<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
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 October 31, 1999
-----------------------------
OR
[X] 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 000-10761
-----------
LTX CORPORATION
- --------------------------------------------------------------------------------
(exact Name of Registrant as Specified in Its Chapter)
Massachusetts 04-2594045
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
LTX Park at University Avenue, Westwood, Massachusetts 02090
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (781) 461 1000
---------------------------
________________________________________________________________________________
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 December 3, 1999
- ----------------------------------------- ----------------------------------
Common Stock, par value $0.05 per share 42,586,879
<PAGE>
LTX CORPORATION
Index
<TABLE>
<CAPTION>
Page Number
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet 1
October 31, 1999 and July 31, 1999
Consolidated Statement of Operations 2
Three months ended October 31, 1999
And October 31, 1998
Consolidated Statement of Cash Flows 3
Three months ended October 31, 1999
And October 31, 1998
Notes to Consolidated Financial Statements 4-8
Item 2. Management's Discussion and Analysis of Financial 9-19
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
<PAGE>
LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 93,534 $ 19,936
Accounts receivable, net of allowances of $1,792 and $2,200 52,579 37,043
Accounts receivable - other 4,129 4,324
Inventories 55,110 48,551
Other current assets 5,726 5,795
------------- -------------
Total current assets 211,078 115,649
Property and equipment, net 32,649 31,942
Other assets 745 402
------------- -------------
$ 244,472 $ 147,993
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 11,399 $ 5,472
Current portion of long-term debt 661 674
Accounts payable 40,298 37,439
Deferred revenues and customer advances 12,257 11,391
Other accrued expenses 12,463 12,758
------------- -------------
Total current liabilities 77,078 67,734
============= =============
Long-term debt, less current portion 14,080 14,023
Other long-term liabilities - -
Convertible subordinated debentures 7,308 7,308
Stockholders' equity 146,006 58,928
------------- -------------
$ 244,472 $ 147,993
============= =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
1
<PAGE>
LTX CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amount)
<TABLE>
<CAPTION>
Three Months
Ended
October 31,
--------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Net sales $ 60,005 $ 27,018
Cost of sales 36,259 19,847
------------- --------------
Gross margin 23,746 7,171
Engineering and product development 7,818 5,996
expenses
Selling, general and administrative expenses 8,698 7,869
------------- --------------
Income (loss) from operations 7,230 (6,694)
Interest (income) expense, net 356 198
Other (income) expense, net - -
------------- --------------
Income (loss) before income taxes 6,874 (6,892)
Provision for income taxes - -
------------- --------------
Net income (loss) $ 6,874 $ (6,892)
============= ==============
Net income (loss) per share:
Basic $ 0.19 $ (0.19)
Diluted $ 0.17 $ (0.19)
Weighted average shares:
Basic 37,029 35,477
Diluted 40,422 35,477
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
LTX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months
Ended
October 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ 6,874 $ (6,892)
Add (deduct) non-cash items:
Depreciation and amortization 2,773 2,859
Exchange (gain) loss (267) 460
(Increase) decrease in:
Accounts receivable (14,973) 5,121
Inventories (6,511) (875)
Other current assets 82 (538)
Other assets (343) (2)
Increase (decrease) in:
Accounts payable 2,672 (3,108)
Accrued expenses and restructuring charges (359) (544)
Deferred revenues and customer advances (790) (938)
------------- -------------
Net cash used in operating activities (10,842) (4,457)
------------- -------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Expenditures for property and equipment, net (4,005) (506)
------------- -------------
Net cash used in investing activities (4,005) (506)
------------- -------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from stock purchase plans - -
Proceeds from stock option plans 249 -
Proceeds from stock equity offering 79,954
Proceeds from short term borrowing 27,949 -
Payments of short term borrowing (22,022) (767)
Payments of long-term debt and other liabilities 44 (362)
Proceeds from lease financing 2,087 -
------------- -------------
Net cash provided by (used in) financing activities 88,261 (1,129)
------------- -------------
Effect of exchange rate changes on cash 184 619
------------- -------------
Net decrease in cash and equivalents 73,598 (5,473)
Cash and equivalents at beginning of period 19,936 25,109
------------- -------------
Cash and equivalents at end of period $ 93,534 $ 19,636
============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid (received) during the period for:
Interest $ 910 $ 359
Income taxes $ 42 $ (846)
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
LTX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE COMPANY
LTX Corporation ("LTX" or the "Company") designs, manufactures, and markets
automatic test equipment for the semiconductor industry that is used to test
system-on-a-chip, digital, analog, and mixed signal (a combination of digital
and analog) integrated circuits ("ICs"). The Company's newly introduced Fusion
product is a single test platform that can be configured to test system-on-a-
chip devices, digital VLSI devices including microprocessors and
microcontrollers, and analog/mixed signal devices. The Company also sells
hardware and software support and maintenance services for its test systems. The
semiconductors tested by the Company's systems are widely used in the computer,
communications, automotive and consumer electronics industries. The Company
markets its products worldwide to manufacturers of system-on-a-chip, digital,
analog and mixed signal ICs. The Company is headquartered, and has development
and manufacturing facilities, in Westwood, Massachusetts, a development facility
in San Jose, California, and worldwide sales and service facilities to support
its customer base.
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 10-K.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are translated in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation". The Company's functional currency is the U.S. dollar.
Accordingly, the Company's foreign subsidiaries translate monetary assets and
liabilities at year-end exchange rates while non-monetary items are translated
at historical rates. Income and expense accounts are translated at the average
rates in effect during the year, except for sales, cost of sales and
depreciation, which are primarily translated at historical rates. Net realized
and unrealized gains and losses resulting from foreign currency remeasurement
and transaction gains and losses were a gain of $267,000 and a loss of $460,000
for the three months ended October 31, 1999 and 1998 respectively. The
4
<PAGE>
amounts for both periods were principally due to fluctuations in the Japanese
yen. Transaction gains and losses are included in the consolidated results of
operations.
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.
During April 1998, Ando Electric Co., Ltd. ("Ando") paid the Company $17.4
million in cash and LTX Common Stock for the rights to manufacture, market and
develop LTX's Fusion product for Japanese customers. The Company recognized $7.4
million of revenue during fiscal 1998 for the sale of its marketing and
development rights. The Company deferred $10.0 million of revenue related to the
manufacturing rights and transfer of technology knowledge. The $10.0 million was
recognized on a percentage of completion basis over the period in which the
Company completes the transfer of the manufacturing and technology rights. The
Company recognized $8.5 million of the deferred revenue in fiscal 1999 and has
recognized the remaining $1.5 million in the first quarter of fiscal 2000. In
addition, the Company will receive future royalty payments, which will be
recognized as revenue in the period earned.
Income Taxes
Deferred income taxes are recorded for temporary differences between the
financial reporting and tax basis of assets and liabilities. Research and
development tax credits are recognized for financial reporting purposes to the
extent that they can be used to reduce the tax provision. The Company has not
provided for federal income taxes on the cumulative undistributed earnings of
its foreign subsidiaries, which were not significant, in the past since it
reinvested those earnings. At October 31, 1999, most of the Company's foreign
subsidiaries had accumulated deficits.
Net Income (Loss) per Share
In July 1998, the Company adopted Statement of Financial Accounting Standards,
"Earnings Per Share" (SFAS 128). All previously reported earnings per share
information presented have been restated to reflect the impact of adopting SFAS
128. Under SFAS 128, basic net income (loss) per common share is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted income
(loss) per common share reflects the maximum dilution that would have resulted
from the assumed exercise and share repurchase related to dilutive stock options
and is computed by dividing net income (loss) by the weighted average number of
common shares and all dilutive securities outstanding.
5
<PAGE>
A reconciliation between basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1999 1998
(in thousands except per/share amounts)
<S> <C> <C>
Net income (loss) $ 6,874 $(6,892)
Basic EPS
Basic common shares 37,029 35,477
Basic EPS $ 0.19 $ (0.19)
Diluted EPS
Basic common shares 37,029 35,477
Plus: Impact of stock options and warrants 3,393 -
------- -------
Diluted common shares 40,422 35,477
------- -------
Diluted EPS $ 0.17 $ (0.19)
</TABLE>
There were no options outstanding that were excluded in the above calculation of
diluted earnings per share as of October 31, 1999. The impact of stock option
and warrants was not used in the calculation of the October 31, 1998 diluted EPS
as the Company was in a net loss position.
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:
October 31, July 31,
1999 1999
----------- ----------
(In thousands)
Raw materials $24,770 $22,380
Work-in-progress 19,950 18,107
Finished goods 10,390 8,064
---------- ----------
$55,110 $48,551
========== ==========
Comprehensive Income
In August 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
The statement requires comprehensive income to be reported with the same
prominence as other financial statements. Comprehensive income would include
any unrealized gains or losses on available-for-sale securities, foreign
currency translation adjustments and minimum pension liability adjustments. The
effect of SFAS 130 is immaterial to the Company's financial results.
6
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board also issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). The statement is effective for
fiscal 1999. SFAS 131 changes the definition and reporting of segments and
requires disclosure by operating segment of information such as profit and loss,
assets and capital expenditures, major customers and types of products from
which revenues are derived, (see Note 9).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133 is effective for
fiscal years beginning after June 15, 2000. A company may also implement the
statement as of the beginning of any fiscal quarter after issuance (that is,
fiscal quarters beginning June 16, 1998 and thereafter). SFAS No. 133 cannot be
applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1997
(and, at the company's election, before January 1, 1998). This statement could
increase volatility in earnings and other comprehensive income for companies
with applicable contracts. The Company is in the process of quantifying the
impact of adopting SFAS No. 133 on its financial statements and has not
determined the timing of or method of adoption.
Interest Expense and Income
Interest expense and income were as follows:
Three Months
Ended
October 31,
1999 1998
-----------------------------
(In thousands)
Expense $ 611 $ 397
Income (255) (199)
------- --------
Interest (income) expense, net $ 356 $ 198
======= ========
7
<PAGE>
Segment Reporting
The Company operates predominantly in one industry segment: the design,
manufacture and marketing of automated test equipment for the semiconductor
industry that is used to test system-on-a-chip, digital, analog and mixed signal
(a combination of digital and analog) integrated circuits.
The Company's sales to unaffiliated customers for the three months ended October
31, 1999 and 1998, along with the long-lived assets for October 31, 1999 and
July 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Three Months
Ended
October 31,
----------------------------------
1999 1998
-------- ---------
<S> <C> <C>
Sales to unaffiliated customers:
United States $ 11,665 $ 12,374
Taiwan 14,887 5,488
Japan 829 1,099
Singapore 16,377 1,701
All other countries 16,247 6,356
--------- ---------
Total sales to unaffiliated customers $ 60,005 $ 27,018
========= =========
</TABLE>
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
---------- ---------
<S> <C> <C>
Long-lived assets:
United States $ 25,683 $ 24,965
Taiwan 1,075 1,175
Japan 59 59
Singapore 3,390 3,695
All other countries 2,442 2,048
---------- ----------
Total long-lived assets $ 32,649 $ 31,942
========== ==========
</TABLE>
8
<PAGE>
Item 2. 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
Three Months Increase/(Decrease)
Ended -------------------
October 31, Three Months
----------------------- 1999
1999 1998 Over 1998
--------- -------- -------------------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 122.0%
Cost of sales 60.4% 73.3% 82.7%
--------- -------- -------------------
Gross Margin 39.6% 26.7% 231.1%
Engineering and product
development expenses 13.0% 22.2% 30.3%
Selling, general and
administrative expenses 14.5% 29.1% 10.5%
--------- -------- -------------------
Income (loss) from
operations 12.1% N/M N/M
Interest (income) expense,
net 0.6% 0.7% N/M
--------- -------- -------------------
Income (loss) before
income taxes 11.5% N/M N/M
Provision for income taxes -0- -0- -0-
--------- -------- -------------------
Net income (loss) 11.5% N/M N/M
========= ======== ===================
</TABLE>
N/M - Not Meaningful
9
<PAGE>
The discussion below contains certain forward-looking statements relating to,
among other things, estimates of economic and industry conditions, sales trends,
expense levels and capital expenditures. Actual results may vary from those
contained in such forward-looking statements. See "Business Risks" below.
Results of Operations
Three Months Ended October 31, 1999 Compared
to the Three Months Ended October 31, 1998
Net sales for the three months ended October 31, 1999 increased 122% to $60.0
million as compared to $27.0 million in the same quarter of the prior year. Net
sales included $1.5 million of deferred revenue from the Company's Fusion
alliance with Ando Electric Co., Ltd. All of the $10.0 million of deferred
revenue from the Fusion alliance with Ando has been recognized. Geographically,
sales to customers outside of North America were 80% and 54% of total net sales
in the three months ended October 31, 1999 and 1998, respectively. The increase
was due in part to sales to domestic semiconductor producers, which shipped to
international sites. Service revenues accounted for $7.4 million or 12.3% and
$6.8 million or 25.2% for the three months ended October 31, 1999 and 1998,
respectively.
The gross profit margin was 39.6% of net sales in the three months ended October
31, 1999, compared to 26.7% of net sales in the same quarter of the prior year.
The increase is a result of a higher level of sales relative to fixed
manufacturing costs and improved product margins due to shipments of the
Company's Fusion test systems, which carry a higher gross margin than the prior
generation systems.
Engineering and product development expenses were $7.8 million, or 13.0% of net
sales, in the three months ended October 31, 1999, as compared to $6.0 million,
or 22.2% of net sales, in the same quarter of the prior year. The increase in
expenditure is principally a result of a higher level of development expenses
and key account support costs for the Company's Fusion product line.
Selling, general and administrative expenses were $8.7 million, or 14.5% of net
sales, in the three months ended October 31, 1999, as compared to $7.9 million,
or 29.3% of net sales, in the same quarter of the prior year. The increase in
the selling, general and administrative expenses of $0.8 million is related to
the development of the Fusion product line and support of key account wins.
Net interest expense was $0.4 million in the three months ended October 31,
1999, as compared to net interest income of $0.2 million in the same quarter in
the prior year and occurred because of the increase in the Company's bank debt
outstanding.
The Company had no tax provision for the three months ended October 31, 1999 and
1998. The Company's net operating loss carry forward is sufficient to cover
taxable income for the quarter ended October 31, 1999.
10
<PAGE>
Net income was $6.9 million, or $0.17 per share, in the three months ended
October 31, 1999. The Company had a net loss of $(6.9) million or $(0.19) per
share, in the same quarter of the prior year.
Liquidity and Capital Resources
At October 31, 1999, the Company had $93.5 million in cash and equivalents and
working capital of $134.0 million, as compared to $19.9 million of cash and
equivalents and $47.9 million of working capital at July 31, 1999. The increase
in cash balance was a result of proceeds from a common stock offering totaling
approximately $80.0 million, which was completed in October 1999.
Accounts receivable from trade customers were $52.6 million at October 31, 1999,
as compared to $37.0 million at July 31, 1999. The principal reason for the
increase is a result of increasing sales revenue for Fusion products to new and
existing accounts. The reserve for sales returns allowances and doubtful
accounts was $1.8 million or 3.3% of gross accounts receivable on October 31,
1999 and $2.2 million or 5.6% of gross accounts receivable on July 31, 1999. The
major reason for the decrease in the reserve balance was due to write offs of
specifically identified accounts.
Inventories increased by $6.5 million to $55.1 million at October 31, 1999 as
compared to $48.6 million at July 31, 1999. The increase is directly
attributable to the production ramp in the Fusion product line as sales in that
line have increased sequentially each quarter since the quarter ending October
31, 1998.
On October 1, 1999, the Company renegotiated its $10.0 million domestic credit
facility with its current lender. The facility is secured by all assets of the
Company and bears interest at the bank's prime rate plus 0.5%. Borrowing
availability under the facility is based on a formula of eligible domestic
accounts receivable. In addition, the Company entered into an agreement with
the same bank that provided the Company with a $5.0 million line of credit that
bears interest at prime plus 0.5%. Borrowing availability under this facility
is based on a formula of eligible foreign accounts receivable and inventories
and is guaranteed by the Export-Import Bank of the United States. Outstanding
borrowings at October 31, 1999 were $6.3 million under the domestic credit
facility and $5.0 million under the foreign accounts receivable line facility.
The accrued liabilities for restructuring activity of $2.3 million remained
unchanged from July 31, 1999. This relates to the estimated cost to upgrade
products due to the transition to the Fusion product line. The Company
anticipates this activity will be completed by July 31, 2000.
The Company anticipates that cash flow from operations combined with the recent
equity offering proceeds and credit facility enhancements will be adequate to
fund the Company's currently proposed operating activities for the next twelve
months.
Year 2000
A discussion of the impact of the Year 2000 to the Company appears under the
heading "Business Risks" below.
BUSINESS RISKS
This report includes or incorporates forward-looking statements that involve
substantial risks and uncertainties and fall within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. You can identify these forward-looking statements by our use of the words
"believes," "anticipates," "plans," "expects," "may," "will," "would,"
"intends," "estimates," and similar expressions,
11
<PAGE>
whether in the negative or affirmative. We cannot guarantee that we actually
will achieve these plans, intentions or expectations. Actual results or events
could differ materially from the plans, intentions and expectations disclosed in
the forward-looking statements we make. We have included important factors in
the cautionary statements, particularly under the heading "Business Risks,"
which we believe could cause our actual results to differ materially from the
forward-looking statements that we make. We do not assume any obligation to
update any forward-looking statement we make.
Our Sole Market Is the Highly Cyclical Semiconductor Industry, Which Causes a
Cyclical Impact on Our Financial Results.
We sell capital equipment to companies that design, manufacture, assemble, and
test semiconductor devices. The semiconductor industry is highly cyclical,
causing in turn a cyclical impact on our financial results. Any significant
downturn in the markets for our customers' semiconductor devices or in general
economic conditions would likely result in a reduction in demand for our
products and would hurt our business.
Most recently, our revenue and operating results declined in fiscal 1998 as a
result of a sudden and severe downturn in the semiconductor industry
precipitated by the recession in several Asian countries. Downturns in the
semiconductor test equipment industry have been characterized by diminished
product demand, excess production capacity and accelerated erosion of selling
prices. We believe the markets for newer generations of devices, including
system-on-a-chip ("SOC"), will also experience similar characteristics. In the
past, we have experienced delays in commitments, delays in collecting accounts
receivable and significant declines in demand for our products during these
downturns, and we cannot be certain that we will be able to maintain or exceed
our current level of sales. Additionally, as a capital equipment provider, our
revenue is driven by the capital expenditure budgets and spending patterns of
our customers who often delay or accelerate purchases in reaction to variations
in their businesses. Because a high proportion of our costs are fixed, we are
limited in our ability to reduce expenses quickly in response to revenue
shortfalls. In a contraction, we may not be able to reduce our significant fixed
costs, such as continued investment in research and development and capital
equipment requirements.
Our Sales and Operating Results Have Fluctuated Significantly From Period to
Period, Including From One Quarter to Another, and They May Continue to Do So.
Our quarterly and annual operating results are affected by a wide variety of
factors that could adversely affect sales or profitability or lead to
significant variability in our operating results or our stock price. This may be
caused by a combination of factors, including the following:
. sales of a limited number of test systems account for a substantial
portion of our net sales in any particular fiscal quarter, and a small
number of transactions could therefore have a significant impact;
. order cancellations by customers;
. lower gross margins in any particular period due to changes in:
-- our product mix,
12
<PAGE>
-- the configurations of test systems sold, or
-- the customers to whom we sell these systems;
. the high selling prices of our test systems (which typically result in
a long selling process); and
. changes in the timing of product orders due to:
-- unexpected delays in the introduction of products by our customers,
-- shorter than expected lifecycles of our customers' semiconductor
devices, or
-- uncertain market acceptance of products developed by our customers.
We cannot predict the impact of these and other factors on our sales and
operating results in any future period. Results of operations in any period,
therefore, should not be considered indicative of the results to be expected for
any future period. Because of this difficulty in predicting future performance,
our operating results may fall below expectations of securities analysts or
investors in some future quarter or quarters. Our failure to meet these
expectations would likely adversely affect the market price of our common stock.
We May Not Be Able to Deliver Custom Hardware Options and Software Applications
to Satisfy Specific Customer Needs in a Timely Manner.
We must develop and deliver customized hardware and software to meet our
customers' specific test requirements. Our test equipment may fail to meet our
customers' technical or cost requirements and may be replaced by competitive
equipment or an alternative technology solution. Our inability to provide a test
system that meets requested performance criteria when required by a device
manufacturer would severely damage our reputation with that customer. This loss
of reputation may make it substantially more difficult for us to sell test
systems to that manufacturer for a number of years. We have, in the past,
experienced delays in introducing some of our products and enhancements.
The Market for Semiconductor Test Equipment is Highly Concentrated, and We Have
Limited Opportunities to Sell Our Products.
The semiconductor industry is highly concentrated, and a small number of
semiconductor device manufacturers and contract assemblers account for a
substantial portion of the purchases of semiconductor test equipment generally,
including our test equipment. Our customers may cancel orders with few or no
penalties. If a major customer reduces orders for any reason, our revenues,
operating results, and financial condition will be hurt. In addition, our
ability to increase our sales will depend in part upon our ability to obtain
orders from new customers. Semiconductor manufacturers select a particular
vendor's test system for testing the manufacturer's new generations of devices
and make substantial investments to develop related test program software and
interfaces. Once a manufacturer has selected one test system vendor for a
generation of devices, that manufacturer is more likely to purchase test systems
from that vendor for that generation of devices, and, possibly, subsequent
generations of devices as well.
13
<PAGE>
Our Future Rate of Growth is Highly Dependent on the Growth of the SOC Market.
In 1996, we refocused our business strategy on the development of our Fusion HF
product, which is primarily targeted towards addressing the needs of the SOC
market. If the SOC market fails to grow as we expect, our ability to sell our
Fusion HF product will be hampered.
Our Market Is Highly Competitive, and We Have Limited Resources to Compete.
The test equipment industry is highly competitive in all areas of the world.
Many other domestic and foreign companies participate in the markets for each of
our products, and the industry is highly competitive. Our principal competitors
in the market for semiconductor test equipment are Agilent Technologies
(formerly a division of Hewlett-Packard), Credence Systems, Schlumberger
Limited, and Teradyne. Most of these major competitors have substantially
greater financial resources and more extensive engineering, manufacturing,
marketing, and customer support capabilities.
We expect our competitors to enhance their current products and to introduce new
products with comparable or better price and performance. The introduction of
competing products could hurt sales of our current and future products. In
addition, new competitors, including semiconductor manufacturers themselves, may
offer new testing technologies, which may in turn reduce the value of our
product lines. Increased competition could lead to intensified price-based
competition, which would hurt our business and results of operations. Unless we
are able to invest significant financial resources in developing products and
maintaining customer support centers worldwide, we may not be able to compete.
Development of Our Products Requires Significant Lead-Time, and We May Fail to
Correctly Anticipate the Technical Needs of Our Customers.
Our customers make decisions regarding purchases of our test equipment while
their devices are still in development. Our test systems are used by our
customers to develop, test and manufacture their new devices. We therefore must
anticipate industry trends and develop products in advance of the
commercialization of our customers' devices, requiring us to make significant
capital investments to develop new test equipment for our customers well before
their devices are introduced. If our customers fail to introduce their devices
in a timely manner or the market does not accept their devices, we may not
recover our capital investment through sales in significant volume. In addition,
even if we are able to successfully develop enhancements or new generations of
our products, these enhancements or new generations of products may not generate
revenue in excess of the costs of development, and they may be quickly rendered
obsolete by changing customer preferences or the introduction of products
embodying new technologies or features by our competitors. Furthermore, if we
were to make announcements of product delays, or if our competitors were to make
announcements of new test systems, these announcements could cause our customers
to defer or forego purchases of our existing test systems, which would also hurt
our business.
Our Success Depends on Attracting and Retaining Key Personnel.
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Our success will depend on our ability to attract and retain highly qualified
managers and technical personnel. Competition for such specialized personnel is
intense, and it may become more difficult for us to hire or retain them. Our
volatile business cycles only aggravate this problem. Our layoffs in the last
industry downturn could make it more difficult for us to hire or retain
qualified personnel.
Our Dependence on Subcontractors and Sole Source Suppliers May Prevent Us from
Delivering an Acceptable Product on a Timely Basis.
We rely on subcontractors to manufacture many of the components and
subassemblies for our products, and we rely on sole source suppliers for certain
components. Our reliance on subcontractors gives us less control over the
manufacturing process and exposes us to significant risks, especially inadequate
capacity, late delivery, substandard quality, and high costs.
In addition, the manufacture of certain of these components and subassemblies is
an extremely complex process. If a supplier became unable to provide parts in
the volumes needed or at an acceptable price, we would have to identify and
qualify acceptable replacements from alternative sources of supply, or
manufacture such components internally. The process of qualifying subcontractors
and suppliers is a lengthy process. We are dependent on two semiconductor device
manufacturers, Vitesse Semiconductor and Maxtech Components. Each is a sole
source supplier of components manufactured in accordance with our proprietary
design and specifications. We have no written supply agreements with these sole
source suppliers and purchase our custom components through individual purchase
orders.
Our Dependence on International Sales and Non-U.S. Suppliers Involves
Significant Risk.
International sales have constituted a significant portion of our revenues in
recent years, and we expect that this composition will continue. International
sales accounted for 80% of our revenues for the three months ended October 31,
1999 and 54% of our revenues for the quarter ended October 31, 1998. In
addition, we rely on non-U.S. suppliers for several components of the equipment
we sell. As a result, a major part of our revenues and the ability to
manufacture our products are subject to the risks associated with international
commerce. A reduction in revenues or a disruption or increase in the cost of our
manufacturing materials could hurt our operating results. These international
relationships make us particularly sensitive to changes in the countries from
which we derive sales and obtain supplies. International sales and our
relationships with suppliers may be hurt by many factors, including:
. changes in law or policy resulting in burdensome government controls,
tariffs, restrictions, embargoes or export license requirements;
. political and economic instability in our target international
markets;
. longer payment cycles common in foreign markets;
. difficulties of staffing and managing our international operations;
. less favorable foreign intellectual property laws making it harder to
protect our technology from appropriation by competitors; and
15
<PAGE>
. difficulties collecting our accounts receivable because of the
distance and different legal rules.
In the past, we have incurred expenses to meet new regulatory requirements in
Europe, experienced periodic difficulties in obtaining timely payment from non-
U.S. customers, and been affected by the recession in several Asian countries.
Our foreign sales are typically invoiced and collected in U.S. dollars. A
strengthening in the dollar relative to the currencies of those countries where
we do business would increase the prices of our products as stated in those
currencies and could hurt our sales in those countries. Significant fluctuations
in the exchange rates between the U.S. dollar and foreign currencies could cause
us to lower our prices and thus reduce our profitability. These fluctuations
could also cause prospective customers to push out or delay orders because of
the increased relative cost of our products. In the past, there have been
significant fluctuations in the exchange rates between the dollar and the
currencies of countries in which we do business.
Economic Conditions in Asia May Hurt Our Sales.
Asia is an important region for our customers in the semiconductor industry, and
many of them have operations there. In recent years, Asian economies have been
highly volatile and recessionary, resulting in significant fluctuations in local
currencies and other instabilities. These instabilities may continue or worsen,
which could have a material adverse impact on our financial position and results
of operations, as approximately 45% of our sales in fiscal 1999 were derived
from this region. These conditions may continue or worsen. In light of the
recent economic downturn in Asia, we may not be able to obtain additional orders
and may experience cancellations of orders. If conditions do not continue to
improve, our future financial condition, revenues, and operating results could
be hurt.
We May Not Be Able to Protect Our Intellectual Property Rights.
Our success depends in part on our ability to obtain intellectual property
rights and licenses and to preserve other intellectual property rights covering
our products and development and testing tools. To that end, we have obtained
certain domestic patents and may continue to seek patents on our inventions when
appropriate. We have also obtained certain trademark registrations. To date, we
have not sought patent protection in any countries other than the United States,
which may impair our ability to protect our intellectual property in foreign
jurisdictions. The process of seeking intellectual property protection can be
time consuming and expensive. We cannot ensure that:
. patents will issue from currently pending or future applications;
. our existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage
to us;
. foreign intellectual property laws will protect our intellectual
property rights; or
. others will not independently develop similar products, duplicate our
products or design around our technology.
16
<PAGE>
If we do not successfully enforce our intellectual property rights, our
competitive position could suffer, which could harm our operating results.
We also rely on trade secrets, proprietary know-how and confidentiality
provisions in agreements with employees and consultants to protect our
intellectual property. Other parties may not comply with the terms of their
agreements with us, and we may not be able to adequately enforce our rights
against these people.
Third Parties May Claim We Are Infringing Their Intellectual Property, and We
Could Suffer Significant Litigation Costs, Licensing Expenses or Be Prevented
from Selling Our Products.
Intellectual property rights are uncertain and involve complex legal and factual
questions. We may be unknowingly infringing on the intellectual property rights
of others and may be liable for that infringement, which could result in
significant liability for us. If we do infringe the intellectual property rights
of others, we could be forced to either seek a license to intellectual property
rights of others or alter our products so that they no longer infringe the
intellectual property rights of others. A license could be very expensive to
obtain or may not be available at all. Similarly, changing our products or
processes to avoid infringing the rights of others may be costly or impractical.
We are responsible for any patent litigation costs. If we were to become
involved in a dispute regarding intellectual property, whether ours or that of
another company, we may have to participate in legal proceedings. These types of
proceedings may be costly and time consuming for us, even if we eventually
prevail. If we do not prevail, we might be forced to pay significant damages,
obtain licenses, modify our products or processes, stop making products or stop
using processes.
Our Stock Price Is Volatile.
In the past twelve months, our stock price has ranged from a low of $2.06 to a
high of $16.18. The price of our common stock has been and likely will continue
to be subject to wide fluctuations in response to a number of events and
factors, such as:
. quarterly variations in operating results;
. variances of our quarterly results of operations from securities
analyst estimates;
. changes in financial estimates and recommendations by securities
analysts;
. announcements of technological innovations, new products, or strategic
alliances; and
. news reports relating to trends in our markets.
In addition, the stock market in general, and the market prices for
semiconductor-related companies in particular, have experienced significant
price and volume fluctuations that often have been unrelated to the operating
performance of the companies affected by these fluctuations. These broad market
fluctuations may adversely affect the market price of our common stock,
regardless of our operating performance.
17
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Year 2000 Problems May Hurt Our Business.
We have established a program to address Year 2000 software failure issues,
which is overseen by a senior manager who updates our officers and directors
regularly. We are currently assessing the Year 2000 compliance of the products
we manufacture, our internal business systems, and the products and internal
business systems of our suppliers. We expect to incur costs of approximately
$400,000 to make our products Year 2000 compliant, most of which is represented
by current engineering staff who have been assigned to the project, and
approximately $300,000 in ensuring compliance of our internal business systems
and those of our suppliers, most of which is represented by current
administrative personnel assigned to the project. Costs related to Year 2000
compliance have been immaterial as of October 31, 1999.
Three product-based teams, employing our engineering product development
process, are in the process of identifying and contacting affected customers to
advise them of non-compliant products. We cannot assure you that our products do
not contain undetected Year 2000 problems. Another team is assessing the Year
2000 compliance of our internal business systems, including facilities, and the
products and internal business systems of our suppliers. This team has
identified all mission-critical systems and third parties and has formulated
remediation plans. We are also developing comprehensive contingency plans if our
remediation plans do not work, which were essentially completed by October 31,
1999. These contingency plans primarily involve identifying alternative vendors
and suppliers. They may not adequately address our potential Year 2000 problems,
and alternative sources may not in fact be available. Although responses to a
survey of our critical suppliers, vendors and facilities owners indicate that
many of them are Year 2000 compliant, we have not received sufficient
information from all parties about their Year 2000 readiness to assess the
effectiveness of their efforts. We cannot be sure that these entities will
adequately address Year 2000 issues.
If we fail to detect errors or defects in our systems or those of our suppliers,
or if third parties with whom we interact experience Year 2000 problems,
reasonable descriptions of most likely worst case scenarios include the
following:
. power, communication and other utility outages at our facilities, in
particular, our Westwood, Massachusetts facility; and
. product component shortages as a result of Year 2000 problems at our
critical suppliers and vendors.
If any of these were to occur, our business and operations would be hurt.
Quantitative and Qualitative Disclosures About Market Risk
Financial instruments that potentially subject us to concentrations of credit-
risk consist principally of investments in cash equivalents, short-term
investments and trade receivables. We place our investments with high-quality
financial institutions, limit the amount of credit exposure to any one
institution and have established investment guidelines relative to
diversification and maturities designed to maintain safety and liquidity.
Our primary exposures to market risks include fluctuations in interest rates on
our short-term and long-term debt of approximately $33.4 million as of October
31, 1999 and $27.5 million as of
18
<PAGE>
July 31, 1999, and in foreign currency exchange rates. We do not use derivative
financial instruments. We are subject to interest rate risk on our short-term
borrowings under our credit facilities. Our short-term bank debt bears interest
at a variable rate of prime plus 0.5%. Long term debt interest rates are fixed
for the term of the notes.
Foreign Exchange Risk
Operating in international markets involves exposure to movements in currency
exchange rates. Currency exchange rate movements typically also reflect economic
growth, inflation, interest rates, government actions and other factors. We
transact business in various foreign currencies and, accordingly, we are subject
to exposure from adverse movements in foreign currency exchange rates. As
currency exchange rates fluctuate, translation of the statements of operations
of our international businesses into U.S. dollars may affect year-over-year
comparability and could cause us to adjust our financing and operating
strategies. To date, the effect of changes in foreign currency exchange rates on
revenues and operating expenses have not been material. Substantially all of our
revenues are invoiced and collected in U.S. dollars. Our trade receivables
result primarily from sales to semiconductor manufacturers located in North
America, Japan, the Pacific Rim and Europe. In the three months ended October
31, 1999, our revenues derived from shipments outside the United States
constituted 80.0% of our total revenues. Revenues invoiced and collected in
currencies other than U.S. dollars comprises 3% of our last quarter fiscal
revenues. Receivables are from major corporations or are supported by letters of
credit. We maintain reserves for potential credit losses and such losses have
been immaterial.
Based on a hypothetical ten percent adverse movement in interest rates and
foreign currency exchange rates, the potential losses in future earnings, fair
value of risk-sensitive financial instruments, and cash flows are immaterial,
although the actual effects may differ materially from the hypothetical
analysis.
We do not use derivative financial instruments for speculative trading purposes,
nor do we currently hedge our foreign currency exposure to offset the effects of
changes in foreign exchange rates. We intend to assess the need to utilize
financial instruments to hedge currency exposures on an ongoing basis.
Interest Rate Risk
Historically, we have had no material interest rate risk associated with debt
used to finance our operations due to limited borrowings. Subsequent to this
offering, we intend to manage our interest rate exposure using a mix of fixed
and floating interest rate debt and, if appropriate financial derivative
instruments.
On October 31, 1999, $11.3 million was outstanding under our domestic bank
facility bearing interest at a rate of 8.5%. Based on this balance, an immediate
change of 1% in the interest rate would cause a change in interest expense of
approximately $63,000 on an annual basis. Our objective in maintaining these
variable rate borrowings is the flexibility obtained regarding early repayment
without penalties and lower overall cost as compared with fixed-rate borrowings.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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A discussion of the Company's exposure to and management of market risk appears
under the heading "Business Risks".
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) (i) Exhibit 10(U) - Loan and Security Agreement and Export-Import
Loan and Security, both dated as of October 1, 1999 between LTX
Corporation and Silicon Valley Bank
(ii) Exhibit 10(CC) - 1999 Stock Plan
(iii) Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months ended
October 31, 1998.
20
<PAGE>
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: December 15, 1999 By: /s/ Roger W. Blethen
------------------- ---------------------
Roger W. Blethen
Chief Executive Officer and President
Date: December 15, 1999 By: /s/ David G. Tacelli
------------------- ---------------------
David G. Tacelli
Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
21
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT (this "Agreement") dated __________, 1999,
between SILICON VALLEY BANK , a California-chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, Massachusetts 02481, doing business under the name
"Silicon Valley East" ("Bank") and LTX CORPORATION, a Massachusetts corporation
with its chief executive office located at LTX Park at University Avenue,
Westwood, Massachusetts 02090 ("Borrower"), provides the terms on which Bank
shall lend to Borrower and Borrower shall repay Bank. The parties agree as
follows:
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP, consistently
applied. The term "financial statements" includes the notes and schedules. The
terms "including" and "includes" always mean "including (or includes) without
limitation" in this or any Loan Document. Capitalized terms in this Agreement
shall have the meanings set forth in Section 13. This Agreement shall be
construed to impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions. Borrower shall pay Bank the unpaid principal
------------------
amount of all Credit Extensions and interest on the unpaid principal amount of
the Credit Extensions as and when due in accordance with this Agreement.
2.1.1 Revolving Advances.
------------------
(a) Bank shall make Advances not exceeding (i) the Committed
Revolving Line or the Borrowing Base, whichever is less, minus (ii) the amount
of all outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit), minus (iii) the FX Reserve, and minus (iv) the amount of outstanding
advances in excess of $5,000,000.00 made under the A/R Purchase Agreement, but
only to the extent not sufficiently reserved therefore under the EXIM Agreement
as determined by the Borrowing Base Certificate to be delivered to the Bank.
Amounts borrowed under this Section may be repaid and reborrowed during the term
of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Eastern time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank shall credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee (as designated in
writing by a Responsible Officer) or without instructions if the Advances are
necessary to meet Obligations which have become due. Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer
or designee. Borrower shall indemnify Bank for any loss Bank suffers due to the
foregoing reliance.
(c) The Committed Revolving Line terminates on the Revolving
Maturity Date, when all Advances are immediately payable.
2.1.2 Letters of Credit. Bank shall issue or have issued Letters of
-----------------
Credit for Borrower's account not exceeding (i) the lesser of the Committed
Revolving Line or the Borrowing Base minus (ii) the outstanding principal
balance of the Advances, but the face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed Ten Million Dollars ($10,000,000.00). Each Letter of
Credit shall expire no later than 180 days after the Revolving Maturity Date
provided Borrower's Letter of Credit reimbursement obligation is secured by cash
on terms acceptable to Bank at any time after the Revolving Maturity Date if the
term of this Agreement is not extended by Bank.
-1-
<PAGE>
2.1.3 Foreign Exchange Sublimit. If there is availability under the
-------------------------
Committed Revolving Line and the Borrowing Base, then Borrower may enter in
foreign exchange forward contracts with the Bank under which Borrower commits to
purchase from or sell to Bank a set amount of foreign currency more than one
business day after the contract date (the "FX Forward Contract"). Bank shall
subtract 10% of each outstanding FX Forward Contract (the "FX Reserve") from the
foreign exchange sublimit which is a maximum of Five Million Dollars
($5,000,000.00). The total FX Forward Contracts at any one time may not exceed
10 times the amount of the FX Reserve. Bank may terminate the FX Forward
Contracts if an Event of Default occurs.
2.2 Overadvances. If Borrower's Obligations under Section 2.1.1, 2.1.2
------------
and 2.1.3 exceed the lesser of either (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower must immediately pay in cash to Bank the excess.
In addition, if at any time or for any reason, the aggregate amount of
obligations owed by the borrower to the Bank under this Agreement, the EXIM
Agreement, and the A/R Purchase Agreement exceed Twenty Million Dollars
($20,000,000.00), Borrower shall immediately pay to Bank, in cash, the amount of
such excess.
2.3 Interest Rate; Payments.
-----------------------
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate one half of one percentage point (0.50%)
above the Prime Rate. After an Event of Default, Obligations accrue interest at
three (3%) percent above the rate effective immediately before the Event of
Default. The interest rate increases or decreases when the Prime Rate changes.
Interest is computed on a 360 day year for the actual number of days elapsed.
(b) Payments. Interest is payable on the first (1/st/) day of each
month. Bank may debit any of Borrower's deposit accounts including Account
Number __________ for principal and interest payments or any amounts Borrower
owes Bank. Bank shall notify Borrower in writing when it debits Borrower's
accounts. These debits are not a set-off. Payments received after 12:00 noon
Eastern time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.
2.4 Fees. Borrower shall pay to Bank: All Bank Expenses (including
----
reasonable attorneys' fees and expenses) incurred through and after the Closing
Date when due.
3 CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
------------------------------------------------
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Clerk of Borrower with respect to articles,
bylaws, incumbency and resolutions authorizing the execution and delivery
of this Agreement;
(c) an intellectual property security agreement covering intellectual
property;
(d) an opinion of Borrower's counsel;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof;
-2-
<PAGE>
(h) Certificate of Foreign Qualification (if applicable); and
(i) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. Bank's obligations to
---------------------------------------------
make each Credit Extension, including the initial Credit Extension, is subject
to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be
materially true on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is
Borrower's representation and warranty on that date that the representations and
warranties in Section 5 remain true.
4 CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants Bank a continuing
--------------------------
security interest in all presently existing and later acquired Collateral to
secure all Obligations (which shall include, without limitation, all obligations
of the Borrower under the EXIM Agreement) and performance of each of Borrower's
duties under the Loan Documents and EXIM Agreement. Any security interest shall
be a first priority security interest in the Collateral. Bank may place a "hold"
on any deposit account pledged as Collateral. If the Agreement is terminated,
Bank's lien and security interest in the Collateral shall continue until
Borrower fully satisfies its Obligations. Notwithstanding the foregoing, it is
expressly acknowledged and agreed that the security interest created in this
Agreement only with respect to EXIM Eligible Foreign Accounts and Exim Eligible
Inventory (as each such term is defined in the EXIM Agreement) is subject to and
subordinate to the security interest granted to the Bank in the EXIM Agreement
with respect to such Eligible Foreign Accounts and Exim Eligible Inventory, but
only to the extent any Advances are actually made to the Borrower based upon
such Eligible Foreign Accounts and Exim Eligible Inventory.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization. Borrower and each Subsidiary is
----------------------------------
duly existing and in good standing in its state of formation and qualified and
licensed to do business in, and in good standing in, any state in which the
conduct of its business or its ownership of property requires that it be
qualified, except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or
by which it is bound in which the default could reasonably be expected to cause
a Material Adverse Change.
5.2 Collateral. Borrower has good title to the Collateral, free of Liens
----------
except Permitted Liens. The Eligible Accounts are bona fide, existing
obligations, and the service or property has been performed or delivered to the
account debtor or its agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrower has no notice of any actual or
imminent Insolvency Proceeding of any account debtor whose accounts are an
Eligible Account in any Borrowing Base Certificate. All Inventory is in all
material respects of good and marketable quality, free from material defects.
5.3 Litigation. Except as shown in the Schedule, there are no actions or
----------
proceedings pending or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary in which an adverse decision could reasonably be
expected to cause a Material Adverse Change.
-3-
<PAGE>
5.4 No Material Adverse Change in Financial Statements. All consolidated
--------------------------------------------------
financial statements for Borrower and any Subsidiary delivered to Bank fairly
present in all material respects Borrower's consolidated financial condition and
Borrower's consolidated results of operations. There has not been any material
deterioration in Borrower's consolidated financial condition since the date of
the most recent financial statements submitted to Bank.
5.5 Solvency. Borrower is able to pay its debts (including trade debts)
--------
as they mature.
5.6 Regulatory Compliance. Borrower is not an "investment company" or a
---------------------
company "controlled" by an "investment company" under the Investment Company
Act. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has complied in all material respects with the Federal
Fair Labor Standards Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could reasonably be expected to cause a Material
Adverse Change. None of Borrower's or any Subsidiary's properties or assets has
been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge,
by previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to make
such declarations, notices or filings would not reasonably be expected to
result in a Material Adverse Change.
5.7 Subsidiaries. Except as disclosed in the Schedule, Borrower does
------------
not own any stock, partnership interest or other equity securities except for
Permitted Investments.
5.8 Full Disclosure. No representation, warranty or other statement of
---------------
Borrower in any certificate or written statement given to Bank contains any
untrue statement of a material fact or omits to state a material fact necessary
to make the statements contained in the certificates or statements not
misleading.
6 AFFIRMATIVE COVENANTS
---------------------
Borrower shall do all of the following:
6.1 Government Compliance. Borrower shall maintain its and all
---------------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a material adverse effect on Borrower's
business or operations. Borrower shall comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
-------------------------------------------
(a) Borrower shall deliver to Bank: (i) as soon as available, but no
later than forty five (45) days after the last day of each quarter, a company
prepared consolidated balance sheet and income statement covering Borrower's
consolidated operations during the period, in a form acceptable to Bank and
certified by a Responsible Officer; (ii) as soon as available, but no later than
ninety (90) days after the end of Borrower's fiscal year, audited consolidated
financial statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) within five (5) days of filing,
copies of all statements, reports and notices made available to Borrower's
security holders or to any holders of Subordinated Debt and all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission ("SEC");
(iv) a prompt report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of Five Hundred Thousand Dollars ($500,000.00) or more; and (v)
budgets, sales projections, operating plans or other financial information Bank
requests.
(b) Within twenty (20) days after the last day of each month,
Borrower shall deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts
-4-
<PAGE>
receivable.
(c) Within forty five (45) days after the last day of each quarter,
Borrower shall deliver to Bank with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in the form of Exhibit D.
(d) Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits shall be conducted no more often than once every twelve
(12) months unless an Event of Default has occurred and is continuing.
6.3 Inventory; Returns. Borrower shall keep all Inventory in good and
------------------
marketable condition, free from material defects. Returns and allowances
between Borrower and its account debtors shall follow Borrower's customary
practices as they exist at the Closing Date. Borrower must promptly notify Bank
of all returns, recoveries, disputes and claims that involve more than One
Hundred Thousand Dollars ($100,000.00).
6.4 Taxes. Borrower shall make, and cause each Subsidiary to make,
-----
timely payment of all material federal, state, and local taxes or assessments
owing, except those being contested in good faith with adequate reserves under
GAAP, by Borrower and shall deliver to Bank, on demand, appropriate certificates
attesting to such payments.
6.5 Insurance. Borrower shall keep its business and the Collateral
---------
insured for risks and in amounts, as Bank requests. Insurance policies shall be
in a form, with companies, and in amounts that are reasonably satisfactory to
Bank. All property policies shall have a lender's loss payable endorsement
showing Bank as an additional loss payee and all liability policies shall show
the Bank as an additional insured and all policies shall provide that the
insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank's option, be payable to Bank on account of the Obligations.
6.6 Primary Accounts. Borrower shall maintain its primary depository and
----------------
operating accounts with Bank.
6.7 Financial Covenants. Borrower shall maintain as of the last day of
each quarter, unless otherwise noted:
6.7.1 Quick Ratio. A ratio of Quick Assets to Current Liabilities of at
least (i) 0.70 to 1.0 for the quarter ending July 31, 1999, (ii) 0.725 to 1.0
for the quarter ending October 31, 1999, (iii) 0.75 to 1.0 for the quarter
ending January 31, 2000, (iv) 0.775 to 1.0 for the quarter ending, April 30,
2000, and (v) 0.80 to 1.0 for the quarter ending July 31, 2000 and for each
quarter thereafter.
6.7.2 Tangible Net Worth. A Tangible Net Worth of at least (i) Fifty Nine
Million Dollars ($59,000,000.00) plus (ii) seventy five percent (75%) of the sum
----
of (A) the Borrower's net income earned, as determined in accordance with GAAP,
consistently applied, for each quarter commencing with the quarter ended July
31, 1999, and (B) all net proceeds received by the Borrower after the Closing
Date as the result of any (1) issuance of equity by the Borrower or (2)
additional Subordinated Debt incurred by the Borrower.
6.7.3 Profitability. Borrower shall have a minimum net profit of (i) Two
Million Five Hundred Thousand Dollars ($2,500,000.00) for the fiscal quarter
ending July 31, 1999, and (ii) $1.00 for each fiscal quarter of year 2000 and
thereafter. Notwithstanding the foregoing, provided the Borrower maintains a
--------
cumulative profitability for all of year 2000, the Borrower may have (i) a
quarterly loss during any quarter not to exceed Five Million Dollars
($5,000,000.00), and (ii) a second quarterly loss in year 2000 in an amount not
to exceed Two Million Five Hundred Thousand Dollars ($2,500,000.00), provided
however that in the event of a loss as set forth in the preceding clause (ii),
no further Credit Extensions shall be made hereunder, and, provided no other
--------
Events of Default have occurred or exist, the terms and conditions of this
Agreement shall thereafter be automatically subject to the Bank's CFD department
and the Borrower shall execute such documents, instruments, and agreements as
the Bank may require to convert this loan arrangement to the CFD Department upon
terms substantially similar to those set forth in documents previously
-5-
<PAGE>
executed by the Borrower in connection with the establishment of its loan
arrangement dated October 26, 1998.
6.8 Further Assurances. Borrower shall execute any further instruments
------------------
and take further action as Bank requests to perfect or continue Bank's security
interest in the Collateral or to effect the purposes of this Agreement.
7 NEGATIVE COVENANTS
------------------
Borrower shall not do any of the following without the Bank's written
consent, which shall not be unreasonably withheld:
7.1 Dispositions. Except as set forth in the Schedule, convey, sell,
------------
lease, transfer or otherwise dispose of (collectively a "Transfer"), or permit
any of its Subsidiaries to Transfer, all or any part of its business or
property, other than a Transfer (i) of Inventory in the ordinary course of
business; (ii) of non-exclusive licenses and similar arrangements for the use of
the property of Borrower or its Subsidiaries in the ordinary course of business;
or (iii) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, Management or Business Locations.
----------------------------------------------------------------
Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto,
or have a material change in its ownership of greater than 35% or senior
management. Borrower shall not, without at least 30 days prior written notice
to Bank, relocate its principal executive office or, absent thirty (30) days
prior written notice to the Bank, add any new offices or business locations.
Notwithstanding anything set forth in this Section 7.2 or the Agreement, the
Bank acknowledges and consents to the Borrower's intended public offering of
4,700,000 shares of its stock (not including underwriting overallotments)
evidenced by the filing by the Borrower with the SEC on September 9, 1999 of the
Registration Statement on Form S-3.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
-----------------------
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. Notwithstanding the foregoing,
the Borrower's Subsidiaries may merge or consolidate with other Subsidiaries of
the Borrower, provided that a Subsidiary of Borrower is the surviving legal
entity.
7.4 Indebtedness. Create, incur, assume, or be liable for any
------------
Indebtedness, or permit any Subsidiary to do so, other than Permitted
Indebtedness.
7.5 Encumbrance. Create, incur, or allow any Lien on any of its property,
-----------
or assign or convey any right to receive income (except to the Bank), including
the sale of any Accounts, or permit any of its Subsidiaries to do so, except for
Permitted Liens, or permit any Collateral not to be subject to Bank's first
priority security interest in the Collateral granted herein, subject only to
Permitted Liens.
7.6 Investments; Distributions. (i) Directly or indirectly acquire or own
--------------------------
any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or (iii) redeem, retire or
purchase any capital stock, except for repurchases of stock from former
employees or directors of Borrower under the terms of applicable repurchase
agreements in an aggregate amount not to exceed $50,000.00 in the aggregate in
any fiscal year, provided that no Event of Default has occurred, is continuing
or would exist after giving effect to the repurchases.
7.7 Transactions with Affiliates. Directly or indirectly enter or permit
----------------------------
any material transaction with any Affiliate, except transactions that are in the
ordinary course of Borrower's business, on terms less favorable to Borrower than
would be obtained in an arm's length transaction with a non-affiliated Person.
7.8 Subordinated Debt. Make or permit any payment on any Subordinated
-----------------
Debt, except under the terms of the Subordinated Debt, or amend any provision in
any document relating to the Subordinated Debt, without Bank's prior written
consent.
-6-
<PAGE>
7.9 Compliance. Undertake as one of its important activities extending
----------
credit to purchase or carry margin stock, or use the proceeds of any Advance for
that purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could have a material adverse effect on Borrower's
business or operations or cause a Material Adverse Change, or permit any of its
Subsidiaries to do so.
8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 Payment Default. Borrower fails to pay any of the Obligations within
---------------
three (3) days after their due date. During the additional period the failure to
cure the default is not an Event of Default (but no Credit Extensions shall be
made during the cure period);
8.2 Covenant Default; Cross Default. Borrower does not perform any
-------------------------------
obligation in Section 6 or violates any covenant in Article 7 or does not
perform or observe any other material term, condition or covenant in this
Agreement, any Loan Documents, the EXIM Agreement, or in any agreement between
Borrower and Bank and as to any default under a term, condition or covenant that
can be cured, has not cured the default within ten (10) days after it occurs, or
if the default cannot be cured within ten (10) days or cannot be cured after
Borrower's attempts in the ten (10) day period, and the default may be cured
within a reasonable time, then Borrower shall have additional time, (of not more
than thirty (30) days) to attempt to cure the default. During the additional
period the failure to cure the default is not an Event of Default (but no Credit
Extensions shall be made during the cure period);
8.3 Material Adverse Change. (i) A material impairment in the perfection
-----------------------
or priority of Bank's security interest in the Collateral or in the value of
such Collateral other than normal depreciation which is not covered by adequate
insurance occurs; or (ii) Bank determines, based upon information available to
it and in its reasonable judgment, that there is a reasonable likelihood that
Borrower shall fail to comply with one or more of the financial covenants in
Section 6 during the next succeeding financial reporting period;
8.4 Attachment. (i) Any material portion of Borrower's assets is
----------
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in thirty (30) days; (ii)
Borrower is enjoined, restrained, or prevented by court order from conducting a
material part of its business; (iii) a judgment or other claim becomes a Lien on
a material portion of Borrower's assets; or (iv) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within ten (10) days after Borrower receives notice. These are not
Events of Default if stayed or if a bond is posted pending contest by Borrower
(but no Credit Extensions shall be made during the cure period);
8.5 Insolvency. (i) Borrower becomes insolvent; (ii) Borrower begins an
----------
Insolvency Proceeding; or (iii) an Insolvency Proceeding is begun against
Borrower and not dismissed or stayed within forty five (45) days (but no Credit
Extensions shall be made before any Insolvency Proceeding is dismissed);
8.6 Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of Five Hundred Thousand Dollars
($500,000.00) or that could have a Material Adverse Effect;
8.7 Judgments. If a final judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Two Hundred Fifty
Thousand Dollars ($250,000.00) shall be rendered against Borrower and shall
remain unsatisfied and unstayed for a period of thirty (30) days (provided that
no Credit Extensions will be made prior to the satisfaction or stay of such
judgment);
8.8 Misrepresentations. If Borrower or any Person acting for Borrower
------------------
makes any material misrepresentation or material misstatement now or later in
any warranty or representation in this Agreement or in any communication
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document.
-7-
<PAGE>
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. When an Event of Default occurs and continues
-------------------
Bank may, without notice or demand, do any or all of the following:
(a) Declare all Obligations (including, without limitation, all
obligations under the EXIM Agreement) immediately due and payable (but if
an Event of Default described in Section 8.5 occurs all Obligations are
immediately due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower
shall assemble the Collateral if Bank requests and make it available as
Bank designates. Bank may enter premises where the Collateral is located,
take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or
superior to its security interest and pay all expenses incurred. Borrower
grants Bank a license to enter and occupy any of its premises, without
charge, to exercise any of Bank's rights or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its
-----------------
lawful attorney-in-fact, to be effective only upon the occurrence and during the
continuance of an Event of Default, to: (i) endorse Borrower's name on any
checks or other forms of payment or security in respect of any of the
Collateral; (ii) sign Borrower's name on any invoice or bill of lading for any
Accounts or drafts against account debtors, (iii) make, settle, and adjust all
claims under Borrower's insurance policies; (iv) settle and adjust disputes and
claims about the Accounts directly with account debtors, for amounts and on
terms Bank determines reasonable, and (v) transfer the Collateral into the name
of Bank or a third party as the Code permits. Borrower hereby appoints Bank its
power of attorney to sign Borrower's name on any documents necessary to perfect
or continue the perfection of any security interest regardless of whether an
Event of Default has occurred until all Obligations have been satisfied in full
and Bank is under no further obligation to make Credit Extensions hereunder.
Bank's foregoing appointment as Borrower's attorney in fact, and all of Bank's
rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank's obligation to
provide Credit Extensions terminates.
9.3 Accounts Collection. When an Event of Default occurs and continues,
-------------------
Bank may notify any Person owing Borrower money of Bank's security interest in
the funds and verify the amount of the Account. Borrower must collect all
payments in trust for Bank and, if requested by Bank, immediately deliver the
payments to Bank in the form received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to obtain insurance as required
-------------
under Section 6.5 or to pay any amount or furnish any required proof of payment
to third persons and the Bank, Bank may make all or part of the payment or
obtain such insurance policies required in Section 6.5, and take any action
under the policies Bank deems prudent. Any amounts paid by Bank as provided
herein are Bank Expenses and are immediately due and payable, bearing interest
at the then applicable rate and secured by the Collateral. No payments by Bank
are deemed an
-8-
<PAGE>
agreement to make similar payments in the future or Bank's waiver of any Event
of Default.
9.5 Bank's Liability for Collateral. So long as the Bank complies with
-------------------------------
reasonable banking practices regarding the safekeeping of collateral, the Bank
shall not be liable or responsible for: (a) the safekeeping of the Collateral;
(b) any loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
-------------------
the Loan Documents, and all other agreements are cumulative. Bank has all
rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver is effective unless signed by Bank and then
is only effective for the specific instance and purpose for which it was given.
9.7 Demand Waiver. Borrower waives demand, notice of default or dishonor,
-------------
notice of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guaranties held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party to this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile at the addresses listed at the beginning of this Agreement.
Either Bank or Borrower may change its notice address by giving the other
written notice.
If to Borrower: LTX Corporation
LTX Corporation at University Avenue
Westwood, Massachusetts 02090
Attn: Chief Financial Officer
FAX: (781) 329-8836
with a copy to: LTX Corporation
LTX Corporation at University Avenue
Westwood, Massachusetts 02090
Attn: General Counsel
FAX: (781) 329-8836
If to Bank: Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02481
Attn: Mr. Dale C. Edmunds, Senior Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein LLP
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 723-6831
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
-------------------------------------------
Massachusetts law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Suffolk County, Massachusetts.
-9-
<PAGE>
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement binds and is for the benefit
----------------------
of the successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.
12.2 Indemnification. Borrower hereby indemnifies, defends and holds the
---------------
Bank and its officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including reasonable
attorneys' fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of all
---------------
Obligations in this Agreement.
12.4 Severability of Provision. Each provision of this Agreement is
-------------------------
severable from every other provision in determining the enforceability of any
provision.
12.5 Amendments in Writing, Integration. All amendments to this Agreement
----------------------------------
must be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersedes prior or contemporaneous negotiations or agreements. All prior or
contemporaneous agreements, understandings, representations, warranties, and
negotiations between the parties about the subject matter of this Agreement and
the Loan Documents merge into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, are one
Agreement.
12.7 Survival. All covenants, representations and warranties made in this
--------
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank shall survive until
all statutes of limitations for actions that may be brought against Bank have
run.
12.8 Confidentiality. In handling any confidential information, Bank
---------------
shall exercise the same degree of care that it exercises for its own proprietary
information (but no less than reasonable care), but disclosure of information
may be made: (i) to Bank's subsidiaries or affiliates in connection with their
present or prospective business relations with Borrower; (ii) to prospective
transferees or purchasers of any interest in the Loans; (iii) as required by
law, regulation, subpoena, or other order, (iv) as required in connection with
Bank's examination or audit; and (v) as Bank considers appropriate in exercising
remedies under this Agreement. Confidential information does not include
information that either: (a) is in the public domain or in Bank's possession
when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that
the third party is prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses. In any action or proceeding
-----------------------------------
between Borrower and Bank arising out of the Loan Documents, the prevailing
party shall be entitled to recover its reasonable attorneys' fees and other
costs and expenses incurred, in addition to any other relief to which it may be
entitled, whether or not a lawsuit is filed.
-10-
<PAGE>
13 DEFINITIONS
-----------
13.1 Definitions.
-----------
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" is a loan advance (or advances) under the Committed
Revolving Line.
"A/R Purchase Agreement" means that certain Non-Recourse Receivables
Purchase Agreement by and between the Bank and the Borrower dated April 28,
1999, as amended to date, whereby the Bank has agreed to make advances not to
exceed $8,000,000.00 for factoring of certain of Borrower's accounts receivable.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Ando Subordinated Debt" means all obligations of the Borrower to Ando
Electric Co., Ltd. as subordinated pursuant to a Subordination Agreement dated
January 21, 1999.
"Bank Expenses" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"Borrowing Base" is (i) eighty percent (80%) of Eligible Accounts plus (ii)
ninety percent (90%) of Eligible Foreign Accounts., as determined by Bank from
Borrower's most recent Borrowing Base Certificate.
"Business Day" is any day that is not a Saturday, Sunday or a day on which
the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the Massachusetts Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
---------
"Committed Revolving Line" is a Credit Extension of up to Ten Million
Dollars ($10,000,000.00).
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
-11-
<PAGE>
"Credit Extension" is each Advance, Letter of Credit, Exchange Contract or
any other extension of credit by Bank for Borrower's benefit.
"Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year, including, without limitation, all
Obligations owed to the Bank.
"Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower thirty (30) days
- ---
prior written notice. Unless Bank agrees otherwise in writing, Eligible
Accounts shall not include:
(a) Accounts that the account debtor has not paid within ninety (90)
days of invoice date;
(b) Accounts for an account debtor, fifty percent (50%) or more of
whose Accounts have not been paid within 90 days of invoice date;
(c) Credit balances over ninety (90) days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed twenty five (25%) of all Accounts, for the
amounts that exceed that percentage, unless Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality except for
Accounts of the United States if the payee has assigned its payment rights
to Bank and the assignment has been acknowledged under the Assignment of
Claims Act of 1940 (31 U.S.C. 3727);
(g) Accounts for which Borrower owes the account debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if account debtor's payment may be
conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"Eligible Foreign Accounts" are Eligible Accounts for which the account
debtor does not have its principal place of business in the United States but
are supported by letter(s) of credit acceptable to Bank.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations.
"EXIM Agreement" is that certain Export-Import Loan and Security Agreement
of even date by and between the Borrower and the Bank and all documents,
instruments and agreements executed in conjunction therewith.
-12-
<PAGE>
"FX Forward Contract" is defined in Section 2.1.3.
"FX Reserve" is defined in Section 2.1.3.
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Insolvency Proceeding" is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes
executed by Borrower, and any other present or future agreement between Borrower
and/or for the benefit of Bank in connection with this Agreement, all as
amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including, without limitation, all
Obligations under the EXIM Agreement), all letters of credit and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or the
Loan Documents;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course
of business; and
(e) Indebtedness secured by Permitted Liens (including, without
limitation, indebtedness arising out of capital lease transaction incurred
in the ordinary course of Borrower's business); and
(f) Extensions, refinancings, modifications, amendments and
restatements of any items of Permitted Indebtedness (a) through (e) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiary, as the case may be.
-13-
<PAGE>
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing
Date; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within
1 year from its acquisition, (ii) commercial paper maturing no more than 1
year after its creation and having the highest rating from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., (iii) Bank's
certificates of deposit issued maturing no more than 1 year after issue
(iv) money market accounts, or (v) certificates of deposit, eurodollar time
deposits, commercial paper or any other obligations of (A) the Bank, or (B)
any other bank or trust company organized or licensed to conduct a banking
business under the laws of the United States or any State thereof which has
(or which is a subsidiary of a bank holding company which has) publicly
traded debt securities rated A or higher by Standard & Poors Corporation or
A-2 or higher by Moody's Investors Service, Inc.;
(c) Investments consisting of the endorsement of negotiable
instruments for deposit or collection or similar transactions in the
ordinary course of Borrower;
(d)
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for
which Borrower maintains adequate reserves on its Books, if they have no
--
priority over any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is
---
confined to the property and improvements and the proceeds of the
equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business, if the leases, subleases, licenses
--
and sublicenses permit granting Bank a security interest; and
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any
---
extension, renewal or replacement Lien must be limited to the property
encumbered by the existing Lien and the principal amount of the
indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of less than 12 months determined according to GAAP.
"Responsible Officer" is each of the Chief Executive Officer, Chief
Financial Officer, and Controller of Borrower.
"Revolving Maturity Date" is the date which is one day prior to one (1)
year from the Closing Date.
-14-
<PAGE>
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (pursuant a subordination agreement entered into between the Bank,
the Borrower and the subordinated creditor).
"Subsidiary" is for any Person, joint venture, or any other business entity
of which more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
-----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt (but
---
exclusive of the Ando Subordinated Debt).
"Total Liabilities" is on any day, obligations that should, under GAAP, be
classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.
BORROWER:
LTX CORPORATION
By________________________________________
Title:____________________________________
SILICON VALLEY BANK, d/b/a SILICON VALLEY EAST
By:_______________________________________
Title:____________________________________
SILICON VALLEY BANK
By________________________________________
Title:____________________________________
-15-
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods, equipment, inventory, contract rights, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, general intangibles, accounts, documents,
instruments, chattel paper, cash, deposit accounts, fixtures, letters of credit,
investment property, and financial assets, whether now owned or hereafter
acquired, wherever located; and
Any copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work, whether
published or unpublished, now owned or later acquired; any patents, trademarks,
service marks and applications therefor; any trade secret rights, including any
rights to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; or any
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
-16-
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_____________________________
FAX#: (781) 431-0755 TIME:_____________________________
________________________________________________________________________________
FROM:__________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:__________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:__________________________________________________
PHONE NUMBER:__________________________________________________________
FROM ACCOUNT # __________________ TO ACCOUNT # ____________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_______________
PRINCIPAL PAYMENT (ONLY) $_______________
INTEREST PAYMENT (ONLY) $_______________
PRINCIPAL AND INTEREST (PAYMENT) $_______________
OTHER INSTRUCTIONS: __________________________________
All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.
_______________________________________________________________________________
-17-
<PAGE>
_______________________________________________________________________________
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
<TABLE>
<S> <C>
__________________________________________ __________________________________
Authorized Requester Phone #
__________________________________________ __________________________________
Received By (Bank) Phone #
__________________________________________
Authorized Signature (Bank)
________________________________________________________________________________
</TABLE>
-18-
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
________________________________________________________________________________
Borrower: LTX Corporation Lender: Silicon Valley Bank
Commitment Amount: $10,000,000.00
________________________________________________________________________________
<TABLE>
<CAPTION>
<S> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ____________________ $_____________
2. Additions (please explain on reverse) $_____________
3. TOTAL ACCOUNTS RECEIVABLE $_____________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $_____________
5. Balance of 50% over 90 day accounts $_____________
6. Credit balances over 90 days $_____________
7. Concentration Limits $_____________
8. Foreign Accounts $_____________
9. Governmental Accounts $_____________
10. Contra Accounts $_____________
11. Promotion or Demo Accounts $_____________
12. Intercompany/Employee Accounts $_____________
13. Other (please explain on reverse) $_____________
14. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_____________
15. Eligible Accounts (#3 minus #14) $_____________
16. LOAN VALUE OF ACCOUNTS ( 80% of #15) $_____________
17. TOTAL ELIGIBLE FOREIGN ACCOUNTS $_____________
18. LOAN VALUE OF FOREIGN ACCOUNTS ( 90% of #17) $_____________
BALANCES
19. Maximum Loan Amount $10,000,000.00
20. Total Funds Available [Lesser of #19 or (#16 plus #18)] $_____________
21. Present balance owing on Line of Credit $_____________
22. Outstanding under Sublimits (including all amounts in excess of $ 5,000,000.00
under the A/R Purchase Agreement) $_____________
23. RESERVE POSITION (#20 minus #21 and #22) $_____________
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.
<TABLE>
<S> <C>
COMMENTS: ______________________________________
BANK USE ONLY
By: ___________________________
Authorized Signer Received by: _____________________
AUTHORIZED SIGNER
Date: _________________________
Verified: ________________________
AUTHORIZED SIGNER
Date: ______________________
______________________________________
</TABLE>
-19-
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: LTX CORPORATION
The undersigned authorized officer of LTX CORPORATION certifies that under
the terms and conditions of the Loan and Security Agreement between Borrower and
Bank (the "Agreement"), (i) Borrower is in complete compliance for the period
ending _______________ with all required covenants except as noted below and
(ii) all representations and warranties in the Agreement are true and correct in
all material respects on this date. Attached are the required documents
supporting the certification. The Officer certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) consistently
applied from one period to the next except as explained in an accompanying
letter or footnotes. The Officer acknowledges that no borrowings may be
requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ --------- ---------
<S> <C> <C>
Quarterly financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
A/R Agings Monthly within 20 days Yes No
Inventory Report Monthly within 20 days* Yes No
</TABLE>
* when Advances have been made or are outstanding under the EXIM Agreement based
upon the value of Borrower's Inventory
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
------------------ --------- ------- --------
<S> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio 0.70:1.0 (Q499)* _____:1.0 Yes No
Minimum Tangible Net Worth $59,000,000.00** $________ Yes No
Profitability $2,500,000.00*** $________ Yes No
</TABLE>
* Subject to increase as set forth in Section 6.7.1 of the Agreement.
**Subject to increase as set forth in Section 6.7.2 of the Agreement.
***Subject to change as set forth in Section 6.7.3 of the Agreement.
<TABLE>
<S> <C>
_____________________________________________
Comments Regarding Exceptions: See Attached. BANK USE ONLY
Sincerely,
Received by: _____________________
_____________________________ AUTHORIZED SIGNER
Signature
_____________________________ Date: _________________________
Title
_____________________________ Verified: ________________________
Date AUTHORIZED SIGNER
Date: ______________________
______________________________________________
</TABLE>
-20-
<PAGE>
EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT
This EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT (the "Exim Agreement")
is entered into as of _____ __, 1999, by and between SILICON VALLEY BANK, a
California-chartered bank ("Bank"), with its principal place of business at 3003
Tasman Drive, Santa Clara, CA 95054 and with a loan production office located at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02481, doing
business under the name "Silicon Valley East" ("Bank") and LTX CORPORATION, a
Massachusetts corporation with its chief executive office located at LTX Park at
University Avenue, Westwood, Massachusetts 02090 (the "Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Loan and Security
Agreement of even date herewith (the "Domestic Agreement"), together with
related documents executed in conjunction therewith.
B. Borrower and Bank desire in this Exim Agreement to set forth their
agreement with respect to a working capital facility to be guaranteed by the
Export-Import Bank of the United States (the "Exim Bank").
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. Except as otherwise defined, terms that are capitalized
-----------
in this Exim Agreement shall have the meanings assigned in the Domestic Loan
Documents. As used in this Exim Agreement, the following terms shall have the
following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor,
as well as all merchandise returned to or reclaimed by Borrower and
Borrower's books relating to any of the foregoing.
"Advances" means any loans or other extensions of credit hereunder.
"A/R Purchase Agreement" means that certain Non-Recourse Receivables
Purchase Agreement by and between the Bank and the Borrower dated April 28,
1999, as amended to date, whereby the Bank has agreed to make advances not
to exceed $8,000,000.00 for factoring of certain of Borrower's accounts
receivable.
"Borrower Agreement" means the Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement between Borrower and
Bank.
"Borrowing Base" means an amount equal to (i) ninety percent (90%) of
Exim Eligible Foreign Accounts which Exim Eligible Foreign Accounts are
billed and collected by the Borrower in the United States, plus (ii) the
----
lesser of (A) Two Million Dollars ($2,000,000.00) or (B) fifty (50%)
percent of Export-Related Inventory Value of Exim Eligible Inventory which
is determined acceptable by the Bank.
"Collateral" is the property described on Exhibit A.
---------
<PAGE>
"Domestic Agreement" has the meaning set forth in recital paragraph A.
"Domestic Loan Documents" means the Domestic Agreement and all
instruments, documents, and agreements executed in connection with the
Domestic Agreement.
"Exim Bank" means Export-Import Bank of the United States.
"Exim Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection
with the preparation, negotiation, and administration of the Exim Loan
Documents, including any costs incurred in relation to opposing or seeking
to obtain relief from any stay or restructuring order prohibiting Bank from
exercising its rights as a secured creditor, foreclosing upon or disposing
of Collateral, or such related matters; and Bank's reasonable attorneys'
fees and expenses incurred in enforcing or defending the Exim Loan
Documents, whether or not suit is brought, unless a final court of
competent jurisdiction finds the Bank acted with gross negligence or
willful misconduct.
"Exim Committed Line" means Five Million Dollars ($5,000,000,000).
"Exim Eligible Foreign Accounts" means those Accounts payable in
United States Dollars that arise in the ordinary course of Borrower's
business and (i) with respect to which the account debtor is not a resident
---
of the United States; (ii) that have been validly assigned or pledged to
Bank in a manner satisfactory to the Bank giving the Bank a first priority
perfected security interest, or its equivalent, in such Accounts, (iii)
comply with all of Borrower's representations and warranties to Bank, and
(iv) that either (A) the Bank approves on a case by case basis or (B) are
supported by letter(s) of credit acceptable to Bank; standards of
eligibility may be fixed revised from time to time by Bank in Bank's
reasonable judgment and upon notification thereof to the Borrower in
accordance with the provisions hereof. Exim Eligible Foreign Accounts shall
not include the following:
(a) Accounts with a term in excess of one hundred twenty (120)
days;
(b) Accounts that the account debtor has failed to pay within
sixty (60) calendar days of the original due date of the invoice
unless such accounts are insured through Exim Bank export credit
insurance for comprehensive commercial and political risk, or through
Exim Bank approved private insurers for comparable coverage, in which
case ninety (90) calendar days shall apply;
(c) Accounts with respect to an account debtor, fifty percent
(50%) or more of whose Accounts the account debtor has failed to pay
within one hundred twenty (120) days of the original date of invoice;
(d) Accounts evidenced by a letter of credit until the date of
shipment of the items covered by the subject letter of credit;
(e) Accounts with respect to which an invoice has not been sent;
(f) Accounts with respect to which the account debtor is an
Affiliate, officer or director of Borrower;
(g) Accounts with respect to which the account debtor is located
in a country in which Exim Bank is legally prohibited from doing
business as designated in the Country Limitation Schedule (as such
term is defined in the Borrower Agreement);
-2-
<PAGE>
(h) Accounts with respect to which the account debtor is located
in a country in which Exim Bank coverage is not available for
commercial reasons;
(i) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account
debtor to Borrower, but only to the extent of Borrower's liability to
such account debtor.
(j) Accounts with respect to which the account debtor has
disputed liability or makes any claim with respect thereto (but only
to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes
out of business;
(k) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower
exceed twenty-five percent (25%) of the aggregate dollar amount of all
Accounts, only to the extent such obligations exceed such percentage,
except as approved in writing by Bank;
(l) Accounts generated by the sale of products purchased for
military purposes or that are due and payable from a military Buyer;
(m) Accounts, if any, generated by sales of Inventory which
constitutes defense articles or defense services;
(n) Accounts payable in currency other than Dollars, except as
may be approved in writing by the Bank and the Exim Bank;
(o) Accounts which are due and owing and the collection of which
must be made outside the United States;
(p) Accounts the collection of which Bank or Exim Bank determines
in its reasonable judgment to be doubtful; and
(q) Accounts which are not "Eligible Export-Related Accounts
Receivable", as such term is defined in the Borrower Agreement.
"Exim Eligible Inventory" means Fusion Inventory of the Borrower which
is also "Eligible Export-Related Inventory" (as defined in the Borrower
Agreement).
"Exim Guarantee" means that certain Master Guarantee Agreement or
other agreement, as amended from time to time, the terms of which are
incorporated by reference into this Exim Agreement, pursuant to which Exim
Bank guarantees Borrower's obligations under this Exim Agreement.
"Exim Loan Documents" means, collectively, this Exim Agreement, the
Domestic Loan Documents, any note or notes executed by Borrower, and any
other agreement entered into between Borrower and Bank in connection with
this Exim Agreement, all as amended or extended from time to time.
"Exim Maturity Date" means the earliest of (i) the Revolving Maturity
Date under the Domestic Loan Documents, or (ii) the date which is one day
prior to one (1) year from the date of this Exim Agreement.
"Export-Related Inventory Value" shall have the meaning set forth in
the Borrower Agreement.
-3-
<PAGE>
"Fusion Inventory" means Inventory of the Borrower known as "System on
a Chip" or "Fusion" products.
"Inventory" shall mean "Export-Related Inventory" as such term is
defined in the Borrower Agreement.
"Note" is defined in Section 2.1.1.
"Obligations" shall mean all debts, principal, interest, Exim Bank
Expenses arising under the Exim Loan Documents and other amounts Borrower
owes Bank now or later, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower
assigned to Bank.
"Responsible Officer" means each of the Chief Executive Officer, Chief
Financial Officer, and Controller of the Borrower.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1.1 Revolving Advances. Subject to the terms and conditions of this Exim
------------------
Agreement, Bank agrees to make Advances to Borrower in an amount not to
exceed the Exim Committed Line or the Borrowing Base, whichever is less,
minus the amount of outstanding advances in excess of $5,000,000.00 made
-----
under the A/R Purchase Agreement, but only to the extent not sufficiently
reserved therefore under the Domestic Agreement as determined by the
Borrowing Base Certificate to be delivered to the Bank.
To evidence the Advances, Borrower shall execute and deliver to Bank on the
date hereof a promissory note (the "Note") in substantially the form attached
hereto as Exhibit B.
---------
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. Eastern time, on the
Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit C hereto together with any additional documentation required under the
- ---------
Borrower Agreement, including without limitation, as set forth in Section 2.03
of the Borrower Agreement. In addition to the procedure set forth in the
preceding sentence, Bank is authorized to make Advances under this Exim
Agreement, based upon written instructions received from a Responsible Officer
or without instructions if in Bank's discretion such Advances are necessary to
meet Obligations which have become due and remain unpaid. Bank shall be
entitled to rely on any telephonic notice given by a person who Bank reasonably
believes to be a Responsible Officer or a designee (as designated in writing by
a Responsible Officer) thereof, and Borrower shall indemnify and hold Bank
harmless for any damages or loss suffered by Bank as a result of such reliance.
Bank will credit the amount of Advances made under this Section 2.1.1 to
Borrower's deposit account. Amounts borrowed pursuant to this Section 2.1.1 may
be repaid at any time and re-borrowed at any time during the term of this Exim
Agreement so long as no Event of Default has occurred and is continuing.
2.2 Overadvances. If, at any time or for any reason, the amount of
------------
Obligations pursuant to this Exim Agreement owed by Borrower to Bank pursuant to
Section 2.1 of this Exim Agreement is greater than the lesser of (i) the
Borrowing Base or (ii) the Exim Committed Line, Borrower shall immediately pay
to Bank, in cash, the amount of such excess. In addition, if at any time or for
any reason, the aggregate amount of obligations owed by the Borrower to the Bank
under this Exim Agreement, the Domestic Loan Documents, and the A/R Purchase
Agreement exceed Twenty Million Dollars ($20,000,000.00), Borrower shall
immediately pay to Bank, in cash, the amount of such excess. In addition, if at
any time or for any reason, the aggregate amount of Advances made as a result of
Exim Eligible Inventory (as determined by the Borrowing Base Certificate)
exceeds the maximum allowable under Section 2.07(c) of the Borrower Agreement,
the Borrower shall within five (5) calendar days either (i) furnish additional
collateral satisfactory to the Bank which shall not consist of Inventory, or
(ii) pay to Bank, in cash, the amount of such excess
-4-
<PAGE>
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.3(b), or as
-------------
specified to the contrary in any Loan Document, any Advances under this Exim
Agreement shall bear interest, on the average daily balance, at a rate equal to
the Prime Rate plus one half of one percent (0.50%) per annum.
(b) Default Rate. All Obligations shall bear interest, from and after
------------
the occurrence of an Event of Default, at a rate equal to the lesser of (i)
three (3%) percentage points above the rate that applied immediately prior to
the occurrence of the Event of Default, and (ii) the maximum interest rate
allowed by applicable law.
(c) Payments. Interest hereunder shall be due and payable on each
--------
Payment Date. Bank shall, at its option, charge such interest, all Exim Bank
Expenses, and all Periodic Payments against Borrower's deposit account or
against the Exim Committed Line, in which case those amounts shall thereafter
accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to
-----------
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased contemporaneously with such change by an amount equal to such change
in the Prime Rate. All interest chargeable under the Exim Loan Documents shall
be computed on the basis of a three hundred sixty (360) day year for the actual
number of days elapsed.
2.4 Crediting Payments. The receipt by Bank of any wire transfer of funds,
------------------
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
wire transfer is of immediately available federal funds and is made to the
appropriate deposit account of Bank or unless and until such check or other item
of payment is honored when presented for payment. Notwithstanding anything to
the contrary contained herein, any payment (other than a wire transfer of
immediately available funds) received by Bank after 12:00 p.m. (noon) Eastern
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day.
2.5 Fees. Borrower shall pay to Bank the following fees:
----
(a) Financial Examination and Appraisal Fees. Bank's reasonable fees
----------------------------------------
and reasonable out-of-pocket expenses for Bank's initial audit of
Borrower's Accounts and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(b) Exim Fee. A facility fee equal to Seventy Five Thousand Dollars
--------
($75,000.00), which fee shall be due and fully earned upon the Closing
Date; and
(c) Exim Bank Expenses. On the Closing Date, Exim Bank Expenses
------------------
incurred through the Closing Date and, after the Closing Date, all Exim
Bank Expenses as they become due, if any.
2.6 Additional Costs. In case any law, regulation, treaty or official
----------------
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority:
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of Bank imposed by the United States of America or
any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
-5-
<PAGE>
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail.
2.7 Term. This Exim Agreement shall become effective once duly executed
----
and authorized by Borrower and Bank and shall continue in full force and effect
for a term ending on the Exim Maturity Date, on which date all Obligations shall
become immediately due and payable. Notwithstanding the foregoing, Bank shall
have the right to terminate this Exim Agreement immediately and without notice
upon the occurrence of an Event of Default and Borrower shall have the right to
terminate this Exim Agreement immediately upon payment in full of its
Obligations then outstanding hereunder. Notwithstanding any termination of this
Exim Agreement, all of Bank's security interest in all of the Collateral and all
of the terms and provisions of this Exim Agreement shall continue in full force
and effect until all Obligations have been paid and performed in full, and no
termination shall impair any right or remedy of Bank, nor shall any such
termination relieve Borrower of any Obligation to Bank until all of the
Obligations have been paid and performed in full.
2.8 Use of Proceeds. Borrower will use the proceeds of Advances only for
---------------
the purposes specified in the Borrower Agreement. Borrower shall not use the
proceeds of the Advances for any purpose prohibited by the Borrower Agreement.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to all Advances. The obligation of Bank to make
------------------------------------
each Advance, including the initial Advance, is subject to the following
conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1;
(b) timely receipt by Bank of a Borrowing Base Certificate as defined
in the Borrower Agreement;
(c) the Exim Guarantee shall be in full force and effect;
(d) if required by the Bank in its reasonable discretion, a
satisfactory appraisal of Inventory with respect to any Advances to be made
based in whole or in part upon the value of the Fusion Inventory; and
(e) except as otherwise disclosed to the Bank, the representations and
warranties contained in Section 5 hereof shall be true and accurate in all
material respects on and as of the date of such Payment/Advance Form and on
the effective date of each Advance as though made at and as of each such
date (except to the extent they relate specifically to an earlier date, in
which case such representations and warranties shall continue to have been
true and accurate as of such date), and no potential Event of Default or
Event of Default shall have occurred and be continuing, or would result
from such Advance.
The making of each Advance shall be deemed to be a representation and
warranty by Borrower on the date of such Advance as to the accuracy of the facts
referred to in this Section 3.1.
-6-
<PAGE>
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
--------------------------
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
(which Obligations shall include, without limitation, all obligations of the
Borrower to the Bank under the Domestic Loan Documents) and in order to secure
prompt performance by Borrower of each of its covenants and duties under the
Exim Loan Documents and Domestic Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Borrower acknowledges that Bank may place a "hold" on any Deposit Account
pledged as Collateral to secure the Obligations. Notwithstanding termination of
this Agreement, Bank's Lien on the Collateral shall remain in effect for so long
as any Obligations are outstanding. Notwithstanding the foregoing, it is
expressly acknowledged and agreed that the security interest created in this
Exim Agreement in all of the Collateral, with the exception of both Exim
Eligible Foreign Accounts and Exim Eligible Inventory to the extent any Advances
are actually made by the Bank to the Borrower based upon such Eligible Foreign
Accounts and Exim Eligible Inventory), is subject to and subordinate to the
security interest granted to the Bank in the Domestic Agreement with respect to
the Collateral.
4.2 Delivery of Additional Documentation Required. Borrower shall from
---------------------------------------------
time to time execute and deliver to Bank, at the reasonable request of bank, all
financing statements and other documents that Bank may reasonably request, in
form satisfactory to Bank, to perfect and continue perfected Bank's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Exim Loan Documents.
4.3 Power of Attorney. Effective only upon the occurrence and during the
-----------------
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers or employees) as Borrower's true and
lawful attorney, with power to: (a) send requests for verification of Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign the name of Borrower on any of
the documents described in Section 4.2 (regardless of whether an Event of
Default has occurred); (d) sign Borrower's name on any invoice or bill of lading
relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (e) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (f) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable. The appointment of Bank
as Borrower's attorney-in-fact, and each of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and Bank's obligation to provide Advances hereunder is terminated.
4.4 Right to Inspect. Each of Bank and Exim Bank (through any of their
----------------
respective officers, employees, or agents) shall have the right, upon reasonable
prior notice, from time to time during Borrower's usual business hours, without
causing any disruptions of Borrower's operations (prior to an Event of Default)
to inspect Borrower's Books, facilities and activities, and to check, test, and
appraise the Collateral in order to verify Borrower's financial condition or the
amount, condition of, or any other matter relating to, the Collateral. Bank
shall conduct annual accounts receivable audits, the results of which audits
shall be satisfactory to Bank. Borrower will cause its officers and employees
to give their full cooperation and assistance in connection therewith.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents, warrants and covenants as follows:
5.1 Domestic Loan Documents. The representations and warranties contained
-----------------------
in the Domestic Loan Documents, which are incorporated by reference into this
Exim Agreement, are true and correct.
-7-
<PAGE>
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of the
Obligations, each Borrower shall do all of the following:
6.1 Domestic Loan Documents. Borrower shall comply in all respects with
-----------------------
the terms and provisions of the Domestic Loan Documents, which terms and
provisions are incorporated into this Exim Agreement and which shall include,
without limitation, compliance with the financial reporting requirements set
forth in Section 6.2 and the financial covenants set forth in Sections 6.7of the
Domestic Agreement. In addition, the Borrower shall deliver to the Bank within
twenty (20) days of the end of each month (i) during any month during which
Advances are outstanding which have been made as a result of Exim Eligible
Inventory (as reflected in the Borrowing Base Certificate delivered to the Bank)
a schedule of Inventory for the preceding month, and (ii) an aged listing of
accounts receivable.
6.2 Terms of Sale. Borrower shall cause all sales of products upon which
-------------
Advances are based to be on open account to creditworthy buyers that have been
preapproved in writing by Bank and Exim Bank.
6.3 Borrower Agreement. Borrower shall comply with all of the terms of the
------------------
Borrower Agreement, including without limitation, the delivery of any and all
notices required pursuant to Sections 2.11 and/or 2.18 of the Borrower
Agreement. In the event of any conflict or inconsistency between any provision
contained in the Borrower Agreement with any provision contained in this Exim
Agreement, the more strict provision, with respect to Borrower, shall control.
6.4 Notice in Event of Filing of Action for Debtor's Relief. Borrower
-------------------------------------------------------
shall notify Bank in writing within five (5) days of the occurrence of any of
the following: (1) Borrower begins or consents in any manner to any proceeding
or arrangement for its liquidation in whole or in part or to any other
proceeding or arrangement whereby any of its assets are subject generally to the
payment of its liabilities or whereby any receiver, trustee, liquidator or the
like is appointed for it or any substantial part of its assets (including
without limitation the filing by Borrower of a petition for appointment as
debtor-in-possession under Title 11 of the U.S. Code); (2) Borrower fails to
obtain the dismissal or stay on appeal within thirty (30) calendar days of the
commencement of any proceeding arrangement referred to in (1) above; (3)
Borrower begins any other procedure for the relief of financially distressed or
insolvent debtors, or such procedure has been commenced against it, whether
voluntarily or involuntarily, and such procedure has not been effectively
terminated, dismissed or stayed within thirty (30) calendar days after the
commencement thereof, or (4) Borrower begins any procedure for its dissolution,
or a procedure therefor has been commenced against it.
6.5 Payment in Dollars. Borrower shall require payment in United States
------------------
Dollars for the products, unless the Exim Bank otherwise agrees in writing
hereafter.
6.6 Inventory Appraisals. Bank shall have the right to conduct appraisals
--------------------
of the Borrower's Inventory at Borrower's expense.
6.7 Further Assurances. At any time and from time to time Borrower shall
------------------
(i) execute and deliver such further instruments, (ii) take such further as may
reasonably be requested by Bank, and (iii) deliver such additional information,
reports, contracts, invoices and other data concerning the Collateral as may
reasonably be requested by Bank, all of the foregoing in furtherance of the
purposes of this Exim Agreement.
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any Advance hereunder shall
be available and until payment in full of the outstanding Obligations or for so
long as Bank may have any commitment to make any Advances, Borrower will not do
any of the following:
7.1 Domestic Loan Documents. Violate or otherwise fail to comply with any
-----------------------
provisions of the Domestic Loan Documents, which provisions are incorporated
into this Exim Agreement.
-8-
<PAGE>
7.2 Loans to Shareholders or Affiliates. Without Exim Bank's prior written
-----------------------------------
consent, make any loans to any shareholder or entity affiliated with Borrower.
As used in this Section 7.2, the term "loan" does not include salary, reasonable
rent paid to an affiliated entity owned by the shareholders, or to other
expenses incurred in the ordinary course of Borrower's business.
7.3 Borrower Agreement. Violate or otherwise fail to comply with any
------------------
provision of the Borrower Agreement, including without limitation the negative
covenants set forth in Section 2.15.
7.4 Exim Guarantee. Take any action, or permit any action to be taken,
--------------
that causes or, with the passage of time, could reasonably be expected to cause,
the Exim Guarantee to cease to be in full force and effect.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Exim Agreement:
8.1 Payment Default. If Borrower fails to pay within three (3) days of
---------------
when due, any of the Obligations.
8.2 Covenant Default; Cross Default. If Borrower fails or neglects to
-------------------------------
perform, keep, or observe any material term, provision, condition, covenant, or
agreement contained in this Exim Agreement, in any of the Domestic Loan
Documents, the Borrower Agreement, or the Exim Loan Documents, or an Event of
Default occurs under any of the Domestic Loan Documents or the Borrower
Agreement and as to any default under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure such default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrower be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrower
shall have an additional reasonable period (which shall not in any case exceed
thirty (30) days) to attempt to cure such default, and within such reasonable
time period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during such
cure period); or
8.3 Exim Guarantee. If the Exim Guarantee ceases for any reason to be in
--------------
full force and effect, or if the Exim Bank declares the Exim Guarantee void or
revokes or purports to revoke any obligations under the Exim Guarantee.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
-------------------
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following all of which are
authorized by the Borrower:
(a) Declare all Obligations, whether evidenced by this Exim Agreement,
the Domestic Loan Documents, or by any of the other Exim Loan Documents, or
otherwise, immediately due and payable (provided that upon the occurrence
of an Event of Default described in Section of the Domestic Agreement, all
Obligations shall become immediately due and payable without any action by
Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrower under this Exim Agreement or under any other agreement between
Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(d) Notify customers of Borrower or other third parties to pay amounts
owing to Borrower directly to the Bank;
-9-
<PAGE>
(e) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and
to occupy the same, without charge, in order to exercise any of Bank's
rights or remedies provided herein, at law, in equity, or otherwise;
(f) With notice to the Borrower, set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral and, to the extent required for Bank's
exercise of its rights under this Section 9.1, Borrower's rights under all
licenses and all franchise agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate; and
(i) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law.
Any deficiency that exists after disposition of the Collateral as provided
above will be paid immediately by Borrower.
9.2 Exim Direction. Upon the occurrence of an Event of Default, Exim Bank
--------------
shall have a right to: (i) direct Bank to exercise the remedies specified in
Section 9.1 and (ii) request that Bank accelerate the maturity of any other
loans to Borrower as to which Bank has a right to accelerate.
9.3 Exim Notification. Bank shall have the right to immediately notify
-----------------
Exim Bank in writing if it has knowledge of the occurrence of any of the
following events: (1) any failure to pay any amount due under this Exim
Agreement or the Note; (2) the Borrowing Base is less than the sum of
outstanding Advances hereunder; (3) any failure to pay when due any amount
payable to Bank by the Borrower under any loan(s) extended by Bank to Borrower;
(4) the filing of an action for debtor's relief by, against, or on behalf of
Borrower; or (5) any threatened or pending material litigation against Borrower,
or any material dispute involving Borrower.
In the event that it sends such a notification to Exim Bank, Bank shall
have the right to thereafter send Exim Bank a written report on the status of
the events covered by said notification on each Business Day which occurs every
thirty (30) calendar days after the date of said notification, until such time
as Bank files a claim with Exim Bank or said default or other events have been
cured. Bank shall not have any obligation to make any Advances following said
notification to Exim Bank, unless Exim Bank gives its written approval thereto.
If directed to do so by Exim Bank, Bank shall have a right promptly to exercise
any rights it may have against Borrower to demand the immediate repayment of all
amounts outstanding under the Exim Loan Documents.
-10-
<PAGE>
9.4 Remedies Cumulative. Bank's rights and remedies under this Exim
-------------------
Agreement, the Exim Loan Documents, the Domestic Loan Documents and all other
agreements shall be cumulative. Bank shall have all other rights and remedies
not inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Bank of one right or remedy shall be deemed an election, and no
waiver by Bank of any Event of Default on Borrower's part shall be deemed a
continuing waiver. No delay by Bank shall constitute a waiver, election, or
acquiescence by it. No waiver by Bank shall be effective unless made in a
written document signed on behalf of Bank and then shall be effective only in
the specific instance and for the specific purpose for which it was given
9.5 Power of Attorney. Effective only upon the occurrence and during the
-----------------
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; and (f) to file, in its
sole discretion, one or more financing or continuation statements and amendments
thereto, relative to any of the Collateral without the signature of Borrower
where permitted by law provided Bank may exercise such power of attorney to sign
the name of Borrower on any of the documents described in Section regardless of
whether an Event of Default has occurred. The appointment of Bank as Borrower's
attorney in fact, and each and every one of Bank's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Bank's obligation to provide advances hereunder
is terminated.
9.6 Accounts Collection. Upon the occurrence and during the continuance of
-------------------
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.7 Bank Expenses. If Borrower fails to pay any amounts or furnish any
-------------
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank reasonably deems necessary to protect Bank from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 6.5 of the Domestic Agreement, and
take any action with respect to such policies as Bank deems prudent. Any
amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.8 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk
of loss, damage or destruction of the Collateral shall be borne by Borrower.
9.9 Demand; Protest. Borrower waives demand, protest, notice of protest,
---------------
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
-11-
<PAGE>
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE EXIM
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
11. WAIVERS; INDEMNIFICATION
------------------------
11.1 Indemnification. Borrower shall defend, indemnify and hold harmless
---------------
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Exim Agreement, and (b)
all losses or Exim Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Exim Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12. NOTICES
-------
Unless otherwise provided in this Exim Agreement, all notices or demands by
any party relating to this Exim Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at the address
set forth in the Domestic Loan Documents. The parties hereto may change the
address at which they are to receive notices hereunder, by notice in writing in
the foregoing manner given to the other.
13. GENERAL PROVISIONS
------------------
13.1 Successors and Assigns. This Exim Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Exim Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participations in all or any part of, or any interest in
Bank's obligations, rights and benefits hereunder.
13.2 Time of Essence. Time is of the essence for the performance of all
---------------
obligations set forth in this Exim Agreement.
13.3 Severability of Provisions. Each provision of this Exim Agreement
--------------------------
shall be severable from every other provision of this Exim Agreement for the
purpose of determining the legal enforceability of any specific provision.
-12-
<PAGE>
13.4 Amendments in Writing. This Exim Agreement cannot be changed or
---------------------
terminated orally. Without the prior written consent of Exim Bank, no material
amendment of or deviation from the terms of this Exim Agreement or the Note
shall be made that would adversely affect the interests of Exim Bank under the
Exim Guarantee, including without limitation the rescheduling of any payment
terms provided for in this Exim Agreement. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties hereto with respect to the subject matter of this Exim Agreement, if
any, are merged into this Exim Agreement.
13.5 Counterparts. This Exim Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Exim
Agreement.
13.6 Survival. All covenants, representations and warranties made in this
--------
Exim Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 11.1 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run.
13.7 Countersignature. This Agreement shall become effective only when it
----------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Exim Agreement to
be executed as of the date first above written.
LTX CORPORATION
By: ______________________________________
Name: ___________________________________
Title: __________________________________
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SILICON VALLEY BANK
By:_______________________________________
Name:_____________________________________
Title:____________________________________
(Signed in Santa Clara County,
California)
-13-
<PAGE>
EXHIBIT A
---------
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods, equipment, inventory, contract rights, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, general intangibles, accounts, documents,
instruments, chattel paper, cash, deposit accounts, fixtures, letters of credit,
investment property, and financial assets, whether now owned or hereafter
acquired, wherever located; and
Any copyright rights, copyright applications, copyright registrations and
like protections in each work of authorship and derivative work, whether
published or unpublished, now owned or later acquired; any patents, trademarks,
service marks and applications therefor; any trade secret rights, including any
rights to unpatented inventions, know-how, operating manuals, license rights and
agreements and confidential information, now owned or hereafter acquired; or any
claims for damages by way of any past, present and future infringement of any of
the foregoing; and
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
-14-
<PAGE>
EXHIBIT B
---------
Revolving Promissory Note
(Export-Import Line)
$5,000,000.00 ___________, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower"), promises to pay to
the order of Silicon Valley Bank ("Bank"), at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Advances") made by Bank to Borrower,
up to a maximum principal amount of Five Million Dollars ($5,000,000.00), plus
interest on the aggregate unpaid principal amount of such Advances, at the rates
and in accordance with the terms of the Export-Import Bank Loan and Security
Agreement between Borrower and Bank of even date herewith, as amended from time
to time (the "Loan Agreement") on the first calendar day of each month after an
Advance has been made. The entire principal amount and all accrued interest
shall be due and payable on ___________, 2000, or on such earlier date, as
provided for in the Loan Agreement.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any errors in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all reasonable costs and reasonable expenses
including all reasonable attorneys' fees, incurred in such collection or in any
suit or action to collect this Note or in any appeal thereof, unless a final
court of competent jurisdiction finds that the Bank acted with gross negligence
or willful misconduct. Borrower waives presentment, demand, protest, notice of
protest, notice of dishonor, notice of nonpayment, and any and all other notices
and demands in connection with the delivery, acceptance, performance, default or
enforcement of this Note, as well as any applicable statute of limitations. No
delay by Bank in exercising any power or right hereunder shall operate as a
waiver of any power or right. Time is of the essence as to all obligations
hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
The law of the Commonwealth of Massachusetts shall apply to this Agreement.
BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA..
BORROWER WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE EXIM LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
-15-
<PAGE>
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. BORROWER REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
LTX CORPORATION
By: ______________________________________
Name: _____________________________________
Title:_____________________________________
-16-
<PAGE>
EXHIBIT C
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_____________________________
FAX#: (781) 431-0755 TIME:_____________________________
================================================================================
FROM:_____________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:_____________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:_____________________________________________________
PHONE
NUMBER:___________________________________________________________________
FROM ACCOUNT #_________________________ TO ACCOUNT#_______________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_____________________________________
PRINCIPAL PAYMENT (ONLY) $_____________________________________
INTEREST PAYMENT (ONLY) $_____________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_____________________________________
OTHER INSTRUCTIONS:_______________________________________________________
__________________________________________________________________________
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
===============================================================================
- -------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
____________________________________ ______________________________________
Authorized Requester Phone #
____________________________________ ______________________________________
Received by (Bank) Phone #
___________________________________
Authorized Signature (Bank)
- -------------------------------------------------------------------------------
-17-
<PAGE>
EXHIBIT D
BORROWING BASE CERTIFICATE
COLLATERAL SCHEDULE
(FOREIGN A/R LINE OF CREDIT)
- -------------------------------------------------------------------------
Borrower: LTX Corporation . Lender: Silicon Valley Bank
LTX Park at University Drive 3003 Tasman Drive
Westwood, Massachusetts 02090 Santa Clara, CA 95054
Commitment Amount: $5,000,000.00
- -------------------------------------------------------------------------
FOREIGN ACCOUNTS RECEIVABLE FROM EXPORT ACTIVITIES
1. Accounts Receivable Book Value as of _________ $__________
2. Additions (please explain on reverse) $__________
3. TOTAL FOREIGN ACCOUNTS RECEIVABLE $__________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Term in excess of 120 days $__________
5. Amounts over 60 days from due date of invoice $__________
6. Balance of 50% over 120 day accounts $__________
7. Excess 25% Concentration $__________
8. Accounts not payable in the U.S. $__________
9. Governmental and Military Accounts $__________
10. Contra Accounts $__________
11. Promotion, Demo or Consignment Accounts $__________
12. Intercompany/Employee and Affiliate Accounts $__________
13. Accounts in the form of L/Cs, if subject items
Borrower have not yet been shipped by $__________
14. Accounts, if any, arising from Inventory not
originally located in and shipped from the U.S. $__________
15. Accounts arising from the sale of defense articles
or items $__________
16. Accounts of buyers located in or from countries
in which shipment is prohibited or no coverage
available $__________
17. Amounts due and collectable outside U.S. $__________
18. Other exclussions under Borrower Agreement or
otherwise $__________
19. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $__________
20. Eligible Accounts (No. 3 - No. 19) $__________
21. Loan Value of Acconts (90%-Advance) $__________
INVENTORY
22. Exim Eligible Inventory Value as of $__________
23. LOAN VALUE OF INVENTORY ( 50% of #22) $__________
BALANCES
24. Maximum Loan Amount $5,000,000.00
25. Total Available (#21 plus lesser of (i)
$2,000,000.00 or (ii) #23) $__________
26. Present balance owing on Line of Credit $__________
27. Outstanding under Sublimits (including all
amounts in excess of $5,000,000.00 under the
A/R Purchase Agreement) $__________
-18-
<PAGE>
28. RESERVE POSITION (No. 25 - (No. 26 + No. 27)) $__________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Collateral Schedule complies
with the representations and warranties set forth in the Borrower Agreement,
executed by Borrower and acknowledged by Lender, and the Export-Import Bank Loan
and Security Agreement, executed by Borrower and acknowledged by Lender dated
__________, 1999, as may be amended from time to time, as if all representations
and warranties were made as of the date hereof, and that Borrower is, and shall
remain, in full compliance with its agreements, covenants, and obligations under
such agreement. Such representations and warranties include, without limitation,
the following: Borrower is using disbursements only for the purpose of enabling
Borrower to finance the cost of manufacturing, producing, purchasing or selling
items intended for export. Borrower is not using disbursements for the purpose
of: (a) servicing any of Borrower's unrelated pre-existing or future
indebtedness; (b) acquiring fixed assets or capital goods for the use of
Borrower's business; (c) acquiring, equipping, equipping or renting commercial
space outside the United States; (d) supporting research and development; (e)
paying salaries of non-U.S. citizens or non-U.S. permanent residents who are
located in the offices of the United States; or (f) serving as a retainage or
warranty bond. Additionally, disbursements are not being used to finance the
manufacture, purchase or sale of any of the following: (a) items to be sold to a
buyer located in a country in which the Export Import Bank of the United States
is legally prohibited from doing business; (b) that part of the cost of the
items which is not U.S. Content unless such part is not greater than fifty
percent (50%) of the cost of the items and is incorporated into the items in the
United States; (c) defense articles or defense services or items directly or
indirectly destined for use by military organizations designed primarily for
military use (regardless of the nature or actual use of the items); or (d) any
items to be used in the construction, alteration, operation or maintenance of
nuclear power, enrichment, reprocessing, research or heavy water production
facilities.
Sincerely,
LTX CORPORATION
By:_______________________________________
Name:_____________________________________
Chief Financial Officer
Date:_____________________________________
===============================
BANK USE ONLY
Received
By:____________________
Date:________________
Verified
By:____________________
===============================
-19-
<PAGE>
Schedule 5.3
Litigation
----------
Borrower's landlord in its Westwood, Massachusetts facility served Borrower on
December 29, 1998 with a complaint seeking a declaratory judgment, specific
performance and damages for Borrower's alleged breach of its obligations under
the lease agreement with the landlord. The landlord's complaint alleges that
improvements made to the HVAC system in the building in 1995 were unauthorized
and created a lien in violation of the lease as a result of lease financing of
the HVAC system. Borrower and the landlord have entered into an agreement to
restructure the lease, subject to the landlord's refinancing of the building and
Borrower's agreement to purchase the HVAC system and terminate the HVAC lease
financing by November 15, 1999. Upon completion of these transactions, the
parties have agreed to request the court to dismiss the complaint with
prejudice.
<PAGE>
Schedule 5.7
Subsidiaries
------------
Borrower owns a 10% interest in a corporate joint venture with FlexTech
Holdings. The joint venture purchased certain assets from Borrower relating to
board repair services for its legacy products.
<PAGE>
Schedule 7.1
Dispositions
------------
Consistent with Borrower's business strategy to focus on Fusion, Borrower is
seeking to divest itself of its iPTest division. The iPTest division
manufacturers test systems that are used to test specialized components such as
power transistors. The percentage of net sales contributed by iPTest, compared
to total net sales, was 3.0%, or $5.1 million for the fiscal year ended July 31,
1999.
<PAGE>
LTX CORPORATION
1999 STOCK PLAN
1. Definitions. As used in this 1999 Stock 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 or Restricted Share
----------
award is granted, as specified in Section 7.
1.6 Incentive Option means an Option intended to be an incentive stock
----------------
option with the meaning of Section 422 of the Code.
1.7 Market Value means, as of a particular date, the closing price of
------------
the Stock on the NASDAQ National Market on that date.
1.8 Nonstatutory Option means any option that is not an Incentive Option.
-------------------
1.9 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.
1.10 Option means an option to purchase shares of the stock granted under
------
the Plan.
1.11 Option Agreement means an agreement between the Company and an
----------------
Recipient, setting forth the terms and conditions of an Option.
1.12 Option Price means the price paid by an Recipient for an Option
------------
Share under this Plan.
1.13 Option Share means any share of Stock of the Company transferred to an
------------
Recipient upon exercise of an Option pursuant to this Plan.
1
<PAGE>
1.14 Plan means this 1999 Stock Plan of the Company, as amended.
----
1.15 Recipient means a person eligible to receive an Option or award, as
---------
provided in Section 6, to whom an Option or award shall have been
granted under the Plan.
1.16 Restricted Share means a share of the Stock awarded to a Recipient,
----------------
but subject to provisions affecting retention and transferability.
1.17 Stock means common stock, par value $ 0.05 per share, of the Company.
-----
1.18 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 1999 Stock 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 and Restricted Share awards under the Plan may
----------------
be granted on or after June 4, 1999, but not later than June 4, 2009.
4. Stock Subject to the Plan. Subject to the provisions of Section 14 of the
-------------------------
Plan, the number of shares of the Stock attributable to the exercise of Options
granted under the Plan plus the number the number of shares then issuable upon
exercise of outstanding options granted under the Plan plus the number of
Restricted Shares awarded under the Plan shall at no time exceed 2,100,000
shares. Shares to be issued upon the exercise of Options granted under the Plan
and Restricted Shares 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
2
<PAGE>
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 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 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 Options
or Restricted Shares under this Plan, the Plan shall be administered by a
special committee (the "Special Committee") of the Board of Directors of the
Company all of whom are "Non-Employee Directors" as defined in Rule 16b-
3(b)(2)(i) under Section 16 of the Securities Exchange Act of 1934 and "outside
directors" as defined in Section 162(m) of the Code. 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 and all Restricted Shares to be awarded by the Company: (a) the
employee, director or consultant to receive the Option or award; (b) the time of
granting the Option or award; (c) the number of shares subject thereto; (d) the
Option Price; (e) the Option period; and (f) the restrictions. 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 or awards (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 or award 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 422(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
3
<PAGE>
(or of its parent or subsidiary corporations) shall not be eligible to receive
an Option. In any given fiscal year, no Recipient may receive Options or awards
or both covering more than 500,000 shares of Stock (such number of shares to be
adjusted in accordance with Section 14).
7. Time of Granting Options. The granting of an Option or an award 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 or
Restricted Share award shall have been duly executed and delivered by the
Company and the Recipient.
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 Recipient 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 Recipient
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 Recipient under the Plan and each other incentive stock option granted to
the Recipient 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 (a) full payment for such shares in the form of check or
bank draft payable to the order of the Company, or (b) certificates representing
shares of the Stock with a current Market Value equal to the Option Price of the
shares to be purchased, or (c) irrevocable instructions to a brokerage firm to
sell a sufficient number of the Option Shares to generate the full exercise
price plus all applicable withholding taxes and to pay over to the Company such
proceeds of sale.. Within 20 days thereafter, the Company shall deliver or
cause to be delivered to the Recipient evidence of ownership of the number of
shares then being purchased. Such shares shall be fully paid and
4
<PAGE>
nonassessable. If any law or applicable regulation of the Securities and
Exchange Commission or other public regulatory authority shall require the
Company or the Recipient 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 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 Recipient'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 Recipient within three months after he or
she ceases to be an employee, director or consultant. In the event that the
Recipient's employment or association with the Company terminates as a result of
the death or disability of the Recipient, the Option may be fully exercised by
the Recipient or, in the event of the death of the Recipient 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 Recipient's
employment or association with the Company terminates as a result of the death
or disability of the Recipient, the exercisability of any Option not otherwise
immediately exercisable in full held by such Recipient 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 Recipient only by the Recipient.
14. Adjustment of Number of Option Shares. 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.
5
<PAGE>
15. Restricted Shares. Each Restricted Share award shall be evidenced by a
-----------------
Restricted Share award agreement that shall specify the number of Restricted
Shares awarded and such other provisions as the Board or Committee shall
determine. The Restricted Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated until satisfaction of the
conditions as specified by the Board or Committee and set forth in the
Restricted Share award agreement. All rights with respect to Restricted Shares
granted to a Recipient under the Plan shall be available during his or her
lifetime only to the Recipient. Recipients holding Restricted Shares may
exercise full voting rights with respect to those Restricted Shares. Recipients
holding Restricted Shares will receive such cash dividends paid with respect to
the Restricted Shares as may be declared while they are so held. Without
limiting the generality of the preceding sentence, if the grant or vesting of
Restricted Shares granted to a Recipient is designed to comply with the
requirements of the performance-based exception under Section 162(m) of the
Code, the Board or Committee may apply any restrictions it deems appropriate to
the payment of dividends declared with respect to such Restricted Shares, such
that the dividends and/or the Restricted Shares maintain eligibility for the
performance-based exception.
16. Transferability. The Recipient agrees that he or she will not transfer any
---------------
of the Option Shares or Restricted Shares 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 Option 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 Recipient
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.
17. Change of Control.
-----------------
(a) Vesting of Options. 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) Elimination of Restrictions. In the event of a Change of Control, all
----------------------------
restrictions with respect to all Restricted Shares outstanding as of the date
such Change of Control is determined to have occurred shall be eliminated.
(c) Change of Control Cash-Out. During the 60-day period from and after a
--------------------------
Change of Control (the "Exercise Period"), unless the Committee shall
6
<PAGE>
determine otherwise at the time of grant of an Option, each Recipient 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 17 shall have been exercised. Notwithstanding the foregoing, if any
right granted pursuant to this Section 17 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.
(d) Definition of Change of Control Price. "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 National
Market 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.
(e) Definition of Change of Control. For purposes of the Plan, a "Change of
---------- --------------------
Control" shall mean:
(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
7
<PAGE>
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 June 8, 1999, 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
June 8, 1999 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 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 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 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.
8
<PAGE>
18. Reservation of Stock. The Company shall at all times 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.
19. Limitation of Rights in the Option Shares. A Recipient 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 Recipient. 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.
20. 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 Company's common stock represented in person or by
proxy and voting at a meeting. No termination or amendment of the Plan may,
without the consent of the Recipient to whom any Option shall theretofore have
been granted, adversely affect the rights of such Recipient under such Option.
21. 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 University Avenue,
Westwood, Massachusetts 02090 and, if to the Recipient, to the address as the
Recipient shall last have furnished to the communicating party.
22. 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 Recipient 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
9
<PAGE>
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.
10
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