profit activities that do not impair Employee's ability to fulfill Employee's duties and responsibilities under this Agreement. 4. Salary and Bonus. (a) During Employee's employment under this Agreement, the Company shall pay Employee a salary at the annual rate of $150,000 per annum (the "Base Salary"). Such Base Salary shall be subject to withholding under applicable law, shall be pro rated for partial years and shall be payable in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time. (b) For each one-year period or portion thereof during Employee's employment under this Agreement, Employee shall be eligible to participate in any bonus or other performance plan established by the Board of Directors from time to time for executive officers of the Company (the "Incentive Bonus"). 5. Benefits. (a) During Employee's employment under this Agreement, Employee shall be entitled to participate in any and all ESOP, medical, pension, stock option, profit sharing, dental and life insurance plans and disability income plans, retirement arrangements and other employment benefits as in effect from time to time for executive officers of the Company generally. Such participation shall be subject to (i) the terms of the applicable plan documents (including, as applicable, provisions granting discretion to the Board of Directors of the Company or any administrative or other committee provided for therein or contemplated thereby) and (ii) generally applicable policies of the Company. Employee shall be eligible to participate in all such plans and other benefits as of the Effective Date. (b) During Employee's employment under this Agreement, Employee shall receive paid vacation annually in accordance with the Company's practices for executive officers, as in effect from time to time. (c) The Company shall promptly reimburse Employee for all reasonable business expenses incurred by Employee during Employee's employment hereunder in accordance with the Company's practices for senior executive officers of the Company, as in effect from time to time. (d) Compliance with the provisions of this Section 5 shall in no way create or be deemed to create any obligation, express or implied, on the part of the Company or any of its affiliates with respect to the continuation of any particular benefit or other plan or arrangement maintained by them or their subsidiaries as of or prior to the date hereof or the creation and maintenance of any particular benefit or other plan or arrangement at any time after the date hereof, except as contemplated by Section 5(b) and 5(c). 2 6. Termination and Termination Benefits. Notwithstanding the provisions of Section 2, Employee's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Company for Cause. Employee's employment under this Agreement may be terminated for cause without further liability on the part of the Company effective immediately upon a vote of the Board of Directors or a determination by the Chief Executive Officer and written notice to Employee. Only the following shall constitute "cause" for such termination: (i) dishonest statements or acts of Employee with respect to the Company or any affiliate of the Company; (ii) the commission by Employee of, or indictment of Employee for, (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud ("indictment," for these purposes, meaning an indictment, probable cause hearing or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made); (iii) the commission, in the reasonable judgment of the Board of Directors, of an act involving a material violation of procedures or policies of the Company; (iv) a material and sustained failure of Employee to perform the duties and responsibilities assigned or delegated under this Agreement, as determined by the Board of the Directors, which such failure continues for an unreasonable period of time, as determined by the Board of Directors, after written notice has been given to the Employee by the Board of Directors; (v) gross negligence, willful misconduct or insubordination of Employee with respect to the Company or any affiliate of the Company; or (vi) breach by Employee of any of Employee's obligations under this Agreement. (b) Termination by Employee Other than for Good Reason. Employee's employment under this Agreement may be terminated by Employee by written notice to the Board of Directors at least sixty (60) days prior to such termination. (c) Termination by Employee for Good Reason. Subject to the payment of Termination Benefits pursuant to Section 6(e) below, Employee's employment under this Agreement also may be terminated by Employee for Good Reason (as defined below) (which termination must be within ninety (90) days of the occurrence 3 of the events giving rise to such Good Reason) by written notice to the Board of Directors setting forth such Good Reason and giving the Company a reasonable period of time, not less than ten (10) business days, to eliminate such Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Employee's responsibilities, authorities, powers, functions or duties under this Agreement; (ii) a reduction in the Employee's annual base salary except for an across-the-board salary reduction similarly affecting all or substantially all management employees; or (iii) the relocation of the offices at which the Employee is principally employed to a location more than seventy (75) miles from such offices. (d) Termination by the Company Without Cause. Subject to the payment of Termination Benefits pursuant to Section 6(e), Employee's employment under this Agreement may be terminated without cause by the Company by a vote of the Board of Directors or a determination by the Chief Executive Officer upon written notice to Employee. It is expressly agreed and understood that if this Agreement is terminated by the Company without cause as provided in this Section 6(d), it shall not impair or otherwise affect Employee's Continuing Obligations (as defined below). (e) Certain Termination Benefits. Unless otherwise specifically provided in this Agreement or otherwise required by law, all compensation and benefits payable to Employee under this Agreement shall terminate on the date of termination of Employee's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of Employee's employment with the Company pursuant to Section 6(c) or Section 6(d) above, the Company shall provide to Employee the following termination benefits ("Termination Benefits"): (i) continuation of salary at a rate equal to fifty percent (50%) of Employee's Base Salary as in effect on the date of termination for a period of two years from the date of termination (payment shall be subject to withholding under applicable law and shall be made in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time); and (ii) continuation of group health plan benefits during the first twelve (12) months in which Employee is receiving payments pursuant to subsection (i) above, to the extent authorized by and consistent with 29 U.S.C. Section 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and Employee as in effect on the date of termination. The Company shall have the right to terminate all of Termination Benefits set forth in (i) and (ii) in the event that Employee fails to comply with Employee's Continuing Obligations under this Agreement. The Company's liability for Base Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay due or 4 otherwise paid to Employee pursuant to any severance pay plan or stay bonus plan of the Company. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect Employee's right to receive COBRA continuation entirely at Employee's own cost to the extent that Employee may continue to be entitled to COBRA continuation after Employee's right to cost sharing under Section 6(e)(ii) ceases. The Company and Employee agree that the Termination Benefits paid by the Company to Employee under this Section 6(e) shall be in full satisfaction, compromise and release of any claims arising out of any termination of Employee's employment pursuant to Section 6(d), and that the payment of the Termination Benefits shall be contingent upon Employee's delivery of a general release of any and all claims (other than those arising under this Agreement) upon termination of employment in a form reasonably satisfactory to the Company, it being understood that no Termination Benefits shall be provided unless and until Employee executes and delivers such release. (f) Disability. If Employee shall be disabled so as to be unable to perform the essential functions of Employee's then existing position or positions under this Agreement with or without reasonable accommodation, the Board of Directors may remove Employee from any responsibilities and/or reassign Employee to another position with the Company for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, Employee shall continue to receive Employee's full Base Salary (less any disability pay or sick pay benefits to which Employee may be entitled under the Company's policies) and benefits under Section 4 of this Agreement (except to the extent that Employee may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the lesser of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period Employee is disabled so as to be unable to perform the essential functions of Employee's then existing position or positions with or without reasonable accommodation, Employee may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom Employee or Employee's guardian has no reasonable objection as to whether Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and Employee shall fail to submit such certification, the Company's determination of such issue shall be binding on Employee. Nothing in this Section 6(e) shall be construed to waive Employee's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. Section 2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq. (g) Death. Employee's employment and all obligations of the Company hereunder shall terminate in the event of the death of the Employee other than any obligation to pay earned but unpaid Base Salary. (h) Notwithstanding termination of this Agreement as provided in this Section 6 or any other termination of Employee's employment with the Company, 5 Employee's obligations under Section 7 hereof (the "Continuing Obligations") shall survive any termination of Employee's employment with the Company at any time and for any reason. 7. Non-Competition; Non-Solicitation; Confidentiality; Proprietary Rights. (a) The Employee hereby agrees that during the period commencing on the date hereof and ending on the date that is two years following the date of the termination of Employee's employment with the Company (the "Noncompetition Period"), the Employee will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country in which the Company has conducted business, is conducting business or is presently contemplating conducting business, engage in any activity which is, or participate or invest in, or provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity), any business, organization or person other than the Company (or any subsidiary or affiliate of the Company), and including any such business, organization or person involving, or which is, a family member of the Employee, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or its subsidiaries or affiliates during any period in which the Employee serves as an officer or employee of the Company or any of its subsidiaries or affiliates. Without implied limitation, the foregoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Employee or any such competitor any officer or employee of the Company or any of its direct and/or indirect subsidiaries and affiliates, or any former employee of the Company and any of its direct and/or indirect subsidiaries and affiliates who was employed during the six (6) month period immediately preceding the date of such attempt to hire or engage, (b) encouraging for or on behalf of the Employee or any such competitor any such officer or employee to terminate his or her relationship or employment with the Company or any of its direct or indirect subsidiaries and affiliates, (c) soliciting for or on behalf of Employee or any such competitor any client of the Company or any of its direct or indirect subsidiaries and affiliates, or any former client of the Company or any of its direct or indirect subsidiaries and affiliates who was a client during the six (6) month period immediately preceding the date of such solicitation and (d) diverting to any person (as hereinafter defined) any client or business opportunity of the Company or any of any of its direct or indirect subsidiaries and affiliates. Notwithstanding anything herein to the contrary, the Employee may make passive investments in any enterprise the shares of which are publicly traded if such investment constitutes less than two percent (2%) of the equity of such enterprise. Neither the Employee nor any business entity controlled by the Employee is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary or affiliate of the Company from carrying on its business or restrain or restrict the Employee from 6 performing his employment obligations, and as of the date of this Agreement the Employee has no business interests whatsoever in or relating to the industries in which the Company or its subsidiaries or affiliates currently engage, and other than passive investments in the shares of public companies of less than two percent (2%). (b) In the course of performing services hereunder, on behalf of the Company (for purposes of this Section 7 including all predecessors of the Company) and its affiliates, Employee has had and from time to time will have access to Confidential Information (as defined below). Employee agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose the Confidential Information to any person (other than in the regular business of the Company or its affiliates), and (c) not to use, directly or indirectly, any of the Confidential Information for any purpose other than on behalf of the Company and its affiliates. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, that are furnished to Employee by the Company or are produced by Employee in connection with Employee's employment will be and remain the sole property of the Company. Upon the termination of Employee's employment with the Company for any reason and as and when otherwise requested by the Company, all Confidential Information (including, without limitation, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters) in Employee's possession or control, shall be immediately returned to the Company. (c) Employee hereby confirms that Employee is not bound by the terms of any agreement with any previous employer or other party that restricts in any way Employee's use or disclosure of information or Employee's engagement in any business. Employee represents to the Company that Employee's execution of this Agreement, Employee's employment with the Company and the performance of Employee's proposed duties for the Company will not violate any obligations Employee may have to any such previous employer or other party. In Employee's work for the Company, Employee will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and Employee will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (d) During and after Employee's employment, Employee shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while Employee was employed by the Company. Employee's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Employee's employment, Employee also shall cooperate fully with the Company in connection with any investigation or review of any 7 federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Employee was employed by the Company. The Company shall reimburse Employee for any reasonable out-of-pocket expenses incurred in connection with Employee's performance of obligations pursuant to this Section 7(d). (e) Employee recognizes that the Company and its affiliates possess a proprietary interest in all of the information described in Section 7(b) and have the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas and concepts described therein to the exclusion of Employee, except as otherwise agreed between the Company and Employee in writing. Employee expressly agrees that any products, inventions, discoveries or improvements made by Employee or Employee's agents or affiliates in the course of Employee's employment, including any of the foregoing which is based on or arises out of the information described in Section 7(b), shall be the property of and inure to the exclusive benefit of the Company. Employee further agrees that any and all products, inventions, discoveries or improvements developed by Employee (whether or not able to be protected by copyright, patent or trademark) during the course of his employment, or involving the use of the time, materials or other resources of the Company or any of its affiliates, shall be promptly disclosed to the Company and shall become the exclusive property of the Company, and Employee shall execute and deliver any and all documents necessary or appropriate to implement the foregoing. Pursuant to the Illinois Employee Patent Act, this paragraph does not apply to any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates to (i) the business of the Company or (ii) the Company's actually or demonstrably anticipated research or development or (b) the invention results from any work performed by the undersigned for the Company. (f) Employee agrees, while he is employed by the Company, to offer or otherwise make known or available to it, as directed by the Board of Directors of the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that Employee may discover, find, develop or otherwise have available to Employee in the Company's general industry and further agrees that any such prospects, contacts or other business opportunities shall be the property of the Company. (g) Employee acknowledges that the provisions of this Section 7 are an integral part of Employee's employment arrangements with the Company. (h) For purposes of this Agreement: (i) the term "Confidential Information" shall mean information belonging to the Company which is of value to the Company or with respect to which Company has right in the course of conducting its 8 business and the disclosure of which could result in a competitive or other disadvantage to the Company. Confidential Information includes information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including, by way of example and without limitation, trade secrets, ideas, concepts, designs, configurations, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts processes, techniques, formulas, software, improvements, inventions, data, know-how, discoveries, copyrightable materials, marketing plans and strategies, sales and financial reports and forecasts, customer lists, studies, reports, records, books, contracts, instruments, surveys, computer disks, diskettes, tapes, computer programs and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company. Confidential Information includes information developed by Employee in the course of Employee's employment by the Company, as well as other information to which Employee may have access in connection with Employee's employment. Confidential Information also includes the confidential information of others with which the Company has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of Employee's duties under Section 7(b). 8. Parties in Interest; Certain Remedies. It is specifically understood and agreed that this Agreement is intended to confer a benefit, directly or indirectly, on the Company and its direct and indirect subsidiaries and affiliates, and that any breach of the provisions of this Agreement by the Employee or any of the Employee's affiliates will result in irreparable injury to the Company and its subsidiaries and affiliates, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company or its subsidiaries and affiliates shall be entitled to enforce the specific performance of this Agreement by the Employee through both temporary and permanent injunctive relief without the necessity of posting a bond or proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. 9. Dispute Resolution. (a) All disputes, claims, or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration to be conducted before JAMS/Endispute, Inc. or its successor. The arbitration shall be held in Chicago, Illinois before a single 9 arbitrator and shall be conducted in accordance with the rules and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified herein. (b) The parties covenant and agree that the arbitration shall commence within one hundred eighty (180) days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party's witness or expert. The arbitrator's decision and award shall be made and delivered within six (6) months of the selection of the arbitrator. The arbitrator's decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages. (c) The parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided below, (i) bear their own attorneys' fees, costs and expenses in connection with the arbitration, and (ii) share equally in the fees and expenses charged by JAMS/Endispute, Inc. The arbitrator may in his or her discretion assess costs and expenses (including the reasonable legal fees and expenses of the prevailing party) against any party to a proceeding. Any party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorneys' fees, incurred by the other party in enforcing the award. This Section 9(c) applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce the provisions of Section 7. (d) Each of the parties hereto irrevocably and unconditionally consents to the exclusive jurisdiction of JAMS/Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof, or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, and further consents to the sole and exclusive jurisdiction of the courts of State of California and/or the State of Illinois for the purposes of enforcing the arbitration provisions of Section 8 of this Agreement. Each party further irrevocably waives any objection to proceeding before JAMS/Endispute, Inc. based upon lack of personal jurisdiction or to the laying of venue and further irrevocably 10 and unconditionally waives and agrees not to make a claim in any court that arbitration before JAMS/Endispute, Inc. has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelin, IL 60060-4483 Attention: Leonard Foxman To Employee: Jack Weimer 646 N. Lake St. Grayslake, IL 60030 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 11. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of Section 7 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable under the circumstances of the transactions contemplated hereby, and are given as an integral and essential part of the transactions contemplated hereby. The Employee has independently consulted with counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries and affiliates, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. 12. Severability. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Employee may have against the Company or any of its subsidiaries or affiliates shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. 11 13. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois, without consideration of its choice of law provisions, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by both of the parties hereto. The failure of either of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon and assignable to, successors of the Company by way of merger, consolidation or sale and may not be assigned by Employee. This Agreement supersedes and terminates all prior understandings and agreements between the parties (or their predecessors) relating to the subject matter hereof. For purposes of this Agreement, the term "person" means an individual, corporation, partnership, association, trust or any unincorporated organization; a "subsidiary" means any corporation more than 50 percent of whose outstanding voting securities, or any partnership, joint venture or other entity more than 50 percent of whose total equity interest, is directly or indirectly owned by such person; and an "affiliate" of a person shall mean, with respect to a person or entity, any person or entity which directly or indirectly controls, is controlled by, or is under common control with such person or entity. [Remainder of Page Intentionally Left Blank] 12 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ------------------------------- Name: Leonard Foxman Title: President JACK WEIMER: /s/ Jack Weimer ----------------------------------- EX-10.19 18 c86449exv10w19.txt EMPLOYMENT AGREEMENT EXHIBIT 10.19 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of this 30th day of September, 2003 by and between Derek Abramovitch (the "Employee") and Eagle Test Systems, Inc., an Illinois corporation (the "Company"). W I T N E S S E T H: WHEREAS, the Company desires to employ the Employee and the Employee desires to obtain employment with the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto agree as follows: 1. Employment. Subject to the provisions of Section 6, the Company hereby employs Employee and Employee accepts such employment upon the terms and conditions hereinafter set forth. 2. Term of Employment. Subject to the provisions of Section 6, the term of Employee's employment pursuant to this Agreement shall commence on and as of the date hereof (the "Effective Date") and shall terminate on the first anniversary of the Effective Date (such period, the "Term"). Notwithstanding the foregoing, the Term shall automatically extend for an additional year on each anniversary of the Effective Date unless either party provides written notice to the other party within thirty (30) days of the date on which the Term would expire that he or it chooses not to extend the Term. 3. Duties; Extent of Service. During Employee's employment under this Agreement, Employee (i) shall serve as an employee of the Company with the title and position of Vice President of Internal Operations, reporting to the Chief Executive Officer of the Company, (ii) shall have such executive responsibilities as the Chief Executive Officer of the Company shall from time to time designate, provided that, in all cases Employee shall be subject to the oversight and supervision of the Board of Directors of the Company in the performance of his duties, (iii) upon the request of the Chief Executive Officer of the Company, shall serve as an officer and/or director of any of the Company's subsidiaries, and (iv) shall render all services reasonably incident to the foregoing. Employee hereby accepts such employment, agrees to serve the Company in the capacities indicated, and agrees to use Employee's best efforts in, and shall devote Employee's full working time, attention, skill and energies to, the advancement of the interests of the Company and its subsidiaries and the performance of Employee's duties and responsibilities hereunder. The foregoing, however, shall not be construed as preventing Employee from engaging in religious, charitable or other community or non-profit activities that do not impair Employee's ability to fulfill Employee's duties and responsibilities under this Agreement. 4. Salary and Bonus. (a) During Employee's employment under this Agreement, the Company shall pay Employee a salary at the annual rate of $150,000 per annum (the "Base Salary"). Such Base Salary shall be subject to withholding under applicable law, shall be pro rated for partial years and shall be payable in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time. (b) For each one-year period or portion thereof during Employee's employment under this Agreement, Employee shall be eligible to participate in any bonus or other performance plan established by the Board of Directors from time to time for executive officers of the Company (the "Incentive Bonus"). 5. Benefits. (a) During Employee's employment under this Agreement, Employee shall be entitled to participate in any and all ESOP, medical, pension, stock option, profit sharing, dental and life insurance plans and disability income plans, retirement arrangements and other employment benefits as in effect from time to time for executive officers of the Company generally. Such participation shall be subject to (i) the terms of the applicable plan documents (including, as applicable, provisions granting discretion to the Board of Directors of the Company or any administrative or other committee provided for therein or contemplated thereby) and (ii) generally applicable policies of the Company. Employee shall be eligible to participate in all such plans and other benefits as of the Effective Date. (b) During Employee's employment under this Agreement, Employee shall receive paid vacation annually in accordance with the Company's practices for executive officers, as in effect from time to time. (c) The Company shall promptly reimburse Employee for all reasonable business expenses incurred by Employee during Employee's employment hereunder in accordance with the Company's practices for senior executive officers of the Company, as in effect from time to time. (d) Compliance with the provisions of this Section 5 shall in no way create or be deemed to create any obligation, express or implied, on the part of the Company or any of its affiliates with respect to the continuation of any particular benefit or other plan or arrangement maintained by them or their subsidiaries as of or prior to the date hereof or the creation and maintenance of any particular benefit or other plan or arrangement at any time after the date hereof, except as contemplated by Section 5(b) and 5(c). 2 6. Termination and Termination Benefits. Notwithstanding the provisions of Section 2, Employee's employment under this Agreement shall terminate under the following circumstances set forth in this Section 6. (a) Termination by the Company for Cause. Employee's employment under this Agreement may be terminated for cause without further liability on the part of the Company effective immediately upon a vote of the Board of Directors or a determination by the Chief Executive Officer and written notice to Employee. Only the following shall constitute "cause" for such termination: (i) dishonest statements or acts of Employee with respect to the Company or any affiliate of the Company; (ii) the commission by Employee of, or indictment of Employee for, (A) a felony or (B) any misdemeanor involving moral turpitude, deceit, dishonesty or fraud ("indictment," for these purposes, meaning an indictment, probable cause hearing or any other procedure pursuant to which an initial determination of probable or reasonable cause with respect to such offense is made); (iii) the commission, in the reasonable judgment of the Board of Directors, of an act involving a material violation of procedures or policies of the Company; (iv) a material and sustained failure of Employee to perform the duties and responsibilities assigned or delegated under this Agreement, as determined by the Board of the Directors, which such failure continues for an unreasonable period of time, as determined by the Board of Directors, after written notice has been given to the Employee by the Board of Directors; (v) gross negligence, willful misconduct or insubordination of Employee with respect to the Company or any affiliate of the Company; or (vi) breach by Employee of any of Employee's obligations under this Agreement. (b) Termination by Employee Other than for Good Reason. Employee's employment under this Agreement may be terminated by Employee by written notice to the Board of Directors at least sixty (60) days prior to such termination. (c) Termination by Employee for Good Reason. Subject to the payment of Termination Benefits pursuant to Section 6(e) below, Employee's employment under this Agreement also may be terminated by Employee for Good Reason (as defined below) (which termination must be within ninety (90) days of the occurrence 3 of the events giving rise to such Good Reason) by written notice to the Board of Directors setting forth such Good Reason and giving the Company a reasonable period of time, not less than ten (10) business days, to eliminate such Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events: (i) a substantial adverse change in the nature or scope of the Employee's responsibilities, authorities, powers, functions or duties under this Agreement; (ii) a reduction in the Employee's annual base salary except for an across-the-board salary reduction similarly affecting all or substantially all management employees; or (iii) the relocation of the offices at which the Employee is principally employed to a location more than seventy (75) miles from such offices. (d) Termination by the Company Without Cause. Subject to the payment of Termination Benefits pursuant to Section 6(e), Employee's employment under this Agreement may be terminated without cause by the Company by a vote of the Board of Directors or a determination by the Chief Executive Officer upon written notice to Employee. It is expressly agreed and understood that if this Agreement is terminated by the Company without cause as provided in this Section 6(d), it shall not impair or otherwise affect Employee's Continuing Obligations (as defined below). (e) Certain Termination Benefits. Unless otherwise specifically provided in this Agreement or otherwise required by law, all compensation and benefits payable to Employee under this Agreement shall terminate on the date of termination of Employee's employment under this Agreement. Notwithstanding the foregoing, in the event of termination of Employee's employment with the Company pursuant to Section 6(c) or Section 6(d) above, the Company shall provide to Employee the following termination benefits ("Termination Benefits"): (i) continuation of salary at a rate equal to fifty percent (50%) of Employee's Base Salary as in effect on the date of termination for a period of two years from the date of termination (payment shall be subject to withholding under applicable law and shall be made in periodic installments in accordance with the Company's usual practice for executive officers of the Company as in effect from time to time); and (ii) continuation of group health plan benefits during the first twelve (12) months in which Employee is receiving payments pursuant to subsection (i) above, to the extent authorized by and consistent with 29 U.S.C. Section 1161 et seq. (commonly known as "COBRA"), with the cost of the regular premium for such benefits shared in the same relative proportion by the Company and Employee as in effect on the date of termination. The Company shall have the right to terminate all of Termination Benefits set forth in (i) and (ii) in the event that Employee fails to comply with Employee's Continuing Obligations under this Agreement. The Company's liability for Base Salary continuation pursuant to Section 6(e)(i) shall be reduced by the amount of any severance pay due or 4 otherwise paid to Employee pursuant to any severance pay plan or stay bonus plan of the Company. Notwithstanding the foregoing, nothing in this Section 6(e) shall be construed to affect Employee's right to receive COBRA continuation entirely at Employee's own cost to the extent that Employee may continue to be entitled to COBRA continuation after Employee's right to cost sharing under Section 6(e)(ii) ceases. The Company and Employee agree that the Termination Benefits paid by the Company to Employee under this Section 6(e) shall be in full satisfaction, compromise and release of any claims arising out of any termination of Employee's employment pursuant to Section 6(d), and that the payment of the Termination Benefits shall be contingent upon Employee's delivery of a general release of any and all claims (other than those arising under this Agreement) upon termination of employment in a form reasonably satisfactory to the Company, it being understood that no Termination Benefits shall be provided unless and until Employee executes and delivers such release. (f) Disability. If Employee shall be disabled so as to be unable to perform the essential functions of Employee's then existing position or positions under this Agreement with or without reasonable accommodation, the Board of Directors may remove Employee from any responsibilities and/or reassign Employee to another position with the Company for the remainder of the Term or during the period of such disability. Notwithstanding any such removal or reassignment, Employee shall continue to receive Employee's full Base Salary (less any disability pay or sick pay benefits to which Employee may be entitled under the Company's policies) and benefits under Section 4 of this Agreement (except to the extent that Employee may be ineligible for one or more such benefits under applicable plan terms) for a period of time equal to the lesser of (i) six (6) months; or (ii) the remainder of the Term. If any question shall arise as to whether during any period Employee is disabled so as to be unable to perform the essential functions of Employee's then existing position or positions with or without reasonable accommodation, Employee may, and at the request of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to whom Employee or Employee's guardian has no reasonable objection as to whether Employee is so disabled or how long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the issue. Employee shall cooperate with any reasonable request of the physician in connection with such certification. If such question shall arise and Employee shall fail to submit such certification, the Company's determination of such issue shall be binding on Employee. Nothing in this Section 6(e) shall be construed to waive Employee's rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. Section 2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. Section 12101 et seq. (g) Death. Employee's employment and all obligations of the Company hereunder shall terminate in the event of the death of the Employee other than any obligation to pay earned but unpaid Base Salary. (h) Notwithstanding termination of this Agreement as provided in this Section 6 or any other termination of Employee's employment with the Company, 5 Employee's obligations under Section 7 hereof (the "Continuing Obligations") shall survive any termination of Employee's employment with the Company at any time and for any reason. 7. Non-Competition; Non-Solicitation; Confidentiality; Proprietary Rights. (a) The Employee hereby agrees that during the period commencing on the date hereof and ending on the date that is two years following the date of the termination of Employee's employment with the Company (the "Noncompetition Period"), the Employee will not, without the express written consent of the Company, directly or indirectly, anywhere in the United States or in any foreign country in which the Company has conducted business, is conducting business or is presently contemplating conducting business, engage in any activity which is, or participate or invest in, or provide or facilitate the provision of financing to, or assist (whether as owner, part-owner, shareholder, member, partner, director, officer, trustee, employee, agent or consultant, or in any other capacity), any business, organization or person other than the Company (or any subsidiary or affiliate of the Company), and including any such business, organization or person involving, or which is, a family member of the Employee, whose business, activities, products or services are competitive with any of the business, activities, products or services conducted or offered by the Company or its subsidiaries or affiliates during any period in which the Employee serves as an officer or employee of the Company or any of its subsidiaries or affiliates. Without implied limitation, the foregoing covenant shall be deemed to prohibit (a) hiring or engaging or attempting to hire or engage for or on behalf of the Employee or any such competitor any officer or employee of the Company or any of its direct and/or indirect subsidiaries and affiliates, or any former employee of the Company and any of its direct and/or indirect subsidiaries and affiliates who was employed during the six (6) month period immediately preceding the date of such attempt to hire or engage, (b) encouraging for or on behalf of the Employee or any such competitor any such officer or employee to terminate his or her relationship or employment with the Company or any of its direct or indirect subsidiaries and affiliates, (c) soliciting for or on behalf of Employee or any such competitor any client of the Company or any of its direct or indirect subsidiaries and affiliates, or any former client of the Company or any of its direct or indirect subsidiaries and affiliates who was a client during the six (6) month period immediately preceding the date of such solicitation and (d) diverting to any person (as hereinafter defined) any client or business opportunity of the Company or any of any of its direct or indirect subsidiaries and affiliates. Notwithstanding anything herein to the contrary, the Employee may make passive investments in any enterprise the shares of which are publicly traded if such investment constitutes less than two percent (2%) of the equity of such enterprise. Neither the Employee nor any business entity controlled by the Employee is a party to any contract, commitment, arrangement or agreement which could, following the date hereof, restrain or restrict the Company or any subsidiary or affiliate of the Company from carrying on its business or restrain or restrict the Employee from 6 performing his employment obligations, and as of the date of this Agreement the Employee has no business interests whatsoever in or relating to the industries in which the Company or its subsidiaries or affiliates currently engage, and other than passive investments in the shares of public companies of less than two percent (2%). (b) In the course of performing services hereunder, on behalf of the Company (for purposes of this Section 7 including all predecessors of the Company) and its affiliates, Employee has had and from time to time will have access to Confidential Information (as defined below). Employee agrees (a) to hold the Confidential Information in strict confidence, (b) not to disclose the Confidential Information to any person (other than in the regular business of the Company or its affiliates), and (c) not to use, directly or indirectly, any of the Confidential Information for any purpose other than on behalf of the Company and its affiliates. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, that are furnished to Employee by the Company or are produced by Employee in connection with Employee's employment will be and remain the sole property of the Company. Upon the termination of Employee's employment with the Company for any reason and as and when otherwise requested by the Company, all Confidential Information (including, without limitation, all data, memoranda, customer lists, notes, programs and other papers and items, and reproductions thereof relating to the foregoing matters) in Employee's possession or control, shall be immediately returned to the Company. (c) Employee hereby confirms that Employee is not bound by the terms of any agreement with any previous employer or other party that restricts in any way Employee's use or disclosure of information or Employee's engagement in any business. Employee represents to the Company that Employee's execution of this Agreement, Employee's employment with the Company and the performance of Employee's proposed duties for the Company will not violate any obligations Employee may have to any such previous employer or other party. In Employee's work for the Company, Employee will not disclose or make use of any information in violation of any agreements with or rights of any such previous employer or other party, and Employee will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such previous employment or other party. (d) During and after Employee's employment, Employee shall cooperate fully with the Company in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company that relate to events or occurrences that transpired while Employee was employed by the Company. Employee's full cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. During and after Employee's employment, Employee also shall cooperate fully with the Company in connection with any investigation or review of any 7 federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired while Employee was employed by the Company. The Company shall reimburse Employee for any reasonable out-of-pocket expenses incurred in connection with Employee's performance of obligations pursuant to this Section 7(d). (e) Employee recognizes that the Company and its affiliates possess a proprietary interest in all of the information described in Section 7(b) and have the exclusive right and privilege to use, protect by copyright, patent or trademark, or otherwise exploit the processes, ideas and concepts described therein to the exclusion of Employee, except as otherwise agreed between the Company and Employee in writing. Employee expressly agrees that any products, inventions, discoveries or improvements made by Employee or Employee's agents or affiliates in the course of Employee's employment, including any of the foregoing which is based on or arises out of the information described in Section 7(b), shall be the property of and inure to the exclusive benefit of the Company. Employee further agrees that any and all products, inventions, discoveries or improvements developed by Employee (whether or not able to be protected by copyright, patent or trademark) during the course of his employment, or involving the use of the time, materials or other resources of the Company or any of its affiliates, shall be promptly disclosed to the Company and shall become the exclusive property of the Company, and Employee shall execute and deliver any and all documents necessary or appropriate to implement the foregoing. Pursuant to the Illinois Employee Patent Act, this paragraph does not apply to any invention for which no equipment, supplies, facility or trade secret information of the Company was used and which was developed entirely on the Employee's own time, unless (a) the invention relates to (i) the business of the Company or (ii) the Company's actually or demonstrably anticipated research or development or (b) the invention results from any work performed by the undersigned for the Company. (f) Employee agrees, while he is employed by the Company, to offer or otherwise make known or available to it, as directed by the Board of Directors of the Company and without additional compensation or consideration, any business prospects, contracts or other business opportunities that Employee may discover, find, develop or otherwise have available to Employee in the Company's general industry and further agrees that any such prospects, contacts or other business opportunities shall be the property of the Company. (g) Employee acknowledges that the provisions of this Section 7 are an integral part of Employee's employment arrangements with the Company. (h) For purposes of this Agreement: (i) the term "Confidential Information" shall mean information belonging to the Company which is of value to the Company or with respect to which Company has right in the course of conducting its 8 business and the disclosure of which could result in a competitive or other disadvantage to the Company. Confidential Information includes information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including, by way of example and without limitation, trade secrets, ideas, concepts, designs, configurations, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts processes, techniques, formulas, software, improvements, inventions, data, know-how, discoveries, copyrightable materials, marketing plans and strategies, sales and financial reports and forecasts, customer lists, studies, reports, records, books, contracts, instruments, surveys, computer disks, diskettes, tapes, computer programs and business plans, prospects and opportunities (such as possible acquisitions or dispositions of businesses or facilities) which have been discussed or considered by the management of the Company. Confidential Information includes information developed by Employee in the course of Employee's employment by the Company, as well as other information to which Employee may have access in connection with Employee's employment. Confidential Information also includes the confidential information of others with which the Company has a business relationship. Notwithstanding the foregoing, Confidential Information does not include information in the public domain, unless due to breach of Employee's duties under Section 7(b). 8. Parties in Interest; Certain Remedies. It is specifically understood and agreed that this Agreement is intended to confer a benefit, directly or indirectly, on the Company and its direct and indirect subsidiaries and affiliates, and that any breach of the provisions of this Agreement by the Employee or any of the Employee's affiliates will result in irreparable injury to the Company and its subsidiaries and affiliates, that the remedy at law alone will be an inadequate remedy for such breach and that, in addition to any other remedy it may have, the Company or its subsidiaries and affiliates shall be entitled to enforce the specific performance of this Agreement by the Employee through both temporary and permanent injunctive relief without the necessity of posting a bond or proving actual damages, but without limitation of their right to damages and any and all other remedies available to them, it being understood that injunctive relief is in addition to, and not in lieu of, such other remedies. 9. Dispute Resolution. (a) All disputes, claims, or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, that are not resolved by mutual agreement shall be resolved solely and exclusively by binding arbitration to be conducted before JAMS/Endispute, Inc. or its successor. The arbitration shall be held in Chicago, Illinois before a single 9 arbitrator and shall be conducted in accordance with the rules and regulations promulgated by JAMS/Endispute, Inc. unless specifically modified herein. (b) The parties covenant and agree that the arbitration shall commence within one hundred eighty (180) days of the date on which a written demand for arbitration is filed by any party hereto. In connection with the arbitration proceeding, the arbitrator shall have the power to order the production of documents by each party and any third-party witnesses. In addition, each party may take up to three depositions as of right, and the arbitrator may in his or her discretion allow additional depositions upon good cause shown by the moving party. However, the arbitrator shall not have the power to order the answering of interrogatories or the response to requests for admission. In connection with any arbitration, each party shall provide to the other, no later than seven (7) business days before the date of the arbitration, the identity of all persons that may testify at the arbitration and a copy of all documents that may be introduced at the arbitration or considered or used by a party's witness or expert. The arbitrator's decision and award shall be made and delivered within six (6) months of the selection of the arbitrator. The arbitrator's decision shall set forth a reasoned basis for any award of damages or finding of liability. The arbitrator shall not have power to award damages in excess of actual compensatory damages and shall not multiply actual damages or award punitive damages or any other damages that are specifically excluded under this Agreement, and each party hereby irrevocably waives any claim to such damages. (c) The parties covenant and agree that they will participate in the arbitration in good faith and that they will, except as provided below, (i) bear their own attorneys' fees, costs and expenses in connection with the arbitration, and (ii) share equally in the fees and expenses charged by JAMS/Endispute, Inc. The arbitrator may in his or her discretion assess costs and expenses (including the reasonable legal fees and expenses of the prevailing party) against any party to a proceeding. Any party unsuccessfully refusing to comply with an order of the arbitrators shall be liable for costs and expenses, including attorneys' fees, incurred by the other party in enforcing the award. This Section 9(c) applies equally to requests for temporary, preliminary or permanent injunctive relief, except that in the case of temporary or preliminary injunctive relief any party may proceed in court without prior arbitration for the purpose of avoiding immediate and irreparable harm or to enforce the provisions of Section 7. (d) Each of the parties hereto irrevocably and unconditionally consents to the exclusive jurisdiction of JAMS/Endispute, Inc. to resolve all disputes, claims or controversies arising out of or relating to this Agreement or any other agreement executed and delivered pursuant to this Agreement or the negotiation, validity or performance hereof and thereof, or the transactions contemplated hereby and thereby, or the rights and obligations of the parties hereunder or thereunder, and further consents to the sole and exclusive jurisdiction of the courts of State of California and/or the State of Illinois for the purposes of enforcing the arbitration provisions of Section 8 of this Agreement. Each party further irrevocably waives any objection to proceeding before JAMS/Endispute, Inc. based upon lack of personal jurisdiction or to the laying of venue and further irrevocably 10 and unconditionally waives and agrees not to make a claim in any court that arbitration before JAMS/Endispute, Inc. has been brought in an inconvenient forum. Each of the parties hereto hereby consents to service of process by registered mail at the address to which notices are to be given. Each of the parties hereto agrees that its or his submission to jurisdiction and its or his consent to service of process by mail is made for the express benefit of the other parties hereto. 10. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or mailed by certified or registered mail (return receipt requested) as follows: To the Company: Eagle Test Systems, Inc. 620 South Butterfield Road Mundelin, IL 60060-4483 Attention: Leonard Foxman To Employee: Derek Abramovitch 1530 Rosewood Ave. Deerfield, IL 60015 or to such other address of which any party may notify the other parties as provided above. Notices shall be effective as of the date of such delivery or mailing. 11. Scope of Agreement. The parties acknowledge that the time, scope, geographic area and other provisions of Section 7 have been specifically negotiated by sophisticated parties and agree that all such provisions are reasonable under the circumstances of the transactions contemplated hereby, and are given as an integral and essential part of the transactions contemplated hereby. The Employee has independently consulted with counsel and has been advised in all respects concerning the reasonableness and propriety of the covenants contained herein, with specific regard to the business to be conducted by Company and its subsidiaries and affiliates, and represents that the Agreement is intended to be, and shall be, fully enforceable and effective in accordance with its terms. 12. Severability. In the event that any covenant contained in this Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its extending for too great a period of time or over too great a geographical area or by reason of its being too extensive in any other respect, it shall be interpreted to extend only over the maximum period of time for which it may be enforceable and/or over the maximum geographical area as to which it may be enforceable and/or to the maximum extent in all other respects as to which it may be enforceable, all as determined by such court in such action. The existence of any claim or cause of action which the Employee may have against the Company or any of its subsidiaries or affiliates shall not constitute a defense or bar to the enforcement of any of the provisions of this Agreement. 11 13. Miscellaneous. This Agreement shall be governed by and construed under the laws of the State of Illinois, without consideration of its choice of law provisions, and shall not be amended, modified or discharged in whole or in part except by an agreement in writing signed by both of the parties hereto. The failure of either of the parties to require the performance of a term or obligation or to exercise any right under this Agreement or the waiver of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or exercise of such right or the enforcement at any time of any other right hereunder or be deemed a waiver of any subsequent breach of the provision so breached, or of any other breach hereunder. This Agreement shall inure to the benefit of, and be binding upon and assignable to, successors of the Company by way of merger, consolidation or sale and may not be assigned by Employee. This Agreement supersedes and terminates all prior understandings and agreements between the parties (or their predecessors) relating to the subject matter hereof. For purposes of this Agreement, the term "person" means an individual, corporation, partnership, association, trust or any unincorporated organization; a "subsidiary" means any corporation more than 50 percent of whose outstanding voting securities, or any partnership, joint venture or other entity more than 50 percent of whose total equity interest, is directly or indirectly owned by such person; and an "affiliate" of a person shall mean, with respect to a person or entity, any person or entity which directly or indirectly controls, is controlled by, or is under common control with such person or entity. [Remainder of Page Intentionally Left Blank] 12 IN WITNESS WHEREOF, the parties have executed this Agreement under seal as of the date first set forth above. COMPANY: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman ------------------------------ Name: Leonard Foxman Title: President DEREK ABRAMOVITCH: /s/ Derek Abramovitch ---------------------------------- EX-10.21 19 c86449exv10w21.txt INDUSTRIAL BUILDING LEASE EXHIBIT 10.21 INDUSTRIAL BUILDING LEASE LANDLORD: CENTERPOINT PROPERTIES TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST TENANT: EAGLE TEST SYSTEMS, INC., A(n) ILLINOIS CORPORATION PROPERTY ADDRESS: 620 BUTTERFIELD ROAD MUNDELEIN, ILLINOIS TABLE OF CONTENTS ARTICLE I LEASE TERMS................................................................... 1 Section 1.1. Definitions....................................................... 1 Section 1.2. Significance of Definitions....................................... 2 Section 1.3. Enumeration of Exhibits........................................... 3 ARTICLE II PREMISES..................................................................... 3 Section 2.1. Lease............................................................. 3 ARTICLE III TERM........................................................................ 3 Section 3.1. Term.............................................................. 3 ARTICLE IV CONDITION OF DEMISED PREMISES................................................ 4 Section 4.1. Condition of Premises............................................. 4 ARTICLE V RENT.......................................................................... 4 Section 5.1. Base Rent......................................................... 4 Section 5.2. Interest and Late Charges on Late Payments........................ 4 ARTICLE VI TAXES AND IMPOSITIONS........................................................ 5 Section 6.1. Taxes............................................................. 5 Section 6.2. Utilities......................................................... 6 Section 6.3. Expenses.......................................................... 6 Section 6.4. Deposits.......................................................... 6 Section 6.5. Adjustment Statement.............................................. 6 Section 6.6. Payments.......................................................... 7 Section 6.7. Payment Adjustments............................................... 7 Section 6.8. Right to Pay...................................................... 7 Section 6.9. Landlord's Contest of Taxes....................................... 7 ARTICLE VII USE......................................................................... 8 Section 7.1. Use............................................................... 8 Section 7.2. Prohibited Uses................................................... 8 ARTICLE VIII MAINTENANCE, REPAIR AND REPLACEMENTS OF PREMISES........................... 8 Section 8.1. Tenant's Obligations.............................................. 8 Section 8.2. Governmental Requirements......................................... 9 Section 8.3. Structural Components............................................. 9 Section 8.4. Tenant's Responsibilities......................................... 9 Section 8.5. Maintenance Contract.............................................. 10 Section 8.6. Warranty of Systems............................................... 10 ARTICLE IX TENANT'S INSURANCE........................................................... 10 Section 9.1. Coverage Required................................................. 10 Section 9.2. Policies.......................................................... 12

i Section 9.3. Subrogation....................................................... 12 Section 9.4. Miscellaneous Insurance Provisions................................ 12 ARTICLE X PROPERTY INSURANCE............................................................ 14 Section 10.1. Kinds and Amounts................................................. 14 Section 10.2. Intentionally Deleted............................................. 14 Section 10.3. Tenant Payments................................................... 15 ARTICLE XI DAMAGE OR DESTRUCTION........................................................ 15 Section 11.1. Damage or Destruction by Fire or Casualty......................... 15 ARTICLE XII LIENS....................................................................... 15 Section 12.1. Lien Claims....................................................... 15 Section 12.2. Landlord's Right to Cure.......................................... 16 ARTICLE XIII ALTERATIONS AND IMPROVEMENTS............................................... 16 Section 13.1. Alterations....................................................... 16 Section 13.2. Ownership of Alterations.......................................... 17 Section 13.3. Signs............................................................. 17 Section 13.4. Tenant Indemnity.................................................. 18 Section 13.5. Environmental Impact.............................................. 18 ARTICLE XIV CONDEMNATION................................................................ 18 Section 14.1. Taking: Lease to Terminate........................................ 18 Section 14.2. Taking: Lease to Continue......................................... 18 Section 14.3. Tenant's Claim.................................................... 19 ARTICLE XV RENT ABSOLUTE................................................................ 19 Section 15.1. Rent Absolute..................................................... 19 ARTICLE XVI ASSIGNMENT -- SUBLETTING BY TENANT.......................................... 19 Section 16.1. No Assignment, Subletting or Other Transfer....................... 19 Section 16.2. Operation of Law.................................................. 20 Section 16.3. Excess Rental..................................................... 20 Section 16.4. Merger or Consolidation........................................... 20 Section 16.5. Unpermitted Transaction........................................... 21 ARTICLE XVII ANNUAL STATEMENTS.......................................................... 21 Section 17.1. Annual Statements................................................. 21 ARTICLE XVIII INDEMNITY FOR LITIGATION.................................................. 21 Section 18.1. Indemnity for Litigation.......................................... 21 Section 18.2. Landlord's Indemnity.............................................. 22 ARTICLE XIX ESTOPPEL CERTIFICATES....................................................... 22 Section 19.1. Estoppel Certificate.............................................. 22

ii ARTICLE XX INSPECTION OF PREMISES....................................................... 22 Section 20.1. Inspections....................................................... 22 Section 20.2. Signs............................................................. 22 ARTICLE XXI FIXTURES.................................................................... 22 Section 21.1. Building Fixtures................................................. 22 Section 21.2. Tenant's Equipment................................................ 23 Section 21.3. Removal of Tenant's Equipment..................................... 23 ARTICLE XXII DEFAULT.................................................................... 23 Section 22.1. Events of Default................................................. 23 Section 22.2. Waivers........................................................... 25 Section 22.3. Bankruptcy........................................................ 25 ARTICLE XXIII LANDLORD'S PERFORMANCE OF TENANT'S COVENANTS.............................. 26 Section 23.1. Landlord's Right to Perform Tenant's Obligations.................. 26 ARTICLE XXIV EXERCISE OF REMEDIES....................................................... 27 Section 24.1. Cumulative Remedies............................................... 27 Section 24.2. No Waiver......................................................... 27 ARTICLE XXV SUBORDINATION TO MORTGAGES.................................................. 28 Section 25.1. Subordination..................................................... 28 Section 25.2. Mortgage Protection............................................... 28 ARTICLE XXVI INDEMNITY AND WAIVER....................................................... 28 Section 26.1. Indemnity......................................................... 28 Section 26.2. Waiver of Claims.................................................. 30 ARTICLE XXVII SURRENDER................................................................. 30 Section 27.1. Condition......................................................... 30 Section 27.2. Removal of Tenant's Equipment..................................... 30 Section 27.3. Holdover.......................................................... 31 ARTICLE XXVIII COVENANT OF QUIET ENJOYMENT.............................................. 31 Section 28.1. Covenant of Quiet Enjoyment....................................... 31 ARTICLE XXIX NO RECORDING............................................................... 31 Section 29.1. Short Form of Lease............................................... 31 ARTICLE XXX NOTICES..................................................................... 31 Section 30.1. Notices........................................................... 31 ARTICLE XXXI COVENANTS RUN WITH LAND.................................................... 32 Section 31.1. Covenants......................................................... 32 Section 31.2. Release of Landlord............................................... 32

iii ARTICLE XXXII ENVIRONMENTAL MATTERS..................................................... 32 Section 32.1. Defined Terms..................................................... 32 Section 32.2. Tenant's Covenants with Respect to Environmental Matters.......... 34 Section 32.3. Conduct of Tenant................................................. 35 Section 32.4. Exacerbation...................................................... 37 Section 32.5. Rights of Inspection.............................................. 37 Section 32.6. Copies of Notices................................................. 37 Section 32.7. Tests and Reports................................................. 37 Section 32.8. Indemnification................................................... 39 Section 32.9. Tenant Acknowledgments with respect to Environmental Matters...... 40 Section 32.10. No Liability of Landlord.......................................... 40 ARTICLE XXXIII SECURITY DEPOSIT......................................................... 40 Section 33.1. Security Deposit.................................................. 40 ARTICLE XXXIV MISCELLANEOUS............................................................. 41 Section 34.1. Captions.......................................................... 41 Section 34.2. Severability...................................................... 41 Section 34.3. Applicable Law.................................................... 41 Section 34.4. Amendments in Writing............................................. 41 Section 34.5. Relationship of Parties........................................... 41 Section 34.6. Brokerage......................................................... 42 Section 34.7. No Accord and Satisfaction........................................ 42 Section 34.8. Joint Effort...................................................... 42 Section 34.9. Waiver of Jury Trial.............................................. 42 Section 34.10. Time.............................................................. 42 Section 34.11. Landlord's Consent................................................ 42 Section 34.12. No Partnership.................................................... 42 Section 34.13. Landlord's Liability.............................................. 42 Section 34.14. Landlord Rights................................................... 43 Section 34.15. Entire Agreement.................................................. 43 Section 34.16. Rent Absolute..................................................... 43 Section 34.17. Tenant Authority.................................................. 43 ARTICLE XXXV RENEWAL OPTIONS............................................................ 44 Section 35.1. Renewal Option(s)................................................. 44 Section 35.2. "As Is" Condition................................................. 44 Section 35.3. Amendment......................................................... 44 Section 35.4. Termination....................................................... 44 Section 35.5. No Commissions.................................................... 44 Section 35.6. Taxes............................................................. 44 ARTICLE XXXVI RIGHT OF FIRST REFUSAL TO PURCHASE........................................ 45 Section 36.1. Right of First Refusal to Purchase................................ 45

iv ~~ARTICLE XXXVII LANDLORD'S WORK.......................................................... 46 Section 37.1. Landlord's Work................................................... 46~~

v Property Address: 620 Butterfield Road Mundelein, Illinois INDUSTRIAL BUILDING LEASE THIS LEASE is made as of this____ day of __________________, 1999 between CENTERPOINT PROPERTIES TRUST, a Maryland real estate investment trust ("Landlord"), and EAGLE TEST SYSTEMS INC., an Illinois corporation ("Tenant"). ARTICLE I LEASE TERMS SECTION 1.1. DEFINITIONS. In addition to the other terms, which are elsewhere defined in this Lease, the following terms and phrases, whenever used in this Lease shall have the meanings set forth in this Subsection, and only such meanings, unless such meanings are expressly contradicted, limited or expanded elsewhere herein. (a) BASE RENT SCHEDULE:
PERIOD ANNUAL MONTHLY (BY LEASE MONTH) BASE RENT BASE RENT - ---------------- --------------------- --------- Months 1-2 $ 0 $ 0 Months 3-14 $206,014.50 $17,167.88 Months 15-26 $219,344.85 $18,278.74 Months 27-38 $233,644.68 $19,470.39 Months 39-50 $248,913.99 $20,742.83 Months 51-62 $264,910.41 $22,075.87
(b) SECURITY DEPOSIT: $17,167.88 (c) INITIAL DEPOSIT: $0 (d) INITIAL TERM: The initial sixty-two (62)-month term, commencing as of the Commencement Date. (e) COMMENCEMENT DATE: The later of (i) the date on which Landlord receives a permanent, temporary or conditional certificate of occupancy for the premises from the Village of Mundelein; provided, however, if such certificate is not issued due to any Tenant Delay (as herein defined) or the failure to complete any work not a part of Landlord's Work (as herein defined), such certificate shall be deemed to have been issued; or (ii) the Completion Date (as hereinafter defined). (f) TERMINATION DATE: The last day of the sixty-second (62nd) month subsequent to the Commencement Date. (g) TERM: The Initial Term as same may be extended or sooner terminated. (h) USE: The assembly, manufacturing, repair, testing and distribution of electronic testing equipment and the warehousing of parts, inventories and/or completed systems. (i) OPTION TO RENEW: See Article 35. (j) OPTION TO PURCHASE: See Article 36. (k) LANDLORD'S MAILING ADDRESS: 1808 Swift Road Oak Brook, Illinois 60690 Attn: Michael M. Mullen (l) TENANT'S MAILING ADDRESS: (until Tenant occupies the Premises, use address below, thereafter use the Premises) 1353 Armour Blvd. Mundelein, Illinois 60060 (m) LANDLORD'S BROKER: CB Richard Ellis, Inc. (n) TENANT'S BROKER: Trammell Crow Company (o) TENANT DELAY: any interruption or delay in the progress of the Landlord's Work which is the result of: (i) the failure of Tenant to approve the plans for the Landlord's Work or any portion thereof within five (5) days after submitted to Tenant; (ii) changes in construction requested by Tenant or any member of the Tenant Group pursuant to Section 37.1 (d) herein; (iii) the performance or non-performance of any work at, or services with respect to, the Premises by Tenant or any member of the Tenant Group (as herein defined); or (iv) any other act or omission of Tenant, any member of the Tenant Group or any person, firm or entity claiming by, through or under any of them. (p) TENANT GROUP: any or all of Tenant's agents, employees, representatives, contractors, workmen, mechanics, suppliers, customers, guests, licensees, invitees, sublessees, assignees and all of their respective successors and assigns or any party claiming by, through or under any of them. SECTION 1.2. SIGNIFICANCE OF DEFINITIONS. Each reference in this Lease to any of the Definitions contained in Section 1.1 of this Article shall be deemed and construed to incorporate all of the terms provided under each such Definition. SECTION 1.3. ENUMERATION OF EXHIBITS. The exhibits in this Section and attached to this Lease are incorporated in this Lease by this reference and are to be construed as a part of this Lease. EXHIBIT "A" - Legal Description EXHIBIT "B" - Form of Estoppel Certificate EXHIBIT "C" - Landlord's Work EXHIBIT "D" - Memorandum of Lease (LF) ARTICLE II PREMISES SECTION 2.1. LEASE. Landlord, for and in consideration of the rents herein reserved and of the covenants and agreements herein contained on the part of Tenant to be kept, observed and performed, does by these presents, lease to Tenant, and Tenant hereby leases from Landlord, the real estate located at 620 Butterfield Road, Mundelein, Illinois, and legally described on EXHIBIT "A" attached hereto and by this reference incorporated herein ("Land"), together with all improvements now located or hereafter constructed thereon ("Improvements") (the Land and the Improvements are sometimes collectively referred to as the "Premises"), subject to covenants, conditions, agreements, easements, encumbrances and restrictions affecting the Land and the Improvements thereon ("Restrictions"). ARTICLE III TERM SECTION 3.1. TERM. The Initial Term of this Lease shall commence on the Commencement Date and shall end on the Termination Date, unless sooner terminated as hereinafter set forth. If the Commencement Date is a day other than the first (1st) day of a calendar month, the Initial Term shall expire sixty-two (62) months after the first (1st) day of the first full calendar month after the Commencement Date and shall, accordingly, include the period between the Commencement Date and the end of the calendar month in which the Commencement Date occurs, with Rent for such partial month to be calculated pro rata on a daily basis. If the Landlord shall be unable to give possession of the Premises on the Commencement Date for any reason the Rent reserved and covenanted to be paid herein shall not commence until the Premises are available for occupancy by Tenant. No such failure to give possession on the Commencement Date of the Term hereof shall subject Landlord to any liability for failure to give possession nor shall same affect the validity of this Lease or the obligation of the Tenant hereunder, nor shall the same be construed to extend the Term. At the option of Landlord to be exercised within thirty (30) days of the delayed delivery of possession to Tenant, the Lease shall be amended so that the Term shall be extended by the period of time possession is delayed. Notwithstanding anything to the contrary contained herein, in the event Landlord shall be unable to deliver possession of the Premises to Tenant by July 1, 2000, subject to any Tenant Delays, Tenant shall have the right, upon written notice to Landlord delivered within five (5) business days after July 1, 2000, to terminate this Lease. ARTICLE IV CONDITION OF DEMISED PREMISES SECTION 4.1. CONDITION OF PREMISES. Except for Landlord's Work (as defined herein), Tenant agrees to accept the Premises in an absolutely "as-is" condition, and Tenant acknowledges that Landlord, its agents, attorneys, representatives and employees have not and do not make any representations or warranties, express or implied, to Tenant regarding the Premises, including, but not limited to: (i) the zoning of the Premises; (ii) the condition of any underground, above ground or surface improvements; (iii) the size, area, use or type of the Premises or the fitness of the Premises for any intended or particular use; (iv) the nature of the soil on and underlying the Premises or its suitability for development or any other use thereof; (v) any financial information pertaining to the operation of the Premises; (vi) the status of any requirements or obligations imposed, implied or to be undertaken by the owner or developer of the Premises pursuant to any zoning, subdivision, development laws or agreements with any governmental entities; (vii) the presence or absence of any toxic wastes, hazardous materials or structural defects in, on or under the Premises or any improvements thereon; or (viii) the presence or absence of any rights of any governmental authority, or of owners of property in the vicinity of the Premises, to obtain reimbursement, recapture or special assessments from any owner of the Premises for all or a portion of the cost of any utilities, roads or other improvements heretofore or hereafter located on or in the vicinity of the Premises (and if such rights exist, Tenant agrees to pay all sums due pursuant thereto, it being expressly acknowledged and agreed that, Tenant hereby waives any claim Tenant may have or may hereafter acquire against Landlord, its agents, attorneys, representatives or employees for said costs), any and all such representations and warranties, express or implied, being hereby expressly waived by Tenant and disclaimed by Landlord. Except as expressly provided for in this Lease, no promise of Landlord to alter, remodel, decorate, clean or improve the Premises or any portion thereof and no representation respecting the condition of the' Premises or any portion thereof have been made by Landlord to Tenant. ARTICLE V RENT SECTION 5.1. BASE RENT. In consideration of the leasing aforesaid, Tenant agrees to pay Landlord, without offset or deduction, base rent for the Initial Term ("Base Rent"), payable monthly in advance in the amount of the Monthly Base Rent set forth in the Base Rent Schedule commencing on the Commencement Date and continuing on the first (1st) day of each month thereafter for the balance of the Term of this Lease, and in addition thereto, shall pay such charges as are herein described as "Additional Rent". The term "Rent" when used in this Lease shall include all Base Rent payable under this Section 5.1., as well as the charges herein described as Additional Rent. All Rent payable hereunder shall be payable to Landlord at 135 S. LaSalle Street, Dept. 2023, Chicago, Illinois 60674-2023, or as Landlord may otherwise from time to time designate in writing. SECTION 5.2. INTEREST AND LATE CHARGES ON LATE PAYMENTS. Tenant acknowledges that its late payment of any Rent will cause Landlord to incur certain costs and expenses not contemplated under this Lease, the exact amount of which is extremely difficult or impracticable to fix. Such costs and expenses will include, without limitation, loss of use of money, administrative and collection costs and processing and accounting expenses. Therefore, if any installment of monthly Base Rent is not received by Landlord within five (5) days after the date when due or any other sum due hereunder is not paid when due, Tenant shall immediately pay to Landlord a late charge equal to three percent (3%) of the unpaid amount. Such late charge is in addition to any interest due as set forth below. Landlord and Tenant agree that this late charge represents a reasonable estimate of costs and expenses incurred by Landlord from, and is fair compensation to Landlord for, its loss suffered, by such non-payment by Tenant. In addition to the foregoing, Rent not paid within thirty (30) days of the date when due shall bear interest from the date when the same is payable under the terms of this Lease until the same shall be paid at an annual rate of interest equal to the rate of interest announced from time to time by the First National Bank of Chicago as its Corporate Base Rate, plus three percent (3%), unless a lesser rate shall then be the maximum rate permissible by law, in which event said lesser rate shall be charged ("Lease Interest Rate"). The term "Corporate Base Rate" means that rate of interest announced by The First National Bank of Chicago ("First") from time to time as its "Corporate Base Rate" of interest, changing automatically and simultaneously with each change in the Corporate Base Rate made by First from time to time. Any publication issued or published by First from .time to time or a certificate signed by an officer of First stating its Corporate Base Rate as of a date shall be conclusive evidence of the Corporate Base Rate on that date. Acceptance of the late charge shall not constitute a waiver of Tenant's default with respect to such non-payment by Tenant or prevent Landlord from exercising any other rights and remedies available to Landlord under this Lease. Failure to pay the late charge shall constitute a default under this Lease. ARTICLE VI TAXES AND IMPOSITIONS SECTION 6.1. TAXES. Tenant further agrees to pay, as Additional Rent for the Premises, all Taxes (as hereinafter defined) which accrue during the Term of this Lease, and are levied, assessed or become a lien imposed upon the Premises or any part thereof. Notwithstanding the foregoing, the amount of Taxes Tenant is required to pay shall not exceed the following amounts set forth for the appropriate period of the Term: $36,355.50 for months 3-14 of the Term; $42,414.75 for months 15-26 of the Term; $44,596.08 for months 27-38 of the Term; $46,777.41 for months 3950 of the Term; and $49,201.11 for months 51-62 of the Term. Such Additional Rent shall be payable notwithstanding the fact that the amount of such Taxes may not be ascertainable or due and payable until after the expiration of the Term of this Lease. As used herein, "Taxes" means real estate taxes, assessments, sewer rents, rates and charges, permit and license fees, transit taxes, taxes based upon the receipt of rent, and any other federal, state or local governmental charge, general, special, ordinary or extraordinary, which may now or hereafter be assessed, accrue or become a lien against, the Premises or any portion thereof in any year during the Term of this Lease, and also shall include any personal property taxes (attributable to the year in which paid) imposed upon the furniture, fixtures, machinery, equipment, apparatus, systems and appurtenances used in connection with the operation of the Premises and any fine, penalty, interest or cost that may be added to the foregoing as a result of Tenant's nonpayment of Landlord's invoice therefor. Nothing contained herein shall be construed to require Tenant to pay any franchise, inheritance, estate, succession or transfer tax of Landlord or any income or excess profits tax assessed upon or in respect of all income of Landlord or chargeable to or required to be paid by Landlord unless such tax shall be specifically levied against the rental income of Landlord derived hereunder (as opposed to a general income tax), which tax shall be paid by Tenant as part of Taxes hereunder provided said rental income shall be considered as the sole income of Landlord. SECTION 6.2. UTILITIES. Tenant shall pay, directly to the appropriate supplier, all costs of natural gas, electricity, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Premises. Landlord shall, at Landlord's sole cost and expense, separately meter the Premises. Landlord shall not in any way be liable or responsible to Tenant for any cost or damage or expense which Tenant may sustain or incur if either the quality or character of such service is changed or is no longer available or suitable for Tenant's requirements. SECTION 6.3. EXPENSES. The Base Rent shall include all management fees, annual administrative charges and miscellaneous fees incurred by Landlord during the Term of this Lease; provided, however, Tenant further agrees to pay as Additional Rent for the Premises, the charge of one percent (I%) of the Annual Base Rent payable by Tenant pursuant to the Base Rent Schedule for the performance of services to be performed by Landlord under the express provisions of this Lease (the "Expenses"). Except as expressly set forth in this Lease, Landlord shall not have any obligation to perform any services and Tenant shall contract for, and pay for, all such services, including, but not limited to all janitorial, snow plow and landscape services necessary at the Premises during the Term of the Lease. SECTION 6.4. DEPOSITS. As security for the obligations contained in Sections 6.1. and 10.3. hereof, Tenant shall deposit monthly with Landlord, or such other entity as Landlord may designate, on the first (1st) day of each and every month of the Term, a sum equal to one twelfth (1/12) of the amount of Taxes owed by Tenant for the first year of the Term and Landlord's estimate of the Insurance Premiums (as hereinafter defined). All monthly deposits need not be kept separate and apart by Landlord and shall be held by Landlord in such account or accounts as may be authorized by the then current state or federal banking laws, rules or regulations. The monthly deposits shall be used as a fund to be applied, to the extent thereof, to the payment of Taxes and Insurance Premiums, as the same become due and payable. The existence of said fund shall not limit or alter Tenant's obligation to pay the Taxes and Insurance Premiums for which the fund was created. Tenant shall not be entitled to interest on said fund. Tenant shall pay Landlord as its monthly deposit for the period commencing on the Commencement Date and terminating on the December 31st immediately thereafter the Initial Deposit. On or prior to each December 31st occurring within the Term, Landlord shall advise Tenant as to Landlord's estimate of the monthly deposits that will be required for the next Lease Year (as hereinafter defined). SECTION 6.5. ADJUSTMENT STATEMENT. As soon as reasonably feasible after the expiration of each calendar year contained within the Term ("Lease Year"), Landlord will furnish Tenant a statement ("Adjustment Statement") showing the following: (i) Actual Insurance Premiums for the Lease Year last ended and the amount of Insurance Premiums payable by Tenant for such Lease Year; (ii) The amount of Additional Rent due Landlord for the Lease Year last ended, less credits for monthly deposits paid, if any; and (iii) The monthly deposits due in the current Lease Year. SECTION 6.6. PAYMENTS. Within thirty (30) days after Tenant's receipt of each Adjustment Statement, Tenant shall pay to Landlord: (i) The amount of Additional Rent shown on said Adjustment Statement to be due Landlord for the Lease Year last ended; plus (ii) The amount, which when added to the monthly deposits theretofore paid in the current Lease. Year would provide that Landlord has then received such portion of the monthly deposits as would have theretofore been paid to Landlord had Tenant paid one twelfth (1/12) of the monthly deposits, for the current Lease Year, to Landlord monthly on the first day of each month of such Lease Year. During the last Lease Year, Landlord may include in the monthly deposits its estimate of the Additional Rent which may not be finally determined until after the expiration of the Term. Tenant's obligation to pay such Additional Rent shall survive the Term. SECTION 6.7. PAYMENT ADJUSTMENTS. Tenant's payment of the monthly deposits for each Lease Year shall be credited against the Additional Rent for such Lease Year. If the monthly deposits paid by Tenant for any Lease Year exceed the Additional Rent due for such Lease Year, then Landlord shall give a credit to Tenant in an amount equal to such excess against the Additional Rent due for the next succeeding Lease Year, except that if any such excess relates to the last Lease Year of the Term, then, provided that no default of Tenant exists hereunder, Landlord shall promptly refund such excess to Tenant. In the event that Landlord fails to refund such excess to Tenant within forty-five (45) days after due to be refunded to Tenant under the Lease such excess shall bear interest thereafter at the Lease Interest Rate until refunded. SECTION 6.8. RIGHT TO PAY. Landlord shall, at its option, have the right, without notice to Tenant, at all times during the Term to pay any such Taxes not timely paid by Tenant, and the amounts so paid, including reasonable expenses, shall be so much Additional Rent due at the next rent day after any such payments, with interest at the Lease Interest Rate from the date of payment thereof. SECTION 6.9. LANDLORD'S CONTEST OF TAXES. To the extent Landlord desires, in Landlord's reasonable business judgment, to contest the imposition of any Taxes against the Land and Improvements, Landlord shall proceed with such protest in accordance with applicable law. Tenant agrees Taxes shall include all of Landlord's reasonable costs and expenses, including legal fees and court costs, in pursuing any such contest whether or not Landlord is successful in such contest. There shall be deducted from Taxes the amount of any Taxes refunded in any Lease Year, provided said refund relates to an assessment year included within the Term of the Lease. ARTICLE VII USE SECTION 7.1. USE. The Premises shall be used for the Use only, and for no other purpose. SECTION 7.2. PROHIBITED USES. Tenant shall not permit the Premises, or any portion thereof, to be used in such manner which impairs Landlord's right, title or interest in the Premises or any portion thereof, or in such manner which gives rise to a claim or claims of adverse possession or of a dedication of the Premises, or any portion thereof, for public use. Tenant shall not use or occupy the Premises or permit the Premises to be used or occupied contrary to any statute, rule, order, ordinance, requirement, regulation or restrictive covenant applicable thereto or in any manner which would violate any certificate of occupancy affecting the same or which would render the insurance thereon void or the insurance risk more hazardous, or which would cause structural injury to the Improvements or cause the value or usefulness of the Premises or any part thereof to diminish or which would constitute a public or private nuisance or waste, and Tenant agrees that it will, promptly upon discovery of any such use, immediately notify Landlord and take all necessary steps to compel the discontinuance of such use. ARTICLE VIII MAINTENANCE, REPAIR AND REPLACEMENTS OF PREMISES SECTION 8.1. TENANT'S OBLIGATIONS. Tenant agrees, at Tenant's sole cost and expense, to take good care of the Premises, including the Improvements, but excluding the structural components (as defined in Section 8.3 below) of the Building and keep same and all parts thereof, including without limitation, the entire exterior and interior, parking areas, sidewalks, railroad tracks (if any), water, sewer, gas and electricity connections, pipes, mains and all other fixtures, machinery, apparatus, equipment, overhead cranes (if any), and appurtenances thereto together with any and all alterations and additions thereto, in good order, condition and repair, suffering no waste or injury. Tenant shall, at its sole cost and expense, promptly make all necessary repairs and replacements, structural or otherwise, ordinary as well as extraordinary, foreseen as well as unforeseen, in and to any Improvements or equipment now or hereafter located upon the Land, including, without limitation, the entire interior and exterior of the Improvements, but excluding the Structural Components, sidewalks, parking areas, railroad tracks (if any), water, sewer, gas and electricity connections, pipes, mains and all other fixtures, machinery, apparatus, equipment and appurtenances now or hereafter belonging to, connected with or used in conjunction with the Premises. All such repairs and replacements shall be of first-class quality and sufficient for the proper maintenance and operation of the Premises. Tenant shall keep and maintain the Premises, including the Improvements and all sidewalks, vault space, parking areas and areas adjacent thereto, safe, secure and clean, specifically including, but not by way of limitation, snow and ice clearance, landscaping and removal of waste and refuse matter. Tenant shall not permit anything to be done upon the Premises (and shall perform all maintenance and repairs thereto so as not) to invalidate, in whole or in part, or prevent the procurement of any insurance policies which may, at any time, be required under the provisions of this Lease. Tenant shall not obstruct or permit the obstruction of any parking area, adjoining street or sidewalk. SECTION 8.2. GOVERNMENTAL REQUIREMENTS. Tenant, at its own cost and expense, shall promptly comply with any and all governmental requirement to or affecting the Premises or any part thereof, irrespective of the nature of the work required to be done, extraordinary as well as ordinary, whether or not the same involve or require any structural changes or additions in or to the Improvements and irrespective of whether or not such changes or additions be required on account of any particular use to which the Premises or any part thereof are being put. Included in the obligations set forth above, but not in limitation thereof, Tenant, at its own cost and expense shall promptly comply with OSHA regulations relating to overhead cranes, CFR 1910-179(j)(2) and 184(d), CFR 1910-179(j)(3), CFR 1910-179(e)(1) through (4) and CFR 1910-179(b)(5). Landlord represents that as of the date hereof, to the actual knowledge of Nick Sisto, the Property Manager, Landlord has not received any notices from any governmental authority regarding the non-compliance of the Premises with any applicable law. Notwithstanding the foregoing, Landlord agrees that, at anytime during the Term, in the event Tenant or Landlord is notified by any governmental authority that there is a code violation at the Premises, and such code violation existed at the time this Lease was executed, then Landlord agrees, at its sole cost and expense, to promptly correct said code violation. Tenant's obligations as noted above shall survive the termination of the Lease. SECTION 8.3. STRUCTURAL COMPONENTS. Landlord shall make, or cause to be made, all repairs and necessary replacements to the "structural components" (as hereinafter defined) of the Premises. For purposes of this Lease, the phrase "structural components" shall mean the exterior roof, exterior face of the exterior walls (excluding windows, window frames, doors and door frames) and foundation of the Premises. The cost of repairs and replacements to such structural components shall be the sole responsibility of Landlord except to the extent such costs arise as a result of any act or omission of Tenant or any person, firm or entity claiming by, through or under any of them, in which event, the cost therefor shall be paid by Tenant, as Additional Rent, within five (5) days after Landlord bills Tenant therefor from time to time. SECTION 8.4. TENANT'S RESPONSIBILITIES. Except as provided in Section 8.6 below, and periodic inspections and necessary repair and replacement of the Structural Components, Landlord shall not be required to furnish any services or facilities whatsoever to the Premises. Tenant hereby assumes full and sole responsibility for condition, operation, repair, alteration, improvement, replacement, maintenance and management of the Premises. Landlord shall not be responsible for any loss or damage to the person or property of Tenant, any guests or invitees, any persons using or working on the Premises, or any persons claiming by, through or under, or any agents, employees, heirs, legal representatives, successors or assigns of, any of the foregoing. SECTION 8.5. MAINTENANCE CONTRACT. At Landlord's reasonable option, Tenant shall enter into a maintenance contract, in form and substance and with a firm reasonably satisfactory to Landlord, for the maintenance of the HVAC system only. SECTION 8.6. WARRANTY OF SYSTEMS. Notwithstanding the foregoing, Landlord shall provide a one (1) year service warranty on all parts and labor for the HVAC, fire sprinkler, plumbing and electric systems, the lift and the parking lot improvements to the extent required due to normal wear and tear. During the first year of the Lease only, Tenant shall only be responsible for repairing and replacing belts and filters for the HVAC system, and for performing quarterly inspections of the HVAC system. ARTICLE IX TENANT'S INSURANCE SECTION 9.1. COVERAGE REQUIRED. Tenant shall procure and maintain, or cause to be maintained, at all times during the term of this Lease, at Tenant's sole cost and expense, and until each and every obligation of Tenant contained in the Lease has been fully performed, the types of insurance specified below, with insurance companies authorized to do business in the State of Illinois covering all operations under this Lease, whether performed by Tenant or by Contractors. For purposes of this Article IX, "Contractors" shall mean Tenant and contractors and subcontractors and materialmen or any tier providing services, material, labor, operation or maintenance on, about or adjacent to the Premises, whether or not in privity with Tenant. (a) IN GENERAL. Within 21 days of execution of the Lease, Tenant shall procure and maintain the following kinds and amounts of insurance: (LF) (i) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE INSURANCE. Worker's Compensation and Occupational Disease Insurance, in statutory amounts, covering all employees who provide a service under this Lease. Employer's liability coverage with limits of not less than $100,000 each accident or illness shall be included. (ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY AND UMBRELLA). Commercial Liability Insurance or equivalent with limits of not less than $5,000,000 per occurrence, combined single limit, for bodily injury, personal injury, and property damage liability. Products/completed operation, independent contractors, broad form property damage and contractual liability (with no limitation) coverages are to be included. Landlord is to be named as an additional insured, on a primary, non-contributory basis for any liability, arising directly or indirectly from this Lease. (iii) AUTOMOBILE LIABILITY INSURANCE. When any motor vehicles are used in connection with this Lease, Tenant shall provide Automobile Liability Insurance with limits of not less than $2,000,000 per occurrence combined single limit, for bodily and property damage. Landlord is to be named as an additional insured on a primary non-contributory basis. (iv) CONTENTS INSURANCE. Insurance against fire, sprinkler leakage, vandalism, and the extended coverage perils for the full insurable value of all contents of Tenant within the Premises, and of all office furniture, trade fixtures, office equipment, merchandise and all other items of Tenant's property on the Premises and business interruption insurance. (b) CONSTRUCTION. During any construction (other than with respect to the construction of the Initial Improvements by Landlord, but including improvements, betterments or repairs), Tenant shall procure and maintain, or cause to be maintained, the following kinds and amounts of insurance: (i) WORKER'S COMPENSATION AND OCCUPATIONAL DISEASE INSURANCE. Worker's Compensation and Occupational Disease Insurance, in statutory amounts, covering all employees who are to provide a service under this construction. Employer's liability coverage with limits of not less than $500,000 for each accident or illness shall be included. (ii) COMMERCIAL LIABILITY INSURANCE (PRIMARY AND UMBRELLA). Commercial Liability Insurance or equivalent with limits of not less than $5,000,000 per occurrence, combined single limit, for bodily injury, personal injury, and property liability. Products/completed operations, explosion, collapse, underground, independent contractors, broad form property damage and contractual liability coverages are to be included. Landlord is to be named as additional insureds on a primary noncontributory basis for any liability arising directly or indirectly from the Lease. (iii) AUTOMOBILE LIABILITY INSURANCE (PRIMARY AND UMBRELLA). When any motor vehicles are used in connection with work to be performed, Tenant or contractor shall provide Automobile Liability Insurance with limits of not less than $5,000,000 per occurrence combined single limit, for bodily injury and property damage. Landlord is to be named as an additional insured on a primary non-contributory basis. (iv) ALL RISK BUILDERS RISK INSURANCE. Tenant or Contractor shall provide All Risk Blanket Builder's Risk Insurance to cover the materials, supplies, equipment, machinery and fixtures that are or will be part of the Project. Coverage extensions shall include the following: right to partial occupancy, material stored off-site and in-transit, boiler and machinery, earthquake, flood (including surface water backup), collapse, water damage, debris removal, faulty workmanship or materials, testing, mechanical-electrical breakdown and failure, deletion of freezing and temperature exclusions, business interruption, extra expense, loss of revenue, loss of rents and loss of use of property, as applicable, Landlord shall be named as loss payee. (v) PROFESSIONAL LIABILITY. When any architects, engineers, or consulting firms perform work in connection with this Lease, Professional Liability Insurance shall be maintained with limits of $1,000,000. The policy shall have an extended reporting period of two (2) years. When policies are renewed or replaced, the policy retroactive date must coincide with, or precede, start of work. SECTION 9.2. POLICIES. All insurance policies shall be written with insurance companies and shall be in form satisfactory to Landlord. All insurance policies shall name Landlord as an additional insured and loss payee as their respective interests may appear and shall provide that they may not be terminated or modified without sixty (60) days' advance written notice to Landlord. The minimum limits of insurance specified in this Section shall in no way limit or diminish Tenant's liability under this Lease. Tenant shall furnish to Landlord, not less than fifteen (15) days prior to the date such insurance is first required to be carried by Tenant, and thereafter at least fifteen (15) days prior to the expiration of each such policy, true and correct photocopies of all insurance policies required under this Section, together with any amendments and endorsements to such policies, certificates of insurance, and such other evidence of coverages as Landlord may reasonably request, and evidence of payment of all premiums and other expenses owed in connection therewith. Upon Tenant's default in obtaining or delivering the policy for any such insurance or Tenant's failure to pay the charges therefor, Landlord may, at its option, on or after the tenth (10th) day after written notice thereof is given to Tenant, procure or pay the charges for any such policy or, policies and the total cost and expense, (including attorneys' fees) thereof shall be immediately paid by Tenant to Landlord as Additional Rent upon receipt of a bill therefor. Within thirty (30) days after demand by Landlord that the minimum amount of any coverage be so increased reasonably based upon industry standards of owners of similar buildings, Tenant shall furnish Landlord with evidence of Tenant's compliance with such demand. SECTION 9.3. SUBROGATION. Landlord and Tenant agree to have all fire and extended coverage and material damage insurance which may be carried by either of them endorsed with a clause providing that any release from liability of or waiver of claim for recovery from the other party or any of the parties named in Section 9.2 above entered into in writing by the insured thereunder prior to any loss or damage shall not affect the validity of said policy or the right of the insured to recover thereunder, and providing further that the insurer waives all rights of subrogation which such insurer might have against the other party or any of the parties named in Section 9.2 above. Without limiting any release or waiver of liability or recovery contained in any other Section of this Lease but rather in confirmation and furtherance thereof, Landlord and any beneficiaries of Landlord waive all claims for recovery from Tenant, and Tenant waives all claims for recovery from Landlord, any beneficiaries of Landlord and the managing agent for the Project and their respective agents, partners and employees, for any loss or damage to any of its property insured under valid and collectible insurance policies to the extent of any recovery collectible under such insurance policies. SECTION 9.4. MISCELLANEOUS INSURANCE PROVISIONS. Landlord and Tenant further agree as follows (provided, where Contractors used, Tenant will cause Contractors to comply with this Section): (a) Tenant and Contractors expressly understand and agree that any insurance coverages and limits furnished by the Tenant and Contractors shall in no way limit the Tenant's and Contractor's liabilities and responsibilities specified under the Lease, or contracts executed relating to the Project, or by law. (b) The failure of Landlord to obtain such evidence from Tenant or Contractors before permitting Tenant or Contractors to commence work shall not be deemed to be a waiver by Landlord, and Tenant or contractors shall remain under continuing obligation to maintain the insurance coverage. (c) Any and all deductibles on referenced insurance coverages shall be borne by Tenant and Contractors. (d) Tenant expressly understands and agrees that any insurance maintained by Landlord shall apply in excess of and not contribute with insurance provided by the Tenant or Contractor under the Lease. (e) If Tenant or any Contractors desire additional coverage, higher limits of liability, or other modifications for their own protection, Tenant and such Contractors shall be responsible for the acquisition and cost of such additional protection. (f) Tenant agrees, and shall cause each Contractor in connection with the Project to agree, that all insurers shall waive their rights of subrogation against Landlord. (g) Tenant and Contractors shall not violate or permit to be violated any of the conditions or provisions of any of the insurance policies, and Tenant and Contractors shall so perform and satisfy or cause to be performed and satisfied the requirements of the companies writing such policies so that at all times companies of good standing, satisfactory to Landlord shall be willing to write and continue such insurance. (h) Landlord shall not be limited in the proof of any damages which Landlord may claim against Tenant and Contractors arising out of or by reason of Tenant's and Contractor's failure to provide and keep in force insurance, as aforesaid, to the amount of the insurance premium or premiums not paid or incurred by Tenant and Contractors and which would have been payable under such insurance, but Landlord shall also be entitled to recover as damages for such breach the uninsured amount of any loss, to the extent of any deficiency, in the insurance required by the provisions of this Lease, and damages, costs and expenses of suit suffered or incurred by reason of damage to, or destruction of, the Project or the Premises occurring during any period when Tenant or Contractors shall have failed or neglected to provide insurance as aforesaid. (i) The insurance required by this Lease, at the option of Tenant or Contractors, may be effected by blanket or umbrella policies issued to Tenant or Contractors covering the Premises and other properties owned or leased by Tenant or Contractors, provided that the policies otherwise comply with the provisions of this Lease and allocate to the Premises the specified coverage, without possibility of reduction or coinsurance by reason of, or damage to, any other premises covered therein. (j) All insurance companies shall have a Best rating of not less than A/VII, or an equivalent rating in the event Best ceases to exist or provide a rating. (k) Tenant and Contractors shall provide and keep in force such other insurance in such amounts as may from time to time be reasonably required by Landlord or a holder of a Mortgage (defined in Section 23.1 hereof) against such other insurable hazards as at the time are commonly insured against in the case of prudent owners of properties similar to the Project and the Premises, and in that connection Landlord may require changes in the forms, types and amounts of insurance required pursuant to this Section or add to, modify or delete other requirements; and in any event, if under applicable law, rule, regulation or ordinance of any governmental authority, state or federal, having jurisdiction in the Premises, liability may be imposed upon Landlord on account of the use or operation of the Premises or the Project or other improvements, insurance within limits reasonably satisfactory to Landlord shall be maintained by Tenant and Contractors against any such liability. (l) The required insurance to be carried shall not be limited by any limitations expressed in the indemnification language herein or any limitation placed on the indemnity therein given as a matter of law. ARTICLE X PROPERTY INSURANCE SECTION 10.1. KINDS AND AMOUNTS. Landlord shall at all times during the Term of this Lease keep in effect insurance on all Improvements against loss by fire and lightning, the risks covered by what is commonly known as extended coverage, malicious mischief and vandalism, and all other risks of direct physical loss in an amount equal to the full replacement value on the replacement form basis, of such Improvements. The policy or policies evidencing such insurance shall be written by a company or companies reasonably satisfactory to Landlord and to Landlord's mortgagee, if any, and authorized to do business in the state where the Premises are located, shall name Landlord as insured thereunder, and shall provide that losses shall be paid to Landlord or its mortgagee, if applicable. At the request of Landlord, a mortgage clause may be included in said policies covering Landlord's mortgagee, if any. Tenant further agrees that if and when obtainable, Landlord will procure and maintain so-called war risk and war damage insurance, earthquake and flood insurance on the Improvements for not less than one hundred percent (100%) of the full insurance value above foundation. Such insurance shall provide for payment of loss thereunder to Landlord and shall, at Landlord's request, contain a mortgage clause in favor of Landlord's mortgagee, if any. Landlord shall also obtain (i) boiler and machinery insurance in an amount equal to the full replacement value of the Improvements, (ii) insurance against loss of Rents due to the occurrence of any casualty or hazard in the amount of all Base Rent payments, taxes, assessments and insurance premiums required hereunder for a twelve (12)-month period, (iii) liability insurance, (iv) insurance against breakage of all plate glass in the Improvements and (v) such other insurance reasonably required by Landlord, all in amounts and under terms customarily carried by Landlord for similar buildings owned by it. SECTION 10.2. INTENTIONALLY DELETED. SECTION 10.3. TENANT PAYMENTS. All such insurance described in this Article X shall be kept in full force throughout the Term of this Lease, and any amounts paid therefor by Landlord (hereinafter referred to as, the "Insurance Premiums") shall be payable by Tenant as Additional Rent in accordance with Sections 6.4. and 6.6. hereof. ARTICLE XI DAMAGE OR DESTRUCTION SECTION 11.1. DAMAGE OR DESTRUCTION BY FIRE OR CASUALTY. In the event the Premises are damaged by fire, explosion or other casualty, Landlord shall diligently proceed with respect to the proposed restoration promptly after receipt of the insurance proceeds. Landlord shall commence the repair, restoration or rebuilding thereof and shall complete such restoration, repair or rebuilding within nine (9) months after the receipt of such proceeds, subject to extension due to delay because of changes, deletions, or additions in construction requested by Tenant, acts of Tenant, strikes, lockouts, casualties, acts of God, war, fuel or energy shortages, material or labor shortages, governmental regulation or control, severe weather conditions or other causes beyond the control of Landlord ("Extension Events"). In the event of any such casualty all insurance proceeds shall be payable to Landlord. In no event shall Landlord be required to repair or replace any alterations or improvements made by Tenant which are not related to the Improvements, Tenant's Equipment or any other fixtures, furnishing and personal property of Tenant. Tenant agrees that Tenant shall deposit with Landlord prior to the commencement of such restoration any sums in the amount of the deductible amounts carried by Landlord under its insurance policies (currently, the amount of such deductible is $5,000.00, but it is subject to change during the Term provided the amount of the deductible that Tenant is obligated to pay to Landlord shall not exceed $10,000.00 during the Term). Landlord's obligation to repair, restore or rebuild the Premises shall be limited to restoring the Premises to substantially the condition in which the same existed prior to the casualty. Rent and all other charges payable by Tenant hereunder shall abate during the period of such repair, restoration or rebuilding to the extent that the Improvements are not tenantable because of any damage or destruction. In the event the casualty causes fifty percent (50%) or more of the Premises to be untenantable during the last twenty-four (24) months of the Term, Landlord may terminate this Lease as of the date of such casualty by providing notice to Tenant within thirty (30) days after occurrence of the fire or other casualty causing the damage, in which event, all insurance proceeds shall be paid to the Landlord and in addition Tenant shall pay to Landlord the amount of any deductible carried by Tenant under its insurance policies. ARTICLE XII LIENS SECTION 12.1. LIEN CLAIMS. Tenant shall not do any act which shall in any way encumber the title of Landlord in and to the Premises, nor shall any interest or estate of Landlord in the Premises be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Tenant, and any claim to or lien upon the Premises arising from any act or omission of Tenant shall accrue only against the leasehold estate of Tenant and shall in all respects be subject and subordinate to the paramount title and rights of Landlord in and to the Premises. Tenant will not permit the Premises to become subject to any mechanics', laborers' or materialmen's lien on account of labor or material furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed on the Premises by or at the direction of sufferance of Tenant; provided, however that Tenant shall have the right to contest in good faith and with reasonable diligence, the validity of any such lien or claimed lien if Tenant shall first give to Landlord an amount equal to one hundred twenty percent (120%) of the amount of the lien or claimed lien which, together with interest earned thereon, shall be held by Landlord as security to insure payment thereof and to prevent any sale, foreclosure or forfeiture of the Premises by reason of non-payment thereof. The amount so deposited with Landlord shall be held by Landlord in an account established at a federally insured banking institution until satisfactory removal of said lien or claim of lien. Any funds provided by Tenant for security against said liens, will be held in an interest-bearing account with interest to the benefit of Tenant. On any final determination of the lien or claim for lien, Tenant will immediately pay any judgment rendered, with all proper costs and charges, and will, at its own expense, have the lien released and any judgment satisfied. Should Tenant fail to diligently contest and pursue such lien contest, Landlord may, at its option, use the sums so deposited to discharge any such lien and upon the satisfaction of such lien or encumbrance Landlord shall pay all such sums remaining on deposit to Tenant. SECTION 12.2. LANDLORD'S RIGHT TO CURE. If Tenant shall fail to contest the validity of any lien or claimed lien or fail to give security to Landlord to insure payment thereof, or shall fail to prosecute such contest with diligence, or shall fail to have the same released and satisfy any judgment rendered thereon, then Landlord may, at its election (but shall not be so required) remove or discharge such lien or claim for lien (with the right, in its discretion, to settle or compromise the same), and any amounts advanced by Landlord, including reasonable attorneys' fees, for such purposes shall be so much additional rent due from Tenant to Landlord at the next rent date after any such payment, with interest thereon at the Lease Interest Rate from the date so advanced. ARTICLE XIII ALTERATIONS AND IMPROVEMENTS SECTION 13.1. ALTERATIONS. Tenant shall not at any time during the Term of this Lease make any openings in the roof or exterior walls of the Building or make any Tenant alteration, addition or improvement to the Premises or any portion thereof (collectively, "Alterations") without in each instance, the prior written consent of Landlord; provided, however, upon notice to, but without the consent of Landlord, Tenant shall have the right to make any Alterations where same are non-structural, do not require openings on the roof or exterior walls of the Improvements, do not affect any Building system, and do not exceed TEN THOUSAND AND NO/100 DOLLARS ($10,000.00) in the aggregate in any twelve (12)-month period. No Alteration to the Premises for which Landlord's consent is required shall be commenced by Tenant until Tenant has furnished Landlord with a satisfactory certificate or certificates from an insurance company acceptable to Landlord, evidencing workmen's compensation coverage, and insurance coverage in amounts satisfactory to Landlord and protecting Landlord against public liability and property damage to any person or property, on or off the Premises, arising out of and during the making of such alterations, additions or improvements. Any Alteration by Tenant hereunder shall be done in a good and workmanlike manner in compliance with any applicable governmental law, statute, ordinance or regulation. Upon completion of any Alteration by Tenant hereunder, Tenant shall furnish Landlord with a copy of the "as built" plans covering such construction. Tenant, at its sole cost and expense, will make all Alterations on the Premises which may be necessary by the act or neglect of any other person or corporation (public or private), except Landlord, its agents, employees or contractors. Before commencing any Alterations, involving an estimated cost of more than TEN THOUSAND AND NO/100 DOLLARS ($10,000.00): (a) plans and specifications therefor, prepared by a licensed architect, shall be submitted to and approved by Landlord (such approval shall not be unreasonably withheld or delayed); (b) Tenant shall furnish to Landlord an estimate of the cost of the proposed work, certified by the architect who prepared such plans and specifications; (c) all contracts for any proposed work shall be submitted to and approved by Landlord; and (d) Tenant shall either furnish to Landlord a bond in form and substance satisfactory to Landlord, or such other security reasonably satisfactory to Landlord to insure payment for the completion of all work free and clear of liens. Tenant further agrees that all contractors engaging in any construction activity by and for the benefit of Tenant for which Landlord's consent shall be required shall obtain comprehensive/commercial general liability, worker's compensation and such other liability insurance in such amounts as may be reasonably required by Landlord naming the Landlord as an additional insured and providing liability coverage during all phases of construction including, without limitation: (a) contractor's and owners protection; (b) blanket contractual liability coverage; (c) broad form property damage insurance; (d) statutory worker's compensation coverage and employer's liability coverage; (e) coverage under the structural work act of the State of Illinois; and (f) environmental liability, if applicable. Before commencing any Alteration, Tenant shall provide Landlord with a written certification that the Alteration does not have any environmental impact on the Premises. Prior to the commencement of any construction activity for which Landlord's consent shall be required, certificates of such insurance coverages (and original policies with respect to environmental liability insurance) shall be provided to Landlord. SECTION 13.2. OWNERSHIP OF ALTERATIONS. All Alterations (except Tenant's Equipment, as defined in Section 21.2 hereof), put in at the expense of Tenant shall become the property of Landlord and shall, unless the Landlord request their removal, remain upon and be surrendered with the Premises as a part thereof at the termination of this Lease, without compensation or allowance to Tenant. Landlord may, at its sole option, request that Tenant, at Tenant's sole cost, remove any such Alterations and if Tenant shall fail to do so, Landlord may remove the same and Tenant shall pay the cost of such removal to Landlord upon demand. Notwithstanding the foregoing, upon Tenant's request prior to such time as Tenant intends to make any Alteration, Landlord shall indicate to Tenant whether or not such Alterations must be removed upon surrender of the Premises. SECTION 13.3. SIGNS. Tenant shall not place any signs on any part of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld, and without the approval of the Village of Mundelein, provided that: (i) the installation and dimensions of said signage is in strict accordance with applicable law, ordinances and restrictions; (ii) Tenant continually maintains said signage in a first-class manner; and (iii) Tenant, at Tenant's sole cost and expense, removes said signage at the expiration of the Term and restores the areas in which said signage is placed to its condition prior to the installation of said signage. SECTION 13.4. TENANT INDEMNITY. Tenant hereby agrees to indemnify, defend and hold the Landlord, its beneficiaries, shareholders, partners or members and their respective agents and employees harmless from any and all liabilities of every kind and description which may arise out of or be connected in any way with said Alterations. Subject to the provisions of Article XII, any mechanic's lien filed against the Premises for work claimed to have been furnished to Tenant shall be discharged of record by Tenant within ten (10) days thereafter, at Tenant's expense. Upon completing any Alterations, Tenant shall furnish Landlord with contractors' affidavits and full and final waivers of lien and receipted bills covering all labor and materials expended and used. All Alterations shall comply with all insurance requirements and with all ordinances and regulations of any pertinent governmental authority. All alterations and additions shall be constructed in a good and workmanlike manner and only good grades of materials shall be used. SECTION 13.5. ENVIRONMENTAL IMPACT. Notwithstanding any other term, covenant or condition contained in this Lease, in the event that any Alteration has any environmental impact on the Premises, Landlord may deny the Tenant the right to proceed in Landlord's sole and absolute discretion. ARTICLE XIV CONDEMNATION SECTION 14.1. TAKING: LEASE TO TERMINATE. In the event the whole of the Premises shall be taken as a result of the exercise of the power of eminent domain or condemned for a public or quasi-public use or purpose by any competent authority or sold to the condemning authority under threat of condemnation, or in the event a portion of the Premises shall be taken or sold as a result of such event, and as a result thereof the balance of the Premises cannot be used for the same purpose as before such taking, sale or condemnation, then and in either of such events, the Term of this Lease shall terminate as of the date of vesting of title pursuant to such proceeding or sale. The total award, compensation or damages received from such proceeding or sale (collectively, the "Award"), shall be paid to and be the property of Landlord, whether the Award shall be made as compensation for diminution of the value of the leasehold or the fee of the Premises or otherwise, and Tenant hereby assigns to Landlord, all of Tenant's right, title and interest in and to the Award. Tenant shall execute, immediately upon demand of Landlord, such documents as may be necessary to facilitate collection by Landlord of any such Award. SECTION 14.2. TAKING: LEASE TO CONTINUE. In the event that less than twenty-five percent (25%) of the usable square footage of the building located on the Premises shall be taken as a result of the exercise of the power of eminent domain or condemned for a public or quasi-public use or purpose by any competent authority or sold to the condemning authority under threat of condemnation, and as a result thereof the balance of the Premises can be used for the same purpose as before such taking, sale or condemnation, this Lease shall not terminate and Landlord, at its sole cost and expense, shall, to the extent practical, promptly repair and restore the Premises, subject to any Extension Events. Any Award paid as a consequence of such taking, sale, or condemnation, shall be paid to Landlord. Any sums not so disbursed shall be retained by Landlord. In the event of a taking of land only, this Lease shall not terminate and Landlord shall not be obligated to repair or restore the Premises. In the event that more than twenty-five (25%) percent of the usable square footage of the building located on the Premises shall be taken as a result of the exercise of the power of eminent domain or condemned for a public or quasi-public use or purpose by any competent authority or sold to the condemning authority under threat of condemnation, then Tenant shall have the right to terminate this Lease. Tenant's right to terminate shall be exercised by written notice to Landlord given not less than ten (10) days after Landlord shall have given Tenant written notice of the actual occurrence of an event giving rise to Tenant's right to terminate the Lease under this Section 14.2 and the effective date of such Lease termination shall be the date upon which the transferee of the condemned portion of said building has the right to possession thereof. SECTION 14.3. TENANT'S CLAIM. To the extent permitted by law and subject to the rights of any lender with respect to the Premises, Tenant shall be allowed to pursue a claim against the condemning authority (hereinafter referred to as the "Tenant's Claim") that shall be independent of and wholly separate from any action, suit or proceeding relating to any award to Landlord for reimbursement of relocation expenses or for Tenant's Equipment and personal property, provided: (i) Tenant's Claim shall in no way limit, affect, alter or diminish in any kind or way whatsoever Landlord's award as a result of such taking, sale or condemnation; (ii) Tenant's Claim shall in no event include any claim for any interest in real property, it being expressly understood and agreed that all sums paid with respect to the real property interests taken, sold or condemned shall be the sole property of Landlord; and (iii) Tenant's Claim shall in no event be joined with Landlord's proceeding or argued or heard concurrently therewith and if the tribunal hearing Tenant's Claim orders such joinder, Tenant agrees to voluntarily dismiss Tenant's Claim without prejudice until such time as Landlord has received its award for such taking, sale or condemnation. ARTICLE XV RENT ABSOLUTE SECTION 15.1. RENT ABSOLUTE. This Lease shall be deemed and construed to be a "net lease" and Tenant agrees to pay all costs and expenses of every kind and nature whatsoever, ordinary and extraordinary, arising out of or in connection with the ownership, maintenance, repair, replacement, use and occupancy of the Premises during the Term of this Lease (except for Landlord's obligations under Section 8.3 herein) which, except for the execution and delivery hereof, would otherwise have been payable by Landlord. ARTICLE XVI ASSIGNMENT -- SUBLETTING BY TENANT SECTION 16.1. NO ASSIGNMENT, SUBLETTING OR OTHER TRANSFER. Tenant shall not assign this Lease or any interest hereunder, nor shall Tenant sublet or permit the use or occupancy of the Premises or any part thereof by anyone other than Tenant, without the express prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. No assignment or subletting shall relieve Tenant of its obligations hereunder, and Tenant shall continue to be liable as a principal and not as a guarantor or surety, to the same extent as though no assignment or sublease had been made, unless specifically provided to the contrary in Landlord's consent. Consent by Landlord pursuant to this Article shall not be deemed, construed or held to be consent to any additional assignment or subletting, but each successive act shall require similar consent of Landlord. Landlord shall be reimbursed by Tenant for any reasonable costs or expenses incurred pursuant to any request by Tenant for consent to any such assignment or subletting. In the consideration of the granting or denying of consent, Landlord may, at its option, take into consideration: (i) the business reputation and credit worthiness of the proposed subtenant or assignee; (ii) any required alteration of the Premises; (iii) the intended use of the Premises by the proposed subtenant or assignee; and (iv) any other factors which Landlord shall deem relevant. SECTION 16.2. OPERATION OF LAW. Tenant shall not allow or permit any transfer of this Lease, or any interest hereunder, by operation of law, or convey, mortgage, pledge or encumber this Lease or any interest hereunder. SECTION 16.3. EXCESS RENTAL. If Tenant shall, with Landlord's prior consent as herein required, sublet the Premises, an amount equal to one hundred percent (100%) of the rental in excess of the base rent and any additional rent herein provided to be paid shall be for benefit of Landlord and shall be paid to Landlord promptly when due under any such subletting as additional rent due hereunder. SECTION 16.4. MERGER OR CONSOLIDATION. If Tenant is a corporation whose stock is not publicly traded, any transaction or series of transactions (including, without limitation, any dissolution, merger, consolidation or other reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of any capital stock of Tenant, whether voluntary, involuntary or by operation of law, or any combination of any of the foregoing transactions) resulting in the transfer of control of Tenant, other than by reason of death, shall be deemed to be a voluntary assignment of this Lease by Tenant subject to the provisions of this Section 16. If Tenant is a partnership, any transaction or series of transactions (including without limitation any withdrawal or admittance of a partner or a change in any partner's interest in Tenant, whether voluntary, involuntary or by operation of law, or any combination of any of the foregoing transactions) resulting in the transfer of control of Tenant, other than by reason of death, shall be deemed to be a voluntary assignment of this Lease by Tenant subject to the provisions of this assignment of this Lease by Tenant subject to the provisions of this Section 16. If Tenant is a corporation, a change or series of changes in ownership of stock which would result in direct or indirect change in ownership by the stockholders or an affiliated group of stockholders of less than fifty percent (50%) of the outstanding stock as of the date of the execution and delivery of this Lease shall not be considered a change of control. Notwithstanding the immediately foregoing, Tenant may, upon notice to, but without Landlord's consent, assign this Lease to any corporation resulting from a merger or consolidation of Tenant, provided that the total assets and the total net worth of such assignee after such consolidation or merger shall be in excess of the greater of (i) the net worth of Tenant immediately prior to such consolidation or merger, or (ii) the net worth of Tenant as of the date hereof, determined by generally accepted accounting principles and provided that Tenant is not at such time in default hereunder, and provided further that such successor shall execute an instrument in writing, acceptable to Landlord in its reasonable discretion, fully assuming all of the obligations and liabilities imposed upon Tenant hereunder and deliver the same to Landlord. Tenant shall provide in its notice to Landlord such information as may be reasonably required by Landlord to determine that the requirements of this Section 16.4 have been satisfied. As used in this Section 16.4, the term "control" means possession of the power to vote not less than a majority interest of any class of voting securities and partnership or limited liability company interests or to direct or cause the direction (directly or indirectly) off the management or policies of a corporation, or partnership or limited liability company through the ownership of voting securities, partnership interests or limited liability company interests, respectively. SECTION 16.5. UNPERMITTED TRANSACTION. Any assignment, subletting, use, occupancy, transfer or encumbrance of this Lease or the Premises without Landlord's prior written consent shall be of no effect and shall, at the option of Landlord, constitute a default under this Lease. ARTICLE XVII ANNUAL STATEMENTS SECTION 17.1. ANNUAL STATEMENTS. Only in the events that Landlord is seeking financing for the Premises or Landlord is seeking to sell the Premises, or in the event Tenant is in default under the terms hereunder, Tenant agrees to furnish Landlord within fifteen (15) days after request, a copy of its most recent annual statements prepared in accordance with generally accepted accounting principles together with applicable footnotes and any other financial information reasonably requested by Landlord (hereinafter collectively referred to as, the "Financial Information") and agrees that Landlord may deliver such Financial Information to any mortgagee, prospective mortgagee or prospective purchaser of the Premises, provided, however, that only with respect to a prospective purchaser of the Premises, Landlord must obtain a confidentiality agreement in the same term as the Confidentiality Agreement dated July 27, 1999 by and between Landlord and Tenant ("Confidentiality Agreement") from such prospective purchaser regarding the Financial Information before delivering such Financial Information. Except for the deliveries allowed above or pursuant to any court order, Landlord agrees to keep such Financial Information confidential pursuant to the terms of the Confidentiality Agreement ARTICLE XVIII INDEMNITY FOR LITIGATION SECTION 18.1. INDEMNITY FOR LITIGATION. Tenant agrees to pay, and to indemnify and defend Landlord against, all costs and expenses (including reasonable attorneys' fees) incurred by or imposed upon Landlord by or in connection with any litigation to which Landlord becomes or is made a party without fault on its part, whether commenced by or against Tenant, or any other person or entity or that may be incurred by Landlord in enforcing any of the covenants and agreements of this Lease with or without the institution of any action or proceeding relating to the Premises or this Lease, or in obtaining possession of the Premises after an Event of Default hereunder or upon expiration or earlier termination of this Lease. The foregoing notwithstanding, Tenant's responsibility under this Section 18.1 to pay Landlord's costs and expenses (including reasonable attorneys' fees) shall not extend to such costs and expenses incurred in defending an action brought by Tenant to enforce the terms of this Lease in which there is a court determination that Landlord failed to perform its obligations under this Lease. The provisions of this Section 18.1 shall survive the expiration or earlier termination of this Lease. SECTION 18.2. LANDLORD'S INDEMNITY. Landlord agrees to pay, and to indemnify and defend Tenant against all costs and expenses (including reasonable attorney's fees) incurred by or imposed upon Tenant by or in connection with any litigation by Tenant to enforce Landlord's obligations under this Lease in which Tenant is the prevailing party. ARTICLE XIX ESTOPPEL CERTIFICATES SECTION 19.1. ESTOPPEL CERTIFICATE. Tenant agrees that on the Commencement Date and at any time and from time to time thereafter, upon not less than ten (10) days' prior written request by Landlord, it will execute, acknowledge and deliver to Landlord, or Landlord's mortgagee to the extent factually accurate, a statement in writing in the form of EXHIBIT "B" attached hereto and by this reference incorporated herein; provided, however, Tenant agrees to certify to any prospective purchaser or mortgagee any other reasonable information specifically requested by such prospective purchaser or mortgagee. ARTICLE XX INSPECTION OF PREMISES SECTION 20.1. INSPECTIONS. Tenant agrees to permit Landlord and any authorized representatives of Landlord, to enter the Premises at all reasonable times on reasonable advance notice not to unreasonably disrupt Tenant's business at the premises, except in the case of emergency, for the purpose of inspecting the same. Any such inspections shall be at Landlord's sole expense and solely for Landlord's purposes and may not be relied upon by Tenant or any other person. SECTION 20.2. SIGNS. Tenant agrees to permit Landlord and any authorized representative of Landlord to enter the Premises at all reasonable times during business hours on reasonable advance notice to exhibit the same for the purpose of sale, mortgage or lease, and during the final six (6) months of the Term hereof or any extension thereof, Landlord may display on the Premises customary "For Sale" or "For Rent" signs. ARTICLE XXI FIXTURES SECTION 21.1. BUILDING FIXTURES. All improvements and all plumbing, heating, lighting, electrical and air-conditioning fixtures and equipment, and other articles of personal property used in the operation of the Premises (as distinguished from operations incident to the business of Tenant), whether or not attached or affixed to the Premises ("Building Fixtures"), shall be and remain a part of the Premises and shall constitute the property of Landlord. SECTION 21.2. TENANT'S EQUIPMENT. All of Tenant's trade fixtures and all personal property, fixtures, apparatus, machinery and equipment now or hereafter located upon the Premises, other than Building Fixtures, as shall be and remain the personal property of Tenant, and the same are herein referred to as "Tenant's Equipment." SECTION 21.3. REMOVAL OF TENANT'S EQUIPMENT. Tenant's Equipment may be removed from time to time by Tenant; provided, however, that if such removal shall injure or damage the Premises, Tenant shall repair the damage and place the Premises in the same condition as it would have been if such Tenant's Equipment had not been installed. ARTICLE XXII DEFAULT SECTION 22.1. EVENTS OF DEFAULT. Tenant agrees that any one or more of the following events shall be considered "Events of Default" as said term is used herein: (a) If an order, judgment or decree shall be entered by any court adjudicating Tenant a bankrupt or insolvent, or approving a petition seeking reorganization of Tenant or appointing a receiver, trustee or liquidator of Tenant, or of all or a substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days; or (b) Tenant shall file an answer admitting the material allegations of a petition filed against Tenant in any bankruptcy, reorganization or insolvency proceeding or under any laws relating to the relief of debtors, readjustment or indebtedness, reorganization, arrangements, composition or extension; or (c) Tenant shall make any assignment for the benefit of creditors or shall apply for or consent to the appointment of a receiver, trustee or liquidator of Tenant, or any of the assets of Tenant; or (d) Tenant shall file a voluntary petition in bankruptcy, or shall admit in writing its inability to pay its debts as they come due, or shall file a petition or an answer seeking reorganization or arrangement with creditors or take advantage of any insolvency law; or (e) A decree or order appointing a receiver of the property of Tenant shall be made and such decree or order shall not have been vacated within sixty (60) days from the date of entry or granting thereof; or (f) Tenant shall default in making any payment of Rent or other payment required to be made by Tenant hereunder when due as herein provided, and such default continues for five (5) days after written notice from Landlord; provided, however, that if Tenant defaults more than two (2) times in any such payment in any consecutive twelve (12) month period, then no written notice of such third default or any subsequent default from Landlord shall be required; or (g) Tenant shall be in default in the performance of or compliance with any of the agreements, terms, covenants or conditions in this Lease other than those referred to in the foregoing subparagraphs (a) through (g) of this Section for a period of twenty (20) days after notice from Landlord to Tenant specifying the items in default, or in the case of a default which cannot, with due diligence, be cured within said twenty (20)-day period, Tenant fails to proceed within said twenty (20)-day period to cure the same and thereafter to prosecute the curing of such default with due diligence (it being intended in connection with a default not susceptible of being cured with due diligence within said twenty (20)-day period that the time of Tenant within which to cure the same shall be extended for such period as may be necessary to complete the same with all due diligence). Upon the occurrence of any one or more of such Events of Default, Landlord may at its election terminate this Lease or terminate Tenant's right to possession only, without terminating this Lease. Upon termination of this Lease or of Tenant's right to possession, Tenant shall immediately surrender possession and vacate the Premises, and deliver possession thereof to Landlord, and Landlord or Landlord's agents may immediately or any time thereafter without notice, re-enter the Premises and remove all persons and all or any property therefrom, either by any suitable action or proceeding at law or equity or by force or otherwise, without being liable in indictment, prosecution or damages, therefor, and repossess and enjoy the Premises, together with the right to receive all income of, and from, the Premises. Upon termination of this Lease, Landlord shall be entitled to recover as liquidated damages, because the parties hereto recognize that as of the date hereof actual damages are not ascertainable and are of imprecise calculation and not as a penalty, all Rent and other sums due and payable by Tenant through the date of termination plus (i) an amount equal to sixty percent (60%) of the Rent and other sums provided herein to be paid by Tenant for the residue of the Term, and (ii) the costs of performing any other covenants to be performed by Tenant. If Landlord elects to terminate Tenant's right to possession only, without terminating this Lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof as hereinabove provided, without such entry and possession terminating this Lease or releasing Tenant, in whole or in part, from Tenant's obligations to pay the Rent hereunder for the full Term or from any other obligations of Tenant under this Lease. Landlord shall use commercially reasonably efforts to relet all or any part of the Premises for such rent and upon terms as are commercially reasonable (including the right to relet the Premises for a term greater or lesser than that remaining of the Term of premises and the right to relet the Premises as a part of a larger area, the right to change the character or use made of the Premises and the right to grant concessions of free rent). For the purpose of such reletting, Landlord may decorate or make any repairs, changes, alterations, or additions in or to the Premises that may be necessary or desirable. If, after thirty (30) days from the occurrence of the Event of Default, Landlord is unable to relet the Premises after using such commercially reasonably efforts to do so, Landlord shall have the right to terminate this Lease, in which event, Tenant shall pay to Landlord liquidated damages (because the parties hereto recognize that as of the date hereof actual damages are not ascertainable and are of imprecise calculation and not as a penalty) equal to sixty percent (60%) of the Rent, and other sums provided herein to be paid by Tenant for the remainder of the Term. If the Premises are relet and sufficient sums shall not be realized from such reletting after payment of all expenses of such decorations, repairs, changes, alterations, additions and the expenses of repossession and such reletting, and the collection of the Rent herein provided and other payments required to be made by Tenant under the provisions of this Lease for the remainder of the Term of this Lease then, in such event, Tenant shall pay to Landlord on demand any such deficiency and Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this Section from time to time, and all costs and expenses of Landlord, including attorneys' fees, incurred in connection with any such suit shall be paid by Tenant. SECTION 22.2. WAIVERS. Tenant hereby expressly waives, so far as permitted by law, the service of any notice of intention to re-enter provided for in any statute, and except as is herein otherwise provided. Tenant for and on behalf of itself and all persons claiming through or under Tenant, also waives any and all rights of redemption or re-entry or repossession in case Tenant shall be dispossessed by a judgment or by warrant of any court or judge or in case of re-entry or repossession by Landlord or in case of any expiration or termination of this Lease.. The terms "enter," "re-enter," "entry" or "re-entry" as used in this Lease are not restricted to their technical legal meanings. SECTION 22.3. BANKRUPTCY. If Landlord shall not be permitted to terminate this Lease, as provided in this Article XXII because of the provisions of the United States Code relating to Bankruptcy, as amended (the "Bankruptcy Code"), then Tenant as a debtor-in-possession or any trustee for Tenant agrees promptly, within no more than sixty (60) days after the filing of the bankruptcy petition, to assume or reject this Lease. In such event, Tenant or any trustee for Tenant may only assume this Lease if: (a) it cures or provides adequate assurances that the trustee will promptly cure any default hereunder; (b) compensates or provides adequate assurance that Tenant will promptly compensate Landlord of any actual pecuniary loss to Landlord resulting from Tenant's default; and (c) provides adequate assurance of performance during the fully stated term hereof of all of the terms, covenants, and provisions of this Lease to be performed by Tenant. In no event after the assumption of this Lease shall any then-existing default remain uncured for a period in excess of the earlier of ten (10) days or the time period set forth herein. Adequate assurance of performance of this Lease, as set forth hereinabove, shall include, without limitation, adequate assurance: (i) of the source of rent reserved hereunder; and (ii) that the assumption of this Lease will not breach any provision hereunder. If Tenant assumes this Lease and proposes to assign the same pursuant to the provisions of the Bankruptcy Code to any person or entity who shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to Tenant, then notice of such proposed assignment, setting forth: (i) the name and address of such person; (ii) all of the terms and conditions of such offer, and (iii) the adequate assurance to be provided Landlord to assure such person's future performance under the Lease, including, without limitation, the assurance referred to in Section 365(b)(3) of the Bankruptcy Code, shall be given to Landlord by the Tenant no later than twenty (20) days after receipt by the Tenant but in any event no later than ten (10) days prior to the date that the Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into such assignment and assumption, and Landlord shall thereupon have the prior right and option, to be exercised by notice to the Tenant given at any time prior to the effective date of such proposed assignment, to accept an assignment of this Lease upon the same terms and conditions and for the same consideration, if any, as the bona fide offer made by such person, less any brokerage commissions which may be payable out of the consideration to be paid by such person for the assignment of this Lease. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code any and all monies or other considerations payable or otherwise to be delivered to Landlord, shall be and remain the exclusive property of Landlord and shall not constitute property of Tenant or of the estate of the Tenant within the meaning of the Bankruptcy Code. Any and all monies or other considerations constituting the Landlord's property under the preceding sentence not paid or delivered to the Landlord shall be held in trust for the benefit of Landlord and shall be promptly paid to the Landlord. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be conclusively deemed without further act or deed to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption. Any such assignee shall be permitted to use the Leased Premises only for the Use. Nothing contained in this Section shall, in any way, constitute a waiver of the provisions of Article XVI of this Lease relating to alienation. Tenant shall not, by virtue of this section, have any further rights relating to assignment other than those granted in the Bankruptcy Code. Notwithstanding anything in this Lease to the contrary, all amounts payable by Tenant to or on behalf of Landlord under this Lease, whether or not expressly denominated as rent, shall constitute rent for the purpose of Section 501(b)(6) or any successive section of the Bankruptcy Code. ARTICLE XXIII LANDLORD'S PERFORMANCE OF TENANT'S COVENANTS SECTION 23.1. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS. In the event Tenant shall fail to maintain any insurance required to be paid by it under the terms hereof, or in an Emergency Situation or upon occurrence of an Event of Default, Landlord may (but shall not be obligated so to do), and without waiving or releasing Tenant from any obligation of Tenant hereunder, make any payment or perform any other act which Tenant is obligated to make or perform under this Lease in such manner and to such extent as Landlord may deem desirable; and in so doing Landlord shall also have the right to enter upon the Premises for any purpose reasonably necessary in connection therewith and to pay or incur any other necessary and incidental costs and expenses, including reasonable attorneys' fees. All sums so paid and all liabilities so incurred by Landlord, together with interest thereon at the rate per annum which is the lesser of (i) the Lease Interest Rate or (ii) the highest rate permitted by law shall be deemed Additional Rent hereunder and shall be payable to Landlord upon demand as Additional Rent. Landlord shall use reasonable efforts to give prior notice (which may be oral) of its performance, if reasonably feasible under the circumstances. The performance of any such obligation by Landlord shall not constitute a waiver of Tenant's default in failing to perform the same. Inaction of Landlord shall never be considered as a waiver of any right accruing to it pursuant to this Lease. Landlord, in making any payment hereby authorized: (a) relating to Taxes, may do so according to any bill, statement or estimate, without inquiry into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof, (b) for the discharge, compromise or settlement of any lien, may do so without inquiry as to the validity or amount of any claim for lien which may be asserted; or (c) in connection with the completion of construction of improvements to the Premises or the repair, maintenance or the payment of operating costs thereof, may do so in such amounts and to such persons as Landlord reasonably may deem appropriate. Nothing contained herein shall be construed to require Landlord to advance monies for any purpose. Landlord shall not in any event be liable for inconvenience, annoyance, disturbance, loss of business or other damage of Tenant or any other occupant of the Premises or any part thereof, by reason of making repairs or the performance of any work on the Premises or on account of bringing materials, supplies and equipment into or through the Premises during the course thereof and the obligations of Tenant under this Lease shall not thereby be affected in any manner. In doing so, however, Landlord shall use reasonable efforts not to interfere with the normal operation of the Premises. The term "EMERGENCY SITUATION" shall mean a situation which has caused or is likely to cause bodily injury to persons, contamination of or physical damage to the Premises or adjoining property or economic liability or criminal jeopardy to Landlord. ARTICLE XXIV EXERCISE OF REMEDIES SECTION 24.1. CUMULATIVE REMEDIES. No remedy contained herein or otherwise conferred upon or reserved to Landlord, shall be considered exclusive of any other remedy, but the same shall be cumulative and shall be in addition to every other remedy given herein, now or hereafter existing at law or in equity or by statute, and every power and remedy given by this Lease to Landlord may be exercised from time to time and as often as occasion may arise or as may be deemed expedient. No delay or omission of Landlord to exercise any right or power arising from any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein. SECTION 24.2. NO WAIVER. No waiver of any breach of any of the covenants of this Lease shall be construed, taken or held to be a waiver of any other breach, or a waiver, acquiescence in or consent to any further or succeeding breach of the same covenant. The acceptance by Landlord of any payment of Rent or other sums payable hereunder after the termination by Landlord of this Lease or of Tenant's right to possession hereunder shall not, in the absence of agreement in writing to the contrary by Landlord, be deemed to restore this Lease or Tenant's right to possession hereunder, as the case may be, but shall be construed as a payment on account and not in satisfaction of damages due from Tenant to Landlord. Receipt of Rent by Landlord, with knowledge of any breach of this Lease by Tenant or of any default by Tenant in the observance or performance of any of the conditions or covenants of this Lease, shall not be deemed to be a waiver of any provision of this Lease. ARTICLE XXV SUBORDINATION TO MORTGAGES SECTION 25.1. SUBORDINATION. Landlord may execute and deliver a mortgage or trust deed in the nature of a mortgage (both sometimes hereinafter referred to as "Mortgage") against the Premises or any portion thereof. This Lease and the rights of Tenant hereunder, shall automatically, and without the requirement of the execution of any further documents, be and are hereby made expressly subject and subordinate at all times to the lien of any Mortgage now or hereafter encumbering any portion of the Improvements, and to all advances made or hereafter to be made upon the security thereof, provided, however, the holder of said Mortgage agrees in writing not to disturb the rights of Tenant under this Lease so long as Tenant is not in default hereunder. Notwithstanding the foregoing, Tenant agrees to execute and deliver such instruments subordinating this Lease to the lien of any such Mortgage as may be requested in writing by Landlord from time to time, provided that such instruments shall not materially modify the terms of this Lease. Notwithstanding anything to the contrary contained herein, any mortgagee under a Mortgage may, by notice in writing to the Tenant, subordinate its Mortgage to this Lease. SECTION 25.2. MORTGAGE PROTECTION. Tenant agrees to give the holder of any Mortgage, by registered or certified mail, a copy of any notice of default served upon the Landlord by Tenant, provided that prior to such notice Tenant has received notice (by way of service on Tenant of a copy of an assignment of rents and leases, or otherwise) of the address of such mortgagee and containing a request therefor. Tenant further agrees that if Landlord shall have failed to cure such default within the time provided for in this Lease and such default does not materially adversely affect the habitability of the Premises, then said mortgagee shall have an additional thirty (30) days after receipt of notice thereof within which to cure such default or, if such default cannot be cured within that time, then such additional time as may be necessary, if, within such thirty (30) days, any mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including but not limited to commencement of foreclosure proceedings, if necessary to effect such cure). Such period of time shall be extended by any period within which such mortgagee is prevented from commencing or pursuing such foreclosure proceedings by reason of Landlord's bankruptcy. Until the time allowed as aforesaid for said mortgagee to cure such defaults has expired without cure, Tenant shall have no right to, and shall not, terminate this Lease on account of default. This Lease may not be modified or amended so as to reduce the Rent or shorten the Term, or so as to adversely affect in any other respect to any material extent the rights of the Landlord, nor shall this Lease be cancelled or surrendered, without the prior written consent, in each instance, of the mortgagee. ARTICLE XXVI INDEMNITY AND WAIVER SECTION 26.1. INDEMNITY. Tenant shall not do or permit any act or thing to be done or omit to do any act or thing upon the Premises which may subject Landlord to any liability or responsibility for injury, damage to persons or property, or to any liability by reason of any violation of applicable laws and shall exercise such control over the Premises so as to fully protect Landlord against any such liability. Tenant shall defend, indemnify and save Landlord, and any official, agent, beneficiary, contractor, director, employee, lessor, mortgagee, officer, parent, partner, shareholder and trustee of Landlord (each an "INDEMNIFIED PARTY") representatives, successors and assigns harmless from and against any and all liabilities, suits, judgments, settlements, obligations, fines, damages, penalties, claims, costs, charges and expenses, including, without limitation, engineers', architects' and attorneys' fees, court costs and disbursements, which may be imposed upon or incurred by or asserted against any Indemnified Party by reason of any of the following occurring during or after (but attributable to a period of time falling within) the Term: (a) any demolition or razing or construction of any improvements or any other work or thing done in, on or about the Premises or any part thereof by Tenant or any member of the Tenant Group (defined below), including any claim that such work constitutes "public works"; (b) any use, nonuse, possession, occupation, alteration, repair, condition, operation, maintenance or management of the Premises or any part thereof or of any tunnel, creek, ditch, detention area, sidewalk, curb or vault adjacent thereto by Tenant or any member of the Tenant Group; (c) any act or failure to act on the part of Tenant or any member of the Tenant Group; (d) any accident, injury (including death) or damage to any person or property occurring in, on or about the Premises or any part thereof or in, on or about any tunnel, creek, ditch, detention area, sidewalk, curb or vault adjacent thereto as a result of the act or neglect of Tenant or any member of the Tenant Group; (e) any failure to perform or comply with any of the covenants, agreements, terms or conditions in this Lease on Tenant's part to be performed or complied with (other than the payment of money); (f) any lien or claim which may be alleged to have arisen against or on the Premises, or any lien or, claim which may be alleged to have arisen out of this Lease and created or permitted to be created by Tenant or any member of the Tenant Group against any assets of Landlord, or any liability which may be asserted against Landlord with respect thereto; (g) any failure on the part of Tenant to keep, observe and perform any of the terms, covenants, agreements, provisions, conditions or limitations contained in the contracts and agreements affecting the Premises on Tenant's part to be kept, observed or performed; and (h) any contest permitted pursuant to the provisions of this Lease. No agreement or covenant of Tenant in this Section 26.1 shall be deemed to exempt Landlord from, and Tenant's obligations under this Section 26.1 shall not include liability or damages for injury to persons or damage to property caused by or resulting from the negligence of Landlord, its agents or employees, in the operation or maintenance of the Project. The obligations of Tenant under this Section 26.1 shall not be affected in any way by the absence in any case of covering insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under insurance policies affecting the Premises or any part thereof. SECTION 26.2. WAIVER OF CLAIMS. Except for the negligence of Landlord and/or Landlord's agents, Tenant waives all claims it may have against Landlord and Landlord's agents for damage or injury to person or property sustained by Tenant or any persons claiming through Tenant or by any occupant of the Premises, or by any other person, resulting from any part of the Premises becoming out of repair, or resulting from any accident on or about the Premises or resulting directly or indirectly from any act or neglect of any person, including Landlord to the extent permitted by law. This Section 26.2. shall include, but not by way of limitation, damage caused by water, snow, frost, steam, excessive heat or cold, sewage, gas, odors, or noise, or caused by bursting or leaking pipes or plumbing fixtures, and shall apply equally whether any such damage results from the act or neglect of Tenant or of any other person, including Landlord to the extent permitted by law, and whether such damage be caused or result from anything or circumstance above mentioned or referred to, or to any other thing or circumstance whether of a like nature or of a wholly different nature. All Tenant's Equipment and other personal property belonging to Tenant or any occupant of the Premises that is in or on any part of the Premises shall be there at the risk of Tenant or of such other person only, and Landlord shall not be liable for any damage thereto or for the theft or misappropriation thereof. ARTICLE XXVII SURRENDER SECTION 27.1. CONDITION. Upon the termination of this Lease whether by forfeiture, lapse of time or otherwise, or upon the termination of Tenant's right to possession of the Premises, Tenant will at once surrender and deliver up the Premises to Landlord, broom clean, in good order, condition and repair, reasonable wear and tear excepted. "Broom clean" means free from all debris, dirt, rubbish, personal property of Tenant, oil, grease, tire tracks or other substances, inside and outside of the Improvements and on the grounds comprising the Premises. Any damage caused by removal of Tenant from the Premises, including any damages caused by removal of Tenant's Equipment as defined above, shall be repaired and paid for by Tenant prior to the expiration of the Term. SECTION 27.2. REMOVAL OF TENANT'S EQUIPMENT. Upon the termination of this Lease by lapse of time, or otherwise, Tenant may remove Tenant's Equipment provided, however, that Tenant shall repair any injury or damage to the Premises which may result from such removal. If Tenant does not remove Tenant's Equipment from the Premises prior to the end of the Term, however ended, Landlord may, at its option, remove the same and deliver the same to any other place of business of Tenant or warehouse the same, and Tenant shall pay the cost of such removal (including the repair of any injury or damage to the Premises resulting from such removal), delivery and warehousing to Landlord on demand, or Landlord may treat tenant's equipment as having been conveyed to Landlord with this Lease as a Bill of Sale, without further payment or credit by Landlord to Tenant. SECTION 27.3. HOLDOVER. If Tenant retains possession of the Premises or any part thereof after the termination of the Term, by lapse of time and otherwise, then Tenant shall pay to Landlord monthly rent, at double the rate payable for the month immediately preceding said holding over (including increases for additional rent which Landlord may reasonably estimate), computed on a per-month basis, for each month or part thereof (without reduction for any such partial month) that Tenant thus remains in possession, and in addition thereto, Tenant shall pay Landlord all damages, consequential as well as direct, sustained by reason of Tenant's retention of possession. Alternatively, at the election of Landlord expressed in a written notice to Tenant and not otherwise, such retention of possession shall constitute a renewal of this Lease for one (1) year, at a rental equal to one hundred twenty percent (120%) of the Rent during the previous year. The provisions of this paragraph do not exclude the Landlord's rights of re-entry or any other right hereunder. Any such extension or renewal shall be subject to all other terms and conditions herein contained. ARTICLE XXVIII COVENANT OF QUIET ENJOYMENT SECTION 28.1. COVENANT OF QUIET ENJOYMENT. Landlord covenants that Tenant, on paying the Rent and all other charges payable by Tenant hereunder, and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, all of which obligations of Tenant are independent of Landlord's obligations hereunder, shall, during the Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreement hereof free from hindrance by Landlord or any person claiming by, through or under Landlord. ARTICLE XXIX NO RECORDING SECTION 29.1. SHORT FORM OF LEASE. This Lease shall not be recorded, except Tenant, at its sole cost and expense, may record a short form memorandum of this Lease detailing only its right of first refusal to purchase as granted in Article XXXVI herein strictly in the form set forth on Exhibit "D" attached hereto and incorporated herein. ARTICLE XXX NOTICES SECTION 30.1. NOTICES. All notices, consents, approvals to or demands upon or by Landlord or Tenant desired or required to be given under the provisions hereof, shall be in writing. Any notices or demands from Landlord to Tenant shall be deemed to have been duly and sufficiently given if a copy thereof has been personally served, forwarded by expedited messenger or recognized overnight courier service with evidence of delivery or mailed by United States registered or certified mail in an envelope properly stamped and addressed to Tenant at Tenant's Mailing Address, or at such other address as Tenant may theretofore have furnished by written notice to Landlord. Any notices or demands from Tenant to Landlord shall be deemed to have been duly and sufficiently given if forwarded by expedited messenger or recognized overnight courier service with evidence of delivery or mailed by United States registered or certified mail in an envelope properly stamped and addressed to Landlord at Landlord's Mailing Address, with a copy to Mark S. Richmond, Katz Randall & Weinberg, 333 West Wacker Drive, Suite 1800, Chicago, Illinois 60606, or at such other address as Landlord may theretofore have furnished by written notice to Tenant. The effective date of such notice shall be the date of actual delivery, except that if delivery is refused, the effective date of notice shall be the date delivery is refused. ARTICLE XXXI COVENANTS RUN WITH LAND SECTION 31.1. COVENANTS. All of the covenants, agreements, conditions and undertakings in this Lease contained shall extend and inure to and be binding upon the heirs, executors, administrators, successors and assigns of the respective parties hereto, the same as if they were in every case specifically named, and shall be construed as covenants running with the Land, and wherever in this Lease reference is made to either of the parties hereto, it shall be held to include and apply to, wherever applicable, the heirs, executors, administrators, successors and assigns of such party. Nothing herein contained shall be construed to grant or confer upon any person or persons, firm, corporation or governmental authority, other than the parties hereto, their heirs, executors, administrators, successors and assigns, any right, claim or privilege by virtue of any covenant, agreement, condition or undertaking in this Lease contained. SECTION 31.2. RELEASE OF LANDLORD. The term "Landlord" as used in this Lease, so far as covenants or obligations on the part of Landlord are concerned, shall be limited to mean and include only the owner or owners at the time in question of title to the Premises, and in the event of any transfer or transfers of the title, Landlord herein named (and in the case of any subsequent transfers or conveyances, the then grantor) shall be automatically freed and relieved, from and after the date of such transfer or conveyance, of all personal liability as respects the performance of any covenants or obligations on the part of Landlord contained in this Lease thereafter to be performed; provided that any funds in the hands of such Landlord or the then grantor at the time of such transfer, in which Tenant has an interest, shall be turned over to the grantee. ARTICLE XXXII ENVIRONMENTAL MATTERS SECTION 32.1. DEFINED TERMS. (a) "HAZARDOUS MATERIAL" shall include but shall not be limited to any substance, material, or waste that is regulated by any federal, state, or local governmental authority because of toxic, flammable, explosive, corrosive, reactive, radioactive or other properties that may be hazardous to human health or the environment, including without limitation asbestos and asbestos-containing materials, radon, petroleum and petroleum products, urea formaldehyde foam insulation, methane, lead-based paint, polychlorinated biphenyl compounds, hydrocarbons or like substances and their additives or constituents, pesticides, agricultural chemicals, and any other special, toxic, or hazardous substances, materials, or wastes of any kind, including without limitation those now or hereafter defined, determined, or identified as "hazardous substances," "hazardous materials," "toxic substances," or "hazardous wastes" in any Environmental Law. (b) "ENVIRONMENTAL LAW" shall mean any federal, state, or local law, statute, ordinance, code, rule, regulation, policy, common law, license, authorization, decision, order, or injunction which pertains to health, safety, any Hazardous Material, or the environment (including but not limited to ground, air, water, or noise pollution or contamination, and underground or aboveground tanks) and shall include, without limitation, the Resource Conservation and Recovery Act, 42 U.S.C. 86901 et seq., as amended by the Hazardous and Solid Waste Amendments of 1984; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. 89601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986; the Hazardous Materials Transportation Act, 49 U.S.C. 81801 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. 81251 et seq.; the Clean Air Act, 42 U.S.C. 87401 et seq.; the Toxic Substances Control Act, 15 U.S.C. 82601 et seq.; the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq.; the Illinois Environmental Protection Act, 415 ILCS 4/1 et seq.; the Municipal Code of the City of Chicago; the Rivers and Harbors Act, (33 U.S.C. 8401 et seq.); the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. 11001 et seq. ("EPCRA"), the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. 136 to 136y; the Oil Pollution Act of 1990,33 U.S.C. 2701 et seq.; and the Occupational Safety and Health Act, 29 U.S.C. 651 et seq, and any other federal, state, or local environmental requirements, together with all rules, regulations, orders, and decrees now or hereafter promulgated under any of the foregoing, as any of the foregoing now exist or may be changed or amended or come into effect in the future. (c) "ENVIRONMENTAL CLAIM" shall mean and include any demand, notice of violation, inquiry, cause of action, proceeding, or suit for damages (including reasonable attorneys', consultants', and experts' fees, costs or expenses), losses, injuries to person or property, damages to natural resources, fines, penalties, interest, cost recovery, compensation, or contribution resulting from or in any way arising in connection with any Hazardous Material or any Environmental Law. (d) "PRE-EXISTING CONDITION" shall mean the presence of any Hazardous Material on the Premises, to the extent such Hazardous Material was not introduced onto the Premises after the Commencement Date. (e) "ENVIRONMENTAL CONDITION" shall mean (i) the presence on the Premises of one or more underground storage tanks or (ii) the existence of any Hazardous Material on the Premises, other than a Pre-Existing Condition, (i) in violation of or requiring cleanup under any Environmental Law or the provisions of this Article XXXII, or (ii) in concentrations or at levels exceeding applicable federal, state, or local standards for soil, groundwater, or waste on residential properties, either of which subjects Landlord to liability for any Environmental Claim or which must be remediated to prevent Landlord from incurring loss of any kind. (f) "ENVIRONMENTAL REMEDIATION" shall mean any investigation, cleanup, removal, containment, remediation, or other action relating to an Environmental Condition (i) required pursuant to any Environmental Law, or (ii) necessary to prevent Landlord from incurring, or relieve Landlord from, loss of any kind as a result of an Environmental Claim. (g) "REMEDIATING PARTY" shall mean the party which has elected (or is deemed to have elected) to perform any Environmental Remediation. (h) "TENANT GROUP" any or all of Tenant's agents, employees, representatives, contractors, workmen, mechanics, suppliers, customers, guests, licensees, invitees, sublessees, assignees and all of their respective successors and assigns or any party claiming by, through or under any of them. SECTION 32.2. TENANT'S COVENANTS WITH RESPECT TO ENVIRONMENTAL MATTERS. During the Term, Tenant, at its sole cost and expense, shall: (a) comply with all Environmental Laws relating to the use and operation of the Premises; (b) keep the Premises free of any Hazardous Material other than Hazardous Substances customarily used in the normal operation, repair, maintenance or cleaning of warehouses or offices ("Permitted Substances") in, by Tenant or any of the Tenant Group and which are used and stored in strict compliance with Environmental Laws and the terms of this Lease; (c) not exacerbate a Pre-Existing Condition; (d) upon the discovery of an Environmental Condition: (i) promptly, but not later than three (3) business days after the discovery of the Environmental Condition, notify Landlord of the Environmental Condition; (ii) furnish a letter of credit, personal guaranty, escrow of funds, or other security reasonably acceptable to Landlord to secure performance of Environmental Remediation and to assure Landlord that all necessary funds are readily available to Landlord to pay the costs and expenses of Environmental Remediation provided such Environmental Remediation is not the result of a Pre-Existing Condition which Tenant has not exacerbated; (iii) prior to commencement of any Environmental Remediation, submit a proposed scope of work for the Environmental Remediation, together with a timetable and a cost estimate, to Landlord for review and approval; (iv) after obtaining Landlord's approval, diligently perform the approved Environmental Remediation; (v) submit to Landlord in a timely manner for Landlord's review and comment the documentation and information required by Sections 32.6 and 32.7 of this Lease relating to each phase of the Environmental Remediation; (vi) comply with applicable release reporting requirements and provide Landlord with any information necessary for Landlord to comply with Environmental Law; and (vii) obtain a so-called "no further action letter" or other acknowledgment from the federal, state, or local governmental agency with jurisdiction over the Environmental Condition that the Premises have been fully remediated without reliance on institutional controls (including but not limited to deed restrictions) or engineered barriers; (e) not install or operate any above or below ground tank, sump, pit, pond, lagoon, or other storage or treatment vessel or device on the Premises without first obtaining Landlord's prior written consent; (f) not handle, use, generate, treat, dispose of, or permit the use, handling, generation, treatment, storage, or disposal of any Hazardous Material in, on, under, around, or above the Premises at any time during the Term, except for Permitted Substances used and stored in strict compliance with Environmental Laws and the terms of this Lease; (g) not use any above-ground tank (including barrels and drums), of any size within or without the Premises, except (i) in compliance with all Environmental Laws, and (ii) if secondary containment approved by Landlord is provided. Empty tanks, barrels and drums shall be presumed to have one (1) inch of product remaining when declared empty. SECTION 32.3. CONDUCT OF TENANT. If Tenant, with the prior written authorization of Landlord, which authorization may be granted or denied by Landlord in its sole and absolute discretion, generates, uses, transports, stores, treats, or disposes of any Hazardous Material: (a) Tenant shall, at its own cost and expense, comply with all Environmental Laws relating to any Hazardous Material; (b) Tenant shall (i) not dispose of any Hazardous Material in dumpsters or trash containers or at any other location' at the Premises; (ii) not discharge any Hazardous Material into drains or sewers; (iii) not cause or allow the release, discharge, emission, or run-off of any Hazardous Material to air, surface waters, the land, or ground water, whether directly or indirectly; (iv) at Tenant's own cost and expense, arrange for the lawful transportation and off-site disposal of all Hazardous Materials generated by Tenant: (v) provide secondary containment around all Hazardous Material storage containers, storage facilities, and above-ground storage tanks; (vi) conduct all necessary environmental inspections, including but not limited to asbestos inspections prior to any renovation or demolition as required by 40 CFR Part 61, and provide copies of all reports associated with such inspections to Landlord; (vii) comply with all reporting requirements under any federal, state, or local ordinance, statute, or regulation, including but not limited to toxics inventory reporting under EPCRA, the provisions of 40 CFR Part 61, or various regulations controlling the emissions of volatile organic compounds, and Tenant shall provide copies of all such reports and notifications to Landlord; and (viii) use only highly skilled people acceptable to Landlord to address all environmental issues associated with the Premises, and ensure that such people and all employees of the Tenant shall receive all training or certification required under any federal, state, or local legal requirement specifically mentioned or alluded to in Section 30.1 of this Lease; (c) Tenant shall promptly provide Landlord with copies of all communications, permits, or agreements with any governmental authority or agency (federal, state, or local) or any private entity relating in any way to the violation or alleged violation of any Environmental Laws or to any violation of Tenant's obligations under subparagraph (B) above; (d) Landlord and Landlord's agents and employees shall have the right to enter the Premises, upon advance notice to Tenant and shall not unreasonably disrupt Tenant's business operations at the Premises, except in the event of an emergency, and/or conduct appropriate tests for the purpose of ascertaining that Tenant complies with all applicable laws, rules or permits relating in any way to the presence of any Hazardous Materials on the Premises; and (e) On any occasion in the event that Landlord can show a likelihood that Tenant's operations at the Premises caused an existing environmental problem at the Premises, Tenant shall provide Landlord the results of appropriate tests of air, water, and soil to demonstrate (i) that Tenant is in compliance with all applicable laws, rules or permits relating in any way to the presence of any Hazardous Material on the Premises and (ii) the lack of any releases, discharges, or emissions. If the presence, release, threat of release, or placement of any Hazardous Material on or in the Premises occurs or is caused in whole or in part during the Term of this Lease, or the generation, transportation, storage, treatment, or disposal of any Hazardous Material at the Premises occurs or is caused in whole or in part during the Term of this Lease, and such gives rise to liability (including, but not limited to, a response action, remedial action, or removal action) under any Environmental Law or common law theory, including but not limited to nuisance, strict liability, negligence and trespass, Tenant shall promptly take any and all action necessary to clean up the Premises and mitigate exposure to liability arising from the Hazardous Material, whether or not required by law. SECTION 32.4. EXACERBATION. If Tenant exacerbates a Pre-Existing Condition (as .a result of Tenant's investigative or remedial activities or otherwise) during the Lease Term, the provisions of this Article XXXII shall apply to such~ exacerbation of the Pre-Existing Condition as if it were an Environmental Condition, and Tenant shall perform Environmental Remediation as to such exacerbation. Tenant shall be responsible for all fines and penalties caused by Tenant or to the extent exacerbated by Tenant at any time during the Lease Term. SECTION 32.5. RIGHTS OF INSPECTION. Landlord and their respective agents and representatives shall have a right of entry and access to the Premises at any time in Landlord's discretion upon advance notice to Tenant and shall not unreasonably disrupt Tenant's business operations at the Premises, except in the event of an emergency, for the purposes of (i) inspecting the documentation relating to Hazardous Materials or environmental matters maintained by Tenant or occupant of the Premises; (ii) ascertaining the nature of the activities being conducted on the Premises and investigating whether Tenant is in compliance with its obligations under Article XXXII of this Lease; and (iii) determining the type, kind, and quantity of all products, materials, and substances brought onto the Premises, or made or produced thereon. Landlord and its agents and representatives shall have the right to take samples in quantities sufficient for analysis of all products, materials, and substances present on the Premises including, but not limited to, samples, products, materials, or substances brought onto or made or produced on the Premises by Tenant or occupant of the Premises or their respective agents, employees, contractors or invitees and shall also have the right to conduct other tests and studies as may be reasonably determined by Landlord to be appropriate in order to investigate whether Tenant is in compliance with its obligations under Article XXXII. SECTION 32.6. COPIES OF NOTICES. During the term of this Lease, Tenant and Landlord shall each provide the other promptly with copies of all summons, citations, directives, information inquiries or requests, notices of potential responsibility, notices of violation or deficiency, orders or decrees, Environmental Claims, complaints, investigations, judgments, letters, notices of environmental liens or response actions in progress, and other communications, written or oral, actual or threatened, received in the case of Tenant, by Tenant or occupant of the Premises, or in the case of Landlord, by Landlord, from the United States Environmental Protection Agency, Occupational Safety and Health Administration, Illinois Environmental Protection Agency, Illinois Office of the State Fire Marshall, Chicago Department of the Environment, or other federal, state, or local agency or authority, or any other entity or individual (including both governmental and non-governmental entities and individuals), concerning (a) any actual or alleged release of any Hazardous Material on, to, or from the Premises; (b) the imposition of any lien on the Premises relating to any Hazardous Material; (c) any actual or alleged violation of or responsibility under Environmental Laws; or (d) any actual or alleged liability under any theory of common law tort or toxic tort, including without limitation, negligence, trespass, nuisance, strict liability, or ultrahazardous activity. SECTION 32.7. TESTS AND REPORTS. (a) Upon written request by Landlord, Tenant shall provide Landlord, at Tenant's expense, with (i) copies of all environmental reports and tests prepared or obtained by or for Tenant or occupant of the Premises; (ii) copies of transportation and disposal contracts (and related manifests, schedules, reports, and other information) entered into or obtained by Tenant with respect to any Hazardous Material; (iii) copies of any permits issued to Tenant under Environmental Laws with respect to the Premises; (iv) prior to filing, copies of any and all reports, notifications, and other filings to be made by Tenant or occupant off the Premises to any federal, state, or local environmental authorities or agencies, and after filing, copies of such filings; and (v) any other relevant documents and information with respect to environmental matters relating to the Premises. Tenant shall be obligated to provide such documentation only to the extent that the documentation is within Tenant's possession or control. (b) In addition, if Landlord ever reasonably believes that Tenant has breached the terms of this Article XXXII, or if any Environmental Claim is made or threatened, or if a default shall have occurred under the Lease, or at Landlord's discretion, one (1) time per Lease Year, Landlord shall have the right, but not the duty, to enter upon the Premises and conduct an environmental assessment of the Premises, including but not limited to a visual site inspection, review of records pertaining to the site, and interviews of Tenant's representatives or others concerning the site use and history and other matters. The investigation may also include reasonable subsurface or other invasive investigation of the Premises, including but not limited to soil borings and sampling of site soil and ground or surface water for laboratory analysis, as may be recommended by the Landlord's consultant (discussed below) as part of its inspection of the Premises or based upon such other reasonable evidence of Environmental Conditions warranting such subsurface or other invasive investigation. Landlord shall have the right, but not the duty, to retain any independent professional consultant to conduct any such environmental assessment; provided, however, that Landlord agrees to limit, in the absence of an Environmental Claim or default under this Article XXXII, the number of such environmental assessments to one (1) per Lease Year for the Lease Term. Tenant will cooperate with the Landlord's consultant and will supply to the consultant, promptly upon request, any information reasonably requested by Landlord to facilitate the completion of the environmental assessment. Landlord and its designees are hereby granted access to the Premises at any time or times, upon reasonable notice (which may be written or oral) to perform such environmental assessment. In exercising its right, Landlord shall use its reasonable efforts to minimize disruption of operations at the Premises. Any costs associated with performance of the environmental assessment, including but not limited to the consultant fees and restoration of any property damaged by such environmental assessment, shall be paid by Landlord unless such investigation discloses an Environmental Condition and Tenant caused said Environmental Condition, in which case Tenant shall pay such costs. (c) Tenant shall pay costs incurred by Landlord (including consultants' fees, costs and expenses) to review and comment on all reports and other documentation and information required by Sections 32.5 and 32.6., and to monitor the performance of any Environmental Remediation performed by Tenant, so long as the Environmental Condition was caused by Tenant. SECTION 32.8. INDEMNIFICATION. Tenant shall reimburse, defend with counsel chosen by Landlord, indemnify, and hold Landlord and any other Indemnified Party free and harmless from and against any and all Environmental Claims, response costs, losses, liabilities, damages, costs, and expenses, including without limitation loss of rental income, loss due to business interruption, and reasonable attorneys' and consultants' fees, costs and expenses arising out of or in any way connected with any or all of the following: (a) any Hazardous Material (other than a Pre-Existing Condition) which, at anytime during the Term, is or was actually or allegedly generated, stored, treated, released, disposed of, or otherwise located on or at the Premises as a result of the act or omission of Tenant or any member of the Tenant Group (regardless of the location at which such Hazardous Material is now or may in the future be located or disposed of), including, but not limited to any and all (i) liabilities under any common law theory of tort, nuisance, strict liability, ultrahazardous activity, negligence, or otherwise based upon, resulting from or in connection with any Hazardous Material; (ii) obligations to take response, cleanup, or corrective action pursuant to any Environmental Laws; and (iii) the costs and expenses of investigation or remediation in connection with the decontamination, removal, transportation, incineration, or disposal of any of the foregoing; and (b) any actual or alleged illness, disability, injury, or death of any person, in any manner arising out of or allegedly arising out of exposure to any Hazardous Material or other substances or conditions present at the Premises as a result of the act or omission of Tenant or any member of the Tenant Group (including, but not limited to, ownership, operation, and disposal of any equipment which generates, creates, or uses electromagnetic files, x-rays, other forms of radiation and radioactive materials), regardless of when any such illness, disability, injury, or death shall have occurred or been incurred or manifested itself; and (c) any actual or alleged failure of Tenant or any member of the Tenant Group at any time and from time to time to comply with all applicable Environmental Laws or any permit issued thereunder; (d) any failure by Tenant to comply with any obligation under this Article XXXII relating to an Environmental Condition for which Tenant is Remediating Party; (e) Tenant's failure to provide any information, make any submission, and take any step required by any relevant governmental authorities; (f) the imposition of any lien for damages caused by, or the recovery of any costs for, the remediation or cleanup of any Hazardous Material as a result of events that took place during the Term of this Lease as a result of the act or omission of Tenant or any member of the Tenant Group; (g) costs of removal of any and all Hazardous Materials from all or any portion of the Premises, which Hazardous Materials came to be present at the Premises during the Term of this Lease as a result of the act or omission of Tenant or any member of the Tenant Group; (h) costs incurred to comply, in connection with all or any portion of the Premises, with all governmental requirements with respect to any Hazardous Material on, in, under or affecting the Premises, which Hazardous Material came to be present at the Premises during the Term of this Lease as a result of the act or omission of Tenant or any member of the Tenant Group; (i) any spills, charges, leaks, escapes, releases, dumping, transportation, storage, treatment, or disposal of any Hazardous Material which occur during the Term of this Lease, but only to the extent that such Hazardous Material originated from or were or are located on the Premises. In the event Environmental Claims or other assertion of liability shall be made against any Indemnified Party for which the Indemnified Party is entitled to indemnity hereunder, the procedure set forth in Section 24.1 shall apply. The obligations of Tenant under this Section 32.8 shall survive any termination or expiration of this Lease. SECTION 32.9. TENANT ACKNOWLEDGMENTS WITH RESPECT TO ENVIRONMENTAL MATTERS. Tenant acknowledges that the Premises are being leased in their present "as is" condition. Tenant further acknowledges that Landlord has made no representation whatsoever regarding any Hazardous Material on or about the Premises. SECTION 32.10. NO LIABILITY OF LANDLORD. (a) Except for Pre-Existing Conditions not exacerbated by Tenant or any member of the Tenant Group, Landlord shall not have any liability to Tenant or any of its employees, agents, shareholders, officers or directors, or any other persons as a result of any Hazardous Material now or hereafter located d on the Premises. (b) Tenant hereby waives and releases Landlord from all Environmental Claims arising from or relating to Pre-Existing Conditions. ARTICLE XXXIII SECURITY DEPOSIT SECTION 33.1. SECURITY DEPOSIT. Tenant agrees to deposit with Landlord, upon the execution of this Lease, the Security Deposit as security for the full and faithful performance by Tenant of each and every term, provision, covenant and condition of this Lease. If Tenant defaults in respect to any of the terms, provisions, covenants and conditions of this Lease including, but not limited to, payment of all rental and other sums required to be paid by Tenant hereunder, Landlord may use, apply or retain the whole or any part of the security so deposited for the payment of such rent in default, for any sum which Landlord may expend or be required to expend by reason of Tenant's default including, without limitation, any damages or deficiency in the reletting of the Premises, whether such damages or deficiency shall have accrued before or after re-entry by Landlord. If any of the security deposit shall be so used, applied or retained by Landlord at any time or from time to time, Tenant shall promptly, in each such instance, on written demand therefor by Landlord, pay to Landlord such additional sums as may be necessary to restore the security deposit to the original amount set forth in the first sentence of this section. If Tenant shall fully and faithfully comply with all the terms, provisions, covenants and conditions of this Lease, the security deposit, or the balance thereof, shall be returned to Tenant after the following: (a) the time fixed as the expiration of the Term of this Lease; (b) the removal of Tenant from the Premises; (c) the surrender of the Premises by Tenant to Landlord in accordance with this Lease; and (d) final determination of all amounts payable by Tenant hereunder and payment of same. Except as otherwise required by law, Tenant shall not be entitled to any interest on the aforesaid security deposit. In the absence of evidence satisfactory to Landlord of an assignment of the right to receive the security deposit o:(degree) the remaining balance thereof, Landlord may return the security deposit to the original Tenant, regardless of one or more assignments of this Lease. In the event Landlord fails to return the Security Deposit to Tenant within forty-five (45) days from the time required under this Lease, then the Security Deposit shall bear interest thereafter until returned, at the Lease Interest Rate. ARTICLE XXXIV MISCELLANEOUS SECTION 34.1. CAPTIONS. The captions of this Lease are for convenience only and are not to be construed as part of this Lease and shall not be construed as defining or limiting in any way the scope or intent of the provisions hereof. SECTION 34.2. SEVERABILITY. If any covenant, agreement or condition of this Lease or the application thereof to any person, firm or corporation or to any circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such covenant, agreement or condition to persons, firms or corporations or to circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby. Each covenant, agreement or condition of this Lease shall be valid and enforceable to the fullest extent permitted by law. SECTION 34.3. APPLICABLE LAW. This Lease shall be construed and enforced in accordance with the laws of the state where the Premises are located. SECTION 34.4. AMENDMENTS IN WRITING. None of the covenants, terms or conditions of this Lease, to be kept and performed by either party, shall in any manner be altered, waived, modified, changed or abandoned, except by a written instrument, duly signed, acknowledged and delivered by the other party. SECTION 34.5. RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership, or of joint venture by the parties hereto, it being understood and agreed that no provision contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship other than the relationship of Landlord and Tenant. SECTION 34.6. BROKERAGE. Tenant warrants that it has no dealings with any real estate broker or agent in connection with this lease other than Landlord's Broker and Tenant's Broker, and Tenant covenants to pay, hold harmless and indemnify Landlord from and against any and all cost, expense or liability for any compensation, commissions and charges claimed by any other broker or other agent with respect to this Lease or the negotiation thereof arising out of any acts of Tenant. SECTION 34.7. NO ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated and additional rent shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. SECTION 34.8. JOINT EFFORT. The preparation of this Lease has been a joint effort of the parties hereto and the resulting documents shall not, solely as a matter of judicial construction, be construed more severely against one of the parties than the other. SECTION 34.9. WAIVER OF JURY TRIAL. Tenant hereby waives a jury trial in action brought by Landlord hereunder. SECTION 34.10. TIME. Time is of the essence of this Lease, and all provisions herein relating thereto shall be strictly construed. SECTION 34.11. LANDLORD'S CONSENT. Landlord's granting of any consent under this Lease, or Landlord's failure to object to any action taken by Tenant without Landlord's consent required under this Lease, shall not be deemed a waiver by Landlord of its rights to require such consent for any further similar act by Tenant. No waiver by Landlord of any other breach of the covenants of this Lease shall be construed, taken or held to be a waiver of any other breach or to be a waiver, acquiescence in or consent to any further or succeeding breach of the same covenant. None of the Tenant's covenants under this Lease, and no breach thereof, shall be waived, altered or modified except by a written instrument executed by Landlord. SECTION 34.12. NO PARTNERSHIP. Landlord is not, and shall not be deemed to be, in any way or for any purpose, the partner, employer, principal, master or agent of or with Tenant. SECTION 34.13. LANDLORD'S LIABILITY. Notwithstanding anything to the contrary herein contained, there shall be absolutely no personal liability asserted or enforceable against Landlord or on any persons, firms or entities who constitute Landlord with respect to any of the terms, covenants, conditions and provisions of this Lease, and Tenant shall, subject to the rights of any mortgagee, look solely to the interest of Landlord, its successors and assigns in the, Premises for the satisfaction of each and every remedy of Tenant in the event of default by Landlord hereunder; such exculpation of personal liability is absolute and without any exception whatsoever. If the entity constituting Landlord is a partnership, Tenant agrees that the deficit capital account of any such partner shall not be deemed an asset or property of said partnership. Notwithstanding anything in this Lease to the contrary, with respect to any provision of this Lease which requires Landlord's consent or approval, Tenant shall not be entitled to make, nor shall Tenant make, any claim for (and Tenant hereby waives any claim for) money damages as a result of any claim by Tenant that Landlord has unreasonably withheld or unreasonably delayed any consent or approval, but Tenant's sole remedy shall be an action or proceeding to enforce such provision, or for specific performance, injunction or declaratory judgment. SECTION 34.14. LANDLORD RIGHTS. This Lease does not grant any rights to light or air over or about the Premises. Landlord specifically excepts and reserves to itself the use of any roofs, the exterior and structural components of the Building, all rights to the land and improvements below the improved floor level of the Building, to the improvements and air rights above, the Building and to the improvements and air rights located outside the demising walls of the building and to such areas within the Building required for installation of utility lines and other installations and to such portions of the Premises necessary to access, maintain and repair same, and no rights with respect thereto are conferred upon Tenant. SECTION 34.15. ENTIRE AGREEMENT. It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this Lease, the exhibits annexed hereto and the instruments and documents referred to herein, which alone fully and completely express their agreements, and that no party hereto is relying upon any statement or representation, not embodied in this Agreement, made by the other. Each party expressly acknowledges that, except as expressly provided in this Agreement, the other party and the agents and representatives of the other party have not made, and the other party is not liable for or bound in any manner by, any express or implied warranties, guaranties, promises, statements, inducements, representations or information pertaining to the transactions contemplated hereby. SECTION 34.16. RENT ABSOLUTE. Except as otherwise expressly provided herein, this Lease shall be deemed and construed to be a "net lease" and Tenant agrees to pay all costs and expenses of every kind and nature whatsoever, ordinary and extraordinary, arising out of or in connection with the ownership, maintenance, repair, replacement, use and occupancy of the Premises during the Term of this Lease, which, except for the execution and delivery hereof, would otherwise have been payable by Landlord. SECTION 34.17. TENANT AUTHORITY. Simultaneously with the execution and delivery of this Lease by Tenant, Tenant shall deliver to Landlord: (a) Certified resolutions of its board of directors of Tenant executing this Lease on behalf of Tenant authorizing the execution and delivery of this Lease. (b) A certificate of incumbency executed by the secretary of any corporate partner of Tenant executing this Lease on behalf of Tenant identifying by name, office and facsimile signature the officers of Tenant. (c) A current certificate of good standing issued by the Secretary of State of the state of incorporation of Tenant and the State of Illinois. ARTICLE XXXV RENEWAL OPTIONS SECTION 35.1. RENEWAL OPTION(S). Tenant shall have the option ("Renewal Option") to renew the Initial Term for all of the Premises as of the expiration date of the Initial Term, for one (1) additional period of three (3) years , (the "Renewal Term") upon the following terms and conditions: (a) Tenant gives Landlord written notice of its exercise of the Renewal Option at least six (6) months prior to the expiration of the Term. (b) Tenant is not in default under this Lease either on the date Tenant delivers the notice required under subparagraph A. above or at any time thereafter prior to the commencement of the Renewal Term so exercised. (c) Landlord shall be provided with evidence satisfactory to it of Tenant's compliance with the terms and conditions of Article XXXII hereof. (d) All of the terms and provisions of this Lease (except this Article XXXV) shall be applicable to the Renewal Term, except that Rent for the Renewal Term shall be determined as follows: Base Rent for the first full lease year of the Renewal Term shall be $272,666.25 and shall increase annually by 3% each anniversary during the Renewal Term. SECTION 35.2. "AS IS" CONDITION. Tenant agrees to accept the Premises to be covered by this Lease during the Renewal Term in an "as is" physical condition and Tenant shall not be entitled to receive any allowance, credit, concession or payment from Landlord for the improvement thereof. SECTION 35.3. AMENDMENT. In the event that Tenant exercises the Renewal Option, then Landlord and Tenant shall mutually execute and deliver an amendment to this Lease reflecting the renewal of the Term on the terms herein provided, which amendment shall be executed and delivered promptly after the determination of Rent to be applicable to the Renewal Term as hereinabove provided. SECTION 35.4. TERMINATION. The Renewal Options herein granted shall automatically terminate upon the earliest to occur of (i) the expiration or termination of this Lease, (ii) the termination of Tenant's right to possession of the Premises, (iii) any assignment or subletting by Tenant, or (iv) the failure of Tenant to timely or properly exercise the Renewal Option. SECTION 35.5. NO COMMISSIONS. Landlord and Tenant acknowledge and agree that no real estate brokerage commission or finder's fee shall be payable by Landlord in connection with any exercise by Tenant of the Renewal Option herein contained. SECTION 35.6. TAXES. Tenant further agrees to pay, as Additional Rent for the Premises, all Taxes (as hereinafter defined) which accrue during the Renewal Term of this Lease, and are levied, assessed or become a lien imposed upon the Premises or any part thereof. Such Additional Rent shall be payable notwithstanding the fact that the amount of such Taxes may not be ascertainable or due and payable until after the expiration of the Renewal Term of this Lease. Tenant shall be responsible for all increases in Taxes based upon Tenant's occupancy of the Premises. After the expiration of the Renewal Term hereof, Tenant hereby agrees to reprorate Taxes. In the event of any increase in Taxes from the Taxes reflected on the proration made upon the expiration of the Renewal Term of this Lease, Tenant agrees to immediately pay to Landlord such sums as reflected by such reproration. Benefit may be taken by Tenant of the provisions of any statute or ordinance permitting any special assessment to be paid over a period of years; provided, however, that Tenant shall pay all installments of special assessments due during the Renewal Term hereof. Tenant shall, in addition to the foregoing pay any new Tax of a nature not presently in effect but which may hereafter be levied or assessed upon Landlord or upon the Premises or imposed as a lien upon the Premises, if such Tax shall be based upon or arise out of the ownership, use or operation of the Premises; provided, however, that for the purpose of computing Tenant's liability for such new type of Tax, the Premises shall be deemed the only property of Landlord. Tenant's obligations under this Section shall survive the expiration or termination of this Lease. ARTICLE XXXVI RIGHT OF FIRST REFUSAL TO PURCHASE SECTION 36.1. RIGHT OF FIRST REFUSAL TO PURCHASE. Landlord agrees that if, at any time during the term of this Lease, Landlord receives an offer to purchase the Premises, Tenant shall have the first right and option to purchase the Premises on the following terms and conditions: (a) The right granted to Tenant hereunder shall not apply to a transaction whereby (i) the Premises are being sole as part of a multiple property sale, (ii) Landlord determines to sell or transfer the Premises to a Landlord Successor or Landlord Affiliate (as such terms are hereinafter defined), (iii) Landlord obtains a bona fide first mortgage from an institutional lender not related to or affiliated with Landlord which mortgage is a so-called "Participating Mortgage" under which the lender has a right to participate in the profits or cash flow or both of the Premises, (iv) the Premises is sold in a transaction involving the simultaneous leaseback of the Premises by Landlord, or (v) the Premises is sold or otherwise transferred to an entity or venture in which Landlord, a Landlord Affiliate, or a Landlord Successor (1) owns a five percent (5%) or greater interest therein, (2) manages the Premises for the Landlord, and (3) is a general partner, managing member or similar position of control with others in the resulting entity. As used herein, the term "Landlord Successor" shall mean any entity (i) which results from a merger or consolidation with the original Landlord under this Lease or (ii) which acquires all or substantially all of the assets of the original Landlord under this lease for a legitimate business purpose; and the term "Landlord Affiliate" shall mean (i) CenterPoint Properties Trust or (ii) any entity which is controlled by, controls, or is under common control with (A) the original Landlord named in this Lease, or (B) a Landlord Successor. For purposes of the foregoing, the term "control" means the power to direct the management and policies of the subject entity, either directly or indirectly, whether through the ownership of voting securities or other beneficial interests or otherwise. (b) If Landlord obtains a bona fide offer to purchase the Premises from any third party (except as set forth in Paragraph 36.1(a) above), Landlord shall submit such offer to Tenant and Tenant shall have the right, within twenty-one (21) days after receipt of the offer, to purchase the Premises on the same terms and conditions as set forth in the offer, except that any due diligence period or similar contingency set forth in any such bona fide offer shall not be a condition of any agreement between Landlord and Tenant. If Tenant does not give Landlord notice in writing within said twenty-one (21) -day period that Tenant intends' to exercise its rights hereunder, then Landlord shall be free to sell the Premises on the terms and conditions set forth in the offer submitted to Tenant and in such event (i) Tenant's rights hereunder shall terminate, and (ii) within five (5) days after the request of Landlord, Tenant shall acknowledge in writing that it has not exercised its right of first refusal; provided, however, that in the event such sale shall not close, then Tenant's rights hereunder shall be reinstated as to subsequent bona fide offers. ARTICLE XXXVII LANDLORD'S WORK SECTION 37.1. LANDLORD'S WORK. (a) Landlord hereby agrees, at Landlord's sole cost and expense, to perform the work described in EXHIBIT "C", which is attached hereto and made a part hereof, to the Premises (hereinafter collectively referred to as "Landlord's Work"). All of Landlord's Work shall be completed in a good and workmanlike manner in compliance with all applicable codes and regulations. (b) When Landlord's Work is "substantially complete" (as hereinafter defined), then Landlord shall so notify Tenant. It is acknowledged between the parties that the Premises shall be deemed substantially complete at such time as Landlord has substantially completed Landlord's Work, notwithstanding Landlord may not have completed any extra work requested by Tenant. Upon such notification, Tenant shall promptly (and not later than two (2) business days after the date of Landlord's said notice) inspect the Premises and furnish to Landlord a written statement that, with the exception of certain specified and enumerated items (hereinafter referred to as the "Punch List"), the Premises are substantially complete. At the request of Landlord, from time to time thereafter, Tenant shall, upon completion of items previously listed on a Punch List, promptly furnish to Landlord a revised Punch List acknowledging completion of said item. Landlord hereby agrees to use reasonable efforts to complete all Punch List items within thirty (30) days of the date the Premises is substantially complete, subject to extension due to delays caused by Tenant, its agents or employees or customary "force majeure" conditions. Provided Punch List items do not materially impair Tenant's use or occupancy of the Premises, then, in such event, the date on which the Premises are substantially complete is referred to herein as the "Completion Date"; provided, however, to the extent the Completion Date has not occurred as of the date reasonably anticipated by Landlord as the Completion Date ("Anticipated Date") due to delays caused by Tenant, the Completion Date shall be deemed to have occurred on the Anticipated Date. Tenant shall absolutely take possession of the Premises on the Commencement Date. (c) In addition, Landlord shall fill all cracks, seal coat and restripe the parking lot upon the Completion Date, subject to delays caused by weather conditions and acts of God, but in no event later than June 30, 2000. (d) Tenant may propose one or more changes to the Plans for Landlord's Work ("Plans Revisions") to Landlord any time before the Completion Date, subject to the approval of Landlord and the Village of Mundelein. As promptly as reasonably practicable after the receipt and approval thereof, Landlord shall provide Tenant with a written estimate of the Tenant Delay in the Completion Date and the amount of the additional cost to complete the Landlord's Work which will result from such Plans Revisions (whether hard costs or soft costs), which costs shall be: (i) the cost of all materials, supplies and labor used or supplied in making the proposed change, including general conditions and any contractor's fees (which general conditions and contractor's fees shall be fifteen percent (15%) of such costs); (ii) any architect and engineer fees; (iii) soft costs; (iv) interest and carrying charges; and (v) fees and expenses of architects, engineers and other third party consultants in connection with review or approval of the Plans Revisions. If Tenant fails to approve any of the Plans Revisions and associated estimate within five (5) days after delivery of the same, Tenant shall be deemed to have abandoned its request for such changes, and the Landlord's Work shall be constructed in accordance with the then existing plans. If Tenant approves the Plans Revisions and associated estimate within said five (5)-day period by signing and returning a copy of Landlord's estimate, Landlord shall cause the Landlord's Work to be constructed in accordance with the Plans Revisions. Tenant shall pay Landlord the amount of such additional costs within five (5) days after Landlord submits to Tenant a bill for such additional costs prior to the time Landlord commences to make any changes. In no event shall Landlord have any obligation to commence any work relating to such changes until Landlord has been paid the cost of the estimate in full and in the event that the additional costs are not paid within said five (5) day period, Tenant shall be deemed to have abandoned its request for such changes and the Landlord's Work shall be constructed in accordance with the then existing plans. Unless requested in writing by Tenant to the contrary, Landlord shall continue with construction of the Landlord's Work according to the then existing plans during the pendency of any proposed Plans Revisions until such change and cost estimate are approved by Landlord and Tenant as provided above. Any halt in construction requested in writing by Tenant shall constitute a Tenant Delay hereunder. If Tenant requests a Plans Revisions pursuant to this Section 37.1(d), and Tenant does not ultimately approve of the resulting Plans Revisions or cost estimates, Tenant shall promptly reimburse Landlord, as Additional Rent, for any reasonable costs and expenses resulting from such requested changes incurred by Landlord. IN WITNESS WHEREOF, the parties have executed this Lease as of the date set forth above. LANDLORD: CENTERPOINT PROPERTIES TRUST, a Maryland real estate investment trust By: /s/ Paul T. Ahern ------------------------------------ Its: CHIEF INVESTMENT OFFICER By: /s/ Brian M. Sheehan ------------------------------------ Its: Assistant Vice President Controller TENANT: EAGLE TEST SYSTEMS, INC., an Illinois corporation 11/11/99 By: /s/ L.A. Foxman ------------------------------------ Its: President IN WITNESS WHEREOF, the Tenant executed and delivered this document as of the day and year first above written. TENANT: EAGLE TEST SYSTEMS, INC. 11/11/99 By: /s/ L.A. Foxman ------------------------------------ Its: President STATE OF Illinois ) ) ss. COUNTY OF Cook ) I, Miriam F. Becerra, a notary public in and for said County, in the State aforesaid, DO HEREBY CERTIFY THAT L. F. Fox, personally known to me to be the President of Eagle Test Systems, Inc., and personally known to me to be the same person whose name is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that as such he signed and delivered the said instrument pursuant to proper authority given by said company as his free and voluntary act, and as the free and voluntary act and deed of said company for the uses and purposes therein set forth. Given under my hand and notarial seal this 11 day of November, 1999. OFFICIAL SEAL MIRIAM F. BECERRA NOTARY PUBLIC, STATE OF ILLINOIS MY COMMISSION EXPIRES: 11/17/00 /s/ Miriam F. Becerra ------------------------------------ Notary Public My Commission expires: 11/17/00 EX-10.22 20 c86449exv10w22.txt SUBLEASE AGREEMENT EXHIBIT 10.22 SUBLEASE AGREEMENT THIS SUBLEASE AGREEMENT (this "Sublease") is dated as of December 15, 2003 between PITNEY BOWES INC. ("Sublandlord"), a Delaware corporation, and EAGLE TEST SYSTEMS, INC. ("Subtenant"), an Illinois corporation. RECITALS A. By Industrial Lease dated as of April 14, 2000 (the "Prime Lease"), Sublandlord, as tenant, leases from Millbrook I LLC, as landlord ("Landlord"), certain premises (the "Premises") consisting of approximately 43,296 rentable square feet located in a one-story industrial building (the "Building") known as 2550 Millbrook Drive, Buffalo Grove, Illinois, as more particularly described in the Prime Lease. B. Subtenant desires to sublease from Sublandlord the entire Premises, and Sublandlord desires to sublease the entire Premises to Subtenant, on the terms and subject to the conditions hereinafter set forth. C. All capitalized terms used but not defined in this Sublease shall have the same meanings given to them in the Prime Lease. NOW, THEREFORE, for and in consideration of the mutual covenants hereinafter contained, the parties hereby agree as follows: 1. Demise. Sublandlord hereby subleases the Premises to Subtenant, and Subtenant hereby subleases the Premises from Sublandlord. Sublandlord represents that: (i) the Prime Lease is in full force and effect; (ii) Sublandlord has received no notice that it is in default under the Prime Lease; and (iii) to its best knowledge, Landlord is not in default under the Prime Lease. Sublandlord has delivered a copy of the Prime Lease to Subtenant. 2. Term; As-Is Condition; Purpose; Early Occupancy (a) The term (the "Term") of this Sublease shall commence on January 15, 2004 (the "Commencement Date") and shall expire on the date (the "Expiration Date") that is the earlier of: (i) January 15, 2005, subject to extension pursuant to subsection 2(b) below; or (ii) five (5) days prior to the expiration or sooner termination of the Prime Lease, unless sooner terminated pursuant to the provisions of this Sublease. (b) If this Sublease is in full force and effect on January 15, 2005, the Term shall automatically be extended until June 25, 2005, provided either party shall have the right to terminate this Sublease effective on or after January 15, 2005 with at least thirty (30) days' prior written notice to the other party specifying the effective date of such termination. In no event shall the Term extend beyond June 25, 2005. Notwithstanding anything to the contrary herein, if Sublandlord receives prior to May 15, 2005 a copy of a fully-executed lease agreement between Subtenant and Landlord for the Premises, the term of which commences July 1, 2005, the Expiration Date shall be June 30, 2005. In such case: (i) Sublandlord shall have no obligation to surrender the Premises at the end of the term of the Lease and Landlord waives all obligations and liabilities in connection therewith; (ii) Landlord shall be deemed to have accepted the Premises in its then-current condition as of June 30, 2005; and (iii) as of July 1, 2005, Landlord shall look solely to Subtenant, and waives all claims against Sublandlord, regarding the condition of the Premises. (c) Subtenant shall take possession of the Premises in their present "as is" condition. No representations have been made to Subtenant concerning the condition of the Premises, nor have any promises to alter or improve the Premises (or to give any form of work allowance) been made by Sublandlord or any party on behalf of Sublandlord. (d) Subtenant shall use and occupy the Premises during the Term for only the following purpose: A secondary assembly facility (electronic testing systems) in compliance with all applicable Legal Requirements. This Sublease is only for Subtenant's actual use and occupancy. (e) Upon Sublandlord's receipt of: (i) at least one (1) original, fully-executed counterpart of this Sublease; (ii) evidence of Subtenant's insurance required by Section 7 below; and (iii) Landlord's written consent to this Sublease and the provisions set forth in subsection 2(b) and this subsection 2(e), Subtenant shall have the right to enter the Premises upon the consent specified in subsection 2(e)(iii) above for purposes of installing Subtenant's property and performing such other related activities in the Premises that are preparatory for its occupancy, including without limitation sealing the warehouse floor of the Premises with an antistatic coating, replacing Sublandlord's signage with Subtenant's identity (name and Logo), distribution of electrical needs, cabling for telecommunications(phone/data) and installation of subtenant fixtures used in production/assembly of Subtenant's product. Notwithstanding anything to the contrary herein, if Subtenant enters the Premises prior to the Commencement Date, all terms and conditions of this Sublease other than with respect to the payment of Base Rent shall be in full force and effect. 3. Incorporation By Reference; Landlord's Obligations. (a) To the extent not inconsistent with the provisions of this Sublease, the terms, provisions, covenants and conditions of the Prime Lease are hereby incorporated by reference on the following basis: Subtenant hereby assumes all of the obligations of Sublandlord under the Prime Lease with respect to the Premises, accruing or payable during the Term. The term "Landlord" therein shall refer to Sublandlord hereunder, its successors and assigns, and the term "Tenant" therein shall refer to Subtenant hereunder, and its permitted successors and assigns. To the extent not inconsistent with this Sublease, Subtenant shall also be entitled to all the rights of Sublandlord per the provisions, covenants, and conditions as allowed in the Prime Lease. The obligations assumed by Subtenant hereunder that accrue during the Term shall survive and extend beyond the termination of this Sublease. For purposes of incorporation into this Sublease only, the following provisions of the Prime Lease are hereby deleted: Sections 1.3, 1.4, 2.1 through 2.4, 4.0, Article V (with the exceptions that Subtenant shall not be obligated for repairs and maintenance of underground utilities and Subtenant shall not be obligated for environmental or any capital repairs that pre-exist or are unrelated to Subtenant's occupancy), the first sentence of Section 16.0 starting in the fourth line with: "provided, however," 17.1, 19.11, 19.31, 19.32 and 19.34 (except Sublandlord represents, to the best of its knowledge, there are no existing environmental issues or pending suits that would impact Subtenant's safety or occupancy of this space). (b) Subtenant recognizes that Sublandlord is not in a position to furnish the services set forth in the Prime Lease, obtain an agreement of nondisturbance, or to perform certain other obligations that are not within the control of Sublandlord, such as, without limitation, maintenance, repairs and replacements, compliance with laws, insurance obligations, providing Building Services, and restoration of the Premises and Building after casualty or condemnation. Therefore, notwithstanding anything to the contrary contained in this Sublease, Subtenant agrees that: (i) Subtenant shall look solely to Landlord to furnish all services and maintenance and to perform all obligations that Landlord has agreed to perform and observe under the Prime Lease; and (ii) performance by Sublandlord of certain of its obligations under this Sublease is conditioned upon performance by Landlord off its corresponding obligations under the Prime Lease. Subject to Section 10 below, Sublandlord shall not be liable to Subtenant or be deemed in default hereunder for failure of Landlord to furnish or perform the same. 4. Rent. Subtenant shall pay to Sublandlord as annual base rent ("Base Rent") TWO HUNDRED SIXTEEN THOUSAND FOUR HUNDRED EIGHTY AND NO/100 DOLLARS ($216,480.00), which amount shall be due and payable in advance in equal monthly installments of $18,040.00 on the first (1st) day of each month, commencing on the Commencement Date, prorated for a portion of a month. An amount equal to one monthly installment of Base Rent has been paid upon Subtenant's execution hereof, which shall be applied to the first installment of Base Rent due hereunder. 5. Subletting and Assignment. Subtenant shall not, without the prior written consent of Sublandlord: (i) further sublet all or any part of the Premises; (ii) transfer, hypothecate, assign, convey, or mortgage this Sublease or any interest under it or allow any lien upon Subtenant's interest hereunder by operation of law; or (iii) suffer, tolerate, permit, or allow the use or occupancy of the Premises by anyone other than Subtenant, its agents and employees. Subject to Article X of the Prime Lease, Sublandlord shall not unreasonably withhold or delay its consent to a further subletting of the Premises or an assignment of this Sublease by Subtenant. Sublandlord's consent to any such subletting or assignment, however, shall be conditional upon and subject to Subtenant obtaining the written consent of Landlord thereto when required under the Prime Lease. No such transaction shall release Subtenant from liability hereunder. 6. Insurance Compliance. Subtenant shall maintain, at its sole cost and expense, for the Term, any and all insurance in the amounts and form required of Sublandlord by and pursuant to the provisions of the Prime Lease. All such policies shall name Sublandlord, Landlord and designees of Landlord as additional insureds, shall be issued by reputable insurance companies approved by Landlord and shall be endorsed to provide that they shall not be modified or cancelled without thirty (30) days' prior written notice to Sublandlord and Landlord. On or prior to the Commencement Date or any earlier occupancy of the Premises, Subtenant shall furnish copies of such policies to Sublandlord evidencing that the required coverage is being maintained, together with such evidence as Sublandlord shall deem satisfactory of the payment of premiums thereon. 7. Indemnification. (a) Sublandlord, its officers, agents, and employees, shall not be liable for, and Subtenant shall indemnify and save Sublandlord and Landlord harmless from and against all claims, liability, loss, or damage during the Term to persons or property sustained by Subtenant or by any other person, due to the Premises or any part thereof or any appurtenances thereof becoming out of repair, or due to the happening of any accident in, on, or about the Premises, or any damage caused by fire, or other casualty or leakage, or due to the act or neglect of any person, excluding the employees, agents, or contractors of Sublandlord or Landlord. This provision shall apply (but not exclusively) to damage caused by sprinkling devices or air conditioning or heating equipment and to damage caused by water, wind, frost, steam, excessive heat or cold, broken glass, gas, odors, or noise or by the bursting or leaking of pipes or plumbing fixtures or the failure of any appurtenances or equipment. Sublandlord and Subtenant waive all rights against each other for damages caused by fire or other perils covered by insurance in connection with the Premises, to the extent of insurance received. (b) Subtenant shall not take any action or fail to take any action in connection with the Premises as a result of which Sublandlord would be in violation of any of the provisions of the Prime Lease. Subtenant shall defend, indemnify, and hold Sublandlord harmless from and against all loss, cost, liability, damage, and expense (including, but not limited to, attorneys' fees and court costs) caused by or arising out of Subtenant's act or inaction as a result of which Sublandlord is alleged and/or determined to be in violation of any of the provisions of the Prime Lease. Sublandlord shall not take any action or fail to take any action in connection with the Premises and its lease obligations as a result of which Sublandlord would be in violation of any of the provisions of the Prime Lease. Sublandlord shall defend, indemnify, and hold Subtenant harmless from and against all loss, cost, liability, damage, and expense (including, but not limited to, attorneys' fees and court costs) to the extent caused by or arising out of Sublandlord's act or inaction as a result of which is a violation of any of the provisions of the Prime Lease. 8. Casualty. If the Premises are damaged by fire or other casualty, and Landlord or Sublandlord shall, pursuant to the terms of the Prime Lease, elect to terminate the Prime Lease, this Sublease shall cease and terminate on the date of termination of the Prime Lease, and Rent shall be apportioned from the time of the damage. Otherwise, this Sublease shall remain in full force and effect, subject to the terms of the Prime Lease. Sublandlord shall have no obligation hereunder to repair any portion of the Premises, whether or not this Sublease shall be terminated, which obligation shall be Landlord's to the extent required under the Prime Lease. 9. Rights of Landlord. (a) Subtenant acknowledges any rights specifically reserved by Landlord under the Prime Lease, and Subtenant further acknowledges that its possession and use of the Premises shall at all times be subject to such rights. Subtenant hereby releases Sublandlord from all liability in connection with Landlord's exercise of such rights. (b) If Subtenant fails to do any act required of it hereunder or under the Prime Lease, Sublandlord may (but shall not be obligated to) do so, and Subtenant shall pay the cost thereof as Additional Rent within ten (10) days after receiving Sublandlord's statement therefor. 10. Default by Landlord. Sublandlord shall not be liable to Subtenant for Landlord's failure to perform any of Landlord's obligations under the Prime Lease, nor shall Sublandlord have any obligation to perform same or to bring legal proceedings or take any other action against Landlord to assure performance of Landlord's obligations under the Prime Lease. Except as otherwise provided herein, whenever Sublandlord shall have the right to enforce any rights against Landlord or any other party under the Prime Lease because of the default or breach of Landlord or such other party with respect to the Premises, and if, within a reasonable period after Subtenant's request, Sublandlord fails to enforce such rights, then Subtenant shall have the right, in the name of Subtenant or, if necessary, in the name of Sublandlord, to enforce any such rights of Sublandlord with respect to the Premises. Such enforcement shall be at the sole expense of Subtenant, and Subtenant shall indemnify Sublandlord against all costs and expenses, including but not limited to reasonable attorneys' fees, which may be incurred by Sublandlord in connection with any claim, action, or proceeding so undertaken by Subtenant. Any amount of recovery obtained by Subtenant shall be the property of Subtenant, except that Sublandlord shall be compensated therefrom for any damages sustained by Sublandlord as a consequence of such default or breach on the part of Landlord or such other party. 11. Default by Subtenant. (a) If: (i) Subtenant defaults in the payment, when due, of any installment of Rent and Subtenant fails to remedy such default within five (5) days after the date such payment was due; or (ii) Subtenant defaults in fulfilling any other covenant of this Sublease and Subtenant fails to remedy such default within ten (10) days after notice by Sublandlord to Subtenant specifying the nature of such default (or if such default cannot be completely cured or remedied within such ten (10)-day period and Subtenant shall not have diligently commenced curing such default within a five (5)-day period and shall not thereafter diligently remedy or cure such default within sixty (60) days after notice from Sublandlord); or (iii) there is any Default by Subtenant, then Sublandlord may, in addition to all remedies available to it by the terms of the Primes Lease and by notice to Subtenant, cancel this Sublease, and this Sublease and the Term hereunder shall end and expire as fully and completely as if the date of cancellation were the day herein definitely fixed for the end and expiration of this Sublease and the Term hereof. Subtenant shall then quit and surrender the Premises to Sublandlord, but Subtenant shall remain liable as provided in the Prime Lease and hereunder. (b) If: (i) a notice provided for in subsection (a) above shall have been given and the Term shall expire as aforesaid; or (ii) any execution shall be issued against Subtenant or any of Subtenant's property, whereupon the Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Subtenant, then and in any of such events, Sublandlord may, without notice, re-enter the Premises, and dispossess Subtenant, and the legal representative of Subtenant or other occupant of the Premises, by summary proceedings or otherwise, and remove their effects and hold the Premises as if this Sublease had not been made. Subtenant hereby waives the service of notice of intention to re-enter or to institute legal proceedings to that end, but Subtenant shall remain liable for damages as provided in the Prime Lease and hereunder. 12. Broker. The parties acknowledge that this Sublease was procured through the efforts of Cushman & Wakefield, Inc., Cushman & Wakefield of Illinois, Inc. and Trammell Crow Company (collectively, the "Brokers"), and Sublandlord shall compensate the Brokers pursuant to a separate agreement. Subtenant represents that it has dealt with no broker in connection with this Sublease other than the Brokers. Subtenant shall indemnify and hold harmless Sublandlord from any liability or loss, including reasonable attorneys' fees, resulting from a breach of the foregoing representation. 13. Taxes. Subtenant shall not be liable for any federal, state, or municipal income tax imposed upon Sublandlord as a result of this Sublease or any profits derived hereunder. 14. Remedies. The taking of any action by Subtenant, the occurrence of any event in regard to Subtenant, or the failure to act by Subtenant that would be a default under the Prime Lease if occurring or failing to occur in regard to Sublandlord, shall entitle Sublandlord to take all action with regard to Subtenant under this Sublease that Landlord is permitted to take against Sublandlord under the terms of the Prime Lease. Subtenant shall indemnify and hold harmless Sublandlord from and against all loss, cost, injury, liability, or expense (including reasonable attorneys' fees and court costs) caused by or arising out of Subtenant's default, breach, or violation of the terms of this Sublease. 15. Options. Anything in the Prime Lease to the contrary notwithstanding, Subtenant shall have no option to extend or renew the Term or expand or reduce the Premises. 16. Surrender and Holdover. (a) Upon any termination of this Sublease, by expiration of the Term or otherwise: (i) Subtenant shall immediately vacate the Premises and surrender possession thereof to Sublandlord in the same condition provided to Subtenant at time of execution of this Sublease; (ii) Subtenant shall surrender the Premises free and clear of all liens and encumbrances; and (iii) Sublandlord shall have full authority and license to enter and take possession of the Premises. (b) Subtenant shall pay to Sublandlord 200% of the monthly Rent hereunder plus all other costs for each month or portion thereof that Subtenant shall retain possession of the Premises or any part thereof after the termination of this Sublease, whether by lapse of time or otherwise, and shall also pay all damages sustained by Sublandlord to Landlord or otherwise on account thereof. Furthermore, Subtenant shall be subject to eviction proceedings and any other remedy or right accorded to Sublandlord in law or at equity. Any holding over by Subtenant upon termination of this Sublease shall not be evidence of an extension or renewal of the Term, nor shall acceptance of Rent or other payments by Sublandlord from Subtenant be evidence of the same, but such occupancy shall be terminable by either party on ten (10) days' notice. (c) Sublandlord represents and warrants that there are no items/alterations of which Landlord requires removal upon expiration of the Prime Lease in accordance with Section 9 of the Prime Lease. 17. Miscellaneous. (a) Each provision of this Sublease shall extend to and shall bind and inure to the benefit of Sublandlord and Subtenant and their respective permitted successors and assigns. (b) Subtenant acknowledges that this Sublease is subject and subordinate to all of the terms, covenants and conditions of the Prime Lease and to all rights of Landlord thereunder. In the event of any conflict between the terms and conditions of this Sublease and the terms and conditions of the Prime Lease, the terms and conditions of this Sublease shall control as between Sublandlord and Subtenant. (c) In the event that any provision of this Sublease is deemed to be invalid or unenforceable for any reason, this Sublease shall be construed as not containing such provision, and the invalidity or unenforceability thereof shall not render any other provision of this Sublease invalid or unenforceable. (d) Any Rent not paid within ten (10) days after the due date thereof shall thereafter be payable with interest at the rate of four (4) percentage points per annum plus the fluctuating prime or base rate of Bank of America (or any successor) in effect on the due date of such Rent, which interest shall be payable for the period from the due date to the date of payment. (e) Any provision of this Sublease or the Prime Lease that requires Sublandlord not to unreasonably withhold its consent shall never be the basis for an award of damages or give rise to a right of setoff to Subtenant, but may be the basis for a declaratory judgment or specific injunction with respect to the matter in question. (f) Whenever Subtenant must obtain the consent of Landlord with respect to the Premises, Sublandlord shall cooperate with Subtenant (at Subtenant's sole cost and expense) in obtaining Landlord's consent. Sublandlord and Subtenant shall promptly forward to the other true copies of all notices, requests, demands and communications received from Landlord (or its agent) with respect to the Premises or this Sublease. (g) Subtenant shall indemnify and hold Sublandlord harmless from the costs of any special services (including without limitation overtime HVAC and special cleaning services) that Subtenant may order through Sublandlord or directly from Landlord with respect to the Premises. (h) Each provision of this Sublease has been mutually negotiated, prepared and drafted. Each party hereto has been represented by legal counsel and, in connection with the construction of any provision hereof or deletion here from, no consideration shall be given to the issue of which party actually prepared, drafted, requested or negotiated any such provision or deletion. (i) Notwithstanding anything to the contrary contained in this Sublease, if, in the Prime Lease, any grace period(s) are afforded Sublandlord, the grace period(s) in question, under this Sublease and between Sublandlord and Subtenant, shall be three (3) business days shorter than under the Prime Lease. 18. Notices. Any notice, request or demand under this Sublease shall be in writing, considered properly delivered when actually received by the other party, addressed as hereinafter provided, and: (i) sent by a nationally-recognized overnight courier with return receipt; or (ii) sent bay the United States Postal Service, registered or certified mail (return receipt requested). Any notice, request or demand by Subtenant to Sublandlord shall be addressed to Sublandlord at the address for Sublandlord set forth below, until otherwise directed in writing by Sublandlord. Any notice, request or demand by Sublandlord to Subtenant shall be addressed to Subtenant at the address for Subtenant set forth below, until otherwise directed in writing by Subtenant. Receipt of any notice shall be evidenced by the date of receipt or rejection on the return receipt. Each of Subtenant and Sublandlord shall promptly deliver to the other a copy of each notice, demand, request, consent or approval to or from Landlord. If to Subtenant: Eagle Test Systems, Inc. Attn: Miriam F. Becerra 620 S. Butterfield Road Mundelein, IL 60060 If to Sublandlord: Pitney Bowes Inc. Attn: Director, North American Properties--West MSC 51-05 Stamford, CT 06926-0700 With a copy to: Trammell Crow Corporate Services Attention: PBI Lease Administration 1687 114th Avenue, S.E., Suite 250 Bellevue, WA 98004-6921 If to Landlord: Millbrook I, LLC c/o Millbrook Properties LLC Attn: Property Manager 475 Half Day Road, Suite 100 Lincolnshire, IL 60069 19. Security Deposit. To secure the full and faithful performance by Subtenant of all of the covenants, conditions and agreements set forth in this Sublease to be performed by it, Subtenant has deposited with Sublandlord the sum of $18,040.00 (the "Security Deposit") on the understanding that: (a) the Security Deposit or any portion thereof may be applied to the curing of any default that may exist, including but not limited to a breach for failure to pay Rent, without prejudice to any other remedy or remedies that Sublandlord may have on account thereof, and upon such application Subtenant shall pay Sublandlord on demand the amount so applied which shall be added to the Security Deposit so the same will be restored to its original amount; (b) should the Premises be conveyed by Sublandlord (if permitted by the Prime Lease), the Security Deposit or any balance thereof may be turned over to Sublandlord's grantee, and if the Security Deposit is turned over to such grantee, Subtenant hereby releases Sublandlord from any and all liability with respect to the Security Deposit and its application or return, and Subtenant agrees to look solely to such grantee for such application or return; (c) Sublandlord may commingle the Security Deposit with other funds, shall not be required to keep the Security Deposit in trust, and shall not be obligated to pay Subtenant any interest; (d) the Security Deposit shall not be considered an advance payment of Rent or a measure of damages for any default by Subtenant, nor shall it be a bar or defense to any actions by Sublandlord against Subtenant unless Sublandlord is in default of its lease obligations unrelated to Subtenant's actions or inactions beyond any applicable notice and cure period, then the Security Deposit shall immediately be applied as Rent; and (e) if Subtenant shall faithfully perform all of the covenants and agreements contained in this Sublease on the part of the Subtenant to be performed, and provided there exists no default by Subtenant hereunder, the Security Deposit or any then remaining balance thereof, shall be returned to Subtenant, without interest, within thirty (30) days after the expiration of the Term, provided subsequent to the expiration of this Sublease, Sublandlord may retain from the Security Deposit: (i) any and all amounts reasonably estimated by Sublandlord to cover the anticipated costs to be incurred by Sublandlord to remove any signage provided to Subtenant under this Sublease and to repair any damage caused by such removal (in which case any excess amount so retained by Sublandlord shall be returned to Subtenant within thirty (30) days after such removal and repair), and (ii) any and all amounts permitted by law or this Section. Subtenant hereby waives any and all provisions of law, now or hereafter in effect in Illinois or any local government authority or agency or any political subdivision thereof, that limit the types of defaults for which a landlord may claim sums from a security deposit. Subtenant further covenants that it will not assign or encumber the money deposited herein as a Security Deposit and that neither Sublandlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. If Sublandlord retains any money from the Security Deposit as permitted in this subsection above, Sublandlord shall provide Subtenant with notice setting forth an itemization of the amount(s) withheld and a brief description of why such amount(s) were withheld. 20. Landlord's Approval. Notwithstanding anything to the contrary herein, this Sublease is subject and subordinate to and conditioned upon Landlord's written consent to this Sublease (including, without limitation, Section 2 above). If this condition is not satisfied by a date that is five (5) days after Sublandlord's signing of this Sublease, time being of the essence, then this Sublease shall automatically terminate and be of no further force or effect. The parties hereto shall not bring any claim against each other for any loss, cost, expense, damage, or injury caused by or arising out of the failure of Landlord to consent to this Sublease. IN WITNESS WHEREOF, the parties have executed this Sublease the day and year first above written. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] SUBLANDLORD: PITNEY BOWES INC. By: /s/ Mary Maarbjerg -------------------------------- Name: Mary Maabjerg Title: Vice President Date: SUBTENANT: EAGLE TEST SYSTEMS, INC. By: /s/ Leonard Foxman -------------------------------- Name: Ted Foxman Title: Executive Vice President Date: 12/16/03 EX-10.23 21 c86449exv10w23.txt LEASE EXHIBIT 10.23 BY AND BETWEEN MILLBROOK VI LLC, AS LANDLORD AND EAGLE TEST SYSTEMS, INC., AS TENANT DATED: DECEMBER 1, 2003 TABLE OF CONTENTS
Page ---- ARTICLE 1 - GRANT, TERM, DEFINITIONS AND BASIC PROVISIONS................. 1 1.1. Basic Lease Provisions........................................... 1 1.2. Grant............................................................ 2 1.3. Lease Term....................................................... 3 1.4. Options to Extend................................................ 3 ARTICLE 2 - POSSESSION.................................................... 5 2.1. Delivery of Possession........................................... 5 2.2. Proposed and Final Plans......................................... 6 2.3. Construction Cost Rent Adjustments............................... 8 2.4. Landlord's Work.................................................. 9 2.5. Building Expansion............................................... 10 ARTICLE 3 - USE........................................................... 10 3.1. Permitted Use.................................................... 10 3.2. Prohibition of Use............................................... 10 ARTICLE 4 - RENT.......................................................... 11 4.1. Base Rent........................................................ 11 4.2. Payment of Rent.................................................. 11 4.3. Late Charges..................................................... 11 4.4. Accord and Satisfaction.......................................... 11 ARTICLE 5 - PREMISES EXPENSES AND TAXES................................... 11 5.1. Premises Expenses................................................ 11 5.2. Taxes from and after the Commencement Date....................... 13 5.3. Lease Year....................................................... 13 5.4. Payment of Premises Expenses and Taxes in Monthly Installments... 13 5.5. Delay; Inspection of Records..................................... 14 5.6. Tax Contest...................................................... 15 5.7. Survival......................................................... 15 ARTICLE 6 - INSURANCE..................................................... 15 6.1. Kinds and Amounts................................................ 15 6.2. Named Insureds; Co-Insurance..................................... 15 6.3. Deductibles; Evidence of Insurance............................... 15 6.4. Tenant's Personal Property Coverage.............................. 16 6.5. Blanket Policies................................................. 16 6.6. Fire Protection.................................................. 16 6.7. Landlord's Insurance............................................. 16 6.8. Mutual Waiver of Claims and Rights of Subrogation................ 17
-i- ARTICLE 7 - COMPLIANCE WITH LAWS.......................................... 17 7.1. Compliance....................................................... 17 7.2. Observance of Matters of Record.................................. 18 ARTICLE 8 - REPAIRS AND MAINTENANCE....................................... 18 8.1. Tenant's Repair Obligations...................................... 18 8.2. Landlord Repair Responsibilities................................. 19 8.3. Covenant Against Waste........................................... 20 ARTICLE 9 - ALTERATIONS................................................... 20 9.1. Alterations...................................................... 20 9.2. Liens and Claims................................................. 20 9.3. Payment for Alterations.......................................... 21 9.4. Ownership and Removal of Alterations............................. 21 ARTICLE 10 - ASSIGNMENT AND SUBLETTING.................................... 21 10.1. Landlord's Consent Required..................................... 21 10.2. Attempted Transfers............................................. 24 10.3. Change of Control............................................... 24 10.4. Landlord's Consent Not Required................................. 25 ARTICLE 11 - LIENS AND ENCUMBRANCES....................................... 25 11.1. Encumbering Title............................................... 25 11.2. Liens and Right to Contest...................................... 25 ARTICLE 12 - UTILITIES.................................................... 26 12.1. Use and Purchase of Utilities................................... 26 ARTICLE 13 - INDEMNITY AND WAIVER......................................... 26 13.1. Indemnity....................................................... 26 13.2. Hazardous Materials............................................. 27 13.3. Compliance with Environmental Laws.............................. 28 13.4. Waiver of Certain Claims........................................ 29 ARTICLE 14 - DESTRUCTION AND RESTORATION.................................. 29 14.1. Substantial Destruction......................................... 29 14.2. Less Than Substantial Destruction............................... 30 14.3. Abatement....................................................... 30 14.4. Limitation on Repair Obligations................................ 30 ARTICLE 15 - CONDEMNATION................................................. 30 15.1. Complete Taking................................................. 30 15.2. Taking of Part.................................................. 30 15.3. Compensation.................................................... 31 ARTICLE 16 - SUBORDINATION OR SUPERIORITY................................. 31 16.1. Subordination; Non-Disturbance.................................. 31 16.2. Superiority..................................................... 31

-ii- 16.3. Mortgage Protection Clause...................................... 32 16.4. Attornment...................................................... 32 ARTICLE 17 - SURRENDER.................................................... 32 17.1. Surrender...................................................... 32 17.2. Holding Over................................................... 33 ARTICLE 18 - DEFAULT AND REMEDIES......................................... 33 18.1. Tenant Defaults................................................ 33 18.2. Termination of Lease........................................... 34 18.3. Termination of Right of Possession............................. 35 18.4. Remedies Cumulative............................................ 36 18.5. No Waiver...................................................... 36 18.6. Interest....................................................... 36 18.7. Enforcement of CC&R's.......................................... 36 18.8. Landlord's Right to Perform Tenant Obligations................. 36 18.9. Landlord's Defaults............................................ 37 ARTICLE 19 - MISCELLANEOUS................................................ 38 19.1. Rights Reserved to Landlord.................................... 38 19.2. Quiet Enjoyment................................................ 38 19.3. Signage........................................................ 38 19.4. Notices........................................................ 38 19.5. Memorandum of Lease............................................ 39 19.6. Time of Essence................................................ 39 19.7. Relationship of Parties........................................ 39 19.8. Captions....................................................... 39 19.9. Severability................................................... 39 19.10. Law Applicable................................................. 39 19.11. Covenants Bindinq on Successors................................ 39 19.12. Brokerage...................................................... 39 19.13. Force Majeure.................................................. 39 19.14. Sale of Building............................................... 40 19.15. Estoppel Certificate........................................... 40 19.16. Corporate Consent.............................................. 40 19.17. Execution...................................................... 40 19.18. Limitation of Liability........................................ 40 19.19. Amendments Must Be in Writing.................................. 40 19.20. Financial Statements........................................... 41 19.21. Lease Not Affected............................................. 41 19.22. No Waiver...................................................... 41 19.23. Entire Agreement............................................... 41 19.24. Counterparts................................................... 41 19.25. Venue.......................................................... 41 19.26. Jury Waiver.................................................... 41 19.27. (Intentionally omitted)........................................ 42 19.28. Guaranty....................................................... 42

-iii- 19.29. Joint Effort................................................... 42 19.30. Reasonable Consent............................................. 42 19.31. Arbitration.................................................... 42 19.32. Center Association Board Meetings.............................. 43 19.33. (Intentionally omitted)........................................ 43 19.34. Right of First Offer........................................... 43 19.35. Exhibits....................................................... 44

-iv- LEASE THIS LEASE ("Lease") is made as of the 1st day of December, 2003, by and between MILLBROOK VI LLC, an Illinois limited liability company ("Landlord,") and EAGLE TEST SYSTEMS, INC., an Illinois corporation ("Tenant"), who hereby mutually covenant and agree as follows: ARTICLE 1 - GRANT, TERM, DEFINITIONS AND BASIC PROVISIONS 1.1. BASIC LEASE PROVISIONS. The following terms ("Basic Lease Provisions") are defined as follows: (a) Commencement Date: The date of Substantial Completion (hereafter defined) of Landlord's Work (hereafter defined) in accordance with the Final Plans (hereafter defined). (b) Lease Term: The period beginning on the Commencement Date and ending on the Expiration Date, unless sooner terminated or extended as provided herein. (c) Expiration Date: Subject to Section 1.4, the tenth (10th) anniversary of the Commencement Date, except that if the Commencement Date does not fall on the first day of a month, then the Expiration Date shall be the last calendar day of the same month in which the tenth (10th) anniversary of the Commencement Date occurs. (d) Purpose: Tenant shall use and occupy the Premises for design, production, sales and distribution of automatic test equipment, and general office and other ancillary related purposes (the "Intended Use"), all in accordance with all easements, agreements, covenants, conditions and restrictions of record affecting the Premises ("CC&R's") and all Legal Requirements (as hereafter defined). (e) Base Rent: Base Rent shall be determined as follows: (i) As used herein, "Rental Rate" shall mean $11.95 per square foot per annum for the first five (5) years of the Lease Term; provided, however, that said $11.95 rate per square foot per annum may be adjusted pursuant to Section 2.3 below. As used herein, "Area of the Premises" shall mean the gross square footage of the Building, which for all purposes shall be deemed to be 84,600 square feet. (ii) Base Rent for the first five (5) Years of the Lease Term shall be in an amount established by multiplying the Rental Rate, as it may be adjusted pursuant to Section 2.3, below, by the Area of the Premises. -1- (iii) Base Rent for the sixth (6th) through tenth (10th) Year of the Lease Term shall be in an amount established by multiplying: (x) $12.70 (as it may be adjusted pursuant to Section 2.3, below); by (y) the Area of the Premises. (iv) For the purposes of this Section 1.1(e) and 1.4 only, the term "Year" shall mean each twelve (12) month period commencing on the Commencement Date or an anniversary thereof, except that if the Commencement Date is not the first day of a calendar month, then the first Year shall end on the last calendar day of the same month in which the first anniversary of the Commencement Date occurs. (f) Tenant's Address: Prior to Commencement Date: Eagle Test Systems, Inc. 630 Butterfield Road Mundelein, IL 60060-4483 From and after Commencement Date: Eagle Test Systems, Inc. 2200 Millbrook Drive Buffalo Grove, IL 60089 (g) Landlord's Address: c/o Millbrook Properties LLC, 485 Half Day Road, Suite 200, Buffalo Grove, Illinois 60089; and c/o Quarles & Brady LLP, 500 W. Madison Street, Suite 3700, Chicago, Illinois 60661, Attn: Mark J. Horne, Esq. 1.2. GRANT. Landlord, for and in consideration of the rents and other sums herein reserved and of the covenants and agreements herein contained on the part of Tenant to be performed, hereby leases to Tenant for the Lease Term, and Tenant hereby leases from Landlord for the Lease Term, the Premises hereafter described together with all appurtenances now or hereafter appertaining thereto. The "Premises" are comprised of and defined as all of the approximately 301,784 square foot site labeled as the "Premises and Parking Plan" as depicted in Exhibit "A" attached hereto, together with the entire two-story industrial and office building ("Building") which is anticipated to contain approximately 84,600 square feet of interior space and other improvements thereon to be constructed by Landlord in accordance herewith, and expected to be commonly known as 2200 Millbrook Drive, Buffalo Grove, Illinois, and situate on that certain parcel of land ("Land") legally described on Exhibit "B", attached hereto, together with, and subject to, all easements benefiting and burdening the Land and the exclusive right to use the Tenant's Parking Area (as defined below) in accordance with the terms hereof and the right, in common with others, to use any common areas in or on the Real Estate (defined below) and, to the extent of Landlord's rights therein, in or on the Center (defined below). The term "Building" includes all alterations, additions and replacements thereof and all equipment, fixtures, common areas, walks, drives, parking areas, loading areas, landscaping and other improvements now or hereafter erected or placed into service on the Land. The Building and -2- Land (including without limitation the Tenant's Parking Area, as defined below) are sometimes hereinafter referred to as the "Real Estate." The Real Estate is a portion of Millbrook Business Center in Buffalo Grove and Lincolnshire, Illinois, including related parking areas, storm water retention areas, access roads and offsite and onsite incidental improvements (the "Center"). Landlord shall make available to Tenant the Landlord's right to use common areas and other amenities of the Center on the same basis as other occupants of the Center during the Lease Term in accordance with the CC&R's. Tenant shall have the exclusive right, at no additional cost to Tenant, during the Lease Term to use for automobile parking purposes only, the surface parking lot to be constructed by Landlord in accordance herewith, containing not less than 220 automobile parking stalls (including handicap parking spaces as required by current Legal Requirements), on the Land in the location designated on Exhibit "A" (the "Tenant's Parking Area"). Tenant's Parking Area shall be available for use twenty-four (24) hours a day, every day of the year during the Lease Term, subject to Force Majeure (as herein defined) and reasonable maintenance, repair and replacement related closures thereof as may be necessary or desirable from time to time. As a Premises Expense (as defined in Section 5.1 below), except as provided in Section 8.2 below, Landlord shall keep and maintain Tenant's Parking Area in a clean and first class condition, including the snow plowing thereof as necessary from time to time, all subject to Force Majeure. Tenant may not sell, transfer, lease, license or assign its right to use any of the parking stalls made available to Tenant under this Lease, except as permitted under Article 10 herein in connection with a permitted Transfer (as defined therein). As used herein, "Legal Requirements" means every statute, law (including, without limitation, the Americans with Disabilities Act of 1990 (the "ADA")), ordinance, code, regulation, order, permit, approval, license, judgment, restriction or rule of any federal, state, county, municipal or local government and all departments, commissions, boards, bureaus and offices thereof or of any other public or quasi-public bodies, agencies, courts, departments, bureaus or authorities having jurisdiction over the Premises or the activities of the Tenant thereon. 1.3. LEASE TERM. The Lease Term shall commence on the Commencement Date and shall expire on the Expiration Date, unless extended or sooner terminated in accordance with the terms of this Lease. Upon either party's request, within thirty (30) days after the Commencement Date, Landlord and Tenant shall execute a Memorandum of Lease Commencement Date in a mutually acceptable form confirming the Commencement Date for all purposes of this Lease. 1.4. OPTIONS TO EXTEND. Tenant shall have three (3) consecutive options to extend the Lease Term, each such extension being for an additional period of five (5) years (each, an "Extended Term"), upon the same terms and conditions applicable to the initial Lease Term, except that no allowances, abatements or improvements shall be provided by Landlord (other than a refurbishing allowance upon commencement of each of the first Extended Term and the third Extended Term equal to $1.84 multiplied by the Area of the Premises), and except that the Base Rent during each such Extended Term shall be the lesser of: (i) 115% of the Base Rent for the Year immediately preceding the applicable Extended Term (the "Increased Rent"); or (ii) the then current "fair market rent" (as defined in item (iv) below) for the Area of the Premises for such Extended Term, determined in the manner set forth below as of the commencement of each such Extended Term. Tenant must notify Landlord in writing of the exercise of its option to extend at least twelve (12) months prior to the expiration of the initial Lease Term or the then current Extended Term, as the case may be. If Tenant does not so notify Landlord within said -3- time, Tenant shall have waived its option to extend and shall have waived all subsequent options to extend. Once given, Tenant's election to extend shall be irrevocable, except as provided hereinafter. The options to extend set forth herein shall be voidable by Landlord, at Landlord's option, if Tenant is in Default under any of the covenants and obligations contained in this Lease at the time of the exercise of any such option. In addition, Tenant may only exercise an option to extend if, at the time of Tenant's exercise of such option and on the commencement date of such Extended Term, the Premises are occupied by Eagle Test Systems, Inc. or a Related Transferee of Eagle Test Systems, Inc. (as defined in Section 10.4 below). No sublessee or assignee of Tenant other than a Related Transferee of Eagle Test Systems, Inc. shall be entitled to exercise any right or option under this Section 1.4. Within thirty (30) days after receipt of Tenant's notice of exercise, Landlord shall deliver to Tenant, in writing, Landlord's good faith determination of the then current fair market rent (as defined in item (iv) below). If Tenant does not object to Landlord's determination of the then current fair market rent within twenty (20) days after receiving Landlord's written notice, Landlord's proposed fair market rent shall be binding on the parties and, subject to (iv) below, shall become the Base Rent for the applicable Extended Term, provided it is less than the Increased Rent. However, if Tenant objects within such twenty (20) day period, the parties shall negotiate in good faith in order to agree upon the fair market rent. If the parties have not agreed within thirty (30) days after Tenant has given notice of its objection, then Tenant at its election by written notice to Landlord on or before the last day of said thirty day period (a "Cancellation Notice") may cancel its exercise of the applicable option to extend the Lease Term and the Lease Term or then current Extended Term, as the case may be, shall expire on its expiration date without such extension being effective. If no such Cancellation Notice is given by Tenant to Landlord in a timely fashion, then the parties shall submit the determination thereof to arbitration before a single arbitrator as follows: (i) Landlord and Tenant shall have ten (10) days following Tenant's election within which to select one (1) mutually agreeable arbitrator. If Landlord and Tenant fail to agree on one arbitrator within the ten (10)-day period, either party may promptly request the American Arbitration Association (or its successor, the "Association") to appoint an arbitrator, and the Association's selection shall be binding upon Landlord and Tenant. The Association shall appoint as arbitrator an impartial individual with the following qualifications: MAI credentials, at least ten (10) years' experience in the business of appraising commercial real estate and generally recognized competence in the valuation of commercial rental properties in the north suburban Chicago area who has never been a direct or indirect employee or agent of either Landlord or Tenant and shall have had no business dealings with either Landlord or Tenant within the three (3) year period preceding his selection. (ii) Within ten (10) days of his selection or appointment, Landlord and Tenant shall each submit to the arbitrator, in writing, a good faith determination of the fair market rent for the Premises. (iii) The arbitrator selected must choose either Landlord's or Tenant's good faith determination of the fair market rent for the Premises, and the arbitrator's choice shall be final and binding upon the parties. In determining the fair market rent for the Premises and which of Landlord's or Tenant's -4- determinations to select, the appraiser shall consider all relevant factors and shall be bound by the definition of fair market rent set forth herein. From the date of either the submission of Landlord's and Tenant's determination, or ten (10) days after the selection or appointment of the arbitrator, whichever is earlier, the arbitrator shall have thirty (30) days within which to render a decision as to the fair market rent for the Premises. If the arbitrator fails to render a decision within the applicable thirty (30) day period, either party shall have the right to apply to the Association to appoint another arbitrator satisfying the requirements of (i) above, in which event the parties shall arbitrate the determination of fair market rent again before the newly appointed arbitrator in accordance with this Section 1.4. The fees of the arbitrator and the expenses incident to the arbitration proceedings (including the fees of any expert witnesses retained by the arbitrator, if he so elects) shall- be borne equally between Landlord and Tenant. The fees of respective counsel engaged by the parties, and the fees of witnesses called for by the parties, shall be paid by the respective party engaging such counsel or calling or engaging such witnesses. (iv) As used herein, the "fair market rent" shall mean the then current most probable rent per rentable square foot per annum which would be charged for the Premises for the Extended Term based upon generally prevailing rental rates then being charged for comparable facilities in the north suburban Chicago market for comparable space for leases commencing on or about the time of the commencement of the applicable Extended Term and having a five (5) year term, without consideration of the value of any improvements to the Premises funded by Tenant, but otherwise considering the duration, terms and conditions of the Lease, as applicable, and taking into consideration variations between the Building , the Land area and Tenant's Parking Area as compared to the use, location, quality, amenities, and age of any comparable facility, the date that the particular rate being compared became effective, the term of the lease under consideration, the extent of services provided thereunder, applicable distinctions between "gross" leases and "net" leases, base year figures for escalation purposes, and other adjustments to the base rental and any other relevant term or condition in making such evaluation, including, without limitation, bona fide written offers made to Landlord by unrelated third parties on an arms-length basis to lease the same or comparable space in the Center; provided however that if the then current fair market rent for the Area of the Premises with respect to the Extended Term as so determined exceeds the Increased Rent, then the then current fair market rent for the Area of the Premises for the Extended Term shall be deemed to be the Increased Rent (as defined above). ARTICLE 2 - POSSESSION 2.1. DELIVERY OF POSSESSION. (a) Tenant acknowledges that prior to the Commencement Date, it will make such inspections as it desires of all of the Premises and all factors relevant to its -5- use. Subject to the substantial completion of the same in accordance with the provisions of Section 2.4, hereof and except for punchlist items as expressly provided for in this Lease, Tenant shall accept the Premises in "AS IS" condition, except for latent defects discovered and claimed by Tenant in writing to Landlord within eighteen (18) months of the date of Substantial Completion. Except as expressly provided herein, no representations, warranties or agreements as to the condition or repair of, or improvements to, the Premises have been made by or on behalf of Landlord. Subject to completion of Landlord's Work (as hereinafter defined), including punchlist items as described below, and Landlord's responsibilities pursuant to Article 8, Tenant's taking possession of the Premises shall be conclusive evidence that the Premises were suitable for Tenant's Intended Use as of the date thereof, that Tenant accepts the condition of the Premises, and that Tenant waives all claims relating to the condition of the Premises, except for latent defects discovered and claimed by Tenant in writing to Landlord within eighteen (18) months of the date of Substantial Completion. (b) Tenant shall be permitted to enter the Premises approximately sixty (60) days prior to the Commencement Date for the purpose of installing its fixtures, equipment and furniture, along with all cabling and equipment relating to Tenant's communications, data and security systems. During such period prior to the Commencement Date, Tenant shall comply with all terms and provisions of this Lease, except those provisions requiring the payment of Rent, and shall not interfere with Landlord's performance of Landlord's Work (as defined below). Landlord shall permit early entry, so long as: (i) the Premises are available in accordance with applicable Legal Requirements; (ii) Landlord has completed the necessary portions of Landlord's Work; (iii) Tenant's installations and other work then being performed by Tenant in the Building shall be performed in accordance with applicable Governmental Requirements; and (iv) Tenant is in compliance with the other provisions of this Lease, including the insurance requirements under Article 6. 2.2. PROPOSED AND FINAL PLANS. (a) Prior to commencing construction of the Building, Landlord shall cause to be prepared and delivered to Tenant the following drawings and plans ("Landlord's Plans") for the construction of the Building and for all improvements which Landlord agrees to have completed in the Premises: (i) Civil engineering plans for the Premises (including site plan, parking layout, storm water system and site utilities). (ii) Architectural drawings (consisting of Building shell and floor construction plan, and interior build-out including offices in the mezzanine, ceiling lighting, reflected ceiling plans and layout and construction details). (iii) Mechanical drawings (consisting of HVAC, electrical, plumbing and fire suppression system). -6- (iv) Finish schedule (consisting of wall, ceiling and floor finishes, colors, materials and miscellaneous details). (v) Landscape plan. (vi) Hardware schedule (consisting of door locks, panic hardware, door stops, hinges, door closers, kick plates and miscellaneous details). (b) All civil engineering plans for the Premises shall be prepared by V3 Consultants and, except as provided below, paid for by Landlord. All architectural drawings shall be prepared by Randall Bees Architects, Inc. (the "Project Architect") and, except as provided below, paid for by Landlord. In connection with Landlord's engagement of the Project Architect, Landlord agrees to include in the relevant contract with the Project Architect for its rendition of architectural services, a provision which obligates the Project Architect to prepare all architectural drawings in accordance with all applicable municipal laws, statutes, ordinances, codes, orders, rules and regulations. All mechanical drawings shall be prepared by Concept Mechanical Engineering, Inc. and Kornacki & Associates, Inc. and, except as provided below, paid for by Landlord. Tenant shall bear its own out-of-pocket costs incurred in reviewing Landlord's Plans and shall pay all engineering, architectural and other consultant's fees relating to changes to the project scope, with the exception of Modification No. 1 (as hereafter defined). (c) Within ten (10) business days after Tenant's receipt of any of Landlord's Plans (or preliminary versions of the same or applicable portions thereof), Tenant may, at its sole cost and expense, request revisions or modifications ("Modifications") to Landlord's Plans, provided said plans are marked for Tenant's review and approval; and further provided, however, that if, prior to the expiration of the aforesaid ten (10) business day period, Tenant does not submit written Modifications to the Landlord, then the Landlord's Plans shall become the "Final Plans" for the Premises. Within ten (10) days following Landlord's receipt of the Modifications (or if Tenant does not submit Modifications within the aforesaid ten (10) business day period, then within ten (10) days after expiration of said period), Landlord shall revise Landlord's Plans (or preliminary or applicable portion thereof) to incorporate the Modifications, in which event Landlord's Plans, as modified by the Modifications, shall become the "Final Plans" for the Premises. Landlord shall thereafter prepare a change order for Tenant's approval increasing or decreasing the Base Rent by the per square foot value of the Modifications, pursuant to Section 2.3 below. All Modifications shall be on an open book basis, including contractor's fees, general conditions, insurance costs and any adjustments to the Project Schedule (as hereafter defined). (d) All Landlord's Plans and Final Plans shall be generally consistent with the outline specifications and other documents set forth on Exhibit "C" attached hereto. Neither review nor approval by Landlord of Landlord's Plans and resulting Final Plans shall constitute a representation or warranty by Landlord that such plans are complete or suitable for their intended purpose. It is expressly agreed by Tenant that Landlord assumes no responsibility or liability whatsoever to Tenant or to any other person or entity for such completeness or suitability. Landlord agrees however that it -7- shall enforce its rights (to the extent reasonably practicable and prudent) against third parties responsible for the preparation of Landlord's Plans and Final Plans to the extent of any such deficiencies contained therein for which such third parties are liable and Landlord shall apply any resultant net recovery from such third parties to the remediation of said deficiencies. Neither Landlord or Tenant shall make any changes in the Final Plans without the other's prior written approval, which approval shall not be unreasonably withheld, delayed or conditioned. (e) Upon either party's request, within thirty (30) days after finalization and approval of the Final Plans by Landlord and Tenant, Landlord and Tenant shall execute a Memorandum of Building Size in a mutually acceptable form confirming the total square footage of the Building, as measured in accordance with the Building Owners and Management Association Method, approved by the American National Standards Institute (ANSI/BOMA Z65.1-1996, as amended) ("BOMA"). Said measurement shall be completed by the Project Architect, who shall certify to Landlord and Tenant that its calculations were conducted pursuant to BOMA. 2.3. CONSTRUCTION COST RENT ADJUSTMENTS. Subject to the conditions hereinafter provided, Landlord shall bear all soft and hard costs and expenses necessary to construct and complete the Building and Premises in substantial accordance with Landlord's Plans. All costs incurred or saved by Landlord in completing Landlord's Work (as defined below) resulting from Modifications or other change orders requested and approved by Tenant shall effectively increase or decrease the Base Rent as follows: (a) For the first $275,000.00 of net increased costs so incurred by Landlord there shall be no increase in Base Rent; (b) The initial Base Rent per square foot shall be increased by $0.25 for the next $220,000.00 of net increased costs so incurred by Landlord (said $0.25 to be prorated for any such increase less than $220,000.00), which increase shall be further increased by fifteen percent (15%) for the sixth (6th) through (10th) Year of the Lease Term; and (c) All Modifications or change orders which could otherwise cause Landlord's cost to complete Landlord's Work to exceed $495,000.00, shall be paid entirely by Tenant to Landlord as follows: (1) $75,000.00 on May 1, 2004; (2) the balance upon the Commencement Date; and (3) any additional sums due Landlord by Tenant in connection with construction of the Premises and pursuant to the terms of this Lease which are not known or confirmed by Landlord as of the fifth (5th) business day preceding the Commencement Date, shall be due and payable sixty (60) days following the Commencement Date. (d) Any Modifications or change orders which, in the aggregate, result in a net savings in Landlord's cost to complete Landlord's Work pursuant to Landlord's Plans shall cause the Base Rent to be reduced by: (i) nine percent (9%) of such net savings; divided by (ii) the Area of the Premises. -8- 2.4. LANDLORD'S WORK. (a) Landlord shall cause the construction of the Building and other improvements to the Premises by a general contractor selected by Landlord, in substantial accordance with the Final Plans ("Landlord's Work"). The ownership of all such improvements will vest in Landlord. Landlord shall diligently prosecute Landlord's Work to completion and in connection therewith shall use reasonable efforts to substantially complete Landlord's Work in accordance with the schedule set forth in Exhibit "D" (the "Project Schedule"), but in no event later than two hundred forty (240) days following the date the building permit for construction of the Building is issued by the Village of Buffalo Grove, all subject to Force Majeure (as defined in Section 19.13) and any delays caused, or Modifications or other change orders approved, by Tenant. (b) Upon at least seventy-two (72) hours written notice from Landlord, the parties shall jointly inspect the Premises and prepare a punchlist of any incomplete Landlord's Work, including, without limitation, any elements of the Building Systems (as hereafter defined) which are not then in working order and sufficient to permit lawful occupancy of the Building. The punchlist shall list incomplete, minor, or insubstantial detail of construction, necessary mechanical adjustments and needed finishing touches. If the parties are unable to agree on the date of substantial completion or the completion of punchlist items, the matter shall be resolved by the Project Architect, whose decision shall be final and binding upon the parties. The parties agree to reasonably cooperate with one another in order to promptly obtain a Certificate of Occupancy for the Building from the Village of Buffalo Grove following Substantial Completion. For the purposes hereof, "Substantial Completion" shall be deemed achieved when: (i) the Project Architect certifies to Tenant that Landlord' s Work has been substantially completed in accordance with the Final Plans such that the Tenant can occupy the Premises for its Intended Use; and (ii) when Landlord's Work has met the requirements of those governmental and quasi-governmental authorities having jurisdiction to permit lawful occupancy of the Building. Landlord will cause the punchlist items to be completed within a reasonable time after the Commencement Date, but in any event not later than thirty (30) days thereafter, subject to Force Majeure. Additionally, at no expense to Tenant, Landlord shall cause the installation and/or correction within the Premises of any aspect of Landlord's Work which was not constructed or installed in substantial accordance with the Final Plans (a "Landlord's Omission") if the correction of such Landlord's Omission is later determined by the Village of Buffalo Grove to be necessary for the issuance of a certificate of occupancy for the Building. Except for (i) the completion of punchlist items and the correction of Landlord's Omissions as provided above, (ii) Landlord's agreement to enforce third party warranties with respect to latent defects, and (iii) as otherwise expressly provided in this Lease, Landlord shall have no liability to Tenant for any defects in Landlord's Work. (c) Tenant has already advised Landlord that it is requesting the revisions to Landlord's Plans listed on Exhibit "I" attached hereto and made a part hereof (collectively, "Modification No. 1"). The total cost of the additional work comprising Modification No. 1 shall not exceed $171,300.00. All work comprising Modification No. 1 shall be done on an open book basis. -9- (d) Tenant has requested Landlord to solicit prices to complete the additional work and revisions to the Building described on Exhibit J attached hereto and made a part hereof (collectively, "Modification 2"), all of which work shall be done on an "open-book basis" and the final cost for which shall be paid by Tenant pursuant to Section 2.3 above. 2.5. BUILDING EXPANSION. In the event the Tenant elects to expand the Building, as currently depicted on Exhibit C hereto, then Tenant shall reimburse Landlord, in the manner provided below, for all costs incurred by Landlord to construct such expansion. The Building may be expanded by up to 3,600 square feet on the ground floor and up to 9,000 square feet on the second floor. To the extent the Building is expanded on the ground floor, Tenant will also be required to reimburse Landlord for all costs incurred to provide one (1) additional parking space for each 250 square feet of gross floor area added to the ground floor plus that portion of any new second floor space added over said new ground floor expansion area. The costs of any Building or parking expansion will be paid by Tenant pursuant to a Modification approved by Landlord and Tenant. Tenant will be required to make the following payments to Landlord to cover the costs incurred by Landlord for such expansion of the Building (and any required parking lot expansion): (1) $75,000.00 on July 1, 2004; (2) $75,000.00 on September 1, 2004; (3) $75,000.00 on October 1, 2004; (4) the balance upon the earlier of the Commencement Date or November 1, 2004; and (5) any additional sums due Landlord by Tenant in connection with such Building and parking lot expansion which are not known or confirmed by Landlord as of the fifth (5) business day preceding the Commencement Date, shall be due and payable sixty (60) days following the Commencement Date. Portions of the costs to be incurred for Building and parking lot expansion may be estimated by Landlord at the time the pertinent Modification is executed and, as the actual costs for such work are finally determined, on an open book basis, the final payment for said work will be adjusted to collect only those costs actually incurred by Landlord to construct said Building expansion (and any required parking lot expansion). ARTICLE 3 - USE 3.1. PERMITTED USE. Tenant shall have the right to use and occupy the Premises only for the purposes set forth in Section 1.1(d). 3.2. PROHIBITION OF USE. Tenant shall not use the Premises in any manner that would (a) constitute a public or private nuisance or waste, (b) render the insurance on the Premises void or render the Premises uninsurable at commercially reasonable rates, (c ) be unlawful, (d) constitute a public or private nuisance or unreasonably disturb or interfere with other occupants of the Center, if any, (e) materially damage or waste the Premises or materially diminish the value or usefulness of the Premises, (f) give rise to a claim of adverse possession or usage by the-public or any third party, or (g) result in the storage, use, generation, release or distribution of Hazardous Materials (as defined in Section 13.2) in violation of applicable Legal Requirements. Tenant shall not service, fuel or perform any maintenance on any trucks or other vehicles on the Premises or elsewhere in the Center. Tenant shall not install any antennas on or about the exterior of the Premises or in the Tenant's Parking Area, without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Any such antennas shall only be for Tenant's sole and exclusive use in the operation of its business permitted under this -10- Lease and shall be installed, maintained and operated in accordance with all Governmental Requirements, the Declaration (as hereafter defined), as amended from time to time, and all other applicable rules, regulations and requirements reasonably adopted from time to time by Landlord. If any particular use, activities or operations of Tenant in the Premises should at any time during the Lease Term be prohibited by law or ordinance or other governmental regulation, or prevented by injunction, this Lease shall not be thereby terminated, nor shall Tenant be entitled by reason thereof to surrender the Premises or to any abatement or reduction in Rent, nor shall the respective obligations of the parties hereto be otherwise affected, and this Lease shall continue, but Tenant shall cease such use. ARTICLE 4 - RENT 4.1. BASE RENT. Commencing on the Commencement Date, Tenant shall pay Base Rent as set forth in the Basic Lease Provisions, in equal monthly installments in advance, on the first day of each month during the term hereof. Base Rent shall be prorated for partial months or years within the Lease Term. 4.2. PAYMENT OF RENT. All charges, costs and sums required to be paid by Tenant to Landlord under this Lease in addition to Base Rent, including without limitation payments on account of Premises Expenses and Taxes (as defined below), shall be deemed additional rent ("Additional Rent"). Base Rent and Additional Rent are hereinafter collectively referred to as "Rent". Tenant's covenant to pay Rent shall be independent of every other covenant in this Lease. Rent shall be paid to or upon the order of Landlord at the Landlord's Address set forth in the Basic Lease Provisions, or as Landlord shall otherwise direct by written notice to Tenant. All payments of Rent shall be made without any prior demand therefor and without deduction, set off, discount or abatement (except as permitted under Section 18.9 below), in lawful money of the United States. 4.3. LATE CHARGES. If any payment of Rent is not received by Landlord within five (5) days after the date due, then Tenant shall pay Landlord a late charge equal to five percent (5%) of the amount of said delinquent payment. 4.4. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord of Rent hereunder shall be deemed to be other than on account of the amount due, and no endorsement or statement on any check or any letter accompanying any check or payment of Rent shall be deemed an accord and satisfaction, and Landlord may accept such check as payment without prejudice to Landlord's right to recover the balance of such installment or payment of Rent or pursue any other remedies available to Landlord. No receipt of money by Landlord from Tenant after the termination of this Lease or Tenant's right of possession of the Premises shall reinstate, continue or extend the Lease Term or Tenant's right of possession. ARTICLE 5 - PREMISES EXPENSES AND TAXES 5.1. PREMISES EXPENSES. From and after the Commencement Date, Tenant shall pay to Landlord, as Additional Rent, all Premises Expenses (as hereinafter defined) which Landlord shall become obligated to pay during the term of this Lease. Subject to the terms of this Section -11- 5.1, "Premises Expenses" shall mean all costs, expenses and disbursements of every kind and nature which Landlord shall become obligated to pay in connection with the ownership, management, operation, maintenance, repair and replacement of the Real Estate, but exclusive of any such costs, expenses or disbursements in connection with the repair or replacement (as distinguished from maintenance) of the Structure (as defined in Section 8.1 below), including maintaining the weather tightness of the roof. Premises Expenses shall include, without limitation, costs and expenses incurred by Landlord for: business park dues and assessments charged by the Millbrook Business Center Association for the management, operation, maintenance and repair of the Center; Landlord's insurance premiums (including, without limitation, premiums for insurance covering casualty, loss of rents, lessors risk liability, vehicles, and worker's compensation); reasonable costs and expenses (including attorneys' fees) in protesting Taxes (except to the extent that Tenant elects to contest the same at its own cost), provided such protest by Landlord resulted in a reduction of Taxes and that such costs and expenses do not exceed such reduction realized; security services for the Premises if Tenant requests Landlord to provide the same; customary and/or recommended routine maintenance (including, without limitation, fees and costs paid in connection with maintenance and service contracts) and repair and replacement of the Premises' operating and building systems including, but not limited to, the HVAC, plumbing, sewer, electrical and mechanical systems, fire detection system, fire suppression system, security system, backflow prevention devices, emergency lighting systems, hoisting/elevator systems and irrigation system and their respective components (all of said operating and building systems and their respective components are hereinafter collectively referred to as the "Building Systems"); maintenance (as opposed to repair and replacement) of the Structure (as defined in Section 8.1 below); maintenance, repair and replacement of all exterior areas including landscaping, Tenant's Parking Area, drives, walks and exterior lighting; snow and ice removal; and window washing. The cost of improvements, repairs or replacements necessitated by the acts or omissions of Tenant or any of Tenant's Representatives, shall also be included as a Premises Expense in the year in which the same are incurred by Landlord, but shall be deemed payable in full within fifteen (15) days of demand in accordance with the provisions of Section 8.1 hereof. Premises Expenses shall also include a management fee payable to Landlord not to exceed an amount equivalent to one and one-half percent (1.5%) of the then applicable monthly Rent due under this Lease. Notwithstanding the foregoing, Premises Expenses shall not include: Taxes (as hereafter defined); charges for depreciation of the Building; principal or interest payments on mortgages encumbering the Premises; the cost of repairs or replacements for which Landlord is reimbursed by insurance proceeds; costs related to the removal, abatement or remediation of Hazardous Materials not released or otherwise present at the Premises as a result of the acts or omissions of Tenant or any Tenant Representatives; or the costs, expenses and disbursements relating to the operation, maintenance, repair and replacement of the Real Estate which Tenant directly incurs in accordance with, and subject to, the provisions of Section 8.1 hereof. Moreover, expenditures otherwise includable in Premises Expenses for products, goods or services rendered or provided by any Affiliate of Landlord (as defined in Section 19.27 hereof) shall only be included in Premises Expenses to the extent consistent with generally prevailing rates for such goods and services as are available from nonaffiliated third party providers in the general vicinity of the Premises. -12- Premises Expenses in any given Lease Year shall be accounted for on an accrual, rather than a cash, basis. Premises Expenses shall be prorated between Landlord and Tenant as of the Commencement Date for the first year of the Lease Term and as of the Expiration Date for the last year of the Lease Term. 5.2. TAXES FROM AND AFTER THE COMMENCEMENT DATE. Tenant also shall pay to Landlord, as Additional Rent, all Taxes (as hereafter defined). "Taxes" shall mean, for each Lease Year (as defined below), all federal, state and local governmental taxes, assessments and charges (including transit or transit district taxes or assessments) of every kind or nature, whether general, special, ordinary or extraordinary, which shall be levied against the Real Estate or which Landlord shall become obligated to pay because of, or in connection with, the ownership, leasing, management, control or operations of the Real Estate, as now or hereafter improved, or the personal property, fixtures, machinery, equipment, systems and apparatus owned by Landlord and located therein, or used in connection therewith, including without limitation any rental, gross receipts, capital levy or similar levies, charges, assessments or taxes based in whole or part, on the value, use or rents of the Real Estate, whether levied in substitution for, in lieu of, or in addition to, general real and/or personal property taxes. Notwithstanding the foregoing and anything to the contrary herein, the definition of Taxes shall not include any federal, state or local income , corporate, franchise, capital stock, inheritance, gift or estate taxes, excess profits or revenue tax, excise tax, gains tax, capital levy transfer, succession or other similar tax or charge that may be payable by or chargeable to Landlord under any Legal Requirement, except that if a change occurs in the method of taxation resulting in whole or in part the substitution of any such Taxes as above defined, such substituted taxes or assessments shall be included in the Taxes. For purposes hereof, Taxes for any Lease Year shall be Taxes which are assessed or become a lien during such Lease Year regardless of when due and payable. If, a special assessment payable in installments is levied against the Real Estate, Taxes for any Lease Year shall include only the installment of such assessment and any interest payable or paid during such year; provided, however, Landlord shall pay (or be deemed to have paid) such assessment in the maximum number of installments permitted by law. Taxes that accrue during the first and last Lease Year in the Lease Term shall be prorated between Landlord and Tenant. Tenant shall only be responsible for Taxes accruing from and after the Commencement Date. 5.3. LEASE YEAR. For purposes of this Lease, the term "Lease Year" shall mean each calendar year (or portion thereof, if the Lease shall commence after January 1 or terminate prior to December 31) within the Lease Term. 5.4. PAYMENT OF PREMISES EXPENSES AND TAXES IN MONTHLY INSTALLMENTS. On the first day of each month during the Lease Term Tenant shall pay to Landlord in monthly installments such sum as Landlord may reasonably estimate from time to time as being one-twelfth (1/12th) of the estimated annual amount of the Premises Expenses and Taxes. Landlord shall notify Tenant, in writing, at least thirty (30) days prior to the Commencement Date of the estimated monthly installments due from Tenant for the current Lease Year (including a reasonably detailed breakdown by category of the various components of such estimate of Premises Expenses). Throughout the Lease Term, until Tenant receives a statement from Landlord setting forth a new estimation (including a reasonably detailed breakdown by category of the various components of such estimate of Premises Expenses), Additional Rent for the then-current Lease Year shall continue to be paid at the rate being paid for the Lease Year just -13- completed, except that Tenant shall commence payment to Landlord of the monthly installment of Additional Rent on the basis of a new statement beginning on the first day of the second month following the month in which Tenant receives such new statement. In addition, if, during any particular Lease Year, there is a change in the information on which Landlord based the estimate upon which Tenant is then making its monthly payment of Additional Rent so that the estimate provided to Tenant is no longer accurate, Landlord shall be permitted to revise its estimate by notifying Tenant in writing, and there shall be such adjustments made in the Additional Rent on the first day of the second month following the serving of such statement on Tenant as shall be necessary by either increasing or decreasing, as the case may be, the amount of Additional Rent then being paid by Tenant for the balance of the then-current Lease Year. Landlord shall provide Tenant with a written accounting (including a reasonably detailed breakdown by category of the various components of Premises Expenses) and reconciliation statement of the actual amount of: (i) Premises Expenses incurred with respect to each Lease Year within ninety (90) days after the end of each Lease Year, and (ii) Taxes accrued within ninety (90) days after receipt of the final Tax bill with respect to each Lease Year, together with a copy of said Tax bill. If the estimated payments made by Tenant on account of a Lease Year exceed the amount of Premises Expenses or Taxes for said Lease Year, Landlord shall credit the difference to Tenant's immediately following Rent obligations (or, if the Lease Term has ended, Landlord shall pay Tenant such overpayment within fifteen (15) days). If the actual amount of Premises Expenses or Taxes for a Lease Year exceed the estimated payments made by Tenant on account thereof, Tenant shall pay the difference to Landlord within fifteen (15) days after written demand. The parties rights and obligations under this Section 5.4 shall survive the expiration or earlier termination of this Lease. 5.5. DELAY; INSPECTION OF RECORDS. No delay of Landlord in computing or notifying Tenant of the amount of Taxes or Premises Expenses due shall be deemed a waiver of Landlord's right to collect such amounts due. For a period of one hundred eighty (180) days following Tenant's receipt of Landlord's written accounting and reconciliation statement of Taxes or Premises Expenses for a Lease Year, Tenant and Tenant's representatives shall have the right, upon five (5) days' prior notice, to inspect the Landlord's records of Taxes or Premises Expenses at Landlord's offices, during regular business hours. Unless Tenant gives Landlord written objection to the amount of Taxes or Premises Expenses requested of Tenant by Landlord, specifying in reasonable detail the nature of the objection, within two hundred forty (240) days after Tenant's receipt of said written accounting and reconciliation statement from Landlord, Tenant shall be deemed to have accepted the amount of Taxes and Premises Expenses due for the Lease Year in question. Landlord shall maintain accurate books and records for Premises Expenses and Taxes in accordance with generally accepted accounting principles consistently applied; however, adjustments to Premises Expenses and Taxes shall be made as provided in this Lease. Landlord shall maintain such books and records and keep copies of the actual paid bills, cancelled checks and copies of any applicable contracts with respect to each Lease Year for three (3) years following the end of such Lease Year. If Tenant's audit establishes that Tenant was overcharged, then Landlord shall promptly reimburse Tenant for such overpayment. Additionally, if `the audit reveals that after final reconciliation pursuant to the final reconciliation statement Tenant was overcharged by three percent (3%) or more of the amount that should have been paid by Tenant for that Lease Year, then Landlord shall reimburse Tenant for all of Tenant's reasonable audit fees incurred for the audit. If there is a change in ownership of the Building, Landlord agrees to give complete copies of all records affecting Premises Expenses -14- and Taxes to the subsequent owner. If Landlord does not agree with Tenant's audit, Landlord and Tenant shall negotiate with each other in good faith to attempt to resolve the dispute. If either party determines that the negotiations are futile, then the dispute shall be resolved by arbitration pursuant to Section 19.30. 5.6. TAX CONTEST. At Tenant's option and cost, Tenant may bring appropriate proceedings in Landlord's name or Tenant's name or both for contesting any Tax assessed for any Lease Year. The amount of Taxes recovered as a result of such proceedings for any period during the Lease Term shall belong to Tenant and any additional Taxes recovered for a period other than the Lease Term shall be paid to Landlord. Landlord shall cooperate with Tenant with respect to the proceedings so far, as is reasonably necessary. 5.7. SURVIVAL. Landlord's and Tenant's rights and obligations under this Article 5 shall survive the expiration or early termination of this Lease. ARTICLE 6 - INSURANCE 6.1. KINDS AND AMOUNTS. Tenant, at its sole cost and expense, shall obtain and continuously maintain in full force and effect during the Lease Term: (a) Commercial general liability insurance against any loss, liability or damage on, about or relating to the Premises, or any portion thereof, with limits of not less than Five Million Dollars ($5,000,000.00) combined single limit coverage on an occurrence basis. Such insurance shall specifically insure (by contractual liability endorsement) Tenant's obligations under Section 13.1(a) of this Lease. (b) Whenever and so long as any construction or alteration work by Tenant or its Contractors is in progress at or on the Premises reasonably anticipated to cost in excess of $10,000.00, Tenant shall procure builder's risk insurance on a completed value form and all-risk basis with a replacement cost provision. During all periods of such construction, Tenant or its general contractor shall also maintain in effect Worker's Compensation Insurance in amounts required by State law. 6.2. NAMED INSUREDS; CO-INSURANCE. All policies required to be maintained by Tenant under Section 6.1 above (excluding the Worker's Compensation Insurance) shall name Landlord, Landlord's mortgagee, and Landlord's Managing Agent/Property Manager (and such others as may reasonably from time to time be named by Landlord) as additional insureds pursuant to the form of additional insured endorsement as is available from the insurer affording the broadest possible coverage to such additional insureds. If Landlord so requests in writing, the holder of any mortgages or ground leases on the Premises shall be named on all policies pursuant to a standard mortgagee clause. Tenant shall comply with, observe and perform all provisions and requirements of all policies of insurance at any time in force with respect to the Premises. Tenant shall not take out separate property insurance concurrent in form or contributing in the event of loss with that required hereunder. 6.3. DEDUCTIBLES; EVIDENCE OF INSURANCE. Each policy required under this. Article 6 shall have attached thereto (i) an endorsement that such policy shall not be cancelled or -15- materially changed without at least thirty (30) days' prior written notice to Landlord and any named mortgagee, and (ii) an endorsement to the effect that the insurance as to the interest of Landlord shall not be invalidated by any act or neglect of any person, except for the intentional misconduct of Landlord. All policies of insurance shall be written by companies with a Best rating of A or better and licensed in the State of Illinois, and shall be written in such form as shall be reasonably satisfactory to Landlord. Certificates of insurance reasonably acceptable to Landlord and evidence of payment shall be delivered to Landlord prior to commencement of the Lease Term and any Extended Term and prior to expiration of any policy. Each policy required from Tenant under this Article 6 shall have a deductible of no more than Twenty Five Thousand Dollars ($25,000.00) and in the event of a loss under the replacement cost property insurance on the Building and other improvements on the land, Tenant shall pay the amount of such deductible to Landlord. 6.4. TENANT'S PERSONAL PROPERTY COVERAGE. Tenant shall maintain insurance coverage upon all personal property of Tenant or the personal property of others kept, stored or maintained on the Premises against loss or damage by fire, windstorm or other casualties or causes with commercially reasonable limits. Tenant hereby waives, releases, and discharges Landlord, its agents and employees from and against all claims whatsoever arising out of loss, claim, expense or damage to or destruction of any such personal property or to Tenant's business except to the extent that such loss, claim, expense or damage may have been caused by Landlord, its agents or employees. 6.5. BLANKET POLICIES. Tenant may satisfy the liability insurance requirements under this Article under a blanket insurance policy or policies which may cover other properties occupied by Tenant provided, however, that any such policy of blanket insurance shall (i) specify the limits exclusively allocated to the Premises; and (ii) as respects the Premises, contain all the various provisions required of such an insurance policy by the foregoing provisions of this Article. The Premises shall be named on any umbrella liability policies of Tenant. 6.6. FIRE PROTECTION. With respect to Tenant's use and occupancy of the Premises: Tenant shall comply with all applicable building and fire codes, laws and ordinances, including without limitation the all applicable rules and regulations of the local fire department and State Fire Marshall; and shall comply with all reasonable rules, regulations and guidelines of the property insurance carrier. To the extent required by applicable Legal Requirements: Tenant will cause the Premises to be served by a sprinkler monitoring system connected to the local fire department or to a qualified monitoring services approved by Landlord; and Tenant acknowledges that the Final Plans shall provide for the installation of an appropriate sprinkler system in the Building. 6.7. LANDLORD'S INSURANCE. Landlord agrees to purchase, as a Premises Expense, and keep in force and effect insurance on the Building against fire and such other risks as may be included in extended ("all-risk") coverage insurance approved for use in the State of Illinois from time-to-time available in an amount not less than the greater of the full insurable replacement cost of the Building, the common areas and all improvements on the Land, or the amount sufficient to prevent Landlord from becoming a co-insurer under the terms of the applicable policies. Such policies shall contain a replacement cost endorsement and shall be written by a company with a Best rating of A or better and licensed in the State of Illinois. -16- In addition, Landlord shall obtain and keep in full force and effect during the Lease Term: (i) Commercial General Liability Insurance on an occurrence basis, such insurance to afford protection in an amount not less than $5,000,000 combined single limit, protecting Landlord against any and all claims for personal injury, death or property damage to, occurring in or upon the Real Estate or any part thereof; (ii) Boiler and Machinery Insurance, if applicable; (iii) contractual liability insurance in an amount not less than $5,000,000 insuring Landlord's liability pursuant to Article 13 hereof; and (iv) earthquake or flood insurance if the Land is in an area where such hazards are a known risk. Landlord's insurance shall be written by an insurance company admitted to do business in the State of Illinois with a Best rating of A or better. Landlord shall procure, maintain and place such insurance and pay all premiums and charges therefor as a Premises Expense. Landlord shall have the right to satisfy the foregoing insurance requirements through "blanket type" coverage arranged through any entity with which Landlord is affiliated, provided that the coverage thereunder is not less than, or subject to limits resulting from other losses or claims which reduce the coverage thereunder to less than what is specified in this Section 6.7. 6.8. MUTUAL WAIVER OF CLAIMS AND RIGHTS OF SUBROGATION. Each party hereby waives and releases the other party from any and all claims relating to or arising from any loss or damage to the Building, the Land, the Tenant's Improvements, or the other improvements thereon (and loss of income arising therefrom), even though such loss or damage might have been occasioned by the negligence of the other party, its agents or employees, if and to the extent that such loss or damage (i) is recoverable under any insurance actually carried by the party suffering such loss as herein specified, or which would have been covered by insurance had such party suffering such loss obtained and maintained insurance coverage in accordance with Article 6 hereof, as the case may be, or (ii) is self insured by such party suffering such loss (and such party is permitted to self-insure for such loss hereunder) including any deductibles from such insurance coverage. Inasmuch as this mutual waiver will preclude the assignment of any such claim by subrogation (or otherwise) to an insurance company (or any other person), Landlord and Tenant each agree to give to each insurance company which has issued, or in the future may issue, to its policies of physical damage insurance, written notice of the terms of this mutual waiver, and to have said insurance policies properly endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waiver. In the event that either party is unable to obtain such an endorsement to its insurance policies without paying a materially higher insurance premium, then such party shall give written notice to the other party in which it shall elect not to provide such endorsement and stating the increase in the cost of such insurance premium and thereafter shall provide the other party with any other information regarding such insurance as such other party shall reasonably request. Such other party shall have the option of paying the increased. cost of the insurance policy in order to obtain such endorsement dealing with waiver of subrogation. If one party so elects not to provide such endorsement, then the other party shall have no obligation to provide said endorsement on its own insurance policy for the benefit of the party electing not to provide said endorsement. ARTICLE 7 - COMPLIANCE WITH LAWS 7.1. COMPLIANCE. Except for any revisions specifically required as a result of Tenant's use of the Premises, Landlord will cause the Building to be constructed in accordance -17- with all applicable Legal Requirements. Thereafter, unless such violations are proximately caused by the negligent acts or omissions or intentional acts of Landlord or Landlord's employee's, agents, contractors or invitees (collectively, "Landlord's Representatives"), Tenant shall, throughout the Lease Term, at Tenant's sole cost and expense, promptly comply with, and remove or cure violations of, any and all present and future Legal Requirements governing Tenant's particular use or manner of use of the Premises, regardless of whether the compliance, curing or removal of any such violation and the costs and expenses necessitated thereby shall have been foreseen or unforeseen, ordinary or extraordinary, and whether or not the same shall be presently within the contemplation of Landlord or Tenant or shall involve any change of governmental policy, and irrespective of the costs thereof. 7.2. OBSERVANCE OF MATTERS OF RECORD. Tenant shall comply with the terms and requirements of all permits issued by governmental authorities issued in connection with use or operation of the Premises. Tenant, at its sole cost, and expense, shall comply with all CC&R's affecting the Premises existing as of the date hereof (copies of which are attached hereto as Exhibit "F"), including, but not limited to the Declaration of Covenants, Conditions and Restrictions for the Center (the "Declaration"), and as any of the same may from time to time be amended or supplemented provided that Landlord has provided Tenant with copies of the same. Landlord agrees not to take any action on its own behalf, or consent to amend or supplement any of the same in any manner that unreasonably interferes with Tenant's rights under this Lease. Tenant acknowledges having previously received a photocopy of the recorded Declaration. ARTICLE 8 - REPAIRS AND MAINTENANCE 8.1. TENANT'S REPAIR OBLIGATIONS. Except for items which are Landlord's responsibility as set forth below or are necessitated by the negligence or willful misconduct of Landlord or any employee, agent, contractor, concessionaire or invitee of Landlord (collectively, "Landlord's Representatives"), Tenant, at its sole cost and expense, shall maintain the interior of the Premises in first- class condition and repair, ordinary wear and tear excepted; provided, however, that solely with respect to the Structure, except for Tenant's obligation to pay Premises Expenses relating to maintenance expenses as required under Article 5, in no event shall Tenant be responsible for any repairs or replacements of the Structure unless necessitated by the negligence or willful misconduct of Tenant or any employee, agent, contractor, sublessee, licensee, concessionaire or invitee of Tenant (collectively, "Tenant's Representatives"). As used herein, "Structure" shall mean the structural elements of the Building as reflected by the Final Plans consisting of the bearing walls, roof, exterior walls, support beams, foundations, exterior window frames, exterior windows, floor slabs and support columns and underground utility systems of the Building. In no event shall any improvements or alterations made by Tenant to the Structure be deemed a part of the Structure, and notwithstanding anything in this Lease to the contrary, Landlord shall have no obligation to maintain, repair or replace any such improvements or alterations made by Tenant. Tenant shall maintain, repair and replace as necessary all floors and floor finishes above the floor slabs, interior walls, doors, interior windows, telecommunications systems, cabling and wiring, and shall keep the Premises in a clean, lawful and orderly condition. Tenant shall keep all portions of the Premises and other portions of the Real Estate free from litter caused by Tenant's operations. All repairs and replacements made by Tenant shall be at least equal in quality to the original work and shall be made by Tenant in -18- accordance with all Legal Requirements whether heretofore or hereafter enacted. Tenant hereby elects and Landlord hereby approves and consents, subject to Landlord's continuing consent (which will not be unreasonably withheld, denied or revoked so long as Tenant does not abandon the Building and so long as Tenant fully and faithfully performs its obligations hereunder in a competent manner), to perform or cause to be performed all customary and recommended routine maintenance, repairs and servicing of the Building Systems. In connection therewith Tenant shall maintain and provide Landlord access to true and complete detailed records evidencing the performance of such maintenance and service on an ongoing basis. To the extent that Tenant directly bears such maintenance and service expenses for the maintenance and servicing of the Building Systems in accordance with the foregoing provisions hereof, the same shall not be included in the Premises Expenses. If Tenant or Tenant's Representatives damage any part of the Premises (including without limitation any Building Systems), Tenant's Parking Area or common areas (including, but not limited to, damage to the common areas of the Center resulting from the excessive or uncommon use thereof), then Tenant shall commence to repair or replace such damage as soon as is reasonably practicable and in any event within thirty (30) days of demand and Tenant shall diligently prosecute such repairs or replacements to completion. If Tenant fails to repair or replace any such damage in accordance with the foregoing provisions hereof, then Landlord may make such repairs or replacements and, in such event, Tenant shall reimburse the Landlord for its costs of performing or causing the completion of such repairs or replacements, which reimbursement payment shall be made within fifteen (15) days of Tenant's receipt of Landlord's demand for the payment of such costs. Notwithstanding the foregoing provisions hereof, all damage to the Structure or to any common areas of the Center caused by Tenant or any of Tenant's Representatives shall be repaired or replaced, at Landlord's option, by Landlord at Tenant's expense and Tenant shall reimburse Landlord for all costs thereof within fifteen (15) days of Tenant's receipt of Landlord's demand for the payment of such costs. 8.2. LANDLORD REPAIR RESPONSIBILITIES. Landlord shall at all times keep and maintain Tenant's Parking Area and the Structure in good repair and condition and shall replace Building Systems as required from time to time (subject to Landlord's right to require Tenant to repair or replace damage caused by the negligence or willful misconduct of Tenant or any of Tenant's Representatives in accordance with the provisions of Section 8.1 hereof). Any costs incurred by Landlord relating to the repair or replacement of the Structure shall be borne by Landlord and not included as a Premises Expense, unless necessitated by the negligence or willful misconduct of Tenant or Tenant's Representatives. The cost of all maintenance, repairs and replacements of the Buildings Systems incurred by Landlord shall be a Premises Expense, subject to the provisions of Section 5.1 hereof. All costs incurred by Landlord for the maintenance, repair and replacement of the Tenant's Parking Area including, but not limited to, lighting, sweeping, snow removal, sealing and restriping, shall be a Premises Expense, except that no costs incurred in connection with the repair of asphalt paving within the Tenant's Parking Area during the two (2) year period following substantial completion thereof, shall be a Premises Expense unless necessitated by the negligence, willful misconduct or excessive or uncommon use thereof by Tenant or Tenant's Representatives. Landlord shall not be deemed in default of this Section unless Tenant has first given Landlord written notice of any repairs required of Landlord and Landlord has not effected such repairs within thirty (30) days after receipt of such notice or such longer period as may be reasonably required to effect such repairs; provided, however, that emergency repairs for which Landlord is responsible hereunder which, if not completed, would adversely affect Tenant's ability to operate its business, shall be repaired as soon as is reasonably -19- practicable. Except as otherwise expressly provided in this Lease, Landlord shall not be required to furnish any services or facilities or to make any repairs or alterations in, about or to the Premises and Tenant shall assume full and sole responsibility for the condition, operation, repair and replacement of the Premises and waives any rights created by any law now or hereafter in force that require Landlord to make repairs to the Premises. 8.3. COVENANT AGAINST WASTE. Tenant shall not commit or suffer any waste or damage, disfigurement or injury to the Premises or permit or suffer any overloading of the floors, electrical or other Building Systems or otherwise use the Premises in a manner that would place an undue stress on the same beyond safe or design limits. ARTICLE 9 - ALTERATIONS 9.1. ALTERATIONS. Tenant shall not perform any alterations, additions, demolition, installations, or improvements in, on, of or to the Premises ("Alterations") without Landlord's prior written consent, which Landlord shall not unreasonably withhold, condition or delay, except that Tenant may, without Landlord's consent, perform the following alterations ("Permitted Alterations"): (a) emergency, temporary repairs to prevent further damage to the Premises or Tenant's property with prior telephonic notice to Landlord; and (b) any decorating, painting, carpeting and similar work within the interior of the Building as well as other interior modifications thereto provided that the cost of any such interior modifications in any calendar year shall not exceed Forty Thousand and No/1 00 Dollars ($40,000) and will not be performed without prior notice to Landlord, and further provided that none of the Permitted Alterations pursuant to this clause (b) shall materially affect any of the Building Systems or the Structure. No Alterations (including Alterations which would otherwise constitute Permitted Alterations) shall be permitted that, in Landlord's reasonable discretion, adversely affects the Building Systems or the Structure or its exterior appearance, or adversely affects the value or marketability of the Premises. Landlord may, as a condition of its consent to any Alterations other than Permitted Alterations require Tenant to furnish to Landlord before commencement of any such Alterations, final plans and specifications incorporating Landlord's required reasonable revisions to Tenant's plans and specifications, if any, and (iii) also require Tenant to furnish evidence reasonably satisfactory to Landlord of Tenant's ability to pay for such Alterations, names and addresses of all general contractors and mechanical and electrical subcontractors, copies of all contracts for such contractors and such subcontractors, copies of necessary permits and licenses, and copies of certificates of insurance covering such work as required under Article 6, above. All Alterations shall be performed in accordance with the CC&R's and all Legal Requirements. All Alterations shall be performed in a good and workmanlike manner by tradesmen skilled in their respective trades, using only good grades of new materials. 9.2. LIENS AND CLAIMS. To the extent permitted by law, all of Tenant's contracts and subcontracts for such Alterations shall provide that no lien shall attach to or be claimed against the Premises or any interest therein other than Tenant's leasehold interest in the Premises, and that all subcontracts let thereunder shall contain the same provision. Whether or not Tenant complies with the foregoing, Tenant agrees to hold Landlord harmless against all liens, claims, costs, damages, expenses and liabilities of every kind, nature and description which may arise out of or in any way be connected with the Alterations performed by or for Tenant. -20- 9.3. PAYMENT FOR ALTERATIONS. Tenant shall pay the cost of all Alterations. Upon completion of each Alteration for which Landlord's consent was required, Tenant shall furnish Landlord with customary contractor's affidavits and full and final waivers of lien and, upon Landlord's request use commercially reasonable efforts to obtain, receipted bills covering all labor and materials expended and used in connection therewith, and "as built" plans thereof and a certificate from Tenant's architect or contractor that the Alterations were performed in accordance with the plans and specifications approved by Landlord, if any. 9.4. OWNERSHIP AND REMOVAL OF ALTERATIONS. All Alterations shall, upon installation, become part of the Premises, shall be owned by Landlord, and shall, unless at the time of granting its consent therefor Landlord shall have notified Tenant that Landlord may require the subsequent removal of the same and Landlord does subsequently elect to require the removal of the same, remain in the Premises at the expiration or termination of this Lease or termination of Tenant's right to possession of the Premises, without compensation or credit to Tenant. If at the time of granting its consent therefor, Landlord shall have notified Tenant that Landlord may require the subsequent removal of any Alteration or part thereof and Landlord does elect upon the expiration or termination of this Lease to require the removal of the same, then Tenant shall remove all such Alterations and restore the Premises to their original condition, ordinary wear and tear excepted, upon expiration or termination of this Lease. Additionally, any Alterations which would require Landlord's prior consent hereunder but which were made without Landlord's consent shall also be removed by Tenant if Landlord so elects upon the expiration or termination of this Lease and in connection therewith Tenant shall restore the Premises to their original condition, ordinary wear and tear excepted. ARTICLE 10 - ASSIGNMENT AND SUBLETTING 10.1. LANDLORD'S CONSENT REQUIRED. Except as permitted in this Article 10, Tenant shall not sell, assign, mortgage, hypothecate, pledge or in any other manner transfer or encumber any of its interest in this Lease or sublet or permit others to use or occupy any portion of the Premises, or grant any license, concession, franchise or other rights or interest in this Lease or the Premises, voluntarily, by operation of law or otherwise (all of the foregoing are sometimes referred to collectively as a "Transfer") without in each case obtaining Landlord's prior written consent, which Landlord shall not unreasonably withhold, delay, or condition provided the following conditions are satisfied: (a) At the effective date of the Transfer, and at the time when Tenant requests Landlord's written consent thereto, this Lease must be in full force and effect, without Default on the part of Tenant. (b) Any assignment of this Lease shall transfer to the assignee all of Tenant's right, title and interest in this Lease and all of Tenant's estate or interest in the Premises. (c) Any Transfer shall be subject to all the provisions, terms, covenants and conditions of this Lease. Following a Transfer, the Tenant-Transferor shall remain primarily and unconditionally liable and responsible for the performance of -21- all Tenant obligations under the Lease. The continued liability of Tenant Transferor shall not be affected or limited by: (i) The release or discharge of Tenant or the assignee, sublessee or other transferee (collectively "Transferee") in bankruptcy or other creditors' proceeding; (ii) Any rejection or disclaimer of Tenant or Transferee; (iii) Repossession of the Premises by Landlord; (iv) Any application of any security or other deposit posted by Tenant or Transferee pursuant to the provisions of this Lease; (v) Any exercise of or refraining from exercising, for any period of time whatsoever, any rights, including any right of Landlord to accelerate Rent obligations, against Tenant, Transferee or others available to Landlord by law or under the Lease; (vi) The addition or release of any persons or entities as additional Tenants or Transferees under the Lease or the fact that any Transferee has assumed liability for the performance of Tenant's obligations under the Lease; (vii) The acceptance of any further security or release of security for payment of Tenant's obligations under the Lease; (viii) Any further transfer or consent to transfer of Tenant's interest under the Lease or any part thereof; (ix) The performance of such other acts by Landlord as may be permitted under the Lease; (x) The granting of any license, concession or other agreement with respect to the Premises; (xi) The assignment of Landlord's interest under the Lease; or (xii) Any amendment, modification, waiver or concession of or under the Lease entered between Landlord and Transferee, regardless of any failure to provide notice to or obtain the consent of Tenant, except that Tenant's liabilities and obligations under this Lease shall not be increased nor its rights diminished on account of same. (d) In addition to the above requirements, any sublease permitted under this Section shall contain provisions to the effect that (i) such sublease is only for actual use and occupancy by the sublessee; `(ii) such sublease is subject and subordinate to all of the terms, covenants and conditions of this Lease and to all of the rights of Landlord thereunder; and (iii) if this Lease or Tenant's right to possession shall terminate -22- before the expiration of such sublease, the sublessee thereunder will, at Landlord's option, attorn to Landlord and waive any rights the sublessee may have to terminate the sublease or to surrender possession thereunder as a result of the termination of this Lease. (e) Should Tenant desire to Transfer an interest in this Lease other than to a Related Transferee as hereinafter provided, Tenant shall give Landlord written notice of its intention to do so at least thirty (30) days or more before the effective date of such proposed Transfer. As a part of its request for Landlord's consent to a Transfer, Tenant shall provide Landlord with financial statements for the proposed transferee, a complete copy of the proposed assignment, sublease and other contractual documents and such other information as Landlord shall reasonably request. Landlord may, at any time within thirty (30) days after the receipt of a notice of Tenant's intent to assign this Lease, or sublet all or a material portion of the Premises, to a party other than a Related Transferee, terminate this Lease by written notice to Tenant (a "Termination Notice"), in which event such termination shall become effective upon the effective date of the proposed Transfer, but in no event less than thirty (30) days after Landlord's receipt of notice from Tenant; provided however that Landlord `s election to terminate this Lease shall be null and void if Tenant withdraws its notice of intention to Transfer an interest in this Lease by written notice of such withdrawal to Landlord within ten (10) days of Tenant's receipt of Landlord's Termination Notice. If this Lease is terminated, then Landlord may- enter into a direct lease with the proposed Transferee or with any other persons as Landlord may desire without obligation or liability to Tenant, its assignees, sublessees or their respective successors, assigns, agents or leasing brokers. (f) Each Transfer shall be accomplished by an instrument in writing wherein: the Transferee, in the case of an assignment, shall agree in writing for the benefit of Landlord to jointly and severally (with Tenant) assume and be bound by, and agree to perform all of the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant; and the Transferee, in the case of a sublease, shall agree in connection with its occupancy of all or any portion of the Premises not to cause any violation of the terms, covenants and conditions of this Lease. Said instruments shall otherwise also be in form and substance reasonably acceptable to Landlord. (g) All requests for Landlord's consent shall be by written notice. Tenant shall on demand reimburse Landlord for all reasonable expenses, including reasonable attorneys' fees and disbursements, incurred by Landlord in conjunction with a requested Transfer by Tenant. (h) In the event the rent payable by any Transferee permitted under this Article 10 shall exceed the Rent due hereunder, Landlord shall be entitled to fifty percent (50%) of such excess rent, after deducting the actual, reasonable and customary brokerage commissions, tenant improvement work, rent and other concessions and any other reasonable and customary costs incurred by Tenant in procuring the Transferee for the Premises, including the reasonable and customary marketing costs incurred by Tenant in procuring said Transferee. -23- (i) Without limitation, it is agreed that Landlord's consent to a Transfer shall not be considered unreasonably withheld if: (1) the proposed Transferee's net worth is less than the greater of Forty Million Dollars ($40,000,000) or Tenant's net worth at the time of the proposed Transfer; (2) the proposed Transferee is a governmental agency; (3) any portion of the Premises would likely become subject to additional or different laws as a consequence of the proposed Transfer; (4) Landlord has not been able to secure the consent of any of its lenders which have the right to approve the Transfer; (5) the specific types of Hazardous Materials, if any, which such Transferee anticipates to utilize at the Premises in connection with its business operations create an environmental risk greater than that presented by the Hazardous Materials utilized by the Tenant, or (6) Landlord or any affiliate (as hereafter defined) of Landlord has had prior unsatisfactory dealings with the proposed Transferee. Tenant shall not be entitled to receive monetary damages based upon a claim that Landlord unreasonably withheld its consent to a proposed Transfer and Tenant's sole remedy shall be an action to enforce any such provisions through specific performance or declaratory judgment. In no event shall Tenant be entitled to recover any damages as a result of Landlord's refusal to grant its consent to any Transfer hereunder, it being agreed that Tenant's sole remedy in connection therewith shall be an action for injunctive or declaratory relief. 10.2. ATTEMPTED TRANSFERS. (a) If the Premises or any part thereof or any interest in the Lease are transferred, whether or not in violation of this Article, Landlord may retain Rent received from the Transferee if so directly paid by said Transferee (in which event Landlord will promptly notify Tenant of the receipt of such Rent). In such event, Landlord shall apply the net amount collected to the Rent due under this Lease, but no such collection or application shall be deemed a waiver of any term, covenant or condition of this Lease or the consent to such Transfer or acceptance by Landlord of such Transferee. (b) Any Transfer of an interest in this Lease or the Premises, by document or other agreement or by operation of law in violation of the terms of this Lease, shall be void and confer no rights on any third party and shall, at Landlord's option, constitute a Default under this Lease. The consent by Landlord to any Transfer shall not constitute a waiver of the necessity of such consent to any subsequent Transfer. No Transfer, whether or not Landlord's consent is given, shall relieve Tenant of its liability and obligations under this Lease. 10.3. CHANGE OF CONTROL. Except as provided in Section 10.4 below with respect to Transfers to Related Transferees, if Tenant is a corporation, limited liability company, partnership, or similar entity, and if the identity of the owners or those that otherwise control a majority of the voting shares/rights at any time changes for any reason (including but not limited to merger, consolidation or reorganization), such change or ownership or control shall constitute a Transfer requiring Landlord's consent, as provided in Section 10.1 above. The foregoing provisions of this Section 10.3 shall not apply to Tenant however so long as Tenant is an entity whose outstanding stock is listed on a nationally recognized security exchange. -24- 10.4. LANDLORD'S CONSENT NOT REQUIRED. Notwithstanding the foregoing provisions of this Article 10, Tenant shall have the right, without Landlord's consent, to effect a Transfer to the following persons or entities (collectively, "Related Transferees"): any "affiliate" (as hereinafter defined) of Tenant, or to any entity succeeding to all or a material portion of the business assets of Tenant by merger, spin-off, consolidation or acquisition (a "Related Transferee Transaction") provided the following conditions are satisfied: (a) Tenant shall provide Landlord with at least thirty (30) days prior written notice of such Transfer; (b) As of the effective date of the Transfer to the Related Transferee, this Lease must be in full force and effect without Default on the part of Tenant; (c) Such Related Transferee has a net worth of not less than the greater of Forty Million Dollars ($40,000,000) or Tenant's net worth at the time of the Related Transferee Transaction in the event that Tenant, as a result of the consummation of such Related Transferee Transaction, will have a then current net worth less than Forty Million Dollars ($40,000,000) or ceases to continue in existence as a result of such Related Transferee Transaction; and (d) Such Transfer shall otherwise satisfy the conditions and other provisions set forth in Section 10.1 above. As used herein, the term "affiliate" means any corporation, partnership, limited liability company or other entity which controls, is controlled by or which is under common control with Tenant. The term "control" as used in this Section 10.4 means the power to directly or indirectly direct or cause the direction of the management or policies of, or the ownership of more than fifty percent (50%) of the voting securities or interests in, the applicable entity. ARTICLE 11 - LIENS AND ENCUMBRANCES 11.1. ENCUMBERING TITLE. Tenant shall not do any act which shall in any way encumber Landlord's interest in and to the Premises, nor shall the interest or estate of Landlord in the Premises in any way become subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Tenant. Any claim to, or lien upon, the Premises arising from any act or omission of Tenant other than a claim by Landlord, shall accrue only against the leasehold estate of Tenant and shall be subject and subordinate to the paramount title and rights of Landlord in and to the Premises. Tenant shall have no authority to contract for or on behalf of Landlord for any improvements or work. 11.2. LIENS AND RIGHT TO CONTEST. Tenant shall not permit the Premises to become subject to any mechanics', laborers' or materialmen's lien on account of labor, material or services furnished to Tenant or claimed to have been furnished to Tenant in connection with work of any character performed or claimed to have been performed for or on the Premises by, or at the direction or request of, or with the permission of, Tenant; provided, however, that Tenant shall have the right to contest, in good faith and with reasonable diligence, the validity of any such lien or claimed lien if Tenant shall provide to and for the benefit of Landlord such -25- security or provide other evidence of Tenant's financial ability to satisfy the lien as may be reasonably satisfactory to Landlord to assure payment thereof and to prevent any sale, foreclosure, or forfeiture of Landlord's interest in the Premises by reason of non-payment thereof; provided further however that on final determination of the lien or claim of lien, Tenant shall immediately pay any judgment rendered, with all proper costs and charges, and shall have the lien released and any judgment satisfied. If Tenant fails to secure such bond or post such security or provide other evidence of Tenant's financial ability to satisfy the lien as may be reasonably satisfactory to Landlord or does not diligently contest such lien within fifteen (15) business days after receipt of notice thereof, Landlord may, without investigation of the validity of the lien claim, discharge such lien and Tenant shall pay the cost thereof to Landlord within thirty (30) days of demand. ARTICLE 12 - UTILITIES 12.1. USE AND PURCHASE OF UTILITIES. From and after the Commencement Date, Tenant will pay, when due, all charges of every nature, kind or description for utilities furnished to the Premises or chargeable against the Premises, including all charges for water, sewage, heat, gas, light, garbage, electricity, telephone, steam, power, or other public or private utility services. In the event Tenant fails to pay any utility charges for the Premises when due, Landlord may, but shall not be required to, pay such utility charges and all such sums paid, plus sums due under Section 18.8 below shall be due Landlord as Additional Rent hereunder. Separate utility meters for all utilities to be used by Tenant within the Premises shall be installed by Landlord as part of Landlord's Work or by the utility company providing such service. ARTICLE 13 - INDEMNITY AND WAIVER 13.1. INDEMNITY. (a) Except to the extent caused by the negligent or willful acts of Landlord or any of its agents, contractors or employees, Tenant shall protect, indemnify, defend and save harmless Landlord, Landlord's members, mortgagees, and their respective agents, employees, officers and directors (collectively, "Landlord's Indemnified Parties"), from and against all liabilities, obligations, claims, damages, fines, penalties, causes of action, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred or asserted by reason of or arising from (i) any accident, injury to, or death of, persons or loss of, or damage to, property occurring on or about the Premises or any part thereof, or resulting from any negligent or willful act of Tenant or any of Tenant's Representatives or otherwise resulting from the conduct or management of the business conducted by Tenant on or about the Premises; (ii) any breach or default on the part of Tenant in the performance of any covenant or obligation on the part of Tenant to be performed under this Lease or any other Default on the part of Tenant under this Lease; (iii) the performance of any labor or services or the furnishing of any materials or other property in respect of the Premises or any part thereof performed by or on behalf of Tenant during the Lease Term; or (iv) claims, losses, damages, remediation and response costs, clean-up costs and expenses arising out of or in -26- any way relating to Hazardous Materials, as defined hereinbelow, released, deposited, discharged, stored, moved onto, created upon, or removed from the Premises by Tenant or any of Tenant's Representatives in violation of Environmental Laws, including, without limitation, (x) claims of third parties, including governmental entities, for damages, penalties, remediation and response costs, clean-up costs, injunctive or other relief; and (y) reasonable costs and expenses relating to remediation, removal and restoration, including reasonable fees and costs of environmental engineers, attorneys and experts, audit costs and costs of reporting the existence of Hazardous Materials to any governmental agency. In case any action or proceeding is brought against Landlord by reason of any such claim, Tenant, upon demand by Landlord, at Landlord' s option, covenants to diligently defend such action or proceeding, and to retain legal counsel reasonably satisfactory to Landlord in connection therewith. (b) Except to the extent caused by the negligent or willful acts of Tenant or any Tenant Representatives and subject in all respects to the limitations on Landlord's liability for damages as set forth in Sections 18.9 and 19.18 hereof, Landlord shall protect, indemnify, defend and same harmless Tenant from and against all liabilities, obligations, claims, damages, fines, penalties, causes of action, costs and expenses, including, without limitation, reasonable attorneys' fees and expenses, incurred or asserted by reason of or arising from (i) any accident, injury to or death of persons or loss of, or damage to, property resulting from any negligent or willful act of Landlord or its agents, contractors or employees, (ii) any breach or default on the part of Landlord in the performance of any covenant or obligation on the part of Landlord to be performed under this Lease or any other Default on the part of Landlord under this Lease, (iii) the performance or any labor or services or the furnishing of any materials or other property in respect of the Real Estate or any part thereof performed by or on behalf of Landlord during the Lease Term, (iv) claims, losses, damages, remediation and response costs, clean-up costs and expenses arising out of or in any way relating to Hazardous Materials released, deposited, discharged, stored, moved onto, created upon or removed from the Real Estate by Landlord or its agents, contractors or employees (except if removal by or for Landlord is due to Tenant's failure to cause the removal of Hazardous Materials for which Tenant is responsible hereunder). In case any action or proceeding is brought against Tenant by reason of any such claim; Landlord, upon demand by Tenant, at Tenant's option, covenants to diligently defend such action or proceeding, and to retain legal counsel reasonably satisfactory to Tenant in connection therewith. (c) All of the respective obligations of Landlord and Tenant as set forth in this Section 13.1 shall survive any expiration or termination of this Lease. 13.2. HAZARDOUS MATERIALS. For purposes of this Lease, the term "Hazardous Materials" shall mean and include any and all hazardous, special, medical, toxic or dangerous waste substance or material defined in, or regulated by, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 USC Section 9601, et. seq.), the Hazardous Materials Transportation Act (49 USC Section 5101, et. seq.) and the Resource Conservation and Recovery Act (42 USC Section 6901, et. seq.) or any other federal, state or local statute, law, ordinance, code, rule, regulation, guideline, order or decree regulating, relating to or imposing liability or standards of conduct concerning the environment or any hazardous, -27- toxic or dangerous waste, substance or material, as now or at any time hereafter in effect (collectively, "Environmental Laws"). Notwithstanding anything to the contrary herein, reasonable and customary cleaning and office supplies and other similar materials shall not be deemed Hazardous Materials provided that they are stored, used and disposed of in accordance with applicable Environmental Laws. 13.3. COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant shall comply with all Environmental Laws with respect to Tenant's use, deposit, discharge, storage, transport or other handling of any Hazardous Materials at the Premises, and Tenant shall provide to Landlord any notices received from any governmental authority with respect to the same. Tenant shall not install any underground or surface storage tanks on the Premises. Tenant shall not discharge, release, store, create, use, move onto or remove from the Premises any Hazardous Materials in violation of Environmental Laws, without Landlord's prior written approval, which Landlord may withhold in its sole discretion; provided however that the use (but not manufacture) upon the Premises by Tenant of solely those Hazardous Materials in quantities and concentrations as are customary in the conduct-of Tenant's business in the ordinary course will be approved by Landlord. In that regard, Landlord hereby consents to the use by Tenant of those Hazardous Materials as set forth on Exhibit "H" attached hereto, subject at, all times to the provisions of this Lease with respect thereto. In connection with all such use, Tenant shall comply with all Environmental Laws applicable thereto. In connection therewith, Tenant shall provide to Landlord a material safety data sheet with respect to each Hazardous Material for which a material safety data sheet is required to be filed or maintained under applicable Environmental Laws. All Hazardous Materials introduced to the Premises by Tenant will be managed by Tenant in compliance with all Environmental Laws. Tenant shall install all necessary odor and dust controls and any other pollution control devices which are necessary to ensure compliance with all applicable Environmental Laws. If Landlord, in its reasonable judgment, believes that Tenant has caused the Premises, the Real Estate, any adjacent property or the surrounding environment to become contaminated with Hazardous Materials in violation of any Environmental Laws, Landlord may, in addition to its other rights under this Lease, enter upon the Premises and obtain samples from the Premises, including the soil and groundwater under the Premises, to determine whether and to what extent the Premises, the Real Estate, any adjacent property or the surrounding environment have become contaminated by Tenant. Such testing shall be performed at Landlord's expense unless such tests indicate that Tenant has contaminated the Premises, the Real Estate, any adjacent property or the environment with Hazardous Materials in violation of any Environmental Laws, in which case Tenant shall pay the cost of such testing within thirty (30) days of Landlord's demand. With respect to any Hazardous Materials introduced to the Premises during the Lease Term, Tenant shall bear the burden of proof with respect to establishing that any such Hazardous Materials found to have been released on, at or about, or to have otherwise contaminated, the Premises, Real Estate or any adjacent property were not the result of any acts or omissions of Tenant or any of Tenant's Representatives. In the event that it is found that Tenant contaminated the Premises, the Real Estate, any adjacent property or the environment with Hazardous Materials in violation of any Environmental Laws, Tenant shall take such actions as may be required in order to remove and remediate such Hazardous Materials from the Premises, the Real Estate, any adjacent property and the environment as are legally required in order to repair, cleanup or detoxify the same, and shall prepare any closure or other remediation plans in connection therewith, all to the most stringent cleanup standard as established by any applicable Environmental Laws (without regard -28- to whether any enforcement agency is vested with discretionary authority with respect to the enforcement of that standard) such that the prescribed legally acceptable maximum levels for the continued presence in, the environment of that particular Hazardous Material will not be violated. If requested by Landlord in connection with any such removal or remediation of Hazardous Materials by Tenant, Tenant shall obtain and provide to Landlord a No Further Remediation Letter or other evidence demonstrating that the Premises, the Real Estate and adjacent property have been fully remediated. Landlord represents and warrants to Tenant that Landlord has not received any actual written notice or other written documentation of the presence of Hazardous Materials, in violation of applicable Environmental Laws, at the Real Estate. 13.4. WAIVER OF CERTAIN CLAIMS. Except to the extent proximately caused by Landlord's willful misconduct or negligence, or Landlord's failure to comply with its maintenance and repair obligations specifically set forth in this Lease, Tenant waives all claims it may have against Landlord for damage or injury to property sustained by Tenant or any persons claiming through Tenant or by any occupant of the Premises, or by any other person, resulting from any part of the Premises, the Real Estate or any of its improvements, equipment or appurtenances becoming out of repair, or resulting from any accident on or about the Premises, the Real Estate or any other cause or resulting directly or indirectly from any act of neglect of any person. Such waiver shall include, but not by way of limitation, damage caused by water, snow, frost, steam, excessive heat or cold, interruptions in utilities, sewage, gas, odors or noise, theft, or caused by bursting or leaking of pipes or plumbing fixtures, and shall apply equally whether any such damage results from the act or neglect of Tenant or any other person, but other than resulting from the negligence of Landlord or Landlord's Representatives, to the extent permitted by law, and whether such damage be caused by, or result from, any thing or circumstance above mentioned or referred to, or to any other thing or circumstance whether of a like nature or of wholly different nature. In no event shall Rent abate as the result of any such occurrence. All personal property belonging to Tenant or any occupant of the Premises that is in or on any part of the Premises shall be at the risk of Tenant or of such other person only, and Landlord shall not be liable for any damage thereto or theft or misappropriation thereof. ARTICLE 14 - DESTRUCTION AND RESTORATION 14.1. SUBSTANTIAL DESTRUCTION. Landlord shall deliver to Tenant within sixty (60) days after the date of any fire or other casualty to the Premises, an estimate from an independent, qualified architect or general contractor, engaged by Landlord (subject to Tenant's approval, which shall not be unreasonably withheld or delayed) as to the length of time required to repair, restore, or rehabilitate the damaged portions of the Premises to as good or better a condition and to the same or improved general appearance as existed immediately prior to the occurrence of such fire or other casualty (the "Restoration Work") or whether restoration is not feasible. If twenty percent (20%) or more of the Area of the Premises is made untenantable by fire or other casualty, Landlord shall, at its option, elect either: A. To terminate this Lease as of the date of the fire or casualty by written notice to Tenant given no later than ninety (90) days after the date of such fire or other casualty; or -29- B To proceed with reasonable diligence to complete the Restoration Work (excluding leasehold improvements paid for and installed by or for Tenant), in which event this Lease shall not terminate. If twenty percent (20%) or more of the Area of the Premises is made inaccessible or unusable by fire or other casualty, or, due to the nature and extent of such fire or other casualty, Tenant is unable to conduct its business from the Premises, unless in any such event resulting from the negligence or willful misconduct of Tenant or any of Tenant's Representatives, and Landlord is unable to complete the Restoration Work (excluding leasehold improvements paid for by Tenant) within two hundred ten (210) days or one hundred eighty (180) days for a casualty in the last year of the Lease Term, subject to Force Majeure, Tenant shall have the right, exercisable by written notice to Landlord within fifteen (15) days following said 210th or 180th day, to terminate this Lease and deliver up possession of the Premises effective on a date not more than fifteen (15) days following the date of said notice. Additionally, in the event the estimate for completing the Restoration Work delivered to Tenant by Landlord exceeds two hundred ten (210) days from the date of the fire or other casualty, Tenant shall have the right, exercisable by written notice to Landlord within fifteen (15) days -following Tenant's receipt of said estimate to terminate this Lease effective the date of such fire or other casualty. 14.2. LESS THAN SUBSTANTIAL DESTRUCTION. Unless this Lease is terminated in accordance with Section 14.1 above, then Landlord, at Landlord's expense, shall diligently complete the Restoration Work (excluding leasehold improvements paid for and installed by or for Tenant). 14.3. ABATEMENT. If a fire or other casualty renders all or part of the Premises inaccessible or unusable, Rent shall abate proportionately based on the inaccessible or unusable portions of the Premises for the period they are so inaccessible or unusable. Landlord shall be entitled to receive all available rent-loss insurance proceeds. 14.4. LIMITATION ON REPAIR OBLIGATIONS. In no event shall Landlord be obligated to repair or rebuild leasehold improvements, alterations, or other improvements, trade fixtures or other personal property installed or owned by Tenant. ARTICLE 15 - CONDEMNATION 15.1. COMPLETE TAKING. In the event all or substantially all of the Premises is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation), this Lease shall terminate as of the date title vests in such authority, and Rent shall be apportioned as of said date. For the purposes hereof, "substantially all" shall mean a taking of a material portion of the Premises the Real Estate, or of Tenant's Parking Area such that the Premises are not as a practical matter reasonably capable of being physically restored on a reasonably cost efficient and economically justified basis from both Landlord's and Tenant's perspectives to a complete architectural unit useable and accessible by Tenant for its purposes. 15.2. TAKING OF PART. If less than substantially all of the Premises is taken or condemned by any competent authority for any public use or purpose (including a deed given in lieu of condemnation) Base Rent payable hereunder from and after the date of vesting of title in -30- such proceedings shall be reduced to a sum equal to the product of the Base Rent as would otherwise be determined in accordance with the Basic Lease Provisions multiplied by a fraction, the numerator of which is the value of the Premises after the same has been restored to a complete architectural unit and the denominator of which is the value of the Premises immediately prior to such taking. Landlord upon receipt of and to the extent of the award in condemnation or proceeds of the deed in lieu of condemnation transaction, shall make necessary repairs and restorations (exclusive of Tenant's leasehold improvements and personal property paid for and installed by or for Tenant) in order to restore the Premises remaining to a complete architectural unit and as near its former condition as circumstances will reasonably permit. 15.3. COMPENSATION. Landlord shall be entitled to receive the entire price or award from any such sale, taking or condemnation, whether applicable to land, building, or other real estate interests. Tenant hereby assigns all its interest in such award to Landlord and Tenant waives any right Tenant has now or may have under present or future law to receive any award of damages for its interest in the Premises or this Lease, provided, Tenant shall have the right to separately claim and receive any award which may be allowed to Tenant for Tenant's trade fixtures, 'moving expenses and such other relocation benefits as may be available under applicable laws, provided that none of the foregoing would result in a reduction of Landlord's award. ARTICLE 16 - SUBORDINATION OR SUPERIORITY 16.1. SUBORDINATION; NON-DISTURBANCE. This Lease and Tenant's rights hereunder are and shall be subject and subordinate to any and all mortgages, trust deeds and ground leases now of record or hereafter executed by Landlord against the Premises and to all amendments, modifications, replacements or renewals thereof (each referred to herein as "Mortgage"); provided, however, that, with respect to any such Mortgage, as a condition to the subordination of this Lease and Tenant's rights hereunder to the same, Landlord shall obtain from the holder (in each case, the "Mortgagee") of such Mortgage, and cause to be filed in the public record, if obtained, a written agreement between Mortgagee and Tenant that shall be binding on the parties thereto and their respective legal representatives, successors and assigns, and provide, among other provisions, that, so long as this Lease is in full force and effect and Tenant is not in Default hereunder: (i) Tenant shall not be joined as a defendant in any proceeding that may be instituted to terminate or enforce or to foreclose the Mortgage; and (ii) Tenant's possession and use of the Real Estate and Premises in accordance with the provisions of this Lease shall not be affected or disturbed by reason of the subordination to or any modification of or default under the Mortgage. Tenant shall execute and deliver within ten (10) business days after request of Landlord such acknowledgments or documents as may be reasonably requested from time to time in connection with the sale, financing, refinancing or ground leasing of the Premises, Land or Building, including, without limitation, subordination and attornment instruments, provided such instruments contain the nondisturbance provisions set forth in clauses (i) and (ii) above. 16.2. SUPERIORITY. Notwithstanding the foregoing, a holder of a trust deed, mortgage or ground lease interest may, at its option require that this Lease be made superior and paramount to any such trust deed, mortgage or ground lease and in such event Tenant shall execute such instruments as are reasonably necessary or desirable to effect such result. -31- 16.3. MORTGAGE PROTECTION CLAUSE. Tenant agrees to give any Mortgagee, in the manner provided in Section 19.4, below, a copy of any notice of default served upon Landlord, provided that prior to such notice Tenant has been notified in writing of the name and address of such Mortgagee. Tenant further agrees that, if Landlord shall have failed to cure such default within the time provided for in this Lease, then the Mortgagee shall have an additional thirty (30) days within which to cure such default. 16.4. ATTORNMENT. If Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession, surrender, assignment, subletting, judicial or foreclosure action, or delivery of a deed or otherwise, Tenant will attorn to and recognize such successor landlord as Tenant's landlord, provided the successor-landlord accepts such attornment and recognizes Tenant's rights of possession and use of the Premises in accordance with the provisions of this Lease. Landlord expressly authorizes Tenant to rely on any notice from such successor-landlord made in accordance with the notice provision contained herein which appears on its face to be genuine, and Tenant shall have no duty to make any inquiry into the existence of a default or the genuineness or validity of any such notice as a condition to acting and relying on such notice. This shall include any notice from the successor-landlord notifying Tenant of a default under the mortgage, deed of trust or lease and instructing Tenant to pay all Rent to such successor-landlord. All such payments made in good- faith and in reliance on such notice shall be deemed to have been made to or on behalf of Landlord and shall not be a breach under this Lease. ARTICLE 17 - SURRENDER 17.1. SURRENDER. Upon termination or expiration of this Lease or termination of Tenant's right to possession, Tenant will at once surrender and deliver up the Premises, together with all improvements thereon, to Landlord, in good condition and repair, ordinary wear and tear and loss by insured casualty and condemnation excepted. Prior to the termination or expiration of the Lease or of Tenant's right to possession, Tenant shall remove from the Premises all of Tenant's personal property, equipment and trade fixtures (collectively, "Tenant's Property") and repair any injury or damage to the Premises which may result from such removal, repairing the Premises to the same condition as existed prior to the installation thereof. If Tenant does not remove Tenant's Property from the Premises and repair any resultant damage, as aforesaid, Landlord may, at its option, remove the same (and repair any damage occasioned thereby) and dispose thereof or deliver the same to any other place of business of Tenant or warehouse the same, and Tenant shall pay the cost of such removal, repair, delivery and warehousing to Landlord on demand, or Landlord may treat Tenant's Property as having been conveyed to Landlord with this Lease acting as a bill of sale, without further payment or credit by Landlord to Tenant. If Landlord requests the removal of: (i) any improvements to the Premises made pursuant to any Modification or change order, in which event Landlord shall so advise Tenant of the necessity to remove same at the time Landlord approves said Modification or change order; or (ii) any Alterations as to which Landlord has the right to require removal by Tenant in accordance with Section, 9.4 above, Tenant shall remove all such improvements and Alterations and restore the Premises to their original condition as existed prior to such improvements and Alterations, ordinary wear and tear excepted, upon expiration or termination of this Lease. If, after Landlord's request, Tenant does not so remove said improvements and Alterations -32- promptly, Landlord may remove the same and Tenant shall pay the reasonable cost of such removal to Landlord upon demand. The provisions of this Section 17.1 shall survive the termination or expiration of this Lease. 17.2. HOLDING OVER. Tenant shall have no right to occupy the Premises or any portion thereof after the expiration or termination of this Lease or of Tenant's right to possession. For each month or portion thereof Tenant retains possession of the Premises, or any portion thereof, after the expiration or termination of this Lease or Tenant's right to possession, Tenant shall pay to Landlord an amount equal to one hundred fifty percent (150%) of the then most recent monthly Rent, which shall not be prorated for any partial month. Such holdover occupancy shall constitute a tenancy at sufferance terminable by Landlord without notice. In the event any such holdover occupancy continues for more than sixty (60) days, then commencing on the sixty-first (61) day of such holdover occupancy, Tenant shall be liable to Landlord, in addition to Tenant's liability for one hundred fifty percent (150%) of the then most recent monthly Rent, for all damages, direct and consequential, sustained by Landlord by reason of such holdover retention of possession. The provisions of this Section 17.2, shall not constitute a waiver by Landlord of any re-entry or other rights of Landlord provided for under this Lease or by law nor shall it be deemed an extension or renewal of the Lease Term or of any Extended Term. The provisions of this Section 17.2 shall survive the termination or expiration of this Lease. ARTICLE 18 - DEFAULT AND REMEDIES 18.1. TENANT DEFAULTS. The occurrence of any one or more of the following events shall be considered events of default (a "Default") by Tenant under this Lease: (a) Tenant shall fail to make any payment of Base Rent, Premises Expenses or Taxes when due, and such failure shall continue for five (5) business days after notice thereof in writing to Tenant or Tenant shall fail to make any other payment of Additional Rent when due and such failure continues for thirty (30) days after notice thereof in writing to Tenant; (b) Tenant shall fail in keeping, observing or performing any of the other covenants or agreements herein contained to be kept, observed and performed by Tenant, and such failure shall continue for thirty (30) days after notice thereof in writing to Tenant, or if such default shall be of a nature that it cannot practically be cured within the thirty (30) day period and Tenant fails to commence the curing of the default within thirty (30)-days after such written notice, or to thereafter continuously prosecute and complete with due diligence the curing of such default; or (c) Tenant shall make any assignment for the benefit of creditors or shall apply for or consent to the appointment of a receiver for themselves or any of their property; or (d) Tenant shall be adjudged an involuntary bankrupt, or a decree or order for reorganization under the Federal bankruptcy laws as now or hereafter amended, or under the laws of any state, shall be entered against Tenant, and any such decree or -33- judgment or order shall not have been vacated or set aside within sixty (60) days from the date of the entry or granting thereof; or (e) Tenant shall file or admit the jurisdiction of the court and the material allegations contained in any petition in bankruptcy or any petition pursuant to, or purporting to be pursuant to, the federal bankruptcy laws as now or hereafter amended, or Tenant shall institute any proceedings for any relief under any bankruptcy or insolvency laws or any laws relating to the relief of debtors, readjustment or indebtedness, reorganization, arrangements, composition or extension; or (f) The Premises are levied upon by any revenue officer or similar officer as the result of any act or omission of Tenant, and such levy or other related lien is not released of record within sixty (60) days from the date of such levy or other related lien; or (g) A decree or order appointing a receiver of all or substantially all of the property of Tenant shall be made and such decree or order shall not have been vacated or set aside within sixty (60) days from the date of entry or granting thereof; or (h) Tenant shall vacate the Premises during the term hereof and fail to provide at Tenant's expense security guard services which will visit the Premises not less than twice per day on a daily basis during the remaining term hereof or shall vacate the Premises without having provided at least sixty (60) days prior written notice thereof to Landlord. Upon the occurrence of any one or more of such events, Tenant shall be in Default hereunder. Upon a Default by Tenant, Landlord may retain all sums deposited with Landlord hereunder and apply the same to Tenant's obligations hereunder, and Landlord may, at its election, terminate this Lease or terminate Tenant `s right to possession only, without terminating the Lease. Upon termination of the Lease, or upon any termination of the Tenant's right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord the full and free right, without demand or further notice of any kind to Tenant, to enter into and upon the Premises, in accordance with law, and to repossess the Premises as Landlord's former estate and to expel or remove Tenant and any others who may be occupying the Premises, without being deemed in any manner guilty of trespass, eviction, or forcible entry or detainer, without incurring any liability for any damage resulting therefrom and without relinquishing Landlord's rights to Rent or any other right given Landlord hereunder or by operation of law. Tenant shall pay on demand all reasonable costs and expenses, including attorneys' fees and costs, incurred by Landlord in recovering sums due hereunder, recovering possession of the Premises, or otherwise enforcing this Lease or pursuing Landlord's rights and remedies against Tenant or any assignee, sublessee or other transferee. Landlord shall use such commercially reasonable efforts as are then required by Illinois law to mitigate its damages resulting from Tenant's Default. 18.2. TERMINATION OF LEASE. If Landlord elects to terminate this Lease, Landlord shall be entitled to recover as damages all Rent and other sums due and payable by Tenant on the date -34- of termination, plus: (1) an amount equal to the value of the Rent and other sums provided herein to be paid by Tenant for the residue of the stated term hereof, less the fair rental value of the Premises for the residue of the stated, term (taking into account the time and reasonable expenses necessary to obtain a replacement tenant or tenants, including expenses hereinafter described relating to recovery of the Premises, preparation for reletting and for reletting itself), discounted to a present value using a discount factor of four percent (4%), (2) the cost of performing an y other covenants to be performed by the Tenant, and (3) all other reasonable costs and expenses of Landlord incurred in enforcing its rights under this Lease as a result of such default, including reasonable attorneys fees, allowable under this Lease or at law. 18.3. TERMINATION OF RIGHT OF POSSESSION. If Landlord elects to terminate Tenant's right to possession only without terminating the Lease, Landlord may, at Landlord's option, enter into the Premises, remove the Tenant's property, signs, and other evidences of tenancy, and take and hold possession thereof as hereinabove provided, without such entry and possession terminating the Lease or releasing Tenant, in whole or in part, from Tenant's obligations to pay Rent hereunder for the full term or from any of its other obligations under this Lease. Landlord shall have the right to relet all or any part of the Premises for such rent and upon such terms as shall be satisfactory to Landlord in its sole, but commercially reasonable, discretion (including the right to relet the Premises as part of a larger area and the right to change the character or use made of the Premises). Landlord shall use reasonable efforts to relet the Premises, but in no event shall Landlord have an obligation to expend or advance any funds for marketing, commissions, tenant improvements, cleaning, remodeling or other purposes related to reletting unless Tenant first deposits with Landlord the total amount of such anticipated costs, as Landlord shall reasonably estimate. Landlord shall have no obligation to accept any replacement tenant who in Landlord's reasonable discretion is not creditworthy or whose reputation or intended use would be detrimental to the Premises or the Center of which the Premises is a part. Landlord shall not be deemed to have failed to use such reasonable efforts to mitigate its damages by reason of the fact that Landlord has leased or sought to lease other vacant premises owned or controlled by Landlord or its affiliates in preference to reletting the Premises, or by reason of the fact that Landlord has sought to relet the Premises at a rental rate higher than that payable by Tenant under this Lease (but not in excess of the then current market rental rate). For the purpose of such reletting, Landlord may decorate o r make any repairs, changes or alterations in or to the Premises that may be reasonably necessary or desirable, the cost of which shall be borne solely by Tenant. If Landlord does not relet the Premises, Tenant shall pay to Landlord on demand all costs of attempting to relet the Premises, and Rent and other sums provided herein to be paid by Tenant for the remainder of the Lease Term as the same shall become due and payable. If the Premises are relet and a sufficient sum shall not be realized from such reletting after paying all of the reasonable expenses of such reletting and the collection of the rent accruing therefrom (including, but not by way of limitation, reasonable attorneys' fees and brokers' commissions), to satisfy the Rent and other charges herein provided to be paid for the remainder of the Lease Term, Tenant shall pay to Landlord on demand any deficiency as the same shall become due and payable. Tenant shall not be entitled to any surplus if the Premises are leased for an amount greater than the Rent reserved hereunder. Tenant agrees that Landlord may file suit to recover any sums falling due under the terms of this Section from time to time. Notwithstanding an election by Landlord to terminate Tenant's right to possession, Landlord may at any time thereafter elect to terminate this Lease. -35- 18.4. REMEDIES CUMULATIVE. Except as otherwise expressly provided in this Lease, no remedy herein or otherwise conferred upon or reserved to Landlord or Tenant shall be considered to exclude or suspend any other remedy, but the same shall be cumulative an d shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity or by statute, and every power and remedy given by this Lease to Landlord or Tenant may be exercised from time to time and so often as occasion may arise or as may be deemed expedient. 18.5. NO WAIVER. No delay or omission of Landlord or Tenant to exercise any right or power arising from any default shall impair any such right or power or be construed to be a waiver of any such default or any acquiescence therein. No waiver by Landlord or Tenant of any default of any of the covenants of this Lease shall be construed, taken or held to be a waiver of any other default, or as a waiver, acquiescence in or consent to any further or succeeding default of the same covenant. The acceptance by Landlord of any payment of Rent or other sums due hereunder after the termination by Landlord of this Lease, or of Tenant's right to possession hereunder, shall not, in the absence of agreement in writing to the contrary by Landlord, be deemed to restore this Lease or Tenant's rights hereunder, as the case may be, but shall be construed as a payment on account, and not in complete satisfaction of damages due from Tenant to Landlord unless all such sums are paid in full. 18.6. INTEREST. Each payment of Rent and other amounts owed by Tenant hereunder, which shall not be paid when due, shall bear interest at the rate ("Interest Rate") equal to five percent (5%) over the greater of (i) the default rate of interest charged by Landlord's first Mortgagee, if any, and (ii) the prime, corporate or base rate of interest announced by Bank One (or in the absence thereof, such other U.S. bank as may be designated by Landlord) from time to time, but, in either case, not to exceed any maximum rate of interest permitted by law, from the date when the same is due under the terms of this Lease until the same shall be paid. 18.7. ENFORCEMENT OF CC&R's. From time to time, on Tenant's written request, Landlord shall take such reasonable actions as Landlord is legally entitled to take under the CC&R's to cause the Millbrook Business Center Association to enforce the CC&R's in order to remedy the non-conformance therewith by any other owner of property located within the Center. 18.8. LANDLORD'S RIGHT TO PERFORM TENANT OBLIGATIONS. If Tenant shall at any time fail to take out, pay for, maintain and deliver any of the insurance policies or certificates of insurance provided for in Article 6, or fail to make any other payment or perform any other act or obligation on its part to be made or performed under this Lease, then, in each instance, after fifteen (15) days prior written notice to Tenant, which notice shall specifically notify Tenant of Landlord's right to perform Tenant's obligations under this Section 18.8 (or immediately and without notice in case of emergency), Landlord may, but shall not be obligated to: (i) take out, pay for and maintain any of the insurance policies provided for in this Lease; (ii) make or perform any necessary maintenance, service, repairs or replacements to the Premises for which Tenant is responsible, or (iii) make any other payment or perform any other act or obligation on Tenant's part to be paid or performed under this Lease. Landlord may enter upon the Premises for any such purpose and take all such action therein or thereon as may be necessary therefor. In such event, Landlord shall endeavor to minimize any interference with Tenant's operation of its business. Nothing herein contained and no such action by Landlord shall be deemed as a waiver -36- or release of Tenant from any obligation of Tenant under this Lease. All sums so paid by Landlord and all costs and expenses, including reasonable attorney's fees incurred by Landlord in connection with the performance of any such act, plus an administrative fee of ten percent (10%) of the amount thereof, together with interest thereon at the Interest Rate from the respective dates of Landlord's making of each payment, shall be paid by Tenant to Landlord within ten (10) days of demand therefor. Landlord's damages for such failure of Tenant to maintain insurance shall not be limited to the amount of insurance premiums which would have been payable upon such insurance, but Landlord shall also be entitled to recover the uninsured amount of any loss (to the extent of any deficiency between the dollar limits of insurance required by the provisions of this Lease and the dollar limits of the insurance, if any, actually carried by Tenant) suffered or incurred by reason of damage to or destruction of the Premises. 18.9. LANDLORD'S DEFAULTS. If Landlord fails to observe or perform any covenant, agreement or obligation to be performed by Landlord under this Lease, and if such failure shall continue for more than thirty (30) days after written notice thereof from Tenant to Landlord or such shorter period as is reasonably practicable to cure the same with respect to emergency matters which Landlord shall address as promptly as is reasonably possible (each a "Landlord Default"), unless such failure requires work to be performed, acts to be done, or conditions to be removed which, by their nature, cannot reasonably be performed, done or removed, as the case may be, within such period, in which event, if Landlord shall have commenced curing or correcting the same within such period and shall diligently prosecute such cure or correction, such thirty (30) day period shall be extended by such additional time period as may be reasonably required for Landlord to cure or correct such failure and such failure will not constitute a Landlord Default hereunder unless Landlord fails to continue to diligently prosecute such cure or correction to completion, then Tenant shall have all of its remedies available at law and in equity; however, in no event shall Landlord be liable under any of the provisions of this Lease for any consequential, speculative, punitive or other indirect damages of any kind or nature. Landlord shall be liable for Tenant's reasonable attorneys' fees incurred in successfully enforcing Landlord's obligations hereunder. Tenant agrees to simultaneously give Landlord's Mortgagee a copy of any notice of a Landlord Default that Tenant serves upon Landlord. Landlord's Mortgagee shall have the right to cure a Landlord Default within the period provided to Landlord, plus the additional time provided under Section 16.3 above. In the event Tenant notifies Landlord, in writing, of a failure on the part of Landlord to observe or perform any covenant, agreement or obligation to be performed by Landlord under this Lease and such failure has resulted, in Tenant's reasonable opinion, in an emergency situation either: (i) potentially and immediately interfering with Tenant's operation of its business from the Premises; or (ii) potentially putting Tenant's property or personnel at immediate risk of being injured, and Landlord fails to respond, analyze and propose a plan for curing such failure (including the time required to complete such cure) within one (1) business day of receiving said notice, Tenant shall be permitted to take all reasonable measures to remediate such situation to the extent necessary to remove the emergency nature thereof and the reasonable cost therefor shall be reimbursed by Landlord to Tenant within thirty (30) days of Landlord's receipt of evidence of Tenant's payment therefor, accompanied by complete copies of all contracts and invoices for such work. -37- ARTICLE 19 - MISCELLANEOUS 19.1. RIGHTS RESERVED TO LANDLORD. Without limiting any other rights reserved or available to Landlord under this Lease, at law or in equity, Landlord reserves the following rights to be exercised at Landlord's election upon reasonable prior oral or written notice to Tenant: (i) to enter and/or inspect the Premises in order to make repairs, replacements, additions or alterations to the Premises, (ii) to show the Premises to persons having a legitimate interest in viewing the same, and (iii) during the final year of the Lease Term, to erect and maintain "For Rent" and "For Sale" signs on the Premises. Entries by Landlord under this Section 19.1 shall be conducted so as not to unduly or unreasonably interfere with Tenant's use and occupancy of the Premises. Notwithstanding the foregoing, Landlord shall only be required to take reasonable measures, as then appropriate, to minimize such interference and only to the extent reasonably practicable, if at all, if Landlord's entry is in response to an emergency situation. Tenant agrees to indemnify, defend and hold Landlord's Indemnified Parties, and each of them, harmless from and against any and all losses, claims, damages and liabilities arising out of or resulting from Landlord's inability to access the Premises. 19.2. QUIET ENJOYMENT. So long as Tenant is not in Default under this Lease, Tenant's quiet and peaceable enjoyment of the Premises shall not be disturbed or interfered with by Landlord or anyone claiming through Landlord. 19.3. SIGNAGE. Tenant shall not erect or install any signage unless previously approved by Landlord in writing, in its reasonable discretion. Any signage erected shall be in compliance with all applicable CC&R's and Legal Requirements. All of Tenant's signage shall be removed, and any damage to the Premises resulting from the installation or removal thereof repaired by Tenant at its sole cost and expense, upon the termination of this Lease or Tenant's possession of the Premises. Landlord hereby approves of Tenant's proposed monument sign described on Exhibit "G", attached hereto. 19.4. NOTICES. All notices to, or demands upon, Landlord or Tenant desired or required to be given under any of the provisions hereof shall be in writing. Any notices or demands from Landlord to Tenant shall be delivered personally or mailed by United States registered or certified mail (return receipt requested) or sent by a nationally recognized overnight courier in an envelope properly stamped and addressed to Tenant at Tenant's Address or at such other address as Tenant may heretofore have designated by written notice to Landlord, and any notices or demands from Tenant to Landlord shall be delivered personally or mailed by United States registered or certified mail (return receipt requested) or sent by a nationally recognized overnight courier in an envelope properly stamped and addressed to Landlord at Landlord's address or at such other address or to such other agent as Landlord may heretofore have designated by written notice to Tenant, with a copy of any notice of a Landlord Default to any first mortgagee of the Premises, the identity and address of which Tenant shall have received by written notice. All such notices, requests or demands shall be considered properly delivered when actually received by the other 'party; provided, however, rejection or other refusal to accept a notice, request or demand, or the inability to deliver the same because of a changed address of which no notice was given, shall be deemed to be receipt of the notice, request or demand sent. -38- 19.5. MEMORANDUM OF LEASE. The parties may record with the Lake County Recorder, a Memorandum of Lease, in the form and substance of Exhibit "E" attached hereto and made a part hereof. The parties acknowledge that nothing contained in such Memorandum of Lease shall be deemed to modify or amend any of the terms and conditions set forth in this Lease. 19.6. TIME OF ESSENCE. Time is of the essence of this Lease and all provisions herein relating to time of performance shall be strictly construed. 19.7. RELATIONSHIP OF PARTIES. Nothing contained herein shall be deemed or construed by the parties hereto, or by any third party, as creating the relationship of principal and agent or of partnership, or of joint venture, by the parties hereto, it being understood and agreed that no provision contained in this Lease nor any acts of the parties hereto shall be deemed to create any relationship other than the relationship of Landlord and Tenant. 19.8. CAPTIONS. The captions of this Lease are for convenience only and are not to be construed as part of this Lease and shall not be construed as defining or limiting in any way the scope or intent of the provisions hereof. 19.9. SEVERABILITY. If any term or provision of this Lease shall to any extent be held invalid or unenforceable, the remaining terms and provisions of this Lease shall not be affected thereby, but each term and provision of this Lease shall be valid and shall be enforced to the fullest extent permitted by law so long as the parties receive the essence of their bargain. 19.10. LAW APPLICABLE. This Lease shall be construed and enforced in accordance with the laws of the State of Illinois. 19.11. COVENANTS BINDINQ ON SUCCESSORS. All of the covenants, agreements, conditions and undertakings contained in this Lease shall extend and inure to and be binding upon the parties hereto and their permitted successors and assigns. 19.12. BROKERAGE. Landlord and Tenant warrant to the other that neither of them has had any dealings with any broker or agent in connection with the transactions contemplated hereby, other than CB Richard Ellis, Inc. and Trammel Crow Company. Landlord and Tenant covenant to pay, hold harmless and indemnify the other from and against any and all costs, expenses or liability for any compensation, commissions and charges claimed by any other broker or agent, with respect to the transactions contemplated hereby or the negotiation thereof and arising by virtue of the acts of the indemnifying party. Landlord shall pay CB Richard Ellis, Inc. a commission pursuant to a separate written agreement and CB Richard Ellis, Inc. shall pay Trammel Crow Company pursuant to an agreement between said parties. 19.13. FORCE MAJEURE. The time for performance of a party's non-monetary obligations shall be extended by a period equal to delays caused by acts of God, strikes, riots, insurrection, material shortages, governmental acts, and other causes beyond that party's reasonable control (any and all such causes collectively, "Force Majeure"), provided, that party gives written notice to the other party no later than ten (10) days after the occurrence of such event of Force Majeure. -39- 19.14. SALE OF BUILDING. In the event Landlord sells or transfers the Premises: (i) Landlord shall be freed and relieved of all liability under this Lease arising from and after the date of such sale or transfer, provided the transferee assumes all of Landlord's obligations hereunder pursuant to a written agreement; and (ii) Tenant shall be freed and relieved of all liability to the transferor-Landlord for the period preceding such sale or transfer, except for: (a) Base Rent and Premises Expenses claimed due from Tenant by the transferor-Landlord within one (1) year following such sale or transfer; (b) Taxes claimed due from Tenant by the transferor-Landlord within two (2) years following such sale or transfer; and (c) any damages, costs or expenses resulting from any negligent or willful acts of Tenant or any of Tenant's Representatives occurring prior to such sale or transfer and which the transferor-Landlord has not by then received written notice thereof. 19.15. ESTOPPEL CERTIFICATE. From time to time, within ten (10) days after written request by Tenant or Landlord or any Mortgagee, Tenant or Landlord, as the case may be, shall deliver to the requesting party a statement in writing certifying: (i) that this Lease is unmodified and in full force and effect or, if there have been modifications, that this Lease, as modified, is in full force and effect; (ii) the amount of Rent then payable hereunder and the date to which Rent has been paid; (iii) that, to the party's knowledge, the requesting party is not in default under this Lease or, if in default, a detailed description of such default(s); (iv) that Tenant is or is not in possession of the Premises, as the case may be; (v) that Tenant or Landlord, as the case may be, has no known claims, offsets or defenses against the other party in connection with the Lease or otherwise, and (vi) such other information as the requesting party may reasonably request. 19.16. CORPORATE CONSENT. Tenant represents and warrants that it has full authority, and that it has received all consents and approvals necessary, to enter into this Lease and perform its obligations hereunder. Landlord represents and warrants that it ha s full authority, and that it has received all consents and approvals necessary, to enter into this Lease and perform its obligations hereunder. 19.17. EXECUTION. The execution of this Lease by Tenant and delivery of same to Landlord or its agents does not constitute a reservation of or option for leasing the Premises or an agreement to enter into a Lease, and this Lease shall become effective only if and when Landlord executes and delivers same to Tenant. 19.18. LIMITATION OF LIABILITY. Tenant agrees that, with respect to any judgment which may be obtained or secured by Tenant against Landlord, Tenant shall look solely to the estate or interest owned by Landlord in the Premises and, subject to any assignment of rents in connection with any Mortgage, the rents therefrom, and that Tenant will not collect or attempt to collect any such judgment out of any other assets of Landlord or the members thereof. Landlord's members, partners, shareholders, directors, employees or agents shall not be individually or personally liable for any claim arising out of this Lease. Any manager retained by Landlord shall be acting only as an agent and in such capacity shall not in any event be held liable to Tenant for the fulfillment or nonfulfillment of any of the terms, covenants or conditions of this Lease or for any action or proceedings that may be taken by Tenant against Landlord. 19.19. AMENDMENTS MUST BE IN WRITING. None of the covenants, terms or conditions of this Lease to be kept and performed by either party shall in any manner be altered, waived, -40- modified,changed or abandoned, except by a written instrument, duly signed and delivered by both parties. 19.20. FINANCIAL STATEMENTS. Tenant shall deliver to Landlord, from time to time upon written request, a copy of Tenant's then most recent financial statements, which shall be prepared in accordance with generally accepted accounting principles and certified by a senior officer of Tenant. 19.21. LEASE NOT AFFECTED. The parties covenant and agree that any present or future law to the contrary notwithstanding, this Lease shall not terminate, except as herein specifically provided, and, except as specifically provided herein, Landlord shall receive the Base Rent and Additional Rent and all other sums payable by Tenant hereinabove provided as net income from the Premises, without any abatement, reduction, set-off, counterclaim, defense or deduction and not diminished by any expenses or charges required to be paid by Tenant to maintain, restore or replace the Premises or to protect Landlord's ownership of the Premises. The obligations of Tenant hereunder shall not be affected by reason of any damage to or destruction of the Premises except as expressly otherwise provided to the contrary in this Lease. 19.22. NO WAIVER. No failure of Landlord or Tenant to exercise any power given Landlord or Tenant hereunder or to insist upon strict compliance by Landlord or Tenant with its obligations hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's or Tenant's rights to demand exact compliance with the terms hereof. 19.23. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties hereto and no representations, inducements, promises or agreement, oral or otherwise, between the parties not embodied herein shall be of any force and effect. The masculine (or neuter) pronoun, singular number shall include the masculine, feminine and neuter gender and the singular and plural number. 19.24. COUNTERPARTS. This Lease may be executed in multiple counterparts, each of which shall constitute an original, but all of which taken together shall constitute one and the same agreement. 19.25. VENUE. To the maximum extent permitted by law, the parties agree that all actions or proceedings arising in connection with this Lease shall be tried and determined only in the State and Federal courts located in or having jurisdiction over the County of Lake, State of Illinois. To the maximum extent permitted by law, each party hereby expressly waives any right it may have to assert the doctrine of forum non conveniens or to object to venue to the extent any proceeding is brought in accordance with this Section. 19.26. JURY WAIVER. To the maximum extent permitted by law, each of Tenant and Landlord hereby expressly waives any right to trial by jury of any action, cause of action, claim, demand, or proceeding arising under or with respect to this Lease, or in any w ay connected with, related to, or incidental to the dealings of Landlord and Tenant with respect to this Lease, in each case whether now existing or hereafter arising, and whether sounding in contract, tort, or otherwise. To the maximum extent permitted by law, each of Tenant and Landlord hereby -41- agrees that any such action, cause of action, claim, demand or proceeding shall be decided by a court trial without a jury and that Tenant or Landlord may file a copy of this Lease with any court or other tribunal as written evidence of the consent of each of Tenant and Landlord to the waiver of its right to trial by jury. 19.27. (INTENTIONALLY OMITTED) 19.28. GUARANTY. (Intentionally omitted) 19.29. JOINT EFFORT. The preparation of this Lease has been a joint effort of the parties hereto and the resulting document shall not, solely as a matter of judicial construction, be construed more severely against one of the parties than the other. 19.30. REASONABLE CONSENT. Except in those cases where a party has expressly reserved the right to withhold consent in its sole discretion, neither party shall unreasonably -withhold, condition or delay any consent or approval hereunder. 19.31. ARBITRATION. (a) The parties hereto shall not have been deemed to have agreed to the determination of any dispute arising out, this Lease by arbitration unless determination in such manner shall have been specifically provided for in this Lease. Except as otherwise provided herein, every dispute between the parties that is expressly provided in this Lease to be determined by arbitration shall be resolved in the manner provided in this Section 19.31. (b) The party requesting arbitration shall do so by giving notice to that effect to the other party, and the parties shall have ten (10) business days within which to select one mutually agreeable arbitrator. If the parties fail to agree on one arbitrator within the ten (10) business day period, either party may promptly request the Association to appoint one (1) arbitrator for the matter, and the Association's selection shall be binding upon Landlord and Tenant. The Association shall appoint as arbitrator an individual with the following qualifications: at least ten (10) years' experience in the business of commercial real estate and never been a direct or indirect employee or agent of either Landlord or Tenant. (c) The arbitration shall be conducted in accordance with the provisions hereof and to the extent consistent with this Section 19.31, in accordance with the then-prevailing commercial rules of the Association in the metropolitan Chicago area. The arbitrator shall have the right to retain and consult experts and competent authorities skilled in arbitration. The arbitrator shall render his or her decision and award within fifteen (15) days after the final hearing. Such decision and award shall be in writing and counterpart copies thereof shall be delivered to each of the parties. (d) The expenses of arbitration shall be apportioned between the parties by the arbitrator, including counsel fees, audit costs, experts and presentations of proof. The arbitrator may, however, determine that the unsuccessful party shall pay all of such costs, including all costs incurred by the successful party. -42- 19.32. CENTER ASSOCIATION BOARD MEETINGS. To the extent permitted under the CC&R's, Landlord shall provide Tenant the opportunity to have a designated representative of Tenant attend and observe all meetings of the Millbrook Business Center Association Board. Tenant acknowledges that its representative will not be a member of such Board and will have no right to vote at any such meetings. 19.33. (INTENTIONALLY OMITTED) 19.34. RIGHT OF FIRST OFFER. In the event any time after the Commencement Date, Landlord desires to sell the Premises and provided Tenant is not in Default under this Lease as of the date of the First Offer Notice (as defined below) and as of the closing date of Tenant's purchase of the Premises, Landlord shall provide Tenant with written notice (the "First Offer Notice") of its desire to sell the Premises and the terms of such sale including, but not limited to, the sales price and earnest money required and the projected closing date. Tenant shall have fifteen (15) business days after delivery of the First Offer Notice to notify Landlord of its election to purchase the Premises, upon the terms and conditions hereinbelow set forth. If Tenant so elects to purchase the Premises (which election shall be irrevocable), then the purchase price, earnest money and closing date shall be as set forth in the First Offer Notice. If Tenant does not or fails to so elect to purchase the Premises within such fifteen (15) business day period, Tenant shall have waived its right to purchase the Premises and Landlord may thereafter sell the Premises to any third party without notice to Tenant and free of any right to Tenant, on such terms and conditions as Landlord shall elect. However, in the event Landlord fails to enter into a written contract to sell the Premises to a bona fide party within one (1) year of the First Offer Notice at a price not less than ninety percent (90%) of the price set forth in the First Offer Notice, Tenant's right to purchase the Premises pursuant to this Section 19.34 shall again be applicable; however on those terms to be resubmitted to Tenant in a revised written notice from Landlord (the "Revised First Offer Notice"). Provided Tenant properly exercises its right to purchase the Premises, pursuant to the First Offer Notice or Revised First Offer Notice, as applicable, Landlord and Tenant shall enter into a definitive written purchase agreement respecting Tenant's purchase of the Premises from Landlord and incorporating the terms of the First Offer Notice or Revised First Offer Notice, as applicable. This Right of First Offer is personal to Eagle Test Systems, Inc. and a Related. Transferee and may only be exercised provided Eagle Test Systems, Inc. or a Related Transferee occupies the entire Premises. No other sublessee or assignee of Tenant shall be entitled to exercise any right or option hereunder. In no event shall this Right of First Offer apply to or prevent any sale or transfer of the Premises to any Affiliate of Landlord or to any purchaser of the Premises at the same time said purchaser or an affiliate thereof purchases other real property from Landlord or any Affiliate of Landlord. For the purposes hereof an "Affiliate of Landlord" shall mean any corporation, partnership, limited liability company or other entity which directly or indirectly, through one or more intermediaries, controls, is controlled by or which is under common control with Landlord or with a member of the Miller Family. For the purposes of this Section, the "Miller Family" shall mean (i) all lineal descendants of Ben and Ida Miller, both deceased, and all spouses of such descendants; (ii) all trusts for the benefit of any one or more of the persons described in clause (i); (iii) all legal representatives of any of the persons described in clause (i); and (iv) all partnerships, corporations, limited liability companies or other entities controlling, controlled by or under common control with any person, trust or other entity described in clauses (i), (ii), (iii) or this clause (iv). The term "control" as used in this Section (and all variations thereof) means -43- the power to directly or indirectly direct or cause the direction of the management and policies, or the ownership of more than fifty percent (50%) of the voting securities or interests in, the applicable entity. If the Premises shall be sold to the Tenant upon a sale incident to the exercise of this Right of First Offer, any prepaid rent hereunder shall be apportioned as of the closing date and applied on account of the purchase price. Notwithstanding anything herein to the contrary, Landlord reserves the right to cease marketing the Premises for sale at any time following Tenant's failure to exercise its right to purchase the Premises within the ten (10) day period following the First Offer Notice (or any Revised First Offer Notice, if applicable), in which event Tenant shall have no further rights under this Section 19.34 until such time as Landlord again elects to sell the Premises, if ever. 19.35. EXHIBITS. The following Exhibits are attached hereto and made a part hereof: Exhibit "A" Premises and Parking Plan Exhibit "B" Legal Description Exhibit "C" Outline Specifications and Other Related Documents Exhibit "D" Project Schedule Exhibit "E" Memorandum of Lease Exhibit "F" Copies of CC&R's Exhibit "G" Tenant's Monument Sign Exhibit "H" List of Tenant's Anticipated Hazardous Materials Exhibit "I" Modification No. 1 Exhibit "J" Modification No. 2 [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. SIGNATURES APPEAR ON THE FOLLOWING PAGE.] IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written. TENANT: LANDLORD: EAGLE TEST SYSTEMS, INC., an MILLBROOK VI LLC Illinois corporation By: Millbrook Properties LLC, its Managing Agent By: /s/ Ted Foxman By: /s/ Harvey A. Miller ------------------------- --------------------------- Its: Executive VP A Managing Member -44- EX-10.24 22 c86449exv10w24.txt GLOBAL PURCHASING AGREEMENT EXHIBIT 10.24 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS ARE INDICATED BY THE FOLLOWING NOTATION: [OMITTED MATERIAL] [EAGLE TEST SYSTEMS LOGO] [FAIRCHILD LOGO] GLOBAL PURCHASING AGREEMENT BETWEEN EAGLE TEST SYSTEMS & FAIRCHILD SEMICONDUCTOR All Purchase Orders shall reference this Agreement and be governed by the Terms and Conditions of this Agreement, notwithstanding any agreed to conflicting terms in individual Purchase Orders issued. GLOBAL PURCHASE AGREEMENT (This page intentionally left blank.) (ii) TABLE OF CONTENTS Page 1..............................Global Purchase Agreement Appendix A .........................Pricing Schedule A.1........................System and Resource Pricing A.2........................Service Plans - Standard, Gold & Platinum A.3........................Spare Resource Rental Plan A.4........................Software Support Appendix B .........................Confidentiality and Non Disclosure Agreement Appendix C .........................Warranty Provisions - New Hardware Products Appendix D .........................Software Support Provisions Appendix E .........................Equipment and Acceptance Requirements for Eagle Test System's Test Products

(iii) GLOBAL PURCHASE AGREEMENT (This page intentionally left blank.) (iv) [EAGLE TEST SYSTEMS LOGO] [FAIRCHILD LOGO] GLOBAL PURCHASING AGREEMENT AGREEMENT # 2003-TEST-00 THIS GLOBAL PURCHASING AGREEMENT IS BETWEEN: EAGLE TEST SYSTEMS & FAIRCHILD SEMICONDUCTOR All Purchase Orders shall reference this Agreement and be governed by the Terms and Conditions of this Agreement, notwithstanding any agreed to conflicting terms in individual Purchase Orders issued. GENERAL 1. This agreement shall commence on the effective date September 1, 2003 and end on December 31, 2004. 2. All Buyer's sites and subsidiaries will be included under this agreement and sites and subsidiaries may be added or deleted at the discretion of the Buyer. 3. It is understood that the discount level established is based on the Buyer's estimated requirements for the period of this agreement and purchase is in no way guaranteed or implied. 1. If there is any conflict between Fairchild Semiconductor's documents the order of precedence is listed below: 1. Global Purchasing Agreement 2. Purchase Order 3. Build Requirements and Specifications PRICING 1. The pricing schedule attached as Appendix A shall be applicable to all equipment, software, spares, consumables, maintenance and service agreements, upgrades and retrofits and shall be applied to the Seller's Published Price List (PPL). DELIVERY FOB Seller's Point of Manufacture PAYMENT TERMS [OMITTED MATERIAL] WRITTEN MATERIALS As required by individual site purchase orders, the Seller shall supply to the Buyer prior to or concurrent with the delivery of any System, one (1) copy of all electronically stored materials (CD Rom) related to assembly , installation, maintenance, service, and operation of the System including, but not limited to specifications, drawings, operation manuals, service manuals, technical bulletins, assembly and installation instructions, safety instructions, and warnings and any updates thereto. Seller agrees to furnish the documentation in one or more of the following formats, as directed by the Buyer's Purchase order: o On-Line (Tester) o CD ROM GLOBAL PURCHASE AGREEMENT COUNTRY OF MANUFACTURE All systems are manufactured in the United States of America. SAFETY The equipment must meet or exceed the Environmental Health Safety requirements set forth in either, SEMI S2-93, Product Safety Guidelines or CE, European Safety Guidelines, whichever is applicable. The manufacturer must submit to Buyer a written statement of compliance or noncompliance to the applicable safety requirements. Seller shall provide all safety upgrades at no charge for the life of the system to bring the equipment up to the applicable standards at time of sale TERMS AND CONDITIONS OF GLOBAL PURCHASE AGREEMENT 1. ACCEPTANCE: THIS IS A PURCHASE ORDER FOR THE PRODUCTS (THE "PRODUCTS") OR SERVICES (THE "SERVICES") DESCRIBED ON THE FRONT HEREOF (FIRST PAGE HEREOF IF THIS IS A FAX ORDER)(IN EACH CASE, THE "FACE PAGE"). THIS PURCHASE ORDER MAY BE ACCEPTED ONLY IN STRICT ACCORD WITH THE TERMS HEREOF. ANY ADDITIONAL OR DIFFERENT TERMS CONTAINED IN ANY CONFIRMATION, ACKNOWLEDGMENT OR OTHER DOCUMENT SENT BY SELLER WILL NOT BE ACCEPTED AND WILL NOT BE EFFECTIVE TO MODIFY THE TERMS HEREOF. ACCEPTANCE OF THIS PURCHASE ORDER ON THE TERMS HEREOF SHALL BE CONCLUSIVELY EVIDENCED BY SELLER'S ACKNOWLEDGMENT, DELIVERY OF THE PRODUCTS AND/OR COMMENCEMENT OF PERFORMANCE. ANY ACCEPTANCE WHICH IS QUALIFIED IN ANY RESPECT OR WHICH CONTAINS ONE OR MORE DIFFERENT OR ADDITIONAL TERMS SHALL BE DEEMED AN OFFER FOR SUPPLEMENTAL TERMS WHICH SHALL BE DEEMED REJECTED BY BUYER UNLESS EXPRESSLY ASSENTED TO IN WRITING. SUCH REJECTION SHALL NOT AFFECT THE TERMS AND VALIDITY OF THIS PURCHASE ORDER. No change, modification or revision of this Purchase Order shall be effective unless in writing and signed by Buyer's duly authorized purchasing representative, or company officer. For purposes of this Purchase Order, the "Seller" is the Vendor listed on the Face Page, and the "Buyer" is Fairchild Semiconductor Corporation. 2. PRICES: Seller warrants that the prices to be charged for Products or Services identified on the Face Page are in accordance with the established Global Purchasing Agreement. In the event of any price reductions during the effective period covered by this Purchase Order which apply to similar products or services, such price reductions shall automatically reduce the unit price of the unshipped Products or Services not yet rendered by a comparable percentage at the time of the price reduction. 3. INVOICES: The Seller herein represents that the products and/or services covered hereby were produced in compliance with requirements of the Fair Labor Standards Act of 1938 as amended. Payment of invoices shall be subject to adjustment for errors, shortages, defects in the product or other failure of Seller to meet the requirements of the order. 2 GLOBAL PURCHASE AGREEMENT Acceptance criteria for products are defined in Appendix E attached. [OMITTED MATERIAL] 4. TAXES AND CHARGES: All such taxes and charges shall be stated separately on Seller's invoice. 5. OVERSHIPMENTS: Buyer will pay only for maximum quantities ordered. Overshipments will be held at Seller's risk and expense for a reasonable time awaiting shipping instructions. In no event will Buyer's liability for overshipments exceed the lesser of 10% of the total price of the shipment or $200.00. Return shipping charges for excess quantities will be at Seller's expense. 6. PACKING AND SHIPPING: Unless otherwise specified, when the price of this Purchase Order is based on the weight of the ordered Products, such price is to cover net weight of Products ordered only and no charge will be allowed for boxing, crating, carting, drayage, storage or other packing requirements or any allowance for damage in connection with the foregoing. Unless otherwise specified, all Products shall be packed, packaged, marked and otherwise prepared for shipment in a manner which is: (i) in accordance with industry standards and good commercial practice, (ii) acceptable to common carriers for shipment at the lowest rate for the particular Product and in accordance with ICC regulations, (iii) adequate to insure safe arrival of the Product at the named destination and for storage and protection against weather, and (iv) in compliance with all laws and regulations applicable to the Product. Seller shall mark all containers with necessary lifting, handling and shipping information and also purchase order number, date of shipment and the name of the consignee and consignor. An itemized packing sheet must accompany each shipment unless otherwise specified. 7. FOB: Unless otherwise specifically provided on the face of the Purchase Order, the Product called for hereunder shall be delivered on an Ex Works point of Mundelein, IL, USA and shall be shipped pursuant to Buyer's written instructions, which may be changed from time to time. In the absence of specific instructions from Seller, Buyer shall be responsible for ensuring that the mode of transportation is appropriate for the Products and the required delivery time. 8. WARRANTY: All hardware products shall be covered by Eagle Test Systems standard Warranty Provisions- New Hardware Products as detailed in Appendix C. Software products shall be subject to Eagle Test Systems Software Support Provisions as detailed in Appendix D. 9. INSPECTION: (a) All Products purchased hereunder shall be subject to inspection and test by Buyer to the extent practicable at all times and places during and after the period of manufacture and, in any event, prior to final acceptance. If inspection or test is made by Buyer on Seller's premises, Seller, without additional charge, shall provide all reasonable facilities and assistance for the safety and convenience of Buyer's inspectors. No inspection or test made prior to final acceptance shall relieve Seller from responsibility for defects or other failure to meet the requirements of this Purchase Order. Buyer shall provide with a minimum of a ten (10) business days notice prior to arriving at the site of manufacture. 3 GLOBAL PURCHASE AGREEMENT (b) In case any Product is defective in material or workmanship, or otherwise not in conformity with the requirement of the Purchase Order, Buyer shall have the right either to reject it, require its correction, or conditionally accept it. Buyer reserves the right to return such conditionally accepted Products for credit, within a reasonable period of time after receipt in the event that Buyer determines that such Products are unsuitable for its purpose. Any Product which has been rejected or required to be corrected shall be replaced or corrected by and at the expense of Seller promptly after notice. If, after being requested by Buyer, Seller fails promptly to replace or correct any defective Product within the delivery schedule, Buyer may, without further notice, terminate the Purchase Order for default in accordance with the clauses herein entitled "Termination for Default" or (ii) utilize the defective Product and require an appropriate reduction in price. (c) Notwithstanding any prior inspection or payment hereunder, all Products shall also be subject to final inspection and acceptance at Buyer's plant within [OMITTED MATERIAL] days after delivery. Seller shall provide and maintain an inspection system which is acceptable to Buyer. Records of all inspection work shall be kept complete and available to Buyer during the performance of the Purchase Order and for such further period as Buyer may determine. Buyer may accept or reject shipments in accordance with its established lot inspection procedures. 10. CHANGES: Buyer may, at any time by written order, and without notice to sureties or assignees, delay performance hereunder, increase the ordered quantity, or make changes in any one or more of the following: (a) applicable drawings, designs or specification in cases involving custom work; (b) method of shipment or packing, and/or (c) place of delivery. If any such change causes an increase or decrease in the cost of or the time required for performance of the Purchase Order, an equitable adjustment shall be made in the Purchase Order price or delivery schedule or both, and the Purchase Order shall be modified in writing accordingly. No claim by Seller for adjustment hereunder shall be valid unless in writing accompanied by an estimate of costs within thirty (30) business days from the date of receipt by Seller of the notification of change. Failure of Seller to assert a claim within thirty (30) business days, as provided above, shall constitute an unconditional and absolute waiver by Seller of any right to make a claim for adjustment. However, nothing in this clause shall excuse Seller from proceeding with the Purchase Order as changed or amended. Buyer reserves the right to verify claims hereunder and Seller shall make available to Buyer upon its request, all relevant books, records, inventories and facilities for its inspection and audit. 11. TERMINATION FOR DEFAULT: (a) Buyer may by written notice terminate this Purchase Order in whole or in part if Seller fails (i) to make delivery of the Product or to perform the Service within the time specified herein or (ii) to replace or correct defective Products in accordance with the provisions of those clauses hereof entitled "Warranty" and "Inspection" or (iii) to perform any of the other provisions of this Purchase Order or to so fail to make progress as to endanger performance in accordance with the terms hereof, including delivery schedules, or (iv) if Seller becomes insolvent, admits in writing its inability to pay its debts as they mature, files a voluntary petition of bankruptcy, makes an assignment for the benefit of creditors or if a petition under any bankruptcy laws is filed against it. 4 GLOBAL PURCHASE AGREEMENT (b) If this Purchase Order is terminated pursuant to Section 11(a), Buyer, in addition to any other rights provided herein, may require Seller to transfer title and deliver to Buyer in the manner, time and to the extent directed by Buyer (i) any completed Products and (ii) such partially completed Products and material. Seller shall, upon direction of Buyer, protect and preserve property encompassed in this paragraph in the possession of Seller. Payment for completed Products delivered to and accepted by Buyer shall be in an amount agreed upon by Seller and Buyer, however, such amount shall not exceed the Purchase Order price per unit and Seller's obligation hereunder to carry out Buyer's direction as to delivery protection and preservation shall not be contingent upon prior agreement as to such amount. (c) [OMITTED MATERIAL] Failure of Buyer to enforce any right under this Section shall not be deemed a waiver of any other right hereunder. The rights and remedies of Buyer under this clause shall not be exclusive and are in addition to any other rights and remedies provided by law under this Agreement. (d) [OMITTED MATERIAL] 12. TERMINATION FOR CONVENIENCE (ORDER CANCELLATION): (a) GENERAL: Cancellation of any products purchased must be made by Buyer to Seller in writing. All Payment(s) for Applicable Claims or Cancellation Charges must be paid by Buyer to Seller within ten (10) days of Buyer's cancellation. (b) SYSTEM(s) CANCELLATION: Upon written notice to ETS, Buyer may cancel any system(s) ordered. However, Buyer shall pay cancellation charges according to the following schedule:
% OF PURCHASE PRICE WRITTEN CANCELLATION NOTICE TO BE PAID UPON RECEIVED BY ETS: CANCELLATION: - --------------------------------------------------------------------------------------------------------------------- 0 to 30 days prior to scheduled delivery [OMITTED MATERIAL] 31 to 60 days prior to scheduled delivery [OMITTED MATERIAL] 61 to 90 days prior to scheduled delivery [OMITTED MATERIAL] 91 to 120 days prior to scheduled delivery [OMITTED MATERIAL] 121 days or more prior to scheduled delivery [OMITTED MATERIAL]
(c) STANDARD PRODUCT [eg. Not system(s) or custom hardware or software] CANCELLATION [OMITTED MATERIAL] (d) CUSTOM WORK: Buyer may terminate custom work under this Agreement in whole or part at any time by the giving of written notice of Seller. The termination of such work shall be considered effective at the time at which such termination is provided to Seller, After receipt of such notice, Seller shall stop work under this Agreement. Seller shall submit to Buyer its written termination claim within thirty (30) days after receipt of the notice of termination. Failure of Seller to submit its termination claim as provided herein shall constitute an unconditional and absolute waiver by Seller of any claim arising from Buyer's notice of termination. In the event of such termination, Seller shall reasonably assess cost for raw materials, work in process, subassemblies and labor as may be included within its termination claim to determine whether or not such items may be used by Seller for the manufacture of 5 GLOBAL PURCHASE AGREEMENT associated products or diverted for any other purpose and to correspondingly reduce its termination claim by the value of such items. When settlement has been made, title to any such items determined not usable by Seller and charged to Buyer in the termination claim shall vest in Buyer upon payment of the claim and forthwith be delivered to Buyer at Buyer's expense, under Buyer's shipping instructions. In the event Buyer cancels custom work, Seller's termination claim shall not exceed the total Purchase Order price, and shall be reduced by the amount of payments otherwise made and by the price of work not terminated under the Purchase Order. In no event shall Seller be entitled to incidental or consequential damages, costs of preparing claims, attorneys' fees, cost of tooling or equipment sales, or agent commissions. Buyer reserves the right to verify claims hereunder and Seller shall make available to Buyer upon its request, all relevant books, records, inventories and facilities for its inspection and audit. In the event Seller fails to reasonably afford Buyer its right of inspection and audit, Seller shall be deemed to have relinquished any claim asserted under this Section. 13. RISK OF LOSS: Notwithstanding any prior inspection and irrespective of the F.O.B. point name herein, Seller shall bear all risks of loss, damage, or destruction on the Products located at its facility. Buyer shall bear all risks of loss, damage, or destruction of the Products from the time of shipment from Seller's facility until final acceptance by Buyer. In accordance with the FOB point of manufacture shipping terms, the Buyer takes possession of the shipment at the point in time when the good are turned over to the carrier. 14. WAIVER: The failure of either party to enforce at any time any of the provisions of this Purchase Order, or to exercise any election or option provided herein, or to require at any time performance of any of the provisions hereof, shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of the agreement or any part thereof, or the right of either party thereafter to enforce each and every such provision. 15. BUYER'S PROTECTION IN CONNECTION WITH WORK DONE IT ITS PLANT: Seller shall take such steps as may be reasonably necessary to prevent personal injury or property damage during any work hereunder that may be performed by any employees, agents, or subcontractors, of Seller at Buyer's plant and Seller shall indemnify, hold harmless and defend Buyer from and against all loss, liability, liens, claims and damages arising from or caused directly or indirectly by any act or omission of such agents, employees or subcontractors of Seller, and seller shall, maintain such insurance against public liability and property damage, and such Employee's liability and compensation insurance as will protect Buyer against the aforementioned risks and against any claims under any workmen's compensation and occupational disease acts, including without limitation: (1) comprehensive general liability (including products) with limits not less than $500,000/500,000 BI and $250,000 PD; (ii) auto liability with limits not less than $500,000/600,000 BI and $250,000 PD; (iii) worker's compensation (including employer's liability) which complies with all statutory regulations in the states in which the work is being done; (iv) umbrella (including products) with limits of not less than $1,000,000 each occurrence of a $5,000,000 combined single limit. All such policies shall name Fairchild Semiconductor Corporation as an ADDITIONAL insured, entitled to no less than 30 days notice of cancellation, and evidence of such coverages and endorsements shall be provided to Buyer via Certificate of Insurance. 16. COMPLIANCE WITH LAWS: Seller warrants that no law, rule or ordinance of the United States, a state or any other governmental agency has been violated in the 6 GLOBAL PURCHASE AGREEMENT manufacture or sale of the Products or in the performance of Services covered by this Purchase Order, and will defend and hold Buyer harmless from loss, cost or damage as a result of any such actual or alleged violation. Seller further warrants that all Products have been manufactured in accordance with and comply with all laws, rules, regulations and requirements of all governmental authorities having jurisdiction and have been properly branded, labeled, tagged, marked and/or registered (if required) in accordance with all applicable laws, rules, regulations and requirements, and Seller shall bear such separate guarantees provided for under such laws, rules, regulations and requirements (or the appropriate notices that a continuing guaranty has been properly filed and renewed, if necessary, if permitted in lieu thereof). Upon written request by Buyer, Seller agrees to execute and furnish a certification of compliance, which may be on Buyer's form and which shall certify compliance with any applicable federal, state and/or local law or regulation, including, but not limited to, FLSA, EEOC, OSHA, Import and Export, and any Economic Control Statutes or Regulations. 17. NONDISCLOSURE OF CONFIDENTIAL MATTER AND PUBLICITY: All disclosures of information between the parties shall be covered by the Corporate Non-Disclosure Agreement in Appendix B. Under that agreement, products purchased pursuant to Buyer's specification or drawings shall be held in the strictest of confidence in the absence of Buyer's prior written authorization to the contrary. Such specification, drawing, samples or other data furnished by Buyer shall be treated as confidential information by Seller, shall remain Buyer's property and shall be promptly returned to Buyer upon request. Any publicity regarding this Purchase Order (picture, descriptions, notice of award, or samples thereof) is prohibited except with Buyer's written approval. 18. BUYER-FURNISHED PROPERTY: If Buyer supplies any plans, specifications, models and writings of and/or relating to the Products (collectively, the "Samples"), to permit Seller, as the bailee of the Samples, to manufacture and/or procure the Products, the Samples and any tools, dyes, molds, drawings, blue prints, specifications or anything else derived by Seller from the Samples (the "Design Work"), shall be used exclusively for Buyer's Products, and may not be disclosed to anyone else or used by Seller for anyone other than Buyer, without Buyer's written consent. Seller agrees to exercise reasonable care in the safeguarding and preservation of all Buyer-furnished property and assumes all responsibility for loss, damage or destruction while such property is within Seller's possession or control. Seller acknowledges that Buyer is the sole owner of all right, title and interest, including, without limitation, intellectual property rights, in and to the samples. 19. GOVERNMENT CONTRACTS: If this Purchase Order is issued for any purpose which is either directly or indirectly connected with the performance of a prime contract with the United States Government or a subcontract thereunder, each of the named clauses, as set forth in the Armed Services Procurement Regulation in effect on the date of the Purchase Order, is incorporated herein by reference. If such clause is in said prime contract or subcontract, the clause so incorporated, herein applying to Seller as though Seller were a prime contractor, and in such a manner as will enable Buyer to meet its obligations arising out of the government prime or subcontract. However, Buyer is required to inform Seller, in writing, when a purchase order may be connected with a Government contract in order for Buyer to be held responsible under this clause. 7 GLOBAL PURCHASE AGREEMENT 20. COUNTRY OF ORIGIN: Seller warrants that the Products specified by this Purchase Order are of U.S. origin unless on or before the time it supplies the Products, Seller notifies Buyer's customs department in writing to the contrary. In the event the Products delivered hereunder are of foreign origin, and Seller fails to so notify Buyer, or notifies Buyer erroneously, Seller will indemnify Buyer for all expenses arising from said failure or error, including but not limited to damages, penalties, tariffs, imposts, surcharges, and legal fees incurred by Buyer as a result thereof. 21. INDEMNIFICATION: In addition to any other rights and remedies set forth herein, Seller agrees to defend, protect and hold harmless Buyer, its successors, assigns, and users of the Products, from and against any and all damages, claims, demands, losses, attorneys' fees, and expenses resulting from (a) any alleged infringement or violation of any patent, trademark, tradename, copyright or other rights of third parties which existed at the time the product was furnished to Buyer by Seller; or (b) any alleged violation of any applicable law, rule, regulation or order. Seller covenants that Seller will, upon request, defend or assist in the defense, at Seller's expense, of any such suit or claim. 22. ENTIRE AGREEMENT: This Purchase Order contains the entire and only agreement between Seller and Buyer with respect to the subject matter covered. 23. ENCUMBRANCES: Seller shall immediately satisfy any lien or encumbrance which, because of any act or omission of Seller, is filed, or threatened to be filed, against the Products to be provided hereunder or against any property of Buyer, and Seller shall save Buyer harmless from all resulting loss and expense, including attorneys' fees. Buyer may, in its absolute discretion, deduct from any sums owing to Seller under this Purchase Order any amount necessary to satisfy any such lien or encumbrance and/or any such resulting loss and expense. 24. RELATIONSHIP OF PARTIES. The parties hereto are and shall be deemed to be independent contractors, and under no circumstances shall Seller or any of its agents, officers, partners, directors, contractors or employees be construed to be an agent of Buyer in any respect. Without limiting the scope of the foregoing, the parties hereto expressly stipulate that the relationship between Seller and Buyer does not and shall not constitute a partnership, joint venture or other similar arrangement. 25. APPLICABLE LAW: This Purchase Agreement shall be governed by, subject to, and construed in accordance with the laws of the State of Illinois. This Agreement shall not be modified, supplemented, qualified or interpreted by any trade usage or prior course of dealing, unless consented to by both parties in writing. Buyer and Seller agree and hereby elect to exclude this Agreement from the coverage of the United Nations Convention on Contracts for the International Sale of Goods. The parties hereto consent to the jurisdiction of the courts of the State of Illinois and the United States District Court for the District of Illinois, as well as the jurisdiction of all courts from which an appeal may be taken from such courts, for the purposes of any suit, action or other proceeding relating to this Agreement or with respect to any transaction contemplated hereby or relating to the Products and expressly waive any and all objections the parties hereto, may have as to the venue of such courts to settle or adjudicate any claim or controversy arising hereunder, with respect to any transaction contemplated hereby or relating to the Products. The parties hereto further agree, to the extent permitted by law, that a 8 GLOBAL PURCHASE AGREEMENT summons or complaint commencing an action or proceeding in any of such courts shall be served properly and shall confer personal jurisdiction if served personally or by registered or certified mail to the address set forth on the Face Page hereof, or to such other address as either party may substitute by written notice to the other, or as otherwise provided by the laws of the State of Illinois. 9 GLOBAL PURCHASE AGREEMENT 26. EQUAL EMPLOYMENT OPPORTUNITY/COMPLIANCE WITH LAWS: During the performance of any purchase orders placed by Buyer, Seller agrees as follows: (i) Seller will not discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin. Seller will take affirmative action to ensure that applicants are employed, and the employees are treated during employment, without regard to their race, color, religion, sex or national origin. In respect of all performance due hereunder, Seller represents and warrants that it is and will be in compliance with all applicable provisions of federal, state and local laws and rules, regulations promulgated thereunder, including, without limitation, the following, as amended from time to time: (a) Occupational, Safety and Health Act of 1970, (b) Executive Order 11246, including the "equal opportunity" clause set forth therein (incorporated herein by reference), (c) Rehabilitation Act of 1973 (incorporated herein by reference) and Vietnam Era Veterans Readjustment Assistance Act of 1974 (incorporated herein by reference), including the "affirmative action" clauses set forth therein, (d) Toxic Substances Control Act of 1976, and (e) 33 U.S.C. ss. 1321 relating to oil spill liability. FAIRCHILD SEMICONDUCTOR FAIRCHILD SEMICONDUCTOR /s/ Paul S. Lowes /s/ Jeff C. Chapman - ------------------------------------------- ----------------------------------------------- (Signature) (Signature) Paul S. Lowes Jeff Chapman - ------------------------------------------- ----------------------------------------------- (Printed Name) (Printed Name) Director, Global Logistics & Purchasing - ------------------------------------------- ----------------------------------------------- (Title) (Title) 11 Nov. 2003 11/11/03 - ------------------------------------------- ----------------------------------------------- (Date) (Date) EAGLE TEST SYSTEMS, INC. /s/ Ted Foxman - ------------------------------------------- (Signature) Ted Foxman - ------------------------------------------- (Printed Name) Executive VP - ------------------------------------------- (Title) 12/30/03 - ------------------------------------------- (Date)

10 GLOBAL PURCHASE AGREEMENT APPENDIX A PRICING SCHEDULES A.1 SYSTEM AND RESOURCE PRICING [OMITTED MATERIAL] A.2 SERVICE PLANS [OMITTED MATERIAL] A.3 SPARE RESOURCE RENTAL PLAN [OMITTED MATERIAL] A.4 SOFTWARE SUPPORT [OMITTED MATERIAL] GLOBAL PURCHASE AGREEMENT APPENDIX B CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT [EAGLE TEST SYSTEMS LOGO] [FAIRCHILD LOGO] CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT APPENDIX B This Confidentiality and Non-Disclosure Agreement, dated as March 1, 2002, (the "Agreement"), is entered into by and between Fairchild Semiconductor Corporation, a Delaware Corporation ("Fairchild") and Eagle Test Systems, Inc. ("Customer/Collaborator/Supplier"), collectively known as "Parties". Fairchild and Customer/Collaborator/Supplier hereby agree that, except as modified in writing by both parties, the following terms and conditions shall be applicable to all meetings and communications between employees and/or representatives of Fairchild and Customer/Collaborator/Supplier relating to business between the parties (the "Authorized Purpose"). 1) CONFIDENTIAL INFORMATION. Information will be disclosed between the parties in connection with the Authorized Purpose. Such information may be In the form of specifications, samples, photographs, drawings or other documents for evaluation purposes, and be disclosed In written or oral forms of communication. Confidential information may include but is not limited to ideas, concepts, business plans, financial information, inventions, discoveries, formulas, processes, designs, specifications, drawings, prototypes, samples, improvements, development, applications, engineering, manufacturing and marketing data, customer names, trademarks, trade names, and trade secrets, whether or not the same are or may be patents, registered or otherwise publicly protected, and all of the foregoing generated by a receiving party to the extent that such includes confidential information received from a disclosing party (`Confidential Information"). To the extent that the information Is Confidential information, the disclosing party will so indicate to the recipient party by labeling any documents as `Confidential' or `Proprietary" or otherwise making known to the recipient party that the documents are confidential, in writing, within 30 days of such disclosure. 2) NO TRANSFER OF OWNERSHIP. All Confidential Information disclosed or transferred by either party to the other shall remain property of the disclosing party and all Confidential Information and any copies thereof shall be promptly destroyed or returned to the disclosing party upon request of the disclosing party or the termination of the Agreement. One (1) copy may be retained for archival purposes only. 3) PERIOD OF CONFIDENTIALITY, RESTRICTION ON USE AND DISCLOSURE. The parties agree that except with the prior written authorization of the disclosing party, they shall (a) not use the' Confidential Information disclosed by the other for any other purpose than for the Authorized Purpose, (b) protect the other party's Confidential Information against disclosure to third parties in the same manner and with the same degree of care, but not less than a reasonable degree of care, with which it protects confidential information of APPENDIX B - CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT its own, (c) only disclose Confidential Information to their employees or their affiliated companies who have a direct `need to know' in connection with the Authorized Purpose. 4) EXCLUSIONS. The parties agree that information shall not be deemed Confidential Information that: a) Is or become part of the public domain without violation of this Agreement; b) Is known and on record at the receiving parry prior to disclosure by disclosing party; c) Is lawfully obtained by the receiving party; d) Is furnished to others by the disclosing party without similar restrictions to those herein contained as to the use or disclosure thereof; e) Is developed by the receiving party completely independently of any such disclosure by the disclosing party; f) Is ascertainable from a commercially available product; or g) Is disclosed pursuant to the other or requirement of a government body, court or administration agency, but only on the occasion and to the extent required to comply with such order or requirement. 5) NOTICE. Prior to disclosure to any third party of any Confidential Information to which receiving party determines the obligations of confidentially, non-use and non-disclosure do not apply pursuant to Paragraph 4 above, the receiving party shall provide thirty (30) days prior written notice to disclosing party of the intent to disclose such Confidential Information, stating the grounds under Paragraph 4 upon which the exception-is claimed and providing documentation in support thereof. In the case of a claimed exception under Paragraph 4(g), the receiving party shall take such steps as the disclosing party may reasonably request to resist the disclosure of the Confidential Information or to seal or otherwise protect from public disclosure the records of the proceedings or tiling in which the disclosure is required. 6) NO RIGHTS GRANTED. Nothing herein contained shall be construed as a grant by implication, estoppel, or otherwise, of a license by either party to the other to make, have made, use or sell any product using Confidential Information or as a license under any patent, patent application, utility model, copyright, maskwork right, or any other industrial or intellectual property right covering same. 7) NOTICES. All notices relating to this Agreement shall be in writing and shall be addressed only to the respective designees as follows (or to such designees as the parties hereto may from time to time designate in writing): Eagle Test Systems, Inc. Fairchild Semiconductor Corporation 620 S. Butterfield Rd. 82 Running Hill Road Mundelein, IL 60060 South Portland, Maine 04106 Attn: Legal Dept. Attn. Legal Dept. 2 APPENDIX B - CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT 8) MUTUAL DISCLAIMERS. No rights or obligations other than those expressed and recited herein are to be implied from this Agreement.. In particular, no licenses are hereby granted directly or Indirectly under any patent, copyright, or trademark now held by or which may be obtained by, or which is licensable by either party. No other existing Agreement between the parties, if any, is modified or terminated by this Agreement, except for the parties Global Purchase Agreement dated May 8, 2002. No warranty or representation Is made by either patty hereto that any information transmitted by it hereunder is patentable or copyrightable, or that any such information involves concepts or embodiments that are free of Infringement of other rights. Neither party hereto shall be obligated to prosecute any such action or bring any suit against any person not a party hereto for Infringement. Neither party hereto agrees to indemnify the other party hereto for any liability resulting from infringement of patent, copyright or trademark of a third party caused by the use of any Confidential Information, transferred pursuant to the Agreement, Neither party hereto confers the right to the other party, nor confers any authorization to the other party to act as an agent on its behalf for any purpose. 9) GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of Maine. 10) ENTIRE AGREEMENT. This document contains the entire Agreement between parties as to the subject matter hereof and supercedes any previous or contemporaneous understands, commitments, oral or written, as to the subject matter. 11) TERM OF AGREEMENT. This Agreement shaft terminate thirty (30) days after the receipt of a written notice of termination given by either party to the other. The obligations of the parties hereunder with respect to Confidential Information disclosed prior to such termination will survive the termination of this Agreement and continue until such Information ceases to be Confidential Information under Paragraph 4. Customer/Collaborator/Supplier Fairchild Semiconductor Corporation By: /s/ Ted Foxman By: /s/ Paul Lowes --------------------------- -------------------------- Name: Ted Foxman Name: Paul Lowes --------------------------- -------------------------- Title: Executive VP Title: Director, Purchasing --------------------------- -------------------------- Date: 5/17/02 Date: 22 May 2002 --------------------------- --------------------------

3 APPENDIX C WARRANTY PROVISIONS- NEW HARDWARE PRODUCTS [OMITTED MATERIAL] APPENDIX D SOFTWARE SUPPORT PROVISIONS [OMITTED MATERIAL] APPENDIX E EQUIPMENT AND ACCEPTANCE REQUIREMENTS FOR EAGLE TEST SYSTEM'S TEST PRODUCTS [OMITTED MATERIAL] EX-10.25 23 c86449exv10w25.txt AGREEMENT EXHIBIT 10.25 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS ARE INDICATED BY THE FOLLOWING NOTATION: [OMITTED MATERIAL] NATIONAL SEMICONDUCTOR CORPORATION TERMS AND CONDITIONS (REV H) This Agreement is made as of August 26, 2002 between NATIONAL SEMICONDUCTOR CORPORATION, having its principal place of business at 2900 Semiconductor Drive, Santa Clara, California (herein referred to as "NATIONAL" and any of its subsidiaries or Partners in which National has an involvement and Eagle Test Systems, Inc., having its principal place of business at 620 S. Butterfield Rd., Mundelein, Illinois (herein referred to as "Seller"). WHEREAS, NATIONAL intends to purchase Sellers test systems and associated products and services from time to time during the term of this agreement; and WHEREAS, in order to avoid repetitive negotiations, the parties hereto desire to enter into this Agreement to establish the terms and conditions which will be applicable to the Seller's products. NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties agree as follows: 1. ACCEPTANCE: These terms and conditions are the binding agreement between the parties covering the purchase of products and services ordered and is accepted by acknowledgment and or commencement of performance. PURCHASE ORDERS CAN BE ACCEPTED ONLY ON THESE TERMS AND CONDITIONS. [OMITTED MATERIAL] 2. PRICES: [OMITTED MATERIAL] 3. PAYMENT: [OMITTED MATERIAL] 4. REPLACEMENT PARTS: Seller agrees to make replacement/maintenance/spare parts available to Buyer or its designee for [OMITTED MATERIAL] years after the delivery of the System with prices being fixed for [OMITTED MATERIAL] years after warranty [OMITTED MATERIAL]. Thereafter the Seller will provide a [OMITTED MATERIAL] day notice of any price increase to PPL. 5. INVOICES: The Seller herein represents that the products and/or services covered hereby were produced in compliance with requirements of the Fair Labor Standards Act of 1938 as amended. Partial Payment of invoices shall not constitute acceptance o f the product and shall be subject to adjustment for errors, shortages, defects in the product or other failure of Seller to meet the requirements of the order. NATIONAL may at any time set off any amount owed by NATIONAL to Seller against any amount owed by Seller or any of its affiliated companies to NATIONAL. 6. TAXES AND CHARGES: All such taxes and charges shall be stated separately on Seller's invoice. National is responsible for all taxes, customs, duties or other applicable charges for all products purchased under this agreement. 7. OVERSHIPMENTS: Buyer will pay only for maximum quantities ordered. Overshipments will be held at Seller's risk and expense for a reasonable time awaiting shipping instructions. Return shipping charges for excess quantities will be at Seller's expense. 8. PACKING AND SHIPPING: Unless otherwise specified, all products shall be packed, packaged, marked and otherwise prepared for shipment in a manner which is: a. in accordance with good commercial practice, b. acceptable to common carriers for shipment at the lowest rate for the particular product and in accordance with ICC regulations, and c. adequate to insure safe arrival of the product at the named destination and for storage and protection against weather. Seller shall mark all containers with necessary lifting, handling and shipping information, purchase order number, date of shipment , number of total number boxes (I of 12) and the name of the consignee and consignor. An itemized packing sheet must accompany each shipment unless otherwise specified. 9. SHIPPING TERMS: Seller will prepare and pack all shipments to prevent damage and deterioration. Terms of shipment will be "Ex- Works" from Seller's Factory. The Seller is considered to have delivered when he places the goods at the disposal of the buyer at the seller's premises or another named place (i.e. works, factory, warehouse, etc.) not cleared for export and not loaded on any collecting vehicle. The buyer must bear all costs and risks involved in taking the goods from the seller's premises. Buyer shall provide instructions on shipping method on each order, which shall 2 comply with Seller's requirements for shipment of Seller's products. Buyer will pay shipping costs from "Ex-Works" point. In the event that a shipping method is not selected by Buyer, Seller will make the selection. Seller will cooperate with Buyer and Buyer's traffic department to coordinate all shipments. 10. WARRANTY: A. Seller's Standard Warranties shall apply to all Standard Products. ETS Warranty Provisions-New Hardware Products shall be incorporated as part of this document as EXHIBIT A and ETS Software Support Provisions shall be incorporated as part of this document as EXHIBIT B. B. For Standard Hardware Products, as part of Seller's standard warranty provisions, National shall be entitled to receive Before Return Replacement (BRR) Service for those products for the duration of such warranty period. (See Hardware Products Under Warranty-BRR Service incorporated as part of this agreement as EXHIBIT C) C. National will be entitled to receive a total of [OMITTED MATERIAL] warranty coverage under Seller's Standard Warranty [OMITTED MATERIAL]. 11. INSPECTION: a. [OMITTED MATERIAL] b. Notwithstanding any prior inspection or payment hereunder, all products shall also be subject to final inspection and acceptance at NATIONAL's plant within [OMITTED MATERIAL] business days after delivery of said products. The Seller shall provide and maintain an inspection system which is acceptable to NATIONAL. Records of all inspection work shall be kept complete and available to NATIONAL during the performance of this order and for such further period as NATIONAL may determine. 12. TITLE TO SOFTWARE PRODUCTS: Title to software products remains with Seller and is governed by Seller's applicable software license agreement(s). (See Master Software License Agreement for details.) 13. CHANGES: NATIONAL may at any time by written order, and without notice to sureties or assignees, suspend performance hereunder (up to a maximum of 60 days), or make changes in any one or more o f the following: a. applicable drawings, designs or specifications for Non-Standard (custom) Products only, b. method of shipment or packing, and/or c. place of delivery. 3 If any such change causes an increase or decrease in the cost of or the time required for performance o f this order, an equitable adjustment may be made in the order price or delivery schedule or both, and the order shall be modified in writing accordingly. No claim by Seller for adjustment hereunder shall be valid unless in writing accompanied by an estimate of costs, within twenty (20) days from the date of receipt by Seller of the notification of change. Failure o f the Seller to assert a claim within twenty (20) days, as provided above, shall constitute an unconditional and absolute waiver by Seller of any right to make a claim for adjustment. However, nothing in this clause shall excuse Seller from proceeding with the order as changed or amended. NATIONAL reserves the right to verify claims hereunder and Seller shall make available the appropriate records, upon its request. 14. TERMINATION FOR DEFAULT: a. It is understood and agreed that time is of the essence under this order or any extension thereof effected by any change order. NATIONAL may by written notice terminate this order in whole or in part if the Seller fails i. to make delivery of the product or to perform the service within the time specified herein on the face of the purchase order, or ii. to perform any of the provisions of this order or to so fail to make progress as to endanger performance in accordance with the terms hereof, including delivery schedules, or iii. if Seller becomes insolvent, admits inability to pay its debt as they mature, files a voluntary petition to bankruptcy, makes an assignment for the benefit of creditors or if a petition under bankruptcy laws is filed against it. b. If this order is terminated pursuant to paragraph 14(a)iii, NATIONAL, in addition to any other rights provided herein, may require the Seller to transfer title and delivery to NATIONAL, in the manner, time and to the extent directed by NATIONAL, i. any completed products, and ii. such partially completed products and material, parts, tool, dies, jigs, fixtures, plans, drawings, information, and contract rights as the Seller has produced or acquired for the performance of the terminated parts, and iii. [OMITTED MATERIAL] iv. Seller shall upon direction of NATIONAL, protect and preserve property encompassed in this paragraph in the possession of the Seller. Payment for completed products delivered to and accepted by NATIONAL shall be an amount agreed upon by Seller and NATIONAL. However, such amount shall not exceed the order price per unit and Seller's obligation hereunder to carry out NATIONAL's direction as to delivery protection and 4 preservation shall not be contingent upon prior agreement as to such amount. C. [OMITTED MATERIAL] Failure of NATIONAL to enforce any right under this clause shall not be deemed a waiver of any other right hereunder. The rights and remedies of NATIONAL under this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or under order. Seller however, shall not be in default by reason of any delay in delivery hereunder, if such delay arises out of causes beyond the control and without the fault or negligence of Seller and such delay or any non-delivery is covered by section 2615(e) of the Uniform Commercial Code. In the event of an excused delay, NATIONAL has the option of extending the time o f performance to the extent the uncompleted portion o f this order is not terminated. Seller shall allocate the products covered by this order in quantities not less that the ratio that this order bears to the total orders o f the Seller for the same or similar products at the time o f the excused delay, Seller will reasonably notify Buyer of any delay and quantity of products available for NATIONAL. 15. TERMINATION FOR CONVENIENCE: a. NATIONAL may terminate work under this purchase order in whole or part at any time by the giving of written notice to Seller specifying the extent to which performance of work is terminated. b. After receipt of such notice, and except as other wise directed by NATIONAL, the Seller shall stop work under this order to the extent specified in the notice of termination. c. Within thirty forty (45) days after receipt o f the notice o f termination, the Seller shall submit to NATIONAL its written termination claim. Failure of the Seller to submit its termination claim as provided herein shall constitute an unconditional and absolute waiver by the Seller of any claim arising from NATIONAL's notice of termination. d. Seller shall reasonably assess costs for raw materials, work in process and sub-assemblies as may be included within its termination claim to determine whether or not such items may be used by Seller for the manufacture of associated products or diverted for any other purpose and to correspondingly reduce its termination claim by the value of such items. When settlement has been made, title to any such items determined not usable by Seller and charged to NATIONAL in the termination claim shall vest in NATIONAL upon payment of the claim and forthwith be delivered to NATIONAL at NATIONAL's expense, under NATIONAL's shipping instructions. e. [OMITTED MATERIAL] f. Custom products: With respect to custom products, Seller's termination claim shall consist solely of the following: 5 i. Completed products accepted by NATIONAL and not therefore paid for the sum determined by multiplying the number of such products by the unit price therefore as specified in this order, and ii. The total of the cost of work in process not to exceed the average unit cost multiplied by the number of units in process provided, however, that such number o f units in process shall not exceed that amount which has been previously placed on a firm release by NATIONAL. Such amounts shall not include any costs attributable to Seller's products paid under sub-paragraph f(i) above. The total sum to be paid to the Seller under sub-paragraph f(i) and (ii) above shall not exceed the total order price reduced by the amount o f payment otherwise made and as further reduced by the price of work not terminated under this order. g. In no event shall Seller be entitled to incidental or consequential damages, costs preparing claims, attorney's fees, cost of tooling or equipment sales or agent's commissions. h. NATIONAL reserves the right to verify claims hereunder and Seller shall make available to NATIONAL, all appropriate records, upon request. i. Seller will use all available means to mitigate charges to Buyer. 16. WAIVER: The failure of EITHER PARTY to enforce at any time any of the provisions of this order, or to exercise any election or option provided herein, or to require at any time performance by the other party of any of the provisions hereof, shall in no way be construed to be a waiver of such provisions, nor in any way to affect the validity of this agreement or any part thereof, or the right of EITHER PARTY thereafter to endorse each and every such provision. 17. PATENTS, ROYALTIES AND ENCUMBRANCES: All products supplied must be free from claims of others with respect to royalties, patent rights and mechanics; liens or other encumbrances or charges. ETS will defend any suit or proceeding brought against Buyer insofar as such suit or proceeding is based on a claim that any hardware product furnished hereunder, when used alone and not in combination with any other NON-ETS manufactured product, constitutes an infringement of any patent or copyright. ETS will pay any award against Buyer based on infringement only if Buyer promptly notifies ETS in writing of the claim and permits ETS to participate in the defense and agree to any settlement. If Buyer's use of such product or part is enjoined, ETS will, at its sole discretion and expense, procure for Buyer the right to continue using said product or replace the infringing product with a non-infringing product or modify it so that it becomes non-infringing. If ETS is unable to reasonably do any of the above, ETS will refund the purchase price of the infringing product. ETS has no obligation for any claim o f infringement arising from: a. ETS' compliance with Buyer's designs, specifications or instructions; 6 b. equipment modifications by Buyer or a third party; c. equipment use prohibited by ETS' specifications or related application notes; or d. use of ETS products in combination with products not supplied by ETS. Sale of any product by ETS does not confer upon Buyer any license under any patent or copyrights. The foregoing states ETS' entire obligation and the exclusive remedies of Buyer hereto with respect to any alleged patent or copyright infringement by any product furnished hereunder. Seller agrees to indemnify and hold harmless NATIONAL against all claims, demands, costs and actions for actual or alleged infringements of patent rights in the use, sale or resale of said products. 18. BUYER'S PROTECTION IN CONNECTION WITH WORK DONE AT ITS PLANT: Seller shall take such steps as may be reasonably necessary to prevent personal injury or property damage during any work hereunder that may be performed by any employees, agents or subcontractors o f the Seller at NATIONAL's plant and the Seller shall indemnify, hold harmless and defend NATIONAL from and against all loss, liability, liens, claims and damages arising from or caused directly or indirectly by any act or omission of such agents, employees or subcontractors of the Seller, and Seller shall maintain such insurance against public liability and property damage, and such Employer's Liability and Compensation Insurance as will protect the Buyer against the aforementioned risks and against any claims under any Workmen's compensation and Occupational Disease Acts. Specifically: a. Comprehensive General Liability (including Products): with limits not less than $500,0001500,000 BI and $250,000 PD. b. Auto Liability: with limits not less than $500,000/600,000 BI and $250,000 PD. c. Worker's Compensation (including Employer's Liability) which complies with all statutory regulations in the State of California, or the States in which the work is being done. d. Umbrella (including Products): with limits of not less than $1,000,000 each occurrence or a $5,000,000 combined single limit. e. No less than 30 days notice of cancellation. f. National Semiconductor corporation named as ADDITIONAL insured on a Certificate of Insurance. Seller also agrees to ensure that all employees assigned to National's facilities or working with National's employees in capacities requiring access to National property, will read, understand, and certify such understanding of National's Contractor's EH&S Safety Handbook. 7 Seller additionally agrees that their assignees to National must successfully complete any additional training required by National during the term of their assignment or any extensions thereof. Seller must, if so required by National, submit their EH&S procedures documentation for review by National's EH&S department prior to commencement of any work under this Agreement. Seller must also be prepared to provide at National's request, written assurance that all Seller's employees assigned to National have read, understand, and certified such understanding of the Seller's EH&S documentation and shall further assure similar compliance, understanding, and certification of employee understanding of Seller's EH&S documentation and procedures by all sub-contractors assigned to National. 19. COMPLIANCE WITH LAWS: The Seller warrants that no law, rule or ordinance of the United States, a State or any other governmental agency has been violated in the manufacture or sale of the products or in the performance of services covered by this order, and will defend and hold NATIONAL harmless from loss, cost or damage as a result o f any such actual or alleged violation. Upon written request by NATIONAL, Seller agrees to execute and furnish a certification of compliance, which my be on NATIONAL's form and which shall certify compliance with any applicable Federal, State and/or local laws or Regulations, including but not limited to FLSA, EEOC, OSHA, and any Economic Control Statutes or Regulations. 20. NON-DISCLOSURE OF CONFIDENTIAL MATTER AND PUBLICITY: Products purchased to NATIONAL's specifications or drawings shall be held in the strictest of confidence in the absence of NATIONAL's prior written authorization. Such specifications, drawings, samples or other data furnished by NATIONAL shall be treated as CONFIDENTIAL INFORMATION by the Seller, shall remain NATIONAL's property and shall be promptly returned to NATIONAL upon request. Any publicity regarding this order (pictures, descriptions, notice of award or samples thereof) is prohibited except with NATIONAL's written approval. 21. INTELLECTUAL PROPERTY INDEMNIFICATION: Seller agrees to and shall, on a timely basis, either settle or defend all claims, suits or proceedings brought against NATIONAL, its directors, officers, agents, and employees, or its customers, based upon any claim that the products purchased hereunder constitute any infringement of any patent, copyright, or trademark, or constitutes a misappropriation of trade secret, or violates any other proprietary rights of others, and agrees to indemnify NATIONAL, and its customers for all damages and costs, suits, actions, or claims, including reasonable attorney's fees. NATIONAL agrees to give Seller timely notice in writing of each such suit, action, or claim and to give control thereof to Seller. NATIONAL shall have the right, but not the obligation, to participate at its own expense in any such suit, action, or claim; and in such event, Seller shall indemnify NATIONAL for all damages, settlement, expense, and costs incurred by Seller as a result of such suit. 8 22. ENJOINED USE: In providing the indemnification under paragraph 21 of this agreement, or if the use, sale, lease or other disposition by NATIONAL of the products, or any part thereof, furnished pursuant to these terms and conditions are enjoined, Seller at its sole expense shall, at the option of Seller either: a. obtain for NATIONAL the right to so use, sell or lease the products, or b. substitute an equivalent modified item suitable to NATIONAL and extend the indemnity of this Article thereto, or: c. in the event that neither clause (a) or (b) of this section can be reasonably accomplished by Seller, Seller shall grant NATIONAL credit for the purchase price of the infringing products. 23. ASSIGNMENT AND SUBCONTRACTORS: No right or obligation under this purchase order (including the right to receive moneys due hereunder) shall be assigned by Seller, and Seller shall not enter into any subcontracts without the prior written consent of NATIONAL. Any purported assignment without such consent shall be null and void and NATIONAL shall not be obligated to recognize any claim from Seller resulting from Subcontract, not previously consented to by NATIONAL. 24. BUYER-FURNISHED PROPERTY: All tools or other materials furnished by NATIONAL for use in the performance of this order shall remain the property of NATIONAL (or of the Government, as the case may be), shall be used by the Seller in the performance of this order only, in accordance with the requirements of the order relating to such use and shall be returned to NATIONAL when requested upon completion or termination of the order to the extent not previously delivered to NATIONAL. Seller agrees to exercise reasonable care in the safeguarding and preservation of all NATIONAL-furnished property and assumes all responsibility for loss, damage or destruction while such property is within his possession or control. 25. PATENT LICENSE: [OMITTED MATERIAL] 26. SPECIAL TOOLING: If special tooling is used in the performance o f a purchase order for Custom (i.e. National product specific) work and has been charged to this order, or other orders placed by NATIONAL, title to such special tooling shall vest with NATIONAL, at the option of NATIONAL. Such tooling is to be used only in the performance of such Purchase Orders unless otherwise approved by NATIONAL. The Seller agrees that it will follow normal industrial practice in the identification and maintenance of the property control records on all such tooling, and will make such records available for inspection by NATIONAL or the Government at all 9 reasonable times. After the termination or completion of such order(s) and upon the request of NATIONAL, the Seller shall furnish a list of such tooling in the form requested and shall make such tooling available for disposition by NATIONAL. 27. GOVERNMENT CONTRACTS: If this purchase order is issued for any purpose which is either directly or indirectly connected with the performance of a price contract with the Government or a subcontractor thereunder, each of the named clauses, as set forth in the Federal Acquisition Regulation in effect on the date of this order, is incorporated herein by reference if such clause is in said prime contract or subcontract, the clause so incorporated herein applying to Seller as though Seller were a prime contractor, and in such a manner as will enable NATIONAL to meet its obligations arising out of the Government prime or subcontractor. NATIONAL will provide Seller written notice in the event that any purchase order it intends to place with Seller is the subject of a Government Contract. 28. COUNTRY OF ORIGIN: Seller warrants that the products specified by this purchase order, are of U.S. origin, unless on or before the time it supplies the products, Seller notifies NATIONAL's customs department, in writing, to the contrary. In the event the products delivered hereunder are of foreign origin, and Seller fails to so notify NATIONAL, or notifies NATIONAL erroneously, Seller is to indemnify NATIONAL for all expense arising from said failure or error, including but not limited to damages, penalties, tariffs, imports, surcharges, and legal fees incurred by NATIONAL as a result thereof. 29. APPLICABLE LAW: This purchase order shall be governed by, subject to and construed in accordance with the laws of the State of Illinois. Therefore, both parties agree that the Courts of Illinois shall have proper venue and consent to the jurisdiction of the Courts of Illinois to settle any disputes which arise as a result of this agreement. This order shall not be modified, supplemented, qualified or interpreted by any trade usage or prior course of dealing not made a part of the order by its express terms. 30. EQUAL EMPLOYMENT OPPORTUNITY: Seller will use its best effort to comply with all applicable equal employment laws and regulations including Executive Order #11246, Rehabilitation Act of 1973 as amended and Section 402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974. Seller agrees not to discriminate against any employee or applicant for employment because of race, color, religion, sex or national origin and will not illegally discriminate on the basis of physical or mental handicap or veteran status. 31. INDEPENDENT CONTRACTORS: It is agreed that the relationship between the parties is that of independent contractors, and nothing contained herein shall be construed or implied to create the relationship of partners, 10 joint venture, agent and principal, employer and employee, or any relationship other than that of independent contractors. At no time shall either party make any commitments or incur any charges or expenses for or in the name of the other party. 32. FORCE MAJEURE Neither party shall be deemed to be in default for any delay or failure to furnish or accept Products hereunder if such delay or failure on the part of such party is due to: a. acts of God, b. acts of the United Sates or any pertinent governmental authority, c. fires, floods, explosions or other catastrophes, d. epidemics and quarantine restrictions, e. freight embargoes, In the event of delay or failure to perform due to any such cause, the time for performance shall be extended for a period of time equal to the time lost by reason of such cause, except that if any delay of Seller continues for a period of three (3) months or more, NATIONAL, may terminate any orders for undelivered Products; and, additionally, NATIONAL may cancel this Agreement without any farther obligation to Seller. 11 NATIONAL SEMICONDUCTOR SELLER CORPORATION /s/ Ted Foxman /s/ Dan Petersen -------------------------------------- - ---------------------------------- Authorized Signature Authorized Signature Ted Foxman Dan Petersen -------------------------------------- - ---------------------------------- Printed Name Printed Name Executive Vice President Staff Purchasing Manager -------------------------------------- - ---------------------------------- Title Title August 26, 2002 August 28 - 2002 -------------------------------------- - ---------------------------------- Date Date /s/ Ted Foxman /s/ Dan Petersen -------------------------------------- - ---------------------------------- Approved Approved 12 [Eagle Logo] EXHIBIT A WARRANTY PROVISIONS [OMITTED MATERIAL] A-1 [Eagle Logo] EXHIBIT B SOFTWARE SUPPORT PROVISIONS [OMITTED MATERIAL] B-1 [Eagle Logo] EXHIBIT C BEFORE RETURN REPLACEMENT (BRR) SERVICE [OMITTED MATERIAL] C-1 EX-10.26 24 c86449exv10w26.txt MANUFACTURERS REPRESENTATIVE AGREEMENT EXHIBIT 10.26 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS ARE INDICATED BY THE FOLLOWING NOTATION: [OMITTED MATERIAL] MANUFACTURERS REPRESENTATIVE AGREEMENT This Agreement made and entered into this 30th day of July 2000, by and between Eagle Test Systems, Inc. of 620 S. Butterfield Rd., Mundelein, Illinois, U.S.A. (hereafter ETS) principle/manufacturer, and Representative, Hypersonic, Inc., located at no. 227-2, Sec. 2 Chung-Hwa Rd., Chung-Li, Tao Yuan, 32051 Taiwan R.O.C. (hereafter Representative). In consideration of the mutual covenants contained herein, the parties agree as follows: DEFINITIONS a) Products means the hardware products manufactured and/or furnished by ETS which shall be sold by ETS to customer as described in Appendix A. b) Software means the computer software that shall be licensed by ETS to representative as described in Appendix B. c) Third Party Software means the computer software furnished by ETS but owned by someone other than ETS. d) Documentation means the documents that describe the general functional capabilities, limitations, and operating requirements of the Software. e) Updates means the updates, modifications, improvements, and enhancements of the Software. f) Spare Parts means hardware normally sold as line items per published price list, or modules, fuses, or relays as would be found in an ETS spares kit. REPRESENTATIVE ETS hereby appoints representative in the territory known as Taiwan, R.O.C. for products listed in Appendix A. The list of Products as set forth in Appendix A may be abandoned or added to in writing by ETS. RESPONSIBILITIES ETS RESPONSIBILITIES (i) ETS agrees to make every reasonable effort too manufacture quantities of the Products sufficient to meet the resale requirements of representative. (ii) ETS agrees to supply Software by appropriate media, such as magnetic tape or Compact Disk, and the users manuals and Documentation thereof upon acceptance of the order from representative. (iii) ETS agrees to supply Updates from time to time as they become available to ETS. (iv) ETS agrees to provide reasonable amounts of technical assistance to representative in a manner deemed appropriate by both parties. (v) ETS shall make spare parts of the Products available to representative for a period of one year from the last date of shipment of such model at then current prices, notwithstanding termination of this agreement. It is general ETS policy to provide to Customers (non-representatives) availability of spare parts for a period of ten years from date of purchase. WARRANTY (i) Product Warranty ETS shall warrant its New Products to be free from defects caused by faulty materials or poor workmanship and to conform to specifications furnished or approved by ETS for a period of (1) one year from date of shipment to representative. ETS liability under this warranty is limited to correcting the errors, replacing or making refund payment at its option and expense for any Products which are returned by representative. (ii) Software Warranty ETS warrants the Software and Updates to conform to documents furnished or approved by ETS for (1) one year from date of shipment to representative. ETS liability under this warranty is limited to correcting the errors, replacing or making refund payment at its option and expense for any Software or Updates which are returned by representative. (iii) ETS agrees to indemnify and hold harmless representative and its customers from and against all damages and costs, including reasonable legal fees, which may be assessed against representative or its customers in any claim by third parties alleging unlawful acts or omissions to act where the alleged liability of representative or its customers arises by reason of the use or sale of any item delivered to representative or its customers provided that representative or its customers give ETS prompt, written notice of all such claims or actions, and an opportunity to elect to take over, settle, or defend the same through consul of its own choice and under its sole discretion and at its own expense, and will make available to ETS all defenses against such claims, known or available to representative or its customers. (iv) The foregoing warranties are in lieu of all other warranties, expressed or implied, including any and all warranties of merchantability and fitness for a particular use. In no event shall ETS be liable for special or consequential damages. (c) REPRESENTATIVE RESPONSIBILITIES (i) As representatives, representative will be responsible for identifying customers/prospects, making product presentations, providing contact between ETS and the customer/prospect in a timely manner, all at representatives own expense. The representative will make available an adequate number of trained staff to meet these responsibilities, including a person trained in performing equipment diagnostics, field service (at board replacement level) and system setup. Representative, must make this support available to customers after warranty, at a then reasonable charge. representative will use its best efforts to promote marketing of the Products. (ii) Representative agrees to maintain in effect at all times during this agreement the necessary registrations with any and all governmental agencies, commercial registries, and other offices as may be required under local law so as to properly conduct commercial business in the area. (iii) Representative agrees to maintain an inventory of spare parts for Products in a quantity sufficient to meet the demands of its customers according to reasonable recommendations made by ETS. Representative may purchase these spare parts at a [OMITTED MATERIAL] discount from then current published prices. Representative will maintain records of inventory of the spare parts on hand and provide the same to ETS, on request, at reasonable intervals. (iv) Representative must abide by the appropriate software license agreements related to Third Party Software as provided by ETS. No other license of Third Party Software is stated or implied. (v) Representative will obtain a sublicense agreement in English language with the customer prior to delivery of the Software or Updates to its customers. Such sublicense agreement shall have substantially the same meanings of the terms of ETS Software License Agreement as furnished by ETS. (vi) Representative will hold in confidence during the term of this agreement and for one year thereafter, any and all information of a confidential nature regarding ETS business or affairs, including all data and information related to software and updates. All such confidential information of tangible nature shall be marked "Confidential". Confidential information of an intangible nature will be indicated in certain other appropriate manner. Information shall not be considered confidential if: 1) Already known generally to the public. 2) Information which becomes generally available to the public through no fault of representative or was previously known to representative. 3) Information independently developed by representative independently and without the aid of information disclosed by ETS. 4) Information which lawfully becomes known to representative through a third party. (vii) Representative will refrain from engaging in the sale, marketing, service, or having business relationships with any company or groups competing products. MUTUAL RESPONSIBILITIES (i) ETS agrees to participate in direct customer sales and training seminars in the geographic area and/or the USA. The cost of visits either by ETS to representative or representative to ETS will be the responsibility of the traveling party unless otherwise agreed to in writing prior to the trip. While at the Eagle facilities, Eagle will provide lodging for the representative at no cost. (ii) ETS agrees to provide technical training to representative staff at ETS Mundelein. The cost of travel for representative personnel will be the responsibility of representative. The cost of providing the facilities, staff and lodging for the representative for said training will be the responsibility of ETS. If termination action is originated by ETS, then ETS will allow representative to return spare parts or demonstration equipment and receive a refund of monies paid according to the following plan: [OMITTED MATERIAL] COMPENSATION AND PAYMENT TERMS ORDERS PLACED BY CUSTOMERS ON EAGLE a) For orders placed by the end user/customer directly on ETS from the representative s region, the representative will receive a sales commission. of [OMITTED MATERIAL]% of the net order. Non-commissionable items are excluded from commission (not including freight, taxes, C.O.D. charges, or duty) b) ETS will pay a Service Commission to Representative equal to [OMITTED MATERIAL]% of commissionable items for systems/products covered in paragraph a). This service commission is provided as compensation for the Representative providing service to the customer during the original warranty period. It is paid at the same time as the sales commission is paid. The Representative agrees to provide trained service staff (training provided for no charge (travel and lodging not included) at ETS factory). If Representative requires the assistance of Eagle personnel to install systems, then Representative will cover all transportation, lodging and meals for these personnel. This action activates if problems are unresolved after 3 working days. PAYMENT TO REPRESENTATIVE Orders placed on Eagle Test Systems, Inc. will provide commission to representative within [OMITTED MATERIAL] Days of receipt of each payment by ETS from the customer. Eagle have to refund or credit any payment, then the Representative's compensation will be adjusted accordingly. SERVICE SUPPORT COMPENSATIONS FOR PRODUCTS TRANSFERRED INTO THE REGIONS BY THE CUSTOMER IN ANOTHER REGION-(SERVICE COMMISSION) If a system is purchased from ETS by the customer in another region and directly shipped to the Representative's region, then the Representative will receive compensation of [OMITTED MATERIAL]% of the net order (less other commissions paid). Under no circumstances is any sales commission due Representative for equipment ordered and delivered in another territory. If ETS systems are shipped by third parties, then ETS, at its discretion, may choose to have Representative provide service for the remainder of the warranty, at an annual fee of [OMITTED MATERIAL]% of the original system cost pro-rated for the remaining term of the warranty. ETS will furnish representative at least thirty (30) day written notice of any price changes made by ETS. ORDERS are considered valid when accepted by ETS, in writing. All shipment will be EX-WORKS Manufacturer's factory in Mundelein, IL. ETS shall retain title to all Software and Updates at anytime. ORDERS PLACED BY CUSTOMERS ON EAGLE-PAYMENT TO EAGLE (i) Payment shall be made in such a way as to guarantee a minimum payment of 80% of total order value at the time of shipment. This can be arranged through a secured letter of credit or other proper customary methodology. The balance of the order can be determined by linkage to a set of mutually agreeable and measurable acceptance criteria. (ii) Customer shall be responsible for any and all duties, customs , and taxes imposed by the Applicable Government (exclusive of U.S.A.) or any municipality, county, or prefecture thereof. ORDERS PLACED BY REPRESENTATIVE ON EAGLE (i) Orders placed by Representative on Eagle will receive a discount of [OMITTED MATERIAL] from present list pricing. (ii) Payment shall be [OMITTED MATERIAL] at time of order, [OMITTED MATERIAL] at time of shipment, balance thirty(30) days after invoice date by cash remittance in U.S. dollars by cable. (iii) Representative shall be responsible for any and all duties, customs , and taxes imposed by the Applicable Government (exclusive of U.S.A.) or any municipality, county, or prefecture thereof GENERAL ISSUES Advertising ETS shall supply free of charge, reasonable quantities of catalogs, brochures, and the like. Demonstration Bonus ETS will allow The representative to purchase one demonstration system per year at an additional discount of [OMITTED MATERIAL] on SYSTEMS. Demonstration equipment must remain on representative PREMISES for a period of six months after delivery. RELATIONSHIP OF PARTIES The relationship between ETS and representative is that of seller and buyer. Unless so authorized in writing, neither party shall have the right to assume, create responsibility, expressed or implied, on behalf of the other party, or to bind the other party in any manner whatsoever. Neither party shall accept payment on behalf of the other. Neither party shall be considered an employee or agent for any purpose. Representative shall not engage in activities which might cause ETS to be deemed to be doing business in the territory for any purpose. RESTRICTIONS Representative shall refrain from doing any of the following without ETS written consent: 1) Removing, altering, defacing any ETS label, legend, tag, serial number, notice, trademark, patent number from any ETS product, container, or package. 2) Using any ETS intellectual property, trademark, or trade name, except to the extent necessary to effect representatives obligations to promote or sell Product in the area. 3) Affixing any representatives own identifying marks, symbols, trademarks, or legends to any product of ETS, or any action which may be detrimental to ETS Proprietary interests in identifying marks, symbols, trademarks, or legends or other intellectual property rights. 4) Disclosing to any third party proprietary information relating to ETS products which representative gained as a result of this relationship with ETS. 5) Engaging in any trade practice that would injure the reputation of ETS or its products. 6) Promoting or selling any products in this territory deemed directly competitive with ETS products 7) Making any warranties on behalf of ETS which exceed those of ETS as part of the sale of Product to representative Customer. TERMINATION a) This agreement may be terminated on ninety (90) days written notice by either party during the first year, one hundred twenty days during the second year, and one hundred fifty days in subsequent years, reason need not be given. b) In the event of a breach of any material provision of this agreement it may be terminated upon written notice by either party. The notice must specify the breach upon which termination is based. c) Upon termination of this agreement, it shall be understood that the representative no longer has the right to act as such, however, representative may continue selling any items in inventory at the time of termination d) In the event either party becomes insolvent, bankrupt, or court proceedings are initiated relating to such parties financial instability, this agreement terminates automatically. Should representative assign this agreement or any of its obligations without prior written consent of ETS, this agreement terminates automatically. e) Upon termination of this agreement, representative shall pursuant to ETS instructions, return to ETS, all Software, Updates, and Documentation, and all copies thereof, in representative's possession at time of termination, save one copy of each to the extent that it is required for customer service provided by representative after termination. f) Neither ETS nor representative shall by reason of the termination, be liable to the other for compensation, reimbursement or damages on account of the loss of prospective profits on anticipated sales, or on account of expenditures, investments, leases or commitments made in connection with this agreement. Notwithstanding the foregoing, nothing contained in this paragraph shall be deemed to limit or otherwise restrict either parties right to recover damages for the other parties breach of any provisions of this agreement. ASSIGNMENT Both parties may not assign or otherwise transfer any right, title, interest or obligation hereunder to a successor, affiliate, or subsidiary without the express written consent of the other. This agreement shall inure to the benefit of such assignees, transferees, or other successors in the event of an assignment consistent with the provisions of this agreement. FORCE MAJUERE Neither party shall be liable for any breach of this agreement occasioned by an act of God, labor dispute, unavailable transportation, goods or services, governmental restrictions, war or other hostilities, or cause beyond the control of such party. In the event of delay attributable to such causes, the period for performance of the obligation shall be extended for a period equal to the delay. A delay beyond 180 days allows either party to terminate this agreement effective immediately on written notice, stating the termination cause. NOTICES Notice shall be deemed effectively given only when delivered personally to an officer of the party or sent by FAX and confirmed by registered mail addressed to an officer at the appropriate address for the receipt of such notice: Eagle Test Systems, Inc. 1353 Armour Blvd. Mundelein, IL 60060 U.S.A. representative: Hypersonic, Inc., No. 227-2, Sec.2 Chung-Hwa Rd. Chung-Li, Tao Yuan 32051 Taiwan R.O.C. CONFLICTS Should any conflicts arise concerning this agreement which cannot be resolved by mutual agreement, action may be brought to resolve the conflict according to the laws of the State of Illinois, U.S.A. WAIVER No waiver by either party of any term or condition of this agreement shall constitute a waiver of any other term or condition or subsequent condition. ENTIRE AGREEMENT Representative acknowledges this agreement constitutes the entire agreement between the parties and supersedes any and all prior agreements between them. Any amendment to this agreement must be authorized in writing by qualified officers of both parties. By: /s/ Norman Lin By: /s/ Len Foxman --------------------------------------- --------------- Norman Lin(Print name) Len Foxman Managing Director (Title) President Hypersonic, Inc. Eagle Test Systems, Inc. DATE: August 9, 2000 DATE: August 17, 2000 --------------- ---------------- Appendix A All Standard Items as Listed in the Latest furnished Price List for ETS-564 and ETS300 Products, not including Calibration, Maintenance, and Training Items. Appendix B ETS Shell, Utilities, Statistical, and Graphing Software. EX-10.27 25 c86449exv10w27.txt MANUFACTURER'S EXCLUSIVE REPRESENTATIVE AGREEMENT EXHIBIT 10.27 CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. THE LOCATIONS OF THE OMITTED MATERIALS ARE INDICATED BY THE FOLLOWING NOTATION: [OMITTED MATERIAL] MANUFACTURER'S EXCLUSIVE REPRESENTATIVE AGREEMENT This Agreement made and entered into this 31st day of July 2001, by and between Eagle Test Systems. Inc. of 620 S. Butterfield Rd., Mundelein, Illinois, U.S.A. (hereafter ETS) principle/manufacturer, and Representative, Cogent International Inc. of 115 Broadway 15th FL, New York, New York, 10006 (hereafter Representative). In consideration of the mutual covenants contained herein, the parties agree as follows: DEFINITIONS a) Products shall mean any hardware products directly manufactured and/or incorporated into products by ETS. b) Software shall mean all computer software, software code, embedded software, or software enabled techniques generated by ETS. c) Third Party Software shall mean any software products incorporated into ETS products by ETS, but developed and licensed by someone other than ETS. d) Documentation means all documents that describe ETS' manufacturing process or methods, general functional capabilities, limitations, and operating-requirements of either Hardware or Software. e) Updates shall mean the updates, modifications, improvements, and enhancements of the Software. f) Spare Parts means hardware normally sold separately as line items per published price list, or modules, fuses, or relays as would be found in an ETS spares kit. EXCLUSIVE REPRESENTATIVE ETS hereby appoints Cogent International Inc. as exclusive representative in the territory known as China, including Hong Kong Island, for ETS products. RESPONSIBILITIES ETS RESPONSIBILITIES (i) ETS agrees to make every reasonable effort to manufacture quantities of the Products sufficient to meet the sale requirements of representative. (ii) ETS agrees to provide a Product Price List to Representative upon its request. ETS will furnish representative written notice of any price changes made by ETS, at least thirty (30) days prior to said changes. (iii) All items currently manufactured by ETS may be subject to change at ETS' sole discretion. Representative shall be entitled to receive written notice of any changes in the standard product offering at least forty-five (45) days prior to ETS' termination of manufacturing of said product affected by such change. (iv) ETS agrees to supply Software by appropriate media, such as magnetic tape or Compact Disk, and ETS product user's manuals and Documentation thereof upon acceptance of the order from representative. (v) ETS agrees to make Representative aware of any product updates as they are made available by ETS for sale to customers. (vi) ETS agrees to provide reasonable amounts of technical assistance to representative in a manner deemed appropriate and confirmed by written agreement by both parties. (vii) ETS shall make spare parts of the Products available to representative for a period of one year from the last date of shipment of such model at then current prices, notwithstanding termination of this agreement. Generally, it is ETS' policy to provide to Customers (non-representatives) availability of spare parts for a period of ten years from date of purchase. ETS PRODUCT WARRANTY (i) Hardware Warranty ETS shall warrant its New Products to be free from defects caused by faulty materials or poor workmanship and to conform to specifications furnished or approved by ETS for a period of (1) one year from date of shipment to representative or customer. During the warranty period, ETS shall have sole discretion in the manner in which correction of reported product errors or. failures are made. If ETS deems it appropriate, it may replace defective-products or make a refund of the payment for any Products that are returned by representative. The warranty period shall begin when system is installed and successfully completing the system diagnostic program. (ii) Software Warranty ETS warrants the Software and Updates to conform to documents furnished or approved by ETS for (1) one year from date of shipment to representative. ETS liability under this warranty is limited to correcting the errors, replacing or making refund payment at its option for any Software or Updates that are returned by representative. (iii) ETS agrees to indemnify and hold harmless representative and its customers against all damages and costs, including reasonable legal fees, which may be assessed against representative or its customers in any claim by third parties alleging unlawful acts or omissions to act where the alleged liability of representative or its customers arises by reason of the use or sale of any item manufactured by ETS and delivered to representative or its customers, provided that representative or its customers give ETS written notice of all such claims or actions within thirty (30) days of receipt of notice of said claim. In the event either the representative or its customer seeks ETS' indemnification of such damages, either party must allow ETS the opportunity to elect to take over, settle, or defend the same through consul of its own choice and under its sole discretion and at its own expense, and will make available to ETS all defenses against such claims, known or available to representative or its customers. (iv) The foregoing warranties are in lieu of all other warranties, expressed or implied, including any and all warranties of merchantability and fitness for a particular use. In no event shall ETS be liable for special or consequential damages. REPRESENTATIVE RESPONSIBILITIES (i) Representative will be responsible for identifying customers/prospects, making product presentations (with or without ETS assistance as deemed appropriate), providing contact between ETS and the customer/prospect in a timely manner, all at representatives' own expense. The representative will make available a trained staff to meet these responsibilities (number of staff shall be agreed to by both parties in writing), but must include a person trained in performing equipment diagnostics, field service (at board replacement level) and system setup/installation. ETS agrees to provide technical training to representative staff at ETS-Mundelein. The cost of travel for representative personnel will be the responsibility of representative. The cost of providing the facilities and staff for the representative for said training will be the responsibility of ETS. (ii) Representative must make the service of product support available to all customers within its region both during the warranty period and after warranty. After warranty support services shall be made available to customers at a charge deemed reasonable by both parties in writing. In an effort to provide such services, Representative must have a minimum staff capable of supporting said function. (number of staff shall be agreed to by both parties in writing). ETS agrees to provide technical training to representative staff at ETS-Mundelein. The cost of travel for representative personnel will be the responsibility of representative. The cost of providing the facilities and staff for the representative for said training will be the responsibility of ETS. (ii) (a) If Representative requires the assistance of Eagle personnel to install or service systems at the customer site, Representative will cover all transportation, lodging and meals for these personnel. This action shall be deemed mandatory if any problem remains unresolved for 3 consecutive working days. (iii) Representative will use its best efforts to promote marketing of the Products, and will not promote, market, or sell any competing product. In the event that Representative seeks to engage in a relationship with a company within the automatic test industry, and hence competitive with ETS products, Representative shall make ETS aware of such opportunity and afford FTS the opportunity to terminate this agreement. (iv) Representative agrees to maintain all necessary registrations with any and all governmental agencies, commercial registries, and other offices as may be required under local law so as to properly conduct commercial business in the area. (v) Representative agrees to maintain a minimum inventory of spare parts for Products within Representatives geographic service region. Representative must have an inventory quantity that is sufficient to meet the demands of its customers (quantity shall be recommended by ETS at time of sale of equipment). This inventory of spare parts is for the exclusive purpose of supporting customers during the warranty period and may not be sold or made available for sale by Representative for a period of six months after Representative's receipt of said spares. Representative may purchase these spare parts at a [OMITTED MATERIAL] discount from then current published prices. Representative will maintain records of its inventory of spare parts on hand with corresponding serial numbers and provide reports of the same to ETS on a quarterly basis, or within 10 days of ETS' written request. (vi) Representative must abide by ETS the software license agreement for all ETS Software products. In addition, Representative must abide by all corresponding software license agreements of all Third Party Software provided by ETS to Representative. (vii) Representative will obtain a signed copy of the ETS Software License agreement (in English language) from the customer prior to delivery of the Software or Updates to its customers. (viii) Representative must sign the ETS-provided confidential agreement/non-disclosure agreement (NDA) prior to or along with the execution of this agreement. Said NDA shall be applicable to all information disclosed and designated as confidential by ETS. All written forms of confidential information shall be marked "Confidential." All other information shall be designated as such, in writing, within thirty (30) days of disclosure of said information. MUTUAL RESPONSIBILITIES (i) ETS agrees to participate in direct customer, sales. and training seminars in the geographic area and/or the USA. The cost of visits either by ETS to representative or representative to ETS will be the responsibility of the traveling party unless otherwise agreed to in writing prior-to the trip. (ii) ETS agrees to provide technical training to representative staff at ETS Mundelein. The cost of travel for representative personnel will be the responsibility of representative. The cost of providing the facilities and staff for the representative for said training will be the responsibility of ETS. REPRESENTATIVE'S COMMISSION AND PAYMENT TERMS OF SAID COMMISSION FOR SALES ORDERS PLACED DIRECTLY BY CUSTOMER IN REPRESENTATIVE'S REGION AND DELIVERED DIRECTLY INTO REPRESENTATIVE'S REGION a) Except for the "Non-Commissionable Items" specified below, representative shall be entitled to receive a sale commission of [OMITTED MATERIAL]% of the net order for all orders placed by customers within representative's region and shipped directly by ETS into the representative's region. Non-commissionable items: Custom Engineered Products (both Hardware and Software), Applications Engineering Services, and any freight, taxes, C.O.D. charges, or duty are excluded from commission. b) ETS will pay Representative a Service Support Commission equal to [OMITTED MATERIAL]% of commissionable items for systems/products covered in paragraph "a" above in exchange for Representative providing required support services to customers during all products' original warranty period. FOR SERVICE SUPPORT FOR SALES ORDERS RECEIVED BY ETS FROM CUSTOMERS LOCATED OUTSIDE OF REPRESENTATIVE'S REGION, BUT SHIPPED DIRECTLY FROM ETS INTO REPRESENTATIVE'S REGION a) If a system is purchased from ETS by a customer location in a region outside of Representative's region, but is directly shipped into the Representative's region from ETS factory, ETS will pay Representative an "Outside Region" sales commission of [OMITTED MATERIAL]% of commissionable items of the net order (less other commission paid to other parties who received commission for order placement) for systems/products covered in paragraph "a" of Section above entitled FOR SALES ORDERS PLACED DIRECTLY BY CUSTOMER IN REPRESENTATIVE'S REGION AND DELIVERED DIRECTLY INTO REPRESENTATIVE'S REGION. b) If a system is purchased from ETS by a customer location in a region outside of Representative's region, but is directly shipped into the Representative's region from ETS factory, the Representative shall become responsible for the provision of product service support to the customer under ETS standard warranty (1 year). In exchange for the provision of this service by representative, ETS will make payable to Representative a commission of [OMITTED MATERIAL]% of the net order (less other commissions paid to other parties who received commission for order placement). Under no circumstances is any sales commission due Representative for equipment ordered by and delivered to another territory. FOR SERVICE SUPPORT FOR PRODUCTS TRANSFERRED BY CUSTOMER FROM REGION OUTSIDE OF REPRESENTATIVE'S REGION INTO REPRESENTATIVE'S REGION-(TRANSFER SERVICE COMMISSION) If ETS systems are shipped by customers (or other third parties) into Representative's region, ETS may, at its discretion, choose to have Representative provide service for the remainder of the warranty. In exchange for the provision of service for these products, Representative shall be paid a transfer service commission of up to [OMITTED MATERIAL]% of the original sale price paid by customer, pro-rated accordingly for the remaining portion of the term of the warranty. PAYMENT TO REPRESENTATIVE All commissions due to Representative shall be made payable to representative within 30 Days of ETS' receipt of final order payment from the customer. Should ETS have to refund or credit any payment, the Representative's commission will be adjusted accordingly, or it already paid to Representative, returned to ETS within 30 days of ETS providing written notice of said refund. ORDER PLACEMENT ALL ORDERS are considered valid when accepted by ETS, in writing. All product shipment will be EX-WORKS Manufacturer's factory in Mundelein, IL. ETS shall retain title to all Software and Updates at anytime. Customer shall be responsible for any and all duties, customs, and taxes imposed by the Applicable Government (exclusive of U.S.A.) or any municipality, county, or prefecture thereof. GUIDELINES FOR GENERAL PAYMENT TERMS TO EAGLE (i) WELL KNOWN AND COMMERCIALLY RECOGNIZED GLOBAL CUSTOMERS OF GOOD CREDIT STANDING (CREDIT STANDING SHALL BE DETERMINED AT ETS' SOLE DISCRETION ON AN ORDER BY ORDER BASIS) Payment shall be made in a manner that guarantees ETS receives a minimum payment of 80% of total order value net 30 days after the time ETS makes order available to customers' designated carrier for shipment. The balance of the order can be determined by linkage to a set of mutually agreeable and measurable acceptance criteria. (ii) LESSER-KNOWN COMPANIES OF LOCAL ORIGIN WITH UNKNOWN CREDIT STANDING(CREDIT STANDING SHALL BE DETERMINED AT ETS' SOLE DISCRETION ON AN ORDER BY ORDER BASIS) Payment shall be made in a manner that guarantees ETS receives a minimum payment of 80% of total order value at the time order is made available to customers' designated carrier for shipment. This can be arranged through a secured letter of credit or other proper customary methodology: The balance of the order can be determined by linkage to a set of mutually agreeable and measurable acceptance criteria. GENERAL ISSUES ADVERTISING ETS shall supply free of charge, reasonable quantities of catalogs, brochures, and the like. PURCHASING DISCOUNTS ETS will allow the representative to purchase one demonstration system per ear at an additional discount of [OMITTED MATERIAL] on SYSTEMS [not including Custom Engineered Products of Hardware and Software), Applications Engineering Services] Demonstration equipment must remain on representative PREMISES for a period of six months after delivery. RELATIONSHIP OF PARTIES The relationship between ETS and representative is that of seller and independent agent of seller, respectively. Unless authorized by the other party in writing, neither party shall have the right to assume or create responsibility, expressed or implied, on behalf of the other party, nor bind the other party in any manner whatsoever. Neither party shall accept payment on behalf of the other. Representative shall not engage in activities that might cause ETS to be deemed to be doing business in the territory for any purpose. RESTRICTIONS Representative shall refrain from doing any of the following without ETS written consent: 1) Removing, altering, defacing any ETS label, legend, tag, serial number, notice, trademark, patent number from any ETS product, container, or package. 2) Using or selling any ETS intellectual property, trademark, or trade name, except to the extent necessary to effect representatives obligations to promote or sell Product in the area. 3) Affixing any representatives own identifying marks, symbols, trademarks, or legends to any product of ETS, or any action which may be detrimental to ETS Proprietary interests in identifying marks, symbols, trademarks, or legends or other intellectual property rights. 4) Disclosing to any third party proprietary information relating to ETS products which representative gained as a result of this relationship with ETS. 5) Engaging in any trade practice that would injure the reputation of ETS or its products. 6) Promoting or selling any products which Eagle deems directly competitive with ETS products. (Therefore, Representative must obtain written consent to engage or remain engaged in a representative relationship with a manufacturer within the automatic test equipment industry.) 7) Making any warranties on behalf of ETS that exceed those of ETS as part of the sale of Product to Representative's Customer. TERMINATION a) This agreement may be terminated upon sixty (60) days written notice by either party during the first year of this agreement, or upon ninety (90) days written notice in subsequent years. In any case, a reason justifying termination need not be given. b) This agreement shall be considered terminated on the date of a breach of any provision of this agreement, regardless of whether non breaching party has received notice of Paid breach. Upon the non-breaching parties' receipt of notice of material breach, non-breaching party may reinstate this agreement at its sole discretion. However, reinstatement must be made by the non-breaching party in writing, and subsequently approved in writing by breaching party. If non-breaching party does not receive notice of breach, breaching party shall not be entitled to enforce any provisions of this agreement. Therefore, all payments and/or benefits of this agreement received by breaching party as of the date of actual breach shall be refunded to non-breaching party. Such refund shall be made to non-breaching party within thirty (30) days after notification of said breach is made by non-breaching party to breaching party. c) Upon termination of this agreement, it shall be understood that the representative no longer has the right to act on behalf of ETS. However, representative may continue selling any items remaining in its inventory. d) In the event either party becomes insolvent, bankrupt, or court proceedings are initiated relating to such parties' financial instability, this agreement shall terminates automatically upon such date. e) Upon termination of this agreement, representative shall return to ETS all Software, Updates, and Documentation, and all copies thereof that are in representative's possession at time of termination, save one copy of each to the extent that it is required for customer service provided by representative after termination. f) Neither ETS nor representative shall, by reason of the termination, be liable to the other for compensation, reimbursement or damages on account of the loss of prospective profits on anticipated sales, or on account of expenditures, investments, leases or commitments made in connection with this agreement Notwithstanding the foregoing, nothing contained in this paragraph shall be deemed to limit or otherwise restrict either party's right to recover damages for the other parties' breach of any provisions of this agreement. g) If termination action is originated by ETS, ETS will allow representative to return spare parts or demonstration equipment and receive a refund of monies paid according to the following plan (assuming parts deemed in good, working condition): [OMITTED MATERIAL] ASSIGNMENT Neither party may assign or otherwise transfer any right, title, interest or obligation of this agreement without the express written consent of the other. In the event of an assignment, the benefits of this agreement shall transfer to such assignees, transferees, or other successors, in a manner consistent with the provisions of this agreement. FORCE MAJEURE Neither party shall be liable for any breach of this agreement occasioned by an act of God, labor dispute, unavailable transportation, goods or services, governmental restrictions, war or other hostilities, or cause beyond the control of such party. In the event of delay attributable to such causes, the period for performance of the obligation shall be extended for a period equal to the delay. NOTICES VALID NOTICE Notice shall be deemed effectively given only when said notice is delivered personally to an officer of the other party or sent by FAX and confirmed by registered mail that is addressed to an officer of the other party. The following addresses are the only addresses deemed appropriate for the receipt of said notice: On behalf of Eagle Test Systems, Inc Eagle Test Systems, Inc. 620 S. Butterfield Rd. Mundelein, IL 60060 U.S.A. On behalf of Representative: Cogent International Inc. 115 Broadway 15th FL New York, NY 10006 CONFLICTS The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Illinois and U.S. Copyright and Patent laws. Therefore, the Illinois State Courts (or, if there is exclusive federal jurisdiction, the United States District Court for the District of Illinois) shall have exclusive jurisdiction and venue over any dispute arising out of this Agreement, and Representative hereby consents to the jurisdiction of such courts. WAIVER Any waiver by ETS of any breach of this agreement shall not be deemed to be a continuing waiver or a waiver of any other default, but shall apply solely to the instance to which the waiver is directed. ENTIRE AGREEMENT Representative acknowledges this agreement constitutes the entire agreement between the parties and supersedes any and all prior agreements of the parties, whether written or verbal. Any amendment to this agreement must be authorized in writing by qualified officers of both parties. By: /s/ William Huo By: /s/ Len Foxman -------------------------------------- ---------------- William Huo (Print name) Len Foxman President (Title) President - ---------- --------- Cogent International Inc. Eagle Test Systems, Inc. DATE: 7/31/01 DATE: 8/1/01 --------- -------- EX-21.1 26 c86449exv21w1.txt LIST OF SUBSIDIARIES EXHIBIT 21.1 Subsidiaries Eagle Test Systems, YH Eagle Test Systems PTE LTD Eagle Test Systems (Taiwan) LLC EX-23.1 27 c86449exv23w1.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated June 8, 2004, in the Registration Statement and related Prospectus of Eagle Test Systems, Inc. dated July 9, 2004. 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	Proposed Maximum
Title of Each Class of	Aggregate Offering	Amount of
Securities to be Registered	Price(1)	Registration Fee(2)


Common Stock, $0.01 par value per share	$166,750,000	$21,128


	Per Share	Total

Public offering price	$	$
Underwriting discount	$	$
Proceeds to Eagle Test Systems (before expenses)	$	$
Proceeds to the selling stockholders (before expenses)	$	$



		As of March 31, 2004

		Actual			Pro Forma	As Adjusted


		(in thousands, except share
		and per share data)
Cash, cash equivalents and marketable securities		$	12,380		$	$

Redeemable warrants (1)		$	4,274		$	$
Senior subordinated convertible notes (2)			28,421
Series A Convertible Preferred Stock, par value $0.01 per share, 3,437 shares authorized, 3,436 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and as adjusted (3)			65,000
Redeemable Preferred Stock, par value $0.01 per share, 3,437 shares authorized, no shares issued or outstanding, actual; 3,437 shares authorized, 3,436 shares issued and outstanding, pro forma; no shares authorized, issued or outstanding, as adjusted (3)			—
Stockholders’ equity (deficit):
	Preferred stock, par value $0.01 per share, no shares authorized, issued or outstanding, actual; shares authorized, no shares issued or outstanding, pro forma and as adjusted		—
	Common stock, par value $0.01 per share, 15,195,325 shares authorized, 5,396,248 shares issued and outstanding, actual; shares authorized, 13,986,495 shares issued and outstanding, pro forma; shares authorized, shares issued and outstanding, as adjusted (4)		54
Additional paid-in capital			156
Retained earnings (deficit)			(65,524	)
Deferred stock compensation expense			(204	)
Accumulated other comprehensive income			755

Total stockholders’ equity (deficit)			(64,763	)

Total capitalization		$	32,932		$	$


Assumed initial public offering price per share			$
	Pro forma net tangible book value as of June 30, 2004	$
	Increase per share attributable to new investors

Adjusted pro forma net tangible book value per share after this offering

Dilution in pro forma net tangible book value per share to new investors			$



			Quarter Ended

			Dec. 31,			March 31,			June 30,		Sept. 30,		Dec. 31,			March 31,			June 30,			Sept. 30,			Dec. 31,			March 31,
			2001			2002			2002		2002		2002			2003			2003			2003			2003			2004

Net revenue			$	4,086		$	3,834		$	10,892	$	7,106	$	10,433		$	8,435		$	16,858		$	20,040		$	19,862		$	27,294
Cost of goods sold				1,758			1,542			2,973		2,283		4,239			3,074			5,494			7,650			6,086			8,852

Gross profit				2,328			2,292			7,919		4,823		6,194			5,361			11,364			12,390			13,776			18,442
Operating expenses
	Selling, general and administrative			2,238			2,435			3,234		3,042		3,626			3,541			4,089			5,235			4,756			4,920
	Research and development			852			679			791		918		767			680			753			913			1,173			1,242

		Operating income (loss)		(762	)		(822	)		3,894		863		1,801			1,140			6,522			6,242			7,847			12,280
Interest expense				7			6			10		7		8			6			10			7			974			971
Increase in value of warrants				—			—			—		—		—			—			—			—			1,816			740
Other (income) and expense				113			186			123		211		(13	)		(98	)		(129	)		(396	)		(139	)		(140	)

	Income (loss) before taxes			(882	)		(1,014	)		3,761		645		1,806			1,232			6,641			6,631			5,196			10,709
Provision (benefit) for income taxes				(306	)		(352	)		1,300		222		742			503			2,732			2,729			2,766			4,526

	Net income (loss)		$	(576	)	$	(662	)	$	2,461	$	423	$	1,064		$	729		$	3,909		$	3,902		$	2,430		$	6,183


Illinois (State of Incorporation)		3825 (Primary Standard Industrial Classification Code Number)		36-2917389 (I.R.S. Employer Identification Number)


John R. LeClaire, P.C. Michael S. Turner, Esq. Goodwin Procter LLP Exchange Place Boston, Massachusetts 02109 (617) 570-1000		Jeffrey D. Saper, Esq. Trevor J. Chaplick, Esq. Wilson Sonsini Goodrich and Rosati, P.C. 650 Page Mill Road Palo Alto, California 94304 (650) 493-9300


	Page

Prospectus Summary		1
Risk Factors		6
Forward Looking Statements and Projections		20
Use of Proceeds		21
Dividend Policy		21
Capitalization		22
Dilution		24
Selected Consolidated Financial Data		25
Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Business		40
Management		51
Certain Relationships and Related Transactions		63
Principal and Selling Stockholders		66
Description of Capital Stock		68
Shares Eligible for Future Sale		72
Underwriting		75
Legal Matters		79
Experts		79
Where You Can Find Additional Information		79
Index to Consolidated Financial Statements		F-1
Registration Rights Agreement
2003 Stock Option and Grant Plan
Employee Stock Ownership Plan
Profit Sharing Plan and Trust
Stock Purchase Agreement
Stockholders Agreement
Note Purchase Agreement
Senior Subordinated Convertible Note
Form of Warrant to Purchase Common Stock
Senior Subordinated Convertible Note
Non-Competition Agreement
Non-Competition Agreement
Employment Agreement
Employment Agreement
Employment Agreement
Employment Agreement
Employment Agreement
Industrial Building Lease
Sublease Agreement
Lease
Global Purchasing Agreement
Agreement
Manufacturers Representative Agreement
Manufacturer's Exclusive Representative Agreement
List of Subsidiaries
Consent of Ernst & Young LLP


	•	a -for- stock split of our common stock to be effected immediately prior to the effectiveness of this offering;

	•	the conversion of all outstanding shares of our series A convertible preferred stock into 8,590,248 shares of our common stock and 3,436 shares of our redeemable preferred stock immediately prior to the completion of this offering, and the immediate redemption of such redeemable preferred stock;

	•	the issuance of 525,040 shares of common stock upon the exercise of warrants, with an exercise price of $0.01 per share, to be outstanding immediately prior to the completion of this offering as a result of the conversion of our senior subordinated convertible notes;

	•	our reincorporation by merger in Delaware immediately prior to the effectiveness of this offering, and the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated by-laws immediately prior to the effectiveness of this offering; and

	•	no exercise of the underwriters’ over-allotment option.


(1)	All warrants will be exercised upon the completion of this offering, and accordingly, this obligation is eliminated on an as adjusted basis.


	*The highly cyclical nature of the semiconductor industry could adversely affect our operating results.*


	*Our quarterly operating results may fluctuate significantly from period to period and this may cause our stock price to decline.*


	*We depend on a small number of customers for a significant portion of our sales, and the loss of any of these customers will adversely affect our revenue.*


	*We face difficultly in obtaining new customers because of the high cost of switching test equipment vendors in our markets.*


	*Our sales cycle is long, requires significant investment, and may not result in additional sales.*


Banc of America Securities LLC	Lehman Brothers


Adams, Harkness & Hill, Inc.	Jefferies Broadview


	*We face substantial competition that, among other things, may adversely affect our sales and may lead to price pressure.*


	*We rely on a few key employees and our success depends on our ability to hire and retain key personnel.*


	*We have grown rapidly and if we fail to manage our growth, our business will suffer.*


	*We must maintain an effective system of internal controls to manage our growth, accurately report our financial results, and prevent fraud.*


	In order to comply with public reporting requirements, we must continue to strengthen our financial systems and controls, and failure to do so could adversely affect our ability to provide timely financial statements and comply with the Sarbanes-Oxley Act.


	*Being a public company will increase our administrative costs, which could result in lower net income.*


	*If we are not successful in developing new and enhanced products, we will lose market share to our competitors and our operating results will suffer.*


	*Products that do not meet customer specifications or that contain defects could cause us to lose customers and revenue.*


	*We may experience a decrease in our backlog through cancellations or delays in orders or decreases in new order volume.*


	*If we cannot accurately plan the production of products to meet our customers’ demands, we could incur excess inventory or miss sales opportunities.*


	*Our manufacturing activities are conducted at a single facility, and any prolonged disruption in the operations of that facility could have a material adverse effect on our revenue.*


	*The relocation of our manufacturing operations may subject us to increased costs and a disruption in our operations.*


	*We are subject to a variety of environmental laws and regulations, which could subject us to significant liability.*


	*We may be required to raise additional financing to fund our future capital requirements, which may not be available on favorable terms or at all.*


	We may incur significant costs to engage in future acquisitions of or investments in companies, products or technologies, and the anticipated benefits of those acquisitions or investments may not be realized.


	*Economic, political and other risks associated with international sales and operations, particularly in Asia, could adversely affect our revenue.*


	*We could experience a decline in international sales due to currency fluctuations.*


	*Terrorist attacks and terrorist threats may negatively impact all aspects of our business and the price of our common stock.*


	Third parties may claim we are infringing their intellectual property rights, and we could be prevented from selling our products or services, or suffer significant litigation or licensing expenses, even if these claims have no merit.


	*Third parties may infringe or design around our intellectual property rights, and we may expend significant resources enforcing our rights or suffer competitive injury.*