<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended January 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the transition period from _________________ to _________________
Commission File Number 0-10761
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LTX CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS 04-2594045
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
LTX Park at University Avenue, Westwood, Massachusetts 02090
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (781) 461-1000
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Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report.
Indicate by check X 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at March 12, 1998
- --------------------------------------- ------------------------------
Common Stock, par value $0.05 per share 36,959,386
<PAGE> 2
LTX CORPORATION
INDEX
Page Number
Part I. FINANCIAL INFORMATION
Consolidated Balance Sheet 1
January 31, 1998 and July 31, 1997
Consolidated Statement of Operations
Three months and six months ended 2
January 31, 1998 and January 31, 1997
Consolidated Statement of Cash Flows
Six months ended January 31, 1998 3
and January 31, 1997
Notes to Consolidated Financial Statements 4-5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-10
Part II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE> 3
LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
---------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 44,321 $ 67,800
Accounts receivable, less allowances of $1,100 53,465 40,845
Inventories 69,322 54,947
Other current assets 4,155 4,016
-------- --------
Total current assets 171,263 167,608
Property and equipment, net 44,275 42,958
Other assets 2,710 2,980
-------- --------
$218,248 $213,546
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term liabilities $ 11,443 $ 11,514
Accounts payable 32,343 23,887
Accrued expenses and restructuring charges 11,302 11,933
Unearned service revenues and customer advances 2,205 5,156
-------- --------
Total current liabilities 57,293 52,490
Long-term liabilities, less current portion 10,676 13,550
Convertible subordinated debentures 7,308 7,308
Stockholders' equity:
Common stock, $0.05 par value 1,893 1,881
Additional paid-in capital 196,686 195,798
Accumulated deficit (51,247) (53,120)
Less - Treasury stock at cost (4,361) (4,361)
(947,500 shares)
-------- --------
Total stockholders' equity 142,971 140,198
-------- --------
$218,248 $213,546
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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<PAGE> 4
LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
----------------------- -------------------------
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $55,132 $46,783 $109,338 $ 91,449
Cost of sales 35,154 32,249 70,354 63,596
Inventory provision for product line restructuring -- -- -- 9,250
------- ------- -------- --------
Gross margin 19,978 14,534 38,984 18,603
Engineering and product development expenses 7,928 5,330 14,644 11,439
Selling, general and administrative expenses 11,046 8,861 21,955 18,996
Product line restructuring costs -- -- -- 6,750
------- ------- -------- --------
Income (loss) from operations 1,004 343 2,385 (18,582)
Interest (income) expense, net (4) (38) (84) (161)
------- ------- -------- --------
Income (loss) before income taxes 1,008 381 2,469 (18,421)
Provision for income taxes 243 -- 596 --
------- ------- -------- --------
Net income (loss) $ 765 $ 381 $ 1,873 ($18,421)
======= ======= ======== ========
Earnings per share:
Net income (loss):
Basic $ 0.02 $ 0.01 $ 0.05 $ (0.52)
Diluted $ 0.02 $ 0.01 $ 0.05 $ (0.52)
Weighted average number of shares:
Basic 36,758 35,173 36,737 35,444
Diluted 37,665 36,749 37,986 35,444
</TABLE>
See accompanying Notes to Consolidated Financial Statements
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<PAGE> 5
LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months
Ended
January 31,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 1,873 $(18,421)
Add (deduct) non-cash items:
Depreciation and amortization 6,059 5,275
Exchange (gain) loss (36) (157)
(Increase) decrease in:
Accounts receivable (13,265) 9,978
Inventories (14,375) 11,270
Other current assets (139) 896
Other assets 264 58
Increase (decrease) in:
Accounts payable 8,565 (14,314)
Accrued expenses and restructuring charges (307) 540
Unearned service revenues and customer advances (2,951) (1,128)
-------- --------
Net cash used in operating activities (14,312) (6,003)
-------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Maturities of held-to-maturity securities, net -- 9,941
Expenditures for property and equipment, net (7,376) (6,815)
-------- --------
Net cash provided by (used in) investing activities (7,376) 3,126
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from stock purchase and option plans 900 795
Increase (decrease) in bank debt 3 (1,386)
Payments of long-term debt (2,629) (2,387)
Proceeds from lease financing 141 2,435
Purchase of treasury stock -- (3,356)
-------- --------
Net cash used in financing activities (1,585) (3,899)
-------- --------
Effect of exchange rate changes on cash (206) (335)
-------- --------
Net decrease in cash and equivalents (23,479) (7,111)
Cash and equivalents at beginning of period 67,800 66,069
-------- --------
Cash and equivalents at end of period $ 44,321 $ 58,958
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest $ 1,128 $ 1,368
Income taxes 979 1,807
</TABLE>
See accompanying Notes to Consolidated Financial Statements
-3-
<PAGE> 6
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
LTX Corporation (the "Company") designs, manufactures, and markets automatic
test equipment for the semiconductor industry that is used to test
system-on-a-chip, mixed technology, mixed signal and discrete semiconductor
components. Headquartered in Westwood, Massachusetts, the Company has
development and manufacturing facilities in Westwood, Massachusetts and San
Jose, California and worldwide sales and service facilities to support its
customer base.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of the interim
periods presented. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosures of contingent assets and liabilities as of the
date of the financial statements and the reported amounts of income and
expenses during the reporting periods. Certain information and footnote
disclosures normally included in the annual financial statements which are
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. Accordingly, although the Company believes that
the disclosures are adequate to make the information presented not
misleading, the financial statements should be read in conjunction with the
footnotes contained in the Company's Annual Report on Form 10-K.
Revenue Recognition
Revenues from product sales and related warranty costs are 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.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing overhead. Inventories
consisted of the following at:
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
---------- -------
(In thousands)
<S> <C> <C>
Raw materials $20,661 $14,482
Work-in-process 25,601 24,409
Finished goods 23,060 16,056
------- -------
$69,322 $54,947
======= =======
</TABLE>
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<PAGE> 7
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. Earnings Per Share
On January 31, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (FAS 128). This
statement was issued by the Financial Accounting Standards Board in February
1997 and establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary
EPS with a presentation of basic EPS. It requires dual presentation of basic
and diluted EPS on the face of the statement of operations for all entities
with complex capital structures and requires a reconciliation of the
numerators and denominators of the basic and diluted EPS computations. FAS
128 also requires a restatement of all prior-period EPS data presented.
Basic earnings per share amounts have been computed using the weighted
average number of common and common equivalent shares outstanding during
each period. Diluted earnings per share amounts have been computed using the
weighted average number of common and common equivalent shares and the
dilutive potential common shares outstanding during each period.
A reconciliation between basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
--------------- -----------------
1998 1997 1998 1997
------ ------ ------ ------
(In thousands, except per share amounts)
<S> <C > <C> <C> <C>
Net income (loss) $ 765 $ 381 $ 1,873 $(18,421)
Basic EPS
Basic common shares 36,758 35,173 36,737 35,444
Basic EPS $ 0.02 $ 0.01 $ 0.05 $ (0.52)
Diluted EPS
Basic common shares 36,758 36,173 36,737 35,444
Plus: Impact of stock options 844 949 1,223 --
Plus: Impact of stock warrants 23 627 26 --
------- ------- ------- --------
Diluted common shares 37,665 36,749 37,986 35,444
Diluted EPS $ 0.02 $ 0.01 $ 0.05 $ (0.52)
</TABLE>
4. INTEREST EXPENSE AND INCOME
Interest expense and income were as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
---------------- ------------------
1998 1997 1998 1997
------ ------ ------ ------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Expense $ 547 $ 675 $ 1,129 $ 1,370
Income (551) (713) (1,213) (1,531)
----- ----- ------- -------
Interest (income) expense, net $ (4) $ (38) $ (84) $ (161)
===== ===== ======= =======
</TABLE>
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<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the principal
items included in the Consolidated Statement of Operations as percentages of net
sales.
<TABLE>
<CAPTION>
Percentage of Net Sales Percentage
------------------------------------------------- Increase/(Decrease)
Three Months Six Months ------------------------
Ended Ended Three Months Six Months
January 31, January 31, 1998 1998
-------------------- -------------------- Over Over
1998 1997 1998 1997 1997 1997
------ ------ ------ ------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 17.8% 19.6%
Cost of sales 63.8 68.9 64.3 69.6 9.0 10.6
Inventory provision for product line -- -- -- 10.1 N/A N/M
restructuring
----- ----- ----- -----
Gross margin 36.2 31.1 35.7 20.3 37.5 109.6
Engineering and product
development expenses 14.4 11.4 13.4 12.5 48.7 28.0
Selling, general and
administrative expenses 20.0 18.9 20.1 20.7 24.7 15.6
Product line restructuring costs -- -- -- 7.4 N/A N/M
----- ----- ----- -----
Income (loss) from operations 1.8 0.8 2.2 (20.3) 192.7 N/M
Interest (income) expense, net -- -- -- (0.2) (89.5) N/M
----- ----- ----- -----
Income (loss) before income taxes 1.8 0.8 2.2 (20.1) 164.6 N/M
Provision for income taxes 0.4 -- 0.5 -- N/M N/M
----- ----- ----- -----
Net income (loss) 1.4% 0.8% 1.7% (20.1)% 100.7% N/M
===== ===== ===== =====
</TABLE>
N/A - Not Applicable
N/M - Not Meaningful
-6-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended January 31, 1998, were $55.1 million as
compared to $46.8 million in the same quarter of the prior year, an increase of
17.8%. For the six months ended January 31, 1998, net sales were $109.3 million
as compared to $91.4 million for the same period of the prior year, an increase
of 19.6%. The increase in net sales reflects the improvement in orders the
Company has experienced, primarily as a result of more favorable semiconductor
equipment industry conditions since the first six months of the prior fiscal
year. The year to date increase of 19.6% is due primarily to an increase in
shipments of the Company's Delta/STE mixed technology test systems.
The gross profit margin was 36.2% of net sales for the three months ended
January 31, 1998, as compared to 31.1% for the three months ended January 31,
1997. For the six months ended January 31, 1998, gross profit margin was 35.7%
as compared to 30.4% excluding the inventory provision for product line
restructuring, for the six months ended January 31, 1997. The improvement in
gross profit margin in the current fiscal year is a result of the
proportionately lower fixed manufacturing costs and costs associated with the
Company's applications assistance and customer support organizations relative to
the higher net sales and the benefit of product cost reductions.
In the first quarter of the prior fiscal year, the Company redirected its
product strategy to focus primarily on functionally complex devices known as
"systems-on-a-chip." As a result, for the six months ended January 31, 1997, the
gross profit margin was reduced by a $9.3 million inventory provision,
associated with non-strategic Digital products. In addition, in the three
months ended October 31, 1996,the Company recorded a charge of $6.7 million for
canceled non-strategic development projects and other costs associated with the
change in product strategy.
Engineering and product development expenses were $7.9 million, or 14.4% of net
sales, in the three months ended January 31, 1998, as compared to $5.3 million,
or 11.4% of net sales, in the same quarter of the prior year. For the six months
ended January 31, 1998, engineering and product development expenses were $14.6
million, or 13.4% of net sales, as compared to $11.4 million, or 12.5% of net
sales, in the six months ended January 31, 1997. The increase in engineering
expenses reflects the Company's continued investment in the development of its
single platform test system, Fusion "TM", for testing "system-on-a-chip"
devices.
Selling, general and administrative expenses were $11.0 million, or 20.0% of net
sales, in the three months ended January 31, 1998, as compared to $8.9 million,
or 18.9% of net sales, in the same quarter of the prior year. For the six months
ended January 31, 1998, selling, general and administrative expenses were $22.0
million, or 20.1% of net sales, as compared to $19.0 million, or 20.7% of net
sales, in the six months ended January 31, 1997. The increase in selling,
general and administrative expenses relates primarily to increased advertising
and promotion costs associated with the product introduction of Fusion and the
expansion of the Company's sales organization.
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<PAGE> 10
The provision for income taxes of $0.6 million in the six months ended January
31, 1998, reflects a 24% effective tax rate. There was no provision for income
taxes in the same period of the prior year due to the net loss for the period.
Increased net sales and improved gross profit margin offset by investment in
Fusion product development and promotion costs resulted in net income of $0.8
million, or $0.02 per share, for the three months ended January 31, 1998, as
compared to net income of $0.4 million, or $0.01 per share, in the same period
of the prior year. For the six months ended January 31, 1998, net income was
$1.9 million or $0.05 per share as compared to a net loss $18.4 million, or
$0.52 net loss per share, in the same period of the prior year. The prior year's
net loss included an inventory provision and restructuring charges totaling
$16.0 million, or $0.45 per share.
Industry conditions weakened during the three months ended January 31, 1998 in
certain countries in the Asia market due to economic conditions in that region.
Until backlog increases substantially, the Company's ability to maintain
profitable operations in the near term will continue to depend on obtaining the
required level of shippable orders to meet its quarterly sales objectives. The
Company's results of operations would be adversely affected if it were to
experience lower than anticipated order levels, cancellations of orders in
backlog, extended customer delivery requirements or lower than anticipated
margins due to changes in product mix.
LIQUIDITY AND CAPITAL RESOURCES
Cash and equivalents were $44.3 million at January 31, 1998, as compared to
$67.8 million at July 31, 1997. The decrease in cash balances of $23.5 million
was a result of net cash used in operating activities of $14.3 million, $7.4
million of net cash used for additions to property and equipment, $1.6 million
of net cash used in financing activities and $0.2 million for the effect of
exchange rate changes on cash.
The negative net cash flow from operations was a result of the combination of
higher accounts receivable levels and the increase in inventories, net of
accounts payable, in the period. The increase in accounts receivable primarily
relates to extended payment terms with certain key customers and proportionately
higher shipments in the period to Japanese customers with longer payment cycles.
The increase in inventories relates to materials purchased for the future
initial deliveries of Fusion and additional inventories needed to meet book/ship
order requirements. The increase in accounts payable in the period is a result
of the higher level of inventory purchases. At January 31, 1998, the Company had
$2.2 million remaining in its restructuring provision to cover the future costs
resulting from its change in product strategy.
Property and equipment additions were $7.4 million in the six months ended
January 31, 1998, and exceeded depreciation charges of $6.0 million. Additions
during the period included test systems and spares modules for the Company's
product development programs and customer support requirements.
The Company's Japanese subsidiary's bank borrowings were $6.1 million at January
31, 1998, as compared to $6.5 million at July 31, 1997. Payments of long-term
debt of $2.6 million in the six months ended January 31, 1998, reflect a $2.0
million semi-annual principal payment on a long term note payable made in
January. There were no borrowings outstanding at January 31, 1998, or July 31,
1997, under the Company's working capital line of credit with its domestic
banks.
Management believes that the Company has sufficient cash resources to meet its
remaining fiscal 1998 cash requirements. These resources include cash balances
of $44.3 million at January 31, 1998, together with the borrowing availability
under its domestic working capital and equipment lease line and future cash
flows from operations.
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<PAGE> 11
BUSINESS RISKS
The Company in this report makes, and may from time to time elsewhere make,
disclosures which contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such disclosures in this
report include, without limitation, statements regarding the development,
introduction, acceptance, market and initial shipments for Fusion and the
Company's belief, under "Liquidity and Capital Resources", as to the adequacy
of its cash resources. Such forward-looking statements involve risks and
uncertainties including, but not limited to, the following important factors
that could cause actual results to differ materially from those in the
forward-looking statement:
FLUCTUATIONS IN SALES AND OPERATING RESULTS
Given the relatively large selling prices of the Company's test systems, sales
of a limited number of test systems account for a substantial portion of sales
in any particular fiscal quarter and a small number of transactions could
therefore have a significant impact on sales and gross margins for that fiscal
quarter. The Company's sales and operating results have fluctuated and could in
the future fluctuate significantly from period to period, including from one
quarterly period to another, due to a combination of factors, including the
cyclical demand of the semiconductor industry, order cancellations or
rescheduling by customers, the large selling prices of the Company's test
systems (which typically result in a long selling process), competitive pricing
pressures and the mix between and configuration of test systems sold in a
particular period. The impact of these and other factors on the Company's sales
and operating results in any future period cannot be forecast with accuracy. In
addition, the need for continued investment in research and development, for
capital equipment requirements and for extensive worldwide customer support
capability results in significant fixed costs which would be difficult to reduce
in the event that the Company does not meet its sales objectives.
IMPORTANCE OF NEW PRODUCT INTRODUCTIONS
The semiconductor test equipment ("STE") market is subject to rapid
technological change and new product introductions, as well as advancing
industry standards. The development of increasingly complex semiconductors and
the utilization of semiconductors in a broader spectrum of products has driven
the need for more advanced test systems to test such devices at an acceptable
cost. The Company's ability to remain competitive in the mixed signal and
system-on-a-chip integrated circuit ("IC") and discrete component markets will
depend upon its ability to successfully enhance existing test systems, develop
new generations of test systems, such as its new Fusion platform and to
introduce these new products on a timely and cost-effective basis. The Company
also has to manufacture its products in volume at a competitive price and on a
timely basis to enable customers to integrate them into their operations as they
begin to produce their next generation of semiconductors. The Company's failure
to have a competitive test system available when required by a semiconductor
manufacturer would make it substantially more difficult for the Company to sell
test systems to that manufacturer for a number of years. The Company has in the
past experienced delays in introducing certain of its products and enhancements,
and there can be no assurance that it will not encounter technical or other
difficulties that could in the future delay the introduction of new products or
enhancements. If new products have reliability or functionality problems, then
reduced, canceled or rescheduled orders, higher manufacturing costs, delays in
collecting accounts receivable and additional warranty expense may result, which
could reduce gross margins on new product sales and otherwise materially affect
the Company's business and results of operations. The Company's Fusion product
is subject to the risks associated with new product introductions, including the
risk that delays in development, reliability or functionality problems could
increase expenses and reduce gross margins on new product sales.
-9-
<PAGE> 12
Furthermore, announcements by the Company or its competitors of new products
could cause customers to defer or forego purchases of the Company's existing
products, which would also adversely affect the Company's business and results
of operations. There can be no assurance that the Company will be successful in
the introduction and volume manufacture of its new Fusion products, that such
introduction will coincide with the development by semiconductor manufacturers
of their next generation semiconductors or that such products will satisfy
customer needs or achieve market acceptance. The failure to do so could
materially adversely affect the Company's business and results of operations.
ASIA ECONOMIC CONDITIONS
In light of the recent economic downturn in certain Asian countries, there can
be no assurance that the Company will be able to obtain additional orders or
that it will not experience cancellations of existing orders from customers in
or dependent upon such countries, any of which would have an adverse effect on
the Company's business and results of operations.
CYCLICALITY OF SEMICONDUCTOR INDUSTRY
The Company's business is largely dependent upon the capital expenditures of
semiconductor manufacturers. The semiconductor industry is highly cyclical and
has historically experienced recurring periods of oversupply, which often have
had a severely detrimental effect on such industry's demand for test equipment
and could cause cancellations, rescheduling or reductions of customer orders. No
assurance can be given that the Company's business and results of operations
will not be materially adversely affected if downturns or changes in any
particular market segments of the semiconductor industry occur in the future,
especially if all of the market segments in which the Company participates
experience downturns at the same time.
ACQUISITIONS
The Company from time to time may acquire technologies, product lines or
businesses that are complementary to those of the Company. Although the Company
believes that integration of acquired technologies, product lines and businesses
will result in long-term growth and profitability, there can be no assurance
that the Company will be able to successfully negotiate finance or integrate
such acquired technologies, product lines or businesses. Furthermore, the
integration of an acquired company or business may cause a diversion of
management time and resources. There can be no assurance that a given
acquisition, if consummated, would not materially adversely affect the Company.
PROPRIETARY RIGHTS
The Company's future success depends in part upon its proprietary technology.
Although the Company attempts to protect its proprietary technology through a
combination of contract provisions, trade secrets, copyrights and patents, it
believes that its future success depends more upon its engineering,
manufacturing, marketing and service skills. There can be no assurance that the
steps taken by the Company to protect its proprietary rights will be adequate to
prevent misappropriation of its technology or the independent development by
others of similar technology. Although there are no pending actions against the
Company regarding any patents, no assurance can be given that infringement
claims by third parties will not have a material adverse effect on the Company's
business and results of operations.
-10-
<PAGE> 13
PART II -- OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on
December 9, 1997.
(b) Stockholders elected Messrs. Roger W. Blethen, Robert J. Boehlke
and Roger J. Maggs as Class II Directors to serve additional
terms of three years. Messrs. Jacques Bouyer and Samuel
Rubinovitz continued to serve as Class III Directors, with their
terms of office expiring at the 1998 Annual Meeting of
Stockholders. Messrs. Stephen M. Jennings and Robert E. Moore
continued to serve as Class I Directors, with their terms of
office expiring at the 1999 Annual Meeting of Stockholders.
(c) Matters voted upon and the results of the voting were as follows:
1) Stockholders voted 31,289,489 shares FOR and 1,764,662
shares WITHHELD from the election of Roger W. Blethen as a
Class II Director. Stockholders voted 31,272,889 shares FOR
and 1,781,262 shares WITHHELD from the election of Robert J.
Boehlke as a Class II Director. Stockholders voted
31,311,814 shares FOR and 1,742,337 shares WITHHELD from the
election of Roger J. Maggs as a Class II Director.
2) Stockholders voted 24,860,716 shares FOR; 8,055,952 shares
AGAINST and 137,483 shares ABSTAINED (0 broker non-votes)
regarding the vote to amend the 1990 Stock Option Plan to
increase the number of shares of common stock reserved for
issuance thereunder by 1,525,000 shares.
3) Stockholders voted 27,300,228 shares FOR; 5,605,948 shares
AGAINST and 147,975 shares ABSTAINED (0 broker non-votes)
regarding the vote to amend the 1993 Employees' Stock
Purchase Plan to increase the number of shares of common
stock available for issuance thereunder by 300,000 shares.
Item 6. Exhibits and Reports on Form 8-K
(a) (i) Exhibit 10 - Material Contracts
- LTX Corporation 1990 Stock Option Plan
(Exhibit 10(B))
- LTX Corporation 1993 Employees' Stock
Purchase Plan (Exhibit 10(D))
- Form of Change-of-Control Employment
Agreement entered into with certain
executive officers as of March 2,
1998 (Exhibit 10(Y))
- First Amendment to Credit Agreement
effective as of the 30th day of
January, 1998, by and among LTX
Corporation, BankBoston, N.A.
and Silicon Valley Bank (Exhibit
10(Z))
(ii) Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months
ended January 31, 1998.
-11-
<PAGE> 14
SIGNATURES
Pursuant to the requirements 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
Date: March 16, 1998 By: /s/ Roger W. Blethen
-------------- -------------------------------------------
Roger W. Blethen
Chief Executive Officer and President
Date: March 16, 1998 By: /s/ Carol B. Langer
-------------- -------------------------------------------
Carol B. Langer
Vice President, Chief Financial Officer
and Treasurer (Principal Financial Officer)
-12-
<PAGE> 1
LTX CORPORATION
1990 STOCK OPTION PLAN
1. DEFINITIONS. As used in this 1990 Stock Option Plan, the following terms
shall have the following meanings:
1.1 BOARD means the Company's Board of Directors.
1.2 CODE means the Federal Internal Revenue Code of 1986, as amended.
1.3 COMPANY means LTX Corporation.
1.4 FAIR MARKET VALUE means the value of a share of Stock of the Company
on any date as determined by the Board.
1.5 GRANT DATE means the date on which an Option is granted, as
specified in Section 7.
1.5A INCENTIVE OPTION means an Option intended to be an incentive stock
option with the meaning of Section 422 of the Code.
1.5B NONSTATUTORY OPTION means any option that is not an Incentive
Option.
1.6 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, the closing price of the
Stock.
1.7 OFFICER means any person who has been identified by the Board as an
"officer" for purposes of Section 16 of the Securities Exchange Act
of 1934, as amended.
1.8 OPTION means an option to purchase shares of the stock granted under
the Plan.
1.9 OPTION AGREEMENT means an agreement between the Company and an
Optionee, setting forth the terms and conditions of an Option.
1.10 OPTION PRICE means the price paid by an Optionee for an Option under
this Plan.
1.11 OPTION SHARE means any share of Stock of the Company transferred to
an Optionee upon exercise of an Option pursuant to this Plan.
<PAGE> 2
1.12 OPTIONEE means a person eligible to receive an Option, as provided
in Section 6, to whom an Option shall have been granted under the
Plan.
1.13 PLAN means this 1990 Stock Option Plan of the Company, as amended.
1.14 STOCK means common stock, par value $ 0.05 per share, of the
Company.
1.15 VESTING YEAR for any portion of any Option means the calendar year
in which that portion of the Option first becomes exercisable.
2. PURPOSE. This 1990 Incentive Stock Option Plan is intended to advance the
interests of the Company and its stockholders by improving the Company's ability
to attract and retain qualified individuals who are in a position to contribute
to the management and growth of the Company and its subsidiaries and to provide
additional incentive for such individuals to contribute to the Company's future
success. The Plan is intended to be an incentive stock option plan within the
meaning of Section 422 of the Code, but not all Options granted hereunder are
required to be Incentive Options.
3. TERM OF THE PLAN. Options under the Plan may be granted on or after
October 24, 1990, but not later than October 23, 2000.
4. STOCK SUBJECT TO THE PLAN. At no time shall the number of shares of the
Stock then outstanding which are attributable to the exercise of Options granted
under the Plan, plus the number of shares then issuable upon exercise of
outstanding Options granted under the Plan exceed 5,225,000 shares, SUBJECT,
HOWEVER, to the provisions of Section 15 of the Plan. Shares to be issued upon
the exercise of Options granted under the Plan may be either authorized but
unissued shares or shares held by the Company in its treasury. If any Option
expires or terminates for any reason without having been exercised in full, the
shares not purchased thereunder shall again be available for Options thereafter
to be granted. Each Director who is not an employee of the Company or a
subsidiary thereof shall receive a Nonstatutory Option to purchase 20,000 shares
of Common Stock on the date on which he or she is first elected to the Board of
Directors of the Company and an additional Nonstatutory Option to purchase 6,000
shares of Common Stock on the date of each annual meeting at which he or she is
re-elected or after which he continues to serve as a Director. Each Director who
is not an employee of the Company or a subsidiary thereof shall also receive a
Nonstatutory Option to purchase 3,000 shares of Common Stock in each year served
as a chairman of a Committee of the Board of Directors and a Nonstatutory Option
to purchase 1,500 shares of Common Stock in each year served as a member of a
Committee of the Board of Directors, such options to be issued on the date the
Committees are established annually by the Board of Directors. Each Option
granted to a Director under this Section 4 shall have a fair market value
exercise price per share and shall be exercisable, cumulatively, to the extent
of twenty percent of
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<PAGE> 3
the stock covered thereby on the first anniversary date of the grant of the
Option, thirty-five percent of the stock covered thereby on the second
anniversary date of the grant of the Option and forty-five percent of the stock
covered thereby on the third anniversary date of the grant of the Option. In
addition, on the day of the 1996 Annual Meeting of Stockholders, each Director
who is not an employee of the Company who has served as an outside director for
at least one year will receive a one-time grant of a Nonstatutory Option to
purchase 10,000 shares of Common Stock at a fair market value exercise price,
which Option will be immediately exercisable. In the event any Director standing
for re-election is not re-elected to the Board of Directors at any meeting, all
of such Director's unexercisable Options granted prior to the date of that
meeting will become exercisable immediately.
5. ADMINISTRATION. The Plan shall be administered by the Board of Directors
of the Company or by a committee composed of members of the Board (the Board of
Directors or any such committee being hereinafter referred to as the
"Committee"). With respect to directors and Officers eligible to receive an
Option under this Plan, the Plan shall be administered by a special committee
(the "Special Committee") of the Board of Directors of the Company who are
"disinterested persons" as defined in Rule 16b-3(c) (2) (i) under Section 16 of
the Securities Exchange Act of 1934 and who are also not an employee of one or
more of the Company and its subsidiaries. Only the Special Committee may grant
Options to directors and Officers eligible to receive Options under this Plan.
Subject to the provisions of the Plan, the Committee or the Special Committee,
as the case may be, shall have complete authority, in its discretion, to make
the following determinations with respect to each Option to be granted by the
Company: (a) the employee, director or consultant to receive the Option; (b) the
time of granting the Option; (c) the number of shares subject thereto; (d) the
Option Price; and (e) the Option period. In making such determinations, the
Committee may take into account the nature of the services rendered by the
respective employees, directors and consultants their present and potential
contributions to the success of the Company and its subsidiaries, and such other
factors as the Committee in its discretion shall deem relevant. Subject to the
provisions of the Plan, the Committee shall also have complete authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, to determine the terms and provisions of the respective Option
Agreements (which need not be identical), and to make all other determinations
necessary or advisable for the administration of the Plan. The Committee's
determinations on the matters referred to in this Section 5 shall be conclusive.
6. ELIGIBILITY. An Option may be granted only to an employee, director, or
consultant of one or more of the Company and its subsidiaries. A Director of one
or more of the Company and its subsidiaries who is not also an employee of one
or more of the Company and its subsidiaries shall not be eligible to receive an
Incentive Option. Any person who, within the meaning of Section 422A(b) (6) of
the Code, is deemed to own stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or of its parent or
subsidiary corporations) shall not be eligible to receive an Option. In
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<PAGE> 4
any given fiscal year, no Optionee may receive Options covering more than
300,000 shares of Stock (such number of shares to be adjusted in accordance with
Section 15).
7. TIME OF GRANTING OPTIONS. The granting of an Option shall take place at
the time specified by the Committee. Only if expressly so provided by the
Committee, shall the Grant Date be the date on which an Option Agreement shall
have been duly executed and delivered by the Company and the Optionee.
8. OPTION PRICE. The Option Price under each Incentive Option shall be not
less than 100% of the Fair Market Value of Stock on the Grant Date; the Option
Price under each Nonstatutory Option shall not be so limited.
9. OPTION PERIOD. No Incentive Option may be exercised later than the tenth
anniversary of the Grant Date. The period during which a Nonstatutory Option may
be exercised shall not be so limited. An Option may become exercisable in such
installments, cumulative or non-cumulative, as the Committee may determine. In
the case of an Option not otherwise immediately exercisable in full, the
Committee may accelerate the exercisability of such Option in whole or in part
at any time, provided the acceleration of the exercisability of any Incentive
Option would not cause the Option to fail to comply with the provisions of
Section 422 of the Code.
10. LIMIT ON INCENTIVE OPTION CHARACTERIZATION. No Incentive Option shall be
considered an Incentive Option to the extent pursuant to its terms it would
permit the Optionee to purchase for the first time in any Vesting Year more than
the number of shares of Stock calculated by dividing the current limit by the
Fair Market Value on the Grant Date. The current limit for any Optionee for any
Vesting Year shall be $100,000 minus the aggregate Fair Market Value at the date
of grant of the number of shares of Stock available for purchase for the first
time in such Vesting Year under each other Incentive Option granted to the
Optionee under the Plan and each other incentive stock option granted to the
Optionee under any other incentive stock option plan of the Company (and its
parent and subsidiary corporations).
11. EXERCISE OF OPTION. An Option may be exercised in accordance with its
terms by written notice of intent to exercise the Option, specifying the number
of shares with respect to which the Option is then being exercised. The notice
shall be accompanied by payment in the form of cash or shares of the Stock with
a Market Value on the date of exercise equal to the Option Price of the shares
to be purchased. Within 20 days thereafter, the Company shall deliver or cause
to be delivered to the Optionee evidence of ownership of the number of shares
then being purchased. Such shares shall be fully paid and nonassessable. If any
law or applicable regulation of the Securities and Exchange Commission or other
public regulatory authority shall require the Company or the Optionee to
register or qualify under the Securities Act of 1933, as amended, any similar
federal statute then in force or any state law regulating the sale of
securities, any Option Shares with respect to
4
<PAGE> 5
which notice of intent to exercise shall have been delivered to the Company or
to take any other action in connection with such shares, the delivery of the
certificate or certificates for such shares shall be postponed until completion
of the necessary action, which the Company shall take in good faith and without
delay. All such action shall be taken by the Company at its own expense.
12. TERMINATION OF EMPLOYMENT. In the event that the Optionee's employment or
association with the Company is terminated, whether voluntarily or by reason of
dismissal or retirement, the Option, to the extent exercisable at the date of
termination, may be exercised by the Optionee within three months after he or
she ceases to be an employee, director or consultant. In the event that the
Optionee's employment or association with the Company terminates as a result of
the death or disability of the Optionee, the Option may be fully exercised by
the Optionee or, in the event of the death of the Optionee by the person to whom
the option is transferred by will or the applicable laws of descent and
distribution, at any time within two years after the date of termination, unless
terminated earlier by its terms. Military or sick leave shall not be deemed a
termination of employment provided that it does not exceed the longer of 90 days
or the period during which the absent employee's reemployment rights are
guaranteed by statute or by contract. In the event that the Optionee's
employment or association with the Company terminates as a result of the death
or disability of the Optionee, the exercisability of any Option not otherwise
immediately exercisable in full held by such Optionee shall be accelerated and
such Options shall be fully exercisable as of the date of termination.
13. TRANSFERABILITY OF OPTIONS. Options shall not be transferable, otherwise
than by will or the laws of descent and distribution, and may be exercised
during the life of the Optionee only by the Optionee.
14. TRANSFERABILITY OF OPTION SHARES. The Optionee agrees that he or she will
not transfer any of the Option Shares at any time purchased upon the exercise of
any portion of the Option unless (i) such shares are registered under the
provisions of the Securities Act of 1933, as amended, or (ii) at the request of
the Company, the transferee represents, in form satisfactory to counsel for the
Company, that he or she will not transfer, sell or otherwise dispose of the
Optioned Shares at any time purchased by him or her in a manner which would
violate the Securities Act of 1933, as amended (the "Act"), and the regulations
of the Securities and Exchange Commission thereunder. The Optionee agrees that
the Company may, at its discretion, make a notation on any certificates issued
upon exercise of any portion of the Option to the effect that such certificate
may not be transferred except after receipt by the Company of an opinion of
counsel satisfactory to it to the effect that such transfer will not violate the
Act and the regulations thereunder, and may issue "stop transfer" instructions
to its transfer agent, if any, and make a "stop transfer" notation on its books
as appropriate.
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<PAGE> 6
15. ADJUSTMENT OF NUMBER OF OPTION SHARES.
(a) OPTIONS GRANTED THROUGH FEBRUARY 3, 1998. Each Option Agreement
shall provide that in the event of any stock dividend payable in the Stock or
any split-up or contraction in the number of shares of the Stock occurring after
the date of the Agreement and prior to the exercise in full of the Option or the
repurchase by the Company pursuant to Section 14, the number of shares subject
to such Agreement shall be proportionately adjusted and the price to be paid for
each share subject to the Option shall be proportionately adjusted. Each such
agreement shall also provide that in case of any reclassification or change of
outstanding shares of the Stock or in case of any consolidation or merger of the
Company with or into another company or in case of any sales or conveyance to
another company or entity of shares of Stock or other securities shall be
delivered equivalent in kind and value to those shares an Optionee would have
been received if the Option had been exercised in full or the repurchase
consummated immediately prior to such reclassification, change, consolidation,
merger, sale or conveyance and no disposition had subsequently been made. Each
Agreement shall further provide that upon dissolution or liquidation of the
Company, the Option shall terminate, but the Optionee (if at the time in the
employ of the Company or any of its subsidiaries) shall have the right,
immediately prior to such dissolution or liquidation, to exercise the Option to
the extent not theretofore exercised. No fraction of a share shall be
purchasable or deliverable upon exercise, but in the event any adjustment
hereunder of the number of shares covered by the Option shall cause such number
to include a fraction of a share, such fraction shall be adjusted to the nearest
smaller whole number of shares. In the event of changes in the outstanding Stock
by reason of any stock dividend, split-up, contraction, reclassification, or
change of outstanding shares of the Stock of the nature contemplated by this
Section 15, the number of shares of Stock available for the purpose of the Plan
as stated in Section 4 shall be correspondingly adjusted.
(b) OPTIONS GRANTED AFTER FEBRUARY 3, 1998. In the event of any change
in corporate capitalization, such as a stock split or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Section 368
of the Code) or any partial or complete liquidation of the Company, the
Committee or Board may make such substitution or adjustments in the aggregate
number and kind of shares reserved for issuance under the Plan, in the number,
kind and Option Price of shares subject to outstanding Options, and/or such
other equitable substitution or adjustments as it may determine to be
appropriate in its sole discretion; provided, however, that the number of shares
subject to any Option shall always be a whole number.
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<PAGE> 7
16. CHANGE OF CONTROL.
(a) VESTING OF OPTIONS. Except as provided in subsection (e) of this
Section 16, in the event of a Change of Control, any Options outstanding as of
the date such Change of Control is determined to have occurred, and which are
not then exercisable and vested, shall become fully exercisable and vested to
the full extent of the original grant.
(b) CHANGE OF CONTROL CASH-OUT. (i) Except as provided in subsection (e)
of this Section 16, during the 60-day period from and after a Change of Control
(the "Exercise Period"), unless the Committee shall determine otherwise at the
time of grant of an Option, each Optionee who is an employee or consultant of
one or more of the Company and its subsidiaries shall have the right, whether or
not the Option is fully exercisable and in lieu of the payment of the Option
Price for the shares of Stock being purchased under the Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change of Control Price
per share of Stock on the date of such election shall exceed the Option Price
per share of Stock under the Option (the "Spread") multiplied by the number of
shares of Stock as to which the right granted under this Section 16 shall have
been exercised. Notwithstanding the foregoing, if any right granted pursuant to
this Section 16 would make a Change of Control transaction ineligible for
pooling-of-interests accounting under APB No. 16 that but for the nature of such
grant would otherwise be eligible for such accounting treatment, the Committee
shall have the ability to substitute for the cash payable pursuant to such right
Stock or other securities with a fair market value equal to the cash that would
otherwise be payable hereunder.
(c) DEFINITION OF CHANGE OF CONTROL PRICE. For purposes of the Plan,
"Change of Control Price" means the higher of (i) the highest reported sales
price, regular way, of a share of Stock in any transaction reported on the New
York Stock Exchange Composite Tape or other national exchange on which such
shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change of Control or (ii) if the Change of Control is the result
of a tender or exchange offer or a Corporate Transaction, the highest price per
share of Stock paid in such tender or exchange offer or Corporate Transaction;
provided, however, that in the case of Incentive Options, the Change of Control
Price shall be in all cases the fair market value of the Stock on the date the
right under Section 16(b) associated with such Incentive Option is exercised. To
the extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the value
of such securities or other noncash consideration shall be determined in the
sole discretion of the Board.
(d) DEFINITION OF CHANGE OF CONTROL. For purposes of the Plan, a "Change
of Control" shall mean:
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<PAGE> 8
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 20% or more of either (a) the then outstanding shares of Stock
(the "Outstanding Company Common Stock") or (b) the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (i),
the following acquisitions shall not constitute a Change of Control: (A)
any acquisition directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company or (d) any acquisition pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii) of this
Section 16; or
(ii) Individuals who, as of February 3, 1998, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to February 3, 1998 whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Corporate
Transaction"), in each case, unless, following such Corporate Transaction,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Person (excluding
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<PAGE> 9
any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Corporate
Transaction or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C) at least a majority of
the members of the board of directors of the corporation resulting from
such Corporate Transaction were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Corporate Transaction; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(e) The foregoing provisions of this Section 16 shall apply to all
Options granted under the Plan after February 3, 1998.
17. RESERVATION OF STOCK. The Company shall at all times during the term of
the Option reserve and keep available such number of shares of the Stock as will
be sufficient to satisfy the requirements of this Plan and shall pay all fees
and expenses necessarily incurred by the Company in connection therewith.
18. LIMITATION OF RIGHTS IN THE OPTION SHARES. The Optionee shall not be
deemed for any purpose to be a stockholder of the Company with respect to any of
the Option Shares except to the extent that the Option shall have been exercised
with respect thereto and, in addition, a certificate shall have been issued
therefore and delivered to the Optionee. Any Stock issued pursuant to the Option
shall be subject to all restrictions upon the transfer thereof which may be now
or hereafter imposed by the Articles of Organization or the By-laws of the
Company.
19. TERMINATION AND AMENDMENT OF THE PLAN. The Board may at any time terminate
the Plan or make such modifications of the Plan as it shall deem advisable;
PROVIDED that no modification shall be effective to increase the number of
shares of Stock subject to the Plan or change the number or classification of
employees eligible to receive Options until such modification is approved by the
holders of a majority of the voting capital stock of the Company. No termination
or amendment of the Plan may, without the consent of the Optionee to whom any
Option shall theretofore have been granted, adversely affect the rights of such
Optionee under such Option.
20. NOTICES. Any communication or notice required or permitted to be given
under the Plan shall be in writing, and mailed by registered or certified mail
or delivered in hand, if to the Company, to its Treasurer at LTX Park at
University Avenue, Westwood, Massachusetts 02090 and, if to the Optionee, to the
address as the Optionee shall last have furnished to the communicating party.
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<PAGE> 10
21. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF
SPECIFIED HOLDING PERIOD.
(a) Whenever shares are to be issued in satisfaction of an Option
granted hereunder, the Company shall have the right to require the
Optionee to remit to the Company an amount sufficient to satisfy
federal, state, local or other withholding tax requirements if and
to the extent required by law (whether so required to secure for the
Company an otherwise available tax deduction or otherwise) prior to
the delivery of any certificate or certificates for such shares.
(b) The Company may require as a condition to the issuance of shares
covered by an Incentive Option that the party exercising such Option
give a written representation to the Company which is satisfactory
in form and substance to its counsel and upon which the Company may
reasonably rely, that he or she will report to the Company any
disposition of such shares prior to the expiration of the holding
periods specified by Section 422(a)(1) of the Code. If and to the
extent that the realization of income in such a disposition imposes
upon the Company federal, state, local or other withholding tax
requirements, or any other available tax deduction, the Company
shall have the right to require that the recipient remit to the
Company an amount sufficient to satisfy those requirements; and the
Company may require as a condition to the issuance of shares covered
by an Incentive Option that the party exercising such option give a
satisfactory written representation promising to make such a
remittance.
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<PAGE> 1
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
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<PAGE> 3
determinations necessary or advisable for the administration of the Plan.
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 1,500,000 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.
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(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 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 or Section 10.8.
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
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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.
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, there
occurs any change in corporate capitalization, such as a stock split or a
corporate transaction, such as any merger, consolidation, separation, including
a spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Section 368 of the Code) or any partial or complete liquidation
of the Company, the Board may make such substitution or adjustments in the
aggregate number and kind of shares reserved for issuance under the Plan, in the
number, kind and purchase price of the Option Shares subject to outstanding
Options, and/or such other equitable substitution or adjustments as it may
determine to be appropriate in its sole discretion; provided, however, that the
number of shares subject to any Option shall be a whole number.
10.8 CHANGE OF CONTROL. In the event that, between the
Offering Commencement Date and the Offering Termination Date, a "Change of
Control" (as hereinafter defined) shall occur, the Offering Period shall
terminate as of a date before the Change of Control selected by the Committee so
as to enable the Optionees to receive the Stock purchased pursuant to their
Options in time to participate in such Change of Control event on the same basis
as other shareholders. For purposes of the Plan, a "Change of Control shall
mean:
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(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (a) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (b) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company, (b) any acquisition by
the Company, (c) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company or (d) any acquisition pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) of this Section 15; or
(ii) Individuals who, as of February 3, 1998,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any individual
becoming a director subsequent to February 3, 1998 whose election, or nomination
for election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such Corporate
Transaction, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more then 60%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be, (B)
no Person (excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Corporate Transaction) beneficially own,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from
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such Corporate Transaction or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (C) at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Corporate transaction; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
10.9 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 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.
10.10 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.
10.11 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
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<PAGE> 8
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.
10.12 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.
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CHANGE-OF-CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between LTX Corporation, a Massachusetts corporation
(the "Company") and _______________________________ (the "Executive"), dated as
of the ___ day of _______, 1998.
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interests of the Company and its shareholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date
<PAGE> 2
the Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limita-
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<PAGE> 3
tion, a corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 40 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at
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<PAGE> 4
educational institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period,
annual variable incentive compensation (the "Annual Bonus") in cash at least
equal to the average of the amounts of the Executive's annual variable incentive
compensation (including without limitation bonuses and commissions) under the
Company's variable compensation plan, commission plan, and/or any other
comparable plans in which the Executive participated, for the two of the last
three full fiscal years prior to the Effective Date in which such amounts were
the highest (annualized in the event that the Executive was not employed by the
Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices,
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<PAGE> 5
policies and programs applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is applicable),
savings opportunities and retirement benefit opportunities, in each case, less
favorable, in the aggregate, than the most favorable of those provided by the
Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time
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<PAGE> 6
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness),
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<PAGE> 7
after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company
which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the Chief
Executive Officer or a senior officer of the Company or based upon the advice of
counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company
7
<PAGE> 8
promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof or
the Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
8
<PAGE> 9
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD
REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause or Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore
paid, (2) the product of (x) the higher of (I) the Recent Annual
Bonus and (II) the Annual Bonus paid or payable, including any
bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than
twelve full months), for the most recently completed fiscal year
during the Employment Period, if any (such higher amount being
referred to as the "Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which
is 365 and (3) any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount equal to the product of (1) [two, (three
in case of CEO)] and (2) the sum of (x) the Executive's Annual
Base Salary and (y) the Highest Annual Bonus;
(ii) for [two, (three in case of CEO)] years after the
Executive's Date of Termination, or such longer period as may be provided
by the terms of the appropriate plan, program, practice or policy, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not
been terminated or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies and their families, provided,
however,
9
<PAGE> 10
that if the Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits described
herein shall be secondary to those provided under such other plan during
such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the
Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have remained
employed until [two, (three in case of CEO)] years after the Date of
Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide
the Executive with outplacement services the scope and provider of which
shall be selected by the Executive in his sole discretion, but the cost
to the Company of which shall not exceed $30,000; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) DEATH. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits, the term Other Benefits as
utilized in this Section 6(b) shall include, without limitation, and the
Executive's estate and/or beneficiaries shall be entitled to receive, benefits
at least equal to the most favorable benefits provided by the Company and
affiliated companies to the estates and beneficiaries of peer executives of the
Company and such affiliated companies under such plans, programs, practices and
policies relating to death benefits, if any, as in effect with respect to other
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and its affiliated companies and their beneficiaries.
10
<PAGE> 11
(c) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
11
<PAGE> 12
8. FULL SETTLEMENT. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company or its affiliates to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section+9) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the present value as of the date of the Change of Control, determined in
accordance with Section 280G(b)(2)(A)(ii) and 280G(d)(4) (the "Present Value")
of the Payments does not exceed 110% of the greatest Present Value of Payments
(the "Reduced Amount") that could be paid to the Executive such that the receipt
thereof would not give rise to any Excise Tax, then no Gross-Up Payment shall be
made to the Executive
12
<PAGE> 13
and the Payments, in the aggregate, shall be reduced such that their Present
Value equals the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by Ernst & Young LLP or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
13
<PAGE> 14
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive becomes entitled
to receive any refund with respect to such claim,
14
<PAGE> 15
the Executive shall (subject to the Company's complying with the requirements of
Section 9(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to Section 9(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
15
<PAGE> 16
12. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO THE EXECUTIVE:
-------------------------
-------------------------
-------------------------
IF TO THE COMPANY:
LTX Corporation
University Avenue
Westwood, Massachusetts 02090-2306
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
16
<PAGE> 17
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as
may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is "at
will" and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment may be terminated by either the Executive or the Company
at any time prior to the Effective Date, in which case the Executive shall have
no further rights under this Agreement. From and after the Effective Date this
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof.
17
<PAGE> 18
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
----------------------------------
[Executive]
LTX CORPORATION
By
-------------------------------
President
18
<PAGE> 1
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT effective as of the 30th day of
January, 1998, by and among LTX CORPORATION, a Massachusetts corporation (the
"Borrower"), BANKBOSTON, N.A. ("BKB"), a national banking association, SILICON
VALLEY BANK, a state commercial bank ("SVB") and BKB, as Agent (the "Agent").
WHEREAS, the Borrower, BKB, SVB and the Agent are parties to a Credit
Agreement dated as of June 30, 1997 ("Credit Agreement"). Capitalized terms used
herein and not otherwise defined shall have the meanings set forth in the Credit
Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which is hereby
acknowledged, the parties hereby amend the Credit Agreement as follows:
Section 1. AMENDMENT OF SECTION 5.9. Section 5.9 of the Credit Agreement is
hereby amended by deleting "1.75" in the third line substituting "1.65"
therefor:
Section 2. MISCELLANEOUS.
(a) The Borrower hereby confirms to the Banks that the
representations and warranties of the Borrower set forth in Article IV of the
Credit Agreement are true and correct as of the date hereof, as if set forth
herein in full.
(b) The Borrower has reviewed the provisions of this First
Amendment and Credit Agreement and all documents executed in connection
therewith or pursuant thereto or incident or collateral hereto or thereto from
time to time (collectively, the "Bank Documents") and there is no Event of
Default thereunder, and no condition which, with the passage of time or giving
of notice or both, would constitute an Event of Default thereunder.
(c) The Borrower agrees that each of the Bank Documents shall
remain in full force and effect after giving effect to this Amendment.
(d) This First Amendment represents the entire agreement among
the parties hereto relating to this First Amendment, and supersedes all prior
understandings and agreements among the parties relating to the subject matter
of this Amendment.
(e) The Borrower represents and warrants that neither the
execution, delivery or performance by the Borrower of any of the obligations
contained in this First Amendment or in any Bank Document requires the consent,
approval or authorization of any person or governmental authority or any action
by or on account of with respect to any person or governmental authority.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Credit Agreement under seal as of the date first above written.
LTX CORPORATION
By:
--------------------------------------
Name:
Title
BANKBOSTON, N.A.
By:
--------------------------------------
Name:
Title
SILICON VALLEY BANK
By:
--------------------------------------
Name:
Title
BANKBOSTON, N.A., as Agent
By:
--------------------------------------
Name:
Title
-2-
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0
0
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