<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 January 31, 2000
______________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 000-10761
---------
LTX CORPORATION
----------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Massachusetts 04-2594045
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) (dentification No.)
LTX Park at University Avenue, Westwood, Massachusetts 02090
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (781) 461 1000
-----------------
- -------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.
Indicate by check X whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No ____
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 8, 2000
- --------------------------------------- --------------------------------
Common Stock, par value $0.05 per share 44,081,825
<PAGE>
LTX CORPORATION
Index
<TABLE>
<CAPTION>
Page Number
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet 1
January 31, 2000 and July 31, 1999
Consolidated Statement of Operations 2
Three Months and Six Months Ended January 31, 2000 and January 31, 1999
Consolidated Statement of Cash Flows 3
Six Months Ended January 31, 2000 and January 31, 1999
Notes to Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis of Financial 8-16
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
<PAGE>
LTX CORPORATION
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
------------ ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 100,994 $ 19,936
Accounts receivable, net of allowances of $1,582 and $2,027 60,052 37,043
Accounts receivable - other 3,442 4,324
Inventories 57,877 48,551
Other current assets 8,351 5,795
----------- ----------
Total current assets 230,716 115,649
Property and equipment, net 33,717 31,942
Other assets 1,345 402
----------- ----------
Total assets $ 265,778 $ 147,993
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 11,458 $ 5,472
Current portion of long-term debt 672 674
Accounts payable 34,893 37,439
Deferred revenues and customer advances 24,811 11,391
Accrued restructuring charges 2,263 2,263
Other accrued expenses 10,062 10,495
----------- ----------
Total current liabilities 84,159 67,734
----------- ----------
Long-term debt, less current portion 13,859 14,023
Other long-term liabilities - -
Convertible subordinated debentures 7,183 7,308
Stockholders' equity 160,577 58,928
----------- ----------
Total liabilities and stockholders' equity $ 265,778 $ 147,993
=========== ==========
</TABLE>
1
<PAGE>
LTX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
------------------------- ---------------------------
2000 1999 2000 1999
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 70,210 $ 33,691 $ 130,215 $ 60,709
Cost of sales 36,982 20,940 70,051 38,291
---------- ---------- ---------- ----------
Gross profit 33,228 12,751 60,164 22,418
Engineering and product development expenses 12,118 8,085 23,126 16,577
Selling, general and administrative expenses 9,575 7,255 18,273 15,124
---------- ---------- ---------- ----------
Income (loss) from operations 11,535 (2,589) 18,765 (9,283)
Other income (expense):
Interest expense 418 310 1,029 707
Interest income 949 252 1,204 451
Gain on liquidation/sale of business units - (3,786) - (3,786)
---------- ---------- ---------- ----------
Income (loss) before income taxes 12,066 1,139 18,940 (5,753)
Provision for income taxes 30 - 30 -
---------- ---------- ---------- ----------
Net income (loss) $ 12,036 $ 1,139 $ 18,910 $ (5,753)
========== ========== ========== ==========
Net income (loss) per share:
Basic $ 0.28 $ 0.03 $ 0.47 $ (0.16)
========== ========== ========== ==========
Diluted $ 0.26 $ 0.03 $ 0.44 $ (0.16)
========== ========== ========== ==========
Weighted--average common shares used in
computing net income (loss):
Basic 42,603 35,477 39,816 35,477
========== ========== ========== ==========
Diluted 46,093 36,131 43,258 35,477
========== ========== ========== ==========
</TABLE>
2
<PAGE>
LTX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months
Ended
January 31,
-----------------------------------------
2000 1999
----------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 18,910 $ (5,753)
Add (deduct) non-cash items:
Depreciation and amortization 5,548 5,811
Gain on liquidation/sale of business units - (3,786)
Exchange (gain) loss (230) 308
(Increase) decrease in:
Accounts receivable (21,829) 5,958
Inventories (10,264) 2,132
Other current assets (2,549) (1,064)
Other assets (956) (60)
Increase (decrease) in:
Accounts payable (2,641) (3,854)
Accrued expenses and restructuring charges (492) (3,493)
Deferred revenues and customer advances 9,428 (5,499)
----------------- ----------------
Net cash used in operating activities (5,075) (9,300)
----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment, net (8,370) (2,699)
----------------- ----------------
Net cash used in investing activities (8,370) (2,699)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock purchase plans and option plans 2,834 483
Proceeds from sale of business unit - 2,000
Proceeds from stock equity offering 79,905 -
Proceeds from short term borrowing 33,008 -
Payments of short term borrowing (27,358) (767)
Payments of long-term debt and other liabilities 43 (895)
Proceeds from lease financing 5,922 3,850
----------------- ----------------
Net cash provided by financing activities 94,354 4,671
----------------- ----------------
Effect of exchange rate changes on cash 149 614
----------------- ----------------
Net increase (decrease) in cash and equivalents 81,058 (6,714)
Cash and equivalents at beginning of period 19,936 25,109
----------------- ----------------
Cash and equivalents at end of period $ 100,994 $ 18,395
================= ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 1,520 $ 702
Income taxes $ 300 $ (786)
</TABLE>
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 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 communications, computer,
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.
Reclassification
Effective November 1, 1999, the Company changed its accounting policy to
classify certain applications and engineering development costs previously
reported in cost of sales as research and development expense. The change
was made effective for the quarter ending January 31, 2000. The expenses that
were reclassified relate to development activities by our application
engineering group for future enhancements of existing products and initial
application development of new products. Prior period financial statements have
been reclassified to conform to the 2000 presentation. The reclassification had
no impact on earnings for prior periods.
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 $230,000 and a loss of $308,000
for the six months ended January 31, 2000 and 1999 respectively. The amounts
recorded in both periods were principally due to fluctuations in the Japanese
yen that are included in the consolidated results of operations.
4
<PAGE>
Revenue Recognition
Revenue from product sales and related warranty costs are recognized at the time
of shipment. Service revenue are recognized over the applicable contractual
periods or as services are performed. Revenue from engineering contracts are
recognized over the contract period on a percentage of completion basis.
The Securities and Exchange Commission released Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition in Financial Statements, on December 3, 1999. The
SAB provides additional guidance on the accounting for revenue recognition,
including both broad conceptual discussions as well as certain industry-specific
guidance. The new guidance concerning customer acceptance and installation terms
may have an impact on the timing of the Company's revenue recognition. The
guidance is effective for the first quarter of fiscal year 2001 and would be
adopted by recording the effect of any prior revenue transaction affected as a
"cumulative effect of change in accounting principle" as of August 1, 2000.
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 January 31, 2000, most of the Company's foreign
subsidiaries had accumulated deficits. The Company has net operating loss carry
forwards, research and development tax credits and other book to tax adjustments
that are sufficient to offset taxable income for the six months ended January
31, 2000.
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.
A reconciliation between basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
2000 1999 2000 1999
------------------------ ------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net income (loss) $12,036 $ 1,139 $18,910 $(5,753)
Basic EPS
Basic common shares 42,603 35,477 39,816 35,477
Basic EPS $ 0.28 $ 0.03 $ 0.47 $ (0.16)
Diluted EPS
Basic common shares 42,603 35,477 39,816 35,477
Plus: Impact of stock options and warrants 3,490 654 3,442 -
-------- -------- -------- --------
Diluted common shares 46,093 36,131 43,258 35,477
Diluted EPS $ 0.26 $ 0.03 $ 0.44 $ (0.16)
</TABLE>
5
<PAGE>
There were no options outstanding that were excluded in the above calculation of
diluted earnings per share as of January 31, 2000. The impact of stock options
and warrants was not used in the calculation of the six months ended January 31,
1999 diluted EPS as the Company was in a loss position and adding the impact of
stock options would be antidilutive.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
include material, labor and manufacturing overhead. Inventories consisted of
the following at:
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
----------- ----------
(In thousands)
<S> <C> <C>
Raw materials $24,592 $22,380
Work-in-progress 21,477 18,107
Finished goods 11,808 8,064
----------- ----------
$57,877 $48,551
=========== ==========
</TABLE>
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.
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 on the Company's July 31, 1999 Annual
Report, 10K).
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" amended by SFAS 137 "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133 - Amendment of SFAS NO. 133" (combined "SFAS 133"). 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.
6
<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 six months ended January
31, 2000 and 1999, along with the long-lived assets for January 31, 2000 and
July 31, 1999, are summarized as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
January 31, January 31,
----------------------------- -----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers:
United States $28,017 $12,231 $ 39,682 $24,605
Singapore 23,559 3,453 39,936 5,154
Taiwan 7,840 3,072 22,727 8,560
Japan 977 714 1,806 1,813
All other countries 9,817 14,221 26,064 20,577
----------- ----------- ----------- -----------
Total sales to unaffiliated customers
$70,210 $33,691 $130,215 $60,709
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
----------- -----------
<S> <C> <C>
Long-lived assets:
United States $26,765 $24,965
Singapore 3,211 3,695
Taiwan 977 1,175
Japan 59 59
All other countries 2,705 2,048
----------- -----------
Total long-lived assets $33,717 $31,942
=========== ===========
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT 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
Increase/Decrease
Percentage of Net Sales
Three Months Six months Three Months Six Months
Ended ended 2000 2000
January 31, January 31, Over Over
----------------------- ----------------------
2000 1999 2000 1999 1999 1999
-------- -------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 108.4% 114.5%
Cost of Sales 52.7 62.2 53.8 63.1 76.6 82.9
-------- -------- -------- -------- -------- --------
Gross margin 47.3 37.8 46.2 36.9 160.6 168.4
Engineering and product development expenses 17.3 24.0 17.8 27.3 49.9 39.5
Selling, general and administrative expenses 13.6 21.5 14.0 24.9 32.0 20.8
-------- -------- -------- -------- -------- --------
Income (loss) from operations 16.4 (7.7) 14.4 NM NM NM
Other income (expense):
Interest expense 0.6 0.9 0.8 1.2 NM NM
Interest income 1.4 0.8 0.9 0.7 NM NM
Gain on liquidation/sale of business units 0.0 11.2 0.0 6.3 NM NM
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes 17.2 3.4 14.5 (9.5) 959.4 NM
Provision for income taxes 0.0 0.0 0.0 0.0 NM NM
-------- -------- -------- -------- -------- --------
Net income (loss) 17.2% 3.4% 14.5% (9.5)% 956.7% NM
======== ======== ======== ======== ======== ========
</TABLE>
NM--Not Meaningful
8
<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 and Six Months Ended January 31, 2000 Compared to
the Three Months and Six Months Ended January 31, 1999
Net sales for the three months ended January 31, 2000 increased 108.4% to $70.2
million as compared to $33.7 million in the same quarter of the prior year. For
the six months ended January 31, 2000, net sales were $130.2 million as compared
to $60.7 million for the same period of the prior year, an increase of 114.5%.
The increase in revenue is primarily a result of the semiconductor test
equipment ("STE") and semiconductor industries experiencing an increase in
demand, as well as increasing acceptance of the Company's Fusion product
strategy. Service revenue accounted for $7.9 million, or 11.2% of net sales, and
$6.7 million, or 19.8% of net sales, for the three months ended January 31, 2000
and 1999, respectively and $15.2 million and $13.5 million for the six months
ended January 31, 2000 and January 31, 1999, respectively. Geographically, sales
to customers outside of North America were 60.1% and 63.7% of total net sales in
the three months ended January 31, 2000 and January 31, 1999, respectively.
The gross profit margin was 47.3% of net sales in the three months ended January
31, 2000, as compared to 37.8% 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, improved product margins due to shipments of the Company's
Fusion test systems, which carry a higher gross margin than the prior generation
systems and gaining the full benefits from the Company's consolidation of its
manufacturing operations. For the six months ended January 31, 2000, the gross
profit margin was 46.2% compared to 36.9% for the six months ended January 31,
1999. Effective November 1, 1999, the Company changed its accounting policy to
classify certain applications and engineering development costs previously
reported in cost of goods sold as research and development expenses in the
Company's quarter ending January 31, 2000. Financial results for all prior
periods have been reclassified to conform to the January 31, 2000 presentation.
Under the prior method of classification, gross profit margins would have been
41.9% and 31.1% for the three months ended January 31, 2000 and January 31,
1999, respectively, and 40.8% and 29.0% for the six months ended January 31,
2000 and January 31, 1999, respectively.
Engineering and product development expenses were $12.1 million, or 17.3% of net
sales, in the three months ended January 31, 2000, as compared to $8.1 million,
or 24.0% of net sales, in the same quarter of the prior year. For the six
months ended January 31, 2000, engineering and product development expenses were
$23.1 million, or 17.8% of net sales, as compared to $16.6 million, or 27.3% of
net sales, in the six months ended January 31, 1999. 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.
Engineering and product development expenses include the reclassified
applications and engineering development costs described in the previous
paragraph. Under the prior method of classification, engineering and product
development expenses would have been $8.3 million, or 11.8% of net sales, and
$5.8 million, or 17.2% of net sales, for the three months ended January 31, 2000
and January 31, 1999, respectively, and $16.1 million, or 12.4% of net sales,
and $11.8 million, or 19.4% of net sales, for the six months period ended
January 31, 2000 and January 31, 1999, respectively.
Selling, general and administrative expenses were $9.6 million, or 13.6% of net
sales, in the three months ended January 31, 2000, as compared to $7.3 million,
or 21.5% of net sales, in the same quarter of the prior year. For the six months
ended January 31, 2000, selling, general and administrative expenses were $18.3
million, or 14.0% of net sales, as compared to $15.1 million, or 24.9% of net
sales, in the six months ended January 31, 1999. The increase in the selling,
general and administrative expenses of $2.3 million during the three months
ended January 31, 2000 is related to the development and selling expenses of the
Fusion product line and support of key accounts.
Interest expense was $418,000 and $310,000 for the three months ended January
31, 2000 and January 31, 1999, respectively. Interest expense for the six
months ended January 31, 2000 was $1.0 million as compared to $707,000 for the
six months ended January 31, 1999. The increase in expense is a result of an
increase in outstanding bank loan balances with the Company's domestic bank.
The increased borrowings were used to support growth in working capital.
Interest income was $949,000 for the three months ended January 31, 2000 and
$1.2 million for the six months ended January 31, 2000 as compared to $252,000
for the three months ended January 31, 2000 and $451,000 for the six months
ended January 31, 1999. The increase in interest income occurred because of the
increase in the Company's cash balance.
9
<PAGE>
The Company recorded gains of $3.8 million during the second quarter of fiscal
1999. These transactions consisted of the liquidation of its majority-owned
Japanese subsidiary, a joint venture with Sumitomo Metal Industries, Ltd., which
resulted in a gain of $1.7 million and the sale of a portion of its legacy board
repair business in Singapore which resulted in a gain of $2.1 million. Both
transactions are consistent with the Company's strategic commitment to the
Fusion strategy and its focus on reducing costs.
The Company had a tax provision of $30,000 for the three months ended January
31, 2000 and no tax provision for the three months ended January 31, 1999. The
Company's net operating loss carry forward is sufficient to offset taxable
income for the quarter ended January 31, 2000.
Net income was $12.0 million, or $0.26 per share, in the three months ended
January 31, 2000, as compared with $1.1 million, or $0.03 per share, in the same
quarter in the prior year. The Company had a net income of $18.9 million, or
$0.44 per share, in the six months ended January 31, 2000, as compared to a net
loss of $(5.8) million, or $(0.16) per share, for the same period last year.
Liquidity and Capital Resources
At January 31, 2000, the Company had $100.9 million in cash and equivalents and
working capital of $146.6 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 is primarily a result of cash proceeds received from a follow-on
public offering of common stock totaling approximately $80.0 million, which was
completed in October 1999.
Accounts receivable from trade customers were $60.1 million at January 31, 2000,
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, along with increased sales as result of higher demand
generally in the STE and semiconductor industries. The reserve for sales
returns allowances and doubtful accounts was $1.6 million, or 2.5% of gross
accounts receivable, on January 31, 2000 and $2.0 million, or 5.1% of gross
accounts receivable, on July 31, 1999.
Inventories increased by $9.3 million to $57.9 million at January 31, 2000 as
compared to $48.6 million at July 31, 1999. The increase is directly
attributable to the production ramp in the Fusion product as sales in that
product line have increased sequentially each quarter since the quarter ended
October 31, 1998.
Capital expenditures totaled $4.3 million for the three months ended January 31,
2000 as compared to $2.2 million for the three months ended January 31, 1999.
Capital expenditures were $8.3 million and $2.7 million for the six months
ending January 31, 2000 and January 31, 1999, respectively. The principal
reason for the increases relate to the addition of board test equipment and
system test cell capacity supporting the growth of the Fusion product line.
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 provides 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 January 31, 2000 were $6.4 million under the domestic credit
facility and $5.0 million under the foreign accounts receivable line facility.
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The Company anticipates that cash flow from operations combined with available
cash balances and credit facility enhancements will be adequate to fund the
Company's currently proposed operating activities for the next twelve months.
Year 2000
We did not experience any material adverse problems resulting from Year 2000. We
established a program to address Year 2000 software failure issues, which is
overseen by a senior manager who updated our officers and directors regularly
prior to January 1, 2000. We have incurred costs of approximately $400,000 to
make our products Year 2000 compliant, most of which was represented by current
engineering staff who were assigned to the project, and approximately $400,000
in ensuring compliance of our internal business systems and those of our
suppliers, most of which was represented by current administrative personnel
assigned to the project.
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, 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.
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.
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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 70% of our revenues for the six months ended January 31,
2000 and 62% of our revenues for the six months ended January 31, 1999. 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
. 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.
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,
-- the configurations of test systems sold, or
-- the customers to whom we sell these systems;
12
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. 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.
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. Sales to our ten largest customers accounted for
73.8% of revenues for the six months ended January 31, 2000, 59.7% of revenues
in fiscal year 1999, 55.2% of revenues in fiscal year 1998, and 43.5% of
revenues in fiscal year 1997. 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.
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.
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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.
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. Vitesse is also a Fusion customer.
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 52.6% and 45% of our sales for the six months
ended January 31, 2000 and the twelve months ended July 31, 1999 respectively
were derived from this region. 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
14
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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.
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 twelve month period ending on January 31, 2000, our stock price has
ranged from a low of $3.43 to a high of $35.87. 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.
15
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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 $33.2 million as of January
31, 2000 and $27.5 million as of July 31, 1999, and in foreign currency exchange
rates. Generally, 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 six months ended January 31,
2000, our revenues derived from shipments outside the United States constituted
70.0% of our total revenues. Revenues invoiced and collected in currencies other
than U.S. dollars comprises 4% 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. 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 January 31, 2000, $11.4 million was outstanding under our domestic bank
facility bearing interest at a rate of 9.00%. Based on this balance, an
immediate change of 1% in the interest rate would cause a change in interest
expense of approximately $114,000 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
A discussion of the Company's exposure to and management of market risk appears
under the heading "Business Risks".
16
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on December
7, 1999.
(b) Stockholders elected Messrs. Stephen M. Jennings and Robert E.
Moore as Class I Directors to serve additional terms of three
years. Messrs. Roger W. Blethen, Robert J. Boehlke and Roger J.
Maggs continued to serve as Class II Directors, with their terms
of office expiring at the Year 2000 Annual Meeting of
Stockholders. Messrs. Jacques Bouyer and Samuel Rubinovitz
continued to serve as Class III Directors, with their terms of
offices expiring at the Year 2001 Annual Meeting of Stockholders.
(c) Matters voted upon and the results of the voting were as follows:
(i) Stockholders voted 38,311,481 shares FOR and 418,633 shares
WITHHELD from the election of Stephen M. Jennings as a Class
I Director. Stockholders voted 38,313,101 FOR and 417,013
shares WITHHELD from the election of Robert E. Moore as a
Class I Director.
(ii) Stockholders voted 21,630,567 shares FOR; 17,035,419 shares
AGAINST and 64,128 shares ABSTAINED regarding the vote to
approve the 1999 Stock Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) (i) Exhibit 10(M)(i) - Fourth Amendment to Lease dated as
September 1, 1999 relating to the Company's manufacturing
facility at 5 Rosemont Avenue, Westwood, Massachusetts.
(ii) Exhibit 27 - Financial Data Schedule
(b) There were no reports on Form 8-K filed during the three months
ended January 31, 2000.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LTX Corporation
Date: March 14, 2000 By: /s/ Roger W. Blethen
-------------- --------------------------------------
Roger W. Blethen
Chief Executive Officer and President
Date: March 14, 2000 By: /s/ David G. Tacelli
-------------- --------------------------------------
David G. Tacelli
Executive Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
18
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EXHIBIT 10.M.I
FOURTH AMENDMENT TO LEASE
This FOURTH AMENDMENT TO LEASE ("Amendment") entered into as of
September 1, 1999, by and between FRANCIS J. PERRY, JR., FRANCIS J. PERRY III,
AND WILLIAM J. WALKER, JR. AS TRUSTEES OF ROSEMONT TRUST ("Trust") under
declaration of trust dated November 19, 1980, recorded with the NorfolK County
Registry of Deeds ("Registry") in Book 5856, Page 213, as amended by First
Amendment to Rosemont Trust dated December 22, 1986, recorded with Norfolk Deeds
in Book 7528, Page 525 and by Second Amendment to Declaration of Trust
Establishing Rosemont Trust dated March 31, 1995, recorded with Norfolk Deeds in
Book 11012, Page 206 ("Landlord"), as Landlord, and LTX CORPORATION, a
Massachusetts corporation ("Tenant"), as Tenant.
REFERENCES AND RECITALS
-----------------------
Reference is made to the Third Amendment to Lease and Restatement of
Lease ("Lease") entered into April 29, 1982, by and between Landlord's
predecessors as trustees of the Trust as landlord and Tenant as Tenant. The
Lease amended, and restated in its entirety, a lease ("1980 Lease") originally
executed November 26, 1980 by and between Landlord's predecessors as trustees of
the Trust as Landlord and Tenant as Tenant, as the 1980 Lease had been
previously amended. Notice of the 1980 Lease was recorded with the Registry in
Book 5856, Page 228. Notice of the Lease was provided by a Second Amendment to
Notice of Lease recorded with the Registry in Book 5996, Page 564. All terms not
specifically defined in this Amendment have the meanings given to them in the
Lease.
Landlord and Tenant now wish to amend the Lease in certain respects as
set forth below.
FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF
WHICH IS ACKNOWLEDGED, LANDLORD AND TENANT HEREBY AMEND THE LEASE AS FOLLOWS:
(1) Section 1.1 of the Lease is amended by striking the words:
--------
"Term: Twenty-five (25) years, as the same may be extended as
provided in Article X hereof." and substituting in their place:
------------
"Term: Ten (10) years, as the same may be extended as provided in
Article X hereof, said ten-year term to commence on the Effective
Date of the Fourth Amendment to this Lease (as that term is
defined below).
<PAGE>
(2) Section 1.1 of the Lease is amended by striking the words:
--------
"Fixed Rent: $1,517,559 annually, payable monthly in installments
of $126,463.25, for the period commencing on the
Commencement Date and ending on the last day of the
fifth (5th) year thereafter. For the balance of the
Term, the Fixed Rent shall be the annual fair market
rental value as determined pursuant to Section 4.1 of
the Lease."
and substituting in their place:
------------
"Fixed Rent: $1,633,135 annually, payable monthly in installments
of $136,094.58, for the period commencing on the
Effective Date of the Fourth Amendment to this Lease
(as that term is defined below) and ending on the
last day of the fifth (5th) year thereafter.
$1,800,636 annually, payable monthly in installments
of $150,053.00, for the period commencing on the
fifth anniversary of the Effective Date of the Fourth
Amendment to this Lease and ending on the last day of
the fifth (5th) year thereafter, the end of the ten
year term of this Lease. In the event the Tenant
exercises its option to extend the Term of this
Lease, all as provided in Article X hereof, the Fixed
Rent during any such Term shall be the annual fair
market rental value as determined pursuant to and
provided for in Article X of the Lease."
(3) Section 1.1 of the Lease is amended by adding, at the end of the
section, the following:
"Effective Date of the Fourth Amendment to this Lease: December 1,
----------
1999."
(4) The following additional provision is added to the end of Section
3.1:
"As soon as practically possible, and in any event no later than
September, 2000, Landlord will, at its expense, cause the roof of
the building on the Premises to be replaced with a new roof at
least substantially the same in quality as the roof originally
installed on the building. The replacement roof will be warranted
by the roof manufacturer or installer, with its standard form of
warranty for such a roof, for a period of at least ten years
following installation; Landlord will provide Tenant a document
from the warrantying party that will recognize Tenant's rights to
enjoy the benefit of the warranty."
2
<PAGE>
(5) Section 4.1 of the Lease, except for the first sentence thereof, is
deleted without substitution.
(6) Section 5.2.1 of the Lease is amended by deleting the last two
sentences and adding as a final sentence of Section 5.2.1 the following:
------
"Landlord agrees not to withhold unreasonably consent to a sublease of
all or any portion of the Premises provided that with respect to:
(i) a sublease of less than 50% of the building area for a term or
terms less than three years in duration, the proceeds of such
subletting in excess of the Fixed Rent and Additional Rent are
shared equally by Landlord and Tenant, and
(ii) with respect to a subletting of 50% or more of the building area
or a subletting of all or any portion of the Premises for a term
of three years or more, that all or any portion of any proceeds
derived from such subletting in excess of Fixed Rent and
Additional Rent be paid to Landlord or Landlord may, at Landlord's
option, elect to terminate this lease with respect to the space
proposed to be sublet."
(7) Article X of the Lease is deleted in its entirety and replaced with the
-------
following:
ARTICLE X
TENANT'S OPTIONS TO EXTEND
10.1 Options to Extend.
-----------------
(a) Provided that, at the time of each such exercise, (i) this Lease is in
full force and effect, and (ii) no default by Tenant shall have occurred and be
continuing (either at the time of exercise or at the commencement of an Extended
Term), Tenant shall have the right and option to extend the Term of this Lease
for two (2) extended terms (collectively, the "Extended Terms") of five (5)
years each by giving written notice to Landlord not later than twelve (12)
months prior to the expiration date of the Initial Term with respect to the
first Extended Term, and not later than twelve (12) months prior to the
expiration date of the first Extended Term with respect to the second Extended
Term. The effective giving of such notice of extension by Tenant shall
automatically extend the Term of this Lease for the applicable Extended Term,
and no instrument of renewal or extension need be executed. In the event that
Tenant fails timely to give such notice to Landlord, this Lease shall
automatically terminate at the end of the Term then in effect, and Tenant shall
have no further option to extend the Term of this Lease. Each Extended Term
shall commence on the day immediately succeeding the
<PAGE>
expiration date of the Initial Term or the preceding Extended Term, as the case
may be, and shall end on the day immediately preceding the fifth anniversary of
the first day of such Extended Term. The Extended Terms shall be on all the
terms and conditions of this Lease, except: (i) during the Extended Terms,
Tenant shall have no further option to extend the Term, except as provided
herein during the first Extended Term with respect to the second Extended Term,
and (ii) the Fixed Rent for the Extended Terms shall be the Fair Market Rental
Value for the Premises as of the commencement of the Extended Term in question,
determined pursuant to paragraph (b) of this Section 10.1.
(b) Promptly after receiving Tenant's notice extending the Term of this
Lease pursuant to paragraph (a) above, Landlord shall provide Tenant with
Landlord's good faith estimate of the Fair Market Rental Value of the Premises
for the applicable Extended Term based upon rents being paid by tenants renewing
leases or entering into new leases for space of comparable size, type, use and
quality in the general vicinity of the Premises, including allowances and
concessions. If Tenant is unwilling to accept Landlord's estimate of Fair Market
Rental Value as set forth in Landlord's notice referred to above, and the
parties are unable to reach agreement hereon within thirty (30) days after the
delivery of such notice by Landlord, then either party may submit the
determination of the Fair Market Rental Value of the Premises to arbitration by
giving notice to the other party naming the initiating party's arbitrator.
Within fifteen (15) days after receiving the notice of initiation of
arbitration, the responding party shall appoint its own arbitrator by notifying
the initiating party of the responding party's arbitrator. If the second
arbitrator shall not have been so appointed within such fifteen (15) day period,
the Fair Market Rental Value of the Premises shall be determined by the
initiating party's arbitrator. If the second arbitrator shall have been so
appointed, the two arbitrators thus appointed shall, within fifteen (15) days
after the responding party's notice of appointment of the second arbitrator,
appoint a third arbitrator. If the two initial arbitrators are unable timely to
agree on the third arbitrator, then either may, on behalf of both, request such
appointment by the Boston office of JAMS/ENDISPUTE, or its successor, or, on its
failure, refusal or inability to act, by a court of competent jurisdiction.
Within fifteen (15) days after the appointment of the third arbitrator, the
three arbitrators shall determine the Fair Market Rental Value of the Premises
and give notice thereof to the parties hereto, and the arbitrators'
determination shall be binding upon the parties. In the event the three
appraisers are unable to agree upon the Fair Market Rental Value of the
Premises, then the average of the two of the three appraisals which are closest
to each other shall be deemed to be the Fair Market Rental Value of the
Premises. In no event shall the annual Fixed Rent to be paid during the first
Extended Term ever be less than the annual Fixed Rent payable during the final
year of the Term prior to extension. In no event shall the annual Fixed Rent to
be paid during the second Extended Term ever be less than the annual Fixed Rent
payable during the final year of the first Extended Term. All arbitrators shall
be appraisers or other qualified real estate professionals who are independent
from the parties and shall be Members of the Appraisal Institute who shall have
had at least ten (10) years commercial real estate experience in the greater
Boston area.
4
<PAGE>
10.2 No Option to Purchase. Tenant has no right or option whatsoever to
---------------------
purchase or otherwise acquire the Premises, any part thereof, or any interest
therein."
Except as expressly amended in this Amendment, the Lease remains unamended,
and in full force and effect in accordance with its provisions.
EXECUTED AS A MASSACHUSETTS INSTRUMENT UNDER SEAL AS OF THE DATE FIRST
WRITTEN ABOVE.
LANDLORD
/s/ Francis J. Perry
------------------------------
Francis J. Perry, Trustee of
Rosemont Trust, as aforesaid,
and not individually
/s/ William J. Walker, Jr.
------------------------------
William J. Walker, Jr., Trustee of
Rosemont Trust, as aforesaid,
and not individually
TENANT:
LTX CORPORATION
By: /s/ David G. Facelli
--------------------------------
Name: David G. Facelli
Title: VP/CFO
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
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0
0
<COMMON> 2,287
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