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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JULY 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-10761
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LTX CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
MASSACHUSETTS 04-2594045
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
LTX PARK AT UNIVERSITY AVENUE, WESTWOOD, MASSACHUSETTS 02090
(Address of principal executive offices) (Zip Code)
</TABLE>
(617) 461-1000
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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None
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</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.05 Per Share
13 1/2% Convertible Subordinated Debentures Due 2011
7 1/4% Convertible Subordinated Debentures Due 2011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the common stock held by non-affiliates of
the registrant on September 30, 1994 was $110,992,241.
Number of shares outstanding of each of the issuer's classes of common
stock as of September 30, 1994:
Common Stock, Par Value $0.05 Per Share, 26,242,657 shares.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S PROXY STATEMENT IN CONNECTION WITH ITS 1994
ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III.
PORTIONS OF THE REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL
YEAR ENDING JULY 31, 1994 ARE INCORPORATED BY REFERENCE INTO PART II.
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<TABLE>
LTX CORPORATION
INDEX
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PART I
Item 1. Business.................................................................. 1
Overview................................................................. 1
Products and Markets..................................................... 1
Sales, Service and Customer Support...................................... 4
Customers................................................................ 5
Engineering and Product Development...................................... 5
Manufacturing and Supply................................................. 5
Competition.............................................................. 5
Backlog.................................................................. 6
Proprietary Rights....................................................... 6
Executive Officers of the Company........................................ 6
Environmental Affairs.................................................... 7
Item 2. Properties................................................................ 7
Item 3. Legal Proceedings......................................................... 7
Item 4. Submission of Matters to a Vote of Security Holders....................... 7
PART II
Item 5. Market Value for the Registrant's Common Stock and Related
Security Holder Matters.................................................. 8
Item 6. Selected Consolidated Financial Data...................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................ 9
Item 8. Financial Statements and Supplementary Data............................... 14
Report of Independent Public Accountants................................. 14
Consolidated Statement of Operations..................................... 15
Consolidated Balance Sheet............................................... 16
Consolidated Statement of Stockholders' Equity........................... 17
Consolidated Statement of Cash Flows..................................... 18
Notes to Consolidated Financial Statements............................... 19
Quarterly Results of Operations (unaudited).............................. 27
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................. 27
PART III
Item 10. Directors and Executive Officers of the Registrant........................ 27
Item 11. Executive Compensation.................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management............ 27
Item 13. Certain Relationships and Related Transactions............................ 27
</TABLE>
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........... 28
Financial Statements..................................................... 28
Schedules................................................................ 28
Listing of Exhibits...................................................... 28
Reports on Form 8-K...................................................... 30
Exhibits................................................................. 30
Signatures......................................................................... 31
Item 14(d). Financial Statement Schedules
Schedule V -- Property and Equipment..................................... 32
Schedule VI -- Accumulated Depreciation and Amortization of Property
and Equipment............................................................ 32
Schedule IX -- Short-Term Borrowings..................................... 33
Schedule X -- Supplementary Income Statement Information................. 33
</TABLE>
LTX(R), EZNET(R), HiPer(R) and enVision(TM) are all trademarks of
LTX Corporation.
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PART I
ITEM 1. BUSINESS
OVERVIEW
LTX Corporation (the "Company" or "LTX") designs, manufactures and markets
automatic test equipment for the semiconductor industry that is used to test
digital, linear and mixed signal (a combination of digital and linear)
integrated circuits ("ICs") and discrete semiconductor components. The Company
currently offers products in four broad categories: three lines of semiconductor
test systems and a line of test system networking products. The three lines of
test systems are: digital test systems, which test digital ICs, including
microprocessors and microcontrollers; linear/mixed signal test systems, which
test a wide range of linear and mixed signal ICs; and discrete component test
systems, which test small signal and high-power semiconductor components. The
Company also sells service and applications support for its test systems. The
semiconductors tested by the Company's test systems are widely used in the
computer, communications, automotive and consumer electronics industries. The
Company markets its products worldwide to both manufacturers and users of
digital, linear and mixed signal ICs and discrete semiconductor components.
The semiconductor industry is segmented into broad product categories,
including digital, linear, mixed signal and memory ICs and discrete components.
The testing of each semiconductor product category requires specific procedures
and capabilities, which may vary significantly. All semiconductor manufacturers
use semiconductor test equipment ("STE") in the design and manufacture of ICs.
During design, STE is used for design verification, characterization,
qualification and failure analysis of ICs. During manufacture, STE is used
during wafer probing to select usable ICs and after packaging to classify ICs by
performance characteristics and to assure conformance with quality standards. In
addition, certain large electronic equipment manufacturers employ STE for
incoming inspection and for further classification of ICs.
Advances in semiconductor technology have permitted the design and
manufacture of increasingly complex semiconductor devices. These devices provide
improved performance, lower cost and greater reliability than earlier
generations of devices. As a result, the use of semiconductors has proliferated
across many industries, particularly in applications for the computer,
communications, automotive and consumer electronics industries. In turn, the
increasing complexity and variety of ICs has created a demand for STE that is
faster, more versatile, more accurate, more productive and easier to program and
maintain.
PRODUCTS AND MARKETS
The Company offers products in four broad product categories:
- digital test systems, which include the Deltamaster and Micromaster test
systems and enVision test development software, with the Company's new
Delta 100 and Delta 50 test systems scheduled for delivery in fiscal
1995;
- linear/mixed signal test systems, which include the Synchro and Ninety;
- discrete component test systems, marketed as the iPTest product line; and
- test system networking products, marketed under the name EZNET.
All of the Company's test systems are comprised of a set of computer-controlled
instruments which send signals to a device under test and measure the responses
of that device to classify the device by performance characteristics and to
ensure conformance with quality standards.
DIGITAL PRODUCTS
The Company markets its digital test systems under the Trillium name. These
digital products are used to test digital ICs, in particular microprocessors and
microcontrollers. These digital devices are used to operate and control nearly
all electronic products. Microprocessors are found in personal computers,
engineering workstations and industrial control systems and are among the most
expensive semiconductor devices. Microcontrollers are used in automobiles, home
appliances, cellular phones and televisions. Products that
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incorporate microprocessors or microcontrollers typically include other digital
ICs that are tested to the same standards as the related microprocessor or
microcontroller.
Deltamaster and Micromaster
The Deltamaster, introduced in 1990, is a high-performance system with the
capability of testing up to 256 pins at data rates of up to 80 MHz or up to 128
pins at data rates of up to 160 MHz. The Micromaster, introduced in 1987, is a
lower-priced system that can test up to 256 pins at data rates of up to 40 MHz.
The Micromaster is device interface and software compatible with the
Deltamaster. Both test systems achieve timing accuracy of 250 pico seconds,
feature resource-per-pin architecture and are compatible for use with the
Company's HiPer pin card.
In resource-per-pin architecture, there is a complete set of the test
system's key features (timing generators, waveform formatting and pattern
memory) for each pin of the test system. The Company believes that this
architecture provides faster, simpler characterization and engineering debugging
of new ICs, better system timing accuracy and simplified interfacing to
computer-aided design systems.
Pin cards located in the test head interface the capabilities of the test
system to the device under test. In many test systems, pin card performance is
the limiting factor of overall system performance. The Company's HiPer pin card
has been designed to provide a high degree of signal fidelity, fast rise time
and constant impedance.
Prices for the Deltamaster and Micromaster lines of testers currently range
from approximately $400,000 to approximately $2,000,000, depending on the system
configuration and timing accuracy specifications. The Company intends to
continue manufacturing, marketing and servicing both of these systems, although
it expects that its Delta 100 and Delta 50 new generation of test systems,
described below, will begin to replace the Deltamaster and Micromaster when
deliveries begin in fiscal 1995.
enVision
In fiscal 1993, LTX completed the development of its new object-oriented
enVision programming software for use on all LTX digital systems. In earlier
generation software languages, programming commands made direct reference to the
hardware of the test system, which required the user to have a detailed
knowledge of the system's hardware. In contrast, this detailed knowledge is not
required when using enVision, thereby allowing the programmer to focus attention
on refining the test program for the specific IC under test. Thus, the Company
has designed enVision to be more device oriented than tester oriented.
enVision permits a user to test multiple devices at the same time. For
example, when used with a Deltamaster, enVision permits simultaneous testing of
four microprocessors with 64 pins each. This capability of enVision
significantly improves the throughput of the Company's digital test systems.
enVision has been designed to run with the Deltamaster and Micromaster test
systems and is an integral feature of the Delta 100 and Delta 50 test systems.
The current price for enVision is approximately $15,000 per workstation.
Delta 100 and Delta 50
The Company plans to deliver in fiscal 1995 two new digital test systems,
the Delta 100 and the Delta 50. The Delta 100 is specifically designed for
testing high performance CISC (complex instruction set computing) and RISC
(reduced instruction set computing) microprocessors and the ICs that make up the
chip sets that are used with them. The Delta 100 has resource-per-pin
architecture and can test up to 512 pins at data rates of up to 100 MHz. Timing
accuracy of 150 pico seconds is a significant improvement over the Deltamaster
and Micromaster test systems.
The Delta 50 is designed for the production test needs of microcontroller
and digital IC manufacturers who do not require the sophisticated performance
characteristics of the Delta 100. The Delta 50 has resource-per-pin architecture
and is capable of testing 512 pins at data rates of up to 50 MHz or 256 pins at
data rates of up to 100 MHz.
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In fiscal 1993, the Company entered into a development, manufacturing and
marketing agreement with Ando Electric Co., Ltd. ("Ando"), a Japanese STE
manufacturer and majority owned subsidiary of Nippon Electric Corporation, Ltd.,
relating to the Delta 50. The Company has developed the Delta 50 in conjunction
with Ando and has granted Ando exclusive rights to manufacture the Delta 50 in
Japan. The Company has retained exclusive rights to manufacture the Delta 50
outside of Japan. With certain exceptions in each case, Ando has the exclusive
right to sell the Delta 50 in Japan and the Company has exclusive marketing
rights for the rest of the world. In July 1994, the Company amended its
development agreement with Ando to allow for further development and
enhancements to the Delta 50 (see Note 5).
Both the Delta 100 and Delta 50 operate with the Company's enVision
software, which will enable the Company to offer these compatible high and low
end products in the same market. The Company expects the compatibility of these
systems to facilitate migration to the Delta 100 test system by Delta 50 users.
Prices for the Delta 100 will range from approximately $1,200,000 to
approximately $4,900,000, depending on the system configuration. Prices for the
Delta 50 range from approximately $500,000 to approximately $2,500,000, also
depending on the system configuration.
LINEAR/MIXED SIGNAL PRODUCTS
LTX offers two product lines for testing linear/mixed signal ICs, Synchro
and Ninety, introduced in 1990 and 1986, respectively. Linear ICs are used in
almost every electronic application. The very nature of physical occurrences,
such as sound, images, temperature, pressure, speed, acceleration, position and
rotation, consists of continuously varying information. Linear ICs are used to
amplify, filter and shape this information. Mixed signal ICs are capable of
converting the signals from linear ICs into a digital format that can be
processed by a computer. Mixed signal devices can also convert processed digital
information into a linear form to control physical phenomena or to improve sound
and images.
Linear and mixed signal ICs are widely used in automobiles, computers,
telephones and such home entertainment products as video cassette recorders,
cameras, compact disc players and video games. The complexity and density of
these ICs have increased rapidly over the past several years, particularly as
the demand for portable, battery operated products has required IC manufacturers
to integrate more functions on each chip and reduce size and power consumption.
These technological advances have resulted in increased demand for higher
performance linear/mixed signal test systems.
Synchro
The Synchro is the latest generation of the Company's linear/mixed signal
test systems. Synchro test systems are designed for high throughput testing of
linear devices and for testing of mixed signal devices that require high digital
pattern rates and high digital pin counts. The Synchro features independent
microprocessors that concurrently control both linear and digital resources at
each pin of the IC under test. This design permits the generation of test
signals and measurements on many device pins at the same time, producing faster
test times on high pin count ICs.
LTX offers a wide array of options with the Synchro to address the various
linear/mixed signal test requirements of its customers. In fiscal 1994, the
Company began delivering a new Synchro test system, the Synchro 160, to meet the
test requirements of newer disk drive and communications devices. The Synchro
160 can test up to 160 pins at data rates of up to 200 MHZ and is compatible
with other existing systems in the Synchro line. All Synchro test systems can
incorporate the HiPer pin card used on the Company's digital test systems. The
Company offers equipment, some of which is manufactured by third parties, and
software with its Synchro systems that expand the use of these systems into
other manufacturing applications, such as laser trimming and testing of
electronic sub-assemblies. Current prices of the Synchro range from
approximately $350,000 for a low pin count linear system to approximately
$2,000,000 for a high pin count mixed signal system.
Ninety
The Ninety system is an improved version of the LTX77, the Company's first
linear/mixed signal test system introduced in 1977. Although the Synchro has
largely superseded the Ninety, the Company continues
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to manufacture the Ninety for customers who are already using the Ninety or
LTX77 systems and desire to expand capacity. As with the Synchro, a wide array
of options are available. The current price range for the Ninety is from
approximately $200,000 to approximately $700,000, depending on the system
configuration.
Over the years, the Company has significantly upgraded the performance and
capabilities of the Ninety and LTX77 systems through the introduction of new
hardware and software. In fiscal 1992, the Company introduced the CP100, an
improved computer for use with the Ninety and LTX77 systems. The CP100 is
smaller and faster than the computer originally installed with these systems.
The Company currently offers the CP100 for approximately $80,000.
DISCRETE PRODUCTS
The Company's iPTest systems are used to test discrete semiconductor
components, such as diodes, small signal transistors and power transistors, as
well as arrays of these components. These discrete components are used in every
area of electronics. iPTest systems are also capable of accurately measuring the
characteristics of transient voltage suppression components, which are widely
used to protect personal computers and telecommunications products from harmful
voltage spikes or surges.
The Company expects that arrays of discrete components, such as
multi-device modules, will replace transistors in electric motor control and
will permit a wider use of semiconductors in extremely high power applications,
such as air conditioners, domestic appliances, electric locomotives and
automobiles. These arrays of discrete components are mostly constructed from
high power transistors of IGBT (insulated gate bipolar transistor) and MOSFET
technology. The Company's development programs for iPTest products are largely
focused on testing of these newer components, which the Company believes may
become the most significant market for discrete component test systems.
Prices of iPTest systems currently range from approximately $100,000 to
approximately $700,000, depending on the system configuration and testing
specifications.
NETWORKING PRODUCTS
LTX offers its EZNET hardware and software products to enable its customers
to interface LTX test systems as well as competitors' test systems with the
customer's manufacturing, engineering or management information systems. These
products enable the Company to provide its customers with a complete solution to
their test information needs. Included in the Company's EZNET product line is
its dataVision software package, which is used by customers to collect, analyze
and archive data from the testing process. EZNET systems typically range in
price from approximately $80,000 to approximately $250,000.
SALES, SERVICE AND CUSTOMER SUPPORT
The Company sells, services and supports its products primarily through its
worldwide sales and support organization. In Japan, the Company sells, services
and supports its products through its joint venture with Sumitomo Metal
Industries, Ltd. ("SMI"), except that Ando has the right to manufacture and sell
the Delta 50 to certain customers in Japan and to sell the Delta 100 to these
customers. The Company shares with its joint venture with SMI specified portions
of the royalties paid by Ando on the Delta 50 and of the revenues received on
the Delta 100. The Company uses a small number of independent sales
representatives in certain other regions of the world.
The Company considers service and support to be important to the success of
its business because of the highly technical nature of its products. Customer
support activities include installation, training, field service and
applications assistance. At July 31, 1994, the Company maintained 22 customer
support centers and three additional sales offices around the world. The
Company's support personnel are capable of performing all necessary maintenance
of test systems sold by the Company, including routine servicing of components
manufactured by third parties.
The Company is subject to the usual risks of international trade, including
unfavorable economic conditions, political instability, restrictive trade
policies, controls on funds transfers and foreign currency
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fluctuations. Most of the Company's export sales have been made in United States
dollars or dollar equivalents. For the fiscal years 1994, 1993 and 1992 export
sales made either directly from the United States or through foreign
subsidiaries and the joint venture accounted for 61%, 47% and 43%, respectively,
of net sales. Profit margins on export sales are approximately the same as on
domestic sales. For information about the Company's foreign operations and
export sales, see Note 10 of Notes to the Company's Consolidated Financial
Statements.
The Company provides a one-year parts and three-month labor warranty on
test systems or options designed and manufactured by the Company, and a
three-month labor warranty on components that have been purchased from other
manufacturers and incorporated into the Company's test systems. Customers who
desire longer term warranties may enter into maintenance contracts with LTX.
CUSTOMERS
The Company's customers include many of the world's leading semiconductor
manufacturers. The Company's major customers in fiscal 1994 include:
AT&T Philips
Hitachi Samsung
Intel SGS-Thomson
Motorola Silicon Systems
National Semiconductor Sony
Sales to these major customers accounted for approximately 58% of net sales
in fiscal 1994. No single customer accounted for 10% or more of net sales in
fiscal 1994. Sales to Intel accounted for approximately 16% and 22% of net sales
in fiscal 1993 and 1992, respectively. Sales to National Semiconductor accounted
for 10% of net sales in fiscal 1992.
ENGINEERING AND PRODUCT DEVELOPMENT
The market for STE is characterized by rapid technological change. The
Company believes that the timely introduction of new products and improvements
to existing products are essential for the Company to maintain its competitive
position. Accordingly, the Company devotes a significant portion of its
personnel and financial resources to engineering and product development
programs and seeks to maintain close relationships with its customers in order
to be responsive to their product needs. The Company's expenditures for
engineering and product development were $19,604,000, $19,744,000 and
$21,943,000 during fiscal year 1994, 1993 and 1992, respectively.
MANUFACTURING AND SUPPLY
LTX's principal manufacturing operations consist of component parts
assembly, final assembly and testing at its manufacturing facilities in
Westwood, Massachusetts and San Jose, California. The Company uses standard
components and prefabricated parts manufactured to the Company's specifications.
Most of the components for the Company's products are available from a number of
different suppliers; however, certain components are purchased from a single
supplier. Although LTX believes that all single-source components currently are
available in adequate amounts, there can be no assurance that shortages will not
develop in the future. Any disruption or termination of supply of certain
single-source components could have an adverse effect on the Company's business
and results of operations.
COMPETITION
The STE industry is highly competitive, with many other domestic and
foreign companies participating in the markets for each of the Company's
products. The Company's major competitors in the market for digital test systems
are Advantest Corporation (an affiliate of Fujitsu Limited), Schlumberger
Limited and Teradyne, Inc. The Company's principal competitor for linear/mixed
signal test systems is Teradyne, Inc. The Company's principal competitor for
discrete component test systems is Tesec, Ltd. Most of the Company's
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major competitors are also suppliers of other types of automatic test equipment
and have significantly greater financial and other resources than the Company.
The Company principally competes on the basis of performance, reliability,
customer service, applications support, price and ability to deliver its
products on a timely basis. Although the Company believes that it competes
favorably with respect to each of these factors, new product introductions by
the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. In addition, increased
competitive pressure could lead to intensified price-based competition,
resulting in lower prices and adversely affecting the Company's business and
results of operations.
BACKLOG
At July 31, 1994, the Company's backlog of unfilled orders for all products
and services was $71.8 million, compared with $42.2 million at July 31, 1993.
The Company expects to ship 90% of its July 31, 1994 backlog in fiscal 1995.
While backlog is calculated on the basis of firm orders, no assurance can be
given that customers will purchase the equipment subject to such orders. As a
result, the Company's backlog at a particular date is not necessarily indicative
of actual sales for any succeeding period.
PROPRIETARY RIGHTS
The development of the Company's products is largely based on proprietary
information. The Company relies upon a combination of contract provisions,
copyright, trademark and trade secret laws to protect its proprietary rights in
products. It also has a policy of seeking patents on technology considered of
particular strategic importance. Although the Company believes that the
copyrights, trademarks and patents it owns are of value, the Company believes
that they will not determine the Company's success, which depends principally
upon its engineering, manufacturing, marketing and service skills. However, the
Company intends to protect its rights when, in its view, these rights are
infringed upon.
EXECUTIVE OFFICERS OF THE COMPANY
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The Executive Officers of the Company are as follows:
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EXECUTIVE OFFICER AGE POSITION
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Roger W. Blethen......................... 43 President and Director
Martin S. Francis........................ 48 President and Director
John J. Arcari........................... 49 Chief Financial Officer and Treasurer
Kenneth E. Daub.......................... 58 Senior Vice President
</TABLE>
Executive officers are chosen by and serve at the discretion of the Board
of Directors of the Company.
Roger W. Blethen was elected a President of the Company in February 1994.
Mr. Blethen has been a Director since 1980 and had been a Senior Vice President
of the Company from 1985 until February 1994. Mr. Blethen was a founder of LTX
and has served in a number of senior management positions with the Company since
its formation in 1976.
Martin S. Francis was elected a President of the Company in February 1994.
Mr. Francis has been a Director since 1991 and had been responsible for
International Sales and Support Activities of the Company from 1989 until 1991,
as a Vice President, and from 1991 until 1994, as a Senior Vice President. Prior
to 1989, Mr. Francis had held senior management positions in the Company's
European and Japanese operations from the time that he joined LTX in 1982.
John J. Arcari has been Chief Financial Officer and Treasurer of the
Company since 1987. He had been Controller of LTX since joining the Company in
1981. Prior to joining LTX, Mr. Arcari spent ten years with the public
accounting firm of Price Waterhouse as a certified public accountant.
Kenneth E. Daub was appointed a Senior Vice President of the Company in
1991 and is responsible for North American and Pacific Rim sales. From the time
he joined the Company in 1987 until 1991, Mr. Daub
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served as Vice President responsible for North American sales. Prior to joining
the Company in 1987, Mr. Daub held various senior positions with Schlumberger
Limited.
At July 31, 1994, the Company had a total of 880 employees, including 219
in engineering and product development, 180 in service and customer support, 293
in manufacturing, and 188 in sales, marketing and administration. Many of the
Company's employees are highly skilled, and the Company believes its future
success will depend in large part on its ability to attract and retain such
employees. None of the Company's employees are represented by a labor union, and
the Company has experienced no work stoppages. The Company believes that its
employee relations are excellent.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing facilities are subject to numerous laws and
regulations designed to protect the environment. The Company does not anticipate
that compliance with these laws and regulations will have a material effect on
its capital expenditures, earnings or competitive position.
ITEM 2. PROPERTIES
All of the Company's facilities are leased. The Company maintains its
headquarters in Westwood, Massachusetts, where corporate administration, sales
and customer support and manufacturing and engineering for its linear/mixed
signal products are located in two buildings that total 375,000 square feet. The
leases of these two buildings expire in 2007 and 2010. Manufacturing and
engineering for the Company's digital products are located in a 70,000 square
foot facility in San Jose, California. The lease of this facility expires in
1999. The Company also leases seven sales and customer support offices at
various locations in the United States totaling approximately 70,000 square
feet. The Company is consolidating its facilities and is actively seeking to
sub-lease a 208,000 square foot facility in Westwood, Massachusetts and a 42,000
square foot facility in San Jose, California.
The Company's European headquarters is located in Woking, United Kingdom.
The Company also maintains sales and customer support offices in facilities at
four other locations in Europe. The manufacturing and engineering facilities for
the Company's iPTest systems are located in Guildford, United Kingdom. The
Company also maintains sales and customer support offices in six locations in
the Far East. Office space leased in Europe and the Far East totals
approximately 100,000 square feet.
The headquarters of LTX Co., Ltd., the Company's joint venture with SMI, is
located in Kawasaki, Japan. The joint venture also leases additional sales and
customer support offices in four other locations in Japan. Office space leased
in Japan totals approximately 15,000 square feet.
The Company believes that its existing facilities are adequate to meet its
current and foreseeable future requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company has no material pending legal proceedings other than routine
litigation relating to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of fiscal 1994.
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PART II
ITEM 5. MARKET VALUE FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
<TABLE>
The Company's Common Stock is traded in the over-the-counter market under
the symbol "LTXX." The following table sets forth the range of high and low sale
prices per share of Common Stock, as reported by the National Association of
Securities Dealers Automatic Quotation (NASDAQ) National Market System.
<CAPTION>
HIGH LOW
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Fiscal 1994:
First Quarter........................................................ $ 8 1/4 $ 4 3/4
Second Quarter....................................................... 5 5/8 3 1/8
Third Quarter........................................................ 4 1/2 2
Fourth Quarter....................................................... 3 3/4 2
Fiscal 1993:
First Quarter........................................................ $ 2 1/16 $ 1 3/8
Second Quarter....................................................... 4 1/2 1 3/4
Third Quarter........................................................ 5 7/8 3 1/8
Fourth Quarter....................................................... 6 1/2 4 5/8
</TABLE>
The Company has never paid cash dividends. It is the present policy of the
Company's Board of Directors to retain earnings to finance expansion of the
Company's operations. The Company does not expect to pay dividends in the
foreseeable future.
As of September 30, 1994, there were 1,482 stockholders of record.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth on page 5 of the registrant's 1994 Annual Report
under the caption "Selected Financial Information Five Year Summary" is
incorporated herein by reference. That information summarizes certain selected
consolidated financial data and should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report.
8
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<TABLE>
The table below sets forth for the periods indicated certain items in the
consolidated statement of operations as a percentage of net sales and the
percentage changes of such items compared to the prior period.
<CAPTION>
PERCENTAGE
INCREASE
(DECREASE)
PERCENTAGE OF NET SALES ---------------
YEAR ENDED JULY 31, 1994 1993
-------------------------- OVER OVER
1994 1993 1992 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales:
Product.................................. 86.6% 89.3% 90.1% (5.6)% 14.9%
Service.................................. 13.4 10.7 9.9 22.1 25.7
----- ----- -----
Total net sales..................... 100.0 100.0 100.0 (2.7) 16.0
Cost of sales:
Product.................................. 61.9 59.0 64.4 2.1 6.2
Service.................................. 7.6 6.6 6.7 10.7 14.6
Provision for excess inventories......... 2.1 -- -- N/M N/M
----- ----- -----
Total cost of sales................. 71.6 65.6 71.1 6.1 7.0
----- ----- -----
Gross profit........................ 28.4 34.4 28.9 (19.4) 38.1
Engineering and product development
expenses.................................... 11.6 11.5 14.7 (0.7) (10.0)
Selling, general, administrative and other
expenses.................................... 25.1 23.8 27.9 2.9 (1.1)
Restructuring charges......................... 8.6 -- 1.9 N/M N/M
Translation losses............................ -- 0.8 -- N/M N/M
----- ----- -----
Loss from operations................ (16.9) (1.7) (15.6) N/M (87.6)
Interest expense, net......................... 2.3 2.3 2.3 (0.3) 13.0
----- ----- -----
Loss before income taxes and
minority interest................. (19.2) (4.0) (17.9) N/M (74.3)
Provision for income taxes.................... -- -- -- N/M N/M
----- ----- -----
Loss before minority interest....... (19.2) (4.0) (17.9) N/M (74.3)
Minority interest in net loss of subsidiary... 0.6 1.5 1.6 (62.0) 2.2
----- ----- -----
Net loss............................ (18.6)% (2.5)% (16.3)% N/M (82.2)
===== ===== =====
<FN>
- - - ---------------
N/M -- Not Meaningful
</TABLE>
RESULTS OF OPERATIONS
Fiscal 1994 Compared to Fiscal 1993
Orders for the Company's products and services increased to $197.9 million
in fiscal 1994, the highest level in the Company's history, from $182.1 million
in fiscal 1993. The increase in orders was largely a result of expanding
production capacity in the semiconductor industry and new product options
offered by the Company, which created additional demand for the Company's test
systems. Orders for the Company's linear and mixed signal products increased by
over 60% in fiscal 1994 over fiscal 1993. This increase was partially offset by
a decline in orders for the Company's digital product line in fiscal 1994,
particularly for testing microprocessors, as compared to fiscal 1993.
Geographically, orders from European and Japanese customers increased
significantly year-to-year, while orders from customers in North America and the
Pacific Rim were below the level of the prior fiscal year. At July 31, 1994, the
Company had increased its backlog to a record $71.8 million, from $42.2 million
at July 31, 1993.
Net sales were $168.3 million in fiscal 1994 as compared to $172.9 million
in fiscal 1993. Sales of the Company's linear and mixed signal products
increased by over 30% in fiscal 1994 as compared to fiscal 1993, and service
revenues increased by over 20% year-to-year. However, this improvement was
offset by a reduction of over 30% in sales of the Company's digital product line
in fiscal 1994 as compared to fiscal 1993. The decline in shipments of the
Company's digital product line was due to lower demand from customers,
particularly in North America, for testing microprocessor and other personal
computer-related devices.
9
<PAGE> 13
The gross profit margin was 28.4% of net sales in fiscal 1994 as compared
to 34.4% in fiscal 1993. In the second quarter of fiscal 1994, the Company
recorded a $3.5 million provision for excess inventories primarily as a result
of lower than anticipated shipment levels in the first half of fiscal 1994. This
provision lowered the gross profit margin by 2.1% of net sales in fiscal 1994.
In fiscal 1993, the gross profit margin was increased by 2.6% as a result of a
$6.5 million payment made by Ando Electric Co., Ltd. ("Ando") under the terms of
a development contract that was included in product sales. There was no similar
contract revenue in fiscal 1994. The gross profit margin in fiscal 1994 was also
adversely affected by proportionately higher fixed manufacturing costs on lower
digital product sales and by lower average selling prices for the Company's
digital products.
Engineering and product development expenses were $19.6 million in fiscal
1994 as compared to $19.7 million in fiscal 1993. Engineering expenses in both
fiscal 1994 and fiscal 1993 included significant development costs for the
Company's new generation of digital products, the Delta 50 and Delta 100, as
well as enhancements to the mixed signal product line.
In February 1994, Graham Miller resigned as President of LTX and, since
that date, has continued as Chairman of the Board of Directors of the Company.
The Board of Directors formed an Office of the Presidents and elected Roger W.
Blethen and Martin S. Francis as Presidents of LTX. This change in management
structure was made to decentralize management and profitability
responsibilities.
In March 1994, the Company announced a major restructuring to properly size
operations to its current level of business. The restructuring consisted of a
planned consolidation of facilities, primarily involving the Company's leased
facilities in Westwood, Massachusetts, and a workforce reduction of 100
employees. As a result of those decisions, the Company took a $14.4 million
restructuring charge to its second quarter results of operations. The
restructuring charge largely relates to the Company's plan to eliminate excess
leased facilities and included amounts for severance payments and outplacement
benefits for terminated employees. Largely as a result of the restructuring,
engineering and product development expenses and selling, general and
administrative expenses, combined, were $2.1 million lower in the fourth quarter
of fiscal 1994 as compared to the second quarter of fiscal 1994.
Although the initial effects of the restructuring benefited the second half
of fiscal 1994, selling, general and administrative expenses were $1.2 million
higher in fiscal 1994 as compared to fiscal 1993. This increase was primarily a
result of personnel additions and higher costs for sales activities in the first
half of fiscal 1994.
Interest expense was $4.3 million in both fiscal 1994 and fiscal 1993. A
decrease in interest expense in fiscal 1994 as a result of the conversion of the
Company's 10 1/2% Convertible Subordinated Debenture Due 2010 to common stock in
July 1993, was offset by an increase in interest expense on higher average bank
borrowings in fiscal 1994.
The Company's Japanese subsidiary had a net loss in fiscal 1994 and fiscal
1993. The minority interest in net loss of subsidiary represents the minority
partner's share of the Company's Japanese subsidiary's loss in both years. The
net loss in fiscal 1994 was reduced substantially from the prior fiscal year
primarily as a result of an increase in sales and gross margin in fiscal 1994
over fiscal 1993.
There was no tax provision in fiscal 1994 or fiscal 1993 due to the net
loss in both years. The Company is in a net operating loss carryforward position
in most tax jurisdictions.
The Company had a net loss of $31.3 million in fiscal 1994 as compared to a
net loss of $4.3 million in fiscal 1993. The Company reported a net loss of $1.6
million in the first quarter of fiscal 1994 and a net loss of $24.0 million in
the second quarter of fiscal 1994, including the restructuring charge of $14.4
million and a provision for excess inventories of $3.5 million. The Company
reduced its net loss to $4.3 million in the third quarter of fiscal 1994 and to
$1.4 million in the fourth quarter of fiscal 1994 as a result of a combination
of lower operating expenses from the restructuring effort initiated in March and
an improvement in the Company's shipment level and gross profit margin.
10
<PAGE> 14
Fiscal 1993 Compared to Fiscal 1992
<TABLE>
The Company experienced a substantial increase in orders, primarily in the
second half of fiscal 1993, over the prior fiscal year. Bookings rose 43%
year-to-year from $127.4 million to $182.1 million. This improvement in orders
resulted primarily from the favorable conditions in fiscal 1993 in the
semiconductor industry, particularly for manufacturers of devices used in
personal computers, that created increased demand for both the Company's
linear/mixed signal and digital test systems. Comparative second half of fiscal
1993 and fiscal 1992 orders by product category were as follows:
<CAPTION>
SECOND HALF OF
FISCAL YEAR
-------------------
1993 1992
---- ----
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Digital............................................. $ 53.1 $33.5
Linear/mixed signal................................. 41.9 26.7
Service............................................. 7.9 6.8
Other............................................... 4.9 3.4
------ -----
$107.8 $70.4
====== =====
</TABLE>
Geographically, the Company's fiscal 1993 order levels improved
significantly in the Pacific Rim other than Japan, with orders from domestic and
European customers also posting solid gains. The improvement in the Pacific Rim
other than Japan reflected both favorable conditions in fiscal 1993 for
semiconductors used in personal computers and the continued transfer of
semiconductor assembly and testing to that region. In Japan, orders for the
Company's systems were at a low level throughout fiscal 1993 as a result of
continuing weak business conditions in that country.
Net sales rose to $172.9 million in fiscal 1993 as compared to $149.1
million in the prior fiscal year. The Company increased its backlog from $33.0
million at July 31, 1992 to $42.2 million at July 31, 1993. Net sales of the
Company's digital products in fiscal 1993 increased 30% over the prior fiscal
year. Although net sales of linear/mixed signal systems were down slightly
year-to-year, the Company experienced significant growth in orders for these
products in the second half of fiscal 1993. Virtually all of the net sales
increase in fiscal 1993 reflected an increase in unit sales. Service revenues in
fiscal 1993 increased 26% over the prior fiscal year to $18.5 million,
reflecting the Company's service coverage of its growing base of installed
equipment.
The gross profit margin in fiscal 1993 was 34.4% of net sales as compared
to 28.9% in fiscal 1992. The majority of the improvement in gross profit margin
(2.9%) was the result of higher service revenues, better coverage of fixed
manufacturing costs and lower provisions for excess inventories in fiscal 1993,
as compared to the prior fiscal year. These improvements were partially offset
by lower average selling prices for the Company's digital products in fiscal
1993, primarily as a result of changes in product mix. The balance of the
improvement (2.6%) resulted from a $6.5 million payment made by Ando under the
terms of a development contract that was included in North American product
sales.
Engineering and product development expenses were $19.7 million in fiscal
1993 as compared to $21.9 million in fiscal 1992 because of cost reduction
measures initiated in fiscal 1992. Expenses in both years included substantial
development costs relating to the Delta 100 and Delta 50 generation of test
systems, enVision test system software and significant enhancements to the
Synchro product line. The Delta 50 efforts were partially funded in fiscal 1993
by the Ando development contract.
Selling, general and administrative expenses were $0.4 million lower in
fiscal 1993 as compared to fiscal 1992. The lower level of expenses in the
current year were primarily a result of cost reduction measures taken in fiscal
1992. This reduction was partially offset by an increase in selling expenses
associated with the higher level of net sales in fiscal 1993 over fiscal 1992.
The Company incurred a translation loss of $1.5 million in fiscal 1993. The
loss was a result of the adverse effect of exchange rates on the Company's
foreign operations, primarily in Japan.
11
<PAGE> 15
In fiscal 1992, the Company took a $2.8 million charge for severance and
restructuring costs associated with the cost reduction measures initiated in
that fiscal year. There was no provision for severance and restructuring charged
to operations in fiscal 1993.
Interest expense rose slightly in fiscal 1993, primarily due to higher
average bank borrowings. In addition, interest income was lower year-to-year as
a result of a decline in average cash balances and lower interest rates.
The minority interest in net loss of subsidiary of $2.6 million represents
the minority partner's share of the Company's Japanese subsidiary's loss for
fiscal 1993. While the minority partner's original investment in the Company's
Japanese subsidiary was consumed in fiscal 1993, the minority partner made an
additional contribution in fiscal 1993 in the form of guarantees of a portion of
the subsidiary's bank lines.
There was no tax provision in fiscal 1993 or fiscal 1992 as the Company
operated at a loss and is in a net operating loss carryforward position in most
tax jurisdictions.
The Company made steady quarter-to-quarter improvement in its results of
operations in fiscal 1993, starting with a net loss of $2.8 million in the first
quarter and ending with net income of $1.0 million in the fourth quarter. For
the fiscal year, the Company had a net loss of $4.3 million as compared to a net
loss of $24.3 million in fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents were $17.2 million and $21.7 million at July 31, 1994
and July 31, 1993, respectively. The $4.5 million decrease in cash and
equivalents during fiscal 1994 was a result of $17.5 million in net cash used in
operating activities, $12.7 million of net cash used for property and equipment
expenditures and $25.7 million of net cash provided by financing activities.
The Company used $17.5 million in cash for operating activities in fiscal
1994, primarily as a result of the net loss for the fiscal year, before non-cash
restructuring charges and the provision for excess inventories. The Company sold
$1.7 million and $5.1 million of accounts receivable to its domestic bank,
without recourse, under factoring agreements at July 31, 1994 and July 31, 1993,
respectively. Excluding these transactions, accounts receivable were $5.1
million lower at July 31, 1994 as compared to July 31, 1993. This reduction is
primarily a result of the lower level of sales in the fourth quarter of fiscal
1994 as compared to the fourth quarter of the prior year. Inventories were
lowered by $2.5 million in fiscal 1994 as a result of the provision for excess
inventories of $3.5 million, together with lower inventory purchases in the
second half of fiscal 1994 as compared to the second half of the prior year.
However, these inventory reductions were partially offset by an increase in
inventories during fiscal 1994 for the Company's new generation of digital test
systems which the Company plans to deliver in fiscal 1995. Accounts payable were
reduced by $11.4 million in fiscal 1994 primarily as a result of the lower level
of inventory purchases in the second half of fiscal 1994 as compared to the
second half of fiscal 1993. At July 31, 1994, the Company had $11.7 million in
accrued restructuring charges which were primarily related to the provision for
excess leased facilities. Cash outflows for severance payments were $1.0 million
during fiscal 1994 and are estimated to be $0.9 million thereafter. Cash
outflows related to excess leased facilities were $1.7 million during fiscal
1994 and are estimated to be $10.8 million thereafter. The Company is actively
seeking to sub-lease these facilities. Finalization of sub-leasing arrangements
may change the reserves provided and related cash flows.
Additions to property and equipment in fiscal 1994 were $12.7 million and
exceeded depreciation charges in fiscal 1994 of $9.2 million. The capital
equipment additions consisted primarily of LTX test systems and modules for
engineering and customer support requirements. The Company financed $3.5 million
of the capital equipment additions with lease financing during fiscal 1994.
In July 1994, the Company received $20.0 million from Ando under a term
loan agreement through July 2001. The loan bears interest at 8%, which is
payable semi-annually beginning in January 1995, and has semi-annual principal
payments of $2.0 million beginning in January 1997. The loan is secured by the
Company's inventories and capital equipment and is subordinated in right of
payment to senior indebtedness of the Company. In conjunction with this loan
agreement, the Company issued to Ando a warrant to purchase
12
<PAGE> 16
up to 2.0 million shares of common stock, at the fair market value of $2.31 per
share, during the term of the loan agreement. The Company also expanded its
existing license and development agreement with Ando to allow for further joint
development of the Company's Delta 50 technology. Proceeds from the loan were
used to repay domestic bank borrowings and to finance working capital
requirements.
At July 31, 1994, the Company's Japanese subsidiary had bank borrowings of
$6.9 million as compared to $9.9 million in borrowings at July 31, 1993. These
bank borrowings are on demand and are guaranteed by the Company's minority
partner in the Japanese subsidiary. The Company's Japanese subsidiary also had
an unused demand bank line of $2.0 million available at July 31, 1994 which is
guaranteed by the Company.
At July 31, 1994 and July 31, 1993, the Company had no borrowings
outstanding under its $5.0 million domestic bank line. This bank line was
amended in June 1994 and the financial covenants under this line were
restructured. On October 6, 1994, this line was replaced with a $5.0 million
line which extends through December 1995. The new line bears interest at the
bank's prime rate plus 1% and is secured by accounts receivable and inventories.
In January 1994, the Company received $4.0 million from the sale of 972,000
shares of its common stock to several private investors. The Company used the
proceeds from this sale for working capital requirements. In the third quarter
of fiscal 1993, the Company received $9.8 million from the sale of 2,458,000
shares of its common stock to a private investor.
The Company has two issues of convertible subordinated debentures
outstanding at July 31, 1994: $15.7 million (face amount) of 13 1/2% Convertible
Subordinated Debentures Due 2011 and $7.3 million of 7 1/4% Convertible
Subordinated Debentures Due 2011. Interest is payable on these debentures
semi-annually. Annual sinking fund payments of $785,000 and $366,000,
respectively, are due on these two debenture issues beginning in April 1996.
In fiscal 1993, the Company's operating activities provided $4.8 million in
cash. Financing activities provided $13.0 million in cash in fiscal 1993,
including $9.8 million from the sale of common stock. The Company used $7.8
million in cash for capital equipment expenditures in fiscal 1993. In fiscal
1992, the Company used $12.4 million in cash for operating activities, primarily
as a result of the net loss for the fiscal year before non-cash depreciation
charges. The Company used $7.6 million in cash for capital equipment
expenditures and additional bank borrowings provided $5.1 million in cash in
fiscal 1992.
Inflation during the years presented did not have any significant effects
on the operations of the Company. The Company attempts to mitigate inflationary
cost increases by continuing improvements in operating efficiency through
improved methods and technologies.
Management believes the Company has sufficient cash resources to meet its
fiscal 1995 requirements through a combination of existing cash balances, future
cash flows from operations and borrowing availability under its domestic and
Japanese bank lines of credit. The Company's fiscal 1995 cash requirements
include plans for capital equipment expenditures of approximately $8.0 million.
13
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of LTX Corporation:
We have audited the accompanying consolidated balance sheets of LTX
Corporation and subsidiaries as of July 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1994. These financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of LTX Corporation and
subsidiaries as of July 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed on page
28 are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly state, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 13, 1994
(Except with respect
to the matter discussed
in Note 4, as to which the
date is October 6, 1994)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, included in this Form 10-K, into LTX's previously filed
registration statements on Form S-8 (File No. 2-77475, File No. 2-90698, File
No. 33-7018, File No. 33-14179, File No. 33-32140, File No. 33-32141, File No.
33-33614, File No. 33-38675, File No. 33-51683 and File No. 33-51685).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 14, 1994
14
<PAGE> 18
<TABLE>
LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
YEAR ENDED JULY 31
------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Product....................................... $145,688 $154,392 $134,353
Service....................................... 22,638 18,540 14,753
-------- -------- --------
Total net sales.......................... 168,326 172,932 149,106
Cost of sales:
Product....................................... 104,189 102,005 96,024
Service....................................... 12,750 11,521 10,050
Provision for excess inventories.............. 3,500 -- --
-------- -------- --------
Total cost of sales...................... 120,439 113,526 106,074
-------- -------- --------
Gross profit............................. 47,887 59,406 43,032
Engineering and product development expenses....... 19,604 19,744 21,943
Selling, general and administrative expenses....... 42,308 41,080 41,529
Restructuring charges.............................. 14,376 -- 2,800
Translation losses................................. -- 1,468 --
-------- -------- --------
Loss from operations..................... (28,401) (2,886) (23,240)
Other income (expense):
Interest expense.............................. (4,286) (4,277) (3,968)
Interest income............................... 412 298 448
-------- -------- --------
Loss before income taxes and minority
interest............................... (32,275) (6,865) (26,760)
Provision for income taxes......................... -- -- --
-------- -------- --------
Loss before minority interest............ (32,275) (6,865) (26,760)
Minority interest in net loss of subsidiary........ 971 2,556 2,500
-------- -------- --------
Net loss................................. $(31,304) $ (4,309) $(24,260)
======== ======== ========
Net loss per share:
Primary and fully diluted..................... $ (1.23) $ (0.20) $ (1.22)
Weighted average shares:
Primary and fully diluted..................... 25,485 21,089 19,888
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE> 19
<TABLE>
LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
JULY 31
-----------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents........................................... $ 17,226 $ 21,725
Accounts receivable, less allowances of $700 and $700.......... 33,323 34,953
Inventories.................................................... 42,672 45,180
Other current assets........................................... 3,848 4,116
-------- --------
Total current assets................................. 97,069 105,974
-------- --------
Property and equipment, net.................................... 28,946 28,258
Other assets................................................... 4,621 4,025
-------- --------
$130,636 $138,257
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................. $ 6,870 $ 9,933
Current portion of long-term liabilities....................... 437 114
Accounts payable............................................... 15,545 26,924
Accrued compensation........................................... 2,512 2,579
Unearned service revenues and customer advances................ 3,867 4,671
Restructuring charges.......................................... 11,710 --
Other accrued expenses......................................... 7,275 6,129
-------- --------
Total current liabilities............................ 48,216 50,350
-------- --------
Long-term liabilities, less current portion......................... 21,204 1,060
Convertible subordinated debentures................................. 20,195 19,943
Deferred compensation............................................... 428 428
Stockholders' equity:
Common stock, $0.05 par value:
100,000,000 shares authorized; 26,223,942 shares and
24,716,370 shares issued and outstanding.................. 1,311 1,236
Additional paid-in capital..................................... 117,457 112,111
Accumulated deficit............................................ (78,175) (46,871)
-------- --------
Total stockholders' equity........................... 40,593 66,476
-------- --------
$130,636 $138,257
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE> 20
<TABLE>
LTX CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, JULY 31, 1991............... 19,790,671 $ 989 $ 94,106 $(18,302) $76,793
Exercise of stock options............ 54,274 3 83 86
Issuance of shares under employees'
stock purchase plan................ 249,828 13 452 465
Net loss............................. (24,260) (24,260)
---------- ------ -------- -------- -------
BALANCE, JULY 31, 1992............... 20,094,773 1,005 94,641 (42,562) 53,084
Sale of common stock................. 2,458,000 123 9,709 9,832
Exercise of stock options............ 408,695 20 845 865
Issuance of shares under employees'
stock purchase plan................ 254,902 13 616 629
Conversion of 10 1/2% Convertible
Subordinated Debenture Due 2010.... 1,500,000 75 6,300 6,375
Net loss............................. (4,309) (4,309)
---------- ------ -------- -------- -------
BALANCE, JULY 31, 1993............... 24,716,370 1,236 112,111 (46,871) 66,476
Sale of common stock................. 971,515 48 3,959 4,007
Exercise of stock options............ 255,285 13 538 551
Issuance of shares under employees'
stock purchase plan................ 280,772 14 849 863
Net loss............................. (31,304) (31,304)
---------- ------ -------- -------- -------
BALANCE, JULY 31, 1994............... 26,223,942 $1,311 $117,457 $(78,175) $40,593
========== ====== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE> 21
<TABLE>
LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
YEAR ENDED JULY 31
-------------------------------
1994 1993 1992
-------- -------- -------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss.................................................... $(31,304) $ (4,309) $(24,260)
Add (deduct) non-cash items:
Minority interest in subsidiary........................ (971) (2,556) (2,500)
Depreciation and amortization.......................... 9,158 9,159 9,422
Original issue discount amortization................... 252 262 262
(Increase) decrease in:
Accounts receivable.................................... 1,630 (4,946) 8,863
Inventories............................................ 2,508 (5,027) 2,526
Other current assets................................... 268 538 (663)
Other assets........................................... 375 (540) (250)
Increase (decrease) in:
Accounts payable....................................... (11,379) 14,655 (7,760)
Accrued expenses, compensation and restructuring
charges............................................. 12,789 366 (1,666)
Unearned service revenues and customer advances........ (804) (2,797) 3,604
-------- -------- -------
Net cash provided by (used in) operating activities...... (17,478) 4,805 (12,422)
-------- -------- -------
CASH USED IN INVESTING ACTIVITIES:
Expenditures for property and equipment.................. (12,687) (7,797) (7,622)
-------- -------- -------
Net cash used in investing activities.................... (12,687) (7,797) (7,622)
-------- -------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from stock plans:
Employees' stock purchase plan........................... 863 629 465
Exercise of stock options................................ 551 865 86
Sale of common stock........................................ 4,007 9,832 --
Increase (decrease) in notes payable........................ (3,063) 1,240 5,096
Proceeds from sale and leaseback of equipment............... 3,483 1,142 575
Payments of long-term debt.................................. (175) (705) (447)
Proceeds from long-term debt................................ 20,000 -- --
-------- -------- -------
Net cash provided by financing activities................... 25,666 13,003 5,775
-------- -------- -------
Net increase (decrease) in cash and equivalents............... (4,499) 10,011 (14,269)
Cash and equivalents at beginning of year..................... 21,725 11,714 25,983
-------- -------- -------
Cash and equivalents at end of year........................... $ 17,226 $ 21,725 $11,714
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................. $ 4,237 $ 4,390 $ 3,979
Income taxes............................................. -- -- 162
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Conversion of convertible subordinated debenture to common
stock (See Note 6)....................................... -- $ 6,375 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 22
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned domestic subsidiaries and wholly-owned and majority-owned
foreign subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.
Minority interest in net loss of subsidiary represents the minority
shareholder's proportionate share of the results of operations of the Company's
majority-owned Japanese subsidiary (see Note 12).
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated in accordance with Statement of Financial Accounting Standards No.
52. The Company's functional currency is the U.S. dollar. Accordingly, the
Company's foreign subsidiaries translate monetary assets and liabilities at
year-end exchange rates while nonmonetary items are translated at historical
rates. Income and expense accounts are translated at the average rates in effect
during the year, except for sales, cost of sales and depreciation which are
primarily translated at historical rates. Net realized and unrealized gains and
losses resulting from foreign currency remeasurement and transaction gains and
losses are included in the results of operations.
Cash Equivalents
Cash equivalents consist of short-term investments with maturity dates of
one month or less and which are readily convertible into cash.
Inventories
Inventories are stated at the lower of cost or market, cost being
determined on the first-in, first-out method, and include material, labor and
manufacturing overhead.
Property and Equipment
Property and equipment is recorded at cost. The Company provides for
depreciation and amortization on the straight-line method. Charges are made to
operating expenses in amounts which are sufficient to amortize the cost of the
assets over their estimated useful lives.
Revenue Recognition
Revenue from product sales is recognized at the time of shipment. Service
revenues are recognized over the applicable contractual periods or as services
are performed. Revenues from engineering contracts are recognized over the
contract period on a percentage of completion basis.
Warranty Costs
Warranty costs incurred by the Company during the three years ended July
31, 1994 were not significant. Future warranty costs are not expected to be
significant, and therefore, the Company has not provided any warranty reserves.
Engineering and Product Development Costs
The Company expenses all engineering, research and development costs as
incurred. Expenses subject to capitalization in accordance with the Statement of
Financial Accounting Standards No. 86, relating to certain software development
costs, were insignificant.
19
<PAGE> 23
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in fiscal 1994. The change in accounting
principles was not material to the results of operations for the years ended
July 31, 1994, 1993 or 1992.
Deferred income taxes are recorded for temporary differences between the
financial reporting and tax basis of assets and liabilities. Research and
development tax credits are recognized for financial reporting purposes to the
extent they can be used to reduce the tax provision. The Company has not
provided for federal income taxes on the cumulative undistributed earnings of
its foreign subsidiaries in the past since it reinvested those earnings. At July
31, 1994, the Company's foreign subsidiaries had accumulated deficits.
Net Loss per Share
Net loss per share is based on the weighted average number of shares of
common stock outstanding only, as the inclusion of common stock equivalents
would be anti-dilutive. Common stock equivalents include shares issuable under
stock option plans and warrants to purchase shares. None of the Company's
Convertible Subordinated Debentures are common stock equivalents.
2. INVENTORIES
<TABLE>
Inventories consist of the following:
<CAPTION>
JULY 31
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Raw materials................................. $12,075,000 $11,694,000
Work-in-process............................... 18,810,000 23,859,000
Finished goods................................ 11,787,000 9,627,000
----------- -----------
$42,672,000 $45,180,000
=========== ===========
</TABLE>
3. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are summarized as follows:
<CAPTION>
JULY 31 DEPRECIABLE
------------------------- LIFE IN
1994 1993 YEARS
---------- ---------- ------------
<S> <C> <C> <C>
Machinery and equipment................... $68,365,000 $67,060,000 5
Office furniture and equipment............ 3,917,000 7,910,000 3-7
Leasehold improvements.................... 7,297,000 7,486,000 10 or term
of lease
----------- -----------
79,579,000 82,456,000
Less: accumulated depreciation and
amortization............................ (50,633,000) (54,198,000)
----------- -----------
$28,946,000 $28,258,000
=========== ===========
</TABLE>
4. NOTES PAYABLE
The Company's Japanese subsidiary had borrowings outstanding of $6,870,000
at July 31, 1994 under demand bank lines of credit of $7,000,000, which are
guaranteed by the Company's minority partner in Japan. The Company's Japanese
subsidiary also had an unused demand bank line of $2,000,000 at July 31, 1994,
which is guaranteed by the Company. At July 31, 1993, the Company's Japanese
subsidiary had borrowings outstanding of $9,933,000 under demand bank lines of
credit.
The Company had no borrowings outstanding under a $5,000,000 domestic bank
line at July 31, 1994 and July 31, 1993. This line was available to finance
certain designated foreign receivables and designated export
20
<PAGE> 24
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inventories of the Company and was guaranteed by the Export-Import Bank of the
United States. This line was amended in June 1994 and the financial covenants
under this line were restructured. On October 6, 1994, this line was replaced
with a new $5,000,000 line of credit which matures in December 1995 and which
requires no guarantees. The new line bears interest at the bank's prime rate
plus 1%. Borrowing availability under the line is on a formula basis and
borrowings are secured by accounts receivable and inventories. The line of
credit has financial covenants which largely relate to results of operations and
a minimum level of liquidity.
5. LONG-TERM LIABILITIES
<TABLE>
Long-term liabilities consist of the following:
<CAPTION>
JULY 31
-----------------------------
1994 1993
---------- ---------
<S> <C> <C>
Subordinated note payable
with interest at 8%................... $20,000,000 $ --
Lease purchase obligations at various
interest rates, net of deferred
interest.............................. 1,641,000 1,174,000
----------- ----------
21,641,000 1,174,000
Less -- current portion................. (437,000) (114,000)
----------- ----------
$21,204,000 $1,060,000
=========== ==========
</TABLE>
In July 1994, the Company received $20,000,000 from Ando Electric Co., Ltd.
of Japan ("Ando") under a long-term loan agreement which extends through July
2001. The loan bears interest at 8%, which is payable semi-annually beginning in
January 1995 and has semi-annual principal payments of $2,000,000 beginning in
January 1997. The loan is secured by the Company's inventories and capital
equipment and is subordinated in right of payment to senior indebtedness of the
Company. In connection with this loan agreement, the Company issued to Ando a
warrant to purchase up to 2,000,000 shares of common stock during the term of
the loan agreement. (See Note 8). The Company also expanded its existing license
and development agreement with Ando to allow for further joint development of
the Company's Delta 50 technology. Proceeds from the loan were used to repay
domestic bank borrowings and to finance working capital requirements.
6. CONVERTIBLE SUBORDINATED DEBENTURES
<TABLE>
Convertible subordinated debentures consist of:
<CAPTION>
JULY 31
-----------------------------
1994 1993
---------- ----------
<S> <C> <C>
13 1/2% Debentures Due 2011................ $12,887,000 $12,625,000
7 1/4% Debentures Due 2011................ 7,308,000 7,318,000
----------- -----------
$20,195,000 $19,943,000
=========== ===========
</TABLE>
On July 31, 1990, the Company exchanged $27,532,000 of its original issue
of $35,000,000 of 7 1/4% Convertible Subordinated Debentures Due 2011 for
$15,693,000 at par value of a new issue of 13 1/2% Convertible Subordinated
Debentures Due 2011. The debentures were issued at a value of $11,839,000, the
market value of the securities on the date of the exchange. The resulting
original issue discount of $3,854,000 is being charged to operations through
2011. The debentures are subordinated in right of payment to senior indebtedness
and are convertible by the holders into common stock at $7.00 per share at any
time prior to redemption. The debentures are redeemable at the Company's option,
in whole or in part, at 100% of the principal amount. Holders of the debentures
have the right to require the Company to redeem the debentures if, prior to
April 15, 2000, a change in control of the Company occurs. Annual sinking fund
payments of $785,000 are required beginning April 15, 1996. Interest is payable
semi-annually on April 15 and October 15.
21
<PAGE> 25
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In April 25, 1986, the Company issued and sold at par $35,000,000 of 7 1/4%
Convertible Subordinated Debentures Due 2011. A total of $7,308,000 of the
original issue of $35,000,000 of 7 1/4% Convertible Subordinated Debentures
remain outstanding on July 31, 1994. The debentures are subordinated in right of
payment to senior indebtedness and are convertible by the holders into common
stock at $18 per share at any time prior to redemption or maturity. The
debentures are redeemable at the Company's option at any time, in whole or in
part, at 100% of the principal amount. Annual sinking fund payments of $366,000
are required beginning April 15, 1996. Interest is payable semi-annually on
April 15 and October 15.
On July 30, 1993, Sumitomo Metal Industries, Ltd. of Japan converted its
$6,375,000 10 1/2% Convertible Subordinated Debenture Due 2010 into 1,500,000
shares of common stock of the Company. The Company had issued the debenture to
Sumitomo Metal Industries, Ltd. in May 1990 (see Note 12).
7. INCOME TAXES
At July 31, 1994, the Company had $4,575,000 of federal tax credits
available for carryforward, which expire in fiscal years 1998 through 2004. In
addition, the Company had a federal net operating loss carryforward available of
$29,600,000 which expires in fiscal years 2007 through 2009.
<TABLE>
Reconciliations of the U.S. federal statutory rate to the Company's
effective tax rate are as follows:
<CAPTION>
YEAR ENDED JULY 31
-----------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
U.S. federal statutory rate............................ (34.0)% (34.0)% (34.0)%
Losses without current tax benefit..................... 34.0 34.0 34.0
----- ----- -----
Effective tax rate..................................... 0.0% 0.0% 0.0%
===== ===== =====
</TABLE>
<TABLE>
The temporary differences and carryforwards which created the deferred tax
assets and liabilities as of July 31, 1994 and July 31, 1993 are as follows:
<CAPTION>
JULY 31
---------------------
1994 1993
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating losses.................................... $ 10,360,000 $ 2,625,000
Tax credits............................................. 4,575,000 4,309,000
Inventory valuation reserves............................ 4,426,000 3,418,000
Restructuring charges................................... 4,099,000 0
Spares amortization..................................... 2,761,000 2,413,000
Unearned service revenues............................... 949,000 1,332,000
Other................................................... 720,000 862,000
------------ ------------
Total deferred tax assets............................. 27,890,000 14,959,000
Valuation allowance..................................... (26,375,000) (13,302,000)
------------ ------------
Net deferred tax assets............................... $ 1,515,000 $ 1,657,000
============ ============
Deferred tax liabilities:
Depreciation............................................ $ (243,000) $ (266,000)
Basis difference -- debenture exchange.................. (807,000) (899,000)
Other................................................... (465,000) (492,000)
------------ ------------
Total deferred tax liabilities........................ $ (1,515,000) $ (1,657,000)
============ ============
Net deferred taxes recorded........................... $ -- $ --
============ ============
</TABLE>
The valuation allowance relates to uncertainty surrounding the realization
of the deferred tax assets as a result of the Company's operating losses.
22
<PAGE> 26
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY
Authorized Shares
At the Company's Annual Meeting of Stockholders in December 1993, the
stockholders approved an increase in the Company's authorized common stock from
50,000,000 shares to 100,000,000 shares.
Stock Option Plans
The Company has three stock option plans: the 1990 Incentive Stock Option
Plan ("1990 I.S.O. Plan"), the 1984 Stock Option Plan for LTX (Europe) Ltd.
("U.K. Plan") and the 1983 Non-Qualified Stock Option Plan ("Non-Qualified
Plan").
The 1990 I.S.O. Plan and the U.K. Plan provide for the granting of options
to employees to purchase shares of common stock at not less than 100% of the
fair market value on the date of grant. Options under both plans are exercisable
over a three-year vesting period beginning one year from the date of grant. In
December 1993, the stockholders of the Company approved an increase to the
number of shares of common stock that may be granted under the 1990 I.S.O. Plan,
through October 2000, from 1,000,000 shares to 1,500,000 shares. At July 31,
1994, options to purchase 1,119,818 shares had been granted, and 380,182 shares
were subject to future grant under the 1990 I.S.O. Plan. At July 31, 1994,
options to purchase 108,800 shares had been granted, and 41,200 shares were
subject to future grant under the U.K. Plan.
The Non-Qualified Plan provides for the granting of options to key
employees, directors and advisors of the Company to purchase shares of common
stock at prices to be determined by the Board of Directors. Compensation expense
relating to shares granted under this plan at less than fair market value has
been charged to operations over the applicable vesting period. At July 31, 1994,
options to purchase 731,820 shares had been granted, and 118,180 shares were
subject to future grant under this plan.
<TABLE>
The following table summarizes stock option activity for the three years
ended July 31, 1994:
<CAPTION>
RANGE OF
OPTION
SHARES PRICES
-------- ------------
<S> <C> <C>
Outstanding at July 31, 1991.................................... 1,732,525 $0.50 - $6.88
Granted.................................................... 546,000 0.05 - 2.38
Exercised.................................................. (54,274) 0.50 - 2.50
Terminated................................................. (128,223) 1.88 - 3.75
---------
Outstanding at July 31, 1992.................................... 2,096,028 0.05 - 6.88
Granted.................................................... 569,000 0.05 - 1.88
Exercised.................................................. (408,695) 0.50 - 3.75
Terminated................................................. (143,895) 1.88 - 3.75
---------
Outstanding at July 31, 1993.................................... 2,112,438 0.05 - 6.88
Granted.................................................... 398,000 0.05 - 3.94
Exercised.................................................. (255,285) 0.05 - 3.75
Terminated................................................. (71,814) 1.75 - 3.75
---------
Outstanding at July 31, 1994.................................... 2,183,339 0.05 - 6.88
=========
</TABLE>
Of the total options outstanding at July 31, 1994, 1,451,473 shares were
exercisable and 32,500 shares were at the option price of $0.05 per share.
Warrants
In July 1994, in connection with a term loan agreement, the Company issued
to Ando Electric Co., Ltd. a warrant to purchase up to 2,000,000 shares of
common stock, at the fair market value of $2.31 per share, during the term of
the loan agreement (see Note 5). At July 31, 1994, the total warrant was
outstanding.
23
<PAGE> 27
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employees' Stock Purchase Plan
In December 1993, the stockholders of the Company approved the adoption of
the 1993 Employees' Stock Purchase Plan, which replaced the 1983 Employees'
Stock Purchase Plan which expired in December 1993. Under this plan, eligible
employees may contribute up to 15% of their annual compensation for the purchase
of common stock of the Company up to $25,000 of fair market value of the stock
per calendar year. The plan limits the number of shares which can be issued for
any semi-annual plan period to 150,000 shares and, over the term of the plan,
the Company may issue up to 600,000 shares. Under the plan, 280,772 shares were
issued in fiscal 1994 and 319,228 shares were available for future issuance
under this plan at July 31, 1994.
Rights Agreement
The Board of Directors of the Company adopted a Rights Agreement, dated as
of May 11, 1989, between the Company and The First National Bank of Boston, as
rights agent (the "Rights Agreement") and in connection therewith, distributed
one common share purchase right for each outstanding share of common stock. The
rights will become exercisable only if a person or group acquires 20% or more of
the Company's common stock or announces a tender offer that would result in
ownership of 30% or more of the common stock. Initially, each right will entitle
a stockholder to buy one share of common stock of the Company at a purchase
price of $30.00 per share, subject to significant adjustment depending upon the
occurrence thereafter of certain events. Before any person or group has acquired
20% or more of the common stock of the Company, the rights are redeemable by the
Board of Directors at $0.01 per right. The rights will expire on May 11, 1999,
unless redeemed by the Company prior to that date.
9. RETIREMENT PLAN
The Company's retirement plan provides for an annual discretionary
contribution by the Company from current or accumulated profits of an amount not
to exceed 5% of the eligible compensation of the participants in the plan.
Amounts are allocated to the accounts of the participants based on their
compensation and years of service and are subject to certain vesting provisions.
No contribution was made in fiscal 1994, 1993 or 1992. Eligible employees may
also make voluntary contributions to the plan through a salary reduction
contract up to the statutory limit or 15% of their annual compensation.
10. GEOGRAPHIC AREA INFORMATION
<TABLE>
The Company's operations by geographic segment for the three years ended
July 31, 1994 are summarized as follows:
<CAPTION>
YEAR ENDED JULY 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Sales to unaffiliated customers
North America................................. $ 65,240,000 $ 91,248,000 $ 85,030,000
Europe........................................ 24,423,000 20,744,000 20,704,000
Japan......................................... 21,106,000 9,447,000 14,984,000
Rest of world (principally Pacific Rim)....... 57,557,000 51,493,000 28,388,000
------------ ------------ ------------
Total sales to unaffiliated customers.... $168,326,000 $172,932,000 $149,106,000
============ ============ ============
Transfers between geographic areas
United States................................. $ 67,225,000 $ 51,003,000 $ 27,211,000
Europe........................................ 7,751,000 5,857,000 5,391,000
Japan......................................... 364,000 142,000 865,000
------------ ------------ ------------
Total transfers between geographic
areas.................................. $ 75,340,000 $ 57,002,000 $ 33,467,000
============ ============ ============
</TABLE>
24
<PAGE> 28
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) from operations
United States................................. $(25,991,000) $ 2,288,000 $(17,728,000)
Europe........................................ (613,000) (212,000) (1,030,000)
Japan......................................... (1,892,000) (5,717,000) (4,678,000)
Eliminations.................................. 95,000 755,000 196,000
------------ ------------ ------------
Total income (loss) from operations...... $(28,401,000) $ (2,886,000) $(23,240,000)
============ ============ ============
Identifiable assets
United States................................. $124,029,000 $135,962,000 $112,765,000
Europe........................................ 20,730,000 9,382,000 13,302,000
Japan......................................... 13,180,000 12,428,000 14,369,000
Eliminations.................................. (27,303,000) (19,515,000) (22,152,000)
------------ ------------ -----------
Total identifiable assets................ $130,636,000 $138,257,000 $118,284,000
============ ============ ============
</TABLE>
Transfer prices on products sold to foreign subsidiaries are intended to
produce profit margins that correspond to the subsidiary's sale and support
efforts.
The Company incurred translation losses, from foreign currency
remeasurement, of $1,468,000, primarily in Japan, in fiscal 1993. Transaction
gains or losses were not significant in fiscal 1993. Translation and transaction
gains or losses were not significant in fiscal 1994 or fiscal 1992.
11. COMMITMENTS
<TABLE>
The Company has operating lease commitments for certain facilities and
equipment and capital lease commitments for certain equipment. Minimum lease
payments under non-cancelable leases at July 31, 1994 are as follows:
<CAPTION>
TOTAL TOTAL
REAL OPERATING CAPITAL
ESTATE EQUIPMENT LEASES LEASES
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Year ended July 31,
1995................................ $6,813,000 $2,146,000 $ 8,959,000 $ 581,000
1996................................ 5,876,000 1,826,000 7,702,000 461,000
1997................................ 5,741,000 659,000 6,400,000 220,000
1998................................ 5,817,000 243,000 6,060,000 220,000
1999................................ 5,290,000 14,000 5,304,000 220,000
2000 and thereafter................. 38,334,000 -- 38,334,000 149,000
----------- ---------- ----------- ---------
Total minimum lease payments............. $67,871,000 $4,888,000 $72,759,000 $1,851,000
========== ========== ===========
Less: amount representing interest....... (210,000)
----------
Present value of total capital leases.... $1,641,000
==========
</TABLE>
Total rental expense for fiscal 1994, 1993 and 1992 was $9,849,000,
$10,822,000 and $11,295,000, respectively.
As a result of the Company's restructuring in fiscal 1994, certain leased
facilities have been considered excess. At July 31, 1994, the Company had
accrued $8,200,000, which is included in restructuring charges on the
accompanying balance sheet, relating to the lease commitments on these
facilities.
25
<PAGE> 29
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. JOINT VENTURE AGREEMENT
In May 1990, the Company completed a joint venture agreement with Sumitomo
Metal Industries, Ltd. ("SMI") of Japan to manufacture, sell and support the
Company's semiconductor test equipment products in Japan. Under this joint
agreement, SMI acquired 235,000 newly issued shares of the Company's Japanese
subsidiary for $12,000,000 and the Company invested an additional $4,000,000 in
the subsidiary. As a result, 50.5% of the shares of the Japanese company are
owned by LTX and 49.5% are owned by SMI. As part of the joint venture agreement,
the Company has licensed certain of its test technology to the joint venture,
and will receive royalties should its products be manufactured by the joint
venture. SMI also purchased 1,500,000 shares of the Company's common stock for
$5,625,000 and purchased a $6,375,000 convertible debenture that was converted
into common stock in July 1993 (see Note 6).
At July 31, 1994, other assets include a minority interest receivable from
SMI of $2,320,000 which arose as a result of cumulative losses of the Company's
Japanese subsidiary allocable to SMI, exceeding SMI's investment in the
Company's subsidiary. The Company believes this asset is fully realizable from
SMI due to SMI's guarantee of a portion of the Company's Japanese subsidiary's
bank lines of credit.
26
<PAGE> 30
<TABLE>
LTX CORPORATION
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<CAPTION>
1994
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER(1) QUARTER QUARTER
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................... $47,164 $ 38,119 $ 40,216 $ 42,827
Gross profit........................ 14,945 7,455 11,494 13,993
Net loss............................ (1,605) (24,005) (4,331) (1,363)
Net loss per share.................. (0.06) (0.96) (0.17) (0.05)
</TABLE>
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales........................... $38,091 $ 39,306 $ 45,785 $ 49,750
Gross profit........................ 12,372 13,998 15,317 17,719
Net income (loss)................... (2,829) (1,655) (837) 1,012
Net income (loss) per share......... (0.14) (0.08) (0.04) 0.04
<FN>
- - - ---------------
(1) The Company took a restructuring charge of $14,376,000 to its second quarter
results of operations. The restructuring charge largely related to the
Company's plan to eliminate excess leased facilities and included amounts
for severance payments and benefits to employees terminated in a workforce
reduction. The Company also took a provision for excess inventories of
$3,500,000 in the second quarter.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under these Items is included in Item 1. of Part I of
this report and in the Proxy Statement for the Annual Meeting of Stockholders to
be held on December 7, 1994, under the headings "Certain Stockholders,"
"Election of Directors," and "Compensation of Executives," which information is
incorporated herein by reference. Such Proxy Statement shall be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
Company's fiscal year, July 31, 1994.
27
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of LTX Corporation are
included in response to Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheet -- July 31, 1994 and 1993
Consolidated Statement of Operations for the years ended
July 31, 1994, 1993 and 1992
Consolidated Statement of Stockholders' Equity for the years
ended July 31, 1994, 1993 and 1992
Consolidated Statement of Cash Flows for the years
ended July 31, 1994, 1993 and 1992
Notes to the Consolidated Financial Statements
(B) 2. SCHEDULES
<TABLE>
The following consolidated financial statement schedules of LTX Corporation
are included in response to Item 14(d):
<S> <C> <C>
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation and Amortization of
Property, Plant and Equipment
Schedule IX -- Short-Term Borrowings
Schedule X -- Supplementary Income Statement Information
</TABLE>
All other schedules have been omitted since they are not required, not
applicable or the information is included in the financial statements or notes
thereto.
Separate financial statements of LTX Corporation (parent only) have been
omitted since they are not required.
(A) 3. EXHIBITS
Certain of the exhibits listed hereunder have previously been filed with
the Commission as exhibits to the Company's Registration Statement No. 2-75470
on Form S-1 filed December 23, 1981, as amended (the 1981 Registration
Statement); to the Company's Registration Statement No. 2-94218 on Form S-1
filed November 8, 1984, as amended (the 1984 Registration Statement); to the
Company's Registration Statement No. 33-35401 on Form S-4 filed June 26, 1990,
as amended (the 1990 Registration Statement No. 1); to the Company's
Registration Statement No. 33-39610 on Form S-3 filed June 10, 1991, as amended
(the 1991 Registration Statement No. 1); to the Company's Form 8A/A filed
September 30, 1993 amending the Company's Registration Statement on Form 8-A
filed November 24, 1982 (the 1993 8A/A); to the Company's Current Report on Form
8-K, filed May 11, 1989; or the Company's Annual Reports on Form 10-K for one of
the years ended July 31, 1993, 1992, 1991, 1990, 1989, 1988, 1987, 1986, 1985,
1984 and 1983 and are hereby incorporated by reference. The location of each
document so incorporated by reference is noted parenthetically.
<TABLE>
(A) EXHIBITS
<S> <C> <C>
(3)(A) -- Articles of Organization, as amended. (Exhibit 2 to the 1993 8A/A)
(3)(B) -- By-laws, as amended. (Exhibit 3 to the 1993 8A/A)
(4)(A) -- Indenture dated April 15, 1986 between the Company and The First
National Bank of Boston. (Exhibit 4(A) to the 1990 Registration
Statement No. 1)
(4)(A)(ii) -- Indenture dated June 15, 1990 between the Company and The First
National Bank of Boston. (Exhibit 4(A)(ii) to the 1990 Annual Report
on Form 10-K)
</TABLE>
28
<PAGE> 32
<TABLE>
<S> <C> <C>
(4)(C) -- Rights Agreement. (Exhibit 1 of the Registrant's Current Report on
Form 8-K, filed May 11, 1989), as amended by Amendment No. 1 to
Rights Agreement dated as of September 17, 1993 (Exhibit 4(C) to the
1993 Annual Report on Form 10-K)
(10)(B)(i)+ -- 1990 Incentive Stock Option Plan. (Exhibit 10(B)(i) to the 1991
Annual Report on Form 10-K)
(10)(D)+ -- 1993 Employees' Stock Purchase Plan. (Exhibit 10(D) hereto)
(10)(E)+ -- 1983 Non-Qualified Stock Option Plan. (Exhibit 10(E) to the 1983
Annual Report on Form 10-K)
(10)(F) -- LTX Corporation Growth and Investment Program, as restated. (Exhibit
10(F) to the 1993 Annual Report on Form 10-K)
(10)(G) -- 1984 Stock Option Plan for LTX (Europe) Ltd. (Exhibit 10(G) to the
1984 Annual Report on Form 10-K)
(10)(I) -- Lease dated as of March 8, 1984 relating to land and building at
McCandless Park, San Jose, California. (Exhibit 10(I) to the 1984
Registration Statement)
(10)(J) -- Lease dated as of July 16, 1984 relating to Company's administration
facility on Rosemont Avenue, Westwood, Massachusetts. (Exhibit 10(J)
to the 1984 Registration Statement)
(10)(K) -- Lease dated as of February 27, 1985 relating to land and building at
McCandless Park, San Jose, California. (Exhibit 10(K) to the 1985
Annual Report on Form 10-K)
(10)(M) -- Lease dated as of November 26, 1980 relating to Company's
manufacturing facility at 5 Rosemont Avenue, Westwood,
Massachusetts, and Amendment dated as of April 29, 1982, and Third
Amendment and Restatement of Lease dated April 29, 1982. (Exhibit
10(M) to the 1993 Annual Report on Form 10-K)
(10)(N) -- Joint Venture Agreement dated May 14, 1990 among Sumitomo Metal
Industries, Ltd., LTX Corporation and LTX Co., Ltd. (Exhibit 10(N)
to the 1990 Registration Statement No. 1)
(10)(O) -- License Agreement dated May 14, 1990 between LTX Corporation and LTX
Co., Ltd. (Exhibit 10(O) to the 1990 Registration Statement No. 1)
(10)(P) -- Distribution and Supply Agreement between LTX Corporation and LTX
Co., Ltd. (Exhibit 10(P) to the 1990 Registration Statement No. 1)
(10)(Q) -- Securities Purchase Agreement for sale of LTX Common Stock, $0.05
par value, and 10 1/2% Convertible Subordinated Debentures Due 2010
to Sumitomo Metal Industries, Ltd. (Exhibit 10(Q) to the 1990
Registration Statement No. 1)
(10)(R)* -- License and Development Agreement dated as of January 28, 1993
between LTX Corporation and Ando Electric Co., Ltd. (Exhibit 10(R)
to the 1993 Annual Report on Form 10-K)
(10)(S)* -- Distribution and Supply Agreement dated as of January 28, 1993
between LTX Corporation and Ando Electric Co., Ltd. (Exhibit 10(S)
to the 1993 Annual Report on Form 10-K)
(10)(T)* -- Letter Agreement dated as of January 29, 1993 between LTX
Corporation and Ando Electric Co., Ltd. (Exhibit 10(T) to the 1993
Annual Report on Form 10-K)
(10)(U) -- Credit Agreement dated as of October 6, 1994 between LTX Corporation
and Silicon Valley Bank (Exhibit 10(U) hereto)
(10)(V) -- Loan Agreement dated as of July 20, 1994 between LTX Corporation and
Ando Electric Co., Ltd. (Exhibit 10(V) hereto)
</TABLE>
29
<PAGE> 33
<TABLE>
<S> <C> <C>
(10)(W)* -- Amendment No. 1 to License and Development Agreement dated as of
July 20, 1994 between LTX Corporation and Ando Electric Co., Ltd.
(Exhibit 10(W) hereto)
(22) -- Subsidiaries of Registrant
(27) -- Financial Data Schedules (Exhibit 27 hereto)
<FN>
- - - ---------------
+ This exhibit is a compensatory plan or arrangement in which executive officers
or directors of the Company participate.
* Confidential treatment requested as to certain portions thereof. The
confidential portion has been omitted and filed separately with the
Commission.
</TABLE>
Pursuant to Item 601 of Regulation S-K, certain instruments with respect to
long-term debt not exceeding 10% of the total assets of the Company and its
subsidiaries on a consolidated basis are not filed herewith. The Company hereby
agrees to furnish to the Commission a copy of each such instrument upon request.
ITEM 14(B). REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of fiscal 1994.
<TABLE>
ITEM 14(C). EXHIBITS
Exhibit 22 -- Subsidiaries of Registrant
<CAPTION>
JURISDICTION
COMPANY OF ORGANIZATION OWNERSHIP
------- --------------- ---------
<S> <C> <C>
LTX Co., Ltd. Japan 50.5%
LTX (Europe) Limited United Kingdom 100%
LTX International, Inc., a Domestic
International Sales Corporation (DISC) Delaware 100%
LTX (Deutschland) GmbH West Germany 100%
LTX France S.A. France 100%
LTX Test Systems Corporation Delaware 100%
LTX (Italia) S.r.l. Italy 100%
LTX Benelux B.V. The Netherlands 100%
LTX International B.V. The Netherlands 100%
LTX (Foreign Sales Corporation) B.V. The Netherlands 100%
LTX Asia International, Inc. Delaware 100%
LTX Israel Limited Israel 100%
LTX (Malaysia) SDN.BHD. Malaysia 100%
iPTest (Holdings) Limited United Kingdom 100%
</TABLE>
The subsidiaries listed are all included in the consolidated financial
statements of the Company.
30
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
LTX CORPORATION
/S/ ROGER W. BLETHEN
/S/ MARTIN S. FRANCIS
By ................................
ROGER W. BLETHEN
DIRECTOR AND PRESIDENT
MARTIN S. FRANCIS
DIRECTOR AND PRESIDENT
October 14, 1994
<TABLE>
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ GRAHAM C. C. MILLER Chairman of the Board October 14, 1994
..........................................
(GRAHAM C. C. MILLER)
/S/ ROGER W. BLETHEN President and Director October 14, 1994
.......................................... (Principal Executive
(ROGER W. BLETHEN) Officer)
/S/ MARTIN S. FRANCIS President and Director October 14, 1994
.......................................... (Principal Executive
(MARTIN S. FRANCIS) Officer)
/S/ JOHN J. ARCARI Chief Financial Officer and October 14, 1994
.......................................... Treasurer (Principal
(JOHN J. ARCARI) Financial Officer)
/S/ GLENN W. MELONI Controller (Principal October 14, 1994
.......................................... Accounting Officer)
(GLENN W. MELONI)
/S/ JACQUES BOUYER Director October 14, 1994
..........................................
(JACQUES BOUYER)
/S/ FRED J. BUTLER Director October 14, 1994
..........................................
(FRED J. BUTLER)
/S/ ROGER J. MAGGS Director October 14, 1994
..........................................
(ROGER J. MAGGS)
/S/ ROBERT E. MOORE Director October 14, 1994
..........................................
(ROBERT E. MOORE)
/S/ SAMUEL RUBINOVITZ Director October 14, 1994
..........................................
(SAMUEL RUBINOVITZ)
</TABLE>
31
<PAGE> 35
<TABLE>
LTX CORPORATION
SCHEDULE V -- PROPERTY AND EQUIPMENT
(IN THOUSANDS)
<CAPTION>
YEAR BALANCE AT BALANCE AT
ENDED BEGINNING ADDITIONS END OF
JULY 31 CLASSIFICATION OF PERIOD AT COST RETIREMENTS PERIOD
- - - -------- -------------- ---------- --------- ----------- ----------
<C> <S> <C> <C> <C> <C>
1992 Machinery and equipment......... $ 73,150 $ 8,743(1) $ (19,316)(2) $ 62,577
Office furniture and
equipment....................... 10,367 675 (2,931) 8,111
Leasehold improvements.......... 8,251 562 (679) 8,134
-------- ------- --------- --------
$ 91,768 $ 9,980 $ (22,926) $ 78,822
======== ======= ========= ========
1993 Machinery and equipment......... $ 62,577 $ 8,774(1) $ (4,291)(2) $ 67,060
Office furniture and
equipment....................... 8,111 508 (709) 7,910
Leasehold improvements.......... 8,134 424 (1,072) 7,486
-------- ------- --------- --------
$ 78,822 $ 9,706 $ (6,072) $ 82,456
======== ======= ========= ========
1994 Machinery and equipment......... $ 67,060 $14,313(1) $ (13,008)(2) $ 68,365
Office furniture and
equipment....................... 7,910 338 (4,331) 3,917
Leasehold improvements.......... 7,486 71 (260) 7,297
-------- ------- --------- --------
$ 82,456 $14,722 $ (17,599) $ 79,579
======== ======= ========= ========
<FN>
- - - ---------------
(1) Includes transfers of $10,042, $6,698 and $4,985 in 1994, 1993 and 1992,
respectively, from inventory to equipment manufactured by the Company.
(2) Includes transfers of $5,840, $3,965 and $5,742 from equipment to inventory
in 1994, 1993 and 1992, respectively.
</TABLE>
<TABLE>
LTX CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY AND EQUIPMENT
(IN THOUSANDS)
<CAPTION>
ADDITIONS
YEAR BALANCE AT CHARGED TO BALANCE AT
ENDED BEGINNING COSTS AND END OF
JULY 31 CLASSIFICATION OF PERIOD EXPENSES(1) RETIREMENTS PERIOD
- - - -------- -------------- ---------- ----------- ----------- ----------
<C> <S> <C> <C> <C> <C>
1992 Machinery and equipment....... $ 47,392 $ 7,807 $ (17,296)(2) $ 37,903
Office furniture and
equipment..................... 8,389 940 (2,662) 6,667
Leasehold improvements........ 4,567 675 (610) 4,632
-------- ------- --------- --------
$ 60,348 $ 9,422 $ (20,568) $ 49,202
======== ======= ========= ========
1993 Machinery and equipment....... $ 37,903 $ 7,973 $ (3,179)(2) $ 42,697
Office furniture and
equipment..................... 6,667 497 (180) 6,984
Leasehold improvements........ 4,632 689 (804) 4,517
-------- ------- --------- --------
$ 49,202 $ 9,159 $ (4,163) $ 54,198
======== ======= ========= ========
1994 Machinery and equipment....... $ 42,697 $ 8,066 $ (8,350)(2) $ 42,413
Office furniture and
equipment..................... 6,984 513 (4,210) 3,287
Leasehold improvements........ 4,517 579 (163) 4,933
-------- ------- --------- --------
$ 54,198 $ 9,158 $ (12,723) $ 50,633
======== ======= ========= ========
<FN>
- - - ---------------
(1) The annual provisions for depreciation and amortization are based on the straight-line method
with the cost of the assets being written off over their estimated useful life as follows:
Machinery and equipment........................ 5 years
Office furniture and equipment................. 3-7 years
Leasehold improvements......................... 10 years or term of lease
(2) Includes transfers of $2,110, $2,947 and $3,882 from equipment to inventory in 1994, 1993 and 1992, respectively.
</TABLE>
32
<PAGE> 36
<TABLE>
LTX CORPORATION
SCHEDULE IX -- SHORT-TERM BORROWINGS
(IN THOUSANDS)
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST DURING DURING RATE DURING
OF YEAR RATE THE YEAR THE YEAR(1) THE YEAR(2)
------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1992
Notes payable to banks............ $8,693 7.0% $ 9,972 $ 7,446 7.5%
Year ended July 31, 1993
Notes payable to banks............ $9,933 6.0% $13,261 $ 9,534 7.0%
Year ended July 31, 1994
Notes payable to banks............ $6,870 3.3% $15,350 $12,074 5.0%
<FN>
- - - ---------------
(1) The average amount outstanding during the period was computed by dividing
the total of month-end outstanding principal balances by 13.
(2) The weighted average interest rate during the period was computed by
dividing actual interest expense by average short-term debt outstanding.
</TABLE>
<TABLE>
LTX CORPORATION
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<CAPTION>
YEAR ENDED JULY 31
--------------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Maintenance and repairs...................................... $2,312 $2,368 $1,935
</TABLE>
Amounts for other items required in this schedule have been omitted since
they are less than one percent of net sales.
33
<PAGE> 1
Exhibit 10(d)
LTX CORPORATION
1993 EMPLOYEES' STOCK PURCHASE PLAN
1. DEFINITIONS. As used in this 1993 Employees' Stock Purchase Plan of
LTX Corporation, the following terms shall have the meanings respectively
assigned to them below:
(a) BASE COMPENSATION means annual or annualized base compensation,
exclusive of overtime, bonuses, contributions to employee benefit plans, or
other fringe benefits.
(b) BENEFICIARY means the person designated as beneficiary on the
Optionee's Membership Agreement or, if no such beneficiary is named, the person
to whom the Option is transferred by will or under the applicable laws of
descent and distribution.
(c) Board means the Board of Directors of the Company.
-----
(d) Code means the Federal Internal Revenue Code of 1986, as amended.
----
(e) Company means LTX Corporation, a Massachusetts corporation.
-------
(f) ELIGIBLE EMPLOYEE means a person who is eligible under the
provisions of Section 8 to receive an Option as of a particular Offering
Commencement Date.
(g) GROSS COMPENSATION means Base Compensation plus commissions,
overtime pay and cash bonuses.
(h) MARKET VALUE means, as of a particular date, the average closing
bid and asked prices of the Stock in the Over-the- Counter Market, as reported
by the National Association of Securities Dealers, Inc., or if the Stock is
listed on an exchange or the National Market System, the closing price of the
Stock.
(i) MEMBERSHIP AGREEMENT means an agreement whereby an Optionee
authorizes a Participating Employer to withhold payroll deductions from his or
her Gross Compensation.
(j) OFFERING COMMENCEMENT DATE means a date which is the first
business day of a semi-annual Offering Period, on which Options are granted to
Eligible Employees.
(k) OFFERING PERIOD means a semi-annual period, February 1 to July 31
or August 1 to January 31, during which options will be offered under the Plan.
<PAGE> 2
(l) OFFERING TERMINATION Date means the date which is the last
business day of an Offering Period, on which Options must, if ever, be
exercised.
(m) Option means an option to purchase shares of Stock granted under
the Plan. ------
(n) Option Shares means shares of Stock purchasable under an Option.
-------------
(o) Optionee means an Eligible Employee to whom an Option is
granted. --------
(p) PARTICIPATING EMPLOYER means the Company or any Related
Corporation which is designated by the Board as a corporation whose Eligible
Employees are to receive Options as of a particular Offering Commencement Date.
(q) PLAN means this 1993 Employees' Stock Purchase Plan of the
Company, as amended.
(r) RELATED CORPORATION means any corporation which is a parent
corporation of the Company, as defined in Section 424(e) of the Code, or a
subsidiary corporation of the Company, as defined in Section 424(f) of the
Code.
(s) REPORTING PERSON means a Director of the Company or an "officer"
of the Company for purposes of Section 16 of the Securities Exchange Act of
1934.
(t) Stock means common stock, $0.05 par value, of the Company.
-----
2. PURPOSE OF THE PLAN. The Plan is intended to encourage ownership of
Stock by employees of the Company and the Related Corporations and to provide
additional incentive for the employees to promote the success of the business
of their employers. It is intended that the Plan shall be an "employee stock
purchase plan" within the meaning of Section 423 of the Code.
3. TERM OF THE PLAN. The Plan shall become effective on December 15,
1993. No option shall be granted under the Plan after December 14, 2003.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board which shall determine semi-annually, effective on February 1 and August
1, whether to grant Options under the Plan. The Board shall determine which
(if any) Related Corporations shall be Participating Employers as of each
Offering Commencement Date. The Board shall have authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, to determine the terms of Options granted under the Plan, and to make all
other determinations necessary or advisable for the administration of the Plan.
<PAGE> 3
5. TERMINATION AND AMENDMENT OF PLAN. The Board may terminate or amend
the Plan at any time; provided, however, that the Board may not, without
approval by the holders of a majority of the shares of Stock, increase the
maximum number of shares of Stock purchasable under the Plan, change the
description of employees or classes of employees eligible to receive Options,
change the manner of determining the exercise price of Options, or extend the
period during which Options may be granted or exercised. No termination of or
amendment to the Plan may adversely affect the rights of an Optionee with
respect to any Option held by the Optionee as of the date of such termination
or amendment.
6. SHARES OF STOCK SUBJECT TO THE PLAN. No more than an aggregate of
600,000 shares of Stock may be issued or delivered pursuant to the exercise of
Options granted under the Plan, subject to adjustments made in accordance with
Section 10.7. Shares to be delivered upon the exercise of Options may be
either shares of Stock which are authorized but unissued or shares of Stock
held by the Company in its treasury. If an Option expires or terminates for
any reason without having been exercised in full, the unpurchased shares
subject to the Option shall become available for other Options granted under
the Plan. The Company shall, at all times during which Options are
outstanding, reserve and keep available shares of Stock sufficient to satisfy
such Options and shall pay all fees and expenses incurred by the Company in
connection therewith. In the event of any capital change in the outstanding
Stock as contemplated by Section 10.7, the number of shares of Stock reserved
and kept available by the Company shall be appropriately adjusted.
7. SHARES OF STOCK ISSUABLE PER OFFERING PERIOD. No more than an
aggregate of 150,000 shares of stock may be issued or delivered pursuant to the
exercise of Options in any Offering Period, subject to adjustments made in
accordance with Section 10.7.
8. PERSONS ELIGIBLE TO RECEIVE OPTIONS. Each employee of a
Participating Employer shall be granted an Option on each Grant Date on which
such employee meets all of the following requirements:
(a) The employee is customarily employed by a Participating Employer
for more than twenty hours per week and for more than five months per calendar
year.
(b) The employee will not, after grant of the Option, own stock
possessing five percent or more of the total combined voting power or value of
all classes of stock of the Company or of any Related Corporation. For
purposes of this paragraph (b), the rules of Section 424(d) of the Code shall
apply in determining the stock ownership of the employee, and stock which the
employee may purchase under outstanding options shall be treated as stock owned
by the employee.
(c) Upon grant of the Option, the employee's rights to purchase
stock under all employee stock purchase plans (as defined in Section 423(b) of
the Code) of the Company and its Related Corporations will not accrue at a rate
which exceeds $25,000 of fair market value of the stock (determined as of the
grant date) for each calendar year in which such option is outstanding at any
<PAGE> 4
time. The accrual of rights to purchase stock shall be determined in
accordance with Section 423(b)(8) of the Code.
(d) The employee is not a Reporting Person who failed fully to
exercise any previous Option granted by the Company under the Plan or any other
employee stock purchase plan within the meaning of Section 423 of the Code.
9. OFFERING COMMENCEMENT DATES. Options shall be granted on the first
business day of each semi-annual period, February 1 to July 31 and August 1 to
January 31, which is designated by the Board of Directors as an Offering
Period.
10. Terms and Conditions of Options
-------------------------------
10.1 GENERAL. All Options granted on a particular Offering
Commencement Date shall comply with the terms and conditions set forth in
Sections 10.2 through 10.12.
10.2 PURCHASE PRICE. The purchase price of Option Shares shall be
85% of the lesser of (a) the Market Value of the shares as of the Offering
Commencement Date or (b) the Market Value of the shares as of the Offering
Termination Date.
10.3 RESTRICTIONS ON TRANSFER. Options may not be transferred
otherwise than by will or under the laws of descent and distribution. An
Option may not be exercised by anyone other than the Optionee during the
lifetime of the Optionee. Option shares may be sold or otherwise
transferred by the Optionee without restriction. The Optionee shall agree in
the Membership Agreement to notify the Company of any transfer of the shares
within two years of the Offering Commencement Date of those shares. An
Optionee who is a Reporting Person shall agree in the Membership Agreement not
to transfer any of the shares within six months after purchase. The Company
shall have the right to place a legend on all stock certificates instructing
the transfer agent to notify the Company of any transfer of the shares.
10.4 EXPIRATION. Each Option shall expire at the close of business
on the Offering Termination Date or on such earlier date as may result from the
operation of Section 10.6.
10.5 TERMINATION OF EMPLOYMENT OF OPTIONEE. If an Optionee ceases
for any reason (other than death or retirement) to be continuously employed by
the Company or a Related Corporation, whether due to voluntary severance,
involuntary severance, transfer, or disaffiliation of the employer corporation
with the Company, his or her Option shall immediately expire, and the
Optionee's accumulated payroll deductions shall be returned by the Company.
For purposes of this Section 10.5, an Optionee shall be deemed to be employed
throughout any leave of absence for military service, illness or other bona
fide purpose which does not exceed the longer of ninety days or the period
during which the Optionee's reemployment rights are guaranteed by statute,
contract or announced Company policy. If the Optionee does not return to
active employment prior to the termination of such period, his or her
employment shall be deemed to have ended on the ninety-first day of such leave
of absence.
<PAGE> 5
10.6 RETIREMENT OR DEATH OF OPTIONEE. If an Optionee retires or
dies, the employee or, in the case of death, his or her Beneficiary shall be
entitled to withdraw the Optionee's accumulated payroll deductions or to
purchase shares on the Exercise Date to the extent that the Optionee would be
so entitled had he or she continued to be employed by a Participating Employer.
The number of shares purchasable shall be limited by the amount of the
Optionee's accumulated payroll deductions as of the date of his or her
retirement or death. Accumulated payroll deductions shall be applied by the
Company toward the purchase of shares only if the Beneficiary submits to the
Participating Employer a written request that the deductions be so applied.
Accumulated payroll deductions not withdrawn or applied to the purchase of
shares shall be delivered by the Company to the Optionee or Beneficiary within
a reasonable time after the Offering Termination Date.
10.7 CAPITAL CHANGES AFFECTING THE STOCK. In the event that, between
the Offering Commencement Date and the Offering Termination Date of an Option,
a stock dividend is paid or becomes payable in respect of the Stock or there
occurs a split-up or contraction in the number of shares of Stock, the number
of shares for which the Option may thereafter be exercised and the price to be
paid for each such share shall be proportionately adjusted. In the event
that, after the Offering Commencement Date, there occurs a reclassification or
change of outstanding shares of Stock or a consolidation or merger of the
Company with or into another corporation or a sale or conveyance, substantially
as a whole, or the property of the Company, the Optionee shall be entitled on
the Offering Termination Date to receive shares of stock or other securities
equivalent in kind and value to the shares of stock he or she should have held
if he or she had exercised the Option in full immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance and had
continued to hold such shares (together with all other shares and securities
thereafter issued in respect thereof) until the Offering Termination Date. In
the event that there is to occur a recapitalization involving an increase in
the par value of the Stock which would result in a par value exceeding the
exercise price under an outstanding Option, the Company shall notify the
Optionee of such proposed recapitalization immediately upon its being
recommended by the Board to the Company's shareholders, after which the
Optionee shall have the right to exercise his or her Option prior to such
recapitalization; if the Optionee fails to exercise the Option prior to
recapitalization, the exercise price under the Option shall be appropriately
adjusted. In the event that, after the Offering Commencement Date, there
occurs a dissolution or liquidation of the Company, except pursuant to a
transaction to which Section 424(a) of the Code applies, each Option shall
terminate, but the Optionee shall have the right to exercise his or her Option
prior to such dissolution or liquidation.
10.8 PAYROLL DEDUCTIONS. An Optionee may purchase shares under his
or her Option by completing and returning to the personnel department of his or
her employer at least ten days prior to the beginning of the next Offering
Period a Membership Agreement indicating a percentage (which shall be a full
integer between one and fifteen) of his or her Gross Compensation which is to
be withheld each pay period; PROVIDED, HOWEVER, that the accumulated payroll
deductions for the Optionee shall not exceed $12,500 in any Offering Period.
The Optionee shall not be permitted to change the percentage of Gross
Compensation withheld during an Offering Period. The percentage of Gross
<PAGE> 6
Compensation withheld may be changed from one Offering Period to another. The
Optionee may withdraw any or all of his or her accumulated payroll deductions
by submitting a written request therefor to the personnel department of his or
her employer no later than two weeks prior to the Offering Termination Date.
10.9 EXERCISE OF OPTIONS. On the Offering Termination Date the
Optionee may purchase the number of shares purchasable by his or her
accumulated payroll deductions, provided that:
(a) If the total number of shares which all Optionees elect to
purchase, together with any shares already purchased under the Plan, exceeds
the total number of shares which may be purchased under the Plan pursuant to
Section 6 or Section 7, the number of shares which each Optionee is permitted
to purchase shall be decreased pro rata based on the Optionee's accumulated
payroll deductions in relation to all accumulated payroll deductions currently
being withheld under the Plan.
(b) If the number of shares purchasable includes a fraction,
such number shall be adjusted to the next smaller whole number and the purchase
price shall be adjusted accordingly.
Accumulated payroll deductions not withdrawn on or prior to the
Offering Termination Date shall be automatically applied by the Company toward
the purchase of Option Shares.
10.10 DELIVERY OF STOCK. Within a reasonable time after the Offering
Termination Date, the Company shall deliver or cause to be delivered to the
Optionee a certificate or certificates for the number of shares purchased by
the Optionee. A stock certificate representing the number of shares purchased
will be issued in the participant's name only, or if his or her Membership
Agreement so specifies, in the name of the employee and another person of legal
age as joint tenants with rights of survivorship. If any law or applicable
regulation of the Securities and Exchange Commission or other body having
jurisdiction in the premises shall require that the Company or the Optionee
take any action in connection with the shares being purchased under the Option,
delivery of the certificate or certificates for such shares shall be postponed
until the necessary action shall have been completed, which action shall be
taken by the Company at its own expense, without unreasonable delay. The
Optionee shall have no rights as a shareholder in respect of shares for which
he or she has not received a certificate.
10.11 RETURN OF ACCUMULATED PAYROLL DEDUCTIONS. In the event that
the Optionee or the Beneficiary is entitled to the return of accumulated
payroll deductions for any reason, the accumulated payroll deductions shall be
returned within a reasonable time by the Company to the Optionee or the
Beneficiary, as the case may be. In the event that accumulated payroll
deductions exceed the price of shares purchased by reason of Section 6 or
Section 7 hereof, the excess shall be returned with interest within thirty days
after the end of the Offering Period. Otherwise, the accumulated payroll
deductions shall be returned without interest.
<PAGE> 1
Exhibit 10(u)
CREDIT AGREEMENT
----------------
Dated as of October 6, 1994
between
LTX CORPORATION
and
SILICON VALLEY BANK
______________________________
Line of Credit Loans
$5,000,000
________________________________
<PAGE> 2
<TABLE>
CREDIT AGREEMENT
TABLE OF CONTENTS
-----------------
<CAPTION>
Page
<S> <C> <C>
Preamble
Section 1 Line of Credit Loans
1.1 Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------
1.2 Line of Credit Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------------
1.3 Requests For Line of Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . 1
---------------------------------
1.4 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
--------------
1.5 Maturity Date of Line of Credit Loans . . . . . . . . . . . . . . . . . . . . . . 1
-------------------------------------
1.6 Termination of Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-------------------------
1.7 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
-----------------
Section 2 Interest Rates; Payments and Optional Prepayments
2.1 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------------
2.2 Manner and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------------------
2.3 Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . . . . . 2
-----------------------------------------------
2.4 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------------
2.5 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
--------------------
Section 3 Security
3.1 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
------------------
Section 4 Conditions Precedent
4.1 This Agreement, the Note and the Security Instruments . . . . . . . . . . . . . . 3
-----------------------------------------------------
4.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
----------
4.3 Correctness of Representations . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------------------------
4.4 Opinion of Counsel for the Borrower . . . . . . . . . . . . . . . . . . . . . . . 4
-----------------------------------
4.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
----------------------
4.6 Filing of Financing Statements, etc . . . . . . . . . . . . . . . . . . . . . . . 4
-----------------------------------
4.7 Supporting Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------------
4.8 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------------
4.9 Compliance and Borrowing Base Certificates . . . . . . . . . . . . . . . . . . . 4
------------------------------------------
</TABLE>
<PAGE> 3
-ii-
<TABLE>
<S> <C> <C>
4.10 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------------
4.11 Directors' Loan Committee Approval . . . . . . . . . . . . . . . . . . . . . . . 5
----------------------------------
Section 5 Representations and Warranties
5.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------
5.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
------------
5.3 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-----------------------------
5.4 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
--------------
5.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
----------------------
5.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
--------------------
5.7 No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
------------------
5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
----------
5.9 Compliance with Other Instruments; Compliance with Law . . . . . . . . . . . . . 6
------------------------------------------------------
5.10 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
------------
5.11 Investment Borrower Status; Limits on Ability to Incur Indebtedness . . . . . . . 7
-------------------------------------------------------------------
5.12 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-----------------
5.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-----
5.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-----
5.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------
5.16 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
Section 6 Affirmative Covenants
6.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------------------------
6.2 Taxes and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------------------
6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
---------
6.4 Financial Statements, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
-------------------------
6.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----------------
6.6 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
---------------------
6.7 ERISA Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----------------
6.8 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
----------
6.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------
6.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------------
6.11 Depository Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-------------------
6.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
------------
Section 7 Negative Covenants
7.1 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----
7.2 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------------
7.3 Consolidation, Merger or Acquisition . . . . . . . . . . . . . . . . . . . . . . 12
------------------------------------
7.4 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------------
7.5 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
------------
7.6 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----
7.7 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-------------------
7.8 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
7.9 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------
</TABLE>
<PAGE> 4
-iii-
<TABLE>
<S> <C> <C>
7.10 Additional Stock Issuance by Subsidiaries . . . . . . . . . . . . . . . . . . . . 15
-----------------------------------------
7.11 Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------
7.12 Minimum Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
---------------------
7.13 Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
--------
7.14 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
------------------
Section 8 Events of Default
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-----------------
8.2 Remedies Upon an Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 17
---------------------------------
Section 9 Definitions
9.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-------------------
Section 10 Miscellaneous
10.1 Accounting Terms and Definitions . . . . . . . . . . . . . . . . . . . . . . . . 23
--------------------------------
10.2 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
---------------
10.3 Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------
10.4 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------
10.5 Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
----------------
10.6 Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-------------------------
10.7 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------
10.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------
10.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
-------------
10.10 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------------
10.11 VENUE, CONSENT TO SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . . . . 26
------------------------------------
10.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
--------
10.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
------------
Schedule A
A - Disclosure Schedule
</TABLE>
<PAGE> 5
CREDIT AGREEMENT
[Line of Credit Loans ]
THIS CREDIT AGREEMENT, dated as of October 6, 1994 by and
between LTX CORPORATION, a Massachusetts corporation with its principal place
of business at LTX Park at University Avenue, Westwood, Massachusetts 02090
(the "BORROWER") and SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3000 Lakeside Drive, P.O. Box 3762, Santa Clara,
California 95054 with a loan production office located at Wellesley Office
Park, 45 William Street, Wellesley, Massachusetts 02181 doing business under
the name Silicon Valley East (the "Bank").
Section 1 Line of Credit Loans.
--------- --------------------
1.1 AMOUNT. Subject to and upon the terms and
conditions set forth below, the Bank agrees to make loans (each a "LINE OF
CREDIT LOAN" and collectively, the "LINE OF CREDIT LOANS") to the Borrower
under this Section 1.1 from time to time to and including December 4, 1995 (the
"COMMITMENT EXPIRATION DATE"), unless earlier terminated pursuant to Section
1.5, in an aggregate principal amount not to exceed at any one time outstanding
the sum of $5,000,000 (the "LINE OF CREDIT COMMITMENT"), subject to the
limitation set forth in Section 1.4. Within the limit of the Line of Credit
Commitment, the Borrower may borrow, repay and reborrow at any time or from
time to time until the Commitment Expiration Date, or the termination of the
Line of Credit Commitment, whichever occurs earlier.
1.2 LINE OF CREDIT NOTE. The Line of Credit
Loans shall be evidenced by and payable with interest in accordance with the
note of the Borrower in a form reasonably satisfactory to the Bank, dated
today's date (the "Note").
1.3 REQUESTS FOR LINE OF CREDIT LOANS. Whenever
the Borrower desires to obtain a Line of Credit Loan, it shall notify the Bank
by telex, telecopy or telephone received no later than 1:00 p.m. (Boston time)
one Banking Day before the day on which the requested Line of Credit Loan is to
be made. Such notice shall specify the effective date and the amount of such
Loan. Each such notice (a "NOTICE OF BORROWING") shall be irrevocable and
shall be immediately followed by a written Borrowing Certificate by the
Borrower in a form satisfactory to the Bank, provided, if such written
confirmation differs in any material respect from the action taken by the Bank,
the records of the Bank shall control absent manifest error. The Bank shall
make such Line of Credit Loan by crediting its amount in immediately available
funds to the Borrower's regular deposit account with the Bank.
1.4 BORROWING BASE. The Borrower shall not
permit, or request any advance or the issuance of any Letter of Credit
hereunder that would cause, the sum of (a) the aggregate unpaid principal
amount of all Line of Credit Loans under this Line of Credit Commitment and (b)
the aggregate Letter of Credit Usage (the sum of (a) and (b), the "Extensions
of Credit"), to exceed at any time an amount equal to the lesser of (i) the
Line of Credit Commitment or (ii) seventy-five percent (75%) of all Eligible
Domestic Accounts Receivable at such time (the "Borrowing Base"). If at any
time the aggregate principal amount of all Extensions of Credit exceeds the
Borrowing Base, the Borrower shall, on the next Banking Day, prepay such excess
principal amount together with accrued interest thereon at the applicable rate,
and if such excess is not eliminated thereby, the Borrower shall also pledge to
the Bank an amount by which the aggregate Extensions of Credit exceed the
Borrowing Base, in a manner acceptable to the Bank.
1.5 MATURITY DATE OF LINE OF CREDIT LOANS. All
Line of Credit Loans shall mature and the total unpaid principal amount
thereunder shall be due and payable on December 5, 1995 (the "MATURITY DATE"),
at which time all amounts advanced under this Section 1 shall be immediately
due and payable.
<PAGE> 6
-2-
1.6 TERMINATION OF COMMITMENT. The Borrower,
upon (a) at least two (2) Banking Days' prior written notice to the Bank and
(b) the repayment in full of the outstanding principal balance of the Line of
Credit Loans (and accrued interest thereon) and the payment in full of any
expenses or other fees owed by the Borrower to the Bank under or pursuant to
this Agreement, may elect to permanently terminate the Line of Credit
Commitment.
1.7 LETTERS OF CREDIT. The Borrower may use up
to $1,000,000 of the Line of Credit Commitment for Letters of Credit to be
issued by the Bank, provided that in each case (a) the Borrower executes and
delivers a letter of credit application and reimbursement agreement
satisfactory to the Bank and complies with any conditions to the issuance of
such Letter of Credit (including payment of any applicable fees); (b) the Bank
has approved the form of such Letter of Credit and the purpose of its issuance;
(c) such Letter of Credit bears an expiration date not later than 45 days prior
to the Commitment Expiration Date; and (d) the conditions set forth in Sections
4.2 and 4.3 shall have been satisfied as of the date of the issuance of the
Letter of Credit.
Section 2 Interest Rates; Payments and Optional
--------- -------------------------------------
Prepayments.
-----------
2.1 Interest Rates.
--------------
(a) The Borrower agrees to pay interest on the
unpaid principal amount of each Line of Credit Loan for each day from and
including the date such Line of Credit Loan was made to but excluding the date
the principal on such Line of Credit Loan is due (whether at maturity, by
acceleration or otherwise), at a fluctuating rate per annum equal to the Prime
Rate plus 1%, which interest rate shall change when the Prime Rate shall
change. Such interest shall be payable monthly in arrears on the last day of
each month commencing with the first such date hereafter and when the principal
amount of such Line of Credit Loan is due (whether at maturity, by acceleration
or otherwise).
(b) Any overdue principal of any such Line of
Credit Loan and, to the extent permitted by law, overdue interest thereon,
shall, at the Bank's option, bear interest (after as well as before judgment),
payable on demand, for each day from and including the date payment was due to
but excluding the date of actual payment, at a fluctuating rate per annum equal
to five (5) percentage points above the rate of interest applicable under
Section 2.1(a) immediately prior to the occurrence of the delinquency.
2.2 MANNER AND PLACE OF PAYMENT. All payments
under this Agreement or otherwise in respect of the Line of Credit Loans shall
be made not later than 2:00 p.m. (Boston Time) on the date when due and shall
be made in immediately available funds at the Office of the Bank or by the
Borrower's check drawn on the depositary account(s) maintained by the Borrower
with the Bank payable to the Bank or its order. All payments shall be made
without setoff, counterclaim, withholding or reduction of any kind whatsoever.
Borrower will regularly deposit all funds received from its business activities
in accounts maintained by the Borrower at Bank's offices in California. The
Bank may debit any account that the Borrower maintains with the Bank for any
principal, interest or fees then due on the Line of Credit Loans and any other
obligations owing by the Borrower to the Bank, without prior notice to the
Borrower, to the extent permitted by law, PROVIDED, however, the Bank agrees to
give prior notice (which may be telephone notice) prior to debiting such
account for fees, other than normal and customary banking charges, PROVIDED
FURTHER, however, that no consent of the Borrower shall be required in order
for the Bank to effect such debiting. The Bank will notify the Borrower of all
debits which the Bank makes against the Borrower's accounts. Any such debits
against the Borrower's accounts in no way shall be deemed a set-off.
2.3 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND
HOLIDAYS. Whenever any payment to be made hereunder or under the Note shall be
due on a day which is not a Banking Day,
<PAGE> 7
-3-
such payment may be made on the next succeeding Banking Day, and such extension
of time shall be included in computing any interest or fees due.
2.4 OPTIONAL PREPAYMENTS. The Borrower shall
have the right to prepay the Line of Credit Loans in whole or in part, without
premium or penalty, at any time and from time to time, provided that at the
time of the prepayment in full of all Extensions of Credit, the Borrower shall
pay all interest accrued on the amount prepaid. Principal amounts repaid or
prepaid under the Line of Credit Note or under the Line of Credit Commitment
may be reborrowed by the Borrower subject to the terms hereof; PROVIDED,
HOWEVER, that any funds repaid or prepaid on or after the earlier to occur of
(a) the Commitment Expiration Date or (b) the termination of the Line of Credit
Commitment pursuant to Section 1.6 hereof, may not be reborrowed or readvanced
thereafter.
2.5 CAPITAL REQUIREMENTS. If the Bank shall
determine that the adoption or implementation of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank (or its applicable lending
office) with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on capital
of the Bank or any Person controlling the Bank (a "PARENT") as a consequence of
its obligations hereunder to a level below that which the Bank (or its Parent)
could have achieved but for such adoption, change or compliance (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by the Bank to be material, then from time to time, within 15 days after
demand by the Bank the Borrower shall pay to the Bank such additional amount or
amounts as will compensate the Bank for such reduction. A statement of the
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive absent
manifest error; PROVIDED that the determination thereof is made on a reasonable
basis.
Section 3 Security.
--------- --------
3.1 SECURITY INTERESTS. (a) The Borrower agrees
to grant to the Bank a security interest in, and a lien on, all right, title
and interest of the Borrower in and to the accounts receivable and inventory of
the Borrower and to enter a Security Agreement in favor of the Bank in a form
reasonably satisfactory to the Bank (the "SECURITY AGREEMENT") in order to
secure payment and performance of the Borrower's obligations to the Bank under
this Agreement, the Note and the other Loan Documents.
Section 4 Conditions Precedent.
--------- --------------------
The following conditions shall be satisfied on or before
October 31, 1994 or this Agreement shall be automatically terminated and of no
further force and effect. In no event shall the Bank be obligated to make any
of the Line of Credit Loans to the Borrower hereunder unless and until the
following conditions have been satisfied:
4.1 THIS AGREEMENT, THE NOTE AND THE SECURITY
INSTRUMENTS. This Agreement, the borrowings hereunder, the Note, the Security
Instruments and all transactions contemplated by this Agreement and the
Security Instruments shall have been duly authorized by the Borrower. The
Borrower shall have duly executed and delivered to the Bank this Agreement, the
Note and the Security Instruments to the Bank in form and substance reasonably
satisfactory to the Bank and its counsel.
4.2 NO DEFAULT. On the date hereof and on the
date of the making of each Extension of Credit, no Default or Event of Default
shall have occurred and be continuing.
<PAGE> 8
-4-
4.3 CORRECTNESS OF REPRESENTATIONS. On the date
hereof and on the date of each Extension of Credit, all representations and
warranties made by the Borrower in Section 5 below or otherwise in writing in
connection herewith shall be true and correct with the same effect as though
such representations and warranties had been made on and as of today's date,
except that representations and warranties expressly limited to a certain date
shall be true and correct as of that date.
4.4 OPINION OF COUNSEL FOR THE BORROWER. The
Bank shall have received the favorable opinion of Pamela J. Keating, Esq.,
general counsel of the Borrower, in form and substance reasonably satisfactory
to the Bank and its counsel.
4.5 GOVERNMENTAL APPROVALS. On the date hereof
and on the date of each Extension of Credit, all necessary approvals, licenses,
permissions, registrations or validations of any Governmental Authority
required for the execution, delivery, performance or carrying out of the
provisions of this Agreement, the Note and the Security Instruments, or for the
validity or enforceability of the obligations incurred thereunder (other than
the filing of financing statements as required under Section 4.6 below), shall
have been obtained and shall be in full force and effect and copies thereof
certified by a duly authorized officer of the Borrower to such effect shall
have been delivered to the Bank.
4.6 FILING OF FINANCING STATEMENTS, ETC. On or
before the making of the Line of Credit Loans, financing statements, and other
appropriate documentation relating to the security interests and rights granted
pursuant to the Security Instruments, executed and delivered by the Borrower to
the Bank, shall have been duly recorded or filed in such manner and in such
places as is required by law (including, pursuant to the UCC) to establish,
preserve, protect, and perfect such security interests and rights; and all
taxes, fees and other charges in connection with the execution, delivery and
filing of this Agreement and such financing statements and other appropriate
documentation shall have been duly paid.
4.7 SUPPORTING DOCUMENTS. There shall have been
delivered to the Bank the following supporting documents:
(a) legal existence and corporate good standing
certificates with respect to the Borrower dated as of a recent
date issued by the Massachusetts Secretary of State;
(b) copies of the Articles of Organization of the
Borrower certified by the Massachusetts Secretary of State, as
in effect on the date hereof;
(c) a certificate of the Clerk or Assistant Clerk
of the Borrower certifying as to (i) the By-Laws of the
Borrower, as in effect on the date hereof; (ii) the incumbency
and signatures of the officers of the Borrower who have
executed any documents in connection with the transactions
contemplated by this Agreement; and (iii) the resolutions of
the Board of Directors and, to the extent required by law, the
shareholders, of the Borrower authorizing the execution,
delivery and performance of this Agreement and the making of
the Line of Credit Loans hereunder, and the execution and
delivery of the Note; and
(d) all other information and documents which the
Bank or its counsel may reasonably request in connection with
the transactions contemplated by this Agreement.
4.8 COMMITMENT FEE. The Borrower shall have paid
to the Bank a non-refundable Commitment Fee in the amount of $25,000 and the
Bank's expenses (including reasonable attorney's fees) in connection herewith.
4.9 COMPLIANCE AND BORROWING BASE CERTIFICATES.
The Borrower shall have furnished to the Bank a Compliance Certificate in a
form satisfactory to the Bank appropriately
<PAGE> 9
-5-
completed and signed by the chief financial officer of the Borrower, and to the
extent the Borrower is requesting an Extension of Credit on the date hereof, a
Borrowing Base Certificate in a form satisfactory to the Bank appropriately
completed and signed by the chief financial officer or president of the
Borrower, each of which certificates shall reflect compliance by the Borrower
with the requirements of this Credit Agreement.
4.10 LEGAL MATTERS. All documents and legal
matters incident to the transactions contemplated by this Agreement shall be
reasonably satisfactory to Sullivan & Worcester, special counsel for the Bank.
4.11 DIRECTORS' LOAN COMMITTEE APPROVAL. This
Agreement, the Line of Credit Commitment and the transactions contemplated
hereby shall have been approved by the Bank's Directors' Loan Committee.
Each borrowing hereunder shall constitute a representation and
warranty by the Borrower to the Bank that all of the conditions specified in
this Section 4 have been complied with as of the time of any such Extension of
Credit.
Section 5 Representations and Warranties.
--------- ------------------------------
In order to induce the Bank to enter into this Agreement and
to make the contemplated Extensions of Credit, the Borrower hereby represents
and warrants as follows (except to the extent qualified by supplemental
disclosure set forth on SCHEDULE A hereto) and the following representations
and warranties as so qualified shall survive the execution and delivery of this
Agreement and any of the Line of Credit Loans:
5.1 CORPORATE STATUS. The Borrower and each of
its Subsidiaries (if any) is a duly organized and validly existing corporation
in good standing under the laws of the jurisdiction of its incorporation and is
duly qualified or licensed as a foreign corporation in good standing in each
jurisdiction in which the failure to do so would have a Material Adverse
Effect.
5.2 NO VIOLATION. Neither the execution,
delivery or performance of this Agreement or any other Loan Document, nor
consummation of the contemplated transactions will contravene any law, statute,
rule or regulation to which the Borrower or any of its Subsidiaries is subject
or any judgment, decree, franchise, order or permit applicable to the Borrower
or any of its Subsidiaries, or will conflict or be inconsistent with or will
result in any breach of, or constitute a default under, or result in or require
the creation or imposition of any Lien (other than the lien created by the
Security Instruments) upon any of the property or assets of the Borrower or any
of its Subsidiaries pursuant to, any Contractual Obligation of the Borrower or
any of its Subsidiaries, or violate any provision of the corporate charter or
by-laws of the Borrower or any of its Subsidiaries.
5.3 CORPORATE POWER AND AUTHORITY. The
execution, delivery and performance of this Agreement and the other Loan
Documents are within the corporate powers of the Borrower and have been duly
authorized by all necessary corporate action.
5.4 ENFORCEABILITY. This Agreement and each
other Loan Document constitutes a valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms, except as be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and
subject to general principles of equity, whether applied in a court of equity
or at law.
5.5 GOVERNMENTAL APPROVALS. No order,
permission, consent, approval, license, authorization, registration or
validation of, or filing with, or exemption by, any Governmental Authority is
required to authorize, or is required in connection with, the execution,
delivery and
<PAGE> 10
-6-
performance of this Agreement or any other Loan Document by the Borrower, or
the taking of any action contemplated hereby or thereby, except for the filing
of UCC-1 financing statements in the appropriate UCC filing offices listed on
the Perfection Certificate (as defined in the Security Agreement).
5.6 Financial Statements.
--------------------
(a) The Borrower has furnished the Bank with
complete and correct copies of the audited consolidated balance sheet of the
Borrower and its Subsidiaries as of the Financial Statements Date, and the
related audited consolidated statements of income and of cash flows for the
fiscal year of the Borrower and its Subsidiaries ended on such date, examined
by the Accountants. Such financial statements (including the related schedules
and notes) fairly present the consolidated financial condition of the Borrower
and its Subsidiaries as of the Financial Statements Date, and the consolidated
results of their operations and their consolidated cash flows for the fiscal
year then ended.
(b) The Borrower has furnished the Bank with
complete and correct copies of the unaudited consolidated balance sheet of the
Borrower and its Subsidiaries as of July 31, 1994, and the related consolidated
statements of income and of cash flows for the 12-month period ended on such
date. Such financial statements (including the related schedules and notes)
fairly present the consolidated financial condition of the Borrower and its
Subsidiaries as of July 31, 1994, and the consolidated results of their
operations and their consolidated cash flows for the 12-month period ended on
such date (subject to normal year-end audit adjustments).
(c) Neither the Borrower nor any of its
Subsidiaries has any material liabilities, contingent or otherwise, including
liabilities for taxes or any unusual forward or long-term commitments or any
Guarantee, which are not disclosed by or included in the above-referenced
financial statements or the accompanying notes and there are no unrealized or
anticipated losses from any unfavorable commitments of the Borrower or any of
its Subsidiaries which may have a Material Adverse Effect. During the period
from July 31, 1994 to the date hereof: (i) there has been no sale, transfer or
other disposition by the Borrower or any of its Subsidiaries of any material
part of its business or property and no purchase or other acquisition of any
business or property (including any capital stock of any Person) material in
relation to the consolidated financial condition of the Borrower and its
Subsidiaries at July 31, 1994; and (ii) neither the Borrower nor any of its
Subsidiaries has made a Restricted Payment, or agreed or committed to make a
Restricted Payment.
(d) All the above-referenced financial statements
(including the related schedules and notes) have been prepared in accordance
with GAAP applied consistently throughout the periods involved (except as
approved by the Accountants and disclosed therein and, in the case of interim
financial statements, subject to normal year-end adjustments and the absence of
footnotes and schedules).
5.7 NO MATERIAL CHANGE. Since July 31, 1994
there has been no development or event, nor to the best knowledge of the
Borrower, any prospective development or event, which has had or could have a
Material Adverse Effect.
5.8 LITIGATION. There are no actions, suits or
proceedings pending or threatened against or affecting the Borrower or any of
its Subsidiaries before any Governmental Authority, which in any one case or in
the aggregate, if determined adversely to the interests of the Borrower or any
Subsidiary thereof, would have a Material Adverse Effect.
5.9 COMPLIANCE WITH OTHER INSTRUMENTS; COMPLIANCE
WITH LAW. Neither the Borrower nor any Subsidiary thereof is in default under
(a) any Contractual Obligation, where such default could have a Material
Adverse Effect, or (b) the terms of any Contractual Obligation relating to any
Indebtedness of the Borrower or such Subsidiary. Neither the Borrower nor any
Subsidiary
<PAGE> 11
-7-
thereof is in default and or in violation of any applicable statute, rule,
writ, injunction, decree, order or regulation of any Governmental Authority
having jurisdiction over the Borrower or any Subsidiary thereof which default
or violation could have a Material Adverse Effect.
5.10 SUBSIDIARIES. The Borrower has no
Subsidiaries except as set forth on attached SCHEDULE A.
5.11 INVESTMENT BORROWER STATUS; LIMITS ON ABILITY
TO INCUR INDEBTEDNESS. Neither the Borrower nor any of its Subsidiaries is an
"investment company" or a company "controlled by" an investment company within
the meaning of the Investment Company Act of 1940, as amended. The Borrower is
not subject to regulation under any Federal or State statute or regulation
which limits its ability to incur Indebtedness.
5.12 TITLE TO PROPERTY. The Borrower and each of
its Subsidiaries has good and marketable title to all of its properties and
assets, including the properties and assets reflected in the consolidated
balance sheet of the Borrower and its Subsidiaries as of the Financial
Statements Date, except such as have been disposed of since that date in the
ordinary course of business, and none of such properties or assets is subject
to any Lien except for (a) Permitted Liens, or (b) a defect in title or other
claim other than defects and claims that, in the aggregate, would have no
Material Adverse Effect. The Borrower and each of its Subsidiaries enjoys
peaceful and undisturbed possession under all leases necessary in any material
respect for the operation of its properties and assets, none of which contains
any unusual or burdensome provisions which might materially affect or impair
such properties or assets. All such leases are valid and subsisting and are in
full force and effect.
5.13 ERISA. The Borrower and each member of the
Controlled Group have fulfilled their obligations under the minimum funding
standards of ERISA and the Code with respect to each Plan and are in compliance
in all material respects with the presently applicable provisions of ERISA and
the Code, and have not incurred any liability to the PBGC or a Plan under Title
IV of ERISA (other than to make contributions or premium payments in the
ordinary course).
5.14 TAXES. All tax returns of the Borrower and
its Subsidiaries required to be filed have been timely filed, all taxes, fees
and other governmental charges (other than those being contested in good faith
by appropriate proceedings diligently conducted and with respect to which
adequate reserves have been established and, in the case of AD VALOREM taxes or
betterment assessments, no proceedings to foreclose any lien with respect
thereto have been commenced and, in all other cases, no notice of lien has been
filed or other action taken to perfect or enforce such lien) shown thereon
which are payable have been paid. The charges and reserves on the books of the
Borrower and its Subsidiaries for all income and other taxes are adequate, and
the Borrower knows of no additional assessment or any basis therefor. The
Federal income tax returns of the Borrower and its Subsidiaries have not been
audited within the last three years, all prior audits have been closed, and
there are no unpaid assessments, penalties or other charges arising from such
prior audits.
5.15 Environmental Matters.
---------------------
(a) The Borrower and each of its Subsidiaries
have obtained all Governmental Approvals that are required for the operation of
its business under any Environmental Law, except where the failure to so obtain
a Governmental Approval would not have a Material Adverse Effect.
(b) The Borrower and each of its Subsidiaries are
in compliance with all terms and conditions of all required Governmental
Approvals and are also in compliance with all terms and conditions of all
applicable Environmental Laws, the noncompliance with which would have a
Material Adverse Effect.
<PAGE> 12
-8-
(c) There is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to the best knowledge of the
Borrower threatened against the Borrower or any Subsidiary thereof relating in
any way to the Environmental Laws, and there is no Lien of any private entity
or Governmental Authority against any property of the Borrower or any
Subsidiary thereof relating in any way to the Environmental Laws.
(d) There has been no claim, complaint, notice,
or request for information received by the Borrower with respect to any site
listed on the National Priority List promulgated pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act ("CERCLA") 42 USC
Section 9601 ET SEQ. or any state list of sites requiring investigation or
cleanup with respect to contamination by Hazardous Substances.
(e) To the best of the Borrower's knowledge,
there has been no release or threat of release of any Hazardous Substance at
any Borrower Property which would likely result in liability being imposed upon
the Borrower or any Subsidiary thereof, which liability would have a Material
Adverse Effect.
5.16 BORROWING BASE. Giving effect to any
Extensions of Credit to be made as of the date hereof under this Agreement, the
aggregate amount of all Extensions of Credit under this Agreement does not
exceed the Borrowing Base on the date hereof.
Section 6 Affirmative Covenants.
--------- ---------------------
The Borrower covenants and agrees that for so long as this
Agreement is in effect and until the Note, together with all interest thereon
and all other Obligations of the Borrower to the Bank are paid or satisfied in
full:
6.1 MAINTENANCE OF EXISTENCE. The Borrower will,
and will cause each of its Subsidiaries to, maintain its existence and comply
with all applicable statutes, rules and regulations and to remain duly
qualified as a foreign corporation, licensed and in good standing in each
jurisdiction where such qualification or licensing is required by the nature of
its business, the character and location of its property, business, or the
ownership or leasing of its property, except where such noncompliance or
failure to so qualify would not have a Material Adverse Effect, and the
Borrower will, and will cause each of its Subsidiaries to, maintain its
properties in good operating condition, and continue to conduct its business as
presently conducted.
6.2 TAXES AND OTHER LIENS. The Borrower will,
and will cause each of its Subsidiaries to, pay when due all taxes,
assessments, governmental charges or levies, or claims for labor, supplies,
rent and other obligations made against it which, if unpaid, might become a
Lien against the Borrower or such Subsidiary or on its property, except
liabilities being contested in good faith and by proper proceedings, as to
which adequate reserves are maintained on the books of the Borrower or its
Subsidiaries, in accordance with GAAP.
6.3 INSURANCE. The Borrower will, and will cause
each of its Subsidiaries to, maintain insurance with financially sound and
reputable insurance companies in such amounts and against such risks as is
usually carried by owners of similar businesses and properties in the same
general areas in which the Borrower and its Subsidiaries operate, provided that
in any event the Borrower and its Subsidiaries shall maintain or cause to be
maintained (a) insurance against casualty, loss or damage covering all property
and improvements of the Borrower and its Subsidiaries in amounts and in respect
of perils usually carried by owners of similar businesses and properties in the
same general areas in which Borrower and its Subsidiaries operate; (b)
comprehensive general liability insurance against claims for bodily injury,
death or property damage; and (c) workers' compensation insurance to the extent
required by applicable law. In the case of policies referenced in clauses (a)
and (b) above, all such insurance shall (i) name the
<PAGE> 13
-9-
Borrower and the Bank as loss payees and additional insureds as their interests
may appear; (ii) provide that no termination, cancellation or material
reduction in the amount or material modification to the extent of coverage
shall be effective until at least 30 days after receipt by the Bank of notice
thereof; and (iii) be reasonably satisfactory in all other respects to the
Bank.
6.4 FINANCIAL STATEMENTS, ETC. The Borrower will
furnish to the Bank:
(a) within forty-five (45) days after the end of
each fiscal quarter of the Borrower (including the last
quarter of the fiscal year), the unaudited consolidated
balance sheet and income statement and statement of cash flows
of the Borrower and its Subsidiaries as at and for the
three-month period ended on the last day of such fiscal
quarter, accompanied by a certificate of the chief financial
officer of the Borrower to the effect that such financial
statements fairly present the consolidated financial condition
of the Borrower and its Subsidiaries as of the end of such
fiscal quarter, and the consolidated results of their
operations and their consolidated cash flows for such fiscal
quarter, in each case in accordance with GAAP (except for the
absence of footnotes) consistently applied (subject to normal
year-end audit adjustments);
(b) within ninety (90) days after the last day of
each fiscal year of the Borrower, the audited consolidated
balance sheet and income statement and statement of cash flows
of the Borrower and its Subsidiaries as at and for the fiscal
year then ended, certified by the Accountants (the substance
of such report to be satisfactory to the Bank), together with
a certificate of the chief financial officer of the Borrower
to the effect that such financial statements fairly present
the consolidated financial condition of the Borrower and its
Subsidiaries as of the end of such fiscal year, and the
consolidated results of their operations for such fiscal year,
in each case in accordance with GAAP. The Borrower shall
indicate on said financial statements all guarantees or
unusual forward or long-term commitments made by the Borrower
or any Subsidiary thereof;
(c) at the time of the delivery of the quarterly
and yearly financial statements required by Sections 6.4(a)
and 6.4(b) above, a Compliance Certificate signed by the chief
financial officer or the president of the Borrower in a form
satisfactory to the Bank, appropriately completed;
(d) within twenty-five (25) days after the end of
each fiscal month of the Borrower, (i) a list of the accounts
receivable aging for the Borrower as of the end of such month
in such form as the Bank may prescribe, all in reasonable
detail and (ii) a Borrowing Base Certificate signed by the
chief financial officer, the president or the controller of
the Borrower in a form satisfactory to the Bank appropriately
completed;
(e) promptly upon the mailing thereof to the
shareholders of the Borrower generally, copies of all
financial statements, reports, proxy statements and other
materials;
(f) promptly upon request by the Bank, copies of
any management letter provided by the Accountants, provided
that the Borrower shall promptly advise the Bank in the event
the Borrower receives any such letter;
(g) promptly upon the filing thereof by the
Borrower with the SEC (and in any event within ten (10) days
of such filing), copies of any registration statements and
reports on Forms 10-K, 10-Q and 8-K (or their equivalents if
such forms no longer exist);
(h) promptly upon becoming aware of any
litigation or other proceeding against the Borrower or any
Subsidiary thereof that may have a Material Adverse Effect,
notice thereof; and
<PAGE> 14
-10-
(i) promptly following the request of the Bank,
such further information concerning the business, affairs and
financial condition or operations of the Borrower and its
Subsidiaries as the Bank may reasonably request.
6.5 NOTICE OF DEFAULT. As soon as practicable,
and in any event, within three (3) Banking Days of becoming aware of the
existence of any condition or event which constitutes a Default, the Borrower
will provide the Bank with written notice specifying the nature and period of
existence thereof and what action the Borrower is taking or proposes to take
with respect thereto.
6.6 Environmental Matters.
---------------------
(a) The Borrower and each of its Subsidiaries
shall comply with all terms and conditions of all applicable Governmental
Approvals and all applicable Environmental Laws, except where failure to comply
would not have a Material Adverse Effect.
(b) The Borrower shall promptly notify the Bank
should the Borrower become aware of:
(i) any spill, release, or threat of release of any
Hazardous Substance at or from any Borrower Property or by any
Person for whose conduct the Borrower or any Subsidiary
thereof is responsible, to the extent the Borrower is required
by Environmental Laws to report such to any Governmental
Authority;
(ii) any action or notice with respect to a civil,
criminal or administrative action, suit, demand, claim,
hearing, notice of violation, investigation, proceeding,
notice or demand letter pending or threatened against the
Borrower or any Subsidiary thereof relating in any way to the
Environmental Laws, or any Lien of any Governmental Authority
or any other Person against any Borrower Property relating in
any way to the Environmental Laws;
(iii) any claim made or threatened by any Person
against the Borrower or any Subsidiary thereof or any property
of the Borrower or any Subsidiary thereof relating to damage,
contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Substance pertaining to such
property or the business or operations of the Borrower or such
Subsidiary; and
(iv) any occurrence or condition on any real
property adjoining or in the vicinity of any Borrower Property
known to the officers or supervisory personnel of the Borrower
or any Subsidiary thereof or other employees having
responsibility for the compliance by the Borrower or any
Subsidiary thereof with Environmental Laws, without any
independent investigation, which does cause, or could cause,
such Borrower Property, or any part thereof, to contain
Hazardous Substances in violation of any Environmental Laws,
or which does cause, or could cause, such Borrower Property to
be subject to any restrictions on the ownership, occupancy,
transferability or use thereof by the Borrower or any
Subsidiary thereof.
(c) The Borrower will, and will cause each of its
Subsidiaries to, at its own cost and expense, and within such period as may be
required by applicable law or regulation, initiate all remedial actions and
thereafter diligently prosecute such action as shall be required by law for the
cleanup of such Borrower Property, including all removal, containment and
remedial actions in accordance with all applicable Environmental Laws and shall
further pay or cause to be paid, at no expense to the Bank, all cleanup,
administrative, and enforcement costs of applicable Government Authorities
which may be asserted against such Borrower Property.
<PAGE> 15
-11-
6.7 ERISA INFORMATION. If and when the Borrower
or any member of the Controlled Group (a) gives or is required to give notice
to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA)
with respect to any Plan which might constitute grounds for a termination of
such Plan under Title IV of ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any such reportable event, (b)
receives notice of complete or partial withdrawal liability under Title IV of
ERISA or (c) receives notice from the PBGC under Title IV of ERISA of an intent
to terminate or appoint a trustee to administer the Plan, the Borrower shall in
each such instance promptly furnish to the Bank a copy of any such notice.
6.8 INSPECTION. The Borrower will, upon the
request of the Bank, permit a representative of the Bank (including any field
examiner or auditor retained by the Bank) to inspect and make copies of the
Borrower's books and records, and to discuss its affairs, finances and accounts
with its officers and accountants, at such reasonable times and as often as the
Bank may reasonably request and cause each of its Subsidiaries to do so.
6.9 USE OF PROCEEDS. The Borrower shall use the
proceeds of the borrowings under the Line of Credit Note for the working
capital purposes of the Borrower. Without limiting the foregoing, no part of
such proceeds will be used for the purpose of purchasing or carrying any
"margin security" as such term is defined in Regulation U of the Board of
Governors of the Federal Reserve System.
6.10 FURTHER ASSURANCES. The Borrower will, and
will cause each of its Subsidiaries to, execute and deliver to the Bank any
writings and do all things necessary, effectual or reasonably requested by the
Bank to carry into effect the provisions and intent of this Agreement or any
other Loan Document.
6.11 DEPOSITORY ACCOUNTS. The Borrower shall
maintain its primary operating deposit accounts at the offices of the Bank, and
shall deposit some portion of its excess cash with the Bank in either a demand
deposit account, a money market deposit account, or certificates of deposit, or
a combination thereof.
6.12 SUBSIDIARIES. The Borrower shall immediately
notify the Bank of the organization of any foreign or domestic Subsidiaries of
the Borrower. The Bank may require that any Subsidiaries become parties to any
of the Loan Documents as guarantors or sureties and/or that the Borrower pledge
the stock of any Subsidiaries as collateral for the Obligations of the
Borrower.
Section 7 Negative Covenants.
--------- ------------------
The Borrower covenants and agrees that for so long as this
Agreement is in effect and until the Note, together with all interest thereon
and all other Obligations of the Borrower to the Bank are paid or satisfied in
full, without the prior written consent of the Bank:
7.1 ERISA. The Borrower will not permit any
pension plan maintained by the Borrower or by any member of a "Controlled
Group" (ERISA Section 210(c) or ERISA Section 210(d)) of which the Borrower is
a member to: (a) engage in any "prohibited transaction" (ERISA Section
2003(c)); (b) fail to report to the Bank a "reportable event" (ERISA Section
4043) within 30 days after its occurrence or as to any reportable event as to
which the 30-day notice period requirement of Section 4043(b) of Title IV of
ERISA has been waived by the PBGC, within 30 days of such time as the Borrower
is requested to notify the PBGC of such reportable event; (c) incur any
"accumulated funding deficiency" (ERISA Section 302); (d) terminate its
existence at any time in a manner which could result in the imposition of a
Lien on the property of the Borrower or any Subsidiary thereof; or (e) fail to
report to the Bank any "complete withdrawal" or "partial withdrawal" by the
Borrower or an affiliate from a "multiemployer plan" (ERISA Section Section
4203, 4205, and 4001, respectively). The quoted terms are defined in the
respective sections of ERISA cited above.
<PAGE> 16
-12-
7.2 TRANSACTIONS WITH AFFILIATES. The Borrower
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, pay any funds to or for the account of, make any Investment in,
lease, sell, transfer or otherwise dispose of any assets, tangible or
intangible, or engage in any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate of the Borrower,
unless such transaction is otherwise permitted under this Agreement, is in the
ordinary course of the Borrower's or such Subsidiary's business, and is upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary
as those that could be obtained in a comparable arm's length transaction with a
Person not an Affiliate.
7.3 CONSOLIDATION, MERGER OR ACQUISITION. The
Borrower will not, and will not permit any of its Subsidiaries to, merge or
consolidate with or into any other Person, or make any acquisition of the
business of any other Person unless it obtains the prior written consent of the
Bank; PROVIDED that any Subsidiary may merge into the Borrower or any
wholly-owned Subsidiary of the Borrower, PROVIDED FURTHER, however, the
Borrower may merge with or acquire the business of another person so long as
(a) no Event of Default has occurred and is continuing or would arise
therefrom; (b) in the case of a merger, the Borrower is the surviving
corporation; (c) there is no accompanying change in the senior management of
the Borrower; and (d) the Person being acquired is in the same or a related
line of business to that of the Borrower. In addition, the Borrower agrees
that it will make no material change in its corporate structure or identity
without the prior written consent of the Bank.
7.4 DISPOSITION OF ASSETS. The Borrower will
not, and will not permit any of its Subsidiaries to, convey, sell, lease,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, accounts receivable and leasehold assets),
whether now owned or hereafter acquired, except:
(a) obsolete or worn out property disposed of in
the ordinary course of business;
(b) the sale or other disposition of any property
in the ordinary course of business, PROVIDED that the
aggregate book value of all assets (other than inventory) so
sold or disposed of in any period of twelve consecutive months
shall not exceed 5% of the consolidated total assets of the
Borrower and its Subsidiaries as at the beginning of such
twelve month period; and
(c) the sale of inventory in the ordinary course
of business.
7.5 INDEBTEDNESS. The Borrower will not, and
will not permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness payable to the Bank;
(b) existing Indebtedness, including
Subordinated Debt, if any, listed on SCHEDULE A hereto;
(c) Purchase Money Indebtedness in an amount not
to exceed $12,000,000 at any one time outstanding; PROVIDED
that, giving effect to the incurrence of such Purchase Money
Indebtedness and to the receipt and application of the
proceeds thereof, no Default shall have occurred and be
continuing;
(d) Subordinated Debt incurred by the Borrower
after the date hereof with the prior written consent of the
Bank, which consent shall not be unreasonably withheld;
PROVIDED that, giving effect to the incurrence of such
Subordinated Debt and to the receipt and application of the
proceeds thereof, no Default shall have occurred and be
continuing;
<PAGE> 17
-13-
(e) additional operating and capitalized leases,
provided that:
(i) entering into any such lease will not result in an
Event of Default with respect to any of the covenants
set forth in Sections 7.11 through 7.14; and
(ii) the total annual lease payments under such leases do
not exceed $5,000,000; and
(f) Indebtedness of foreign Subsidiaries of the
Borrower incurred after the date hereof; PROVIDED that, after
giving effect to the incurrence of such Indebtedness and to
the receipt and application of the proceeds thereof, no
Default shall have occurred and be continuing.
7.6 LIENS. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien on any of its properties or assets, except the following (collectively,
"PERMITTED LIENS"):
(a) Liens for taxes not delinquent or being
contested in good faith and by proper proceedings, as to which
adequate reserves are maintained on the books of the Borrower
or its Subsidiary in accordance with GAAP;
(b) carriers', warehousemen's, mechanics',
materialmen's or similar liens imposed by law incurred in the
ordinary course of business in respect of obligations not
overdue, or being contested in good faith and by proper
proceedings and as to which adequate reserves with respect
thereto are maintained on the books of the Borrower in
accordance with GAAP;
(c) pledges or deposits in connection with
workers' compensation, unemployment insurance and other types
of social security legislation;
(d) security deposits made to secure the
performance of leases, licenses and statutory obligations
incurred in the ordinary course of business;
(e) Liens in favor of the Bank;
(f) existing Liens, if any, listed on SCHEDULE A
hereto; PROVIDED that no such Lien is spread to cover any
additional property after the date hereof, and that the amount
of the Indebtedness secured thereby is not increased; and
(g) Purchase Money Security Interests securing
Purchase Money Indebtedness permitted under Section 7.5(c)
above.
7.7 RESTRICTED PAYMENTS. The Borrower will not,
and will not permit any of its Subsidiaries to, declare or make any Restricted
Payment, except, so long as there shall not exist a Default of Event of Default
either before or after the Restricted Payment, the Borrower may make any of the
following Restricted Payments:
(a) the purchase by the Borrower from its
employees or former employees of shares of capital stock and
the cashing out of stock options of employees of the Borrower
who will not be continuing as employees of the Borrower, if
the Borrower is under a contractual obligation to do so;
<PAGE> 18
-14-
(b) with the consent of the Bank, the redemption
of the rights issued under the Stockholders' rights Plan
adopted in May of 1989 by the Board of Directors of the
Borrower;
(c) with the consent of the Bank, the exchange or
repurchase of any convertible subordinated debentures of the
Borrower outstanding as of the date hereof; and
(d) with the consent of the Bank, the purchase on
the open market of shares of capital stock of the Borrower for
the purpose of holding such capital stock as treasury stock
and using it to fund employee stock purchase plans.
7.8 INVESTMENTS. The Borrower will not, and will
not permit any of its Subsidiaries to, make, maintain or acquire any Investment
in any Person other than:
(a) marketable obligations issued or guaranteed
by the United States of America having a maturity of one year
or less from the date of purchase;
(b) certificates of deposit, eurodollar time
deposits, commercial paper or any other obligations of the
Bank or of any other bank or trust company organized or
licensed to conduct a banking business under the laws of the
United States or any State thereof and which has (or which is
a Subsidiary of a bank holding company which has) publicly
traded debt securities rated A or higher by Standard & Poor's
Corporation or A-2 or higher by Moody's Investors Service,
Inc.;
(c) (i) depository accounts at the Bank; and (ii)
depository accounts maintained at other banks and listed on
SCHEDULE A or that have been disclosed to the Bank in writing
subsequent to the date hereof;
(d) stock or obligations issued to the Borrower
or any Subsidiary thereof in settlement of claims against
others by reason of an event of bankruptcy or a composition or
the readjustment of debt or a reorganization of any debtor of
the Borrower or such Subsidiary;
(e) commercial paper with maturities of not more
than 90 days having the highest rating then given by Moody's
Investors Services, Inc. or Standard & Poor's Corporation;
(f) repurchase obligations with a term of not
more than seven days for underlying securities of the types
described in subparagraph 7.8(a) above entered into with the
Bank or any of the banks referred to in subparagraph 7.8(b)
above;
(g) loans or advances not exceeding $250,000 in
aggregate principal amount at any one time outstanding to
officers and employees of the Borrower; and
(h) investments by the Borrower in its
Subsidiaries, and Investments by such Subsidiaries in the
Borrower; PROVIDED that the aggregate amount of all
investments by the Borrower in its Subsidiaries (including,
without limitation, the aggregate outstanding amount of any
Indebtedness of any Subsidiary of the Borrower that is
Guaranteed by the Borrower), may not exceed $60,000,000 at any
time.
7.9 SALE AND LEASEBACK. Neither the Borrower nor
any of its Subsidiaries shall enter into any arrangement, directly or
indirectly, whereby it shall sell or transfer any property owned by it in order
to lease such property or lease other property that the Borrower or any such
Subsidiary intends to use for substantially the same purpose as the property
being sold or transferred; PROVIDED that this provision shall not prohibit the
Borrower or any Subsidiary from
<PAGE> 19
-15-
entering into such sale and leaseback transactions so long as (i) entering into
any such lease will not result in an Event of Default with respect to any of
the covenants set forth in Sections 7.11 through 7.14 and (ii) the annual lease
payments of the Borrower and its Subsidiaries under such leases and under any
other leases of a type described in Section 7.5(e) will not in the aggregate
exceed the amount permitted by Section 7.5(e).
7.10 ADDITIONAL STOCK ISSUANCE BY SUBSIDIARIES.
The Borrower shall not permit any of its Subsidiaries to issue any additional
shares of its capital stock or other equity securities, any options therefor or
any securities convertible thereto other than to the Borrower.
<TABLE>
7.11 QUICK RATIO. The Borrower will not permit
the Quick Ratio at the end of any of the following fiscal quarters to be less
than the ratio set forth below opposite such quarter:
<CAPTION>
Minimum
Fiscal Quarter Ending Quick Ratio
--------------------- -----------
<S> <C>
10/31/94 1 to 1
01/31/95 1 to 1
04/30/95 and thereafter 1.2 to 1
</TABLE>
<TABLE>
7.12 MINIMUM PROFITABILITY. The Borrower will not
permit Net Income for any of the following fiscal quarters to be less than the
amount set forth opposite such fiscal quarter:
<CAPTION>
Fiscal Quarter Ending Net Income
--------------------- ----------
<S> <C>
10/31/94 $1
01/31/95 $500,000
04/30/95 and thereafter $1,000,000
</TABLE>
<TABLE>
7.13 LEVERAGE. The Borrower will not permit the
ratio of Total Senior Liabilities to Tangible Net Worth at the end of any of
the following fiscal quarters to be greater than the ratio set forth below
opposite such fiscal quarter:
<CAPTION>
Maximum
Fiscal Quarter Ending Permitted Ratio
--------------------- ---------------
<S> <C>
Oct. 31, 1994 and thereafter 0.8 to 1
</TABLE>
<TABLE>
7.14 TANGIBLE NET WORTH. The Borrower will not
permit its Tangible Net Worth at the end of any of the following fiscal
quarters to be less than the amount set forth below opposite such fiscal
quarter:
<CAPTION>
Minimum
Fiscal Quarter Ending Tangible Net Worth
--------------------- ------------------
<S> <C>
Oct. 31, 1994 and thereafter $80,000,000
</TABLE>
Section 8 Events of Default.
--------- -----------------
8.1 EVENTS OF DEFAULT. The occurrence of any of
the following events shall be an "Event of Default" hereunder:
(a) The Borrower shall default in the due and
punctual payment of principal or interest on the Note, or
shall default in the payment of any other amount due under any
Loan Document; or
<PAGE> 20
-16-
(b) Any representation, warranty or statement
made herein or any other Loan Document, or in any certificate
or statement furnished pursuant to or in connection herewith
or therewith, shall prove to be incorrect, misleading or
incomplete in any material respect on the date as of which
made or deemed made; or
(c) The Borrower shall default in the performance
or observance of any term, covenant or agreement on its part
to be performed or observed pursuant to Sections 7.11 through
7.14; or
(d) The Borrower shall default in the performance
or observance of any term, covenant or agreement on its part
to be performed or observed pursuant to any of the provisions
of this Agreement or any other Loan Document (other than those
referred to in paragraphs 8.1(a) through 8.1(c) above) and
such default shall continue unremedied for a period of ten
(10) days after the occurrence of such default; or
(e) Any obligation of the Borrower or any
Subsidiary thereof in respect of any Indebtedness (other than
the Note) or any Guarantee shall be declared to be or shall
become due and payable prior to the stated maturity thereof,
or such Indebtedness or Guarantee shall not be paid as and
when the same becomes due and payable, or there shall occur
and be continuing any default under any instrument, agreement
or evidence of indebtedness relating to any such Indebtedness
the effect of which is to permit the holder or holders of such
instrument, agreement or evidence of indebtedness, or a
trustee, agent or other representative on behalf of such
holder or holders, to cause such Indebtedness to become due
prior to its stated maturity; or
(f) The Borrower or a Subsidiary thereof shall
(i) apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of
debts, (v) fail to controvert in a timely and appropriate
manner, or acquiesce in writing to, any petition filed against
it in an involuntary case under the Bankruptcy Code, or (vi)
take any corporate action for the purpose of effecting any of
the foregoing; or
(g) A proceeding or case shall be commenced,
without the application or consent of the Borrower or any
Subsidiary thereof in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution or
winding-up, or the composition or readjustment of its debts,
(ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of the Borrower or such Subsidiary or
of all or any substantial part of its assets, or (iii) similar
relief in respect of the Borrower or such Subsidiary under any
law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing
shall be entered and continue unstayed and in effect, for a
period of 60 days; or an order for relief against the Borrower
or such Subsidiary shall be entered in an involuntary case
under the Bankruptcy Code; or
(h) A judgment or judgments for the payment of
money in excess of $500,000 (net of insurance proceeds) in the
aggregate shall be rendered against the Borrower or any
Subsidiary thereof and any such judgment or judgments shall
not have been vacated, discharged, stayed or bonded pending
appeal within thirty (30) days from the entry thereof; or
(i) The Borrower or any member of the Controlled
Group shall fail to pay when due an amount or amounts
aggregating in excess of $100,000 which it is obligated to pay
<PAGE> 21
-17-
to the PBGC or to a Plan under Title IV of ERISA; or a notice
of intent to terminate a Plan or Plans having aggregate
Unfunded Liabilities in excess of $100,000 shall be filed
under Title IV of ERISA by the Borrower or any member of the
Controlled Group, any plan administrator or any combination of
the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any such Plan or Plans or a proceeding
shall be instituted by a fiduciary of any such Plan or Plans
against the Borrower or any member of the Controlled Group to
enforce Sections 515 or 4219(c)(5) of ERISA; or a condition
shall exist by reason of which the PBGC would be entitled to
obtain a decree adjudicating that any such Plan or Plans must
be terminated; or there shall occur a complete or partial
withdrawal form, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause the Borrower or one or
more members of the Controlled Group to incur a current
payment obligation in excess of $100,000; or
(j) The Borrower or any Subsidiary thereof shall
default in the performance or observance of any term, covenant
or agreement on its part to be performed or observed pursuant
to any of the provisions of any agreement with the Bank or any
instrument delivered in favor of the Bank (other than, in
either case, a Loan Document), and such default shall continue
unremedied beyond the grace period (in any) provided for
therein; or
(k) Any Security Instrument shall cease for any
reason to be in full force and effect or shall cease to be
effective to grant a perfected security interest in the
collateral described in such Security Instrument with the
priority stated to be granted thereby; or
(l) Borrower shall make any payment on account of
its Subordinated Debt, except to the extent such payment is
expressly permitted hereby or under any subordination
agreement entered into with the Bank.
8.2 REMEDIES UPON AN EVENT OF DEFAULT. If any
Event of Default shall have occurred and be continuing, the Bank may (a)
declare the Commitment terminated (whereupon the Line of Credit Commitment
shall be terminated) and/or (b) declare the principal amount then outstanding
of, and the accrued interest on, the Line of Credit Loans and commitment fees
and all other amounts payable hereunder and under the Note to be forthwith due
and payable, whereupon such amounts shall be and become immediately due and
payable, without notice (including, without limitation, notice of intent to
accelerate), presentment, demand, protest or other formalities of any kind, all
of which are hereby expressly waived by the Borrower; PROVIDED that in the case
of the occurrence of an Event of Default with respect to the Borrower referred
to in clauses 8.1(f) and 8.1(g) of Section 8.1, the Line of Credit Commitment
shall be automatically terminated and the principal amount then outstanding of
and the accrued interest on the Line of Credit Loans and commitment fees and
all other amounts payable hereunder and under the Note shall be and become
automatically and immediately due and payable, without notice (including,
without limitation, notice of intent to accelerate), presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
Section 9 Definitions.
--------- -----------
9.1 Certain Definitions.
-------------------
"ACCOUNTANTS" means Arthur Andersen & Co., or another
accountant firm of national reputation or other certified public accountants
selected by the Borrower and approved by the Bank.
"AFFILIATE" means, with respect to any specified Person (the
"SPECIFIED PERSON"), any Person directly or indirectly controlling, controlled
by or under direct or indirect common control with, the Specified Person and,
without limiting the generality of the foregoing, includes (i) any director or
officer of the Specified Person or any Affiliate of the Specified Person, (ii)
any such director's or
<PAGE> 22
-18-
officer's parent, spouse, child or child's spouse (a "RELATIVE"), (iii) any
group acting in concert, of one or more such directors, officers, relatives or
any combination thereof (a "group"), (iv) any Person controlled by any such
director, officer, relative or group in which any such director, officer,
relative or group beneficially owns or holds 5% or more of any class of voting
securities or a 5% or greater equity or profits interest and (v) any Person or
group which beneficially owns or holds 5% or more of any class of voting
securities or a 5% or greater equity or profits interest in the Specified
Person. For the purposes of this definition, the term "control" when used with
respect to any Specified Person means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Specified Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" shall mean this Credit Agreement.
---------
"BANKING DAY" shall mean any day, excluding Saturday and
Sunday and excluding any other day which in the Commonwealth of Massachusetts
or the State of California is a legal holiday or a day on which banking
institutions are authorized by law to close.
"Borrowing Base" shall have the meaning specified in Section
1.4. --------------
"BORROWER PROPERTY" means any real property owned, occupied,
or operated by the Borrower or any of its Subsidiaries.
"CODE" means the Internal Revenue Code of 1986, as amended,
or any successor statute.
"COLLATERAL" shall have the meaning given that term in the
Security Agreement.
"Commitment Expiration Date" shall have the meaning specified
in Section 1.1. --------------------------
"CONTRACTUAL OBLIGATION" means, as to any Person, any
provision of any security issued by such Person or of any agreement, instrument
or other undertaking to which such Person is a party or by which it or any of
its property is bound.
"CONTROLLED GROUP" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
"CURRENT LIABILITIES" means, at any time, all liabilities of
the Borrower and its Subsidiaries at such time, on a consolidated basis, that
would be classified as current liabilities in accordance with GAAP, including,
without limitation, all Indebtedness of the Borrower and its Subsidiaries
payable on demand or maturing within one year of such time, or renewable at the
option of the Borrower or such Subsidiary for a period of not more than one
year from such time, and all serial maturity and periodic or installment
payments on any Indebtedness, to the extent such payments are required to be
made within one year from such time.
"DEFAULT" means any condition or event that constitutes an
Event of Default or that with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Deferred Revenues" means all revenues deferred in accordance
with GAAP. -----------------
"ELIGIBLE DOMESTIC ACCOUNTS RECEIVABLE" means an account
receivable owing to the Borrower which met the following specifications at the
time it came into existence and continues to meet the same until it is
collected in full:
<PAGE> 23
-19-
(a) The original stated maturity of the account is
not more than 90 days after the invoice date thereof, and the
account (regardless of its stated maturity date) does not
remain unpaid more than 90 days after such invoice date.
(b) The account arose from the performance of
services or an outright sale of goods by Borrower, such goods
have been shipped to the account debtor, and Borrower has
possession of, or has delivered to Bank, shipping and delivery
receipts evidencing such shipment.
(c) The account is owned solely by the Borrower, and
is not subject to any assignment, claim, lien, or security
interest, other than a security interest in favor of the Bank.
(d) The account is not subject to set-off, credit,
allowance or adjustment by the account debtor, except discount
allowed for prompt payment; the account is not one as to which
the account debtor disputes liability or makes any claim with
respect thereto or as to which the Bank believes, in its sole
discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or
which involves an account debtor subject to any insolvency
proceeding, or becomes insolvent, or goes out of business.
(e) The account arose in the ordinary course of
Borrower's business and did not arise from the performance of
services or a sale of goods to a supplier or employee of the
Borrower.
(f) No notice of bankruptcy or insolvency of the
account debtor has been received by or is known to the
Borrower.
(g) The Borrower has pledged any instrument or
chattel paper evidencing the account to the Bank pursuant to
the provisions of the Security Agreement.
(h) Not more than 50% of the aggregate receivables
of the account debtor have remained unpaid for a period of
more than ninety (90) days from the invoice date.
(i) The aggregate accounts receivables from the
account debtor (including its Subsidiaries and Affiliates) do
not exceed 25% of the total Eligible Accounts Receivable of
the Borrower; that portion of the account over the 25% level
will be disqualified.
(j) The account does not relate to goods placed on
consignment, guaranteed sale, sale or return, sale on
approval, bill and hold, or other terms by reason of which the
payment by the account debtor may be conditional.
(k) The account debtor is not an Affiliate, officer,
employee or agent of the Borrower.
(l) The account debtor is not a Governmental
Authority.
(m) The Borrower does not owe any amounts to the
account debtor for goods sold, services rendered or otherwise;
to the extent that any amounts are so owed, the accounts of
such account debtor in an amount equal to the amounts owed by
the Borrower to the account debtor shall be disqualified.
(n) The Bank has not notified the Borrower that the
Bank has determined that an account or account debtor is
unsatisfactory for credit reasons (which determination shall
not be made unreasonably).
<PAGE> 24
-20-
(o) The account debtor is a person or entity located
in the United States and the account arose out of services
rendered or goods delivered in the United States.
"ENVIRONMENTAL LAWS" means all federal, state, local and
foreign laws, and all regulations, notices or demand letters issued,
promulgated or entered thereunder, relating to pollution or protection of the
environment and to occupational health and safety, including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or Hazardous Substances into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or Hazardous
Substances.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statutes.
"Event of Default" has the meaning set forth in Section 8.1.
----------------
"Extension of Credit" shall have the meaning set forth in
Section 1.4. -------------------
"Financial Statements Date" means July 31, 1993.
-------------------------
"GAAP" means accounting principles generally accepted in the
United States applied on a consistent basis.
"GOVERNMENTAL APPROVALS" shall mean any authorization,
consent, order, approval, license, lease, ruling, permit, tariff, rate,
certification, validation, exemption, filing or registration by or with, or
notice to, any Governmental Authority.
"GOVERNMENTAL AUTHORITY" shall mean any federal, state,
municipal or other governmental department, commission, board, bureau, agency,
court, tribunal or other instrumentality, domestic or foreign, and any
arbitrator.
"GUARANTEE" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise of
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"HAZARDOUS SUBSTANCES" shall mean all hazardous and toxic
substances, wastes or materials, hydrocarbons (including naturally occurring or
man-made petroleum and hydrocarbons), flammable explosives, urea formaldehyde
insulation, radioactive materials, biological substances, PCBs, pesticides,
herbicides and any other kind and/or type of pollutants, or contaminates and/or
any other similar substances or materials which, because of toxic, flammable,
explosive, corrosive, reactive, radioactive or other properties that may be
hazardous to human health or the environment, are included under or regulated
by any Environmental Laws.
"INDEBTEDNESS" of any Person at any date shall mean, (a) all
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (excluding current trade liabilities incurred in
the ordinary course of business and payable in accordance with
<PAGE> 25
-21-
customary practices, but including any class of capital stock of such Person
with fixed payment obligations or with redemption at the option of the holder),
or which is evidenced by a note, bond, debenture or similar instrument, (b) all
obligations of such Person under leases that should be treated as capitalized
leases in accordance with GAAP, (c) all obligations of such Person in respect
of acceptances issued or created for the account of such Person, and all
reimbursement obligations (contingent or otherwise) of such Person in respect
of any letters of credit issued for the account of such Person, and (d) all
liabilities secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment
thereof.
"INVESTMENTS" means, with respect to any Person (the
"INVESTOR"), (a) any investment by the Investor in any other Person, whether by
means of share purchase, capital contribution, purchase or other acquisition of
a partnership or joint venture interest, loan, time deposit, demand deposit or
otherwise and (b) any Guarantee by the Borrower of any Indebtedness or other
obligation of any other Person.
"LETTER OF CREDIT" means any commercial letter of credit or
standby letter of credit issued by the Bank for the account of the Borrower as
provided in this Agreement.
"LETTER OF CREDIT USAGE" means, at any time, the aggregate at
such time of (a) the maximum amount then available to be drawn under all
outstanding Letters of Credit, and (b) all then unreimbursed drawings under any
Letters of Credit.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any lease that should be capitalized in accordance with GAAP, and
the filing of a financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction), together with any renewal or extension
thereof.
"Line of Credit Commitment" shall have the meaning specified
in Section 1.1. -------------------------
"Line of Credit Loans" shall have the meaning specified in
Section 1.1. --------------------
"LOAN DOCUMENTS" means, collectively, this Agreement, the
Note, the Financing Statements, the Security Instruments, and all other
agreements and instruments that are from time to time executed in connection
with this Agreement, as each of such agreements and instruments may be amended,
modified or supplemented from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, property, condition (financial or otherwise) or
prospects of the Borrower, or of the Borrower and its Subsidiaries taken as a
whole, (b) the ability of the Borrower to perform its obligations under this
Agreement, the Note or any of the other Loan Documents, (c) the validity or
enforceability of this Agreement, the Note or any of the other Loan Documents,
or the rights or remedies of the Bank hereunder or thereunder, or (d) the right
of the Bank to enforce the payment of accounts against account debtors in any
particular State.
"MULTIEMPLOYER PLAN" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which the
Borrower or any member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions, including for these purposes any Person which ceased to be
a member of the Controlled Group during such five year period.
"NET INCOME" or "NET LOSS" for any period in respect of which
the amount thereof shall be determined, shall mean the aggregate of the
consolidated net income (or net loss) after taxes for
<PAGE> 26
-22-
such period (taken as a cumulative whole) of the Borrower and its Subsidiaries,
determined in accordance with GAAP, exclusive of the write-up of any asset.
"Note" shall have the meaning set forth in Section 1.2.
----
"OBLIGATIONS" shall have the meaning given the term "Secured
Obligations" in the Security Agreement.
"OFFICE OF THE BANK" shall mean the banking office of the Bank
located at 3000 Lakeside Drive, P.O. Box 3762, Santa Clara, California 95054,
or such other location of which the Bank shall notify the Borrower.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall have the meaning set forth in Section
7.6. ---------------
"PERSON" shall mean and include any individual, firm,
corporation, trust or other unincorporated organization or association or other
enterprise or any government or political subdivision, agency, department or
instrumentality thereof.
"PLAN" means any employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (a) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group or (b) maintained pursuant to a collective bargaining
agreement or any other arrangement under which more than one employer makes
contributions and to which the Borrower or any member of the Controlled Group
is then making or accruing an obligation to make contributions or has within
the preceding five plan years made contributions.
"PRIME RATE" shall mean the per annum rate of interest from
time to time announced and made effective by the Bank as its Prime Rate (which
rate may or may not be the lowest rate available from the Bank at any given
time).
"PURCHASE MONEY INDEBTEDNESS" shall mean Indebtedness incurred
to finance the acquisition of assets or the cost of improvements on real
property or leaseholds, in each case in an amount not in excess of the lesser
of (a) the purchase price or acquisition cost of said assets or the cost of
said improvements and (b) the fair market value of said assets or said
improvements on the date of acquisition of said assets or contract for said
improvements.
"PURCHASE MONEY SECURITY INTEREST" shall mean (a) a security
interest securing Purchase Money Indebtedness, which security interest applies
solely to the particular assets acquired with the Purchase Money Indebtedness
that said Purchase Money Security Interest secures, and (b) the renewal,
extension and refunding of such Purchase Money Indebtedness in an amount not
exceeding the amount thereof remaining unpaid immediately prior to such
renewal, extension or refunding.
"QUICK RATIO" means, at any time, all cash and accounts
receivable, less reserves for doubtful accounts, of the Borrower and its
Subsidiaries at such time, on a consolidated basis, determined in accordance
with GAAP, divided by the aggregate of all Current Liabilities less Deferred
Revenues at such time.
"RESTRICTED PAYMENT" means, with respect to the Borrower or
any Subsidiary thereof, (a) any dividend or other distribution on any shares of
capital stock of the Borrower or such Subsidiary (except dividends payable
solely in shares of capital stock or rights to acquire capital
<PAGE> 27
-23-
stock of the Borrower, and dividends payable solely to the Borrower), (b) any
payment on account of the purchase, redemption, retirement or acquisition of
(i) any shares of the capital stock of the Borrower or a Subsidiary thereof or
(ii) any option, warrant, convertible security or other right to acquire shares
of the capital stock of the Borrower or a Subsidiary thereof, other than, in
either case, payments made solely to the Borrower, and (c) any required or
optional payment of any principal of, or premium on, or any required or
optional purchase, redemption or other retirement or other acquisition of any
Subordinated Debt.
"SEC" means the Securities and Exchange Commission.
---
"Security Agreement" shall have the meaning set forth in
Section 3.1. ------------------
"SECURITY INSTRUMENTS" means, collectively, the Security
Agreement and each other instrument or agreement that purports to secure the
Obligations of the Borrower to the Bank.
"SUBORDINATED DEBT" means Indebtedness of the Borrower that is
subordinated to the Indebtedness of the Borrower owing to the Bank either (a)
pursuant to a subordination agreement in form and substance satisfactory to the
Bank between the Bank and the holder(s) of such Indebtedness, or (b) pursuant
to the terms thereof, where the Bank has confirmed in writing that such terms
are satisfactory to it.
"SUBSIDIARY" means, with respect to any Person, any
corporation or other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other Persons performing similar functions are at the time directly or
indirectly owned by such Person.
"TANGIBLE NET WORTH" means, at any time, the consolidated
stockholders' equity of the Borrower and its Subsidiaries at such time
determined in accordance with GAAP, less all assets that are reflected on the
consolidated balance sheet of the Borrower and its Subsidiaries at such time
that would be treated as intangibles under GAAP (including, but not limited, to
goodwill, capitalized software and excess purchase costs), plus all then
outstanding Subordinated Debt.
"TOTAL SENIOR LIABILITIES" means, at any time, the
consolidated liabilities of the Borrower and its Subsidiaries at such time,
determined in accordance with GAAP, less the sum of Deferred Revenues at such
time and all then outstanding Subordinated Debt.
"UCC" shall have the meaning given such term in the Security
Agreement. ---
"UNFUNDED LIABILITIES" means, with respect to any Plan, at any
time, the amount (if any) by which (a) the present value of all benefits under
such Plan exceeds (b) the fair market value of all Plan assets allocable to
such benefits, all determined as of the then most recent valuation date for
such Plan, but only to the extent that such excess represents a potential
liability of the Borrower or any member of the Controlled Group to the PBGC or
such Plan under Title IV of ERISA.
Section 10 Miscellaneous.
---------- -------------
10.1 ACCOUNTING TERMS AND DEFINITIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be delivered hereunder shall be prepared, in
accordance with GAAP; PROVIDED that if any change in GAAP in itself materially
affects the calculation of any financial covenant in this Agreement, the
Borrower may by notice to the Bank, or the Bank may by notice to the Borrower,
require that such covenant thereafter be calculated in accordance with GAAP as
in effect, and applied by the Borrower, immediately before such change in GAAP
occurs. If such notice is given, the compliance certificates delivered
pursuant to Section 6.4(c) after such change
<PAGE> 28
-24-
occurs shall be accompanied by reconciliations of the difference between the
calculation set forth therein and a calculation made in accordance with GAAP as
in effect from time to time after such change occurs. To enable the ready
determination of compliance with the covenants set forth in this Agreement,
the Borrower will not change the date on which its fiscal year or any of its
fiscal quarters end without the prior consent of the Bank.
10.2 AMENDMENTS, ETC. No amendment or waiver of
any provision of this Agreement or the Note, nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
10.3 NOTICES, ETC. All notices and other
communications provided for hereunder shall be in writing and shall be
delivered by hand, by a nationally recognized commercial overnight delivery
service, by first class mail or by telecopy, delivered, addressed or
transmitted, if to the Borrower, at its address at LTX Park at University
Avenue, Westwood, Massachusetts 02090, Attention: John J. Arcari, Chief
Financial Officer, Telecopy No. (617) 329-8836; and if to the Bank, at its
address at Wellesley Office Park, 45 William Street, Wellesley, Massachusetts
02181, Attention: Frank Tower, Assistant Vice President, Telecopy No. (617)
431-9906; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other party. All such notices and
communications shall be deemed effective, (a) in the case of hand deliveries,
when delivered; (b) in the case of an overnight delivery service, on the next
Banking Day after being placed in the possession of such delivery service, with
delivery charges prepaid; (c) in the case of mail, three days after deposit in
the postal system, first class postage prepaid; and (d) in the case of telecopy
notices, when electronic indication of receipt is received, except that notices
to the Bank pursuant to the provisions of Section 1.6 shall not be effective
until received by the Bank.
10.4 NO WAIVER; REMEDIES. No failure on the part
of the Bank to exercise, and no delay in exercising, any right hereunder or
under the Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder or under the Note preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
10.5 RIGHT OF SET-OFF. (a) Upon the occurrence
and during the continuance of any Event of Default, the Bank is hereby
authorized at any time and from time to time, to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by the Bank to or for the credit or the account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing under this Agreement and the Note, irrespective of whether or not the
Bank shall have made any demand hereunder and although such obligations may be
contingent or unmatured.
(b) The Bank agrees promptly to notify the Borrower
after any such set-off and application, PROVIDED that the failure to give such
notice shall not affect the validity of such set-off and application. The
rights of the Bank under this Section 10.5 are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which the
Bank may have.
10.6 EXPENSES; INDEMNIFICATION. (a) The Borrower
shall pay on demand (i) the reasonable fees and disbursements of counsel to the
Bank in connection with the preparation of this Agreement and the preparation
or review of each agreement, opinion, certificate and other document referred
to in or delivered pursuant hereto; (ii) all out-of-pocket costs and expenses
of the Bank in connection with the administration of this Agreement and the
other Loan Documents, and any waiver or amendment of any provision hereof or
thereof, including without limitation, the reasonable fees and disbursements of
counsel for the Bank, and of any field examiner or auditor retained by the Bank
as contemplated in Section 6.8; and (iii) if any Event of Default occurs, all
costs and expenses incurred by the Bank, including the reasonable fees and
disbursements of
<PAGE> 29
-25-
counsel to the Bank, and of any appraisers, environmental engineers or
consultants, or investment banking firms retained by the Bank in connection
with such Event of Default or collection, bankruptcy, insolvency and other
enforcement proceedings related thereto. The Borrower agrees to pay, indemnify
and hold the Bank harmless from, any and all recording and filing fees, and any
and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise or other taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of or the consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement or the other Loan Documents, or any documents delivered pursuant
hereto or thereto.
(b) The Borrower agrees to indemnify the Bank and
its officers and directors and hold the Bank and its officers and directors
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel for the Bank in connection with any investigative,
administrative or judicial proceeding initiated by a third party, whether or
not the Bank shall be designated a party thereto) which may be incurred by the
Bank, relating to or arising out of this Agreement or any other Loan Document,
or the existence of any Hazardous Substance on, in, or under any Borrower
Property, or any violation of any applicable Environmental Laws for which the
Borrower or any Subsidiary thereof has any liability or which occurs upon any
Borrower Property, or the imposition of any Lien under any Environmental Laws,
provided that the Bank shall not have the right to be indemnified hereunder for
its own gross negligence or willful misconduct as determined by a court of
competent jurisdiction.
(c) The agreements in this Section 10.6 shall
survive the repayment of the Note, and all other amounts payable under this
Agreement and the other Loan Documents.
10.7 BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrower and the Bank
(provided, however, in no event shall this Agreement become effective until
signed by an officer of the Bank in California) and thereafter shall be binding
upon and inure to the benefit of the Borrower and the Bank and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Bank. The Bank may assign to any financial institution all or
any part of, or any interest (undivided or divided) in, the Bank's rights and
benefits under this Agreement or the Note, and to the extent of that assignment
such assignee shall have the same rights and benefits against the Borrower
hereunder as it would have had if such assignee were the Bank making the Line
of Credit Loans hereunder.
10.8 SEVERABILITY. Any provision of this
Agreement which is prohibited, unenforceable or not authorized in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or non-authorization without invalidating
the remaining provisions hereof or affecting the validity, enforceability or
legality of such provision in any other jurisdiction.
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS.
10.10 WAIVER OF JURY TRIAL. THE BANK AND THE
BORROWER AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A)
SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION
BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR
(B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN
<PAGE> 30
-26-
FULLY DISCUSSED BY THE BANK AND THE BORROWER, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE BORROWER HAS AGREED WITH OR
REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
10.11 VENUE, CONSENT TO SERVICE OF PROCESS. THE
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY
AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE STATE OF CALIFORNIA OR THE COMMONWEALTH
OF MASSACHUSETTS IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH
ARISES OUT OF OR BY REASON OF THIS AGREEMENT, THE NOTE, ANY OTHER LOAN
DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IRREVOCABLY
AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH
ACTION, SUIT OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN
THE MANNER HEREINAFTER PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL
RIGHTS OF APPEAL AND TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND
AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH
ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND AGREES THAT
PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN THE
MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF
THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF
CIVIL PROCEDURE.
10.12 HEADINGS. Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute
a part of this Agreement for any other purpose.
10.13 COUNTERPARTS. This Agreement may be signed
in one or more counterparts each of which shall constitute an original and all
of which taken together shall constitute one and the same instrument.
<PAGE> 31
-27-
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
LTX CORPORATION
By:_____________________________
Name: John J. Arcari
Title: Chief Financial Officer
SILICON VALLEY EAST, a Division of
Silicon Valley Bank
By:_____________________________
Name: Frank Tower
Title: Assistant Vice President
SILICON VALLEY BANK
By:____________________________
Name:
Title:
(Signed at Santa Clara,
California)
<PAGE> 1
Exhibit 10(v)
============================================================
LOAN AGREEMENT
dated as of July 20, 1994
between
ANDO ELECTRIC CO., LTD.,
as Lender
and
LTX CORPORATION,
as Borrower
______________________________
$20,000,000
============================================================
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C> <C>
Article 1 - The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.4 Loan Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.5 Payments Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Article 2 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Organization, Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Corporate Authority, etc . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.3 Validity Of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Ranking. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.7 Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.8 Disclosure Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.9 Not an Investment Company . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Article 3 - Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.1 Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.2 Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Article 4 - Subordination of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Article 5 - Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.3 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.4 Maintenance of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.6 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 5.7 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5.8 No Merger; Sale of Assets; Change in Control . . . . . . . . . . . . . . . . 19
Section 5.9 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.10 Limitation on Sales and Lease-Backs . . . . . . . . . . . . . . . . . . . . . 22
Section 5.11 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . 22
Article 6 - Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Article 7 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.1 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.2 Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.3 Entire Agreement, Amendments, etc. . . . . . . . . . . . . . . . . . . . 26
Section 7.4 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . 26
Section 7.5 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.7 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 7.9 Expenses of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 7.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibits
- - - --------
Exhibit A Form of Senior Secured Subordinated Note
Exhibit B Form of Warrant
Exhibit C Form of Security Agreement
</TABLE>
ii
<PAGE> 4
<TABLE>
GLOSSARY
<CAPTION>
Defined Term Page
- - - ------------ ----
<S> <C>
1934 Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Default Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
License Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Organic Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Permitted Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Regulation S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Restricted Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subordinated Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
U.S. person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S. Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
iii
<PAGE> 5
LOAN AGREEMENT
This Loan Agreement ("AGREEMENT") is made as of July 20, 1994
between LTX CORPORATION, a Massachusetts corporation ("BORROWER"), and ANDO
ELECTRIC CO., LTD., a Japanese corporation ("LENDER").
PRELIMINARY STATEMENT
Borrower desires to borrow US$20,000,000 from Lender for
further development of its digital tester technology licensed to Lender and
other general corporate purposes, and Lender is willing to advance that amount
to Borrower and upon the further terns and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto agree as follows:
ARTICLE 1
THE LOAN
SECTION 1.1 LOAN. Lender hereby advances to Borrower,
and Borrower acknowledges receipt of, the sum of US$20,000,000 (the "LOAN") by
wire transfer to Borrower's account number 3870-1900 at State Street Bank and
Trust Co., 225 Franklin Street, Boston, Massachusetts (ABA number 011-000-028),
on and subject to the terms and conditions of this Agreement and the Loan
Documents.
SECTION 1.2 PROMISSORY NOTE. The Loan shall be evidenced
by a single senior secured subordinated promissory note ("NOTE") in the form
attached hereto as Exhibit A.
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SECTION 1.3 WARRANT. On the date hereof, Borrower shall
issue to Lender its Common Stock Purchase Warrant ("WARRANT") in the form
attached hereto as Exhibit B for the purchase of 2,000,000 shares of Borrower's
common stock, $.05 par value per share.
1.3.1 In connection with acquisition of the Note and
Warrant, Lender represents that it is its present intention to acquire
the Note and Warrant for its own account for the purpose of investment
and not with a view to distribution or resale thereof. Lender
understands that none of the Note, the Warrant or the shares to be
issued under the Warrant has been or will be registered under the
United States Securities Act of 1933, as amended (the "U.S. SECURITIES
ACT") and may not be sold or transferred within the United States, or
to or for the account or benefit of U.S. persons, as such term is
defined in Regulation S under the U.S. Securities Act ("REGULATION
S"), except in accordance with Regulation S and after expiration of
the 40 day restricted period defined therein, or pursuant to an
exemption from the registration requirements of the U.S. Securities
Act. Lender represents and warrants that it is not a "U.S. person" as
defined in Regulation S and is not acquiring the Note or the Warrant
for the account or benefit of any U.S. person.
SECTION 1.4 LOAN PREPAYMENTS. Borrower may prepay the
Note in whole or in part at any time, with accrued interest to the date of such
prepayment on the outstanding principal amount being prepaid; PROVIDED that
each partial prepayment shall be in the amount of $50,000 or an integral
multiple thereof. Prepayments shall be applied to principal payments in
reverse order of maturity. Any prepayment, in whole or in part, shall be
without premium or penalty, and no reborrowing of any prepaid
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amount shall be permitted. Any notice of an intent to prepay shall be binding
on Borrower once received by Lender.
SECTION 1.5 PAYMENTS GENERALLY.
1.5.1 Subject to earlier payment as provided in this
Agreement, Borrower shall repay to Lender the principal amount of the
Loan in ten equal semi-annual installments of US$2,000,000 each
commencing January 20, 1997 and continuing on each July 20 and January
20 thereafter. Notwithstanding anything to the contrary in this
Agreement all remaining principal and accrued interest thereon shall
be due and payable on July 20, 2001.
1.5.2 All payments of principal or interest, or of
any other amount payable hereunder or under any other Loan Document,
shall be made to Lender in immediately available funds to Lender's
account number 201225 at The Sumitomo Bank, Limited, Shimbashi Branch,
8-3, Shimbashi 1-chome, Minato-ku, Tokyo, Japan, or such other account
as Lender may designate from time to time by notice to Borrower.
Whenever any payment is stated as due on a day which is not a Business
Day, the maturity of such payment shall be extended to the next
succeeding Business Day and interest shall continue to accrue during
such extension. "BUSINESS DAY" shall mean any day other than a
Saturday, Sunday or other public holiday in the Commonwealth of
Massachusetts or in Japan. Any sums due from Lender to Borrower under
the License and Development Agreement ("LICENSE AGREEMENT") and
Distribution and Supply Agreement ("DISTRIBUTION AGREEMENT"), each
dated January 28, 1993 (as amended from time to time) or otherwise may
be applied to or set off against the payment of obligations of
Borrower due and payable under this Agreement or any Loan Document at
any time after the occurrence of an Event of Default, whether or
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not Lender has elected to accelerate the Loan pursuant to such default. Upon
payment in full of the Note and all other amounts payable hereunder, Lender
will surrender to Borrower the Note duly marked cancelled.
1.5.3 All sums payable by Borrower hereunder or
under the Note, whether of principal, interest, fees, expenses or
otherwise, shall be paid in full, in United States dollars, free of
all taxes, deductions or withholdings levied or imposed by any
federal, state, local or other taxing authority whatsoever, except as
provided below. If Borrower is prohibited by United States law from
making one or more payments hereunder or under the Note or any other
Loan Document free of taxes, deductions or withholdings, then Borrower
shall pay to Lender only such amount as is lawfully permitted, and
shall provide reasonable evidence of such taxes, deductions or
withholdings and the basis thereof. Borrower shall provide any
necessary documentation or assistance reasonably required by Lender to
challenge or obtain under applicable law any such amounts withheld.
SECTION 1.6 INTEREST. Borrower will pay interest to
Lender on the unpaid principal balance of the Loan, at a rate of eight percent
per year. Interest shall be calculated on the basis of a 360-day year for the
actual number of days elapsed. Interest shall be payable on January 20 and
July 20 of each year while the Loan is outstanding. In the event any amount
payable by Borrower hereunder or under the Note is not paid when due, subject
to any applicable grace or cure period, the amount in arrears shall bear
interest after as well as before judgment, payable on demand, accrued at a rate
of 12% per year.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
SECTION 2.1 ORGANIZATION, STANDING. Borrower is (and
shall remain during the term of this Agreement) a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Massachusetts. Borrower has the corporate power and authority necessary to own
its assets, to carry on its business as now conducted and proposed to be
conducted, and to enter into and perform its obligations under this Agreement,
the Note, the Warrant, the Security Agreement, and each related document or
agreement delivered in connection with the Loan (collectively, the "LOAN
DOCUMENTS") to which it is a party. Borrower owns 50% of more of the stock or
other equity interest of no other corporation or other entity other than those
listed on Schedule 2.1 ("SUBSIDIARIES", which term shall include any such
entity held or acquired from time to time).
SECTION 2.2 CORPORATE AUTHORITY, ETC. The making and
performance of the Loan Documents to which Borrower is a party are within its
power and authority and have been duly authorized by all necessary corporate
action. The making and performance by Borrower of the Loan Documents to which
it is a party do not, and under present law will not, require any consent or
approval of any stockholders as such or any other person (except as heretofore
obtained); do not and under present law will not violate any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award;
do not violate any provision of its charter or by-laws (collectively, its
"ORGANIC DOCUMENTS"); do not and will not result in any breach of any
agreement, lease or instrument to which it is a party, by which it is bound or
to which any of its assets is or may be subject; and do not and will not give
rise to any lien or charge upon any of its assets except in favor of Lender.
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Borrower is not in default in any material respect under any of the foregoing,
except as otherwise disclosed in SEC Reports.
SECTION 2.3 VALIDITY OF DOCUMENTS. Each Loan Document
is, or when executed and delivered by Borrower will be, the legal, valid and
binding obligation of Borrower, enforceable against it in accordance with its
terms. No authorization, consent, approval, license, exemption of or other
filing or registration with any United States court, governmental agency or
other tribunal is or under present law will be necessary to the validity or
enforceability of any Loan Document.
SECTION 2.4 RANKING. The Note is senior in right of
payment to Borrower's outstanding 13 1/2% Convertible Subordinated Debentures
Due 2011 and 7 1/4% Convertible Subordinated Debentures Due 2011 (collectively,
the "SUBORDINATED DEBENTURES") and is "Senior Debt" for all purposes of, and as
defined in, the Indentures under which such Debentures were issued.
SECTION 2.5 LITIGATION. There are no actions, suits or
proceedings pending or threatened against or affecting Borrower or any of its
Subsidiaries before any court, government agency, or other tribunal, which
could have a material adverse effect on the financial condition, operation or
assets of Borrower or upon the ability of Borrower to perform under any Loan
Document, the License Agreement or the Distribution Agreement.
SECTION 2.6 FINANCIAL STATEMENTS. The consolidated
financial statements of Borrower and its Subsidiaries for the twelve month
period ended July 31, 1993 and 1992, consisting of balance sheets and related
statements of operations, changes in stockholders equity and cash flows with
accompanying footnotes, and the opinion thereon of independent certified public
accountants; and the consolidated financial statements of
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<PAGE> 11
Borrower and its Subsidiaries dated October 31, 1993, January 31, 1994 and
April 30, 1994 with respect to the fiscal quarters then ended, are in each case
complete and correct in all material respects and fairly present its financial
condition, results of operations, changes in stockholders' equity and cash
flows as of the dates and for the periods referred to, all in accordance with
generally accepted accounting principles consistently applied, subject to
fiscal year end audit adjustments in the case of the interim financial
statements. There are no liabilities, fixed or contingent, which are material
but not reflected in such financial statements or in the notes thereto other
than liabilities arising in the ordinary course of business since the date of
the interim financial statements. There has been no material adverse change in
its financial condition or operations since the date of the interim financial
statements.
SECTION 2.7 COMPLIANCE WITH LAWS. Borrower is in
compliance in all material respects with all laws, regulations, and
requirements applicable to its business and has obtained all authorizations,
consents, approvals, orders, licenses, exemptions from, or has accomplished all
filings or registrations or qualifications with, any court or governmental
department, public body or authority, commission, board, bureau, agency, or
instrumentality, that is necessary for the transaction of its business as
presently conducted.
SECTION 2.8 DISCLOSURE GENERALLY. Borrower is required
to and does file with the Securities and Exchange Commission ("SEC") periodic
and other reports ("SEC REPORTS") pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended ("1934 ACT"). Lender has been provided with
copies of Borrower's SEC Reports for its fiscal year ended July 31, 1993 and
all reports filed to the date of this Agreement that cover periods ending
after, or events occurring after, that date. Borrower's SEC Reports do not and
will not contain any untrue
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<PAGE> 12
statement of a material fact or omit to state a material fact or any fact
necessary to make the statements made therein not materially misleading. The
written information, exhibits, reports, brochures or financial statements
furnished or to be furnished by Borrower to Lender in connection with this
credit facility, the Loans hereunder, or any Loan Document, when considered in
the aggregate, do not and will not contain any material misstatement of fact or
omit to state a material fact or any fact necessary to make the statements
contained therein not misleading.
SECTION 2.9 NOT AN INVESTMENT COMPANY. Borrower is not
an "investment company" as defined in Section 3 of the Investment Company Act
of 1940, as amended.
ARTICLE 3
SECURITY
SECTION 3.1 GRANT. As security for the punctual payment
in full of all installments of principal, interest, fees and other amounts
payable under any Loan Document, Lender shall have a valid, perfected lien on
and security interest in the assets of Borrower specified in the Security
Agreement in the form attached hereto as Exhibit C (with such additional assets
on which Liens are granted to Lender from time to time "COLLATERAL") , which
Liens shall be subordinate only to Liens securing Permitted Senior Debt, as
specified below. Borrower represents and warrants that substantially all of
its inventory, property and equipment are located in the United States and
owned and held by Borrower, not its Subsidiaries.
SECTION 3.2 EXERCISE OF RIGHTS.
3.2.1 All Liens in favor of Lender under the
Security Agreement or any other Loan Document on any Collateral shall be junior
and subordinate to the rights of the holders of
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Permitted Senior Debt which is secured by Liens on the Collateral. All Liens
granted or to be granted to the holders of Permitted Senior Debt by Borrower
and its Subsidiaries on Collateral from time to time shall in all respects be
first, senior and superior to any and all Liens granted under the Loan
Documents or to be granted to Lender, regardless (in any case) of the relative
times of attachment or perfection of any such Liens or the relative time of
filing of any financing statements, mortgages or other security documents.
3.2.2 Until all of the Permitted Senior Debt which
is secured by Liens on the Collateral shall have been indefeasibly paid in full
in cash or cash equivalents on a final basis, and until all of the commitments
of the holders of such Permitted Senior Debt to advance further monies to
Borrower secured by the Collateral shall have been terminated, Lender shall
not, for a period of 150 days commencing on the effective date of any Default
Notice given under Section 4.1.5 of the Agreement, exercise or commence any
legal or other proceedings of any kind to enforce any of its rights, remedies,
powers or privileges under any of the Loan Documents, provided, that in no
event shall this prevent filing of proof of claims in bankruptcy.
3.2.3 Lender will terminate all Liens in favor of
Lender on any Collateral upon the sale or transfer of such assets if (a) the
holders of Permitted Senior Debt with Liens on the Collateral consent to such
sale or transfer and (b) the entire net proceeds of such sale or transfer are
applied toward payment of that Permitted Senior Debt.
3.2.4 Lender will release all Liens with respect to
any Collateral which (a) the holders of Permitted Senior Debt with Liens on
such Collateral release from their Liens, and (b) is sold by Borrower (i) in
the ordinary course of business or
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(ii) in connection with the replacement of such asset, in which case the
replacement assets shall again be Collateral.
3.2.5 Lender shall execute, at the request of
Borrower, a separate agreement or agreements, in form and substance reasonably
satisfactory to Lender to effect the provisions of this Article 3, with any
holder or holders of Permitted Senior Debt to be secured by Liens on
Collateral, and do and perform all such further acts and things as such holders
may reasonably request to assure such holders the rights and benefits afforded
under the Liens granted to such holders by Borrower and this Article 3.
3.2.6 The provisions of this Article 3 may not be
amended or waived in any manner which is detrimental to any Permitted Senior
Debt with Liens on the Collateral.
ARTICLE 4
SUBORDINATION OF NOTE
SECTION 4.1 SUBORDINATION. Lender, for itself, its
successors and assigns, covenants and agrees, and each successor holder of the
Note by its or his acceptance of the Note likewise covenants and agrees, that
notwithstanding any other provisions of the Note, the payment of the principal
of and premium, if any, and interest on the Note shall be subordinated in right
of payment, to the extent and in the manner hereinafter set forth, to the prior
payment in full of all Permitted Senior Debt at any time outstanding. The
provisions of Section 3.2 and this Article 4 shall constitute a continuing
offer to all persons who, in reliance upon such provisions, become the holders
of or continue to hold the Permitted Senior Debt, and such holders are hereby
made obligees hereunder the same as if their names were written herein as such,
and they or any of them may proceed to enforce such provisions against Borrower
or against the holder of the Note without the necessity of joining Borrower as
a party.
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4.1.1 PAYMENT OF PERMITTED SENIOR DEBT. In the
event of any insolvency or bankruptcy proceedings, and any receivership,
liquidation, reorganization or other similar proceedings in connection
therewith, relative to Borrower or to its property, or, in the event of any
proceedings for voluntary liquidation, dissolution or other winding up of
Borrower or distribution or marshaling of its assets or any composition with
creditors of Borrower, whether or not involving insolvency or bankruptcy, then
and in any such event all Permitted Senior Debt shall be paid indefeasibly in
full in cash or cash equivalents before any payment or distribution of any
character, whether in cash, securities or other property, shall be made on
account of the Note. Any payment or distribution on the Note, except payments
or distributions of equity securities or securities which are subordinate and
junior in right of payment to the payment of all Permitted Senior Debt then
outstanding on substantially the terms set forth in this Article 4, which
would, but for the provisions hereof, be payable or deliverable in respect of
the Note shall be paid or delivered directly to the holders of the Permitted
Senior Debt (or their duly authorized representatives), in the proportions in
which they hold the same, until all Permitted Senior Debt shall have been paid
in full, after giving effect to any concurrent payment or distribution to or
for the holders of the Permitted Senior Debt, and every holder of the Note by
becoming a holder hereof shall be deemed to have designated and appointed each
holder or holders of the Permitted Senior Debt (and their duly authorized
representatives) as agents and attorneys-in-fact of the holder of the Note to
file any necessary proof of claim not otherwise filed. The original and every
successor holder of the Note by acceptance hereof agrees to execute, at the
request of Borrower, a separate agreement or agreements with any holder or
holders of the Permitted Senior Debt on the terms set forth in this Article 4.
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4.1.2 PAYMENTS HELD IN TRUST. In case any payment
or distribution shall be paid or delivered to any holder of the Note in
violation or contravention of the terms of this subordination before all
Permitted Senior Debt shall have been paid indefeasibly in full in cash or cash
equivalents, such payment or distribution shall be held in trust for and paid
and delivered ratably to the holders of the Permitted Senior Debt (or their
duly authorized representatives), until all Permitted Senior Debt shall have
been paid indefeasibly in full in cash or cash equivalents after giving effect
to any concurrent payment or distribution to or for the holders of the
Permitted Senior Debt.
4.1.3 SUBROGATION. Subject to the payment in full
of all Permitted Senior Debt and until the Note shall be paid indefeasibly in
full in cash or cash equivalents, the holder of the Note shall be subrogated to
the rights of the holders of the Permitted Senior Debt to receive payments or
distributions of assets of Borrower applicable to the Permitted Senior Debt to
the extent holders of the Permitted Senior Debt have received payments which,
but for this Article 4, would have been paid to the holder. No such payments
or distributions applicable to the Permitted Senior Debt shall, as between
Borrower, its creditors other than the holders of the Permitted Senior Debt,
and the holder of the Note, be deemed to be payment by Borrower to or on
account of the Note.
4.1.4 SCOPE OF SECTION. The provisions of this
Article 4 are intended solely for the purpose of defining the relative rights
of the holder of the Note, on the one hand, and the holders of the Permitted
Senior Debt, on the other hand. Nothing contained in this Article 4 or
elsewhere in the Note is intended to or shall impair, as between Borrower, its
creditors other than the holders of the Permitted Senior Debt, and the holder
of the Note, the obligation of Borrower, which is unconditional and absolute,
to pay to the holder of the Note the
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principal of and interest and premium, if any, on the Note as and when the same
shall become due and payable in accordance with the terms hereof, or to effect
the relative rights of the holder of the Note and creditors of Borrower other
than the holders of the Permitted Senior Debt, nor shall anything herein or
therein prevent the holder of the Note from accepting any payment with respect
to the Note or exercising all remedies otherwise permitted by applicable law
upon default under the Note, subject to the rights, if any, under this Article
4 of the holders of the Permitted Senior Debt in respect of cash, property or
securities of Borrower received by the holder of the Note.
4.1.5 STANDBACK. No payment on account of the
principal of or interest on, or otherwise in respect of, the Note shall be made
following written notice (the "DEFAULT NOTICE") to Borrower by the holders of
Permitted Senior Debt of the existence of a default or an event of default with
respect to any Permitted Senior Debt or in the instrument or instruments under
which the same is outstanding, permitting the holder or holders thereof (or any
representative on behalf of such holder or holders) to accelerate the maturity
thereof, unless and until such default shall have been cured or waived;
provided, however that if such a default or event of default shall have
occurred and if the holder or holders of the Permitted Senior Debt shall not
have accelerated the payment of the Permitted Senior Debt within 60 days after
the effective date of the Default Notice, then, subject to the other provisions
of the Note, including, without limitation section 4.1.1, after the expiration
of such 60 day period and until such acceleration occurs (or if during such 60
day period the default or event of default is cured or is waived by the holder
or holders of the Permitted Senior Debt, then after the time of such cure or
waiver), the holder of the Note may, from time to time, receive payments in
respect to principal of and of interest on the Note, as payable pursuant to the
provisions hereof, including any accrued interest which was not
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paid as a result of or during such 60 day period, except that if such default
or event of default is waived by the holder or holders of the Permitted Senior
Debt or is cured and any other Default Notice is given with respect to any
other such default or event of default, then the foregoing provisions of this
sentence shall again be applicable and complied with, with respect to payments
of principal of and interest on the Note. Borrower agrees to notify the holder
of the Note promptly of any Default Notice or any such acceleration of the
Permitted Senior Debt.
4.1.6 SURVIVAL OF RIGHTS. The right of any present
or future holder of Permitted Senior Debt to enforce subordination of the Note
pursuant to the provisions of this Article 4 shall not at any time be
prejudiced or impaired by any act or failure to act on the part of Borrower or
any such holder, including, without limitation, any forbearance, waiver,
consent, compromise, amendment, extension, renewal, or taking or release of
security of or in respect of any Permitted Senior Debt or by noncompliance by
Borrower with the terms of such subordination regardless of any knowledge
thereof such holder may have or otherwise be charged with.
4.1.7 AMENDMENT OR WAIVER. The provisions of this
Article 4 may not be amended or waived in any manner which is detrimental to
any Permitted Senior Debt without the consent of the holders of all then
existing Permitted Senior Debt.
ARTICLE 5
COVENANTS
So long as any amount payable under any Loan Document
(including the Note) remains unpaid the following shall apply:
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SECTION 5.1 REPORTING REQUIREMENTS.
5.1.1 ANNUAL FINANCIAL STATEMENTS. As soon as
available, but in any event within 120 days after the end of each
fiscal year, Borrower will deliver to Lender audited financial
statements for such fiscal year. Financial statements for a fiscal
period shall mean a balance sheet as of the last day of that period
and related statements of income and retained earnings and statements
of cash flows for such fiscal year, setting forth in comparative form
the same information for the last preceding fiscal year. Financial
statements shall be in reasonable detail with appropriate footnotes
and prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except for changes concurred
in by Borrower's independent certified public accountants which are
disclosed in appropriate footnotes or in the opinion of such
accountants), accompanied by the opinion of its independent certified
public accountants, not containing any material qualification as to
Borrower's ability to continue as a going concern.
5.1.2 QUARTERLY FINANCIAL STATEMENTS. As soon as
available, but in any event within forty-five days after the end of
each fiscal quarter, Borrower will deliver to Lender cumulative
year-to-date financial statements as of the end of such quarter,
consisting of a balance sheet and a related statement of income or
loss. Such interim financial statements shall be certified by the
chief financial officer of Borrower as being complete and correct in
all material respects, subject to normal year-end audit adjustments,
and prepared in accordance with generally accepted accounting
principles, consistently applied. So long as Borrower is required to
file SEC Reports, these reporting requirements shall be satisfied by
delivery of such SEC reports within
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three days of the filing thereof with the SEC, with a copy of the
required accountant's opinion or certificate of the chief financial
officer, as appropriate.
5.1.3 OTHER STATEMENTS AND REPORTS. As soon as
available, but in any event within fifteen days after the end of the
calendar month for which it is furnished, Borrower will furnish to
Lender each financial statement or report not of a routine nature
furnished to any other creditor or governmental body.
5.1.4 QUARTERLY DEFAULT CERTIFICATES. Each
quarterly financial statement shall be accompanied by a certificate
signed by the chief executive officer or chief financial officer of
Borrower, as the case may be, stating (a) the amount of Permitted
Senior Debt then outstanding and (b) whether in his opinion an Event
of Default or event which with notice or lapse of time or both would
become an Event of Default exists on the date of such certificate
together with a statement of the details and action taken or proposed
to be taken.
5.1.5 INTERIM DEFAULT CERTIFICATES. Borrower shall
deliver to Lender forthwith upon occurrence of any Event of Default or
event which with notice or lapse of time or both would become an Event
of Default a certificate signed by its chief executive officer or
chief financial officer stating the details thereof and the action
taken or proposed to be taken.
SECTION 5.2 FURTHER ASSURANCES. In furtherance of
Borrower's obligation to perform under the Loan Agreements, Borrower shall
execute and deliver all such other and further instruments, and do and perform
all such further acts and things as Lender may reasonably request to assure to
Lender the rights
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and benefits afforded by the Loan Documents or which are intended so to be
afforded, including but not limited to rights and benefits of any security
interests therein granted.
SECTION 5.3 COMPLIANCE WITH LAWS. Borrower will comply
with all applicable laws, rules, regulations and orders of any governmental
authority to which it may be subject, including but not limited to the payment
and discharge of all taxes, assessments and governmental charges upon it, its
income and its properties prior to the dates on which penalties are attached
thereto, except to the extent the duty to comply shall be contested in good
faith and by appropriate proceedings.
SECTION 5.4 MAINTENANCE OF BUSINESS. Borrower and its
Subsidiaries shall continue in and limit their operations to the same general
line or type of business as that presently conducted. Borrower shall not
transfer to any Subsidiary, directly or indirectly, in one or a series of
related transactions, any of Borrower's business operations or assets which,
prior to such transfer accounted for in excess of 5% of Borrower's net income
or revenues, or the fair market value of which exceeded 5% of Borrower's total
assets.
SECTION 5.5 INSURANCE. Borrower will maintain, or cause
to be maintained, insurance with responsible insurance companies on such
properties, in such amounts and forms, with such endorsements and against such
risks as is customarily maintained by and currently available to similar
businesses operating in the same vicinity. Attached to this Agreement as
Exhibit 5.4 is a list of all insurance stating the names of the insurers, the
amount of coverage, the dates of expiration and the properties and risks
covered.
SECTION 5.6 DEBT. Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or in
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any other manner be liable upon (directly, by guarantee or otherwise) or permit
to exist any Indebtedness except (a) Permitted Senior Debt, (b) Indebtedness
secured by Permitted Liens and by no other Liens, (c) taxes not yet due, (d)
current accounts payable to trade creditors for goods or services payable in
the ordinary course of business, (e) Indebtedness for salaries and wages
incurred in the ordinary course of its business, (f) Indebtedness in existence
on the date hereof, (g) Indebtedness to Borrower's Subsidiaries, provided that
each such Subsidiary agrees in writing to subordinate payment of such
Indebtedness to the Loan and other obligations under this Agreement on the
terms of Section 3.2 and Article 4 and (h) other Indebtedness which is
subordinated in writing to the Loan and other obligations under this Agreement
on the terms of Section 3.2 and Article 4. "INDEBTEDNESS" shall mean any
indebtedness or liability (w) for borrowed money or deferred purchase price of
property or services or which is evidenced by a note, bond, debenture or
similar instrument (including any class of capital stock with fixed payment
obligations or redemption of the option of the holder), (x) under leases
required to be treated as capitalized leases under generally accepted
accounting principles, (y) on account of deposits, advances, reimbursement
obligations or (z) secured by any lien on Borrower's or its Subsidiaries'
assets. "PERMITTED SENIOR DEBT" shall mean up to an aggregate maximum amount
outstanding at any time of US$20,000,000 (whether outstanding on the date of
this Agreement or thereafter created incurred or assumed) of (i) principal of,
premium, if any, and interest on and all other liabilities and obligations
relating to indebtedness to banks and other institutional lenders by Borrower
or any of its Subsidiaries for or in connection with money borrowed or the
factoring of accounts receivable, including without limitation the existing
indebtedness to Silicon Valley Bank, which provides by its terms that it shall
be senior, and (ii) the capitalized lease liability required to be stated on
the balance sheet of Borrower or its Subsidiaries in accordance with
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generally accepted accounting principles with respect to such capitalized
leases.
SECTION 5.7 LIENS. Borrower shall not, nor shall
Borrower permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any mortgage, pledge, lien or other encumbrance or charge of any kind on
or any security interest in ("LIENS") any of its assets, except for the
following (collectively, "PERMITTED LIENS"): (a) Liens in existence on the
date hereof; (b) Liens securing Permitted Senior Debt; (b) Liens for taxes not
delinquent or being contested in good faith and by appropriate proceedings and
against which adequate reserves are being maintained; (c) purchase money
security interests arising in connection with the acquisition of property after
the date hereof, or existing on acquired property at the time of acquisition,
provided such Liens attach only to the property acquired, and the indebtedness
secured thereby does not exceed the fair market value of such property; (d)
deposits or pledges to secure leases, bids, tenders, contracts other than for
the payment of money, statutory obligations, surety and appeal bonds and other
obligations of like nature arising in the ordinary course of business; (e)
Liens created by the Loan Documents; and (f) mechanics', materialmen's and
other like Liens arising in the ordinary course of business with respect to
which the obligations are not due or are being contested in good faith and by
appropriate proceedings and against which adequate reserves are being
maintained.
SECTION 5.8 NO MERGER; SALE OF ASSETS; CHANGE IN CONTROL.
Borrower shall not, nor permit any Subsidiary to, (a) dissolve, (b) adopt or
enter into any plan or agreement of liquidation, (c) be a party to any merger
or consolidation with any other party or (d) liquidate, sell, lease, exchange
or otherwise dispose of a substantial portion, or all or substantially all, of
its operations or assets, provided that
19
<PAGE> 24
Lender shall not unreasonably withhold its consent to transactions under (c)
and (d) above after request by Borrower accompanied by a description and
relevant information concerning the proposed transaction and, provided further
that any Subsidiary may merge into Borrower or any wholly-owned Subsidiary of
Borrower, provided further, however, Borrower may merge with or acquire the
business of another person so long as (i) no Event of Default has occurred and
is continuing or would arise therefrom; (ii) in the case of a merger, Borrower
is the surviving corporation; (iii) there is no accompanying change in the
senior management or Change in Control of Borrower; and (iv) the person being
acquired is in the same or a related line of business to that of Borrower. For
purposes of clause (d) above, disposal of a substantial portion of Borrower's
operations or assets shall deemed to occur if Borrower, directly or indirectly,
in one or a series of related transactions, liquidates, sells, leases,
exchanges or otherwise disposes of any of Borrower's business operations or
assets which, prior to such event accounted for in excess of 20% of Borrower's
net income or revenues, or the fair market value of which exceeded 20% of
Borrower's total assets. A "CHANGE IN CONTROL" shall be deemed to occur upon
(y) any issuance, sale, transfer or other disposition, or series of issuances,
sales, transfers or dispositions, of the capital stock of Borrower that results
in any person or group being the beneficial owner (within the meaning of Rule
13d-3 promulgated under the 1934 Act) of in excess of 30% of the capital stock
of Borrower or (z) the Separation Date (as defined under the Rights Agreement
("RIGHTS AGREEMENT") dated as of May 11, 1989 between Borrower and The First
National Bank of Boston);
SECTION 5.9 RESTRICTED PAYMENTS. Borrower shall not, nor
permit any of its Subsidiaries to, declare or make any Restricted Payment,
except, so long as there shall not exist an
20
<PAGE> 25
Event of Default either before or after the Restricted Payment, Borrower may
make any of the following Restricted Payments:
5.9.1 the purchase by Borrower from its employees or
former employees of shares of capital stock and the cashing out of
stock options of employees of Borrower who will not be continuing as
employees of Borrower, if Borrower is under a contractual obligation
to do so;
5.9.2 the redemption of the rights issued under the
Rights Agreement;
5.9.3 the scheduled payments on or with respect to
the Subordinated Debentures, or, with the prior consent of Lender,
exchange or repurchase of any Subordinated Debentures of Borrower
outstanding at this time; and
5.9.4 the purchase on the open market of shares of
capital stock of Borrower for the purpose of holding such capital
stock as treasury stock and using it to fund employee stock purchase
plans, provided no Event of Default or event which, with the passage
of time would become an Event of Default, has occurred and is
continuing.
"RESTRICTED PAYMENT" means, with respect to Borrower or any Subsidiary, (a) any
dividend or other distribution on any shares of capital stock of Borrower or
any Subsidiary (except dividends payable solely in shares of capital stock or
rights to acquire capital stock of Borrower, and dividends payable solely to
Borrower), (b) any payment on account of the purchase, redemption, retirement
or acquisition of (i) any shares of the capital stock of Borrower or a
Subsidiary or (ii) any option, warrant, convertible security or other right to
acquire shares of the capital stock of Borrower or a Subsidiary, other than, in
either case, payments made solely to Borrower, and (c) any
21
<PAGE> 26
required or optional payment of any principal of, or premium on, or any
required or optional purchase, redemption or other retirement or other
acquisition of any Subordinated Debentures.
SECTION 5.10 LIMITATION ON SALES AND LEASE-BACKS.
Borrower shall not, and shall not permit any Subsidiary to, enter into any
arrangement, directly or indirectly, with whereby it will sell or transfer any
property, real or personal, whether now owned or hereafter acquired, and
thereafter rent or lease such property or other property which Borrower intends
to use for substantially the same purpose or purposes as the property being
sold or transferred, unless such lease is a capitalized lease which is included
within and constitutes Permitted Senior Debt. Nothing in this Section 5.10
shall prevent Borrower from acquiring equipment in good faith pursuant to a
purchase and substantially contemporaneous sale-leaseback under an operating
lease or through operating leases generally.
SECTION 5.11 USE OF PROCEEDS; MARGIN REGULATIONS. The
proceeds of the Loans hereunder shall be used solely for general corporate
purposes in approximately the amounts set forth below:
- Retirement of existing bank debt $5.0 million
- Development of digital tester $8.0 million
technology
- Working capital $7.0 million
No proceeds of any Loan hereunder will be applied for the purpose of purchasing
or carrying or trading in any margin securities (within the meaning of
Regulation U or X of the Board of Governors of the Federal Reserve System) or
refinancing any credit previously extended for any such purpose.
22
<PAGE> 27
ARTICLE 6
DEFAULT
SECTION 6.1 EVENTS OF DEFAULT. If any one or more of the
following events ("EVENTS OF DEFAULT") shall occur:
6.1.1 Borrower shall fail to pay any installment of
principal of the Note within five Business Days after such installment
shall have become due and payable (whether at maturity or at a date
fixed for the payment of an installment or prepayment or otherwise);
or shall fail to pay interest on the Note or any other amount payable
under any Loan Document within five Business Days after such interest
or other amount shall have become due and payable.
6.1.2 Borrower shall fail to observe or perform any
other covenant or agreement contained in any Loan Document or the
License Agreement or Distribution Agreement, and such failure shall
continue for 30 days after written notice thereof has been given by
Lender specifying the default and requiring that it be remedied;
6.1.3 Any representation or warranty made by
Borrower in any Loan Document, the License Agreement or Distribution
Agreement or any statement or representation made in any certificate,
report or opinion delivered in connection therewith shall prove to
have been incorrect or misleading in any material respect when made or
confirmed, or with respect to continuing representations shall become
incorrect or misleading in any material respect;
6.1.4 Any obligation of Borrower in respect of any
Permitted Senior Debt shall become or is declared to be due and
payable prior to its stated maturity;
23
<PAGE> 28
6.1.5 Any obligation of Borrower in respect of any
other Indebtedness in excess of US$5,000,000 (including, without
limitation, the Subordinated Debentures) shall become or is declared
to be due and payable prior to its stated maturity or any event of
default shall have occurred the effect of which permits payment of any
such obligation to be demanded prior to its stated maturity;
6.1.6 Borrower or any of its Subsidiaries shall be
dissolved or liquidated, shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as
they become due, or shall file a voluntary petition or commence a case
in bankruptcy, or shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law
or regulation, or shall file any answer admitting or not contesting
the material allegations of a petition filed or case commenced against
it in any such proceedings, or shall seek or consent to or acquiesce
in the appointment of any trustee, receiver or liquidator of it or all
or any substantial part of its properties;
6.1.7 A proceeding is commenced against Borrower or
any of its Subsidiaries seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief
under any present or future statute, law or regulation, which
proceeding shall not have been dismissed within 90 days, or if, within
90 days after the appointment without Borrower's consent or
acquiescence of any trustee, receiver or liquidator of Borrower or any
of its Subsidiaries, such appointment shall not have been vacated or
stayed, or if within 90 days after the expiration
24
<PAGE> 29
of any such stay such appointment shall not have been vacated;
6.1.8 A Change in Control; or
6.1.9 Any judgments against Borrower or any of its
subsidiaries or any attachments against the property of any of the
foregoing for amounts in excess of $5,000,000 in the aggregate shall
remain unpaid, unstayed on appeal, undischarged, unbonded and
undismissed for a period of 60 days;
THEN and in every such event (other than that specified in
Section 6.1.6) Lender may in its sole discretion, by notice to Borrower,
terminate the Loan and declare any unpaid portion of the Note, together with
accrued interest thereon and all other amounts payable under any Loan Document
to be, and the Note and other amounts shall thereupon become, due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by Borrower. Upon the occurrence of an event specified in
Section 6.1.6, the Loan shall automatically terminate and any unpaid portion of
the Note, together with accrued interest thereon and all other amounts payable
under any Loan Document, shall immediately be due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by Borrower.
25
<PAGE> 30
ARTICLE 7
MISCELLANEOUS
SECTION 7.1 WAIVER OF JURY TRIAL. Borrower hereby waives
any and all rights to demand trial by jury in any action, proceeding,
counterclaim, or other action, whether at law or equity, in any matter
whatsoever arising out of this Agreement or the Security Documents or the acts
and performance of Lender arising out of or related thereto.
SECTION 7.2 WAIVER; CUMULATIVE REMEDIES. No failure or
delay on the part of Lender or any other holder of the Note in exercising any
right, power or remedy under any Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy under any Loan Document. The remedies provided
under the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
SECTION 7.3 ENTIRE AGREEMENT, AMENDMENTS, ETC. The Loan
Documents together constitute the entire agreement of the parties with respect
to the subject matter thereof, and supersede any and all prior or
contemporaneous understandings, agreements or communications relating to such
subject matter. No amendment, modification, termination or waiver of any Loan
Document or any provision thereof nor any consent to any departure by Borrower
therefrom shall be effective unless the same is in writing and signed by Lender
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No notice to or demand
on Borrower shall entitle Borrower to any other or further notice or demand in
similar or other circumstances.
SECTION 7.4 GOVERNING LAW; JURISDICTION. This Agreement
shall be governed by and construed in accordance with
26
<PAGE> 31
the laws of the Commonwealth of Massachusetts applicable to contracts
negotiated, executed, delivered and to be performed wholly in that State.
Borrower hereby consents to the jurisdiction of the courts of such State in any
action or proceeding which may be brought against it under or in connection
with any Loan Document, and in the event any such action or proceeding shall be
brought against it, Borrower agrees not to raise any objection to such
jurisdiction or to the laying of the venue therein.
SECTION 7.5 ASSIGNMENT. Each Loan Document shall bind
and inure to the benefit of the parties thereto and their respective successors
and assigns, except that no party shall have the right to assign any of its
rights or any interest of it under any Loan Document without the prior written
consent of the other party. Other than holders of Permitted Senior Debt, no
person not a party to any Loan Document is intended to be benefited thereby.
SECTION 7.6 SEVERABILITY. Any provision of any Loan
Document which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without affecting the validity or enforceability of the
remainder of such Loan Document or the enforceability of such provision in any
other jurisdiction.
SECTION 7.7 CAPTIONS. Article and section captions in
the Loan Documents are included for convenience of reference only, and shall
not constitute a part of any Loan Document for any other purpose.
SECTION 7.8 NOTICES. All notices, requests, demands,
directions, declarations and other communications provided for in or given
under any Loan Document shall, except as
27
<PAGE> 32
otherwise expressly provided, be sent by (i) facsimile, with a copy by first
class mail, postage prepaid, or (ii) delivered by hand or courier to the
applicable party at its address set forth below. Except as otherwise expressly
provided herein, each notice, or other communication shall be effective when
sent by facsimile or delivered by hand or courier. Any party may change its
address by notice. Notices and other communications shall be sent to:
If to Lender:
Ando Electric Co., Ltd.
19-7, Kamata
4-chome, Ota-ku
Tokyo 144 Japan
Attention: ___________________________
Facsimile 011-81-3-3739-7353
If to Borrower:
LTX Corporation
LTX Park at University Avenue
Westwood, Massachusetts
02090-2306
Attention: Chief Financial Officer
Facsimile (617) 329-8836
SECTION 7.9 EXPENSES OF LENDER. Borrower will
from time to time reimburse Lender on demand for all expenses (including the
fees and expenses of legal counsel) in connection with the enforcement of the
Loan Documents or waiving, amending or supplementing any provision thereof.
SECTION 7.10 COUNTERPARTS. Each of the Loan
Documents may be signed in any number of counterparts and by different parties
in separate counterparts, all with the same effect as if the signatures were on
the same counterpart, and all counterparts hereof, taken together, shall
constitute but one and the same agreement.
28
<PAGE> 33
IN WITNESS WHEREOF, Borrower and Lender have caused
this Agreement to be executed by their proper corporate officers thereunto duly
authorized as of the day and year first above written.
Borrower:
LTX Corporation
By: __________________________
Name: Martin Francis
Title:President
Lender:
Ando Electric Co., Ltd.
By: __________________________
Name:
Title:
29
<PAGE> 34
<TABLE>
SCHEDULE 2.1
SUBSIDIARIES OF BORROWER
------------------------
<CAPTION>
JURISDICTION
COMPANY OF ORGANIZATION OWNERSHIP
------- --------------- ---------
<S> <C> <C>
LTX Co., Ltd. Japan 50.5%
LTX (Europe) Limited United Kingdom 100%
LTX International, Inc.
a Domestic International
Sales Corporation (DISC) Delaware 100%
LTX (Deutschland) GmbH West Germany 100%
LTX France S.A. France 100%
LTX Test Systems Corporation Delaware 100%
LTX (Italia) S.r.L. Italy 100%
LTX Benelux B.B. The Netherlands 100%
LTX International B.V. The Netherlands 100%
LTX (Foreign Sales Corporation) B.V.,
a Foreign Sales Corporation The Netherlands 100%
LTX Asia International, Inc. Delaware 100%
LTX Israel Limited Israel 100%
LTX (Malaysia) SDN.BHD. Malaysia 100%
iPTest (Holdings) Limited United Kingdom 100%
</TABLE>
30
<PAGE> 35
Exhibit A
THE NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND SUCH NOTE MAY NOT BE
SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AT THE TIME AMENDED,
OR IN CONFORMITY WITH THE LIMITATIONS OF RULE 144 OR SIMILAR RULE AS THEN IN
EFFECT UNDER SUCH ACT, OR UNLESS SOME OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE WITH RESPECT THERETO.
LTX CORPORATION
Senior Secured Subordinated Promissory Note
-------------------------------------------
US$20,000,000 July 20, 1994
FOR VALUE RECEIVED, the undersigned LTX Corporation, a Massachusetts
corporation (hereinafter, together with its successor and assigns, called the
"Maker"), hereby by this promissory note ("Note") promises to pay Ando Electric
Co., Ltd., a Japanese corporation (hereinafter, with its successors and legal
assigns, called the "Holder"), the principal sum of Twenty Million United
States Dollars (US$20,000,000), together with interest on the outstanding
principal amount at the rate of eight (8%) percent per year on the unpaid
principal amount from the date hereof until the unpaid principal sum shall have
been paid in full.
The Maker shall pay the principal amount due under this Note in ten
equal semi-annual installments of US$2,000,000, commencing on January 20, 1997
and continuing on each July 20 and January 20 of each year until this Note has
been paid in full on July 20, 2001.
The Maker shall pay interest on the principal amount outstanding under
this Note on January 20 and July 20 of each year until this Note has been paid
in full.
This Note is executed and delivered by the Maker pursuant to the terms
and provisions of that certain Loan Agreement between Maker and Holder of even
date with this Note. This Note is subject to the terms and conditions of the
Loan Agreement and the maturity hereof may be accelerated, the interest rate
increased, or amounts set-off against the Maker's liability herein, all as
provided in the Loan Agreement. This Note is secured by and the Holder hereof
is entitled to the benefits of the Security
<PAGE> 36
Exhibit A
Agreement and other Loan Documents (as defined in the Loan Agreement).
2
<PAGE> 37
The Holder hereof is also subject to the terms of the Loan Agreement
which provide for the subordination of the payment of this Note to certain
Permitted Senior Debt (as defined in the Loan Agreement). The provisions of
the Loan Agreement relating to subordination to Permitted Senior Debt shall
constitute a continuing offer to all persons who, in reliance upon such
provisions, become the holders of or continue to hold the Permitted Senior
Debt, and such holders are hereby made obligees hereunder the same as if their
names were written herein, and they or any of them may proceed to enforce such
provisions against Borrower or against the holder of the Note without the
necessity of joining Borrower as a party.
In case of a default in the payment of any principal of or interest on
this Note, the Maker shall pay to any holder hereof such further amount as
shall be sufficient to cover the reasonable costs and expenses of collection,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements. No course of dealing and no delay on the part of the holder
hereof in exercising any right shall operate as a waiver thereof or otherwise
prejudice the rights of the holder hereof. No right conferred hereby upon the
holder hereof shall be exclusive of any other right referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. This Note may not be assigned without the prior written consent of
the Maker.
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the Commonwealth of Massachusetts without regard
to its principles of conflicts of laws. The parties hereto, including the
Maker and all guarantors and endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
IN WITNESS WHEREOF, the Maker has caused this Note to be duly executed
under seal as of the day and year above first written.
LTX CORPORATION
By: ______________________________
Name: Martin Francis
Title: President
3
<PAGE> 38
Exhibit B
THE WARRANT REPRESENTED BY THIS CERTIFICATE HAS BEEN ACQUIRED FOR INVESTMENT
AND HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED, AND SUCH WARRANT MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR
TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933, AT THE TIME AMENDED, OR IN CONFORMITY WITH THE LIMITATIONS OF RULE
144 OR SIMILAR RULE AS THEN IN EFFECT UNDER SUCH ACT, OR UNLESS SOME OTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE WITH
RESPECT HERETO.
COMMON STOCK PURCHASE WARRANT
Number of Shares: 2,000,000
LTX CORPORATION
COMMON STOCK
$.05 PAR VALUE
VOID AFTER JULY 31, 2001
This COMMON STOCK PURCHASE WARRANT is issued, on and as of July 20,
1994, to Ando Electric Co., Ltd. by LTX Corporation, a Massachusetts
corporation (hereinafter with its successors and assigns called the "Company").
For value received, and subject to the terms and conditions
hereinafter set out, Ando Electric Co., Ltd. (hereinafter, with its successors
and assigns, the "holder" of this Warrant), is entitled upon surrender of this
Warrant and the aggregate Purchase Price in immediately available funds (U.S.
dollars), with the subscription form annexed hereto duly executed, at the
offices of the Company, at LTX Park at University Avenue, Westwood,
Massachusetts, or at such other offices as the Company shall notify the holder
hereof in writing, to purchase from the Company at an initial Purchase Price of
Two Dollars and Thirty-One Cents (US$2.31) per share, Two Million (2,000,000)
fully paid and nonassessable shares of the Common Stock, par value of $.05 per
share ("Common Stock") of the Company. Such Purchase Price per share, as
adjusted from time to time as provided herein, is referred to as the "Purchase
Price".
This Warrant may be exercised in whole or in part, and, if exercised
in part, the holder shall be entitled to receive a new warrant covering the
number of shares in respect of which this Warrant shall not have been
exercised. The person or persons in whose name or names any certificate
representing shares of the
<PAGE> 39
Common Stock is issued hereunder shall be deemed to have become the holder of
record of the shares represented thereby as of the close of business on the
date on which this Warrant is exercised with respect to such shares, whether or
not the transfer books of the Company shall be closed. Until such time as this
Warrant is exercised or terminates, the Purchase Price payable and the number
and character of securities issuable upon exercise of this Warrant are subject
to adjustment as hereinafter provided in this Warrant.
1. This Warrant shall expire upon the earlier of (a) July 20,
2001 or (b) 90 days after payment in full to Lender of all amounts due under
the Loan Agreement dated of even date hereof between Ando Electric Co., Ltd.
and the Company.
2. The Company covenants that it will at all times reserve and
keep available for issuance upon the exercise of this Warrant such number of its
authorized but unissued shares of Common Stock (the "Warrant Shares") free from
all preemptive rights therein, as will be sufficient to permit the exercise in
full of this Warrant, and upon such issuance such Warrant Shares will be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
3. The Company represents and warrants to the holder that:
(a) The Company has full right, power and authority to
issue this Warrant and to perform all of its obligations hereunder or
contemplated thereby; this Warrant has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid, and binding obligation
of the Company, enforceable in accordance with its terms; and no consent,
approval, authorization, order of, or filing with, any court, or governmental
authority, or any other person is required to consummate the transactions
contemplated by this Warrant.
(b) The execution, delivery and performance by the Company
of this Warrant will not (i) conflict with or constitute a breach of, or default
under, the charter or by-laws of the Company or any contract, lease or other
agreement or instrument to which the Company is a party or in which it has a
beneficial interest, or any statute or regulation or any order or decree of any
court or governmental authority binding on the Company or (ii) result in the
creation of any lien, charge or encumbrance upon the Warrant or the Warrant
Shares or any of the property or assets of the Company.
(c) Upon the issuance, or exercise, of this Warrant, the
holder shall receive good and marketable title to this Warrant, or the Warrant
Shares, as the case may be, free and clear
2
<PAGE> 40
of all pledges, security interests, liens, encumbrances and claims whatsoever,
subject, however, to any restrictions on transfer specifically imposed by this
Warrant or by applicable federal and state securities laws, and the Company
shall have paid all taxes, if any, in respect of the issuance or exercise
thereof.
4. The Purchase Price will be subject to adjustment pursuant to
this Section 4.
(a) In case the Company shall declare a dividend upon the
Common Stock payable otherwise than out of earnings or earned surplus and
otherwise than in Common Stock or securities convertible into or exchangeable
for Common Stock, the Purchase Price which would apply if purchase rights
hereunder were being exercised immediately prior to the declaration of such
dividend shall be reduced (but not below $.05 per share) by an amount equal, in
the case of a dividend in cash, to the amount thereof payable per share of the
Common Stock or, in the case of any other dividend on the Common Stock, to the
fair value of such dividend per share of the Common Stock as determined in good
faith by the Board of Directors of the Company. Notwithstanding the above, if
the Company declares a dividend on the Common Stock payable in securities of
the Company, on exercise of this Warrant, the holder shall be entitled to
receive, in addition to the Warrant Shares, the amount of such securities paid
as a dividend that would have been payable to the holder if this Warrant had
been exercised on the record date of such dividend. For the purposes of the
foregoing, a dividend shall be considered payable out of earnings or earned
surplus only to the extent that such earnings or earned surplus are charged the
amount distributed in cash or an amount equal to the fair value of such
dividend, if the dividend is other than cash, as determined in good faith by the
Board of Directors of the Company. Such reductions shall take effect as of the
date on which a record is taken for the purpose of such dividend, or, if a
record is not taken, the date as of which the holders of Common Stock of record
entitled to such dividend are to be determined.
(b) If the Company shall at any time prior to the
expiration of this Warrant subdivide its outstanding Common Stock, by split-up
or otherwise, or combine its outstanding Common Stock, or issue additional
shares of its capital stock in payment of a stock dividend in respect of its
Common Stock, the number of shares issuable on the exercise of the unexercised
portion of this Warrant shall forthwith be proportionately increased in the case
of a subdivision or stock dividend, or proportionately decreased in the case of
a combination, and the Purchase Price then applicable to shares covered by the
unexercised portion of this Warrant shall forthwith be proportionately decreased
in the case
3
<PAGE> 41
of a subdivision or stock dividend, or proportionately increased in the case of
combination.
(c) No adjustment of the Purchase Price shall be made if
the amount of such adjustment shall be less than one cent $.01 per share, but in
any such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustment or adjustments so
carried forward, shall amount to not less than one cent ($.01) per share.
(d) If at any time conditions arise by reason of action
taken by the Company which, in the opinion of its Board of Directors, are not
covered by the provisions of this Warrant, and which might materially and
adversely affect the exercise of the rights of the holder, the Board of
Directors will appoint a firm of independent certified public accountants of
recognized standing, reasonably acceptable to the holder (which may be the firm
regularly retained by the Company), which will give its opinion upon the
adjustment if any, on a basis consistent with the standards established in the
other provisions of this Warrant, necessary with respect to the Purchase Price,
so as to preserve, without dilution, the exercise rights of the holder. Upon
receipt of the opinion, the Board of Directors will make the adjustments called
for.
(e) If the Company shall issue any Common Stock (other
than Common Stock issuable upon exercise of this Warrant or Common Stock issued
by the Company pursuant to warrants, convertible securities or stock option
plans of the Company in effect on the date hereof) for a consideration per share
less than the fair market value on the date immediately prior to the time of
such issue or sale, then in each such case the Purchase Price shall forthwith be
adjusted to equal the quotient (calculated to the nearest one-tenth of one cent)
obtained by dividing (i) the sum of (x) the product obtained by multiplying the
number of Common Stock outstanding immediately prior to such issue or sale by
the Purchase Price per Common Share in effect immediately prior to such issue or
sale plus (y) the consideration, if any, received by the Company upon such issue
or sale, by (ii) the number of Common Stock outstanding immediately after such
issue or sale.
(f) In any determination of an adjusted Purchase Price,
(i) the number of Common Stock outstanding at any given time shall exclude
shares in the treasury of the Company and shall include shares issuable in
respect of scrip certificates issued in lieu of fractional Common Stock, (ii) in
the case of the issuance of Common Stock for cash, the consideration received by
the Company therefor shall be deemed to be the amount of cash received
4
<PAGE> 42
by the Company for such Common Stock, without deduction of the costs, expenses,
fees and commissions incidental to the issuance and sale thereof, and (iii) in
the case of the issuance of Common Stock for a consideration other than cash,
the consideration received by the Company therefor shall be deemed to be the
fair market value to the Company of such consideration as determined by the
Board of Directors of the Company.
(g) In the case of the issuance by the Company of any
security that is convertible into Common Stock or of any rights, warrants or
options to purchase Common Stock, (i) the Company shall be deemed to have
issued the maximum number of shares of Common Stock deliverable upon the
exercise of such conversion privileges of the convertible security, rights,
warrants or options and (ii) the consideration therefor shall be deemed to be
the consideration received by the Company for such convertible securities, or
for such rights or options, as the case may be, without deduction of the costs,
expenses, fees and commissions incidental to the issue and sale thereof plus:
(x) in the case of such convertible securities, any consideration or adjustment
payment to be received by the Company in connection with such conversion, or (y)
in the case of such rights, warrants, or options, the minimum price at which the
Common Stock are to be delivered upon the exercise of such right or options. No
further adjustment of the Purchase Price shall be made as a result of the actual
issuance of Common Stock referred to in this paragraph. On the expiration of
such rights, warrants, or options, or the termination of such privilege to
convert, the Purchase Price and the number of Common Stock purchasable upon
exercise of any unexercised warrants shall be respectively readjusted to such
Purchase Price and such number of Common Stock as would have pertained had the
adjustments made upon the issuance of such rights, warrants, options or
convertible securities been made upon the basis of the issuance of only the
Common Stock actually delivered upon the exercise of such rights or options or
upon the conversion of such convertible securities.
5. In case of any capital reorganization, reclassification
or change of the outstanding Common Stock of the Company (other than as a result
of any subdivision, combination or stock dividend), or in case of any
consolidation of the Company with, or merger of the Company into, another
corporation or other business organization, or in case of any sale to another
corporation or other business organization of all or substantially all of the
assets of the Company, at any time prior to the expiration of this Warrant,
then, as a condition of such reclassification, reorganization, change,
consolidation, merger or sale, lawful and adequate provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
5
<PAGE> 43
shall be delivered documents evidencing the same from the Company or its
successor shall be delivered to the holder of this Warrant, whereby the holder
of this Warrant shall have the right prior to the expiration of this Warrant to
purchase, at a total price not to exceed that payable upon the exercise of the
unexercised portion of this Warrant, such kind and amount of shares of stock and
other securities and property receivable upon such reclassification,
reorganization, change, consolidation, merger or sale by a holder of the number
of shares of Common Stock of the Company which might have been purchased by the
holder of this Warrant immediately prior to such reclassification,
reorganization, change, consolidation, merger or sale, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holder of this Warrant to the end that the provisions hereof (including
without limitation, provisions for the adjustment of the Purchase Price and of
the number of shares purchasable upon exercise of this Warrant) shall thereafter
be applicable in relation to any shares of stock, and other securities and
property thereafter deliverable upon exercise hereof. The Company shall not
effect any such reorganization, reclassification, consolidation, merger or sale
unless, upon or prior to the consummation thereof, the successor corporation
shall assume by written instrument the obligation to deliver to the holder
hereof such shares of stock, securities or other property as such holder shall
be entitled to purchase in accordance with the foregoing provisions.
6. In no event shall any fractional share of Common Stock of
the Company be issued upon any exercise of this Warrant. If, upon exercise of
this Warrant as an entirety, the registered holder would, except as provided
in this Section 6, be entitled to receive a fractional share of Common Stock,
then the Company shall issue the next higher number of full shares of Common
Stock, issuing a full share of Common Stock with respect to such fractional
share.
7. Immediately upon any adjustment of the Purchase
Price or increase or decrease in the number of shares of Common Stock
purchasable upon exercise of this Warrant, as herein provided the Company shall
send written notice thereof to the holder of this Warrant setting forth the
Purchase Price after such adjustment and the increased or decreased number of
shares purchasable upon exercise of this Warrant and setting forth a brief
statement of the facts requiring such adjustment.
8. This Warrant will not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company. In the absence
of affirmative action by the holder to exercise this Warrant, no provision of
this Warrant, and no enumeration in this Warrant of the rights or privileges of
the holder, will give rise to any liability of holder for the exercise price of
Common Stock
6
<PAGE> 44
acquirable by exercise of the Warrants, or as a stockholder of the Company.
9. Notwithstanding anything to the contrary contained in this
Warrant, the holder of this Warrant shall not pledge, mortgage, transfer,
endorse or otherwise convey this Warrant without the prior written consent of
the Company. The Company may deem and treat the person in whose name this
Warrant is registered as the holder and owner (notwithstanding any notations of
ownership or writing made by anyone other than the Company) for all purposes
and this will not be affected by any notice to the contrary, until this Warrant
is presented for registration or transfer.
(a) This Warrant is exchangeable, upon its surrender by
the holder to the Company for new Warrants of the same tenor and date
representing in the aggregate the right to purchase the number of Warrant
Shares purchasable under this Warrant, each of the new Warrants to represent the
right to purchase the number of shares designated by the holder at the time of
the surrender. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant, and, in
case of loss, theft or destruction, of indemnity reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of the same tenor, in lieu of this Warrant.
This Warrant will be cancelled promptly by the Company upon surrender in
connection with any exchange, transfer or replacement. The Company will pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of new Warrants, except for expenses, taxes and other
charges payable to replace this Warrant (or a subsequent replacement Warrant) if
it is lost, destroyed, or mutilated.
10. (a) The Purchaser represents that it is its present
intention to acquire this Warrant for its own account and that this Warrant
is being acquired for the purpose of investment and not with a view to
distribution or resale thereof. The Purchaser understands that this Warrant and
Warrant Shares have not been, will not be and may not be sold or transferred
within the United States, or to or for the account or benefit of U.S. persons,
as such term is defined in Regulation S under the U.S. Securities Act
("Regulation S"), except in accordance with Regulation S and after expiration of
the 40 day restricted period defined therein, or pursuant to an exemption from
the registration requirements of the U.S. Securities Act.
(b) In connection with any sale of the Warrant
Shares the holder will comply with the volume limitations under Rule 144
promulgated under the U.S. Securities Act, or successor
7
<PAGE> 45
provision, regardless of whether or not compliance with such volume limitations
under Rule 144 is required to effect such sale under such Act; provided,
however, that absent any legal requirement, the holder shall not be required
hereby to restrict the volume of sales to an extent which would require a
period of more than six months to complete sale of all the Warrant Shares.
Holder shall give notice to the Company of the number of shares sold or
transferred during any month not later than 10 business days after the end of
such month.
(c) The holder represents and warrants that it is not a
"U.S. person" as defined in Regulation S and is not acquiring this Warrant
or such shares for the account of or benefit of any U.S. person. The holder
hereof, by accepting this Warrant, covenants and agrees that neither the Warrant
nor the Warrant Shares will be sold or transferred except pursuant to an
effective registration under the U. S. Securities Act or an exemption thereto,
including Regulation S. Upon receiving assurances reasonably satisfactory to
the Company that transfer of the Warrant Shares will be in compliance with the
U.S. Securities Act, the Company shall deliver to the holder certificates
representing the Warrant Shares for such transfer without any restrictive
legend. Such assurances may include (i) a representation from the holder that
the Warrant Shares are to be transferred in an offshore transaction pursuant to
Rule 904 of Regulation S, (ii) if so requested by the holder, delivery of the
delegended share certificates after the restricted period then applicable under
Regulation S has expired, and/or (iii) delivery of an opinion of counsel for the
holder in form and substance reasonably satisfactory to the Company.
11. The provisions and terms of this Warrant shall be
construed in accordance with the laws of The Commonwealth of Massachusetts.
LTX CORPORATION
BY: _____________________________
NAME: Martin Francis
TITLE: President
ACCEPTED:
--------
ANDO ELECTRIC CO., LTD.
BY: _____________________________
NAME:
TITLE:
8
<PAGE> 46
FORM OF SUBSCRIPTION
--------------------
To: LTX Corporation Date:__________________
The undersigned hereby subscribes for ________shares
of Common Stock of LTX Corporation covered by this Warrant. The certificate(s)
for such shares shall be issued in the name of the undersigned or as otherwise
indicated below:
__________________________________
NAME
__________________________________
Name for Registration
__________________________________
Mailing Address
9
<PAGE> 47
Exhibit C
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated July 20, 1994, is
made by LTX Corporation, a Massachusetts corporation (the "GRANTOR"), to and in
favor of ANDO ELECTRIC CO., LTD. (the "SECURED PARTY").
RECITALS
Pursuant to a Loan Agreement of even date ("LOAN
AGREEMENT") the Secured Party has advanced to Grantor the sum of $20,000,000
represented by a Senior Secured Subordinated Promissory Note (the "NOTE") dated
of even date herewith. As security for the Loan and other obligations under
the Loan Agreement, and as a condition to the Loan, Grantor desires to grant to
Secured Party the security interests in the collateral specified herein on the
terms and conditions of this Agreement. Terms defined in the Loan Agreement
and not otherwise defined herein have the same meanings in this Agreement.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of, and in order to
induce the Secured Party to make, the Loan, the Grantor hereby agrees with the
Secured Party as follows:
SECTION 1. GRANT OF SECURITY. The Grantor hereby
assigns and pledges to the Secured Party, and hereby grants to the Secured
Party a security interest in, all of the Grantor's right, title and interest in
and to the following, whether now owned or hereafter acquired (the
"COLLATERAL"):
(a) all equipment in all of its forms,
wherever located, now or hereafter existing (including, but not limited to, all
machinery and production equipment located at Grantor's premises at Westwood,
Massachusetts and San Jose, California),
<PAGE> 48
all fixtures and all parts thereof and all accessions thereto (any and all such
equipment, fixtures, parts and accessions being the "EQUIPMENT");
(b) all inventory in all of its forms,
wherever located, now or hereafter existing (including, but not limited to, (i)
all raw materials and work in process therefor, finished goods thereof, and
materials used or consumed in the manufacture or production thereof, (ii) goods
in which the Grantor has an interest in mass or a joint or other interest or
right of any kind (including, without limitation, goods in which the Grantor has
an interest or right as consignee), and (iii) goods which are returned to or
repossessed by the Grantor, and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions, products and
documents being the "INVENTORY");
(c) The books and records of Grantor relating
to the Collateral; and
(d) all proceeds of any and all of the
foregoing Collateral including, without limitation, all (i) payments under
insurance (whether or not the Secured Party is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral and (ii) cash.
SECTION 2. SECURITY FOR OBLIGATIONS. This
Agreement secures the payment of all obligations of the Grantor now or
hereafter existing under the Loan Agreement or any of the Loan Documents,
whether for principal, interest, fees, expenses or otherwise, and all
obligations of the Grantor now or hereafter existing under this Agreement (all
such obligations of the Grantor being the "OBLIGATIONS"). All rights and
remedies in and with respect to the Collateral under this Agreement and the
other
2
<PAGE> 49
Loan Documents are subordinate to and subject to the rights and remedies of the
holders of Permitted Senior Debt with Liens on the Collateral, as provided in
Article 3 of the Loan Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The Grantor represents and
warrants as follows:
(a) Grantor is (and will remain during the term of this
Agreement) a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Massachusetts and has the corporate
power and lawful authority to own, lease and operate its assets, properties and
business and to carry on its business.
(b) Grantor has the full legal right and power and all
authority and approval required to enter into, execute and deliver this
Agreement, and to perform fully its obligations under this Agreement. This
Agreement has been duly executed and delivered and is the valid and binding
obligation of Grantor enforceable in accordance with its terms. No approval or
consent of any foreign, federal, state, county, local or other governmental or
regulatory body, and no approval or consent of any other person is required in
connection with the execution and delivery by Grantor of this Agreement and the
consummation and performance by Grantor of the transactions contemplated hereby.
(c) All of the Equipment and Inventory are located at Grantor's
principal place of business or at such other places specified on Exhibit 3
hereto or by notice to Secured Party (subject to the provisions of Sections 4
and 7). The chief place of business and chief executive office of the Grantor
are at its offices in Massachusetts.
(d) The Grantor is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest,
3
<PAGE> 50
option or other charge or encumbrance except for the security interest created
by this Agreement and Permitted Liens. No effective financing statement or
other document similar in effect covering all or any part of the Collateral is
on file in any recording office, except such as may have been filed in favor of
the Secured Party relating to this Agreement or with respect to Permitted
Liens. The Grantor has the following trade names: [none]
(e) The Grantor has exclusive possession and control of the
Equipment and Inventory.
(f) This Agreement creates a valid and perfected security
interest in the Collateral, securing the payment of the Obligations, and all
filings and other actions necessary or desirable to perfect and protect such
security interest have been duly taken.
(g) Except for filing of UCC-1 financing statements and
subject to the rights of holders of Permitted Senior Debt, no consent of any
other person or entity and no authorization, approval or other action by, and
no notice to or filing with, any governmental authority or regulatory body is
required (i) for the grant by the Grantor of the security interest granted
hereby or for the execution, delivery or performance of this Agreement by the
Grantor, (ii) for the perfection or maintenance of the security interest created
hereby or (iii) for the exercise by the Secured Party of rights provided for in
this Agreement or the remedies in respect of the Collateral pursuant to this
Agreement.
(h) The Inventory has been produced by the Grantor in
compliance with all requirements of the Fair Labor Standards Act.
4
<PAGE> 51
(i) There are no conditions precedent to the effectiveness
of this Agreement that have not been satisfied or waived.
SECTION 4. FURTHER ASSURANCES. (a) The Grantor agrees that
from time to time, at the expense of the Grantor, the Grantor will promptly
execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that the Secured Party
may reasonably request, in order to perfect and protect any pledge, assignment
or security interest granted or purported to be granted hereby or to enable the
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any Collateral, including execution and filing of additional
financing statements in any jurisdiction where the Collateral may be located or
to which Grantor may move its principal place of business and/or chief executive
office. Without limiting the generality of the foregoing, the Grantor will:
(i) at the request of the Secured Party, mark each of its records pertaining to
the Collateral with a legend, in form and substance satisfactory to the Secured
Party, indicating that such document or Collateral is subject to the security
interest granted hereby; (ii) if any Collateral shall be evidenced by a
promissory note, instrument or chattel paper, deliver and pledge to the Secured
Party hereunder such note, instrument or chattel paper duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to the Secured Party; and (iii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Secured
Party may request, in order to perfect and preserve the pledge, assignment and
security interest granted or purported to be granted hereby.
(b) The Grantor hereby authorizes the Secured Party to file
one or more financing or continuation statements,
5
<PAGE> 52
and amendments thereto, relating to all or any part of the Collateral without
the signature of the Grantor where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantor will furnish to the Secured Party from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request.
SECTION 5. As to Equipment and Inventory.
-----------------------------
(a) The Grantor shall keep the Equipment and Inventory
(other than Inventory sold in the ordinary course of business) at the places
therefor specified in Section 3(c) or, upon 30 days' prior written notice to
the Secured Party, at such other places in jurisdictions where all action
required to maintain Secured Party's perfected security interest in the
Equipment and Inventory shall have been taken.
(b) The Grantor shall cause the Equipment to be
maintained and preserved in the same condition, repair and working order as when
new, ordinary wear and tear excepted, and in accordance with any manufacturer's
manual, and shall forthwith, or in the case of any loss or damage to any of the
Equipment as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements in connection
therewith which are necessary or desirable to such end. The Grantor shall
promptly furnish to the Secured Party a statement respecting any loss or damage
to any of the Equipment.
6
<PAGE> 53
(c) The Grantor shall pay promptly when due all
property and other taxes, assessments and governmental charges or levies imposed
upon, and all claims (including claims for labor, materials and supplies)
against, the Equipment and Inventory. In producing the Inventory, the Grantor
shall comply with all requirements of the Fair Labor Standards Act.
SECTION 6. INSURANCE. (a) The Grantor shall, at its own
expense, maintain insurance with respect to the Equipment and Inventory in such
amounts, against such risks, in such form and with such insurers, as shall be
satisfactory to the Secured Party from time to time. Each such policy shall (i)
name the Grantor and the Secured Party as insured parties thereunder (without
any representation or warranty by or obligation upon the Secured Party) as their
interests may appear, (ii) provide that there shall be no recourse against the
Secured Party for payment of premiums or other amounts with respect thereto and
(iii) provide that at least 10 days' prior written notice of cancellation or of
lapse shall be given to the Secured Party by the insurer. Each policy for
liability insurance shall, in addition, at Secured Party's request, provide for
all losses to be paid on behalf of the Secured Party and the Grantor as their
respective interests may appear and each policy for property damage insurance
shall provide for all losses (except for losses of less than $100,000 per
occurrence) to be paid directly to the Secured Party, subject to the provisions
of clause (b) below. The Grantor shall, if so requested by the Secured Party,
deliver to the Secured Party original or duplicate policies of such insurance
and, as often as the Secured Party may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Further, the Grantor
shall, at the request of the Secured Party, duly execute and deliver instruments
of assignment of such insurance policies and cause the insurers to acknowledge
notice of such assignment.
7
<PAGE> 54
(b) Upon (i) the occurrence and during the continuance
of any Event of Default under the Loan Agreement, or (ii) the actual or
constructive total loss (in excess of $100,000 per occurrence) of any
Equipment or Inventory, all insurance payments in respect of such Equipment or
Inventory shall be paid to and applied by the Secured Party as specified in
Section 11(b), PROVIDED, HOWEVER, in case of receipt of insurance payments with
respect to losses of Inventory or Equipment, the Grantor may elect within 30
days of such loss to replace the Inventory or Equipment with similar or like
kind Inventory or Equipment in which event Secured Party shall use and apply the
insurance proceeds as directed by Grantor to pay for such replacement Inventory
or Equipment.
SECTION 7. TRANSFERS AND OTHER LIENS. The Grantor
shall not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral, except
in the ordinary course of business, or (iii) create or permit to exist any
lien, security interest, option or other charge or encumbrance upon or with
respect to any of the Collateral, except for the security interest under this
Agreement and Permitted Liens.
SECTION 8. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. The
Grantor hereby irrevocably appoints the Secured Party the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor and
in the name of the Grantor or otherwise, from time to time in the Secured
Party's discretion, after and during the continuation of any Event of Default
(whether or not Secured Party has elected to accelerate the Loan), to take any
action and to execute any instrument which the Secured Party may deem necessary
or advisable to accomplish the purposes of this Agreement, including, without
limitation:
8
<PAGE> 55
(a) to obtain and adjust insurance required to be paid to
the Secured Party pursuant to Section 6,
(b) to ask, demand, collect, sue for, recover, compromise,
receive and give acquittance and receipts for moneys due and to become due
under or in connection with the Collateral, or
(c) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
the Secured Party with respect to any of the Collateral.
SECTION 9. Secured Party May Perform. If the Grantor fails to
perform any agreement contained herein, the Secured Party may itself perform, or
cause performance of, such agreement, and the expenses of the Secured
Party incurred in connection therewith shall be payable by the Grantor under
Section 12(b).
SECTION 10. The Secured Party's Duties. The powers conferred on
the Secured Party hereunder are solely to protect its interest in the Collateral
and shall not impose any duty upon it to exercise any such powers. Except
for the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Secured Party shall have no duty
as to any Collateral, whether or not the Secured Party has or is deemed to have
knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against prior parties or any other rights pertaining to any
Collateral. The Secured Party shall be deemed to have exercised reasonable care
in the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which the Secured
Party accords its own property.
9
<PAGE> 56
SECTION 11. REMEDIES. If any Event of Default shall have occurred and be
continuing:
(a) The Secured Party may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the Commonwealth of
Massachusetts at that time (the "CODE") (whether or not the Code applies to the
affected Collateral) or the Uniform Commercial Code applicable to the validity
or perfection of the security interest in the Collateral over which rights on
default are asserted, and also may (i) require the Grantor to, and the Grantor
hereby agrees that it will at its expense and upon request of the Secured Party
forthwith, assemble all or part of the Collateral as directed by the Secured
Party and make it available to the Secured Party at a place to be designated by
the Secured Party which is reasonably convenient to both parties and (ii)
without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Secured
Party's offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Secured Party may deem commercially reasonable.
The Grantor agrees that, to the extent notice of sale shall be required by law,
at least ten days' notice to the Grantor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. The Secured Party shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The Secured
Party may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.
10
<PAGE> 57
(b) Any cash held by the Secured Party as Collateral and
all cash proceeds received by the Secured Party in respect of any sale of,
collection from, or other realization upon all or any part of the Collateral
may, in the discretion of the Secured Party, be held by the Secured Party as
collateral for, and/or then or at any time thereafter be applied (after payment
of any amounts payable to the Secured Party pursuant to Section 12) in whole or
in part by the Secured Party against, all or any part of the Obligations in such
order as the Secured Party shall elect. Any surplus of such cash or cash
proceeds held by the Secured Party and remaining after payment in full of all
the Obligations shall be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive such surplus.
(c) The Secured Party may exercise any and all rights and
remedies of the Grantor under or in respect of the Collateral.
(d) All payments received by the Grantor under or
otherwise in respect of the Collateral shall be received in trust for the
benefit of the Secured Party, shall be segregated from other funds of the
Grantor and shall be forthwith paid over to the Secured Party in the same form
as so received (with any necessary indorsement).
SECTION 12. INDEMNITY AND EXPENSES. (a) The Grantor agrees to
indemnify the Secured Party from and against any and all claims, losses and
liabilities (including reasonable attorneys' fees) growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting from the Secured
Party's gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Secured Party
the amount of any and all reasonable expenses,
11
<PAGE> 58
including the reasonable fees and expenses of its counsel and of any experts
and agents, which the Secured Party may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (iii) the exercise or enforcement of any of the rights of
the Secured Party hereunder or (iv) the failure by the Grantor to perform or
observe any of the provisions hereof.
SECTION 13. AMENDMENTS; ETC. No amendment or waiver of any provision
of this Agreement, and no consent to any departure by the Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Secured Party, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
SECTION 14. ADDRESSES FOR NOTICES. All notices and other
communications provided for hereunder shall be in writing and given in the
manner and where provided in the Loan Agreement.
SECTION 15. CONTINUING SECURITY INTEREST; ASSIGNMENT OF NOTE. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the payment in full of the
Obligations and all other amounts payable under this Agreement, (b) be binding
upon the Grantor, its successors and assigns, and (c) inure to the benefit of,
and be enforceable by, the Secured Party and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), the
Secured Party may assign or otherwise transfer all or any portion of its rights
and obligations under the Note to any other person or entity, and such other
person or entity shall thereupon become vested with all the benefits in respect
thereof granted to the Secured Party herein or otherwise. Upon the later of
the payment in full of the Obligations and all
12
<PAGE> 59
other amounts payable under this Agreement, the security interest granted
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor. Upon any such termination, the Secured Party will, at the Grantor's
expense, execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination.
SECTION 16. GOVERNING LAW; TERMS. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of Massachusetts,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular Collateral are
governed by the laws of a jurisdiction other than such State. Unless otherwise
defined herein terms used in Article 9 of the Code are used herein as therein
defined.
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
LTX CORPORATION
By: ______________________________
Name: Martin Francis
Title: President
13
<PAGE> 1
EXHIBIT 10(W)
AMENDMENT NO. 1
TO
LICENSE AND DEVELOPMENT AGREEMENT
This Amendment No. 1 is entered into as of this day of July, 1994 to
the License and Development Agreement (the "Agreement") and the Distribution and
Supply Agreement, each dated as of the 28th day of January, 1993 between LTX
Corporation ("Company") and Ando Electric Co., Ltd. ("Licensee").
RECITALS:
WHEREAS, The Company and Licensee desire to expand the scope of rights
under the Agreement to include a license to the AL60-100 Tester and AL100 Tester
(as such terms are defined in this Amendment), with modified rights as set forth
herein.
NOW, THEREFORE, in connection of the premises and of the mutual promises
and covenants contained in this Amendment, the parties agree as follows:
1. The following definitions in Section 1.1 are amended in their entirety
as follows:
" 'Ando-developed Company Improvements' shall mean any Improvement
that Licensee or its Affiliates or subcontractors, solely and not jointly
with Company or its Affiliates, may acquire, discover, invent, originate,
make or conceive with respect to Licensed Technology which shall
specifically include, without limitation, the AL 100 Tester."
" 'Tester' shall mean all Delta 50 Testers designed, developed,
manufactured or sold by the parties pursuant to this Agreement (whether or
not any such Tester includes any proprietary computer software of the
Company), including all Improvements and enhancements thereto, and
including derivatives and versions of the Delta 50 Tester, the design,
development, use or operation of which uses Licensed Technology (including
the AL60-100 Tester and AL100 Tester)."
The definition of Licensed Technology is amended by adding the following
sentence after the first sentence of said definition:
"The Licensed Technology does not include any of the foregoing that
relate to the Company's Delta 100 Tester, except to the extent that they
are specifically necessary to design, develop, use, manufacture, have made,
market, sell, lease, improve, repair or otherwise dispose of the Delta 50
Tester."
The following definitions are added to the Definitions in Section 1.1:
" 'AL60-100 Tester' shall mean the Ando-designed Tester (under any
names which Ando may sell such Tester) operating in the frequency of 60-100
MHz, which exceeds the original speeds of 50 MHz or less, with the method
of enhancement of the Licensed Technology embodied in the Delta 50 Tester
set forth on Exhibit A to this Amendment."
" 'AL100 Tester' shall mean the Ando-designed Tester (under any names
which Ando may sell such Tester) equivalent to or exceeding the Company's
Delta 100 Tester (as presently in existence, with general specifications as
set forth on Exhibit B to this Amendment, and as modified in the future)
using Ando's own design together with the Licensed Technology and which is
not the AL60-100 Tester."
2. Section 2.1(a) is amended to delete from the last line of Section
2.1(a) words "which operate at speeds equal to or less than 50MHz."
Section 2.1(b) is amended to add the following to the end of the last
sentence:
". . .; provided, however, that the Company agrees to provide prior
notice to Licensee of the Company's decision to utilize the manufacturing
rights retained by the Company under Section 2.1(a) or this Section 2.1(b)
or granted to the Company under Section 2.2 or Section 4.4."
<PAGE> 2
3. Section 3.1 is amended to add the following sentence:
"Promptly following the execution of Amendment No. 1, the Company
agrees to deliver to Licensee all documentation of the Licensed Technology
in its possession relating to the enhancement of the Delta 5100 Tester set
forth on Exhibit A to this Amendment which is necessary for the development
by Ando of the AL60-100 Tester. Delivery of documentation does not include
documentation of technology relating solely to the Company's Delta 100 test
system."
4. The definition of "Tester" in Section 1 of the Distribution and Supply
Agreement is amended in its entirety as follows:
" 'Tester' shall mean all Delta 50 Testers manufactured and sold by
Ando pursuant to the License Agreement and this Agreement (whether or not
any such Delta 50 Tester includes any proprietary computer software of
LTX), including all improvements and enhancements as the parties may agree,
and including all lower frequency derivatives and versions of the Delta 50
Tester, the design, development, use or operation of which uses technology
licensed by LTX to Ando under the License Agreement (including the AL60-100
Tester and AL100 Tester, as such terms are defined in Amendment No. 1 to
the License Agreement)."
5. The representation and warranties set forth in Section 5.3 with regard
to the Agreement, as amended by this Amendment No. 1, are reaffirmed as of the
date of this Amendment No. 1.
6. Except as amended by this Amendment No. 1, the Agreement and the
Distribution and Supply Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date set forth above.
LTX CORPORATION
By: ______________________________
Name: Martin Francis
Title: President
ANDO ELECTRIC CO., LTD.
By: ______________________________
Name: Sho Nakanuma
Title: President
<PAGE> 3
EXHIBIT A
DELTA 5100 SPECIFICATION
*
* The confidential portion has been omitted and filed separately with the
Commission.
<PAGE> 4
EXHIBIT B
DELTA 100 SPECIFICATION
*
* The confidential portion has been omitted and filed separately with the
Commission.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LTX CORPORATION FOR THE YEAR ENDED JULY 31, 1994, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1994
<PERIOD-START> AUG-1-1994
<PERIOD-END> JUL-31-1994
<CASH> 17,226
<SECURITIES> 0
<RECEIVABLES> 34,023
<ALLOWANCES> 700
<INVENTORY> 42,672
<CURRENT-ASSETS> 97,069
<PP&E> 79,579
<DEPRECIATION> 50,633
<TOTAL-ASSETS> 130,626
<CURRENT-LIABILITIES> 48,216
<BONDS> 41,399
0
0
<COMMON> 1,311
<OTHER-SE> 39,282
<TOTAL-LIABILITY-AND-EQUITY> 130,636
<SALES> 145,688
<TOTAL-REVENUES> 168,326
<CGS> 104,189
<TOTAL-COSTS> 120,439
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,286
<INCOME-PRETAX> (32,275)
<INCOME-TAX> 0
<INCOME-CONTINUING> (31,304)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (31,304)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> (1.23)
</TABLE>
