Exhibit 10.9

 

LOAN AND SECURITY AGREEMENT

 

This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of May 31, 2005,
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 One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts 02462 (“Bank”) and LTX CORPORATION, a
Massachusetts corporation (“Borrower”), provides the terms on which Bank shall
extend credit 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. The term
“financial statements” includes the notes and schedules attached thereto. 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 Article 13. All other terms contained in
this Agreement, unless otherwise indicated, shall have the meaning provided by
the Code, to the extent such terms are defined therein.

 

2 LOAN AND TERMS OF PAYMENT

 

2.1 Promise to Pay. Borrower hereby unconditionally promises to 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 Term Loan.

 

(a) Availability. Bank shall make one (1) advance (the “Term Loan Advance”), on
behalf of Borrower, in an amount up to the Term Loan, on or within ten (10) days
after the Closing Date.

 

(b) Interest. The principal amounts outstanding under the Term Loan shall accrue
interest at a per annum rate equal to the Prime Rate, which interest shall be
payable monthly.

 

(c) Repayment. Borrower shall repay the Term Loan as follows: (i) (A) twelve
(12) installments of principal each in the amount of $600,000.00, payable on the
first (1st) Business Day of each month commencing June 1, 2006 and ending on May
1, 2007, (B) twelve (12) installments of principal each in the amount of
$1,200,000.00, payable on the first (1st) Business Day of each month commencing
June 1, 2007 and ending on May 1, 2008, (C) twelve (12) installments of
principal each in the amount of $1,500,000.00, payable on the first (1st)
Business Day of each month commencing June 1, 2008 and ending on May 1, 2009,
and (D) twelve (12) installments of principal each in the amount of
$1,700,000.00, payable on the first (1st) Business Day of each month commencing
June 1, 2009 and ending on May 1, 2010 (the “Term Loan Maturity Date”), plus
(ii) monthly installments of accrued interest. Borrower shall pay any
outstanding Term Loan principal and accrued interest on the Term Loan Maturity
Date.

 

2.1.2 Undisbursed Credit Extensions. Bank’s obligation to lend the undisbursed
portion of the Credit Extensions shall terminate if there has been a material
adverse change in the general affairs, management, results of operation,
condition (financial or otherwise) or the prospect of repayment of the
Obligations, or there has been any material adverse deviation by Borrower from
the most recent business plan of Borrower presented to and accepted by Bank
prior to the execution of this Agreement.

 

2.2 Interest Rate.

 

(a) Default Rate. After an Event of Default, Obligations shall bear interest at
four percent (4.0%) above the rate effective immediately before the Event of
Default.

 

(b) Adjustment to Interest Rate. The applicable interest rate hereunder shall
increase or decrease when the Prime Rate changes.

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(c) 360-Day Year. Interest is computed on the basis of a three hundred sixty
(360) day year for the actual number of days elapsed.

 

(d) Debit of Accounts. Bank may debit any of Borrower’s deposit or operating
accounts, including Account Number [                    ], for principal and
interest payments when due, or any other amounts Borrower owes Bank, when due.
Bank shall promptly notify Borrower after it debits Borrower’s accounts. These
debits shall not constitute a set off.

 

(e) Payments. Interest is payable monthly on the first calendar day of each
month. 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, as applicable, shall continue to accrue.

 

2.3 Fees. Borrower shall pay to Bank:

 

(a) Commitment Fee. A fully earned, non-refundable commitment fee of Four
Hundred Eighty Thousand Dollars ($480,000.00) due and payable on the Closing
Date; and

 

(b) Bank Expenses. 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. Bank’s obligation to make
the initial Credit Extension is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, such documents,
and completion of such other matters, as Bank may reasonably deem necessary or
appropriate, including, without limitation, the following:

 

(a) this Agreement;

 

(b) a certificate of the Secretary of Borrower with respect to articles, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement, the Loan Documents, and all transactions related thereto;

 

(c) Perfection Certificate by Borrower;

 

(d) a legal opinion of Borrower’s counsel (authority and enforceability);

 

(e) Account Control Agreement/ Investment Account Control Agreement;

 

(f) insurance certificate;

 

(g) payment of the fees and Bank Expenses;

 

(h) Certificate of Foreign Qualification (if applicable);

 

(i) Certificate of Good Standing/Legal Existence; and

 

(j) 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

 

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(b) the representations and warranties in Article 5 shall be true in all
material respects on the date of the Payment/Advance Form and on the effective
date of each Credit Extension and no Event of Default shall 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 Article 5 remain true in all material respects.

 

4 CREATION OF SECURITY INTEREST

 

4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations and the performance of
each of Borrower’s duties under the Loan Documents, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.
Subject to Section 5.2, Borrower warrants and represents that the security
interest granted herein shall be a first priority security interest in the
Collateral.

 

Except as noted on the Perfection Certificate, Borrower is not a party to, nor
is bound by, any material license (other than over the counter software that is
commercially available to the public) or other material agreement with respect
to which Borrower is the licensee that prohibits or otherwise restricts Borrower
from granting a security interest in Borrower’s interest in such license or
agreement or any other property. Borrower shall provide written notice to Bank
within ten (10) days of entering or becoming bound by, any such license or
agreement which is reasonably likely to have a material impact on Borrower’s
business or financial condition. Borrower shall take such steps as Bank
reasonably requests to obtain the consent of, authorization by or waiver by, any
person whose consent or waiver is necessary for all such licenses or contract
rights to be deemed “Collateral” and for Bank to have a security interest in it
that might otherwise be restricted or prohibited by law or by the terms of any
such license or agreement, whether now existing or entered into in the future.

 

If Borrower shall, at any time, acquire a commercial tort claim in excess of One
Million Dollars ($1,000,000.00), Borrower shall promptly notify Bank in a
writing signed by Borrower of the brief details thereof and grant to Bank in
such writing a security interest therein and in the proceeds thereof, all upon
the terms of this Agreement, with such writing to be in form and substance
satisfactory to Bank.

 

4.2 Termination by Borrower.

 

Borrower may terminate this Agreement by sending written notice to Bank and
paying in full all Obligations. If this Agreement is terminated, Bank’s lien and
security interest in the Collateral shall continue until Borrower fully
satisfies the Obligations.

 

4.3 Authorization to File Financing Statements. Borrower hereby authorizes Bank
to file UCC financing statements, without notice to Borrower, with all
appropriate jurisdictions in order to perfect or protect Bank’s interest or
rights hereunder, including a notice that any disposition of the Collateral, by
either Borrower or any other Person, shall be deemed to violate the rights of
Bank under the Code.

 

5 REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants to Bank 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. In connection with this Agreement, Borrower
delivered to Bank a perfection certificate signed by Borrower (the “Perfection
Certificate”). Borrower represents and warrants to Bank that: (a) Borrower’s
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof; and (b) Borrower is an organization of the type, and is
organized in the jurisdiction, set forth in the Perfection Certificate; and (c)
the Perfection Certificate accurately sets forth Borrower’s organizational
identification number or accurately states that Borrower has none; and (d) the
Perfection Certificate accurately sets forth Borrower’s place of business, or,
if more than one, its chief executive office as well as Borrower’s mailing
address if different, and (e) all other information set forth on the Perfection
Certificate pertaining to Borrower is accurate and complete. If Borrower does
not now have an organizational identification number, but later obtains one,
Borrower shall forthwith notify Bank of such organizational identification
number.

 

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The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s organizational documents, nor
shall they 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. Borrower has no deposit account, other than the deposit
accounts with Bank and deposit accounts described in the Perfection Certificate.
The Collateral is not in the possession of any third party bailee (such as a
warehouse); provided, however, Borrower may keep up to Twenty-Five Million
Dollars ($25,000,000.00) of Inventory with a third party bailee. Except as
hereafter disclosed to Bank in writing by Borrower, none of the components of
the Collateral shall be maintained at locations other than as provided in the
Perfection Certificate. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a bailee,
then Borrower will first receive the written consent of Bank and such bailee
must acknowledge in writing that the bailee is holding such Collateral for the
benefit of Bank.

 

5.3 Litigation. Except as shown in the Perfection Certificate, there are no
actions or proceedings pending or, to the knowledge of Borrower’s Responsible
Officers, threatened by or against Borrower or any Subsidiary in which an
adverse decision could reasonably be expected to cause a Material Adverse
Change.

 

5.4 No Material Deterioration 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. The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; and 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 of
1940. Borrower is not engaged as one of its important activities in extending
credit for margin stock (under Regulations X, 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 obtain
or make such consents, declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change.

 

5.7 Subsidiaries; Investments. Borrower does not own any stock, partnership
interest or other equity securities except for Permitted Investments.

 

5.8 Full Disclosure. No written representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank taken together
with all such written certificates and written statements 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 (it being recognized by Bank that the projections and forecasts
provided by Borrower in good faith and based upon reasonable assumptions are not
viewed as facts and that actual results during the period or periods covered by
such projections and forecasts may differ from the projected or forecasted
results).

 

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6 AFFIRMATIVE COVENANTS

 

Borrower shall do all of the following:

 

6.1 Government Compliance. Borrower shall maintain its, and all Subsidiaries’,
legal existence and good standing in their respective jurisdictions of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to 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 would reasonably be expected to 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
thirty (30) days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower’s consolidated
operations during the period certified by a Responsible Officer and in a form
acceptable to Bank; (ii) as soon as available, but no later than five (5) days
after approval of same by Borrower’s Board of Directors, Borrower’s annual
balance sheet and income statement forecasts; (iii) within five (5) days of
filing, Borrower shall provide Bank copies of or electronic notice of links to
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; (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 Three Million Dollars ($3,000,000.00) or more; and (v) other financial
information reasonably requested by Bank.

 

(b) Within thirty (30) days after the last day of each month, Borrower shall
deliver to Bank, with the monthly financial statements, a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit B.

 

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.

 

6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments (other
than taxes and assessments which Borrower is contesting in good faith, with
adequate reserves maintained in accordance with GAAP) and will 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, standard for Borrower’s industry, and as Bank may
reasonably request in Bank’s reasonable discretion. Insurance policies shall be
in a form, with companies, and in amounts that are 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 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. Notwithstanding the foregoing, so
long as no Event of Default has occurred and is continuing, Borrower shall have
the option of applying the proceeds of any casualty policy toward the
replacement or repair of destroyed or damaged property; provided that (i) any
such replaced or repaired property (a) shall be of equal or like value as the
replaced or repaired Collateral and (b) shall be deemed Collateral in which Bank
has been granted a first priority security interest and (ii) after the
occurrence and during the continuation of an Event of Default all proceeds
payable under such casualty policy shall, at the option of Bank, be payable to
Bank on account of the Obligations. 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 Bank, Bank may make all or part of such payment or
obtain such insurance policies required in Section 6.5, and take any action
under the policies Bank deems prudent.

 

 

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6.6 Accounts.

 

(a) In order to permit Bank to monitor Borrower’s financial performance and
condition, Borrower, and all Borrower’s Subsidiaries, shall maintain: (i) as of
October 31, 2005, seventy five percent (75%) of Borrower’s, and such
Subsidiaries’, domestic depository and operating accounts with Bank, and (ii) as
of December 31, 2005, one hundred percent (100%) of Borrower’s, and such
Subsidiaries’, domestic depository and operating accounts with Bank. In
addition, Borrower, and all Borrower’s Subsidiaries, shall maintain fifty
percent (50%) of Borrower’s, and such Subsidiaries’, securities accounts with
Bank or SVB Securities. Notwithstanding the foregoing, Borrower may maintain
Account Number LGP1 at State Street Bank and Trust (the “State Street Account”),
which account has been pledged to Citizens Bank of Massachusetts, provided that
the amount that Borrower shall maintain in the State Street Account at any one
time shall be no greater than Twenty Million Dollars ($20,000,000.00).
Furthermore, in the event that the total amount of all accounts maintained by
Borrower at Bank or SVB Securities is less than Ninety Million Dollars
($90,000,000.00), Bank, at its sole discretion, may impose additional reasonable
fees, which shall be due and payable by Borrower.

 

(b) Borrower shall identify to Bank, in writing, any bank or securities account
opened by Borrower with any institution other than Bank. In addition, for each
such account that Borrower at any time opens or maintains, Borrower shall, at
Bank’s request and option, pursuant to an agreement in form and substance
acceptable to Bank, cause the depository bank or securities intermediary to
agree that such account is the collateral of Bank, and enter into a “control
agreement” pursuant to the terms hereunder. The provisions of the previous
sentence shall not apply to deposit accounts exclusively used for payroll,
payroll taxes and other employee wage and benefit payments to or for the benefit
of Borrower’s employees. Notwithstanding the foregoing, Bank shall not require a
control agreement with respect to the State Street Account until the repayment
in full and termination of Borrower’s loan arrangement with Citizens Bank of
Massachusetts.

 

6.7 Liquidity. Borrower shall maintain Domestic Quick Assets in an amount equal
to or greater than the sum of (a) the outstanding amount of principal and
interest under the Term Loan, plus (b) Thirty Million Dollars ($30,000,000.00),
to be tested monthly.

 

6.8 Further Assurances. Borrower shall execute any further instruments and take
further action as Bank reasonably 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 Bank’s prior written consent,
which shall not be unreasonably withheld:

 

7.1 Dispositions. Convey, sell, lease, transfer, assign or otherwise dispose of
(collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, including the Intellectual Property,
except for Transfers of (a) Inventory in the ordinary course of business; (b)
non-exclusive licenses and similar arrangements for the use of the property of
Borrower or its Subsidiaries in the ordinary course of business; or (c) worn-out
or obsolete Equipment. Borrower shall not enter into an agreement with any
Person other than Bank which restricts the subsequent granting of a security
interest in the Intellectual Property.

 

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 senior management. Borrower shall not, without
prior written notice to Bank: (a) relocate its chief executive office, or add
any new offices or business locations (unless such new offices or business
locations contain less than One Hundred Fifty Thousand Dollars ($150,000.00) in
Borrower’s assets or property), or (b) change its jurisdiction of organization,
or (c) change its organizational structure or type, or (d) change its legal
name, or (e) change any organizational number (if any) assigned by its
jurisdiction of organization.

 

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. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower, provided that Borrower is
the surviving legal entity.

 

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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,
including the Intellectual Property, or assign or convey any right to receive
income, 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
the first priority security interest granted herein. The Collateral may also be
subject to Permitted Liens.

 

7.6 Distributions; Investments. (a) 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 (b) pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock, except
for (i) repurchases of stock from former employees or directors of Borrower
under the terms of applicable repurchase agreements in an aggregate amount not
to exceed Fifty Thousand ($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, and (ii) repurchases of the Convertible
Notes, provided that an Event of Default: (A) has not occurred and is not
continuing, and (B) would not exist immediately after any such repurchase and
for the three (3) months following the month in which any such repurchase takes
place.

 

7.7 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no 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. Notwithstanding the foregoing,
Borrower may make payments on and may repurchase the Convertible Notes, provided
that an Event of Default: (A) has not occurred and is not continuing, and (B)
would not exist immediately after any such payment or repurchase and for the
three (3) months following the month in which any such payment is made or
repurchase takes place.

 

7.9 Compliance. (a) Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; (b) fail to
meet the minimum funding requirements of ERISA, or permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; or (c) fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business or operations or would reasonably be
expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.

 

8 EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default hereunder (an
“Event of Default”):

 

8.1 Payment Default. Borrower fails to pay any of the Obligations within three
(3) Business Days after their due date. During such three (3) day period the
failure to cure the default shall not constitute an Event of Default (but no
Credit Extension shall be made during such cure period).

 

8.2 Covenant Default. (a) Borrower fails or neglects to perform any obligation
in Section 6.2, 6.6 or 6.7 or violates any covenant in Article 7; or (b)
Borrower fails or neglects to perform, keep, or observe any other material term,
provision, condition, covenant or agreement contained in this Agreement, any of
the Loan Documents, or in any present or future agreement between Borrower and
Bank and as to any default under such other material term, provision, condition,
covenant or agreement that can be cured, has failed to cure the 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 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 Credit

 

 

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Extensions shall be made during such cure period). Grace periods provided under
this Section shall not apply, among other things, to financial covenants or any
other covenants that are required to be satisfied, completed or tested by a date
certain.

 

8.3 Material Adverse Change. A Material Adverse Change occurs.

 

8.4 Attachment. (a) 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 ten (10) days; (b) the service of
process upon Borrower seeking to attach, by trustee or similar process, any
funds of Borrower on deposit with Bank, or any entity under control of Bank
(including a subsidiary); (c) Borrower is enjoined, restrained, or prevented by
court order from conducting a material part of its business; (d) a judgment or
other claim becomes a Lien on a material portion of Borrower’s assets; or (e) 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. (a) Borrower is unable to pay its debts (including trade debts)
as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) 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, to accelerate the maturity of any Indebtedness in an amount in
excess of Five Hundred Thousand Dollars ($500,000.00) and such Indebtedness is
in fact accelerated, or that could result in a Material Adverse Change.

 

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 writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

 

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) Provided that either (i) an Event of Default (other than an Event of Default
described in Section 8.3) occurs and continues, or (ii) a MAC Event occurs and
continues, declare all Obligations 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 and notify any
Person owing Borrower money of Bank’s security interest in such funds and verify
and/or collect the amounts owed by such account debtors. After the occurrence of
an Event of Default, any amounts received by Borrower shall be held in trust by
Borrower for Bank, and, if requested by Bank, Borrower shall immediately deliver
such receipts to Bank in the form received from the account debtor, with proper
endorsements for deposit;

 

-8-

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(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. Bank is hereby granted a
non-exclusive, royalty-free license or other right 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 similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Bank’s benefit;

 

(g) Place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any control agreement or similar agreements providing control of any
Collateral; and

 

(h) Exercise all rights and remedies and 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 upon the occurrence and during the continuance
of an Event of Default, to: (a) endorse Borrower’s name on any checks or other
forms of payment or security; (b) sign Borrower’s name on any invoice or bill of
lading for any Account or drafts against account debtors; (c) settle and adjust
disputes and claims about the Accounts directly with account debtors, for
amounts and on terms Bank determines reasonable; (d) make, settle, and adjust
all claims under Borrower’s insurance policies; and (e) transfer the Collateral
into the name of Bank or a third party as the Code permits. Borrower hereby
appoints Bank as its lawful attorney-in-fact 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 Bank Expenses. Any amounts paid by Bank as provided herein shall constitute
Bank Expenses and are immediately due and payable, and shall bear interest at
the then applicable rate hereunder and be secured by the Collateral. No payments
by Bank shall be deemed an agreement to make similar payments in the future or
Bank’s waiver of any Event of Default.

 

9.4 Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices regarding the safekeeping of Collateral and Section 9-207 of
the Code, 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.

 

9.5 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 hereunder shall be effective unless signed by Bank and
then is only effective for the specific instance and purpose for which it was
given.

 

9.6 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 guarantees held by Bank on which Borrower is
liable.

 

-9-

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10 NOTICES

 

All notices or demands by any party to this Agreement or any 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
facsimile at the addresses listed below. Either Bank or Borrower may change its
notice address by giving the other party written notice.

 

If to Borrower:

   LTX CORPORATION      50 Rosemont Road      Westwood, Massachusetts 02090     
Attn: Chief Financial Officer      FAX: (781) 329-8836 with a copy to:    LTX
CORPORATION      50 Rosemont Road      Westwood, Massachusetts 02090      Attn:
General Counsel      FAX: (781) 329-8836 If to Bank:    Silicon Valley Bank     
One Newton Executive Park, Suite 200      2221 Washington Street      Newton,
Massachusetts 02462      Attn: Ms. Irina Case      Fax: (617) 969-5973 with a
copy to:    Riemer & Braunstein LLP      Three Center Plaza      Boston,
Massachusetts 02108      Attn: David A. Ephraim, Esquire      FAX: (617)
880-3456

 

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 Massachusetts; provided, however, that if for
any reason Bank cannot avail itself of such courts in the Commonwealth of
Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Clara County, California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN
ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST
BORROWER OR ITS PROPERTY.

 

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, assign,
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.

 

 

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12.2 Indemnification. Borrower hereby indemnifies, defends and holds Bank and
its directors, officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party or
Person 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 Right of Set Off. Borrower hereby grants to Bank, a lien, security interest
and right of set off as security for all Obligations to Bank, whether now
existing or hereafter arising upon and against all deposits, credits, collateral
and property, now or hereafter in the possession, custody, safekeeping or
control of Bank or any entity under the control of Bank (including a Bank
subsidiary) or in transit to any of them. At any time after the occurrence and
during the continuance of an Event of Default, without demand or notice, Bank
may set off the same or any part thereof and apply the same to any liability or
obligation of Borrower even though unmatured and regardless of the adequacy of
any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE
BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

12.4 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

 

12.5 Severability of Provision. Each provision of this Agreement is severable
from every other provision in determining the enforceability of any provision.

 

12.6 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
supersede prior negotiations or agreements. All prior 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.

 

12.7 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, constitute one
Agreement.

 

12.8 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms, and all Obligations have been satisfied.. The obligation of Borrower
in Section 12.2 to indemnify Bank shall survive until the statute of limitations
with respect to such claim or cause of action shall have run.

 

12.9 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
subsidiaries or affiliates in connection with their business with Borrower; (b)
to prospective transferees or purchasers of any interest in the Credit
Extensions (provided, however, Bank shall use commercially reasonable efforts in
obtaining such prospective transferee’s or purchaser’s agreement to the terms of
this provision); (c) as required by law, regulation, subpoena, or other order,
(d) as required in connection with Bank’s examination or audit; and (e) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) 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 (ii) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.

 

-11-

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13 DEFINITIONS

 

13.1 Definitions. In this Agreement:

 

“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, as
such definition may be amended from time to time according to the Code.

 

“Affiliate” 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.

 

“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 storage or any
equipment containing the information.

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

 

“Closing Date” is the date of this Agreement.

 

“Code” is the Uniform Commercial Code as adopted in Massachusetts, as amended
and as may be amended and in effect from time to time.

 

“Collateral” is any and all properties, rights and assets of Borrower granted by
Borrower to Bank or arising under the Code, now, or in the future, in which
Borrower obtains an interest, or the power to transfer rights, in the property
described on Exhibit A.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) 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; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) 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
any guarantee or other support arrangement.

 

“Convertible Notes” are the 4 1/4% Convertible Subordinated Notes, due 2006, in
the maximum principal amount of $150,000,000.00.

 

“Copyrights” are all copyright rights, applications or registrations and like
protections in each work or authorship or derivative work, whether published or
not (whether or not it is a trade secret) now or later existing, created,
acquired or held.

 

“Credit Extension” is a Term Loan Advance or any other extension of credit by
Bank for Borrower’s benefit.

 

“Domestic Quick Assets” is, on any date, Borrower’s unrestricted cash and
investments with maturities of fewer than 12 months determined according to
GAAP, maintained in the United States.

 

“Equipment” is all present and future machinery, equipment, tenant improvements,
furniture, fixtures, vehicles, tools, parts and attachments in which Borrower
has any interest.

 

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“ERISA” is the Employment Retirement Income Security Act of 1974, and its
regulations.

 

“Event of Default” is defined in Article 8.

 

“GAAP” is generally accepted accounting principles in the United States.

 

“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.

 

“Intellectual Property” is any Copyrights, 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, now owned or hereafter acquired.

 

“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, 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.

 

“MAC Event” is the occurrence of both: (a) a Material Adverse Change, and (b)
Borrower’s failure to maintain unrestricted and unencumbered cash at Bank equal
to or greater than One Hundred Million Dollars ($100,000,000.00).

 

“Mask Works” are all mask works or similar rights available for the protection
of semiconductor chips, now owned or later acquired.

 

“Material Adverse Change” is: (a) a material impairment in the perfection or
priority of Bank’s security interest in the Collateral or in the value of such
Collateral; (b) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; (c) a material impairment of the
prospect of repayment of any portion of the Obligations; or (d) the
determination by Bank, 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 Article 6 during
the next succeeding financial reporting period.

 

“Obligations” are all liabilities, obligations, covenants, agreements, debts,
principal, interest, Bank Expenses and other amounts Borrower owes Bank now or
later, including letters of credit, cash management services, and foreign
exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrower assigned to
Bank.

 

“Patents” are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

 

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“Perfection Certificate” is defined in Section 5.1.

 

“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 Perfection
Certificate;

 

(c) Subordinated Debt;

 

(d) Indebtedness secured by Permitted Liens (including, without limitation,
indebtedness arising out of capital lease transactions incurred in the ordinary
course of the Borrower’s business); and

 

(e) Extensions, refinancings, modifications, amendments and restatements of any
items of Permitted Indebtedness (a) through (d) 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.

 

“Permitted Investments” are:

 

(a) Investments shown on the Perfection Certificate 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, and (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.; and

 

(c) Investments consisting of the endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary course of
Borrower.

 

“Permitted Liens” are:

 

(a) Liens existing on the Closing Date and shown on the Perfection Certificate
or arising under this Agreement or other Loan Documents;

 

(b) Control agreement in favor of Citizens Bank of Massachusetts with respect to
Borrower’s Account Number LGP1 maintained at State Street Bank and Trust which
secures Borrower’s loan arrangement with Citizens Bank of Massachusetts;

 

(c) 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;

 

(d) 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;

 

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(e) Leases or subleases and non-exclusive 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

 

(f) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (e), 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.

 

“Responsible Officer” is each of the Chief Executive Officer, President, Chief
Financial Officer and Controller of Borrower.

 

“State Street Account” is defined in Section 6.6.

 

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt
to Bank (a) pursuant to a subordination agreement entered into between Bank,
Borrower and the subordinated creditor, on terms acceptable to Bank, and (b) the
Convertible Notes.

 

“Subsidiary” is any Person, 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.

 

“Term Loan” a Term Loan Advance of up to Sixty Million Dollars ($60,000,000.00).

 

“Term Loan Advance” is defined in Section 2.1.1(a).

 

“Term Loan Maturity Date” is defined in Section 2.1.1(c).

 

“Trademarks” are trademark and service mark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Borrower connected with the trademarks.

 

[The remainder of this page is intentionally left blank]

 

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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

 

 

--------------------------------------------------------------------------------

Name:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

BANK:

   

SILICON VALLEY BANK

By

 

 

--------------------------------------------------------------------------------

Name:

 

 

--------------------------------------------------------------------------------

Title:

 

 

--------------------------------------------------------------------------------

 

 

S-1

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EXHIBIT A

 

The Collateral consists of all right, title and interest of Borrower in and to
the following:

 

All goods, equipment, inventory, contract rights or rights to payment of money,
license agreements, franchise agreements, general intangibles (including payment
intangibles), accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located in
the United States; 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.

 

The Collateral does not include:

 

Any copyright rights, copyright applications, copyright registrations mask
works, 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, now owned or hereafter acquired.
Notwithstanding the foregoing, the Collateral shall include all accounts,
license and royalty fees and other revenues, proceeds, or income arising out of
or relating to any of the foregoing. To the extent a court of competent
jurisdiction holds that a security interest in any Intellectual Property is
necessary to have a security interest in any accounts, license and royalty fees
and other revenues, proceeds, or income arising out of or relating to any of the
foregoing Intellectual Property, then the Collateral shall, effective as of the
Closing Date, include the Intellectual Property, to the extent necessary to
permit perfection of Bank’s security interest in such accounts, license and
royalty fees and other revenues, proceeds, or income arising out of or relating
to any of the Intellectual Property; and

 

The State Street Account, provided that the amount that Borrower shall maintain
in the State Street Account at any one time shall be no greater than Twenty
Million Dollars ($20,000,000.00).

 

Exhibit

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EXHIBIT B

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) there are no Events of Default, and 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.  
 

Reporting Covenant

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Required

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  Complies  

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Monthly financial statements with CC

   Monthly within 30 days   Yes    No

Annual Board projections

   FYE within 5 days of approval   Yes    No

10-Q, 10-K and 8-K

   Within 5 days after filing with SEC   Yes    No

Financial Covenant

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Required

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Actual

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  Complies  

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Maintain at all times (tested):              Liquidity (monthly)   

Outstanding Term

Loan obligations +

$30,000,000

  $                        Yes    No

 

Comments Regarding Exceptions: See Attached.

  BANK USE ONLY

Sincerely,

  Received by:    

 

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SIGNATURE

      AUTHORIZED SIGNER     Date:  

 

--------------------------------------------------------------------------------

    Verified:  

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

      AUTHORIZED SIGNER

TITLE

       

 

--------------------------------------------------------------------------------

  Date:  

--------------------------------------------------------------------------------

DATE

  Compliance Status: Yes     No

 

 

Exhibit