UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.      )

Filed by the Registrant þ

Filed by a Party other than the Registrant o

Check the appropriate box:

þ      Preliminary Proxy Statement
o      Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o      Definitive Proxy Statement
o      Definitive Additional Materials
o      Soliciting Material Pursuant to §240.14a-12

EAGLE TEST SYSTEMS, INC.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

o		No fee required.
þ		Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	1)		Title of each class of securities to which transaction applies: Common Stock, par value $0.01, of Eagle Test Systems, Inc. (“Common Stock”).
	2)		Aggregate number of securities to which transaction applies: 23,041,823 shares of Common Stock outstanding as of September 16, 2008.
	3)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $15.65 (per share consideration set forth in the merger agreement).
	4)		Proposed maximum aggregate value of transaction: $360,604,530.
	5)		Total fee paid: $14,172.

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	1)		Amount previously paid:
	2)		Form, Schedule or Registration Statement No.:
	3)		Filing Party:
	4)		Date Filed:

 

 

EAGLE TEST SYSTEMS, INC.
2200 Millbrook Drive
Buffalo Grove, Illinois 60089
(847) 367-8282

 

          , 2008

 

MERGER PROPOSED — YOUR VOTE IS IMPORTANT

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Eagle Test Systems, Inc., a Delaware corporation, which will be held on          , 2008, at   a.m., local time, at our headquarters at 2200 Millbrook Drive, Buffalo Grove, Illinois 60089.

 

At the special meeting, we will ask you to consider and vote on a proposal to adopt a merger agreement that we entered into with Teradyne, Inc. and Turin Acquisition Corp., a wholly-owned subsidiary of Teradyne, Inc., on September 1, 2008. If stockholders representing at least a majority of the outstanding shares of our Common Stock adopt the merger agreement and the merger is completed, we will become a wholly-owned subsidiary of Teradyne, Inc., and you will be entitled to receive $15.65 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock that you own.

 

After careful consideration, our board of directors, by the unanimous vote of all directors, approved the merger agreement and determined that the merger and the merger agreement are advisable and in the best interests of our company and our stockholders. Our board of directors recommends that you vote “FOR” the adoption of the merger agreement.

 

The accompanying proxy statement provides a detailed description of the proposed merger, the merger agreement and related matters. We urge you to read these materials carefully.

 

Your vote is very important. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the special meeting. Therefore, failure to vote will have the same effect as a vote against the adoption of the merger agreement.

 

Whether or not you are able to attend the special meeting in person, please complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible, or submit your proxy by telephone or via the Internet. If you have Internet access, we encourage you to record your vote via the Internet. This action will not limit your right to vote in person at the special meeting.

 

If you have any questions or need assistance voting your shares, please call our proxy solicitor, D.F. King & Co., Inc. at 1-800-628-8536.

 

Thank you for your cooperation and your continued support of Eagle Test Systems, Inc.

 

Sincerely,

 

LEONARD A. FOXMAN

Chief Executive Officer and President

 

This proxy statement is dated          , 2008 and is first being mailed to stockholders on or about          , 2008.

 

EAGLE TEST SYSTEMS, INC.
2200 Millbrook Drive
Buffalo Grove, Illinois 60089
(847) 367-8282

 

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On          , 2008

 

To the Stockholders of Eagle Test Systems, Inc.:

 

We will hold a special meeting of the stockholders of Eagle Test Systems, Inc. at our headquarters at 2200 Millbrook Drive, Buffalo Grove, Illinois 60089, on          , 2008, at   a.m., local time, to consider and act upon the following matters:

 

1. To adopt the Agreement and Plan of Merger dated as of September 1, 2008, among Eagle Test Systems, Inc. (“Eagle Test”, “Eagle” or “we”, “us”, “our”, “ours”), Teradyne, Inc. (“Teradyne”) and Turin Acquisition Corp., a wholly-owned subsidiary of Teradyne (the “Merger Subsidiary”), as such may be amended from time to time, pursuant to which each holder of shares of Common Stock (other than shares to be canceled pursuant to the terms of the merger agreement) will be entitled to receive $15.65 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock held by such holder;

 

2. To approve a proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of adoption of the merger agreement; and

 

3. To transact such other business as may properly come before the special meeting or any adjournment or postponement thereof, including to consider any procedural matters incident to the conduct of the special meeting.

 

A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.

 

Only holders of record of Common Stock as of the close of business on          , 2008 are entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the special meeting. The list of stockholders entitled to vote at the special meeting will be available for inspection at our principal executive offices at 2200 Millbrook Drive, Buffalo Grove, Illinois 60089, during ordinary business hours at least 10 days before the special meeting.

 

Whether or not you are able to attend the special meeting in person, please complete, sign and date the enclosed proxy card and return it in the envelope provided as soon as possible, or submit your proxy by telephone or via the Internet. If you have Internet access, we encourage you to record your vote via the Internet. This action will not limit your right to vote in person at the special meeting. If you fail to vote by proxy or in person, it will have the same effect as a vote against the adoption of the merger agreement. If you return a properly signed proxy card but do not indicate how you want to vote, your proxy will be counted as a vote “FOR” approval and adoption of the merger agreement.

 

The board of directors of Eagle Test recommends that stockholders vote “FOR” the adoption of the merger agreement.

 

In connection with the execution of the merger agreement, certain Eagle Test stockholders, who collectively beneficially own approximately 39.4% of the voting power of our Common Stock as of the record date, entered into stockholders’ agreements agreeing to vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ agreements will also terminate.

 

If the merger becomes effective, Eagle stockholders who do not vote in favor of the adoption of the merger agreement will have the right to appraisal of the fair value of their shares of Common Stock, as determined by the Delaware Court of Chancery under applicable provisions of Delaware law, subject to the satisfaction of the requirements for exercising and perfecting such rights. A copy of the applicable Delaware statutory provisions is included as Annex C to the accompanying proxy statement, and a summary of these provisions can be found under the section entitled “Appraisal Rights” beginning on page 58 in the accompanying proxy statement.

 

By Order of the Board of Directors,

 

LEONARD A. FOXMAN

Chief Executive Officer and President

 

Buffalo Grove, Illinois

          , 2008

 

TABLE OF CONTENTS

 

 

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. Accordingly, we urge you to read carefully this entire proxy statement and the annexes to this proxy statement. We have included page references parenthetically to direct you to a more complete description of the topics in this summary.

 

In this proxy statement, the terms “we,” “us,” “our,” “our company,” “Eagle” and “Eagle Test” refer to Eagle Test Systems, Inc. and the term “Teradyne” refers to Teradyne, Inc.

 

Eagle Test Systems, Inc.
2200 Millbrook Drive
Buffalo Grove, Illinois 60089
(847) 367-8282
www.eagletest.com

 

Eagle Test designs, manufactures, sells and services high performance automated test equipment for the semiconductor industry. Eagle Test’s products are used to test analog, mixed-signal and radio frequency (RF) semiconductors that are used in products such as digital cameras, MP3 players, automotive electronics, cellular telephones, computers and peripherals. Eagle Test was founded in 1976 and has offices located throughout the world in Asia, North America and Europe, with corporate headquarters in Buffalo Grove, Illinois.

 

Teradyne, Inc.
600 Riverpark Drive
North Reading, Massachusetts
(978) 370-2700
www.teradyne.com

 

Teradyne is a leading supplier of automatic test equipment used to test complex electronics used in the consumer electronics, automotive, computing, telecommunications, and aerospace and defense industries. In 2007, Teradyne had sales of $1.1 billion and currently employs about 3,600 people worldwide.

 

Turin Acquisition Corp.
c/o Teradyne, Inc.
600 Riverpark Drive
North Reading, Massachusetts
(978) 370-2700

 

Turin Acquisition Corp., which we refer to as the Merger Subsidiary, is a Delaware corporation and a direct wholly-owned subsidiary of Teradyne. The Merger Subsidiary was formed exclusively for the purpose of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. The Merger Subsidiary has not engaged in any business except in anticipation of the merger.

 

Upon the terms and subject to the conditions of the merger agreement, the Merger Subsidiary will be merged with and into us, and each holder of shares of Common Stock will be entitled to receive $15.65 in cash, without interest and less any applicable withholding taxes, for each share of Common Stock held by such holder immediately prior to the merger unless such holder has exercised his or her statutory appraisal rights with respect to the merger. As a result of the merger, we will cease to be a publicly traded company and will instead become a wholly-owned subsidiary of Teradyne. You will not own any shares of the surviving corporation. The merger agreement is attached as Annex A to this proxy statement. Please read it carefully.

 

The special meeting will be held on          , 2008 at  a.m., local time, at our headquarters at 2200 Millbrook Drive, Buffalo Grove, Illinois 60089. At the special meeting, you will be asked to vote upon a proposal to adopt the merger agreement that we have entered into with Teradyne and the Merger Subsidiary. You will also be asked to vote upon a proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of approval and adoption of the merger agreement. You may also be asked to vote upon such other matters as may properly come before the special meeting or any adjournment or postponement thereof.

 

Our board of directors has fixed the close of business on          , 2008, as the record date for determining stockholders entitled to notice of and to vote at the special meeting. On the record date, we had outstanding shares of Common Stock held by approximately          stockholders of record. We have no other class of voting securities outstanding.

 

Stockholders of record on the record date will be entitled to one vote per share of Common Stock on any matter that may properly come before the special meeting and any adjournment or postponement of that meeting.

 

Pursuant to the requirements of the Delaware General Corporation Law, the adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the special meeting. Failure to vote, by proxy or in person, will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

 

The affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the special meeting will be required to approve the adjournment, if necessary, of the special meeting to solicit additional proxies in favor of the approval and adoption of the merger agreement. Failure to vote, in person or by proxy, will have no effect on the approval of the adjournment proposal.

 

In connection with the execution of the merger agreement, certain Eagle Test stockholders, who collectively beneficially own approximately 39.4% of the voting power of our Common Stock as of the record date, entered into stockholders’ agreements agreeing to vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ agreements will also terminate.

 

Our board of directors has unanimously (i) determined that the merger and the merger agreement are advisable and in the best interests of our company and our stockholders, (ii) approved the merger agreement, (iii) resolved to recommend that the stockholders adopt the merger agreement, and (iv) directed that such matter be submitted for consideration of the stockholders of Eagle Test at the special meeting. Accordingly, our board of directors recommends that our stockholders vote “FOR” the adoption of the merger agreement at the special meeting.

 

For the factors considered by our board of directors in reaching its decision to approve the merger agreement see “The Merger — Reasons for the Merger and Recommendations of our Board of Directors, beginning on page 28 of this proxy statement.

 

In connection with the merger, Lehman Brothers Inc., Eagle Test’s financial advisor (“Lehman Brothers”), delivered to Eagle Test’s board of directors a written opinion, dated September 1, 2008, that, as of such date, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the

consideration to be offered to the stockholders of Eagle Test in the proposed merger is fair, from a financial point of view, to such stockholders.The full text of the written opinion, dated September 1, 2008, of Lehman Brothers, which describes, among other things, the assumptions made, procedures followed, factors considered, qualifications of and limitations on the review undertaken, is attached as Annex B to this proxy statement and is incorporated by reference in this proxy statement in its entirety. The summary of the written opinion of Lehman Brothers in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Lehman Brothers provided its opinion to Eagle Test’s board of directors for the benefit and use of Eagle Test’s board of directors in connection with and for purposes of its evaluation of the per share merger consideration from a financial point of view. Lehman Brothers’ opinion does not address any other aspect of the merger and does not constitute a recommendation to any stockholder as to how to vote or act in connection with the proposed merger.

 

Neither we nor Teradyne nor the Merger Subsidiary is required to complete the merger unless the following conditions are satisfied or waived:

 

 

Neither Teradyne nor the Merger Subsidiary is required to complete the merger unless the following conditions are satisfied or waived:

 

 

 

 

We are not required to complete the merger unless the following conditions are satisfied or waived:

 

 

We have agreed that we and our subsidiaries will cease immediately all discussions and negotiations that constitute or may reasonably be expected to lead to an alternative proposal. The merger agreement defines an “alternative proposal” to mean any inquiry, proposal or offer made by any person for:

 

 

We have also agreed that we will not, nor will we authorize or permit any of our subsidiaries and representatives to, directly or indirectly:

 

 

 

 

Notwithstanding these restrictions, at any time prior to the adoption of the merger agreement by our stockholders but only if there has not been a breach of the non-solicitation provisions, and in response to an unsolicited bona fide written alternative proposal that our board of directors has determined, in good faith, after consultation with our outside counsel and independent financial advisor, constitutes, or could reasonably be expected to lead to, a superior proposal, we may:

 

 

The merger agreement requires us to promptly advise Teradyne of any alternative proposal that we receive (or any inquiries, proposals or offers reasonably expected to lead to an alternative proposal) or any request for information or for a discussion or negotiation that would reasonably be expected to be related to an alternative proposal. We also have agreed to keep Teradyne promptly informed of any such discussions or negotiations regarding any alternative proposal and of any indication, inquiry or offer or any material developments relating thereto or material changes to the terms thereof, and to promptly send Teradyne copies of any alternative proposal as well as any related materials or correspondence. We are also obligated to contemporaneously make available to Teradyne any non-public information concerning us that we provide to any person making an alternative proposal.

 

We have also agreed that, subject to the exceptions below, our board of directors will not:

 

 

Under the circumstances described below, our board of directors may withdraw, modify or qualify its recommendation prior to the adoption of the merger agreement by our stockholders if our board of directors determines in good faith that an unsolicited bona fide written alternative proposal constitutes a superior proposal or that the exercise of its fiduciary duties requires such change to be made. If our board of directors determines to take any of these actions, it may do so only after the third business day following receipt by Teradyne of a written notice from us advising Teradyne that our board of directors desires to change its recommendation (including the reasons for such change, the material terms and conditions of any superior proposal and the person making the superior proposal), if applicable. Teradyne is entitled to make adjustments or revisions to the terms and conditions of the merger agreement during those three business days. At the end of the third business day, our board of directors may proceed with the change of its recommendation if it determines in good faith, after taking into account any and all proposed amendments or revisions made by Teradyne and consulting with our independent financial advisor and outside legal counsel, that the alternative proposal remains a superior proposal or that the exercise of its fiduciary duties requires such action.

 

The merger agreement defines the term “superior proposal” to mean a bona fide, unsolicited alternative proposal for all or substantially all of our outstanding shares or assets that our board of directors determines in good faith, after consultation with our independent financial advisor and outside legal counsel, to be more favorable to our stockholders than the transactions contemplated by the merger agreement, taking into account all the terms and conditions of such proposal and the merger agreement (including any proposal by Teradyne to amend the terms of the merger agreement, the likelihood of consummation of a transaction and whether any financing required to consummate such alternative proposal is fully committed).

 

The merger agreement may be terminated by either party at any time prior to the effective time of the merger, whether before or after our stockholders have adopted the merger agreement:

 

 

 

Teradyne can terminate the merger agreement:

 

 

We can terminate the merger agreement:

 

 

We are required to pay Teradyne a termination fee of $11,500,000 in the event that the merger agreement is terminated because:

 

 

 

In connection with the merger, Teradyne entered into stockholders’ agreements, each dated as of September 1, 2008, with investment funds affiliated with TA Associates, Inc. (the “TA Funds”), Leonard A. Foxman, Theodore D. Foxman and Foxman Family LLC (the “Foxman Holders”) pursuant to which, among other things, the TA Funds and the Foxman Holders agreed to vote all shares of Common Stock beneficially owned by the TA Funds and the Foxman Holders in favor of the adoption of the merger agreement, and against any alternative proposal and against any action or agreement that would delay, prevent, impede or impair the ability of Teradyne to complete the merger or our ability to consummate the merger or the transactions contemplated by the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ agreements will also terminate. As of the record date, the TA Funds and the Foxman Holders own beneficially and of record an aggregate of approximately 39.4% of our outstanding Common Stock.

 

Under the provisions of the HSR Act, we and Teradyne may not complete the merger until we have made certain filings with the Federal Trade Commission and the United States Department of Justice and the applicable waiting period has expired or been terminated. We and Teradyne each filed pre-merger notifications with the U.S. antitrust authorities pursuant to the HSR Act and, in accordance with the merger agreement, requested “early termination” of the waiting period, which began on September 9, 2008. In addition to filing in the United States, we and Teradyne filed a joint notification with the merger control authorities in Germany on September 15, 2008. The initial waiting period in Germany is one month and it can be extended for an additional three month period.

 

Under Delaware law, holders of Common Stock may have the right to receive an appraisal of the fair value of their shares of Common Stock in connection with the merger. To exercise appraisal rights, a holder of Common Stock must not vote for the proposal to adopt the merger agreement, must deliver to us a written appraisal demand before the stockholder vote on the merger agreement is taken at the special meeting, must not submit a letter of transmittal, and must strictly comply with all of the procedures required by Delaware law.

 

A copy of Section 262 of the Delaware General Corporation Law, or the DGCL, is also included as Annex C to this proxy statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.

 

If the merger is completed, the exchange of Common Stock by our stockholders for the cash merger consideration will generally be treated as a taxable transaction for U.S. federal income tax purposes under the Internal Revenue Code of 1986, as amended. Because of the complexities of the tax laws, we advise you to consult your personal tax advisors concerning the applicable U.S. federal, state, local, foreign and other tax consequences of the merger to you.

 

The merger agreement, after giving effect to the acceleration provisions of our stock option plans, provides that each option to purchase shares of Common Stock granted under our stock option plans (a “Company Option”) that is outstanding immediately prior to the effective time of the merger, whether or not then vested or exercisable, will be assumed and converted automatically at the effective time into an option to acquire shares of Teradyne’s common stock, on substantially the same terms and conditions as were applicable to the Company Option (including vesting schedule). The number of shares of Teradyne’s common stock subject to each new option shall be determined by multiplying the number of shares of Common Stock subject to each Company Option by the equity award exchange ratio, rounding that result down to the nearest whole number of shares of Teradyne’s common stock. The exercise price per share of Teradyne’s common stock shall equal the per share exercise price for the shares of Common Stock otherwise purchasable pursuant to each Company Option divided by the equity award exchange ratio, rounding that result up to the nearest whole cent. The equity award exchange ratio is calculated by dividing $15.65 by the average closing price of Teradyne’s common stock on the New York Stock Exchange over the five consecutive trading days immediately preceding (but not including) the closing date. As soon as reasonably practicable following the effective time, Teradyne will deliver to each of our optionholders an appropriate notice setting forth the terms of such assumption and conversion.

 

In considering the recommendation of our board of directors with respect to the merger agreement, holders of shares of Common Stock should be aware that our executive officers and directors have interests in the merger that may be different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. Our board of directors was aware that these interests existed when it approved the merger agreement. The material interests are summarized below.

 

Equity-Based Awards

 

All optionholders, including our executive officers and directors, will be entitled to acceleration of (i) all of their stock options which were issued pursuant to our 2006 stock option and incentive plan and (ii) 50% of their unvested stock options which were issued pursuant to our 2003 stock option and grant plan, pursuant to the terms of the option agreements granted under the applicable plan. Pursuant to the terms of the merger agreement, all outstanding Company Options will be assumed and converted automatically at the effective time into an option to acquire shares of Teradyne’s common stock, on substantially the same terms and conditions as were applicable to the Company Option, including the vesting schedule. If any optionholder’s employment is terminated following the assumption of the Company Options by Teradyne and if such termination is (i) within 18 months of the completion of the merger and (ii) by Teradyne without “cause” or by the optionholder for “good reason”, as both are defined in the applicable option agreement granted under the 2003 stock option and grant plan, then any remaining unvested options issued to such optionholder pursuant to our 2003 stock option and grant plan shall accelerate and be considered fully vested and exercisable.

The following table identifies for each of our executive officers and directors the aggregate number of shares subject to his outstanding unvested Company Options that will be accelerated and become fully vested and exercisable as of the effective time of the merger, the weighted average exercise price of his Company Options that will be accelerated and become fully vested and exercisable as of the effective time of the merger and the value of such accelerated stock options based on the difference between the exercise price and the closing market price of our shares on September 16, 2008, which closing market price was $15.38 per share. In determining the value of accelerated stock options, only accelerated stock options with an exercise price lower than the closing market price of our shares on September 16, 2008 were included. The following table assumes that the closing of the merger occurs on October 31, 2008.

 

 

Severance Provisions of Employment Agreements

 

Each of Leonard A. Foxman, Theodore D. Foxman, Stephen J. Hawrysz and Jack E. Weimer are party to an employment agreement with us, which requires us to make certain payments and/or provide certain benefits to such executive officers in the event of a qualifying termination of their employment. The following summarizes the potential payments to each executive officer under his current employment agreement, assuming the closing of the merger and the subsequent termination of such executive officer occurs. However, each of Leonard A. Foxman, Theodore D. Foxman and Jack E. Weimer entered into letter agreements with Teradyne described below under the heading “Retention Agreements” which will supersede or amend their existing employments agreements effective upon the merger. Accordingly, if the merger is consummated and any such executive officer is terminated following the merger, the payments, if any, to which such executive officer is entitled will be determined in accordance with the terms of the retention agreement such executive officer entered into with Teradyne.

 

Leonard A. Foxman.  In the case of termination by Mr. Foxman for good reason, or by us without cause, he will continue to receive salary at a rate equal to 100% of his base salary in effect on the date of termination for a period of two years from the date of such termination. Additionally, Mr. Foxman will receive group health plan benefits for two years from the date of such termination. If Mr. Foxman elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Foxman’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Foxman’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Foxman is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Foxman.

Theodore D. Foxman.  In the case of termination by Mr. Foxman for good reason, or by us without cause, he will continue to receive salary at a rate equal to 100% of his base salary in effect on the date of termination for a period of eighteen months from the date of such termination. Additionally, Mr. Foxman will receive group health plan benefits for eighteen months from the date of such termination. If Mr. Foxman elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Foxman’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Foxman’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Foxman is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Foxman.

 

Stephen J. Hawrysz.  In the case of termination by Mr. Hawrysz for good reason, or by us without cause, he will continue to receive salary at a rate equal to 50% of his base salary in effect on the date of termination for a period of two years from the date of such termination. Additionally, Mr. Hawrysz will receive group health plan benefits for one year from the date of such termination. If Mr. Hawrysz elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Hawrysz’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Hawrysz’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Hawrysz is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Hawrysz.

 

Jack E. Weimer.  In the case of termination by Mr. Weimer for good reason, or by us without cause, he will continue to receive salary at a rate equal to 50% of his base salary in effect on the date of termination for a period of two years from the date of such termination. Additionally, Mr. Weimer will receive group health plan benefits for one year from the date of such termination. If Mr. Weimer elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Weimer’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Weimer’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Weimer is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Weimer.

 

Retention Agreements

 

On August 27, 2008, Teradyne entered into letter agreements with several of our employees, including Leonard A. Foxman, Theodore D. Foxman and Jack E. Weimer, which provide, among other things, for continued employment upon the closing of the merger, on the terms and conditions set forth therein. The effectiveness of each of those agreements is conditioned upon the closing of the merger and will only take effect, and supersede or amend the existing employment agreements described above, from the effective date forward. The following summarizes the significant terms of those agreements.

 

Leonard A. Foxman.  Under the terms of his letter agreement, Mr. Foxman will be employed by Teradyne as the Business Unit Manager for Teradyne’s Eagle Test Business Unit following the closing of the merger at an annual base salary of $425,000. Mr. Foxman’s employment with Teradyne will terminate on the first anniversary of the closing of the merger, or such other date as Mr. Foxman and Teradyne may mutually agree. Under the terms of the letter agreement, Mr. Foxman is eligible for a cash bonus payment upon meeting certain targets or objectives to be determined by Teradyne, with a target bonus payment of $200,000. Mr. Foxman’s letter agreement also provides for a grant of performance-based restricted stock units having a target value of $225,000 on the date of grant. The actual number of his performance-based restricted stock units will be determined by Teradyne in its sole discretion based upon targets or objectives and will be distributed shortly after the end of Teradyne’s fiscal 2009 year. The letter agreement further provides that upon

the expiration of the term of Mr. Foxman’s employment, or upon termination by Teradyne without cause or by Mr. Foxman for good reason, Mr. Foxman is entitled to certain termination benefits which include two years of salary continuation at his base rate and the continuation of certain health benefits. Mr. Foxman is not entitled to these termination benefits if his employment is terminated for cause or if he resigns without good reason.

 

Theodore D. Foxman.  Under the terms of his letter agreement, Mr. Foxman will be employed by Teradyne to perform and assist in the transitioning of his duties with Eagle Test following the closing of the merger at a monthly base salary of $33,333 (which would annualize to $400,000). Mr. Foxman’s employment will terminate six months from the closing of the merger or on an earlier date as determined by Teradyne. Upon his termination and provided he is not terminated for cause, Mr. Foxman will receive a cash bonus award based on the length of his actual employment with Teradyne pro rated against the annualized sum of $300,000. In addition, Mr. Foxman will receive the termination benefits set forth in his current employment agreement with Eagle Test, except that Teradyne will pay the 18 months of continued salary in one lump-sum payment of $600,000, less applicable taxes and withholdings. The letter agreement further provides that Mr. Foxman will be paid upon his termination a special retention bonus payment of $175,000, less applicable taxes and withholding.

 

Jack E. Weimer.  Under the terms of his letter agreement, Mr. Weimer will be employed by Teradyne as the Manager of the Technical Solutions Group for Teradyne’s Eagle Test Business Unit following the closing of the merger at an annual base salary of $200,000. Under the terms of the letter agreement and starting in January 2009, Mr. Weimer will be eligible for a cash bonus payment upon meeting certain targets or objectives to be determined by Teradyne, having a target bonus payment of $100,000. The letter agreement further provides that Mr. Weimer will receive lump-sum cash payments in the amount of $100,000 on each of the first and second anniversaries of the effective date of the letter agreement, provided that he remains an employee in good standing of Teradyne on those dates. The letter agreement further provides that if, prior to the second anniversary of the closing of the merger, Mr. Weimer’s employment is terminated by Teradyne without cause or by Mr. Weimer for good reason, Mr. Weimer shall receive the termination benefits set forth in his current employment agreement with Eagle Test, with any such amounts to be reduced by the lump-sum cash payments received.

 

Mr. Weimer’s letter agreement also provides for certain equity compensation arrangements, subject to the approval of Teradyne’s board of directors or compensation committee. Teradyne has explicitly agreed to recommend these arrangements to its board of directors or compensation committee as appropriate. Mr. Weimer will receive a time-based restricted stock unit grant equal in value to $150,000, which will vest in equal annual installments over four years beginning on the first anniversary of the date of grant. Mr. Weimer also will receive a second time-based restricted stock unit grant equal in value to $150,000 which will vest on the earlier to occur of (i) the second anniversary of the grant, provided that Mr. Weimer remains an employee of Teradyne, or (ii) the termination of Mr. Weimer’s employment by Teradyne other than for cause or by Mr. Weimer for good reason. The date of grant for both restricted stock unit awards will be the first business day of the month following the date of the closing of the merger.

 

Fiscal 2008 Bonus Awards

 

On August 30, 2008, pursuant to the terms of our 2008 Management Bonus Plan (the “Bonus Plan”), the compensation committee of our board of directors approved bonus awards for the fiscal year ended September 30, 2008 (“Fiscal 2008”) for the Chief Executive Officer and President (Len Foxman), the Chief Operating Officer and Executive Vice President (Ted Foxman), the Chief Financial Officer (Steve Hawrysz), and the Chief Technical Officer and Vice President of Technical Solutions (Jack Weimer), and other officers approved for participation in the Bonus Plan by our compensation committee. These bonus awards are conditioned upon each participant being employed by us as of September 30, 2008, and shall be paid to the participants thereafter. The Bonus Plan established an aggregate bonus pool allocable to participants based upon our year-to-date financial performance and an estimate of our Fiscal 2008 operating income. Individual bonus awards were then determined by our compensation committee based upon the attainment of Eagle Test financial performance targets, as well as individual performance goals. The bonus awards for Fiscal 2008 for

each of the Chief Executive Officer and President (Len Foxman), the Chief Operating Officer and Executive Vice President (Ted Foxman), the Chief Financial Officer (Steve Hawrysz), and the Chief Technical Officer and Vice President of Technical Solutions (Jack Weimer) are $425,000, $300,480, $102,000 and $98,000, respectively.

 

Our compensation committee determined that it would be advisable to determine and approve bonus awards for Fiscal 2008 prior to our execution of the merger agreement. The Bonus Plan provides that the performance goals will be measured at the end of the fiscal year after the preparation of our audited financial statements. However, the Bonus Plan also provides that our compensation committee may amend, alter or terminate the Bonus Plan at any time. Due to the pending merger, our compensation committee amended this provision of the Bonus Plan to permit the performance goals to be measured based upon our year-to-date financial performance and an estimate of our Fiscal 2008 operating income.

 

First Quarter Fiscal 2009 Bonus Awards

 

On August 30, 2008, our compensation committee also amended the Bonus Plan to provide that the performance goals will be measured and bonus awards will be approved at the end of the three-month period ending December 31, 2008 after the preparation of our unaudited financial statements. This amendment is subject to and conditioned upon the consummation of the merger. Teradyne’s fiscal year ends on December 31 of each year and our fiscal year ends on September 30 of each year. As a result, any participant who remains an employee of Teradyne following the consummation of the merger will not be eligible to participate in Teradyne’s bonus plan until January 1, 2009. In order to appropriately compensate such individuals for their employment during the three-month period ending December 31, 2008, our compensation committee approved this amendment to the Bonus Plan (subject to and conditioned upon the consummation of the merger).

 

The following questions and answers briefly address some commonly asked questions about the special meeting of stockholders and the merger. These questions and answers may not address all questions that may be important to you as a stockholder. You should carefully read this entire proxy statement, including each of the annexes.

 

The Special Meeting

 

 

 

The Merger

 

 

This proxy statement, and the documents to which we refer you in this proxy statement, contains forward-looking statements (as that term is defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). 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, including, without limitation:

 

 

See “Where You Can Find More Information” on page 64 of this proxy statement. You should not place undue reliance on forward-looking statements. We cannot guarantee any future results, levels of activity, performance or achievements. The statements made in this proxy statement are based on the information available to us as of the date of this proxy statement, and you should not assume that the statements made herein remain accurate as of any future date. Moreover, we assume no obligation to update forward-looking statements or update the reasons actual results could differ materially from those anticipated in forward-looking statements, except as required by law.

 

We are furnishing this proxy statement to you, as a holder of Common Stock, as part of the solicitation of proxies by our board of directors for use at the special meeting of stockholders, or at any adjournment or postponement thereof.

 

The special meeting of our stockholders will be held at our headquarters at 2200 Millbrook Drive, Buffalo Grove, Illinois 60089, on          , 2008, at   a.m., local time.

 

The purpose of the special meeting is:

 

 

Our board of directors, by the unanimous vote of all directors, approved the merger agreement and determined that the merger and the merger agreement are advisable and in the best interests of our company and our stockholders. Accordingly, our board of directors recommends that you vote “FOR” the adoption of the merger agreement at the special meeting.

 

The holders of record of shares of Common Stock as of the close of business on          , 2008, which is the record date for the special meeting, are entitled to receive notice of and to vote at the special meeting. On the record date, there were           shares of Common Stock outstanding and entitled to vote held by approximately           stockholders of record. Each share of our Common Stock entitles the holder to one vote on all matters properly coming before the special meeting or any adjournment or postponement thereof.

 

Our by-laws and Delaware law require the presence, in person or by duly executed proxy, of the holders of a majority of the voting power of outstanding shares of our Common Stock entitled to vote at the special meeting to constitute a quorum. Both abstentions and broker “non-votes” (as that term is described in the next section) will be counted as present for purposes of determining the existence of a quorum. If a quorum is not present and if the adjournment proposal has the necessary majority, we expect to adjourn the special meeting to solicit additional proxies and intend to vote any proxies we have received at the time of the special meeting in favor of an adjournment.

 

Our charter and by-laws and Delaware law require the affirmative vote of holders of a majority of the outstanding shares of our Common Stock entitled to vote at the special meeting to adopt the merger agreement. For the proposal to adopt the merger agreement, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not be counted as votes cast or shares voting on the proposal to adopt the merger agreement, but will count for the purpose of determining whether a quorum is present.

The affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the special meeting will be required to approve the adjournment, if necessary, of the special meeting to solicit additional proxies in favor of the adoption of the merger agreement. Failure to vote, in person or by proxy, will have no effect on the approval of the adjournment proposal.

 

Brokers or other nominees who hold shares of Common Stock in “street name” for customers who are the beneficial owners of such shares may not give a proxy to vote those customers’ shares in the absence of specific instructions from those customers, sometimes referred to as broker “non-votes.” These non-voted shares of Common Stock will not be counted as votes cast or shares voting and will have the same effect as votes “AGAINST” the adoption of the merger agreement. Non-voted shares of Common Stock will have no effect on the proposal to adjourn the special meeting, if necessary, to solicit additional proxies in favor of the adoption of the merger agreement.

 

On the record date, our directors and executive officers and their affiliates owned 9,220,403 shares of our Common Stock, or approximately 40.0% of our total outstanding shares. These shares include 9,070,784 shares of our Common Stock, or approximately 39.4% of our outstanding shares, that are subject to stockholders’ agreements. If the merger agreement terminates in accordance with its terms, these stockholders’ agreements will also terminate.

 

Holders of record of Common Stock may vote their shares by attending the special meeting and voting their shares of Common Stock in person, or one of the following three ways whether or not you plan to attend the special meeting: (i) by completing, signing and dating the accompanying proxy card and mailing it in the enclosed postage-prepaid envelope, (ii) by completing your proxy using the toll-free telephone number listed on the proxy card, or (iii) by completing your proxy through the Internet at the address listed on the proxy card. All shares of Common Stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the holder. If a written proxy card is signed by a stockholder and returned without instructions, the shares of Common Stock represented by the proxy will be voted “FOR” the adoption of the merger agreement, “FOR” approval of any proposal to adjourn the special meeting to solicit additional proxies in favor of the adoption of the merger agreement and in accordance with the recommendations of our board of directors on any other matters properly brought before the special meeting for a vote.

 

Stockholders who have questions or requests for assistance in completing and submitting proxy cards should contact our proxy solicitor, D.F. King & Co., Inc. at 1-800-628-8536.

 

Stockholders who hold their shares of Common Stock in “street name,” meaning in the name of a bank, broker or other person who is the record holder, must either direct the record holder of their shares of Common Stock how to vote their shares or obtain a proxy from the record holder to vote their shares at the special meeting. Brokers or other nominees may not give a proxy to vote those customers’ shares in the absence of specific instructions from those customers, commonly referred to as broker “non-votes.” You should follow the procedures provided by your broker regarding the voting of your shares. These non-voted shares of Common Stock will not be counted as votes cast or shares voting and will have the same effect as votes “AGAINST” the adoption of the merger agreement.

 

In connection with the execution of the merger agreement, the TA Funds and the Foxman Holders, who collectively beneficially own approximately 39.4% of the voting power of our Common Stock as of the record date, entered into stockholders’ agreements agreeing to vote in favor of the adoption of the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ agreements will also terminate.

 

You may change your vote at any time before the polls close at the special meeting. You can do this in one of three ways. First, you can send a written, dated notice to our Secretary at Office of the Secretary, Eagle

Test Systems, Inc., 2200 Millbrook Drive, Buffalo Grove, Illinois 60089, stating that you would like to revoke your proxy. Second, you can complete, date and submit a new proxy card with a later date. Third, you can attend the special meeting and vote in person. Your attendance alone will not revoke your proxy. If you have instructed a broker to vote your shares, you must follow directions received from your broker to change those instructions. With respect to voting your proxy by telephone or via the Internet, you can revoke your proxy by voting again and only your last action will be counted.

 

This proxy solicitation is being made and paid for by Eagle Test on behalf of its board of directors. In addition, we expect to retain D.F. King & Co., Inc. to assist in the solicitation for a fee of approximately $7,500, a nominal fee per stockholder contact, reimbursement of reasonable out-of-pocket expenses and indemnification against certain losses, costs and expenses. In addition to solicitation by mail, our directors, officers and employees may solicit proxies by personal interview, e-mail, telephone, facsimile or other means of communication. Our directors, officers and employees will not receive any additional compensation for their services, but we will reimburse them for their out-of-pocket expenses. We will reimburse banks, brokers, nominees, custodians and fiduciaries for their reasonable expenses in forwarding copies of this proxy statement to the beneficial owners of shares of Common Stock and in obtaining voting instructions from those owners. We will pay all expenses of filing, printing and mailing this proxy statement.

 

We are submitting a proposal for consideration at the special meeting to authorize the named proxies to approve one or more adjournments of the special meeting if there are not sufficient votes to adopt the merger agreement at the time of the special meeting. Even though a quorum may be present at the special meeting, it is possible that we may not have received sufficient votes to adopt the merger agreement by the time of the special meeting. In that event, we would determine to adjourn the special meeting in order to solicit additional proxies. The adjournment proposal relates only to an adjournment of the special meeting for purposes of soliciting additional proxies to obtain the requisite stockholder approval to adopt the merger agreement. Any other adjournment of the special meeting (e.g., an adjournment required because of the absence of a quorum) would be voted upon pursuant to the discretionary authority granted by the proxy.

 

The approval of a proposal to adjourn the special meeting would require the affirmative vote of the holders of a majority of the shares of Common Stock present in person or by proxy and entitled to vote at the special meeting. The failure to vote shares of Common Stock would have no effect on the approval of the adjournment proposal.

 

Our board of directors recommends that you vote “FOR” the adjournment proposal so that proxies may be used for that purpose, should it become necessary. Properly executed proxies will be voted “FOR” the adjournment proposal, unless otherwise noted on the proxies. If the special meeting is adjourned, we are not required to give notice of the time and place of the adjourned meeting unless our board of directors fixes a new record date for the special meeting.

 

We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Under our by-laws, business transacted at the special meeting is limited to matters set forth in the notice of special meeting, which is provided at the beginning of this proxy statement. If other matters do properly come before the special meeting, or at any adjournment or postponement of the special meeting, we intend that shares of Common Stock represented by properly submitted proxies will be voted by and at the discretion of the persons named as proxies on the proxy card. In addition, the grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best judgment on procedural matters incident to the conduct of the special meeting.

 

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call our proxy solicitor, D.F. King & Co., Inc., toll-free at 1-800-628-8536.

 

The reports, opinions or appraisals referenced in this proxy statement will be made available for inspection and copying at the principal executive offices of Eagle Test during our regular business hours by any interested holder of our Common Stock. In addition, our list of stockholders entitled to vote at the special meeting will be available for inspection at our principal executive offices at least 10 days before the special meeting.

 

We have regularly evaluated various strategies for improving our competitive position and increasing long-term stockholder value. As part of these evaluations, we have, from time to time, considered various strategic alternatives, including capital raising transactions, acquisitions, stock repurchases, and the potential sale of the entire Company. In addition, the Eagle Test Board of Directors (the “Eagle Board”) and management have regularly discussed our position and prospects within the semiconductor automated test equipment (“ATE”) market, reviewed our short- and long-term business strategies, monitored market trends in the industry, and evaluated the opportunities and challenges for attaining our strategic objectives and creating value for our stockholders.

 

On September 26, 2007, Leonard Foxman, our Chief Executive Officer and President, received an unsolicited phone call from Michael Bradley, the Chief Executive Officer and President of Teradyne. Mr. Bradley indicated that he wanted to discuss the two companies and their strategic directions. On October 22, 2007, Mr. Foxman met with Mr. Bradley and Mark Jagiela, the President, Semiconductor Test Division of Teradyne in Chicago, Illinois, to discuss the semiconductor ATE market and the strategic direction of Eagle Test and Teradyne. (All references to “Mr. Foxman” refer to Leonard Foxman.)

 

On November 7, 2007, the Eagle Board held a special meeting to discuss the nature and content of the meeting among Messrs. Foxman, Bradley and Jagiela. The Eagle Board encouraged management to continue discussions with Mr. Bradley and report any developments. The Eagle Board also discussed the potential benefits of initiating a stock repurchase program. The Eagle Board concluded that it would not initiate a stock repurchase program at this time, but would continue to evaluate a potential stock repurchase program in the context of its assessment of other strategic alternatives.

 

On November 21, 2007, Mr. Bradley called Mr. Foxman to arrange a meeting to discuss the strategic fit of a potential business combination, which would include a general company overview of Eagle Test. On December 6, 2007 and December 7, 2007, Mr. Foxman and Mr. Bradley exchanged emails in order to establish the topics to be included and questions to be addressed in the general company overview.

 

On December 21, 2007, Mr. Bradley, Mr. Jagiela, Gregory Beecher, the Chief Financial Officer of Teradyne, and Regan Mills, the General Manager, Consumer Business Unit of Teradyne, attended a meeting in Chicago, Illinois, at which Mr. Foxman, Theodore Foxman, our Chief Operating Officer, and Stephen Hawrysz, our Chief Financial Officer, presented a general company overview of Eagle Test comprised of publicly available information. At this meeting, Mr. Bradley indicated that Teradyne would be interested in exploring a potential acquisition of Eagle Test, but that it would not be in a position to take substantial steps until after it completed its acquisition of Nextest Systems, Inc. At this meeting, Eagle Test provided a draft confidentiality agreement to Teradyne. The parties agreed to review and discuss the terms of the confidentiality agreement. During the next three weeks, Eagle Test, Eagle Test’s legal advisor, Goodwin Procter LLP (“Goodwin Procter”), and Teradyne discussed the terms of the confidentiality agreement. The final confidentiality agreement dated January 11, 2008 was executed by Eagle Test and Teradyne on or around January 14, 2008.

 

On January 3, 2008, Mr. Foxman and Mr. Bradley talked briefly and discussed the ways in which the meeting on December 21, 2007 had been productive. On January 7, 2008, Mr. Foxman and Mr. Bradley talked briefly to plan the timing and content of future discussions, and determined that a more detailed discussion regarding Eagle Test’s technology was an appropriate next step.

 

On January 7, 2008, the Eagle Board held a special meeting at which management informed the Eagle Board that Teradyne had expressed an interest in acquiring Eagle Test. Goodwin Procter discussed the fiduciary duties of the board of directors of a Delaware company in connection with its consideration of a potential business combination. The Eagle Board and management discussed Eagle Test’s long-term strategic alternatives, which had been regularly discussed at many of the regular Eagle Board meetings. The Eagle Board encouraged management to continue discussions with Teradyne, and to obtain an indication of value

from Teradyne. The Eagle Board determined that we should engage a financial advisor to review the state of the semiconductor ATE market and advise us on strategic alternatives, including a potential sale of Eagle Test. The selection of Lehman Brothers was favored in light of Eagle Test’s prior experience with Lehman Brothers in connection with Eagle Test’s initial public offering and follow-on offering, as well as Lehman Brothers’ national reputation in mergers and acquisitions and familiarity with Eagle Test and its business. The Eagle Board authorized management to engage Lehman Brothers. Eagle Test entered into a confidentiality agreement with Lehman Brothers on January 17, 2008, and entered into an engagement letter with Lehman Brothers on January 18, 2008.

 

On January 31, 2008, the Eagle Board held a special meeting at which Lehman Brothers discussed with the Eagle Board the state of the semiconductor ATE industry and the ability of potential acquirors to consummate an acquisition of Eagle Test based upon current market, business, economic and other conditions. Eagle management also discussed the materials that would be included in the presentation to Teradyne on the following day.

 

On February 1, 2008, Messrs. Foxman and Jack Weimer, the Chief Technical Officer and Vice President of Technical Solutions of Eagle Test, met with Mr. Mills and other engineering representatives of Teradyne in Chicago, Illinois, and delivered a detailed presentation regarding Eagle Test’s technology.

 

On February 6, 2008, Lehman Brothers sent a letter to Teradyne which outlined Eagle Test’s expectations. The letter indicated that the principal objectives of the Eagle Board in considering any indication of interest would include the sale of Eagle Test in a manner that maximized the total value to the stockholders, minimized conditions to closing and minimized time to closing.

 

During February 2008, Eagle Test provided further due diligence materials to Teradyne and the parties held several discussions regarding the strategic and financial merits and potential synergies of a combined entity. Mr. Foxman also conducted several conferences with members of the Eagle Board in order to provide updates on these discussions and obtain further guidance.

 

On February 22, 2008, Eagle Test and Teradyne entered into an amendment to the confidentiality agreement for the purpose of making the confidentiality obligations mutually applicable to Eagle Test with respect to Teradyne information. On February 23, 2008, Messrs. Bradley, Jagiela and Beecher met in Chicago, Illinois with Messrs. Foxman, Ted Foxman and Hawrysz and presented Teradyne’s general company overview and strategic direction. Lehman Brothers and Goldman Sachs & Co., financial advisor to Teradyne (“Goldman Sachs”), were also present at this meeting.

 

On February 29, 2008, Goldman Sachs communicated orally to Lehman Brothers that Teradyne was preparing an indication of interest to purchase 100% of the common stock of Eagle Test at a price of $14.25 per share, with the merger consideration consisting of 30% cash and 70% Teradyne common stock. This price represented a premium of 32.3% to the February 28, 2008 closing price. After consultation with Mr. Foxman, and based upon earlier discussions with the Eagle Board, Lehman Brothers communicated orally to Goldman Sachs that an indication of interest at this valuation would not be perceived by the Eagle Board as an attractive offer. Later in the day, Mr. Foxman and Mr. Bradley discussed the potential offer, and Mr. Foxman reiterated that the Eagle Board would not find an indication of interest at such price to be attractive.

 

On March 5, 2008, the Eagle Board held a special meeting at which the Eagle Board discussed the possibility of a business combination with Teradyne. The Eagle Board concluded that it would not pursue a business combination with Teradyne at this time because the value being offered to Eagle Test stockholders by Teradyne was not attractive. Given Eagle Test’s current cash position, the Eagle Board then discussed the potential benefits of initiating a stock repurchase program. The Eagle Board asked Lehman Brothers to evaluate a potential stock repurchase program and other alternative uses of its cash.

 

On March 13, 2008, the Eagle Board held a special meeting at which Lehman Brothers led a discussion of stock repurchase programs based upon Eagle Test’s capital structure, business and market dynamics, as well as the potential impacts on trading liquidity and the number of shares available for purchase in the market. Based upon the current stock price and other strategic alternatives under consideration, the Eagle Board concluded that it would not initiate a stock repurchase program at this time.

On April 25, 2008, the Eagle Board held a regular meeting at which management and the Eagle Board continued to discuss a potential stock repurchase program and other strategic alternatives.

 

In early June 2008, Mr. Foxman and a member of the Eagle Board each had conversations with Mr. Bradley in order to establish whether or not the parties would be willing to work together to bridge the gap in the valuation of Eagle Test and further explore a business combination transaction. Lehman Brothers and Goldman Sachs also began to work again to develop a financial model of the combined company and the strategic and financial rationale for a higher valuation of Eagle Test.

 

On June 19, 2008, Messrs. Foxman, Ted Foxman and Hawrysz and a member of the Eagle Board met with Mr. Bradley and other Teradyne representatives in Boston, Massachusetts, to discuss Eagle Test’s recent financial performance, expected revenue sources, and potential synergies to be realized by the combined companies. Eagle management also indicated that the Eagle Board would be open to an indication of interest that included a combination of cash and Teradyne stock in exchange for Eagle Test stock.

 

On June 30, 2008, Eagle Test received a written indication of interest from Teradyne in which Teradyne proposed to acquire 100% of the common stock of Eagle Test at a price of $14.75 per share in cash. This price represented a premium of 30.8% to the June 27, 2008 closing price. Mr. Ted Foxman informed the Eagle Board of the indication of interest and a special meeting was called for later in the day.

 

On June 30, 2008, the Eagle Board held a special meeting to discuss the indication of interest from Teradyne. Mr. Foxman and Lehman Brothers reviewed the conversations that had taken place between Eagle Test and Teradyne, and summarized the due diligence that Teradyne had done to date. Goodwin Procter discussed the duties and obligations of the Eagle Board in connection with considering a proposed business combination. The Eagle Board discussed Eagle Test’s long-term strategic alternatives, the fact that the semiconductor ATE market was in a phase of strategic consolidation and risks associated with not participating as a buyer or seller in such phase, current and projected economic and business conditions, and the challenges and risks of management succession and continuing to operate Eagle Test as an independent entity. The Eagle Board considered Teradyne’s request for exclusive negotiation and determined that it would not be in the best interests of Eagle Test to enter into exclusivity at this time. Lehman Brothers then discussed its preliminary analysis of the indication of interest, and discussed earnings estimates, stock price performance, stock trading analysis, purchase price multiples analysis, precedent transaction analysis and premiums paid analysis. Lehman Brothers also discussed its view on other potential strategic and financial buyers.

 

On July 1, 2008, the Eagle Board held a special meeting to discuss the response to Teradyne. The Eagle Board directed management to express to Teradyne that it was interested in continuing discussions concerning a potential business combination transaction, but that Teradyne would need to reevaluate its indication of interest and improve the value offered to Eagle Test stockholders. The Eagle Board also directed management to express to Teradyne that the Eagle Board would look favorably upon an indication of interest that included a combination of cash and Teradyne stock in exchange for Eagle Test stock provided the stock component was tax deferred for Eagle Test stockholders. The Eagle Board also directed Lehman Brothers to develop a list of potential strategic and financial buyers to contact in order to solicit additional interest in a business combination.

 

On July 3, 2008, the Eagle Board held a special meeting at which management and Lehman Brothers provided an update on conversations held with Teradyne and Goldman Sachs. Lehman Brothers noted that, because of different views on expected synergies, transaction costs and other factors, Eagle Test and Teradyne were reaching different conclusions with respect to whether the transaction might be accretive or dilutive to Teradyne at prices per share above $14.75. The Eagle Board instructed management and Lehman Brothers to continue the discussions in an effort to reconcile the differences and to express to Teradyne that increased value to Eagle Test stockholders was needed to progress further. After a discussion led by Lehman Brothers regarding specific potential strategic and financial buyers, the Eagle Board asked Lehman Brothers to approach Strategic Buyer A in order to assess its interest in discussing a potential acquisition of Eagle Test.

On July 3, 2008, Lehman Brothers contacted Strategic Buyer A to assess its interest in discussing a potential acquisition of Eagle Test. Strategic Buyer A expressed interest in a possible transaction, and on July 14, 2008, Lehman Brothers delivered a draft confidentiality agreement for its review. Strategic Buyer A and Eagle Test discussed the terms and conditions of the confidentiality agreement and discussed the proposed topics for an Eagle management presentation. After failing to obtain internal authority to pursue an acquisition of Eagle Test, on July 28, 2008, Strategic Buyer A declined the opportunity to participate further in discussions.

 

During the first two weeks in July, 2008, Mr. Foxman and Mr. Bradley held additional discussions regarding Teradyne’s indication of interest and the Eagle Board’s assessment of the indication of interest. During this same time, representatives from Goldman Sachs and Lehman Brothers conducted several phone conferences to discuss their respective financial analyses regarding a combined company.

 

On July 14, 2008, the Eagle Board held a special meeting at which management and Lehman Brothers discussed progress in the discussions with Teradyne. Because Teradyne had indicated that the potential dilutive effects of a transaction was critical to the pricing of the offer, Lehman Brothers and Goldman Sachs had been working to reconcile their differing viewpoints. Lehman Brothers discussed a detailed analysis of the reconciled financial model. As a result of this analysis, the Eagle Board continued to believe that Teradyne was capable of increasing the value offered to Eagle Test stockholders. After a discussion led by from Lehman Brothers regarding specific potential strategic and financial buyers, the Eagle Board asked Lehman Brothers to approach Strategic Buyer B in order to assess its interest in discussing a potential acquisition of Eagle Test.

 

On July 16, 2008, Lehman Brothers contacted Strategic Buyer B to assess its interest in discussing a potential acquisition of Eagle Test. Strategic Buyer B declined the opportunity to participate further in discussions.

 

On July 18, 2008, Eagle Test received a revised written indication of interest from Teradyne in which Teradyne proposed to acquire 100% of the common stock of Eagle Test at a price of $14.75 per share, with the merger consideration consisting of 60% cash and 40% Teradyne common stock. This price represented a premium of 33.0% to the July 17, 2008 closing price. The indication of interest included an expiration date of July 25, 2008.

 

On July 21, 2008, Eagle management, one Eagle Board member, Lehman Brothers and Goodwin Procter conducted a preliminary discussion of the indication of interest from Teradyne. The parties discussed the tax implications of a transaction involving Teradyne common stock as merger consideration. Because of the regularly scheduled Eagle Board meeting on July 25, 2008, and the upcoming earnings announcements for both Eagle Test and Teradyne, it was determined that it would be in the best interests of Eagle Test to request an extension of the expiration date for the indication of interest until August 1, 2008.

 

On July 23, 2008, Teradyne provided a written extension of the expiration date for its indication of interest until August 1, 2008.

 

On July 25, 2008, the Eagle Board held a regular meeting at which it discussed Teradyne’s indication of interest. Lehman Brothers discussed a detailed analysis of Eagle Test’s valuation metrics, Teradyne’s valuation metrics and a pro forma merger analysis, including a discussion of earnings estimates, stock price performance, stock trading analysis, purchase price multiples analysis, precedent transaction analysis and premiums paid analysis. Lehman Brothers also updated its list of potential strategic and financial buyers. The Eagle Board carefully considered the potential advantages and disadvantages of discussing a potential transaction with other parties, including the potential disruptions to Eagle Test’s business of a long and protracted process, in particular the effect on customers and employees. The Eagle Board asked Lehman Brothers to approach Strategic Buyer C and Financial Buyers A, B, C and D in order to assess their interest in discussing a potential acquisition of Eagle Test. This strategic buyer, and the strategic buyers approached earlier, were identified by Lehman Brothers and management as being the only remaining logical strategic buyers in a consolidating industry. These financial buyers were identified by Lehman Brothers and management as being the most likely financial buyers to be interested in acquiring Eagle Test because of their prior

experience and transactions in the semiconductor ATE industry and their expected ability to finance a transaction.

 

At this meeting, Eagle management also presented the three-year strategic plan for Eagle Test, the potential for exceeding the plan, and the risks of execution in the plan. The Eagle Board continued to discuss Eagle Test’s long-term strategic alternatives, the fact that that the semiconductor ATE market was in a phase of strategic consolidation and risks associated with not participating as a buyer or seller in such phase, current and projected economic and business conditions, and the challenges and risks of management succession and continuing to operate Eagle Test as an independent entity.

 

On July 29, 2008, Lehman Brothers contacted Strategic Buyer C to assess its interest in discussing a potential acquisition of Eagle Test. Strategic Buyer C declined the opportunity to participate further in discussions.

 

On July 29, 2008, Lehman Brothers contacted Financial Buyer A to assess its interest in discussing a potential acquisition of Eagle Test. On August 1, 2008, Lehman Brothers delivered a draft confidentiality agreement for its review. After negotiation of the terms and conditions, Eagle Test and Financial Buyer A executed the confidentiality agreement on August 1, 2008. On August 8, 2008, Eagle Test discussed a general company overview to Financial Buyer A. On August 15, 2008, Financial Buyer A declined to participate further in the process.

 

On July 29, 2008, Lehman Brothers contacted Financial Buyer B to assess its interest in discussing a potential acquisition of Eagle Test. Financial Buyer B declined the opportunity to participate further in discussions.

 

On July 29, 2008, Lehman Brothers contacted Financial Buyer C to assess its interest in discussing a potential acquisition of Eagle Test. On August 1, 2008, Lehman Brothers delivered a draft confidentiality agreement for its review. After negotiation of the terms and conditions, Eagle Test and Financial Buyer C executed the confidentiality agreement on August 7, 2008. On August 8, 2008, Eagle Test discussed a general company overview to Financial Buyer C. Lehman Brothers last spoke with Financial Buyer C on August 22, 2008, and Financial Buyer C failed to pursue further discussions.

 

On July 29, 2008, Eagle Test announced its earnings results for the three months ended June 30, 2008.

 

On July 30, 2008, the Eagle Board held a special meeting in order to develop the response to Teradyne’s indication of interest from July 18, 2008. The Eagle Board directed Lehman Brothers to express to Goldman Sachs that Eagle Test continued to be interested in a potential business combination transaction with Teradyne, but that the value being offered to the Eagle Test stockholders by Teradyne continued to be insufficient. The Eagle Board also expressed a preliminary view that it strongly desired a price that approached at least $16.00 per share in value to Eagle Test stockholders.

 

On August 1, 2008, Lehman Brothers spoke with Goldman Sachs and communicated Eagle Test’s response to Teradyne’s indication of interest from July 18, 2008.

 

On August 4, 2008, Mr. Foxman spoke with Mr. Bradley and communicated Eagle Test’s response to Teradyne’s indication of interest from July 18, 2008.

 

On August 5, 2008, Lehman Brothers contacted Financial Buyer D to assess its interest in discussing a potential acquisition of Eagle Test. Financial Buyer D declined the opportunity to participate further in discussions.

 

On August 5, 2008, Eagle Test received a further revised written indication of interest from Teradyne in which Teradyne proposed to acquire 100% of the common stock of Eagle Test at a price of $15.50 per share in cash. This price represented a premium of 24.3% to the August 4, 2008 closing price. Mr. Foxman informed the Eagle Board of the indication of interest and a special meeting was called for the following day.

 

On August 6, 2008, the Eagle Board held a special meeting to discuss Teradyne’s most recent indication of interest. Lehman Brothers described its conversations with Goldman Sachs and also updated the Eagle Board on the status of discussions with each of the potential strategic and financial buyers Lehman Brothers

had contacted. The Eagle Board discussed Eagle Test’s long-term strategic alternatives, the fact that that the semiconductor ATE market was in a phase of strategic consolidation and risks associated with not participating as a buyer or seller in such phase, current and projected economic and business conditions, and the challenges and risks of management succession and continuing to operate Eagle Test as an independent entity. The Eagle Board directed management to express to Teradyne that it continued to be interested in a potential business combination transaction with Teradyne, but that the Eagle Board was more likely to be supportive of a transaction that offered $15.75 per share in value to Eagle Test stockholders.

 

On August 7, 2008, Mr. Foxman contacted Mr. Bradley to discuss the price per share being offered to Eagle Test stockholders. Each of Messrs. Foxman and Bradley agreed that they would present a price of $15.65 per share to their respective board of directors to determine if such boards would be supportive of a business combination at such price. This price represented a premium of 20.1% to the August 5, 2008 closing price.

 

On August 7, 2008, the Eagle Board held a special meeting to discuss the price of $15.65 per share. Goodwin Procter discussed the fiduciary duties of the Eagle Board in connection with considering this proposed business combination. The Eagle Board concluded that Teradyne’s revised offer was attractive when compared to the challenges and risks of continuing to operate Eagle Test as an independent entity. The Eagle Board also concluded that continued negotiations with Teradyne would not yield a higher price per share than had been obtained through the extensive process undertaken by Eagle Test. The Eagle Board authorized management to provide extensive due diligence materials to Teradyne and to provide access to members of the senior management team for due diligence purposes. The Eagle Board also authorized management to attempt to reach agreement on the terms of a merger agreement and related documents. The Eagle Board also asked Lehman Brothers to continue its efforts to obtain indications of interest from other potential strategic and financial buyers. The Eagle Board further instructed management and Lehman Brothers to carry out these processes as expeditiously as possible so that the Eagle Board could evaluate final levels of interest in an acquisition of Eagle Test and weigh the relative benefits to stockholders of moving forward with a sale of Eagle Test compared with continuing to operate the business independently.

 

On August 7, 2008, Mr. Foxman emailed Mr. Bradley and indicated that the Eagle Board was supportive of a business combination at a price of $15.65 per share, and that Teradyne should complete its due diligence as soon as possible and the parties should proceed to negotiate definitive agreements.

 

On August 8, 2008, Mr. Foxman and Mr. Bradley spoke and confirmed that each party was committed to moving forward quickly to complete the due diligence process and attempting to negotiate and execute a definitive agreement.

 

On August 11, 2008, Messrs. Foxman and Hawrysz met with Messrs. Bradley, Jagiela and Beecher in Boston, Massachusetts to discuss the status of the definitive agreement process and schedule due diligence and management presentations to be held later in the week in Chicago, Illinois.

 

On August 11, 2008, Teradyne provided a preliminary due diligence document request list and representatives of Teradyne were granted access to Eagle Test’s electronic data room for the purpose of conducting due diligence.

 

On August 12, 2008, Goodwin Procter provided Wilmer Cutler Pickering Hale and Dorr LLP, counsel to Teradyne (“WilmerHale”), with an initial draft of the merger agreement.

 

On August 13, 14 and 15, 2008, representatives of Eagle Test management met with representatives of Teradyne management for the purpose of management presentations on several areas of Eagle Test’s business and operations, including operations, customers, end-markets, applications engineering, technology and R&D, intellectual property, legal, regulatory, environmental, human resources, finance, tax and accounting.

 

During the course of August 11, 2008 through September 1, 2008, representatives of Goodwin Procter and WilmerHale discussed the terms of the merger and exchanged drafts of the merger agreement and the stockholders’ agreements. During this period, representatives of Goodwin Procter and WilmerHale discussed and negotiated various matters, including but not limited to, the scope of the representations and warranties,

the conduct of Eagle Test’s business between signing and closing of the transaction, regulatory matters (including necessary antitrust filings), the parties’ respective conditions to closing (in particular the circumstances that would or would not trigger the “material adverse effect” closing condition), Eagle Test’s ability to respond to unsolicited inquiries following the announcement of the transaction, the rights of the parties to abandon the transaction and, in such event, any applicable termination fee, the structure of the merger and treatment of stock options, and the terms of the stockholders’ agreements requested by Teradyne. During this period, the parties engaged in diligence discussions and Eagle Test continued to populate the electronic data room with diligence materials for Teradyne’s ongoing due diligence review. Also during this period, representatives of Teradyne continued to meet for due diligence purposes with members of Eagle management and Eagle Test’s independent auditors, and visited Eagle Test’s facilities. During this period, Teradyne also conducted negotiations directly with the Chief Executive Officer and President (Len Foxman), the Chief Operating Officer and Executive Vice President (Ted Foxman), and the Chief Technical Officer and Vice President of Technical Solutions (Jack Weimer), and other officers, regarding the terms and conditions of retention agreements. These retention agreements were executed by Teradyne and the employees on August 27, 2008.

 

On August 25, 2008, the Eagle Board held a special meeting at which management provided an update on the due diligence process and the management meetings and presentations, and Goodwin Procter provided an update on the general structure of the merger, the significant terms of the merger agreement and stockholders’ agreements, and the closing conditions and timing of the transaction. Lehman Brothers provided an overall status of the process to date, and informed the Eagle Board that it had contacted all of the potential strategic and financial buyers identified by Lehman Brothers earlier in the process and that, after various discussions, all other potential strategic and financial buyers had ultimately concluded that they were not going to participate further in discussions.

 

On August 25, 2008, the compensation committee of the Eagle Board also held a special meeting to discuss the treatment of stock options in the merger, fiscal 2008 bonus awards and the first quarter fiscal 2009 bonus plan.

 

On August 30, 2008, in order to ensure that the granting of bonuses would not be disrupted or impacted by the proposed merger, the compensation committee of the Eagle Board, pursuant to the terms of our 2008 Management Bonus Plan (the “Bonus Plan”), approved bonus awards for the fiscal year ending September 30, 2008 (“Fiscal 2008”), based on year to date financial performance and an estimate of Eagle Test’s Fiscal 2008 operating income, for the Chief Executive Officer and President (Len Foxman), the Chief Operating Officer and Executive Vice President (Ted Foxman), the Chief Financial Officer (Steve Hawrysz), and the Chief Technical Officer and Vice President of Technical Solutions (Jack Weimer), and other officers approved for participation in the Bonus Plan by our compensation committee. The compensation committee of the Eagle Board also amended the Bonus Plan to provide that incentive performance goals for officers will be measured and bonus awards will be approved at the end of the three-month period ending December 31, 2008 after the preparation of our unaudited financial statements for such period. See “The Merger — Interests of Our Directors and Executive Officers in the Merger,” on page 38.

 

On August 30, 2008, the Eagle Board held a special meeting to discuss the proposed business combination transaction. Eagle management, Goodwin Procter and Lehman Brothers also were present. At this meeting, the Eagle Board received a presentation from Goodwin Procter regarding the terms of the merger agreement. Lehman Brothers delivered orally to the Eagle Board and subsequently confirmed in writing, its opinion that, as of such date and subject to qualifications, limitations and assumptions set forth therein, the $15.65 per share in cash to be offered to Eagle Test stockholders was fair from a financial point of view to such holders, as more fully described below in the section entitled “Opinion of Eagle Test’s Financial Advisor,” on page 30. The Eagle Board discussed at length the advantages and risks of the proposed business combination transaction that are described in “Reasons for the Merger and Recommendation of our Board of Directors” below. Following this discussion, all of the members of the Eagle Board unanimously (i) determined that the merger and the merger agreement are advisable and in the best interests of Eagle Test and its stockholders, (ii) approved the merger agreement, (iii) resolved to recommend that the Eagle Test stockholders

adopt the merger agreement, and (iv) directed that such matter be submitted for consideration of the stockholders of Eagle Test at the special meeting.

 

On September 1, 2008, the merger agreement was executed by Eagle Test, Teradyne and the Merger Subsidiary, and all signatories to the stockholders’ agreements executed such agreements. Prior to the commencement of trading on NASDAQ on September 2, 2008, Eagle Test and Teradyne issued a joint press release announcing the merger.

 

During the course of evaluating the merger and the merger agreement, our board of directors considered a number of factors and consulted our senior management, outside legal counsel and financial advisor.

 

Our board of directors considered a number of factors supporting its decision to approve the merger and the merger agreement, including, but not limited to the following material factors:

 

 

 

 

 

In the course of its deliberations, our board of directors also considered the following material risks and other countervailing factors:

 

 

The foregoing discussion of the factors considered by our board of directors is not intended to be exhaustive, but does set forth the material factors considered by the board. In view of the wide variety of

factors considered by our board of directors in connection with its evaluation of the merger and the complexity of these matters, our board of directors did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its decision. Rather, our board of directors made its recommendation based on the totality of information presented to and the investigation conducted by it. In considering the factors discussed above, individual directors may have given different weights to different factors.

 

After evaluating these factors and consulting with outside legal counsel and its financial advisor, our board of directors has unanimously approved the merger agreement and determined that the merger and the merger agreement are advisable and in the best interests of our company and our stockholders. Our board of directors recommends that you vote “FOR” the adoption of the merger agreement and “FOR” approval of the proposal to grant the persons named as proxies discretionary authority to vote to adjourn the special meeting if deemed necessary.

 

Opinion of Lehman Brothers

 

Eagle Test engaged Lehman Brothers to act as its financial advisor with respect to the proposed sale of Eagle Test. On August 30, 2008, Lehman Brothers rendered its oral opinion (which was subsequently confirmed in writing) to Eagle Test’s board of directors that, as of such date, and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration to be offered to the stockholders of Eagle Test in the proposed merger is fair, from a financial point of view, to such stockholders.

 

The full text of Lehman Brothers’ written opinion, dated as of September 1, 2008, is attached as Annex B to this proxy statement. Lehman Brothers’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Lehman Brothers in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. The following is a summary of Lehman Brothers’ opinion and the methodology that Lehman Brothers used to render its opinion. This summary is qualified in its entirety by reference to the full text of the opinion.

 

Lehman Brothers’ opinion, the issuance of which was approved by Lehman Brothers’ Fairness Opinion Committee, is addressed to the board of directors of Eagle Test, addresses only the fairness, from a financial point of view, of the consideration to be offered to the stockholders of Eagle Test and does not constitute a recommendation to any stockholder of Eagle Test as to how such stockholder should vote with respect to the proposed merger or any other matter. The terms of the proposed transaction were determined through arm’s-length negotiations between Eagle Test and Teradyne and were unanimously approved by Eagle Test’s board of directors. Lehman Brothers did not recommend any specific form of consideration to Eagle Test or that any specific form of consideration constituted the only appropriate consideration for the proposed merger. Lehman Brothers was not requested to address, and its opinion does not in any manner address, Eagle Test’s underlying business decision to proceed with or effect the proposed merger. In addition, Lehman Brothers’ opinion does not in any manner address the amount or the nature of any compensation to any officers, directors or employees of any party to the transaction, or any class of such persons, relative to the consideration to be offered to the stockholders of Eagle Test in the proposed merger. No limitations were imposed by Eagle Test’s board of directors upon Lehman Brothers with respect to the investigations made or procedures followed by it in rendering its opinion.

 

In arriving at its opinion, Lehman Brothers, among other things:

 

 

 

In arriving at its opinion, Lehman Brothers assumed and relied upon the accuracy and completeness of the financial and other information used by Lehman Brothers without any independent verification of such information. Lehman Brothers also relied upon the assurances of the management of Eagle Test that they were not aware of any facts or circumstances that would make such information inaccurate or misleading. With respect to the financial projections of Eagle Test, upon advice of Eagle Test, Lehman Brothers assumed that such projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Eagle Test as to Eagle Test’s future financial performance and that Eagle Test would perform in accordance with such projections. Lehman Brothers assumed no responsibility for and expressed no view as to any such projections or estimates or the assumptions on which they were based. In arriving at its opinion, Lehman Brothers did not conduct a physical inspection of the properties and facilities of Eagle Test and did not make or obtain any evaluations or appraisals of the assets or liabilities of Eagle Test. Lehman Brothers’ opinion necessarily was based upon market, economic and other conditions as they existed on, and could be evaluated as of, the date of its opinion. Lehman Brothers assumed no responsibility for updating or revising its opinion based on events or circumstances that may have occurred after the date of its opinion.

 

In connection with rendering its opinion, Lehman Brothers performed certain financial, comparative and other analyses as summarized below. In arriving at its opinion, Lehman Brothers did not ascribe a specific range of values to the shares of Common Stock, but rather made its determination as to the fairness, from a financial point of view, to Eagle Test’s stockholders of the consideration offered to such stockholders in the proposed merger on the basis of various financial and comparative analyses. The preparation of a fairness opinion is a complex process and involves various determinations as to the most appropriate and relevant methods of financial and comparative analyses and the application of those methods to the particular circumstances. Therefore, such an opinion is not readily susceptible to summary description.

 

In arriving at its opinion, Lehman Brothers did not attribute any particular weight to any single analysis or factor considered by it but rather made qualitative judgments as to the significance and relevance of each analysis and factor relative to all other analyses and factors performed and considered by it and in the context of the circumstances of the particular transaction. Accordingly, Lehman Brothers believes that its analyses must be considered as a whole, as considering any portion of such analyses and factors, without considering

all analyses and factors as a whole, could create a misleading or incomplete view of the process underlying its opinion.

 

The following is a summary of the material financial analyses used by Lehman Brothers in connection with providing its opinion to Eagle Test’s board of directors. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Lehman Brothers, the tables must be read together with the text of each summary, as the tables alone do not constitute a complete description of the financial analyses. In performing its analyses, Lehman Brothers made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Eagle Test or any other parties to the proposed merger. None of Eagle Test, Teradyne, the Merger Subsidiary, Lehman Brothers or any other person assumes responsibility if future results are materially different from those discussed. Any estimates contained in these analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than as set forth therein. In addition, analyses relating to the value of businesses do not purport to be appraisals or to reflect the prices at which businesses actually may be sold.

 

Historical Share Price Analysis

 

To illustrate the trend in the historical traded prices of Common Stock, Lehman Brothers considered historical data with respect to the trading price of Common Stock for the period March 9, 2006 through August 29, 2008 and compared such data with the relative stock price performances during the same period of Teradyne, the PHLX Semiconductor Sector index, or the SOXX index, composed of 19 companies primarily involved in the design, distribution, manufacture, and sale of semiconductors; and a composite index of automatic test equipment manufacturers listed below, or the Composite Index.

 

The Composite Index consisted of:

 

 

Lehman Brothers noted that during this period, the closing stock price of Eagle Test ranged from $9.46 to $19.47 per share.

 

Lehman Brothers noted that from August 30, 2007 to August 29, 2008, the share price of Common Stock increased 19.6%, versus the SOXX Index, which decreased 28.0%, and the Composite Index, which decreased 39.0%.

 

Equity Research Analysis

 

In order to illustrate how the consideration offered to Eagle Test’s stockholders in the proposed merger compared with publicly available price targets published by various firms that publish independent research on Eagle Test (including Bank of America Corporation, Broadpoint Capital, Inc., Canaccord Adams Inc., Deutsche Bank AG and Piper Jaffray & Co.), Lehman Brothers compared the merger consideration of $15.65 per share with the published price targets by various brokerage firms of $14.00 to $16.00 per share. Lehman Brothers noted that the merger consideration of $15.65 per share was above the mean and median price target of $15.00 and above the range of published price targets discounted one year at a rate of 13.3%.

 

Selected Comparable Company Analysis

 

In order to assess how the public market values shares of publicly traded companies with similar operating characteristics as Eagle Test, Lehman Brothers reviewed and compared specific financial and

operating data relating to Eagle Test with selected companies that Lehman Brothers deemed comparable to Eagle Test. The selected comparable companies were:

 

 

Lehman Brothers calculated and compared various financial multiples and ratios of Eagle Test and the selected comparable companies. The multiples and ratios of Eagle Test, in the first instance, were based on publicly available information and Institutional Brokerage Estimate System, or IBES, estimates available as of August 29, 2008 and, in the second instance, were based on the projections prepared by Eagle Test management. The multiples and ratios of each of the other companies were based on IBES estimates available as of August 29, 2008. As part of its selected comparable company analysis, Lehman Brothers calculated and analyzed the multiples of each company’s enterprise value to 2008 and 2009 calendar year expected revenues and earnings before interest, taxes, depreciation and amortization, or EBITDA, as well as the multiples of each company’s current stock price to 2008 and 2009 calendar year expected earnings per share, or EPS. The enterprise value of each company was obtained by adding its short and long-term debt to the sum of the market value of its fully diluted common stock, the value of any preferred stock (at liquidation value), the book value of any minority interest in other equity and the value of any material debt-equivalent liabilities less any cash and cash equivalents. All of these calculations were performed, and based on available financial data and closing prices as of, August 29, 2008. The results of these analyses are summarized below:

 

 

Lehman Brothers selected the comparable companies listed above because their business and operating profiles are reasonably similar to that of Eagle Test. However, because of the inherent differences in the business, operations and prospects of Eagle Test and the selected comparable companies, Lehman Brothers believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analyses. Accordingly, Lehman Brothers also made qualitative judgments concerning differences in the business, financial and operating characteristics and prospects of Eagle Test and the selected comparable companies that could affect the public trading values of each in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk among Eagle Test and the selected comparable companies. Based upon these judgments, Lehman Brothers selected a

range of 0.90x to 1.40x calendar year 2008 estimated revenue multiples and calculated the implied prices per share of Common Stock of $10.05 to $12.88, respectively, using Eagle Test management projections, and selected a range of 0.80x to 1.20x calendar year 2009 estimated revenue multiples and calculated the implied prices per share of Eagle Test of $10.26 to $12.91, respectively, using Eagle Test management projections. Lehman Brothers selected a range of 4.5x to 7.0x calendar year 2008 estimated EBITDA multiples and calculated the implied prices per share of Common Stock of $12.04 to $15.96, respectively, using Eagle Test management projections, and selected a range of 3.5x to 5.5x calendar year 2009 estimated EBITDA multiples and calculated the implied prices per share of Eagle Test of $12.57 to $16.91, respectively, using Eagle Test management projections. Lehman Brothers selected a range of 10.0x to 17.0x calendar year 2008 estimated EPS and calculated the implied prices per share of Common Stock of $9.47 to $16.11, respectively, using Eagle Test management projections, and selected a range of 8.0x to 13.0x calendar year 2009 estimated cash EPS and calculated the implied prices per share of Eagle Test of $10.50 to $17.07, respectively, using Eagle Test management projections.

 

Lehman Brothers noted that on the basis of the selected comparable company analysis, the transaction consideration of $15.65 per share was above the range of implied values per share calculated using calendar years 2008 and 2009 estimated revenue multiples and within the range of implied values per share calculated using calendar years 2008 and 2009 estimated EBITDA multiples and calendar years 2008 and 2009 estimated EPS multiples.

 

Discounted Equity Value Analysis

 

Lehman Brothers performed a discounted equity value analysis, which is designed to provide insight into the future value of a company’s common equity as a function of the company’s future earnings and its current forward price to earnings multiples. The resulting value is subsequently discounted to arrive at a present value for the company’s stock price. In connection with this analysis, Lehman Brothers calculated a range of present equity values per share for Common Stock on a standalone basis. To calculate the discounted equity value, Lehman Brothers utilized fiscal year 2009 forecasts from Eagle Test management and Wall Street estimates and fiscal year 2010 forecasts from Eagle Test management. Lehman Brothers multiplied forecasted fiscal year 2009 and 2010 earnings per share by the range of price to earnings ratios obtained from its selected comparable company analysis to derive a range of future values per share. Lehman Brothers then discounted this range of future values per share by a discount rate of 13.3% to derive a range of present values per share. Lehman Brothers selected the discount rate based on a cost of equity analysis utilizing the Capital Asset Pricing Model.

 

The following table summarizes Lehman Brothers’ analysis:

 

 

 

Lehman Brothers noted that on the basis of the discounted equity value analysis, the transaction consideration of $15.65 per share was above the range of implied values per share calculated using, in the case of fiscal year 2009 forecasts, Wall Street and management projections, and in the case of fiscal year 2010 forecasts, management projections.

 

Selected Precedent Transactions Analysis

 

Lehman Brothers reviewed and compared the purchase prices and financial multiples paid in selected other transactions that Lehman Brothers, based on its experience with merger and acquisition transactions,

deemed relevant. Lehman Brothers chose such transactions based on, among other things, the similarity of the applicable target companies in the transactions to Eagle Test with respect to the size, mix, margins and other characteristics of their businesses. Lehman Brothers included the following transactions:

 

Selected Semiconductor Automated Test Equipment Transactions:

 

 

Selected Other Capital Equipment Transactions:

 

 

Based on publicly available information, Lehman Brothers calculated and analyzed each comparable company’s enterprise value implied in the respective transaction as multiples of the last twelve months and forward twelve months revenues, and equity value implied as multiples of the forward twelve months net income. The results of such selected precedent transaction analyses are summarized below:

 

 

The reasons for and the circumstances surrounding each of the selected precedent transactions analyzed were diverse, and there are inherent differences in the business, operations, financial conditions and prospects of Eagle Test and the companies included in the selected precedent transaction analyses. Accordingly, Lehman Brothers believed that a purely quantitative selected precedent transaction analyses would not be

particularly meaningful in the context of considering the proposed merger. Lehman Brothers therefore made qualitative judgments concerning the differences between the characteristics of the selected precedent transactions and the proposed merger which would affect the acquisition values of the selected target companies and Eagle Test.

 

Based upon these judgments, Lehman Brothers selected a range of enterprise value to last twelve months revenue multiples for the precedent transactions of 1.75x to 2.50x and calculated the implied prices per share of Eagle Test of $14.02 to $17.90, respectively, using Eagle Test management projections. Lehman Brothers selected forward twelve months revenue multiples of 1.50x to 2.25x and calculated the implied prices per share of Eagle Test of $13.60 to $17.92, respectively, using management projections. Lehman Brothers selected forward twelve months net income multiples of 15.0x to 22.0x and calculated the implied prices per share of Eagle Test of $13.99 to $20.51, respectively, using management projections. Lehman Brothers noted that the consideration of $15.65 per share offered in the proposed merger was within the range of these implied price ranges.

 

Transaction Premium Analysis

 

In order to assess the premium offered to the stockholders of Eagle Test in the proposed merger relative to premiums offered to stockholders in other transactions, Lehman Brothers reviewed the premiums paid in transactions of 92 publicly traded domestic companies valued between $100 million and $1 billion which have occurred since January 1, 2002. For each transaction, Lehman Brothers calculated the premium per share paid by the acquirer by comparing the announced transaction value per share in the transaction to the historical target company’s average closing stock price and enterprise value during selected periods leading up to the announcement of the transaction. Lehman Brothers reviewed the following financial statistics where available: (1) implied premium to closing price one-trading day prior to announcement; (2) implied premium to the 30-calendar day average closing price prior to announcement; (3) implied premium to enterprise value one-trading day prior to announcement; and (4) implied premium to the 30-calendar day average enterprise value prior to announcement.

 

This analysis indicated the following premiums paid:

 

 

The following table summarized Lehman Brothers’ analysis, based on historical share prices for Eagle Test stock as of August 29, 2008:

 

 

Lehman Brothers noted that on the basis of the transaction premium analysis, the transaction consideration of $15.65 per share was within the range of implied values per share calculated using the implied premiums to each of the 30-calendar day average closing price of target companies’ common stock prior to public announcement, the enterprise value of target companies one trading day prior to announcement and the 30-calendar day average enterprise value of target companies prior to announcement, but slightly below the range of implied values per share calculated using the implied premium to the closing price of target companies’ common stock one trading day prior to announcement.

Miscellaneous

 

Lehman Brothers is an internationally recognized investment banking firm and, as part of its investment banking activities, Lehman Brothers and its affiliates are regularly engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. Lehman Brothers was selected by Eagle Test as its financial advisor based on Lehman Brothers’ qualifications, reputation and experience in the valuation of businesses and securities in connection with mergers and acquisitions generally.

 

Lehman Brothers is acting as financial advisor to Eagle Test in connection with the proposed merger. As compensation for its services in connection with the proposed merger, Lehman Brothers is entitled to receive a fee of up to approximately $4.3 million, of which $1.0 million is payable in connection with the delivery of its fairness opinion and the remainder will be payable only upon the closing of the merger. In addition, Eagle Test has agreed to reimburse Lehman Brothers for its expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify Lehman Brothers against certain liabilities, including liabilities arising under federal securities laws. Lehman Brothers has performed various investment banking and financial services for Eagle Test in the past, and expects to perform such services in the future, and has received, and expects to receive, customary fees for such services. Specifically, in the past two years, Lehman Brothers served as joint bookrunner on Eagle Test’s $90.8 million follow-on Common Stock offering in September 2006. In the ordinary course of its businesses, Lehman Brothers and its affiliates may actively trade in the securities of Eagle Test and Teradyne for Lehman Brothers’ own account or for the accounts of customers and, accordingly, Lehman Brothers may at any time hold long or short positions in such securities.

 

On September 22, 2008, Lehman Brothers was acquired by Barclays Capital Inc. The acquisition of Lehman Brothers occurred after the delivery of Lehman Brothers’ opinion to Eagle Test and the execution of the merger agreement on September 1, 2008. Going forward, Lehman Brothers will be operating under the trade name Barclays Capital.

 

The merger is not conditioned on Teradyne’s ability to obtain financing. In the merger agreement, Teradyne made the representation and warranty that, as of the effective time, Teradyne will have a combination of cash, available lines of credit, credit facilities and committed financing to enable it to pay the aggregate merger consideration in full as well as to make all other required payments payable in connection with the transactions contemplated in the merger agreement. In connection with the foregoing, Teradyne has entered into a commitment letter (“Commitment Letter”), dated as of September 1, 2008, with Goldman Sachs Credit Partners L.P. (“GSCP”), pursuant to which GSCP committed, on the terms and conditions set forth therein, to provide Teradyne with a senior secured credit facility in an aggregate principal amount of up to $175 million. The senior secured credit facility is intended to finance a portion of the purchase price for the merger to the extent that Teradyne does not obtain alternative permanent financing. The availability of the senior secured credit facility is subject to customary conditions precedent, including the merger being consummated prior to, or substantially concurrently with, the funding of the senior secured credit facility. The commitments under the Commitment Letter will terminate upon the first to occur of (i) the closing of the merger, (ii) March 1, 2009 (to correspond with the outside date in the merger agreement), and (iii) certain other customary circumstances set forth in the commitment letter. The Commitment Letter was filed on September 3, 2008 as an exhibit to Teradyne’s Current Report on Form 8-K and is incorporated herein by reference.

 

If the merger is completed, the Common Stock will be removed from listing on the NASDAQ Global Market and deregistered under the Securities Exchange Act of 1934, as amended, and we will no longer file periodic reports with the SEC.

 

In considering the recommendation of our board of directors with respect to the merger agreement, holders of shares of Common Stock should be aware that our executive officers and directors have interests in the merger that may be different from, or in addition to, those of our stockholders generally. These interests may create potential conflicts of interest. Our board of directors was aware that these interests existed when it approved the merger and the merger agreement. The material interests are summarized below.

 

Equity-Based Awards

 

All optionholders, including our executive officers and directors, will be entitled to acceleration of (i) all of their stock options which were issued pursuant to our 2006 stock option and incentive plan and (ii) 50% of their unvested stock options which were issued pursuant to our 2003 stock option and grant plan, pursuant to the terms of the option agreements granted under the applicable plan. Pursuant to the terms of the merger agreement, all outstanding Company Options will be assumed and converted automatically at the effective time into an option to acquire shares of Teradyne’s common stock, on substantially the same terms and conditions as were applicable to the Company Option, including the vesting schedule. If any optionholder’s employment is terminated following the assumption of the Company Options by Teradyne and if such termination is (i) within 18 months of the completion of the merger and (ii) by Teradyne without “cause” or by the optionholder for “good reason”, as both are defined in the applicable option agreement granted under the 2003 stock option and grant plan, then any remaining unvested options issued to such optionholder pursuant to our 2003 stock option and grant plan shall accelerate and be considered fully vested and exercisable.

 

The following table identifies for each of our executive officers and directors the aggregate number of shares subject to his outstanding unvested Company Options that will be accelerated and become fully vested and exercisable as of the effective time of the merger, the weighted average exercise price of his Company Options that will be accelerated and become fully vested and exercisable as of the effective time of the merger and the value of such accelerated stock options based on the difference between the exercise price and the closing market price of our shares on September 16, 2008, which closing market price was $15.38 per share. In determining the value of accelerated stock options, only accelerated stock options with an exercise price lower than the closing market price of our shares on September 16, 2008 were included. The following table assumes that the closing of the merger occurs on October 31, 2008.

 

 

Severance Provisions of Employment Agreements

 

Each of Leonard A. Foxman, Theodore D. Foxman, Stephen J. Hawrysz and Jack E. Weimer are party to an employment agreement with us, which requires us to make certain payments and/or provide certain benefits to such executive officers in the event of a qualifying termination of their employment. The following

summarizes the potential payments to each executive officer under his current employment agreement, assuming the closing of the merger and the subsequent termination of such executive officer occurs. However, each of Leonard A. Foxman, Theodore D. Foxman and Jack E. Weimer entered into letter agreements with Teradyne described below under the heading “Retention Agreements” which will supersede or amend their existing employments agreements effective upon the merger. Accordingly, if the merger is consummated and any such executive officer is terminated following the merger, the payments, if any, to which such executive officer is entitled will be determined in accordance with the terms of the retention agreement such executive officer entered into with Teradyne.

 

Leonard A. Foxman.  In the case of termination by Mr. Foxman for good reason, or by us without cause, he will continue to receive salary at a rate equal to 100% of his base salary in effect on the date of termination for a period of two years from the date of such termination. Additionally, Mr. Foxman will receive group health plan benefits for two years from the date of such termination. If Mr. Foxman elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Foxman’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Foxman’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Foxman is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Foxman.

 

Theodore D. Foxman.  In the case of termination by Mr. Foxman for good reason, or by us without cause, he will continue to receive salary at a rate equal to 100% of his base salary in effect on the date of termination for a period of eighteen months from the date of such termination. Additionally, Mr. Foxman will receive group health plan benefits for eighteen months from the date of such termination. If Mr. Foxman elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Foxman’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Foxman’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Foxman is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Foxman.

 

Stephen J. Hawrysz.  In the case of termination by Mr. Hawrysz for good reason, or by us without cause, he will continue to receive salary at a rate equal to 50% of his base salary in effect on the date of termination for a period of two years from the date of such termination. Additionally, Mr. Hawrysz will receive group health plan benefits for one year from the date of such termination. If Mr. Hawrysz elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Hawrysz’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Hawrysz’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Hawrysz is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Hawrysz.

 

Jack E. Weimer.  In the case of termination by Mr. Weimer for good reason, or by us without cause, he will continue to receive salary at a rate equal to 50% of his base salary in effect on the date of termination for a period of two years from the date of such termination. Additionally, Mr. Weimer will receive group health plan benefits for one year from the date of such termination. If Mr. Weimer elects to terminate his employment without good reason, all of our obligations cease on the termination date. If Mr. Weimer’s employment terminates because of his becoming disabled, he will receive 100% of his base salary and all of his benefits under the employment agreement for the lesser of (i) six months or (ii) the remainder of his term of employment. If Mr. Weimer’s employment terminates because of his death, all our obligations terminate, except to pay earned but unpaid base salary. Finally, if Mr. Weimer is terminated for cause, we incur no further liability to him effective immediately upon a vote by our board of directors and written notice to Mr. Weimer.

Retention Agreements

 

On August 27, 2008, Teradyne entered into letter agreements with several of our employees, including Leonard A. Foxman, Theodore D. Foxman and Jack E. Weimer, which provide, among other things, for continued employment upon the closing of the merger, on the terms and conditions set forth therein. The effectiveness of each of those agreements is conditioned upon the closing of the merger and will only take effect, and supersede or amend the existing employment agreements described above, from the effective date forward. The following summarizes the significant terms of those agreements.

 

Leonard A. Foxman.  Under the terms of his letter agreement, Mr. Foxman will be employed by Teradyne as the Business Unit Manager for Teradyne’s Eagle Test Business Unit following the closing of the merger at an annual base salary of $425,000. Mr. Foxman’s employment with Teradyne will terminate on the first anniversary of the closing of the merger, or such other date as Mr. Foxman and Teradyne may mutually agree. Under the terms of the letter agreement, Mr. Foxman is eligible for a cash bonus payment upon meeting certain targets or objectives to be determined by Teradyne, with a target bonus payment of $200,000. Mr. Foxman’s letter agreement also provides for a grant of performance-based restricted stock units having a target value of $225,000 on the date of grant. The actual number of his performance-based restricted stock units will be determined by Teradyne in its sole discretion based upon targets or objectives and will be distributed shortly after the end of Teradyne’s fiscal 2009 year. The letter agreement further provides that upon the expiration of the term of Mr. Foxman’s employment, or upon termination by Teradyne without cause or by Mr. Foxman for good reason, Mr. Foxman is entitled to certain termination benefits which include two years of salary continuation at his base rate and the continuation of certain health benefits. Mr. Foxman is not entitled to these termination benefits if his employment is terminated for cause or if he resigns without good reason.

 

Theodore D. Foxman.  Under the terms of his letter agreement, Mr. Foxman will be employed by Teradyne to perform and assist in the transitioning of his duties with Eagle Test following the closing of the merger at a monthly base salary of $33,333 (which would annualize to $400,000). Mr. Foxman’s employment will terminate six months from the closing of the merger or on an earlier date as determined by Teradyne. Upon his termination and provided he is not terminated for cause, Mr. Foxman will receive a cash bonus award based on the length of his actual employment with Teradyne pro rated against the annualized sum of $300,000. In addition, Mr. Foxman will receive the termination benefits set forth in his current employment agreement with Eagle Test, except that Teradyne will pay the 18 months of continued salary in one lump-sum payment of $600,000, less applicable taxes and withholdings. The letter agreement further provides that Mr. Foxman will be paid upon his termination a special retention bonus payment of $175,000, less applicable taxes and withholding.

 

Jack E. Weimer.  Under the terms of his letter agreement, Mr. Weimer will be employed by Teradyne as the Manager of the Technical Solutions Group for Teradyne’s Eagle Test Business Unit following the closing of the merger at an annual base salary of $200,000. Under the terms of the letter agreement and starting in January 2009, Mr. Weimer will be eligible for a cash bonus payment upon meeting certain targets or objectives to be determined by Teradyne, having a target bonus payment of $100,000. The letter agreement further provides that Mr. Weimer will receive lump-sum cash payments in the amount of $100,000 on each of the first and second anniversaries of the effective date of the letter agreement, provided that he remains an employee in good standing of Teradyne on those dates. The letter agreement further provides that if, prior to the second anniversary of the closing of the merger, Mr. Weimer’s employment is terminated by Teradyne without cause or by Mr. Weimer for good reason, Mr. Weimer shall receive the termination benefits set forth in his current employment agreement with Eagle Test, with any such amounts to be reduced by the lump-sum cash payments received.

 

Mr. Weimer’s letter agreement also provides for certain equity compensation arrangements, subject to the approval of Teradyne’s board of directors or compensation committee. Teradyne has explicitly agreed to recommend these arrangements to its board of directors or compensation committee as appropriate. Mr. Weimer will receive a time-based restricted stock unit grant equal in value to $150,000, which will vest in equal annual installments over four years beginning on the first anniversary of the date of grant. Mr. Weimer also will receive a second time-based restricted stock unit grant equal in value to $150,000 which will vest on the earlier to occur of (i) the second anniversary of the grant, provided that Mr. Weimer remains an employee of Teradyne, or (ii) the termination of Mr. Weimer’s employment by Teradyne other than for cause or by Mr. Weimer for good reason. The date of grant for both restricted stock unit awards will be the first business day of the month following the date of the closing of the merger.

Fiscal 2008 Bonus Awards

 

On August 30, 2008, pursuant to the terms of our 2008 Management Bonus Plan (the “Bonus Plan”), the compensation committee of our board of directors approved bonus awards for the fiscal year ended September 30, 2008 (“Fiscal 2008”) for the Chief Executive Officer and President (Len Foxman), the Chief Operating Officer and Executive Vice President (Ted Foxman), the Chief Financial Officer (Steve Hawrysz), and the Chief Technical Officer and Vice President of Technical Solutions (Jack Weimer), and other officers approved for participation in the Bonus Plan by our compensation committee. These bonus awards are conditioned upon each participant being employed by us as of September 30, 2008, and shall be paid to the participants thereafter. The Bonus Plan established an aggregate bonus pool allocable to participants based upon our year-to-date financial performance and an estimate of our Fiscal 2008 operating income. Individual bonus awards were then determined by our compensation committee based upon the attainment of Eagle Test financial performance targets, as well as individual performance goals. The bonus awards for Fiscal 2008 for each of the Chief Executive Officer and President (Len Foxman), the Chief Operating Officer and Executive Vice President (Ted Foxman), the Chief Financial Officer (Steve Hawrysz), and the Chief Technical Officer and Vice President of Technical Solutions (Jack Weimer) are $425,000, $300,480, $102,000 and $98,000, respectively.

 

Our compensation committee determined that it would be advisable to determine and approve bonus awards for Fiscal 2008 prior to our execution of the merger agreement. The Bonus Plan provides that the performance goals will be measured at the end of the fiscal year after the preparation of our audited financial statements. However, the Bonus Plan also provides that our compensation committee may amend, alter or terminate the Bonus Plan at any time. Due to the pending merger, our compensation committee amended this provision of the Bonus Plan to permit the performance goals to be measured based upon our year-to-date financial performance and an estimate of our Fiscal 2008 operating income.

 

First Quarter Fiscal 2009 Bonus Awards

 

On August 30, 2008, our compensation committee also amended the Bonus Plan to provide that the performance goals will be measured and bonus awards will be approved at the end of the three-month period ending December 31, 2008 after the preparation of our unaudited financial statements. This amendment is subject to and conditioned upon the consummation of the merger. Teradyne’s fiscal year ends on December 31 of each year and our fiscal year ends on September 30 of each year. As a result, any participant who remains an employee of Teradyne following the consummation of the merger will not be eligible to participate in Teradyne’s bonus plan until January 1, 2009. In order to appropriately compensate such individuals for their employment during the three-month period ending December 31, 2008, our compensation committee approved this amendment to the Bonus Plan (subject to and conditioned upon the consummation of the merger).

 

Indemnification of Officers and Directors

 

The merger agreement provides for director and officer indemnification for specified time periods. We describe these provisions below under the caption “The Merger Agreement — Additional Agreements,” on page 53.

 

Benefit Arrangements with Teradyne

 

Teradyne has agreed, during the first year following the closing of the merger, to provide continuing employees compensation and benefits that are no less favorable, in the aggregate, than those currently provided by us. If and to the extent Teradyne offers continuing employees the ability to participate in Teradyne employee benefit plans (“Teradyne Plans”) rather than continuing to maintain our plans, Teradyne has agreed to give each continuing employee full credit for prior service with us or any of our subsidiaries for purposes of eligibility and vesting under any Teradyne Plan, except for purposes of qualifying for subsidized early retirement benefits or to the extent it would result in a duplication of benefits or was not credited under our plans. Teradyne also has agreed to waive any limitations on benefits under Teradyne Plans relating to pre-existing health or medical conditions if permitted by the Teradyne Plan and to the same extent such limitations were waived under our plans and to recognize under the Teradyne Plans the deductible and out-of-pocket expenses paid under our plans in the calendar year in which the merger occurs.

 

Mergers and acquisitions that may have an impact in the United States are subject to review by the Department of Justice and the Federal Trade Commission to determine whether they comply with applicable antitrust laws. Under the HSR Act, mergers and acquisitions that meet certain jurisdictional thresholds, such as the present transaction, may not be completed until the expiration of a waiting period that follows the filing of notification forms by both parties to the transaction with the Department of Justice and the Federal Trade Commission. The initial waiting period is 30 days, but this period may be shortened if the reviewing agency grants “early termination” of the waiting period, or it may be lengthened if the reviewing agency determines that an in-depth investigation is required and issues a formal request for additional information and documentary material. We and Teradyne each filed pre-merger notifications with the U.S. antitrust authorities pursuant to the HSR Act and, in accordance with the merger agreement, requested “early termination” of the waiting period which began on September 9, 2008. In addition to filing in the United States, we and Teradyne filed a joint notification with the merger control authorities in Germany on September 15, 2008. The initial waiting period in Germany is one month and it can be extended for an additional three month period.

 

It is possible that the Department of Justice or the Federal Trade Commission may seek requests for additional information or various regulatory concessions as conditions for granting approval of the merger. There can be no assurance that we will obtain the regulatory approvals necessary to complete the merger or that the granting of these approvals will not involve the imposition of conditions on completion of the merger or require changes to the terms of the merger. These conditions or changes could result in conditions to the merger not being satisfied. See “The Merger Agreement — Conditions to the Merger,” on page 54.

 

The following is a summary of material United States federal income tax consequences to our stockholders of the receipt of cash in exchange for shares of Common Stock pursuant to the merger. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable United States Treasury Regulations, judicial authority, and administrative rulings and practice, all as in effect on the date of this proxy statement. All of these authorities are subject to change, possibly on a retroactive basis. This discussion generally assumes that the shares of Common Stock are held as capital assets (generally property held for investment). This discussion does not address all aspects of United States federal income taxation that may be relevant to a particular stockholder in light of the stockholder’s personal investment circumstances, or to stockholders subject to special treatment under the United States federal income tax laws (for example, life insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, financial institutions, partnerships, United States expatriates, controlled foreign corporations, passive foreign investment companies and stockholders whose functional currency is not the U.S. dollar), our stockholders who hold shares of Common Stock as part of a hedging, “straddle,” conversion or other integrated transaction, or stockholders who acquired their shares of Common Stock through the exercise of employee stock options or other compensation arrangements. In addition, this discussion does not address any aspect of foreign, state or local, alternative minimum or estate and gift taxation that may be applicable to a stockholder.

 

No party to the merger will seek an opinion of counsel or a ruling from the Internal Revenue Service with respect to the United States federal income tax consequences discussed herein and accordingly the Internal Revenue Service may not agree with the positions described in this Proxy Statement. We urge you to consult your tax advisor to determine the particular tax consequences to you (including the application and effect of any state, local or foreign income and other tax laws) of the receipt of cash in exchange for shares of Common Stock pursuant to the merger.

 

If a partnership (or an entity or arrangement taxable as a partnership for United States federal income tax purposes) holds shares of Common Stock, the tax treatment of a partner generally will depend on the status of the partner and activities of the partnership. If you are a partner of a partnership holding Common Stock, you should consult your own tax advisor.

 

For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of Common Stock that is:

 

 

A “non-U.S. holder” is a beneficial owner (other than a partnership or other entity or arrangement taxable as a partnership for United States federal income tax purposes) of Common Stock that is not a U.S. holder.

 

U.S. Holders

 

The receipt of cash in the merger will generally be a taxable transaction to U.S. holders for United States federal income tax purposes. In general, for United States federal income tax purposes, a U.S. holder of shares of Common Stock will recognize gain or loss equal to the difference between his or her adjusted tax basis in shares of Common Stock and the amount of cash received. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction) owned by a U.S. holder. If the shares of Common Stock have been held for more than one year at the effective time of the merger, the gain or loss will be long-term capital gain or loss, subject (in the case of non-corporate U.S. holders) to tax at the

current maximum United States federal income tax rate of 15%, and will be short-term capital gain or loss if the shares have been held for one year or less. The deductibility of a capital loss recognized on the exchange is subject to limitation.

 

Under the United States federal income tax backup withholding rules, Teradyne generally is required to and will withhold 28% of all payments to which a U.S. holder or other payee is entitled in the merger, unless the U.S. holder or other payee (i) is a corporation, a non-resident alien individual, or comes within other exempt categories and demonstrates this fact or (ii) provides its correct tax identification number (social security number, in the case of an individual, or employer identification number in the case of other stockholders), certifies under penalties of perjury that the number is correct, certifies as to no loss of exemption from backup withholding and otherwise complies with the applicable requirements of the backup withholding rules. Each U.S. holder should complete, sign and return to the paying agent for the merger the substitute Form W-9 that each stockholder will receive with the letter of transmittal following completion of the merger in order to provide the information and certification necessary to avoid backup withholding, unless an applicable exception exists and is proved in a manner satisfactory to the paying agent. Backup withholding is not an additional tax. Generally, any amounts withheld under the backup withholding rules described above can be credited against a holder’s United States federal income tax liability, if any, or refunded provided that the required information is furnished to the United States Internal Revenue Service in a timely manner. You should consult your own tax advisor as to the qualifications for exemption from backup withholding and the procedures for obtaining such exemption.

 

Non-U.S. Holders

 

Any gain realized on the receipt of cash pursuant to the merger by a non-U.S. holder generally will not be subject to United States federal income tax unless:

 

 

A non-U.S. holder will be subject to information reporting and, in certain circumstances, backup withholding (currently at a rate of 28%) will apply to the cash received pursuant to the merger, unless the non-U.S. holder certifies under penalties of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the holder is a United States person as defined under the Code) or such holder otherwise establishes an exemption. To avoid backup withholding, non-U.S. holders generally must submit a signed Form W-8BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax

Withholding” or other applicable Form W-8. Backup withholding is not an additional tax. Generally, any amounts withheld under the backup withholding rules described above can be credited against a non-U.S. holder’s United States federal income tax liability, if any, or refunded provided that the required information is furnished to the United States Internal Revenue Service in a timely manner. You should consult your own tax advisor as to the qualifications for exemption from backup withholding and the procedures for obtaining such exemption.

 

The foregoing discussion of material United States federal income tax consequences is not intended to be, and should not be construed as, legal or tax advice to any holder of shares of Common Stock. We urge you to consult your tax advisor to determine the particular tax consequences to you (including the application and effect of any state, local or foreign income and other tax laws) of the receipt of cash in exchange for shares of Common Stock pursuant to the merger.

 

This section of the proxy statement describes the material provisions of the merger agreement but does not purport to describe all the provisions of the merger agreement. The following summary is qualified in its entirety by reference to the complete text of the merger agreement, which is attached as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We urge you to read the full text of the merger agreement because it is the legal document that governs the merger. The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide you with any other factual information about us. Such information can be found elsewhere in this proxy statement and in the other public filings we make with the SEC, which are available without charge at www.sec.gov.

 

Subject to the terms and conditions of the merger agreement, the Merger Subsidiary, a wholly-owned subsidiary of Teradyne, will merge with and into us, with Eagle Test continuing as the surviving corporation. As a result of the merger, we will cease to be a publicly traded company and will become a wholly-owned subsidiary of Teradyne. The merger will be effective at the date and time the certificate of merger is duly filed with the office of the Secretary of State of Delaware (or at a later time, if agreed upon by the parties and specified in the certificate of merger). The closing of the merger will occur on a date specified by us and Teradyne, which shall be no later than the fifth business day after the conditions to effect the merger set forth in the merger agreement have been satisfied or waived, or such other date as Teradyne and we may agree.

 

Upon completion of the merger, each issued and outstanding share of Common Stock, other than those owned by any of our wholly-owned subsidiaries or owned by Teradyne, the Merger Subsidiary or any other direct or indirect wholly-owned subsidiary of Teradyne, will be automatically converted into the right to receive $15.65 in cash per share, without interest and less any applicable withholding taxes, which we refer to as the merger consideration.

 

The merger agreement, after giving effect to the acceleration provisions of our stock option plans, provides that each Company Option that is outstanding immediately prior to the effective time of the merger, whether or not then vested or exercisable, will be assumed and converted automatically at the effective time into an option to acquire shares of Teradyne’s common stock, on substantially the same terms and conditions as were applicable to the Company Option (including vesting schedule). The number of shares of Teradyne’s common stock subject to each new option shall be determined by multiplying the number of shares of Common Stock subject to each Company Option by the equity award exchange ratio, rounding that result down to the nearest whole number of shares of Teradyne’s common stock. The exercise price per share of Teradyne’s common stock shall equal the per share exercise price for the shares of Common Stock otherwise purchasable pursuant to each Company Option divided by the equity award exchange ratio, rounding that result up to the nearest whole cent. The equity award exchange ratio is calculated by dividing $15.65 by the average closing price of Teradyne’s common stock on the New York Stock Exchange over the five consecutive trading days immediately preceding (but not including) the closing date. As soon as reasonably practicable following the effective time, Teradyne will deliver to each of our optionholders an appropriate notice setting forth the terms of such assumption and conversion.

 

At or prior to the effective time, Teradyne will deposit, or cause to be deposited, with a bank or trust company, which we refer to as the paying agent, an amount equal to the aggregate merger consideration. In the event such amount is insufficient to make all such payments, Teradyne will promptly deposit, or cause to be deposited, additional funds.

At the effective time of the merger, shares of Common Stock will cease to be outstanding and shall be cancelled and cease to exist. Each certificate formerly representing any of the shares of Common Stock shall represent only the right to receive the merger consideration. After the merger occurs, there will be no transfers on our stock transfer books of any shares of Common Stock.

 

As soon as reasonably practicable after the completion of the merger, Teradyne and the surviving corporation will cause the paying agent to mail to each holder of record of our certificates or book-entry shares, that immediately prior to the completion of the merger represented outstanding shares of Common Stock that were subsequently converted into the right to receive the merger consideration, a letter of transmittal and instructions on how to surrender certificates or book-entry shares in exchange for the merger consideration. The paying agent will promptly pay the merger consideration to a record holder of certificates after such holder has: (1) surrendered such certificate(s) (or affidavit of loss in lieu thereof as specified in the merger agreement) to the paying agent and (2) provided to the paying agent a properly completed and duly executed letter of transmittal and any other required documents. Interest will not be paid or accrue in respect of payments of merger consideration. You should not forward your stock certificates to the paying agent without a letter of transmittal.

 

If the paying agent is to pay some or all of the merger consideration to a person other than the record holder, that holder must properly endorse the certificate or book-entry share and must pay any transfer and other similar taxes required by such payment or satisfactorily establish that such tax either has been paid or is not required to be paid. Teradyne, Merger Subsidiary, the surviving corporation and the paying agent, as the case may be, will be entitled to deduct and withhold from the merger consideration such amounts that are required to be deducted and withheld with respect to the making of such payment under the Code, the rules and regulations promulgated thereunder or any provision of applicable law.

 

In the event that any certificate(s) have been lost, stolen or destroyed, the person claiming the certificate(s) to be lost, stolen or destroyed will be required to provide an affidavit of that fact and, if required by Teradyne, post a bond in such sum as Teradyne may reasonably direct as indemnity against any claim that may be made against Teradyne, the surviving corporation or the paying agent with respect to those certificate(s) in order to receive the merger consideration in respect of the shares of Common Stock formerly represented by those certificate(s).

 

At the effective time, all of our current directors will resign, and the directors of Merger Subsidiary will be appointed as the directors of the surviving corporation. Our officers immediately prior to the effective time shall continue as the officers of the surviving corporation, in each case until their respective successors shall have been duly elected, designated or qualified, or until their earlier death, resignation or removal in accordance with the surviving corporation’s certificate of incorporation and bylaws.

 

The merger agreement contains both representations and warranties made by us to Teradyne and the Merger Subsidiary and representations and warranties made by Teradyne and the Merger Subsidiary to us. The statements embodied in those representations and warranties were made solely for purposes of the merger agreement between Teradyne and the Merger Subsidiary, on the one hand, and us, on the other hand. Moreover, some of those representations and warranties were made as of a specified date or may have been used for the purpose of allocating risk between the parties to the merger agreement.

 

Our representations and warranties in the merger agreement include representations and warranties relating to, among other things:

 

 

 

 

The merger agreement also contains representations and warranties made by Teradyne and the Merger Subsidiary to us, including representations and warranties relating to, among other things:

 

 

The representations and warranties contained in the merger agreement will not survive the completion of the merger.

 

From September 1, 2008 through the time the merger becomes effective or, if earlier, the termination of the merger agreement, we have agreed that, except for specified exceptions as expressly provided in the merger agreement or as consented to in writing by Teradyne, we and our subsidiaries will use our respective commercially reasonable efforts to:

 

 

In addition, we have agreed that during the same period, subject to certain exceptions or as expressly provided in the merger agreement, we and our subsidiaries will not do any of the following without the prior written consent of Teradyne:

 

 

 

We have agreed to convene a meeting of our stockholders to consider and vote upon the merger agreement to be held on a date selected by us with the consultation of Teradyne no later than 30 business days after resolution of all SEC comments to our proxy statement. Subject to the non-solicitation provision of the merger agreement, our board of directors will recommend the adoption of the merger agreement by our stockholders and will not withhold, withdraw, change or publicly propose or resolve to withhold, withdraw or change in a manner adverse to Teradyne, our board of directors’ recommendation. We also have agreed to mail to our stockholders the proxy statement as promptly as practicable after resolution of all SEC comments to the proxy statement.

 

In connection with the merger, Teradyne has entered into stockholders’ agreements, each dated as of September 1, 2008, with the TA Funds and the Foxman Holders pursuant to which, among other things, the TA Funds and the Foxman Holders have agreed to vote all shares of Common Stock beneficially owned by the TA Funds and the Foxman Holders in favor of the adoption of the merger agreement, and against any alternative proposal and against any action or agreement that would delay, prevent, impede or impair the ability of Teradyne to complete the merger or our ability to consummate the merger or the transactions contemplated by the merger agreement. If the merger agreement terminates in accordance with its terms, these stockholders’ agreements will also terminate. As of the record date, the TA Funds and the Foxman Holders own beneficially and of record an aggregate of approximately 39.4% of the outstanding Common Stock.

 

We have agreed that we and our subsidiaries will cease immediately all discussions and negotiations that constitute or may reasonably be expected to lead to an alternative proposal. The merger agreement defines an “alternative proposal” to mean any inquiry, proposal or offer made by any person for:

 

 

We have also agreed that we will not, nor will we authorize or permit any of our subsidiaries and representatives to, directly or indirectly:

 

 

Notwithstanding these restrictions, at any time prior to the adoption of the merger agreement by our stockholders but only if there has not been a breach of the non-solicitation provisions, and in response to an unsolicited bona fide written alternative proposal that our board of directors has determined, in good faith, after consultation with our outside counsel and independent financial advisor, constitutes, or could reasonably be expected to lead to, a superior proposal, we may:

 

 

The merger agreement requires us to promptly advise Teradyne of any alternative proposal that we receive (or any inquiries, proposals or offers reasonably expected to lead to an alternative proposal) or any request for information or for a discussion or negotiation that would reasonably be expected to be related to an alternative proposal. We also have agreed to keep Teradyne promptly informed of any such discussions or negotiations regarding any alternative proposal and of any indication, inquiry or offer or any material developments relating thereto or material changes to the terms thereof, and to promptly send Teradyne copies of any alternative proposal as well as any related materials or correspondence. We are also obligated to contemporaneously make available to Teradyne any non-public information concerning us that we provide to any person making an alternative proposal.

 

We have also agreed that, subject to the exceptions below, our board of directors will not:

 

 

Under the circumstances described below, our board of directors may withdraw, modify or qualify its recommendation prior to the adoption of the merger agreement by our stockholders if our board of directors determines in good faith that an unsolicited bona fide written alternative proposal constitutes a superior

proposal or that the exercise of its fiduciary duties requires such change to be made. If our board of directors determines to take any of these actions, it may do so only after the third business day following receipt by Teradyne of a written notice from us advising Teradyne that our board of directors desires to change its recommendation (including the reasons for such change, the material terms and conditions of any superior proposal and the person making the superior proposal), if applicable. Teradyne is entitled to make adjustments or revisions to the terms and conditions of the merger agreement during those three business days. At the end of the third business day, our board of directors may proceed with the change of its recommendation if it determines in good faith, after taking into account any and all proposed amendments or revisions made by Teradyne and consulting with our independent financial advisor and outside legal counsel, that the alternative proposal remains a superior proposal or that the exercise of its fiduciary duties requires such action.

 

The merger agreement defines the term “superior proposal” to mean a bona fide, unsolicited alternative proposal for all or substantially all of our outstanding shares or assets that our board of directors determines in good faith, after consultation with our independent financial advisor and outside legal counsel, to be more favorable to our stockholders than the transactions contemplated by the merger agreement, taking into account all the terms and conditions of such proposal and the merger agreement (including any proposal by Teradyne to amend the terms of the merger agreement, the likelihood of consummation of a transaction and whether any financing required to consummate such alternative proposal is fully committed).

 

Subject to the terms and conditions of the merger agreement, we and Teradyne have agreed to use our reasonable best efforts to take or cause to be taken all appropriate actions, and do or cause to be done all things necessary, proper or advisable under any applicable law or otherwise to cause the fulfillment of all conditions to the merger and to consummate and make effective the merger as promptly as practicable, including obtaining from any governmental entities any consents, licenses, permits, waivers, clearances approvals, waiting period terminations, authorizations or order, giving any notices to third parties and using commercially reasonable efforts to obtain any third party consents required in connection with the transactions contemplated by the merger agreement.

 

Teradyne has agreed to honor all benefit plans and compensation arrangements and agreements in accordance with their terms as in effect immediately before the effective time of the merger, although Teradyne may amend or terminate any such plan in accordance with its terms, and to provide, for a period of 12 months following the effective time, to each of our current employees compensation and benefits that are no less favorable, in the aggregate, than the compensation and benefits provided to our employees immediately prior to the effective time. Teradyne also has agreed to acknowledge that a change in control will occur upon the closing of the merger under our stock plans and award agreements, including any employee change in control agreements.

 

The merger agreement contains additional agreements between us and Teradyne relating to, among other things:

 

 

 

Neither we nor Teradyne nor the Merger Subsidiary is required to complete the merger unless the following conditions are satisfied or waived:

 

 

Neither Teradyne nor the Merger Subsidiary is required to complete the merger unless the following conditions are satisfied or waived:

 

 

We are not required to complete the merger unless the following conditions are satisfied or waived:

 

 

A material adverse effect with respect to us means a fact, circumstance, event, effect, change, circumstance or development or effect that has a material adverse effect on (i) our and our subsidiaries’ business, assets, liabilities, capitalization, financial condition or results of operations, taken as a whole, (ii) our ability to consummate the transactions contemplated by the merger agreement, (iii) the ability of Teradyne to operate our business immediately after the closing, or (iv) the ability of Teradyne’s officers, following the closing, to certify without qualification to Teradyne’s financial statements or SEC reports as they relate to our business and operations, other than:

 

(a) events or effects relating to or resulting from:

 

 

(b) any failure to meet internal or published projections, forecasts or revenue or earning predictions for any period, in and of itself (it being understood that any cause underlying any such failure may be deemed to constitute a material adverse effect).

 

The merger agreement may be terminated by either party at any time prior to the effective time of the merger, whether before or after our stockholders have adopted the merger agreement:

 

 

Teradyne can terminate the merger agreement:

 

 

We can terminate the merger agreement:

 

 

We are required to pay Teradyne a termination fee of $11,500,000 in the event that the merger agreement is terminated because:

 

 

Under Section 262 of the DGCL, any holder of Common Stock who does not wish to accept the merger consideration may elect to exercise appraisal rights in lieu of receiving the merger consideration. A stockholder who exercises appraisal rights may petition the Delaware Court of Chancery to determine the “fair value” of his, her or its shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, and receive payment of fair value in cash, together with a fair rate of interest, if any. However, the stockholder must comply with the provisions of Section 262 of the DGCL.

 

The following discussion is a summary of the law pertaining to appraisal rights under the DGCL. The full text of Section 262 of the DGCL is attached to this proxy statement as Annex C. All references in Section 262 of the DGCL to a “stockholder” and in this summary to a “stockholder” are to the record holder of the shares of Common Stock.

 

Under Section 262 of the DGCL, when a merger is submitted for approval at a meeting of stockholders, as in the case of the merger agreement, the corporation, not less than 20 days prior to the meeting, must notify each of its stockholders entitled to appraisal rights that appraisal rights are available and include in the notice a copy of Section 262 of the DGCL. This proxy statement constitutes such notice, and the applicable statutory provisions are attached to this proxy statement as Annex C. This summary of appraisal rights is not a complete summary of the law pertaining to appraisal rights under the DGCL and is qualified in its entirety by the text of Section 262 of the DGCL attached as Annex C. Any holder of Common Stock, who wishes to exercise appraisal rights or who wishes to preserve the right to do so, should review the following discussion and Annex C carefully. Failure to comply with the procedures of Section 262 of the DGCL in a timely and proper manner will result in the loss of appraisal rights. If you lose your appraisal rights, you will be entitled to receive the merger consideration described in the merger agreement.

 

Stockholders wishing to exercise the right to seek an appraisal of their shares must do ALL of the following:

 

 

Neither voting, in person or by proxy, against, abstaining from voting on nor failing to vote on the proposal to adopt the merger agreement will constitute a written demand for appraisal as required by Section 262 of the DGCL. The written demand for appraisal must be in addition to and separate from any proxy or vote.

 

Only a holder of record of shares of Common Stock issued and outstanding immediately prior to the effective time of the merger may assert appraisal rights for the shares of stock registered in that holder’s name. A demand for appraisal must be executed by or on behalf of the stockholder of record, fully and correctly, as the stockholder’s name appears on the stock certificates. The demand must reasonably inform Eagle Test of the identity of the stockholder and that the stockholder intends to demand appraisal of his, her or its Common Stock.

 

STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS, AND WHO WISH TO EXERCISE APPRAISAL RIGHTS, SHOULD CONSULT WITH

THEIR BROKERS TO DETERMINE THE APPROPRIATE PROCEDURES FOR THE NOMINEE HOLDER TO MAKE A DEMAND FOR APPRAISAL OF THOSE SHARES. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW PROPERLY AND IN A TIMELY MANNER THE STEPS NECESSARY TO PERFECT APPRAISAL RIGHTS.

 

A stockholder who elects to exercise appraisal rights under Section 262 of the DGCL should mail or deliver a written demand to:

 

EAGLE TEST SYSTEMS, INC.

2200 Millbrook Drive

Buffalo Grove, Illinois 60089

(847) 367-8282

 

If the merger is completed, Eagle Test will give written notice of the effective time of the merger within 10 days after such effective time to each former Eagle Test stockholder who did not vote in favor of the merger agreement and who made a written demand for appraisal in accordance with Section 262 of the DGCL. Within 120 days after the effective time of the merger, but not later, either the surviving corporation or any dissenting stockholder who has complied with the requirements of Section 262 of the DGCL may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of Common Stock held by all dissenting stockholders. The surviving corporation is under no obligation to file any petition and has no intention of doing so. Stockholders who desire to have their shares appraised should initiate any petitions necessary for the perfection of their appraisal rights within the time periods and in the manner prescribed in Section 262 of the DGCL.

 

Within 120 days after the effective time of the merger, any stockholder who has complied with the provisions of Section 262 of the DGCL to that point in time may receive from the surviving corporation, upon written request, a statement setting forth the aggregate number of shares not voted in favor of the merger agreement and with respect to which Eagle Test has received demands for appraisal, and the aggregate number of holders of those shares. The surviving corporation must mail this statement to the stockholder within the later of 10 days of receipt of the request or 10 days after expiration of the period for delivery of demands for appraisal.

 

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then by obligated, within 20 days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby.

 

The Delaware Court of Chancery may require the stockholders demanding appraisal who hold certificated shares to submit their stock certificates to the court for notation of the pendency of the appraisal proceedings. If the stockholder fails to comply with the court’s direction, the court may dismiss the proceeding as to the stockholder.

 

The Delaware Court of Chancery will thereafter determine the fair value of the shares of Common Stock held by dissenting stockholders, exclusive of any element of value arising from the accomplishment or expectation of the merger, but together with the interest if any, to be paid on the amount determined to be fair value. Such interest rate shall be calculated as of effective date of the merger through the date of payment of the judgment, compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge), unless good cause is shown for the Delaware Court of Chancery to use discretion and calculate the interest rate otherwise.

In determining the fair value, the Delaware Court of Chancery will take into account all relevant factors. The Delaware Supreme Court has stated that “proof of value by any techniques or methods that are generally considered acceptable in the financial community and otherwise admissible in court” should be considered in the appraisal proceedings. In addition, Delaware courts have decided that the statutory appraisal remedy, in cases of unfair dealing, may or may not be a dissenter’s exclusive remedy. The Delaware Court of Chancery may determine the fair value to be more than, less than or equal to the consideration that the dissenting stockholder would otherwise receive under the merger agreement. If no party files a petition for appraisal in a timely manner, then stockholders will lose the right to an appraisal, and will instead receive the merger consideration described in the merger agreement.

 

The Delaware Court of Chancery will determine the costs of the appraisal proceeding and will allocate those costs to the parties as the Delaware Court of Chancery determines to be equitable under the circumstances. Upon application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal.

 

The fair value of the Common Stock as determined under Section 262 of the DGCL could be greater than, the same as, or less than the merger consideration. An opinion of an investment banking firm as to the fairness, from a financial point of view, of the consideration payable in a merger is not an opinion as to, and does not in any manner address, fair value under Section 262 of the DGCL.

 

Any stockholder who has duly demanded an appraisal in compliance with Section 262 of the DGCL may not, after the effective time of the merger, vote the shares subject to the demand for any purpose or receive any dividends or other distributions on those shares, except dividends or other distributions payable to holders of record of shares as of a record date prior to the effective time of the merger.

 

If no petition for appraisal is filed within 120 days after the effective date of the merger, or if a stockholder delivers a written withdrawal of the stockholder’s demand for appraisal and an acceptance of the merger within 60 days after the effective date of the merger, then the right of the stockholder to appraisal will cease. Any attempt to withdraw made more than 60 days after the effective time of the merger will require written approval of the surviving corporation, and no appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the Delaware Court of Chancery, and may be conditioned on such terms as the Delaware Court of Chancery deems just. If the stockholder fails to perfect, successfully withdraws or loses the appraisal right, the stockholder’s shares will be converted into the right to receive the merger consideration.

 

FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DGCL FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF APPRAISAL RIGHTS. IN THAT EVENT, YOU WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION FOR YOUR DISSENTING SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT. IN VIEW OF THE COMPLEXITY OF THE PROVISIONS OF SECTION 262 OF THE DGCL, IF YOU ARE AN EAGLE TEST STOCKHOLDER AND ARE CONSIDERING EXERCISING YOUR APPRAISAL RIGHTS UNDER THE DGCL, YOU SHOULD CONSULT YOUR OWN LEGAL ADVISOR.

 

Our Common Stock has been listed on the NASDAQ Global Market under the trading symbol “EGLT” since our initial public offering on March 8, 2006. The following table sets forth the high and low sales prices of our Common Stock, as reported by the NASDAQ Global Market, for each of the periods listed.

 

 

The following table sets forth the closing sales prices per share of Common Stock, as reported on the NASDAQ Global Market on August 29, 2008, the last full trading day before the public announcement of the proposed merger, and on          , 2008, the latest practicable date before the printing of this proxy statement:

 

 

If the merger is consummated, each share of Common Stock will be converted into the right to receive $15.65 in cash, without interest and less any applicable withholding taxes, and Common Stock will be removed from quotation on the NASDAQ Global Market and there will be no further public market for shares of Common Stock.

 

The following table sets forth certain information regarding beneficial ownership of the Common Stock as of September 16, 2008: (i) by each person who is known by Eagle Test to beneficially own more than 5% of the outstanding shares of Common Stock; (ii) by each director of Eagle Test; (iii) by each named executive officer of Eagle Test; and (iv) by all directors and executive officers of Eagle Test as a group.

 

The applicable ownership percentage is based upon 23,041,823 shares of our Common Stock outstanding as of September 16, 2008.

 

 

 

 

 

If the merger is consummated, we will not have public stockholders and there will be no public participation in any future meetings of stockholders. However, if the merger is not completed, we plan to hold our 2009 Annual Meeting of Stockholders. Proposals of stockholders of Eagle Test intended for inclusion in the proxy statement and proxy card to be furnished to all stockholders entitled to vote at the 2009 Annual Meeting of Stockholders, pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of 1934, by the SEC, must be received at our principal executive offices not later than September 19, 2008.

 

Under our by-laws, stockholders who wish to make a proposal at the 2009 Annual Meeting of Stockholders (other than one that will be included in the proxy statement) must notify Eagle Test between October 19, 2008 and November 19, 2008. If a stockholder who wishes to present a proposal fails to notify Eagle Test by September 19, 2008 and such proposal is brought before the 2009 Annual Meeting, then under the SEC’s proxy rules, the proxies solicited by management with respect to the 2009 Annual Meeting will confer discretionary voting authority with respect to the stockholder’s proposal on the persons selected by management to vote the proxies. If a stockholder makes a timely notification, the proxies may still exercise discretionary voting authority under circumstances consistent with the SEC’s proxy rules. In order to curtail controversy as to the date on which a proposal was received by us, it is suggested that proponents submit their proposals by Certified Mail, Return Receipt Requested, to Eagle Test Systems, Inc., 2200 Millbrook Drive, Buffalo Grove, Illinois 60089, Attention: Secretary.

 

We are subject to the informational requirements of the Securities Exchange Act as amended, and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, through 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 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room.

 

If you have any questions about this proxy statement, the special meeting or the merger or need assistance with the voting procedures, you should contact our proxy solicitor, D.F. King & Co., Inc. at 1-800-628-8536.

 

Board of Directors
Eagle Test Systems, Inc.

 

          , 2008

 

WHETHER OR NOT YOU ARE ABLE TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED AS SOON AS POSSIBLE. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED IN THE UNITED STATES. THIS ACTION WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON AT THE SPECIAL MEETING.

 

 

AGREEMENT AND PLAN OF MERGER
by and among
TERADYNE, INC.
(“Parent”)
TURIN ACQUISITION CORP.
(“Merger Sub”)
and
EAGLE TEST SYSTEMS, INC.
(the “Company”)
Dated as of September 1, 2008

 

TABLE OF CONTENTS

 

EXHIBITS

 

 

SCHEDULES

Schedule A Supporting Stockholder List

Company Disclosure Schedule

AGREEMENT AND PLAN OF MERGER

 

 

AGREEMENT AND PLAN OF MERGER (hereinafter referred to as this “Agreement”), dated as of September 1, 2008 by and among Teradyne, Inc., a Massachusetts corporation (“Parent”), Turin Acquisition Corp., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Merger Sub”), and Eagle Test Systems, Inc., a Delaware corporation (the “Company”).

 

RECITALS:

 

A. The Boards of Directors of Parent and the Company deem it advisable and in the best interests of each corporation and their respective stockholders that Parent acquire the Company upon the terms and subject to the conditions set forth herein.

 

B. The acquisition of the Company shall be effected through a merger (the “Merger”) of Merger Sub into the Company in accordance with the terms of this Agreement and the General Corporation Law of the State of Delaware, as amended (the “DGCL”), as a result of which the Company shall become a wholly owned subsidiary of Parent.

 

C. Concurrently with the execution and delivery of this Agreement and as a condition and inducement to Parent’s willingness to enter into this Agreement, the stockholders of the Company listed on Schedule A have entered into Stockholder Agreements, dated as of the date of this Agreement, in the form attached hereto as Exhibit A (the “Stockholder Agreements”), pursuant to which such stockholders have, among other things, agreed to give Merger Sub a proxy to vote all of the shares of capital stock of the Company that such stockholders own.

 

D. The Board of Directors of the Company (the “Company Board of Directors”) has unanimously, on the terms and subject to the conditions set forth herein: (i) determined that the Merger is in the best interests of the Company and its stockholders; (ii) approved and declared advisable this Agreement and the Merger; and (iii) determined to recommend that the Company’s stockholders adopt this Agreement.

 

F. The Board of Directors of, or authorized committee thereof, Parent and Merger Sub have, on the terms and subject to the conditions set forth herein, unanimously declared advisable this Agreement and the Merger.

 

G. Parent, Merger Sub and the Company desire to (i) make certain representations and warranties in connection with the Merger; (ii) make certain covenants and agreements in connection with the Merger; and (iii) prescribe various conditions to the Merger.

 

THE PARTIES AGREE AS FOLLOWS:

 

ARTICLE I

 

THE MERGER

 

Section 1.1  The Merger.

 

(a) Subject to the terms and conditions of this Agreement, and in accordance with the DGCL, at the Effective Time, the Company and Merger Sub shall consummate the Merger pursuant to which (i) Merger Sub shall be merged with and into the Company and the separate corporate existence of Merger Sub shall thereupon cease; (ii) the Company shall be the surviving corporation in the Merger and shall continue to be governed by the DGCL; and (iii) the separate corporate existence of the Company with all its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger. The corporation surviving the Merger is sometimes hereinafter referred to as the “Surviving Corporation”. The Merger shall have the effects set forth in Section 259 of the DGCL.

 

(b) Merger Sub and the Surviving Corporation shall take all necessary action such that: (i) the certificate of incorporation of the Surviving Corporation shall be amended so as to read in its entirety in the form set forth as Exhibit B hereto until thereafter changed or amended as provided therein or by applicable Law; and

(ii) the bylaws of the Surviving Corporation shall be amended so as to read in its entirety in the form set forth as Exhibit C until thereafter changed or amended as provided therein or by applicable Law.

 

Section 1.2  Effective Time.

 

Parent, Merger Sub and the Company shall cause an appropriate certificate of merger or other appropriate documents (the “Certificate of Merger”) to be executed and filed on the Closing Date (or on such other date as Parent and the Company may agree) with the Secretary of State of the State of Delaware in accordance with the relevant provisions of the DGCL and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at the time such Certificate of Merger have been duly filed with the Secretary of State of the State of Delaware or such date and time as is agreed upon by the parties and specified in the Certificate of Merger, such date and time hereinafter referred to as the “Effective Time”.

 

Section 1.3  Closing.

 

The closing of the Merger (the “Closing”) will take place at 10:00 a.m., Eastern time, on a date to be specified by the parties, such date to as soon as practicable and in no event later than the fifth (5th) Business Day after satisfaction or waiver of all of the conditions set forth in Article VII (other than those that by their terms cannot be satisfied until the time of the Closing but subject to the fulfillment or waiver of such conditions), at the offices of WilmerHale, 60 State Street, Boston, Massachusetts 02109, unless another date or place is agreed to in writing by the parties hereto. The date on which the Closing occurs is referred to in this Agreement as the “Closing Date”.

 

Section 1.4  Directors and Officers of the Surviving Corporation.

 

The directors of Merger Sub immediately prior to the Effective Time shall, from and after the Effective Time, be appointed as the directors of the Surviving Corporation, and the officers of the Company immediately prior to the Effective Time, from and after the Effective Time, shall continue as the officers of the Surviving Corporation, in each case until their respective successors shall have been duly elected, designated or qualified, or until their earlier death, resignation or removal in accordance with the Surviving Corporation’s certificate of incorporation and bylaws.

 

Section 1.5  Subsequent Actions.

 

If at any time after the Effective Time the Surviving Corporation shall determine, in its sole discretion, or shall be advised, that any deeds, bills of sale, instruments of conveyance, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of the Company or Merger Sub acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, then the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of either the Company or Merger Sub, all such deeds, bills of sale, instruments of conveyance, assignments and assurances and to take and do, in the name and on behalf of each of such corporations or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title or interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

 

Section 1.6  Stockholders’ Meeting.

 

(a) As promptly as practicable following the date of this Agreement (and in any event within ten (10) Business Days), the Company shall prepare and file as promptly as practicable with the Securities and Exchange Commission (the “SEC”) a proxy for a special meeting of the Company’s stockholders (the “Special Meeting”) (together with any amendments thereof or supplements thereto and any other required proxy materials, the “Proxy Statement”) relating to the Merger and this Agreement; provided, that Parent, Merger Sub and their counsel shall be given a reasonable opportunity to review the Proxy Statement before it is filed with the SEC and the Company shall give due consideration to all reasonable additions, deletions or changes suggested thereto by Parent, Merger Sub and their counsel with the intention that the Proxy Statement be in a form ready to print and mail to the stockholders of the Company as promptly as practicable following the date

of this Agreement. Parent and Merger Sub shall promptly furnish to the Company in writing all information concerning Parent and Merger Sub that may be required by applicable securities Laws or reasonably requested by the Company for inclusion in the Proxy Statement. Subject to Section 5.2(c) hereof, the Company shall include in the Proxy Statement the recommendation of the Company Board of Directors that stockholders of the Company vote in favor of the adoption of this Agreement in accordance with the DGCL (the “Company Recommendation”) and the opinion of the Company Financial Advisor referred to in Section 3.19. The Company shall use its reasonable best efforts to obtain and furnish the information required to be included by the SEC in the Proxy Statement and, after consultation with Merger Sub, respond promptly to any comments made by the SEC with respect to the Proxy Statement. The Company shall provide Parent, Merger Sub and their counsel with copies of any written comments, and shall inform them of any oral comments, that the Company or its counsel may receive from time to time from the SEC or its staff with respect to the Proxy Statement promptly after the Company’s receipt of such comments, and any written or oral responses thereto. Parent, Merger Sub and their counsel shall be given a reasonable opportunity to review any such written responses and the Company shall give due consideration to all reasonable additions, deletions or changes suggested thereto by Parent, Merger Sub and their counsel. The Company shall not mail any Proxy Statement, or any amendment or supplement thereto, to the Company’s stockholders unless it has first obtained the consent of Parent and Merger Sub to such mailing, which consent shall not be unreasonably withheld, conditioned or delayed. The Company, on the one hand, and Parent and Merger Sub, on the other hand, agree to promptly correct any information provided by it for use in the Proxy Statement if and to the extent that it shall have become false or misleading in any material respect or as otherwise required by applicable Law, and the Company further agrees to cause the Proxy Statement, as so corrected (if applicable), to be filed with the SEC and, if any such correction is made following the mailing of the Proxy Statement as provided in Section 1.6(b)(ii), mailed to holders of shares (the “Shares”) of common stock, par value $0.01 per share, of the Company (the “Common Stock”), in each case as and to the extent required by the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”) or the SEC (or its staff).

 

(b) The Company, acting through the Company Board of Directors, shall, in accordance with and subject to the requirements of applicable Law:

 

(i) (A) as promptly as practicable following the date of this Agreement set a record date for, call and give notice of the Special Meeting for the purpose of considering and taking action upon this Agreement (with the record date and meeting date set in consultation with Merger Sub, with the meeting date being no later than thirty (30) Business Days following the earliest of the date on which the SEC staff advises the Company that it has no further comments on the Proxy Statement (or that the SEC staff advises that it is not reviewing the Proxy Statement) or that the Company may commence mailing the Proxy Statement); and (B) as promptly as practicable following the date of this Agreement, convene and hold the Special Meeting;

 

(ii) cause the definitive Proxy Statement to be mailed to its stockholders; and

 

(iii) use its reasonable best efforts to: (A) solicit from its stockholders proxies in favor of the adoption of this Agreement; and (B) secure any approval of stockholders of the Company that is required by the DGCL and any other applicable Law to effect the Merger.

ARTICLE II

 

CONVERSION OF SECURITIES

 

Section 2.1  Conversion of Capital Stock.

 

At the Effective Time, by virtue of the Merger and without any action on the part of any party hereto or of the holders of any securities of the Company or common stock, par value $0.001 per share, of Merger Sub (the “Merger Sub Common Stock”):

 

(a) Merger Sub Common Stock.  Each issued and outstanding share of Merger Sub Common Stock shall be converted into and become one fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation.

 

(b) Cancellation of Treasury Stock and Parent-Owned Stock.  All Shares that are owned by the Company and any Shares owned by Parent, Merger Sub or any of their respective subsidiaries or affiliates shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.

 

(c) Conversion of Common Stock.  Each issued and outstanding Share (other than Shares to be cancelled in accordance with Section 2.1(b) and Dissenting Shares) shall be automatically converted into the right to receive $15.65 per share, payable to the holder thereof in cash, without interest (the “Merger Consideration”). From and after the Effective Time, all such Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of a certificate (each, a “Certificate” and collectively, the “Certificates”) or book-entry share (each, a “Book-Entry Share” and collectively, the “Book-Entry Shares”) representing any such Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration therefor upon the surrender of such Certificate or Book-Entry Share in accordance with Section 2.2, without interest thereon.

 

(d) Adjustment to Merger Consideration.  The Merger Consideration shall be adjusted appropriately to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Common Stock), cash dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to Common Stock occurring on or after the date hereof and prior to the Effective Time.

 

Section 2.2  Exchange of Certificates and Book Entry Shares.

 

(a) Paying Agent.  Prior to the Effective Time, Parent shall (i) designate a bank or trust company to act as the payment agent in connection with the Merger (the “Paying Agent”), which Paying Agent shall be reasonably acceptable to the Company and (ii) enter into a paying agent agreement with such Paying Agent to act as agent for the payment of the Merger Consideration. At or prior to the Effective Time, Parent shall deposit, or cause to be deposited, with the Paying Agent funds in an amount equal to the aggregate Merger Consideration (such funds, the “Exchange Fund”). Such funds shall be invested by the Paying Agent as directed by Parent, in its sole discretion, pending payment thereof by the Paying Agent to the holders of the Shares. Earnings from such investments shall be the sole and exclusive property of Parent, and no part of such earnings shall accrue to the benefit of holders of Shares. In the event the Exchange Fund shall be insufficient to make all such payments, Parent shall promptly deposit, or cause to be deposited, additional funds with the Paying Agent in an amount that is equal to the deficiency in the amount of funds required to make such payments. The Paying Agent shall make payments of the aggregate Merger Consideration out of the Exchange Fund in accordance with this Agreement. The Exchange Fund shall not be used for any other purpose.

 

(b) Exchange Procedures.  As soon as reasonably practicable after the Effective Time, Parent and Merger Sub shall cause the Paying Agent to mail to each holder of record of a Certificate(s) or Book-Entry Share(s), which immediately prior to the Effective Time represented outstanding Shares, and whose Shares were converted pursuant to Section 2.1 into the right to receive the Merger Consideration (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates or Book-Entry Shares shall pass, only upon delivery of the Certificates or Book-Entry Shares to the Paying Agent and shall be in such form and have such other provisions as Parent may reasonably specify) and (ii) instructions for effecting the surrender of the Certificates or Book-Entry Shares in exchange for payment of the Merger

Consideration. Such letter and instructions can be faxed to the holder of record upon request. Upon surrender of a Certificate or Book-Entry Shares for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, the holder of such Certificate or Book-Entry Share shall be entitled to receive in exchange therefor the Merger Consideration for each Share formerly represented by such Certificate or Book-Entry Share and the Certificate or Book-Entry Share so surrendered shall forthwith be cancelled. Such payment shall be made to the holder of record by bank check; provided, that any holder of record entitled to a payment in excess of $500,000 shall have the right to receive payment by electronic wire transfer, in which case payment shall be made net of any applicable wire transfer fees. If payment of the Merger Consideration is to be made to a Person other than the Person in whose name the surrendered Certificate or Book-Entry Share is registered, it shall be a condition precedent of payment that: (x) the Certificate or Book-Entry Share so surrendered shall be properly endorsed or shall be otherwise in proper form for transfer; and (y) the Person requesting such payment shall have paid any transfer and other similar taxes required by reason of the payment of the Merger Consideration to a Person other than the registered holder of the Certificate or Book-Entry Share surrendered or shall have established to the satisfaction of the Surviving Corporation that such tax either has been paid or is not required to be paid. Until surrendered as contemplated by this Section 2.2, each Certificate or Book-Entry Share shall be deemed at any time after the Effective Time to represent only the right to receive the Merger Consideration in cash as contemplated by this Section 2.2, without interest thereon.

 

(c) Transfer Books; No Further Ownership Rights in Shares.  At the Effective Time, the stock transfer books of the Company shall be closed and thereafter there shall be no further registration of transfers of Shares on the records of the Company. From and after the Effective Time, the holders of Certificates or Book-Entry Shares outstanding immediately prior to the Effective Time shall cease to have any rights with respect to such Shares except as otherwise provided for herein or by applicable Law. If, after the Effective Time, Certificates or Book-Entry Shares are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article II.

 

(d) Termination of Fund; No Liability.  At any time following six months after the Effective Time, the Surviving Corporation shall be entitled to require the Paying Agent to deliver to it any funds (including any interest received with respect thereto) made available to the Paying Agent and not disbursed (or for which disbursement is pending subject only to the Paying Agent’s routine administrative procedures) to holders of Certificates or Book-Entry Shares, and thereafter such holders shall be entitled to look only to the Surviving Corporation (subject to abandoned property, escheat or other similar Laws) only as general creditors thereof with respect to the Merger Consideration payable upon due surrender of their Certificates or Book-Entry Shares, without any interest thereon. Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying Agent shall be liable to any holder of a Certificate or Book-Entry Share for Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law. If any Certificate or Book-Entry Share has not been surrendered prior to two years after the Effective Time (or immediately prior to such earlier date on which the Merger Consideration in respect of such Certificate or Book-Entry Share would otherwise escheat to or become the property of any Governmental Entity), any such cash in respect of such Certificate or Book-Entry Share shall, to the extent permitted by applicable Law, become the property of the Surviving Corporation.

 

(e) Withholding Rights.  Parent, Merger Sub, the Surviving Corporation and the Paying Agent, as the case may be, shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any holder of Shares such amounts that Parent, Merger Sub, the Surviving Corporation or the Paying Agent is required to deduct and withhold with respect to the making of such payment under the Internal Revenue Code of 1986, as amended (the “Code”), the rules and regulations promulgated thereunder or any provision of applicable Law. To the extent that amounts are so withheld by Parent, Merger Sub, the Surviving Corporation or the Paying Agent, such amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Shares in respect of which such deduction and withholding was made by Parent, Merger Sub, the Surviving Corporation or the Paying Agent.

 

(f) Lost, Stolen or Destroyed Certificates.  In the event that any Certificates shall have been lost, stolen or destroyed, the Paying Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the

making of an affidavit of that fact by the holder thereof, the Merger Consideration payable in respect thereof pursuant to Section 2.1 hereof; provided, however, that Parent may, in its discretion and as a condition precedent to the payment of such Merger Consideration, require the owners of such lost, stolen or destroyed Certificates to deliver a bond in such sum as it may reasonably direct as indemnity against any claim that may be made against Parent, the Surviving Corporation or the Paying Agent with respect to the Certificates alleged to have been lost, stolen or destroyed.

 

(g) Investment of Exchange Fund.  The Paying Agent shall invest all cash held by the Paying Agent as reasonably directed by Parent; provided, however, that any investment of such cash shall be limited to (i) direct short-term obligations of, or short-term obligations fully guaranteed as to principal and interest by, the U.S. government, (ii) commercial paper obligations receiving the highest rating from either Moody’s Investor Services, Inc. or Standard & Poor’s, a division of The McGraw Hill Companies, or (iii) money market funds invested solely in any of the foregoing, or a combination thereof; and provided, further, that if the value of the cash held by the Paying Agent pursuant to this Section 2.2 is reduced below the amount necessary to pay any unpaid Merger Consideration, Parent shall immediately deposit additional funds with the Paying Agent sufficient to correct this deficiency. Any interest and other income resulting from such investments shall be the property of Parent and paid to Parent upon demand.

 

Section 2.3  Dissenting Shares.

 

(a) Notwithstanding anything in this Agreement to the contrary, Shares outstanding immediately prior to the Effective Time and held by a holder who is entitled to demand and properly demands appraisal of such Shares (“Dissenting Shares”) pursuant to, and who complies in all respects with, Section 262 of the DGCL (the “Appraisal Rights”) shall not be converted into the right to receive the Merger Consideration, but instead the holder of such Shares shall be entitled to payment of the fair value of such Dissenting Shares in accordance with the Appraisal Rights. At the Effective Time, all Dissenting Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each holder of Dissenting Shares shall cease to have any rights with respect thereto, except the right to receive the fair value of such shares in accordance with the provisions of the Appraisal Rights. Notwithstanding the foregoing, if any such holder shall fail to perfect or otherwise shall waive, withdraw or lose the right to dissent under the Appraisal Rights, then the right of such holder to be paid the fair value of such holder’s Dissenting Shares shall cease and such Dissenting Shares shall be deemed to have been converted as of the Effective Time into, and to have become exchangeable solely for, the right to receive the Merger Consideration.

 

(b) The Company shall serve prompt notice to Merger Sub of any demands received by the Company for dissenter’s rights of any Shares, and Merger Sub shall have the right to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, the Company shall not, without the prior written consent of Merger Sub, make any payment with respect to, or settle or compromise or offer to settle or compromise, any such demand, or agree to do any of the foregoing.

 

Section 2.4  Treatment of Company Options.

 

(a) At the Effective Time, each option to purchase shares of Common Stock granted under the Company Stock Plans (each, a “Company Option”) that is outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall be assumed and converted automatically at the Effective Time into an option to acquire shares of Parent Stock, on substantially the same terms and conditions as were applicable under such Company Option (including vesting schedule) except that (i) the number of shares of Parent Stock subject to each such option or right shall be determined by multiplying the number of shares of Common Stock subject to such Company Option immediately prior to the Effective Time by a fraction (the “Equity Award Exchange Ratio”), the numerator of which is the Merger Consideration and the denominator of which is the average closing price of Parent Stock on the New York Stock Exchange over the five consecutive trading days immediately preceding (but not including) the Closing Date (rounded down to the nearest whole share) and (ii) the exercise price per share of Parent Stock (rounded up to the nearest whole cent) shall equal (x) the per share exercise price for the shares of Common Stock otherwise purchasable pursuant to such Company Option immediately prior to the Effective Time divided by (y) the Equity Award Exchange Ratio. As soon as reasonably practicable following the Effective Time, Parent shall deliver to each holder of a Company Option

an appropriate notice setting forth the terms of such assumption and conversion. With respect to any Company Option that is an “incentive stock option” (within the meaning of Section 422 of the Code) immediately prior to the Effective Time, the parties hereto intend that such assumption and conversion shall, to the extent reasonably practicable, conform to the requirements of Section 424(a) of the Code.

 

(b) Parent shall take such actions as are necessary for the assumption of the Company Options pursuant to this Section 2.4, including the reservation, issuance and listing of Parent Stock as is necessary to effectuate the transactions contemplated by this Section 2.4. Parent shall prepare and file with the SEC a registration statement on Form S-8 with respect to the shares of Parent Stock subject to the assumed Company Options as soon as practicable and in no event later than the fifth (5th) Business Day following the Effective Time.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the Company’s disclosure schedule delivered to Parent immediately prior to the execution of this Agreement (the “Company Disclosure Schedule”) or as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2007, or any report filed with the SEC by the Company pursuant to the Exchange Act after the date of filing of such Form 10-K filed with the SEC on the SEC’s EDGAR system at least three Business Days prior to the date hereof (other than any information in the “Risk Factors” and “Note Regarding Forward-Looking Statements” sections of such Company SEC Documents, and other than any other forward-looking statements contained in such Company SEC Documents that are of a nature that they speculate about future developments) (the “Designated SEC Documents”), the Company represents and warrants to Parent and Merger Sub as set forth below. Each disclosure set forth in the Company Disclosure Schedule is identified by reference to, or has been grouped under a heading referring to, a specific section of this Agreement and disclosure made pursuant to any section thereof shall be deemed to be disclosed on each of the other sections of the Company Disclosure Schedule to the extent the applicability of the disclosure to such other section is readily apparent from the disclosure made.

 

Section 3.1  Organization.

 

(a) Each of the Company and its Subsidiaries is a legal entity duly organized, validly existing and in good standing under the Laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted and is qualified to do business and is in good standing (with respect to jurisdictions which recognize such concept) as a foreign corporation in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except where the failure to be so organized, validly existing, qualified or in good standing, or to have such power or authority, individually, or in the aggregate, has not had, and would not reasonably be expected to have, a Company Material Adverse Effect.

 

(b) Section 3.1(b) of the Company Disclosure Schedule sets forth a complete and correct list of each Subsidiary of the Company. Section 3.1(b) of the Company Disclosure Schedule also sets forth the jurisdiction of organization and percentage of outstanding equity interests (including partnership interests and limited liability company interests) owned by the Company or its Subsidiaries of each such Subsidiary. All equity interests (including partnership interests and limited liability company interests) of such Subsidiaries (i) are owned, of record and beneficially, by the Company or by another Subsidiary of the Company free and clear of all Liens and (ii) have been duly and validly authorized and are validly issued, fully paid and non-assessable and were not issued in violation of any preemptive or similar rights, purchase option, call or right of first refusal or similar rights. Other than the Subsidiaries of the Company set forth on Section 3.1(b) of the Company Disclosure Schedule, the Company does not own or control, directly or indirectly, a 5% or greater equity interest in any Person.

Section 3.2  Capitalization.

 

(a) The authorized capital stock of the Company consists of (i) 90,000,000 shares of Common Stock; and (ii) 10,000,000 shares of preferred stock, par value $0.01 per share (the “Preferred Stock”). As of the close of business on August 29, 2008, there were 23,039,801 shares of Common Stock issued and outstanding. Since such time and date, no additional shares of Common Stock have been issued except pursuant to exercises of Company Options pursuant to the Company Stock Plans, in each case, in accordance with their terms or as specifically described in Section 3.2(a) of the Company Disclosure Schedule. No shares of Common Stock are held in the treasury of the Company or by any Subsidiary of the Company. No shares of Preferred Stock have been designated, issued or outstanding. No shares of Common Stock are reserved for issuance other than 2,600,000 shares of Common Stock reserved for issuance pursuant to the Company Stock Plans (consisting of 1,198,247 shares subject to outstanding Company Options and 1,401,753 shares available for future grants). There are no bonds, debentures, notes or other Indebtedness having voting rights of the Company or any of its Subsidiaries (“Voting Debt”), whether issued by the Company, any of its Subsidiaries or any other Person, issued and outstanding. All of the outstanding shares of the Company’s capital stock are, and all Shares which may be issued pursuant to the exercise of outstanding Company Options will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and non-assessable and are not and will not be subject to or issued in violation of any preemptive rights.

 

(b) Section 3.2(b) of the Company Disclosure Schedule sets forth a complete and accurate list of all outstanding Company Options, indicating with respect to each such Company Option (i) the name of the holder thereof, (ii) the Company Stock Plan under which it was granted, (iii) the number of shares of Common Stock subject to such Company Option, (iv) the exercise price, (v) the date of grant, and (vi) the vesting schedule, including whether (and to what extent) the vesting will be accelerated in any way by the Merger or by termination of employment or change in position following consummation of the Merger. There are no outstanding options to purchase shares of Common Stock other than options issued pursuant to the Company Stock Plans. The Company has delivered to Parent complete and accurate copies of the Company Stock Plans and the forms of all stock option agreements evidencing Company Options.

 

(c) Except as described in this Section 3.2: (i) there are no shares of capital stock or other equity securities of the Company, or securities exchangeable into or exercisable for such equity securities, authorized, designated, issued or outstanding; (ii) there are no outstanding subscriptions, options, warrants, calls, convertible securities or other similar rights, agreements or commitments relating to the issuance of capital stock or securities exchangeable into or exercisable for shares of capital stock to which the Company or any of the Company’s Subsidiaries is a party or by which the Company or any of the Company’s Subsidiaries is bound, obligating the Company or any of the Company’s Subsidiaries to: (A) issue, transfer or sell any shares of capital stock or other equity interests of the Company or any Subsidiary of the Company, securities convertible into or exchangeable for such shares or equity interests or any Voting Debt; (B) grant, extend, accelerate the vesting of, otherwise modify or amend or enter into any such subscription, option, warrant, call, convertible securities or other similar right, agreement or arrangement; or (C) redeem or otherwise acquire any such shares of capital stock, securities exchangeable into or exercisable for shares of capital stock, or other equity interests. There are no obligations of the Company or any of the Company’s Subsidiaries to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any Person. Since March 9, 2006, the Company has not declared or paid any dividend or distribution in respect of the Common Stock, and has not issued, sold, repurchased, redeemed or otherwise acquired any Common Stock, and the Company Board of Directors has not authorized any of the foregoing. Neither the Company nor any of the Company’s Subsidiaries has any outstanding stock appreciation rights, phantom stock, performance based rights or similar rights or obligations. There are no registration rights, and there is no rights agreement, “poison pill” anti-takeover plan or other agreement or understanding to which the Company or any of the Company’s Subsidiaries is a party or by which it or they are bound with respect to any equity security of any class of the Company or any of the Company’s Subsidiaries.

 

(d) The Company’s past and current stock option grant practices (i) complied with all applicable Company Stock Plans, stock exchange rules and applicable Laws, (ii) have been fairly presented in accordance with United States generally accepted accounting principles (“GAAP”) in the Company’s financial statements,

and (iii) have resulted only in exercise prices that correspond to the fair market value on the date that the grants were actually authorized under applicable Law. As of the date of this Agreement, the Company has no ongoing internal review of any irregularities in its past or current stock option practices.

 

(e) The Company has delivered or made available to Parent a copy of the certificate or articles of incorporation and by-laws (or like organizational documents) of the Company and each of its Subsidiaries, and each such copy is true, correct and complete and each such instrument is in full force and effect.