<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NO. 0-10018
____________________
DSC COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Charter)
DELAWARE 54-1025763
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1000 COIT ROAD
PLANO, TEXAS 75075
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (214) 519-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK,
$.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 1, 1994, 55,770,595 shares of DSC Communications Corporation
Common Stock, $.01 par value, were outstanding, and the aggregate market price
of the shares held by nonaffiliates was approximately $2,934,418,450. (Solely
for the purposes of calculating the preceding amount, all directors and officers
of the registrant are deemed to be affiliates.)
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive proxy material for the 1994 Annual
Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, and
13 of Part III of this report.
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DSC COMMUNICATIONS CORPORATION
ANNUAL REPORT
ON
FORM 10-K
YEAR ENDED DECEMBER 31, 1993
PART I
ITEM 1. BUSINESS
GENERAL
DSC Communications Corporation was incorporated under the laws of the State
of Delaware in 1976. As used herein, the term "Company" refers to DSC
Communications Corporation and, unless the context clearly indicates otherwise,
all of its subsidiaries. The Company's executive offices are located at 1000
Coit Road, Plano, Texas 75075. Its telephone number is (214) 519-3000.
The Company designs, develops, manufactures, and markets digital switching,
transmission, access, and private network system products for the worldwide
telecommunications marketplace. These products allow telecommunications service
providers to build and upgrade their networks to support a wide range of voice,
data, and video services. The Company offers a comprehensive product line
including digital switching systems, intelligent network products, cellular
switching systems, digital loop carrier products, and digital cross-connect
products. The Company develops hardware and software to meet both United States
and international standards, and the specific requirements of its customers.
The Company supplies products to both local exchange companies and long-
distance carriers. Its customers include all seven of the Regional Bell Holding
Companies ("RHCs") and most major domestic independent telephone companies,
including GTE Communications Systems Corporation ("GTE"), United
Telecommunications, Inc. ("United"), and Alltel Supply, Inc. ("Alltel"). The
Company's long-distance carrier customers include MCI Communications Corporation
("MCI"), DDI Corporation of Japan ("DDI"), Sprint Communications Company L.P.
("Sprint"), and AAP Communications Pty Ltd. of Australia ("AAP"). The Company
is also a manufacturer of high-capacity cellular switches for Motorola, Inc.
("Motorola"), a global supplier of wireless communication systems.
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PRODUCTS
GENERAL. The Company's principal products are sophisticated
microprocessor-controlled systems which incorporate advanced hardware and
software technology. The Company develops such systems to meet United States
and international telecommunications standards, and the specific requirements of
the operating companies of the RHCs, independent telephone companies,
long-distance carriers, private networks, and companies operating public and
private communication networks in other countries.
The percentage of consolidated revenue from the Company's product groups,
which represented ten percent or more of consolidated revenue, was as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Switching 45% 54% 49%
Access 28% * *
Transmission 19% 24% 29%
<FN>
*-Represented less than ten percent of consolidated revenue.
</TABLE>
SWITCHING AND INTELLIGENT NETWORK PRODUCTS. The Company's switching and
intelligent network products include the MegaHub product line, the Bandwidth
Allocation System for Integrated Services ("BASiS"), the Integrated Broadband
Service Switch ("iBSS"), cellular switching platforms, and the Company's family
of digital tandem switches.
The MegaHub family of products is based upon the Message Transfer Network
("MTN") architecture. The MTN architecture affords a high degree of flexibility
by interconnecting clusters of independent application processors over
high-speed links, using fast-packet switching technology and multifunctional
software. Because of the MTN's flexible architecture, the MegaHub platform can
serve as a tandem switch, a signal transfer point, a service control point, or
as a platform for a variety of wideband and broadband services.
One of the Company's first applications of the MegaHub technology was the
MegaHub Signal Transfer Point ("MegaHub STP"), a high-capacity switching system
used to route or switch signaling messages through the Common Channel Signaling
System No. 7 network ("SS7"). The MegaHub STP can be used as an access facility
to information services such as 700, 800, and 900 numbers and alternate billing
arrangements. The Company is delivering the MegaHub STP to a majority of the
major local telephone companies in the United States,
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including the RHCs and several of the RHCs' cellular subsidiaries, and various
long-distance carriers in the United States and DDI, a long-distance competitor
of Nippon Telegraph and Telephone in Japan.
First introduced in 1989, the MegaHub Service Control Point (the "MegaHub
SCP") combines the functionalities of the Company's MegaHub STP and standard
UNIX-based computing systems. The MegaHub SCP can act as a central storehouse
for information about calls and callers, and can answer network requests for
such information in an expeditious manner. In 1992, the Company introduced the
Programmable Advanced Intelligent Network Computing Environment (the "MegaHub
PACE SCP") which builds upon the Company's initial SCP system by creating an
open, state-of-the-art computing environment. The capabilities of the MegaHub
PACE SCP will provide the user with extremely high transaction rates needed to
support applications like credit and calling card validation and cellular fraud
detection. The Company has provided the MegaHub PACE SCP to DDI; to a large
independent local exchange carrier in the United States; and to Optus
Communications Pty Ltd. ("Optus"), a newly-licensed competitive
telecommunications service provider in Australia. In March, 1994, the Company
entered into an agreement with Cable & Wireless plc, a global telecommunications
carrier, who will initially deploy the MegaHub PACE SCP and related equipment in
the network of its subsidiary, Mercury Communications Ltd, the first company
licensed to compete against British Telecom in the United Kingdom.
In 1991, the Company announced the development and testing of the BASiS
switching system. BASiS is a circuit switching platform which will allow
telecommunications carriers to provide their customers with bandwidth on demand.
This capability will serve as the foundation for numerous high-speed
applications existing in the market today, including video teleconferencing,
medical imaging, high-speed facsimile transmission, local area network
interconnection, and certain residential applications such as video-on-demand.
The BASiS switching system will allow customer-to-customer connections at data
rates ranging from 1.5Mb per second to 45Mb per second. The BASiS switching
system is presently being deployed in the network of a major long-distance
carrier. In addition, Bell Atlantic chose BASiS as its video switch to provide
video-on-demand service for its field trial in northern Virginia.
In 1992, the Company announced the development and testing of the iBSS, an
Asynchronous Transfer Mode ("ATM") switching platform. The iBSS uses ATM
technology to provide a multiservice platform which is designed to provide
network-based applications for high-speed data, image, and video. Use of the
iBSS will allow network service providers to respond more quickly to customer
demands for current and evolving broadband communication services, and to meet
the increasing demand for the transfer of information at rates much higher than
current data services. The most likely first application of the iBSS will be in
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those situations, such as the interconnection of local area networks, that
demand high-speed transmission rates and easy integration of data, voice, and
video applications. The iBSS is currently undergoing laboratory evaluations
with both local and long-distance carriers.
The Company has developed a group of cellular telephone switches utilizing
its tandem switching technology. The Company has supplied cellular switches to
Motorola since 1985, and currently has an agreement to license software and sell
equipment to Motorola on a nonexclusive basis. In July, 1993, the Company and
Motorola expanded their ongoing relationship by agreeing that the Company would
provide repackaged, smaller configurations of its existing cellular switching
system to Motorola as an alternative to Motorola's line of older and smaller
cellular switching systems. Motorola has incorporated the Company's cellular
switches into cellular communications systems in the United States and in
numerous other countries including, most recently, the People's Republic of
China and Russia.
The Company is a vendor of tandem switches to those United States and
Canadian companies which compete with AT&T and Bell Canada as alternate
long-distance carriers. In addition, the Company provides tandem switches to
DDI and to AAP, an Australian private network provider of value added and
virtual private network services. Tandem switches are generally used to route
calls over long-distance networks. The MegaHub version of the tandem switch,
the MegaHub 600E, was first placed into service in 1990.
ACCESS PRODUCTS. The Company designs, manufactures, and sells equipment
for the local loop, that portion of the public telecommunications network which
extends from the local telephone company's central office switch to the
individual home or business user. Such products include the Litespan-2000,
which is the world's first digital loop carrier to meet North American
Synchronous Optical Network ("SONET") fiber optic standards and related fiber
optic interface requirements set forth by the RHCs. The Litespan-2000 allows
telecommunications service providers to introduce the high-capacity technology
of fiber optics into the local loop, while supporting basic services, in a
cost-effective manner. The Company has entered into multi-year agreements with
a majority of the seven RHCs for purchase of the Litespan-2000 system.
The Company's Starspan-R- product is an optical fiber distribution system
which extends the capabilities of the Litespan-2000 through fiber cables to
optical network units at the customer's premises. Starspan is a cost-effective
means of extending the capacity of optical fibers from the telephone company
central office to cover the entire local loop. The Starspan system is currently
being deployed and is carrying traffic with several RHCs.
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In addition to improving network reliability, fiber optic technology will
be key to local service providers such as the RHCs as they expand services for
business and residential users to include voice, data, and video. The Litespan-
2000 and Starspan provide high-capacity capability to transmit large amounts of
voice, data, and video simultaneously to and from business or residential users.
The Company believes that the introduction of multi-media services, such as
video-on-demand, will increase the demand for fiber optics-based products such
as the Litespan-2000 and Starspan.
In 1993, the Company introduced a new product, Metrospan, which extends the
capabilities of the Litespan-2000 technology base outside of the local loop.
Metrospan will be used as a broadband transport system within a campus-type
setting or a metropolitan communication network. Metrospan has already been
selected for use by a leading Canadian utility company. During 1993, the
Company developed a new product which will be called Airspan. The Airspan
product, which was developed initially in cooperation with a major European
carrier, will be used to connect end-user customers to central office facilities
via cellular or radio connections.
In November, 1993, the Company entered into a cooperative agreement with
General Instrument Corporation ("GI"), a leading supplier of equipment to the
cable television industry. The Company and GI have agreed to combine the
Company's expertise in fiber optics and switching systems and GI's expertise in
cable television equipment. The Company and GI plan to develop joint proposals
for customers who need to capitalize on emerging digital video cable processing
technologies for the distribution of enhanced pay-per-view, video-on-demand,
interactive multimedia, and other new video services. The Company also
announced in 1993 an agreement with Westell, Inc. to jointly develop systems
which allow cost-effective deployment of interactive video services over
existing copper wire transmission facilities.
TRANSMISSION PRODUCTS. The Company's digital cross-connect systems provide
switching, multiplexing, and termination of digital transmission services. The
Company's various digital cross-connect products are distinguished from one
another principally by the capacity which each system handles. Digital
cross-connect products are widely deployed in the United States by the RHCs,
long-distance carriers, independent local exchange carriers, and a number of
large corporations.
In 1992, the Company announced the development and testing of a major new
transmission platform, the Integrated Multi-Rate Transport Node ("iMTN").
Building on the Company's experience with digital cross-connect systems, the
iMTN will provide for the public telecommunications network's evolution to
SONET-based transmission and the deployment of automated administration
functions. The iMTN will enable network service providers to offer
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their customers, on an integrated basis, narrowband services such as voice
communications, high-speed wideband data services, and broadband services such
as video-on-demand. The iMTN has been designed to meet the interconnectivity
requirements of SONET in North America, SDH/CCITT in Europe, and the unique
standards of Japan. In 1993, the Company entered into an agreement to supply
the iMTN to carriers in both the local and long-distance marketplace. MCI, one
of the carriers with whom an agreement was signed, is expected to use the iMTN
to support SONET-based broadband and wideband network requirements.
The Company also develops, manufactures, and markets a variety of digital
transmission products such as echo cancellers and transcoders.
CUSTOMER PREMISE PRODUCTS. The Company's customer premise products allow
service providers and corporate customers with high-capacity networks to
transport multiple types of data, voice, and video traffic over public and
private network facilities. The Company develops, manufactures, and sells a
complete line of T1/E1 multiplexers which have been sold to private and public
network service providers throughout the world. In 1993, the Company introduced
the iMPAX line of products. The iMPAX product will serve as the Company's next
generation multiservice platform. The iMPAX will support voice circuits, frame
relay, and cell-based ATM traffic. The iMPAX can be deployed in a telephone
company central office, at the site of an independent service provider, or on
the premises of an end user. Use of the iMPAX will give service providers
access to network elements through which they can offer new wideband and
broadband services such as LAN-to-LAN internetworking, video conferencing, and
supercomputer connectivity.
REGULATION
The telecommunications industry is subject to regulation in the United
States and other countries. Federal and state regulatory agencies, including
the Federal Communications Commission ("FCC") and the various state Public
Utility Commissions ("PUCs") and Public Service Commissions ("PSCs"), regulate
most of the Company's domestic customers. In addition, the RHCs are restricted
by the terms of the Modified Final Judgment which resulted from the
court-ordered divestiture of the RHCs by AT&T, and currently prohibits the RHCs
from manufacturing telecommunications equipment and providing interexchange or
long-distance services. Legislation has been introduced which would lift these
restrictions on manufacturing and interexchange services. Should this
legislation be enacted, the Company cannot predict the impact on its business,
although it is possible that passage of legislation allowing the RHCs to
manufacture telecommunications equipment could create additional competition in
the markets addressed by the Company's products.
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In addition, the FCC and a majority of the states have enacted or are
considering regulations based upon alternative pricing methods. Under
traditional rate of return pricing, telecommunications service providers were
limited to a stated percentage profit on their investment. Under the new method
of pricing, many PUCs have entered into agreements with the local exchange
carriers where the PUCs have relaxed or eliminated the profit cap in return for
the carrier's promise to reduce or hold service prices at current levels. In
some states, the PUCs and the carriers have further agreed, in order to win
relaxation of profit limits, that the carriers would invest large sums to
further upgrade the digital and optical capabilities of the network. The
Company believes that the new methods of price regulation could increase the
demand for its products which enhance the efficiency of the network or allow the
expedited introduction of new revenue-producing services.
Outside the United States, telecommunications networks are primarily owned
by the government or are strictly regulated by the government. Although
potential growth rates of some international markets are higher than those of
the United States, access to such markets is often difficult due to the
established relationship between the government owned or controlled
telecommunications operating company and its traditional indigenous suppliers of
telecommunications equipment. However, there has been a global trend towards
privatization and deregulation of the state-owned telecommunications operations.
This trend has found favor in the industrialized world, the emerging markets of
the newly-industrialized countries, and various developing market countries
which want to both capitalize on the value of the existing network and promote
the development of the telecommunications network as an integral part of the
economic infrastructure. The Company believes that the current trend of
privatization and deregulation will continue, and that such trend could provide
the Company with additional international opportunities.
MARKETING
The Company sells products and services on a domestic and international
basis to both the public and private network markets through various sales and
distribution channels. The Company's internal sales group is a direct sales
force, divided into market business segments. The Company also sells through
third-party distributors such as original equipment manufacturers ("OEMs") and
sales representatives.
In 1993, the Company entered into separate agreements with Nokia
Telecommunications Oy of Finland ("Nokia") and a European subsidiary of Northern
Telecom Ltd. ("Northern") to distribute the iMTN. The agreement with Nokia, a
leading worldwide supplier of wireless communications systems, will
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allow Nokia to market the iMTN on a nonexclusive basis in Scandinavia and
certain other countries. The agreement with Northern grants the European
subsidiary of Northern the exclusive right to market the iMTN system in certain
European countries and a nonexclusive right to market the iMTN system in certain
other countries.
INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS
Revenue generated from export sales in 1991 was $48,012,000. Revenue
generated from export sales was less than ten percent of consolidated revenue in
1993 and 1992. Revenue and assets of the Company's foreign operations for those
same periods were less than ten percent of the Company's consolidated revenue
and total assets, respectively.
For the year ended December 31, 1993, MCI, Ameritech, Motorola, Bell
Atlantic, and NYNEX accounted for 18 percent, 13 percent, 12 percent, 11
percent, and 11 percent, respectively, of the Company's consolidated revenue.
The termination or material reduction of the purchases of the Company's products
by any of the above-named companies could have a material effect on the Company.
BACKLOG
The Company's backlog, calculated as the aggregate of the sales price of
orders received from customers less revenue recognized, was approximately
$320,000,000 and $200,000,000 on December 31, 1993 and December 31, 1992,
respectively. Approximately $70,000,000 of orders included in the December 31,
1993 backlog are scheduled for delivery after December 31, 1994. However, all
orders are subject to possible rescheduling by customers. While the Company
believes that the orders included in the backlog are firm, some orders may be
cancelled by the customer without penalty, and the Company may elect to permit
cancellation of orders without penalty where management believes that it is in
the Company's best interest to do so.
RESEARCH AND PRODUCT DEVELOPMENT
The industry in which the Company operates is characterized by rapidly-
changing technological and market conditions which may shorten product life
cycles. The Company's future competitive position will depend not only upon
successful production and sales of its existing products, but also upon its
ability to develop and produce, on a timely basis, new products to meet existing
and anticipated industry demands. The Company is currently engaged in the
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development of several new products, including the iMTN and the iBSS. During
the product development process, the Company invests a substantial amount of
resources in products which often require extensive field testing and evaluation
prior to actual sales to its customers.
The Company's research and product development costs charged to expense
were $86,620,000, $68,303,000, and $63,842,000 for the years ended December 31,
1993, 1992, and 1991, respectively. Additionally, approximately $21,947,000,
$18,097,000, and $22,793,000 of software development costs were capitalized in
the Consolidated Balance Sheets in 1993, 1992, and 1991, respectively.
COMPETITION
The segments of the telecommunications industry in which the Company
competes are intensely competitive and are characterized by continual advances
in technology. The Company believes that it enjoys a strong competitive
position due to its large installed base, its strong relationship with key
customers, and its technological leadership and new product development
capabilities. However, many of the Company's foreign and domestic competitors
have more extensive engineering, manufacturing, marketing, financial, and
personnel resources than those of the Company. The Company's ability to compete
is dependent upon several factors, including product features, innovation,
quality, reliability, service support, price, and the retention and attraction
of qualified design and development personnel.
Due to its breadth of product offerings, the Company has different
competitors in each of the markets which it serves. The Company's primary
competitors in the tandem switching and intelligent network markets are AT&T and
Northern. In the ATM switching market, AT&T and Fujitsu, Ltd. ("Fujitsu") are
the Company's primary competitors. The Company's primary competitors in the
digital cross-connect market are AT&T, Alcatel Network Systems, and Tellabs,
Inc. The Company's primary competitors in the access market are AT&T, R-TEC,
a wholly-owned subsidiary of Reliance Electric Co., and Fujitsu.
MANUFACTURING AND SUPPLIERS
The Company generally uses standard parts and components for its products,
and believes that, in most cases, there are a number of alternative, qualified
vendors for most of those parts and components. The Company purchases certain
custom components and products from single suppliers. The Company believes that
the manufacturers of the particular custom components and products should be
able to meet expected future demands. Although the
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Company has not experienced any material adverse effects from the inability to
obtain timely delivery of needed components, an unanticipated failure of any
significant supplier to meet the Company's requirements for an extended period,
or an interruption of the Company's ability to secure comparable components
could have an adverse effect on the Company's revenues and profitability. In
addition, the Company's products contain a number of subsystems or components
acquired from other manufacturers on an OEM basis. These OEM products are often
available only from a limited number of manufacturers. In the event that an OEM
product was no longer available from a current OEM vendor, second sourcing would
be required and could delay customer deliveries which could have an adverse
effect on the Company's revenues and profitability.
PATENTS AND PROTECTION OF OTHER PROPRIETARY INFORMATION
The Company has been awarded patents and has patent applications pending in
the United States and certain foreign countries. There can be no assurance that
any of these applications will result in the award of a patent, or that the
Company would be successful in defending its patent rights in any subsequent
infringement actions. Because of the existence of a large number of third-party
patents in the telecommunications field and the rapid rate of issuance of new
patents, some of the Company's products, or the use thereof, could infringe
third-party patents. If any such infringement exists, the Company believes
that, based upon historical industry practice, it or its customers should be
able to obtain any necessary licenses or rights under such patents upon terms
which would not be materially adverse to the Company.
In addition to the patent protection described above, the Company protects
its software through contractual arrangements with its customers and through
copyright protection procedures.
ENVIRONMENTAL AFFAIRS
The Company's manufacturing operations are subject to numerous federal,
state, and local laws and regulations designed to protect the environment.
Compliance with these laws and regulations has not had, and is not expected to
have, a material effect upon the capital expenditures, earnings, or the
competitive position of the Company.
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EMPLOYEES
As of December 31, 1993, the Company had a total of 4,041 employees. The
Company is not a party to any collective bargaining agreement.
ITEM 2. PROPERTIES
The Company owns two buildings and approximately 250 acres of land in
Plano, Texas, of which 148 acres were acquired in 1994. One of the buildings
is a 282,000 square foot office building. The other building is a 421,000 square
foot manufacturing and assembly facility. As of December 31, 1993, the Company
had under lease approximately 949,280 square feet of office, manufacturing, and
warehouse space in suburban Dallas, Texas; Santa Clara, California; Petaluma,
California; and Aguadilla, Puerto Rico under leases expiring between
September 30, 1994 and September 30, 2002. Subsequent to December 31, 1993,
the Company entered into a lease for approximately 65,000 square feet of office
space in Feltham, England expiring on March 25, 2004, which replaced a lease in
Weybridge, England for 10,000 square feet expiring March 31, 1994. The Company
also has under lease smaller facilities, including sales offices, in the United
States, Canada, Japan, Australia, Singapore, and Taiwan, with leases expiring
between June 30, 1994 and June 30, 2002. The Company believes that the
above-described facilities are suitable and adequate to meet the Company's
production requirements.
ITEM 3. LEGAL PROCEEDINGS
In July, 1991, three complaints were filed in the United States District
Court for the Northern District of Texas by three individuals on behalf of
themselves and, purportedly, on behalf of an alleged class of persons who
purchased common stock of the Company during the period from February 7, 1991
through July 9, 1991. Named as defendants in these actions are the Company, two
of the Company's principal officers, and a former principal officer of the
Company. In December, 1991, four plaintiffs, including each of the three
original plaintiffs, filed a Consolidated Complaint (the "Consolidated
Complaint") in the United States District Court for the Northern District of
Texas against the Company and six individuals, each of whom is either a present
or former officer of the Company, including two present directors and one former
director. The Consolidated Complaint amends and consolidates the three original
complaints and purports to be a class action on behalf of an alleged class of
persons who purchased common stock of the Company during the period from
February 7, 1991 through October 31, 1991.
The Consolidated Complaint alleges violations of Sections 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and
negligent misrepresentation as a result of alleged misrepresentations and
omissions with respect to information contained in press releases, reports to
the Company's shareholders, and certain filings and periodic reports filed with
the
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Securities and Exchange Commission by the Company. The plaintiffs allege that
the Company made certain misleading statements regarding the quality and
reliability of its products and the Company's financial condition and its
prospects. The Consolidated Complaint seeks actual and punitive damages in
unspecified amounts, prejudgment interest, and attorneys' fees. On February 3,
1992, the Company filed a motion with the Court seeking dismissal of the
complaint. In March, 1993, the Court dismissed the Consolidated Complaint
without prejudice. On February 25, 1994, the United States Fifth Circuit Court
of Appeals affirmed the Court's decision to dismiss the Consolidated Complaint.
The plaintiffs filed a petition for a rehearing on March 25, 1994.
On January 26, 1994, C. L. Grimes, a shareholder of the Company, filed a
suit in Delaware Chancery Court, derivatively purportedly on behalf of the
Company as the real party in interest and as a shareholder of the Company,
seeking a declaration that the Employment Agreement of James L. Donald, his
Executive Income Continuation Plan, and the 1990 Long-Term Incentive
Compensation Plan, as it applies to Mr. Donald and all other benefits of Mr.
Donald, including previously-granted Company stock options, are null and void.
The defendants in the suit are Mr. Donald, all current non-employee directors,
and two former directors of the Company. The Company itself is a nominal
defendant. The plaintiff contends that Mr. Donald's employment contract
contains an improper delegation of the Board of Directors' authority to Mr.
Donald and excess payments. The suit also contends that the salary and benefits
established for Mr. Donald pursuant to the Donald agreements referred to above
and by the Company's Board of Directors are excessive and constitute a diversion
and waste of corporate assets. The suit seeks an injunction restraining Mr.
Donald from exercising any stock options, taking any action to implement any of
the Donald agreements, or declaring a constructive termination of his
employment, and also seeks unspecified damages against the defendants and
Grimes' legal fees. The individual defendants will file a responsive pleading
and intend to vigorously contest Grimes' claims.
On July 20, 1993, the Company filed suit against Advanced Fibre
Communications ("AFC"), a California corporation; Quadrium Corporation
("Quadrium"), a California corporation; Alan E. Negrin ("Negrin"); and Henri
Sulzer ("Sulzer") in the United States District Court for the Eastern District
of Texas, Marshall Division, Civil Action No. 2-93CV126. The Company seeks a
declaratory judgment that Negrin and Sulzer are not entitled to any stock
options or cash payments under the Company's 1990 Stock Option and Cash Payment
Plan
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because of these defendants' alleged breaches of certain employment-related
agreements entered into with the Company. The Company further seeks a
declaration that AFC's products, including the UMC 1000 digital loop carrier,
are the proprietary property of the Company under the terms of certain
Proprietary Information Agreements and certain Consulting Agreements with
Quadrium. The Company also seeks unspecified damages for breach of contract,
civil conspiracy, and tortious interference. The individual defendants have
both filed counterclaims whereby they claim entitlement to certain stock options
and cash payments under several of the Company's stock option plans. AFC has
also filed a counterclaim alleging that the Company has violated the Sherman
Antitrust Act and a California statutory antitrust act known as the Cartwright
Act. AFC further claims that the Company has (a) tortiously interfered with
existing and prospective contractual relationships, (b) committed industrial
espionage and misappropriation, (c) trespassed on AFC's business premises,
(d) converted certain property of AFC, and (e) committed unfair competition.
AFC also seeks a declaratory judgment that it owns all rights to its product,
the UMC Digital Loop Carrier. AFC asks the court to award unspecified actual
damages, treble damages under the antitrust statutes, punitive damages,
injunctive relief, and attorneys' fees. Although the outcome of litigation is
inherently uncertain, the Company believes that it has valid and substantial
claims against all of the defendants and valid defenses to all of the
counterclaims. The case is in the early stages of discovery, and the Company
intends to vigorously prosecute its claims and defend all of the defendants'
counterclaims.
The Company does not believe that the ultimate resolution of
any of these suits will have a material adverse effect on its consolidated
financial position.
The Company is also a party to other legal proceedings which, in the
opinion of management, are not expected to have a material adverse effect on the
Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers are elected annually and serve at the pleasure of the
Board of Directors. No family relationships exist among the executive officers
of the Company. As of March 1, 1994, the executive officers of the Company are
as follows:
Page 13
<PAGE>
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION(S) WITH COMPANY
---- --- --------------------------------
<S> <C> <C>
Allen R. Adams 44 Senior Vice President
Wylie D. Basham 55 Vice President
Michael R. Bernique 50 Senior Vice President
John W. Bischoff 45 Vice President
David T. Boyce 43 Vice President
Gerald G. Carlton 58 Vice President
Robert W. Clark 42 Vice President
James L. Donald 62 Chairman of the Board, President,
and Chief Executive Officer
Daryl J. Eigen 46 Vice President
John H. Montgomery 56 Vice President
Gerald F. Montry 55 Senior Vice President, Chief
Financial Officer, and Director
William R. Tempest 50 Vice President, Secretary, and
General Counsel
Hensley E. West 49 Senior Vice President
</TABLE>
Allen R. Adams joined the Company in 1979, as Director of Hardware and
Systems Development. Since 1979, Mr. Adams has held a variety of project and
design engineering positions. In May, 1991, Mr. Adams was elected Vice
President. Mr. Adams was elected Senior Vice President in February, 1993.
Wylie D. Basham was named to the position of Vice President, Transmission
Products Division in 1993. Mr. Basham has held a variety of management
positions since joining the Company in 1983.
Michael R. Bernique joined the Company in 1989, as Vice President, Sales.
Since joining the Company, Mr. Bernique has held a number of management
positions. In 1993, Mr. Bernique was named to the position of Senior Vice
President, North American Sales.
Page 14
<PAGE>
John W. Bischoff joined the Company in 1989, as Vice President, Quality and
Reliability Assurance.
David T. Boyce joined the Company in 1989, as Managing Director, DSC
Communications (Europe) Limited. In March, 1992, Mr. Boyce was named to the
position of Vice President, International Sales and Service.
Gerald G. Carlton joined the Company in 1988, as Vice President,
Administration, responsible for all of the Company's national and international
human resource functions and corporate facilities management activities.
Robert W. Clark has held a variety of positions since joining the Company
in 1982, including Vice President, Program Management. In 1991, Mr. Clark was
named to the position of Vice President, Customer Service.
James L. Donald became President and a director of the Company in March,
1981. He was elected Chief Executive Officer in August, 1981. Mr. Donald was
elected Chairman of the Company's Board of Directors in 1989.
Daryl J. Eigen joined the Company in 1993, as Vice President, Corporate
Marketing and Planning. Prior to joining the Company, Mr. Eigen was employed by
Siemens Stromberg-Carlson since 1984, where his most recent position was that of
Vice President, Central Region.
John H. Montgomery joined the Company as Vice President, Customer Premises
Products in 1990, when the Company acquired Integrated Telecom Corporation
("Integrated"). Since 1988, Mr. Montgomery served as President of Integrated.
From 1981 through 1987, Mr. Montgomery was employed by the Company in various
senior management capacities.
Gerald F. Montry joined the Company in 1986, as Senior Vice President and
Chief Financial Officer. In 1989, Mr. Montry was elected to the Company's Board
of Directors.
William R. Tempest joined the Company in October, 1982, as General Counsel.
He was elected Secretary of the Company in December, 1982, and Vice President in
1986.
Hensley E. West joined the Company in 1987, as Vice President, Sales. Since
joining the Company, Mr. West has held a variety of management positions,
including his present position as Senior Vice President, Access Products
Division.
Page 15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock prices are listed daily in THE WALL STREET
JOURNAL and other publications under the NASDAQ National Market System of the
over-the-counter listing with the abbreviation "DSC Commun" or "DSC". The stock
is traded in the NASDAQ National Market System with the ticker symbol "DIGI".
The following were the high and low close prices of the Company's stock
per the NASDAQ National Market System:
<TABLE>
<CAPTION>
1994: High Low
---- ---- ---
<S> <C> <C>
First Quarter 69 3/4 52 3/4
(through March 1, 1994)
<CAPTION>
1993: High Low
---- ---- ---
<S> <C> <C>
4th Quarter 70 3/8 53 7/8
3rd Quarter 66 3/4 49 1/8
2nd Quarter 50 3/4 26 1/8
1st Quarter 28 3/4 21 5/8
<CAPTION>
1992: High Low
---- ---- ---
<S> <C> <C>
4th Quarter 22 7/8 11 7/8
3rd Quarter 12 1/4 4 3/8
2nd Quarter 5 3/4 4 1/8
1st Quarter 6 5/8 3 3/4
</TABLE>
The Company has not paid or declared any cash dividends on the common stock
since its organization. The closing price of the Company's common stock on
March 1, 1994, was $53.125 per share. As of December 31, 1993, there were 3,462
shareholders of record of the Company's common stock.
Page 16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1993 1992 1991(A) 1990(A)(B) 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS FOR THE
YEAR ENDED:
Revenue . . . . . . . . . . . . . $ 730,774 $ 536,319 $ 461,455 $ 519,298 $ 429,730
Operating costs and
expenses. . . . . . . . . . . . 620,598 493,888 543,360 475,726 376,206
Operating income (loss) . . . . . 110,176 42,431 (81,905) 43,572 53,524
Financing costs, net. . . . . . . 565 17,215 21,267 16,254 8,799
Net income (loss) . . . . . . . . $ 81,660 $ 11,594 $(108,328) $ 20,122 $ 33,324
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Income (loss) per share . . . . . $ 1.53 $ 0.25 $ (2.62) $ 0.47 $ 0.79
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FINANCIAL POSITION AT YEAR END:
Cash and marketable
securities . . . . . . . . . . . $ 313,808 $ 69,839 $ 26,366 $ 34,974 68,272
Working capital . . . . . . . . . 406,752 79,010 4,991 153,331 233,604
Property and equipment, net . . . 179,783 149,209 165,952 189,782 147,978
Total assets. . . . . . . . . . . 900,417 547,669 599,914 759,424 569,995
Long-term and short-term
debt . . . . . . . . . . . . . . 70,412 140,409 281,715 315,714 190,840
Shareholders' equity(C) . . . . . 617,800 202,627 174,686 279,221 253,916
OTHER FINANCIAL INFORMATION:
Book value per share of
common stock . . . . . . . . . . $ 11.23 $ 4.59 $ 4.19 $ 6.86 $ 6.32
Ratio of current assets to
current liabilities. . . . . . . 3.1 1.4 1.0 1.6 2.8
Ratio of long-term and
short-term debt to
shareholders' equity . . . . . . 11.4% 69.3% 161.3% 113.1% 75.2%
</TABLE>
Page 17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (Continued)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1993 1992 1991(A) 1990(A)(B) 1989
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Shares used to compute
income (loss) per share
(in thousands) . . . . . . . . . 53,325 46,599 41,339 42,874 42,319
Common shares outstanding
at year end
(in thousands) . . . . . . . . . 55,018 44,115 41,675 40,695 40,169
Shareholders of record at
year end . . . . . . . . . . . . 3,462 4,948 6,110 6,001 4,934
Total employees at year
end. . . . . . . . . . . . . . . 4,041 3,301 3,262 4,043 3,317
- ---------------------------------------------------------------------------------------------
<FN>
(A) For the years ended December 31, 1991 and 1990, the Company recorded
special charges of $48,084 and $7,544, respectively. See Notes to
Consolidated Financial Statements for further discussion related to the
1991 special charges. The 1990 special charges resulted from the
write-down of assets of $4,039 associated with a minority-owned joint
venture and restructuring costs of $3,505.
(B) In July 1990, the Company acquired Optilink Corporation (Optilink).
Accordingly, Optilink's results of operations have been included in the
Company's consolidated financial data beginning in August 1990. If the
acquisition had occurred at the beginning of 1990, after giving effect to
certain adjustments, the consolidated results of operations of the Company
and Optilink on an unaudited pro forma basis would have been: Revenue -
$524,571, Net Income - $9,621 and Income per share $0.22.
(C) Since inception, the Company has not declared or paid a cash dividend.
</TABLE>
Page 18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In 1993, DSC Communications Corporation achieved record revenue levels, a strong
operating performance, and ended 1993 with a significantly improved financial
position. Revenue grew 36%, while net income increased to $81.7 million, or
$1.53 per share, compared to net income of $11.6 million, or $0.25 per share, in
1992. Cash and marketable securities grew to over $313 million at the end of
1993, and debt as a percentage of shareholders' equity declined to 11.4% from
69.3% at the end of 1992.
FINANCIAL CONDITION AND LIQUIDITY
The Company ended 1993 and 1992 with the following:
<TABLE>
<CAPTION>
December 31,
------------
1993 1992
---- ----
(in millions)
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . $ 154.9 $ 69.8
Marketable securities . . . . . . . . . . . . . . 158.9 --
Non-debt working capital, excluding
cash and cash equivalents and
marketable securities . . . . . . . . . . . . . 106.6 21.0
Senior debt, including
current maturities . . . . . . . . . . . . . . . 34.0 32.3
Subordinated convertible debentures . . . . . . . 36.4 108.1
</TABLE>
Two major transactions in 1993 significantly impacted the Company's financial
condition and enhanced its long-term liquidity. The Company sold 3.5 million
shares of its common stock in a public offering which generated $231.1 million
in cash. In addition, the $71.5 million of outstanding 7 3/4% subordinated
convertible debentures were converted into 3.8 million shares of common stock.
Cash of $79.3 million was also generated from operating activities. Income,
before depreciation and amortization, exceeded receivable and inventory growth
of $72.0 million, while non-debt current liabilities did not change
significantly during 1993. Receivables and inventory grew as business levels
increased. Inventory velocity improved to approximately four turns by the end
of 1993.
Capital expenditures were $71.0 million during 1993. The Company's business
expansion during 1993 and expected future domestic and international growth have
and will continue to increase capital requirements including facilities, and
manufacturing and development equipment and software. As a result of this
expected business expansion, it is anticipated that 1994 capital requirements
should substantially exceed 1993 capital expenditures. In February 1994, the
Company acquired 148 acres of land for approximately $16.4 million. This
acreage, along with 42 acres acquired in late 1993, is located near the
Company's present campus location and will be used for future building
Page 19
<PAGE>
expansion. The timing and extent of building expansion will be dependent on
future business growth.
The Company's commitment to research and product development continued in 1993
with $86.6 million expensed for research and product development costs and $21.9
million capitalized as software development costs. These costs are primarily
related to expenditures for various new products which are expected to
contribute to revenue in future periods.
In addition to the sale of stock to the public, other financing activities
included $20.1 million of proceeds from the issuance of common stock under
employee stock plans, additional secured borrowings of $20.1 million, and
scheduled payments under existing loan agreements of $18.5 million. Scheduled
long-term debt maturities for the three years ending December 31, 1996 are $13.7
million, $11.1 million, and $9.2 million, respectively. The Company
periodically finances facilities and equipment requirements under operating
leases. At December 31, 1993, operating lease obligations were $62.8 million,
of which scheduled lease payments for 1994 - 1996 were $17.7 million, $13.7
million and $8.9 million, respectively.
In February 1994, the Company entered into a new unsecured revolving credit
agreement providing for borrowings up to $50.0 million, reduced by the amount of
outstanding letters of credit not to exceed $25.0 million. The new agreement
expires in February 1997. See "Credit Agreements" in Notes to Consolidated
Financial Statements. The new agreement replaces a $22.5 million credit
agreement which was secured by domestic receivables and inventories and expired
on February 28, 1994. The Company had no borrowings under existing credit
agreements during 1993.
In January 1994, the Company called for redemption of all of its $36.4 million
outstanding 8% subordinated convertible debentures. As a result, in February
1994, debenture holders converted approximately $34.7 million of debentures into
approximately 637,000 shares of the Company's common stock and redeemed
approximately $1.7 million for cash.
The Company believes that it has the financial resources required to support its
expected business growth, including working capital expansion, necessary capital
expenditure requirements, operating lease obligations, and scheduled debt
payments.
The Company is a party to certain litigation, as discussed in "Commitments and
Contingencies" in Notes to Consolidated Financial Statements, the outcome of
which the Company believes will not have a material adverse effect on its
consolidated financial position.
Page 20
<PAGE>
RESULTS OF OPERATIONS
1993 Compared to 1992
Revenue for 1993 increased 36% to $730.8 million compared to $536.3 million in
1992. Net income was $81.7 million, or $1.53 per share, compared to a net
income of $11.6 million, or $0.25 per share, for the year ended December 31,
1992.
The Company's 1993 revenue growth was due to a higher volume of switching and
access product shipments. Switching products revenue increased 13% over 1992
and represented 45% of consolidated revenue compared to 54% in 1992. The
increase in switching products revenue was due, in part, to a higher volume of
hardware and software deliveries for customer expansion and upgrades of
existing switching systems. This more than offset a reduction in signal
transfer point (STP) system product deliveries from the volume achieved in 1992
when several domestic customers populated their networks with the Company's
STP's.
Access products revenue accounted for approximately 28% of consolidated revenue
in 1993 compared to 8% in 1992 as the Company began delivery on several major
customer orders received in 1992 and 1993. While the access products group
achieved profitability in the last half of 1993, a loss was recorded for the
full year. Future profitability will be dependent upon product mix, cost
reduction activities, and economies and benefits from continued higher levels of
customer deliveries. As a result, the Company believes that as deliveries of
access products continue to increase, and as further cost reduction activities
are successful, the Company's operating performance will be favorably impacted
in the future.
Revenue of transmission products grew slightly in 1993 over 1992 and represented
19% of 1993 revenue compared to 24% of 1992 revenue.
Cost of revenue of $412.8 million in 1993 represented 56.5% of total revenue,
compared to 62.2% in 1992. The Company benefited from cost reduction
activities, increased operating efficiencies, and production efficiencies due to
the higher business volumes, while the higher volume of lower margin access
products revenue impacted product cost as a percentage of revenue. Certain of
the Company's products typically produce gross margin content greater than other
Company products. As a result, shifts in the product mix of the Company's
consolidated revenue in the future could impact gross margin as a percentage of
revenue.
Research and product development expenses increased in 1993 to $86.6 million, or
11.9% of revenue, compared to $68.3 million in 1992, or 12.7% of revenue. This
increase reflects the Company's continued commitment to the development
Page 21
<PAGE>
of new products which are targeted to high growth markets.
Selling, general and administrative expenses were $112.7 million in 1993, or
15.4% of revenue, compared to $87.0 million, or 16.2% of revenue, in 1992. The
higher expense level reflects increased domestic and international selling and
marketing activities, expansion of the Company's customer base and an increased
level of incentive compensation. See "Incentive Compensation" in the Notes to
Consolidated Financial Statements for further information.
Interest expense declined $15.1 million in 1993 compared to the 1992 period.
This reduction was due to the repayment of over $134.0 million of senior
unsecured debt during the last half of 1992 and conversion of $71.5 million of 7
3/4% subordinated convertible debentures into approximately 3.8 million shares
of the Company's common stock during the 1993 first quarter.
Other expense, net in 1993 declined by $8.2 million from $8.3 million in 1992.
The 1993 amount includes a $2.2 million gain from the sale of securities
acquired several years ago as part of financing provided to a customer. The
1992 amount included provisions for litigation, senior unsecured debt
restructuring costs, certain facilities costs and higher cash discounts taken by
customers in the first half of 1992 for early payment on receivables.
The Company's effective income tax rate was 25% for the year ended December 31,
1993. See "Income Taxes" in Notes to Consolidated Financial Statements for
further information.
As discussed in Financial Condition and Liquidity above, the Company issued
approximately 3.5 million shares of common stock in a public offering in October
1993, which will increase the amount of weighted average shares outstanding
used to compute earnings per share in 1994. Until required to support expected
future business growth, the proceeds from the public offering are expected to be
invested in interest bearing marketable securities which will increase interest
income in the future.
During the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post Retirement
Benefits Other Than Pensions." The implementation of this standard had no
financial impact to the Company since post retirement benefits currently
provided are reimbursed by the retirees.
1992 Compared to 1991
The Company's 1992 operating results reflect significant improvement in
operating performance.
Overall, revenue for 1992 increased 16% to $536.3 million compared to $461.5
million in 1991. Net income was $11.6 million, or $0.25 per share, compared to
Page 22
<PAGE>
a net loss of $108.3 million, or $2.62 per share, in 1991. The results for the
year ended December 31, 1991 included non-cash charges of (i) approximately
$48.1 million related primarily to a write-down of assets, provision for
doubtful receivables, and restructuring and consolidation costs and
(ii) approximately $7.0 million of charges (included in costs of revenue)
relating primarily to excess and obsolete inventory.
The Company's 1992 revenue growth was due to a higher volume of switching
products and an increase in shipments of access products. Switching revenue
represents 54% of consolidated revenue in 1992 compared to 49% of consolidated
revenue in 1991. The significant increase in switching revenue was in part due
to increased shipments of signal transfer points (STP's) including a growth in
software revenue, partially offset by a lower volume of certain tandem products.
Deliveries of STP's in 1991 were unfavorably impacted by a number of factors,
including service outages experienced by certain customers.
Revenue of transmission products represented 24% of 1992 revenue compared to 29%
of 1991 revenue. Access products revenue accounted for approximately 8% of
consolidated revenue in 1992 compared to 3% in 1991 with substantial volume
increases during the last half of 1992. While shipments have increased, the
access products division did not have the volumes necessary in 1992 to achieve
profitability.
Cost of revenue of $333.5 million in 1992 represented 62.2% of total revenue,
compared to 73.3% in 1991. The 1992 improvement was due to increased deliveries
of higher margin switching products, including a larger component of software
revenue, higher production levels which lowered fixed costs as a percentage of
revenue, cost reductions and increased operating efficiencies.
Research and product development expenses increased in 1992 to $68.3 million, or
12.7% of revenue, compared to $63.8 million in 1991, or 13.8% of revenue.
Selling, general and administrative expenses were $87.0 million in 1992 or 16.2%
of revenue compared to $88.6 million or 19.2% of revenue in 1991. The decrease
is primarily due to the impact of the Company's 1991 actions to improve
operating efficiency and reduce costs.
Other operating costs in 1992 were $5.1 million as compared to $4.4 million in
1991, exclusive of the $48.1 million of special charges recorded in 1991.
Interest expense of $21.3 million declined $4.1 million from 1991 due to an
overall decline in the average outstanding borrowings and a decline in the
average cost of borrowing.
Page 23
<PAGE>
Other expense, net, of $8.3 million in 1992 increased by $4.7 million from $3.6
million in 1991 primarily as a result of provisions recorded in 1992 for
litigation, senior unsecured debt restructuring costs and certain idled
facilities costs. In addition, higher cash discounts taken by customers,
primarily in the first half of 1992, for early payments on receivables increased
other expense, net, in 1992. See "Other expense, net" in Notes to Consolidated
Financial Statements.
See "Income Taxes" in Notes to Consolidated Financial Statements for further
information relating to income taxes.
Page 24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DSC Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . $ 730,774 $ 536,319 $ 461,455
Operating costs and expenses:
Cost of revenue. . . . . . . . . . . . . . 412,805 333,543 338,373
Research and product development . . . . . 86,620 68,303 63,842
Selling, general and administrative. . . . 112,723 86,951 88,621
Special charges. . . . . . . . . . . . . . -- -- 48,084
Other operating costs. . . . . . . . . . . 8,450 5,091 4,440
--------- --------- ---------
Total operating costs and expenses . . . 620,598 493,888 543,360
--------- --------- ---------
Operating income (loss). . . . . . . . . . . 110,176 42,431 (81,905)
Interest expense . . . . . . . . . . . . . . 6,256 21,347 25,457
Interest income. . . . . . . . . . . . . . . (5,691) (4,132) (4,190)
Other expense, net . . . . . . . . . . . . . 155 8,322 3,647
--------- --------- ---------
Income (loss) before income taxes. . . . . 109,456 16,894 (106,819)
Income taxes . . . . . . . . . . . . . . . . 27,796 5,300 1,509
--------- --------- ---------
Net income (loss). . . . . . . . . . . $ 81,660 $ 11,594 $(108,328)
--------- --------- ---------
--------- --------- ---------
Income (loss) per share. . . . . . . . . . . $ 1.53 $ 0.25 $ (2.62)
--------- --------- ---------
--------- --------- ---------
Average shares used in per
share computations. . . . . . . . . . . . . 53,325 46,599 41,339
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 25
<PAGE>
DSC Communications Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
--------------------
1993 1992
--------- ---------
<S> <C> <C>
Assets
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 154,888 $ 69,839
Marketable securities. . . . . . . . . . . . . . . . . . 158,920 --
Receivables. . . . . . . . . . . . . . . . . . . . . . . 139,962 90,370
Inventories. . . . . . . . . . . . . . . . . . . . . . . 122,869 100,445
Contract development costs . . . . . . . . . . . . . . . 5,978 6,036
Other current assets . . . . . . . . . . . . . . . . . . 19,414 8,116
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . 602,031 274,806
--------- ---------
PROPERTY AND EQUIPMENT, NET. . . . . . . . . . . . . . . . 179,783 149,209
LONG-TERM RECEIVABLES. . . . . . . . . . . . . . . . . . . 16,515 20,952
CAPITALIZED SOFTWARE DEVELOPMENT COSTS . . . . . . . . . . 33,485 29,083
COST IN EXCESS OF NET ASSETS OF BUSINESSES
ACQUIRED, NET. . . . . . . . . . . . . . . . . . . . . . 50,317 62,238
OTHER. . . . . . . . . . . . . . . . . . . . . . . . . . . 18,286 11,381
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 900,417 $ 547,669
--------- ---------
--------- ---------
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 48,450 $ 35,287
Accrued liabilities. . . . . . . . . . . . . . . . . . . 112,993 95,474
Customer advances. . . . . . . . . . . . . . . . . . . . 15,712 50,942
Income taxes payable . . . . . . . . . . . . . . . . . . 4,460 2,301
Current portion of long-term debt. . . . . . . . . . . . 13,664 11,792
--------- ---------
Total current liabilities. . . . . . . . . . . . . . . 195,279 195,796
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION . . . . . . . . . . 56,748 128,617
NONCURRENT INCOME TAXES AND OTHER LIABILITIES. . . . . . . 30,590 20,629
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, issued-60,047 in
1993 and 49,144 in 1992; outstanding-55,018 in
1993 and 44,115 in 1992. . . . . . . . . . . . . . . . 600 491
Additional capital . . . . . . . . . . . . . . . . . . . 558,222 224,818
Retained earnings. . . . . . . . . . . . . . . . . . . . 102,435 20,775
--------- ---------
661,257 246,084
Treasury stock, at cost, 5,029 shares in 1993 and
1992 . . . . . . . . . . . . . . . . . . . . . . . . (43,457) (43,457)
--------- ---------
Total shareholders' equity . . . . . . . . . . . . . . 617,800 202,627
--------- ---------
Total liabilities and shareholders' equity . . . . . $ 900,417 $ 547,669
--------- ---------
--------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 26
<PAGE>
DSC Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . $ 81,660 $ 11,594 $(108,328)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization. . . . . . 44,334 43,628 45,635
Amortization of capitalized
software development costs. . . . . . . 17,545 18,577 23,406
Special charges. . . . . . . . . . . . . -- -- 48,084
Income tax benefit related to stock
options . . . . . . . . . . . . . . . . 5,800 1,860 --
Utilization of preacquisition net
operating loss carryforwards. . . . . . 8,300 -- --
Other. . . . . . . . . . . . . . . . . . (2,888) 1,217 885
Changes in operating assets and
liabilities, net of effects of special
charges in 1991:
(Increase) decrease in current and
long-term receivables . . . . . . . . . (51,084) 22,370 58,871
(Increase) decrease in inventories . . . (31,444) 41,127 23,537
Decrease in contract development
costs . . . . . . . . . . . . . . . . . 58 5,280 2,001
(Increase) decrease in other current
assets. . . . . . . . . . . . . . . . . (4,024) 4,814 (3,336)
Increase (decrease) in current
payables and accruals . . . . . . . . . 36,331 16,955 (16,925)
Increase (decrease) in customer
advances. . . . . . . . . . . . . . . . (35,230) 45,468 (11,222)
Increase in noncurrent income taxes
and other liabilities. . . . . . . . . . . 9,961 6,217 2,919
--------- --------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES . . . . . . . . . . . . . 79,319 219,107 65,527
--------- --------- ---------
</TABLE>
(Continued)
Page 27
<PAGE>
DSC Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment . . . . (71,028) (25,814) (24,640)
Purchases of marketable securities. . . . . (178,635) -- --
Proceeds from sales of
marketable securities. . . . . . . . . . . 19,715 -- --
Additions to capitalized software
development costs. . . . . . . . . . . . . (21,947) (18,097) (22,793)
Other . . . . . . . . . . . . . . . . . . . 4,828 1,997 (209)
Book value of asset dispositions. . . . . . 621 1,617 2,622
--------- --------- ---------
NET CASH USED FOR INVESTING
ACTIVITIES . . . . . . . . . . . . . (246,446) (40,297) (45,020)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of common
stock. . . . . . . . . . . . . . . . . . . 231,149 -- --
Borrowings under debt arrangements. . . . . 20,137 1,269 104,759
Payments of short and long-term debt . . . (18,471) (147,060) (139,322)
Costs related to debt redemption. . . . . . (755) -- --
Proceeds from sale/leaseback. . . . . . . . -- -- 1,962
Proceeds from the sale of common stock
from employee stock programs . . . . . . . 20,116 10,454 3,486
--------- --------- ---------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES . . . . . . . . 252,176 (135,337) (29,115)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . 85,049 43,473 (8,608)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD . . . . . . . . . . . . . . . . . . 69,839 26,366 34,974
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD . . . . . . . . . . . . . . . . . . $ 154,888 $ 69,839 $ 26,366
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . $ 7,459 $ 22,955 $ 25,066
--------- --------- ---------
--------- --------- ---------
Income taxes paid . . . . . . . . . . . . . $ 4,359 $ 204 $ 3,937
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 28
<PAGE>
DSC Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Stock
--------------- Accumulated
Shares Par Translation Cost of
Out- Value Additional Adj- Retained Treasury
standing $.01 Capital ustment Earnings Shares Total
-------- ----- ---------- ----------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1990. . . 40,695 $ 456 $ 202,967 $ 241 $ 117,509 $ (41,952) $ 279,221
Shares purchased for
treasury. . . . . . . . . . . (2) -- -- -- -- -- --
Shares issued upon
exercise of options . . . . . 166 2 818 -- -- -- 820
Shares issued for stock
purchase plans. . . . . . . . 503 5 2,680 -- -- -- 2,685
Restricted shares issued
to employees, net of
unearned compensation . . . . 313 3 287 -- -- -- 290
Translation adjustments. . . . -- -- -- (2) -- -- (2)
Net loss . . . . . . . . . . . -- -- -- -- (108,328) -- (108,328)
------ ----- --------- ------ ---------- ---------- ----------
BALANCES, December 31, 1991. . . 41,675 466 206,752 239 9,181 (41,952) 174,686
Shares purchased for
treasury. . . . . . . . . . . (98) -- -- -- -- (1,505) (1,505)
Shares issued upon
exercise of options . . . . . 2,221 22 14,582 -- -- -- 14,604
Shares issued for stock
purchase plans. . . . . . . . 226 2 912 -- -- -- 914
Income tax benefit related
to stock options. . . . . . . -- -- 1,860 -- -- -- 1,860
Restricted shares issued
to employees, net of
unearned compensation and
forfeitures . . . . . . . . . 90 1 694 -- -- -- 695
Conversion of 7.75%
subordinated convertible
debentures into
common stock. . . . . . . . . 1 -- 18 -- -- -- 18
Translation adjustments. . . . -- -- -- (239) -- -- (239)
Net income . . . . . . . . . . -- -- -- -- 11,594 -- 11,594
------ ----- --------- ------ ---------- ---------- ----------
BALANCES, December 31, 1992. . . 44,115 491 224,818 -- 20,775 (43,457) 202,627
Shares issued by public
offering, net of expenses . . 3,450 35 231,114 -- -- -- 231,149
Shares issued upon
exercise of options . . . . . 1,809 18 15,890 -- -- -- 15,908
Shares issued for stock
purchase plans. . . . . . . . 1,543 15 6,296 -- -- -- 6,311
Income tax benefit related
to stock options. . . . . . . -- -- 5,800 -- -- -- 5,800
Restricted shares issued
to employees, net of
unearned compensation . . . . 255 3 5,586 -- -- -- 5,589
Conversion of 7.75%
subordinated convertible
debentures into
common stock, net of
expenses. . . . . . . . . . . 3,842 38 68,523 -- -- -- 68,561
Conversion of 8.0%
subordinated convertible
debentures into
common stock. . . . . . . . . 4 -- 195 -- -- -- 195
Net income . . . . . . . . . . -- -- -- -- 81,660 -- 81,660
------ ----- --------- ------ ---------- ---------- ---------
BALANCES, December 31, 1993. . . 55,018 $ 600 $ 558,222 $ -- $ 102,435 $ (43,457) $ 617,800
------ ----- --------- ------ ---------- ---------- ---------
------ ----- --------- ------ ---------- ---------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 29
<PAGE>
DSC Communications Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
DSC Communications Corporation (the "Company") is a leading designer,
developer, manufacturer and marketer of digital switching, transmission, access
and private network system products for the worldwide telecommunications
marketplace.
The consolidated financial statements of the Company include the accounts
of the Company and all its majority-owned subsidiaries. All significant
intercompany transactions and balances are eliminated.
Certain prior years' financial statement information has been reclassified
to conform with the current year financial statement presentation.
Revenue Recognition
Revenue is generally recognized when the Company has completed
substantially all manufacturing and/or software development to customer
specifications, factory testing has been completed and the product has been
shipped. Additionally, for systems where installation requirements are the
responsibility of the Company and payment terms are related to installation
completion, revenue is generally recognized when the system has been shipped to
the customer's final site for installation.
Revenue under contracts with customers for development and customization of
software is accounted for using the percentage-of-completion method as certain
contracted milestones are completed. Revenue from technical assistance service
contracts is recognized ratably over the period the services are performed.
The Company establishes an allowance for potential returns pending
completion of customer product acceptance and payment.
Warranty Costs
The Company provides for estimated future warranty costs at the time
revenue is recognized.
Cash and Cash Equivalents
Cash equivalents are primarily short-term, interest bearing, high credit
quality investments with major financial institutions and are subject to minimal
risk. These investments have maturities at the date of purchase of three months
or less (see "Investments in Debt and Equity Securities").
Page 30
<PAGE>
Investments in Debt and Equity Securities
The Company has elected to adopt Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115), in 1993. In accordance with FAS 115, prior years'
financial statements have not been restated to reflect the change in accounting
method. There was no cumulative effect as a result of adopting FAS 115 in 1993.
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt securities for which the Company
does not have the intent or ability to hold to maturity are classified as
available for sale, along with the Company's investment in equity securities.
Securities available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders'
equity. At December 31, 1993, the Company had no investments that qualified as
trading or held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity or,
in the case of mortgage-backed securities, over the estimated life of the
security. Such amortization and interest are included in interest income.
Realized gains and losses are included in other income or expense. The cost of
securities sold is based on the specific identification method.
At December 31, 1993, the Company's investments in debt and equity
securities were classified as cash and cash equivalents and marketable
securities. These investments are diversified among high credit quality
securities in accordance with the Company's investment policy.
Inventories
Inventories are valued at the lower of average cost or market. Inventories
consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Raw Material.............................. $ 47,845 $ 40,600
Work in Process........................... 12,471 11,106
Finished Goods............................ 62,553 48,739
------- -------
$122,869 $100,445
------- -------
------- -------
</TABLE>
Page 31
<PAGE>
Contract Development Costs
Costs incurred in the development of software and hardware which pertain to
specific contracts with customers are capitalized at the lower of cost or net
realizable value and charged to cost of revenue when the related revenue is
recognized.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings........................................ 30-40 Years
Leasehold improvements........................... 1-20 Years
Manufacturing, development and test equipment.... 3-10 Years
Office furniture, equipment and other............ 3-10 Years
</TABLE>
Capital leases and equipment leased to customers under operating leases are
amortized on a straight-line basis over the term of the lease. Amortization of
these leases is included in depreciation expense.
Capitalized Interest
Interest costs related to certain qualifying assets (primarily capitalized
software development costs) are capitalized during their construction or
development period and amortized over the economic life of the related assets.
For the years ended December 31, 1993, 1992 and 1991, the Company capitalized
$895,000, $1,112,000 and $725,000, respectively, of such interest costs.
Cost in Excess of Net Assets of Businesses Acquired, Net
Cost in excess of net assets of businesses acquired generally is amortized
on a straight-line basis over its estimated life. The Company periodically
reviews the original assumptions and rationale utilized in the establishment of
the carrying value and estimated life. The carrying value would be adjusted if
significant facts and circumstances altered the Company's original assumptions
and rationale.
Cost in excess of net assets of businesses acquired, net, was $50,317,000
and $62,238,000 at December 31, 1993 and 1992, respectively. This represents
the cost of acquiring businesses over the fair value of net assets received at
the date of acquisition, net of accumulated amortization of $12,430,000 and
$8,809,000 at December 31, 1993 and 1992, respectively. Amortization was
computed by use of the straight-line method over the estimated life of the
benefits received from the acquisitions and was included in "Other operating
costs" in the Consolidated Statements of Operations. Additionally, the
carrying value was reduced in 1993 by $8,300,000 as a result of
Page 32
<PAGE>
utilization of preacquisition net operating loss carryforwards (see "Income
Taxes").
Research and Development Expenditures
Certain software development costs are capitalized when incurred.
Capitalization of software development costs begins upon the establishment of
technological feasibility. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development
costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technologies.
Amortization of capitalized software development costs is provided on a
product-by-product basis at the greater of the amount computed using (a) the
ratio of current gross revenues for a product to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
remaining estimated economic life of the product. Generally, an original
estimated economic life of two years is assigned to capitalized software
development costs. Capitalized software development costs were $33,485,000 and
$29,083,000 at December 31, 1993 and 1992, respectively, net of accumulated
amortization costs of $18,638,000 and $13,365,000, respectively. During 1991,
the Company reduced the carrying value of certain capitalized software
development costs by approximately $9,500,000 to their estimated net realizable
value (see "Special Charges").
All other research and development expenditures are charged to research and
development expense in the period incurred.
Debt Issuance Cost
Costs associated with the borrowing of funds and placement of debt are
deferred and amortized over the term of the related debt as interest expense or
included as an additional cost if the debt is paid prior to its scheduled
maturity (see "Other Expense, Net").
Page 33
<PAGE>
Income Taxes
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109). As
permitted by FAS 109, prior year financial statements have not been restated to
reflect the change in accounting method.
Under FAS 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and the tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Prior to the adoption
of FAS 109, income tax expense was determined using the liability method
prescribed by Statement of Financial Accounting Standards No. 96, "Accounting
for Income Taxes" (FAS 96), which is superseded by FAS 109. Among other
changes, FAS 109 changes the recognition and measurement criteria for deferred
tax assets included in FAS 96 and requires that the tax benefit of net
operating loss carryforwards, tax credits and future taxable deductions be
recorded as deferred tax assets net of an appropriate valuation reserve.
Income tax benefits related to stock option exercises are credited to
additional capital when recognized.
Provision is made for U.S. income taxes, net of available credits, on the
earnings of foreign subsidiaries which are in excess of amounts being held for
reinvestment in overseas operations. Additionally, Puerto Rican tollgate taxes
are not provided on a portion of the undistributed earnings in Puerto Rico,
which are considered to be indefinitely invested (see "Income Taxes").
Foreign Currency Translation
For the majority of the Company's foreign subsidiaries, the functional
currency is the U.S. dollar. Accordingly, most foreign entities translate
monetary assets and liabilities at year-end exchange rates while non monetary
items are translated at historical rates. Revenue and expense items are
translated at the average exchange rates in effect during the year, except for
depreciation and cost of sales, which are translated at historical rates. The
resulting translation adjustments and transaction gains and losses are included
in "Other Expense, Net" in the Consolidated Statements of Operations and were
not material in 1993, 1992 or 1991.
Income (Loss) Per Share
Income (loss) per share is based upon weighted average common shares
outstanding and common stock equivalents. Common stock equivalents have been
determined assuming the exercise of all dilutive stock options and warrants
adjusted for the assumed repurchase of common stock, at the average market
Page 34
<PAGE>
price, from the exercise proceeds. The fully diluted per share computation also
assumes the conversion of the convertible subordinated debentures, when
dilutive, and the assumed repurchase of common stock at the ending market price.
Primary and fully diluted income (loss) per share are essentially the same for
all periods presented except for 1992 when primary income per share was $0.26
and fully diluted income per share was $0.25.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The following is a summary of the estimated fair value of available for sale
securities by balance sheet classification at December 31, 1993 (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents:
Commercial paper............................ $24,911
Certificates of deposit..................... 15,000
Other debt obligations...................... 26,169
-------
$66,080
-------
-------
Marketable securities:
U.S. Treasury obligations.................. $112,243
Mortgage-backed securities................. 29,090
Corporate debt securities.................. 17,587
-------
$158,920
--------
--------
</TABLE>
The estimated fair value of each investment approximates the amortized cost, and
therefore, there are no unrealized gains or losses as of December 31, 1993.
The estimated fair value of debt securities available for sale by contractual
maturity at December 31, 1993 is as follows (in thousands):
<TABLE>
<S> <C>
Due in three months or less...................... $66,080
Due after three months through one year.......... 85,849
Due after one year through three years........... 43,981
Due after three years............................ 29,090
-------
$225,000
-------
-------
</TABLE>
Expected maturities will differ from contractual maturities because the issuers
of the securities may have the right to prepay obligations without prepayment
penalties.
Page 35
<PAGE>
RECEIVABLES
Receivables consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Current:
Trade............................ $132,595 $ 84,369
Leases, notes and other.......... 8,457 7,453
------- -------
141,052 91,822
Allowance for doubtful accounts.. (1,090) (1,452)
------- -------
$139,962 $ 90,370
------- -------
------- -------
Long-Term:
Leases, notes and other.......... $ 19,034 $ 23,093
Allowance for doubtful accounts.. (2,519) (2,141)
------- -------
$ 16,515 $ 20,952
------- -------
------- -------
</TABLE>
To meet market competition, the Company finances sales of equipment to
certain of its customers through sales-type and operating leases. The repayment
terms vary from one to five years.
The components of the receivables from sales-type leases are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Total minimum lease
payments receivable................. $34,460 $39,827
Less: Unearned income................ (7,149) (9,523)
------ ------
Total receivables..................... 27,311 30,304
Less: Current receivables............ (8,378) (7,381)
------ ------
Total Long-Term receivables........... $18,933 $22,923
------ ------
------ -------
</TABLE>
Future minimum lease payments to be received on sales-type leases are as
follows (in thousands):
<TABLE>
<S> <C>
1994......................................................... $11,928
1995......................................................... 9,156
1996......................................................... 5,862
1997......................................................... 4,769
1998......................................................... 2,745
------
$34,460
-------
-------
</TABLE>
Page 36
<PAGE>
PROPERTY AND EQUIPMENT
The Company's property and equipment consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Land.................................. $19,640 $17,807
Buildings and leasehold
improvements........................ 71,920 69,621
Manufacturing, development and
test equipment...................... 176,117 148,612
Office furniture, equipment
and other........................... 112,803 87,952
------- -------
380,480 323,992
Less: Accumulated depreciation
and amortization.................. (200,697) (174,783)
-------- --------
$179,783 $149,209
------- -------
------- -------
</TABLE>
In late 1993, the Company acquired 42 acres of land for approximately
$1,833,000. In February 1994, the Company acquired an additional 148 acres for
approximately $16,400,000 in cash. The land will be used for future building
expansion.
ACCRUED LIABILITIES AND CUSTOMER ADVANCES
Accrued liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Warranty and related.................. $ 30,865 $25,298
Payroll and related................... 27,090 19,685
Taxes other than income............... 15,671 13,062
Other................................. 39,367 37,429
------ ------
$112,993 $95,474
------- ------
------- ------
</TABLE>
At December 31, 1992, customer advances included $34,300,000 of cash
advanced against future purchases from a customer as part of a settlement of
certain litigation. During 1993, the customer purchases exceeded the December
31, 1992 advances, and there is no advance from the customer at December 31,
1993.
CREDIT AGREEMENTS
In June 1993, the Company entered into a new revolving credit agreement
with a bank, which expired on February 28, 1994, providing for borrowings up to
$22,500,000 reduced by the value of outstanding letters of credit issued by the
Page 37
<PAGE>
bank on behalf of the Company up to $14,000,000. This agreement replaced an
earlier agreement which had expired. Letters of credit issued by the bank on
behalf of the Company were $8,081,000 at December 31, 1993. The Company paid a
fee on the unused portion of the credit facility of 0.125% per annum. The
agreement was collateralized by current domestic receivables and inventories.
There were no borrowings under the credit agreements during 1993.
On February 24, 1994, the Company entered into an uncollateralized
revolving credit facility, which expires on February 24, 1997, with two banks
providing for borrowings up to $50,000,000. The maximum available borrowings
are reduced by the value of outstanding letters of credit issued by the banks on
behalf of the Company up to $25,000,000. Borrowings under the facility bear
interest at the prime rate or at 0.75% to 1.50% above the LIBOR rate. A
commitment fee of 0.35% on the daily average unused portion of the facility will
also be assessed. The agreement contains various financial covenants.
Page 38
<PAGE>
DEBT
Total debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Senior debt:
Unsecured 9.5% note,
due 1993 - 1996................... $ 18,750 $ 25,000
Secured installment notes:
Interest at prime plus 0.5%,
due 1993 - 1996.................. 14,514 --
Interest at prime plus 1%,
due 1992 - 1993.................. -- 5,576
Other............................... 732 1,732
------ ------
Total senior debt................. 33,996 32,308
------ ------
Subordinated convertible debentures:
7.75%............................... -- 71,490
8.0%................................ 36,416 36,611
------ ------
Total debentures.................. 36,416 108,101
------ -------
Total debt..................... 70,412 140,409
Less: Current maturities............ (13,664) (11,792)
------- -------
Total long-term debt........... $ 56,748 $128,617
------- -------
------- -------
</TABLE>
The prime interest rate at December 31, 1993 and 1992 was 6.0%.
The aggregate maturities of long-term debt for the next five years are as
follows: 1994 - $13,664,000; 1995 - $11,052,000; 1996 - $9,231,000; 1997 -
$49,000; 1998 - $0.
In June 1993, the Company borrowed $19,975,000 under a loan agreement which
is secured by certain long-term lease receivables. This note is due in
installments through June 29, 1996, and bears interest at the prime rate plus
one-half percent.
All of the senior debt contains various financial convenants, including,
among other things, minimum working capital levels, maintenance of certain
ratios of assets to liabilities, and maximum allowable indebtedness to tangible
net worth.
Page 39
<PAGE>
Subordinated Convertible Debentures
7.75% Debentures
In 1993, the Company issued approximately 3,842,000 shares of the Company's
common stock upon conversion of its outstanding 7.75% subordinated convertible
debentures. As a result, approximately $68,561,000 was credited to common stock
and additional capital, which was net of $2,906,000 of remaining deferred debt
costs associated with the original issuance of the subordinated convertible
debentures and costs related to the conversion. On a pro forma basis, income
per share for the year ended December 31, 1993 would have been $1.51 had the
7.75% subordinated convertible debentures been converted on January 1, 1993.
8.0% Debentures
On January 14, 1994, the Company called for the redemption of all of the
outstanding 8% subordinated convertible debentures. The debentures were
convertible, at the option of the holder, into shares of the Company's common
stock at $54.50 per share. In February 1994, approximately $34,720,000 of
debentures were converted into approximately 636,900 shares of common stock and
approximately $1,696,000 of debentures were redeemed for cash.
INCOME TAXES
Effective January 1, 1992, the Company began accounting for income taxes
under the method required by Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109). See "Summary of Significant
Accounting Policies" for additional details. As permitted under the new rules,
prior years' financial statements have not been restated. Accordingly, amounts
shown for 1991 reflect income tax accounting under FAS 96.
At December 31, 1993 and 1992, the Company had a net deferred tax asset of
$66,423,000 and $68,235,000, respectively, reflecting the tax benefits of U.S.
and foreign subsidiary net operating loss carryforwards, tax credit
carryforwards and net future tax deductions. FAS 109 requires a valuation
reserve be established if it is "more likely than not" that realization of the
tax benefits will not occur. In recent years, the Company has cumulative losses
within its U.S. consolidated tax group which FAS 109 indicates is significant
evidence that could require a valuation reserve. Similarly, certain foreign
jurisdictions also have cumulative losses. As a result, a valuation allowance
equal to the net deferred tax asset was established at December 31, 1993 and
1992, although the Company believes the tax benefits will ultimately be realized
through future operations. Because a valuation reserve was established equal to
the net deferred tax asset, there was no cumulative effect on pretax net income
or cash flows as a result of the adoption of FAS 109 in 1992. The net deferred
tax asset would have decreased an additional $1,397,000 had the Federal tax rate
not increased from 34% to 35% retroactively effective to January 1, 1993.
Page 40
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's net deferred tax asset as of December 31, 1993 and 1992, are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
Deferred Tax Assets
Asset valuation reserves not yet
deductible for tax............................... $12,593 $13,522
Accrued liabilities not yet
deductible for tax............................... 25,757 18,904
Federal and foreign
loss carryforwards............................... 37,835 27,701
Tax credit carryforwards............................ 14,500 14,500
Other............................................... 4,812 16,958
------ ------
Deferred assets.................................. 95,497 91,585
------ ------
Deferred Tax Liabilities
Deferred revenue.................................... (6,271) (4,876)
Capitalized software development
costs............................................ (15,422) (11,765)
Depreciation........................................ (5,390) (4,794)
Other............................................... (1,991) (1,915)
------ ------
Deferred liability............................... (29,074) (23,350)
-------- -------
Deferred tax asset, net of
deferred liability............................... 66,423 68,235
Less valuation allowance............................ (66,423) (68,235)
-------- -------
Net deferred tax asset...................... $ -- $ --
------- -------
------- -------
</TABLE>
Included in Noncurrent Income Taxes and Other Liabilities at December 31,
1993 and 1992 are $25,150,000 and $17,928,000, respectively, for noncurrent
taxes related to foreign jurisdictions.
The Federal and foreign loss carryforwards at December 31, 1993 shown above
include approximately $33,000,000 of tax benefits related to the exercise of
employee stock options which, when recognized, will increase "Additional
capital" on the Consolidated Balance Sheet.
Page 41
<PAGE>
Income tax expense (benefit) was composed of the following (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................... $16,872 $1,964 $(2,200)
Puerto Rico and State................. 4,556 3,142 389
Foreign............................... 6,368 194 129
------ ----- ------
Total current.............................. 27,796 5,300 (1,682)
------ ----- ------
Deferred:
Federal............................... -- -- 2,039
Puerto Rico and State................. -- -- 1,152
------ ----- ------
Total deferred............................. -- -- 3,191
------ ----- ------
Total tax expense.......................... $ 27,796 $5,300 $ 1,509
------ ----- ------
------ ----- ------
</TABLE>
The current Federal tax expense included $5,800,000 and $1,860,000 for 1993
and 1992, respectively, representing the tax benefits of stock option deductions
credited to "Additional capital" and $8,300,000 for 1993 representing all of the
tax benefits of preacquisition net operating loss carryforwards utilized to
reduce the Company's Cost in Excess of Net Assets of Businesses Acquired.
The effective income tax rate on pretax income (loss) differed from the
Federal income tax statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Income tax charge (credit):
At statutory rate..................... $38,309 $5,712 $(36,318)
Unbenefitted/(utilized)
net operating losses................ (12,269) 2,463 37,133
Tax related to foreign
jurisdictions....................... 5,691 -- --
Deferred Federal tax.................. -- -- 2,039
Tax benefit of Puerto
Rican subsidiary.................... (5,432) (3,751) (1,345)
Foreign tax rate
differential........................ 1,033 637 --
State income taxes,
net of Federal
tax effect.......................... 464 66 --
Federal alternative
minimum tax......................... -- 173 --
------ ------ ------
$27,796 $5,300 $ 1,509
------- ------ -------
------- ------ -------
</TABLE>
At December 31, 1993, the Company had consolidated regular tax net
operating loss carryforwards for Federal tax purposes of approximately
$99,500,000 available to be carried to future periods. The loss carryforwards
expire from 2002 to 2008 if not used. Also, a foreign subsidiary of the Company
Page 42
<PAGE>
had approximately $9,000,000 of net operating and capital loss
carryforwards available to be carried to future periods which do not expire.
The Company has general business and other regular tax credit carryforwards
of approximately $13,000,000 which expire from 1994 to 2005. The Company also
has alternative minimum tax credits of approximately $1,500,000 which can be
utilized against regular taxes in the future.
Puerto Rican tollgate taxes (maximum rate of 10%) have not been provided on
approximately $13,594,000 of undistributed earnings in Puerto Rico, which are
considered to be indefinitely invested. DSC's Puerto Rican subsidiary has been
granted a 90% tax exemption from Puerto Rican income taxes. The tax grant
expires in 2005. Undistributed earnings of foreign subsidiaries are not
material.
INCENTIVE COMPENSATION
The Company has an Incentive Awards Plan administered by the Compensation
Committee of the Board of Directors which provides for payment of cash awards to
officers and key employees based upon achievement of specific goals by the
Company and the participating executives. For the years ended 1993 and 1992,
provisions of approximately $6,100,000 and $2,900,000 were charged against
income related to the plan. No incentive awards were granted under the plan for
1991. The Company also has a Long-Term Incentive Compensation Plan (LTIP) which
awards performance units to certain key executives. Certain officers were
awarded units in 1990 under the Company's LTIP by the Compensation Committee of
the Board of Directors. The units vest to the officers over six years, and the
value of a unit is determined annually based on the Company's operating
performance, as defined in the plan. The value of the units charged to income
in 1993 was approximately $2,300,000. Prior to 1993, the units awarded had no
value.
COMMON AND PREFERRED STOCK
Description and Dividends
At December 31, 1993 the Company was authorized to issue 100,000,000 shares
of common stock, $.01 par value, and 5,000,000 shares of preferred stock, $1.00
par value. Since inception, the Company has not declared or paid a cash
dividend.
In October 1993, the Company issued 3,450,000 shares of the Company's
common stock in a public offering for which the Company received net proceeds of
approximately $231,149,000.
In May 1986 and subsequently amended in April 1991, the Company declared a
dividend distribution of one preferred stock purchase right on each outstanding
share and each subsequently issued share of the Company's common stock. The
rights will not become exercisable until the close of business ten days after a
Page 43
<PAGE>
public announcement that a person or group has acquired 20% or more of the
common stock of the Company, or a public announcement or commencement of a
tender or exchange offer which would result in the offeror acquiring 30% or
more of the common stock of the Company. Once exercisable, each right would
entitle a holder to buy 1/100 of a share of the Company's Series A Junior
Participating preferred stock at an exercise price of $45.00. The Company may
redeem the rights for 5 cents per right prior to the close of business on the
tenth day following the announcement that a person or group has acquired 20%
or more of the outstanding common stock of the Company. The rights will
expire in 1996 unless redeemed or exercised at an earlier date.
Stock Purchase Plans
Under provisions of the Company's employee stock purchase plans, employees
can purchase the Company's common stock at a specified price through payroll
deductions during an offering period, currently established on an annual basis.
In July 1993, approximately 1,543,000 shares were issued to employees under the
employee stock purchase plan. At December 31, 1993, approximately $3,151,000
had been contributed by employees that will be used to purchase shares at the
end of the offering period in July 1994. The amount of shares issuable in July
1994 for the current offering is approximately 166,000 shares assuming no future
withdrawals from the plan. At December 31, 1993, the Company could issue up to
4,450,000 shares under the employee stock purchase plans of which approximately
3,672,000 shares had been purchased and issued.
Warrants and Options
The Company has stock option plans providing for the issuance of both
incentive stock options and nonqualified stock options exercisable for a period
of ten years, as well as restricted stock issuances. The plans cover 13,420,000
shares of common stock. At December 31, 1993, plan options covering 3,382,000
shares had been granted and are outstanding, options granted under the plans
covering 7,369,000 shares had been exercised, 658,000 restricted shares had been
issued (net of forfeitures), 224,000 shares had expired and options covering
1,787,000 shares are available for grant. The exercise prices of stock options
granted and warrants issued were at the market value of the Company's common
stock at the date of grant or issuance.
In the event of discontinuation of service by the optionees, all or a
portion of the shares acquired pursuant to these options can be repurchased by
the Company, at its option, based on the vesting terms in the option agreements.
Other options at December 31, 1993 include 34,000 options granted to
various current or prior members of the Company's Board of Directors and
certain nonemployees who have performed services for the Company.
Page 44
<PAGE>
Outstanding warrants and options are summarized as follows:
<TABLE>
<CAPTION>
Options
--------------------------
Warrants Plans Other
----------- ----------- ------------
<S> <C> <C> <C>
December 31, 1990--
Shares issuable
upon exercise.................... 500,000 5,558,000 161,000
Price per share.................... $3.33-$9.23 $.01-$39.50 $2.00-$14.88
Average price
per share........................ $7.37 $7.12 $8.31
Expiration......................... 1991-1992 1991-2000 1992-1995
1991 Transactions
Issuances and grants............... -- 1,196,000 20,000
Price per share.................... -- $4.19-$8.50 $4.19
Exercises and
forfeitures...................... 200,000 337,000 39,000
Price per share.................... $9.00 $2.00-$38.75 $2.00-$6.13
December 31, 1991--
Shares issuable
upon exercise.................... 300,000 6,417,000 142,000
Price per share.................... $3.33-$9.23 $.01-$39.50 $2.00-$14.88
Average price
per share........................ $6.28 $7.04 $8.91
Expiration......................... 1995 1992-2001 1992-1995
1992 Transactions
Issuances and grants............... -- 32,000 10,000
Price per share.................... -- $4.63-$18.13 $5.50
Exercises and
forfeitures...................... -- 2,268,000 50,000
Price per share.................... -- $.01-$32.67 $2.00-$14.88
December 31, 1992--
Shares issuable
upon exercise.................... 300,000 4,181,000 102,000
Price per share.................... $3.33-$9.23 $.01-$39.50 $4.19-$12.13
Average price
per share........................ $6.28 $8.06 $9.80
Expiration......................... 1995 1993-2002 1993-1996
1993 Transactions
Issuances and grants............... -- 710,000 10,000
Price per share.................... -- $26.13-$67.00 $17.00
Exercises and
forfeitures...................... 300,000 1,509,000 78,000
Price per share.................... $3.33-$9.23 $.01-$38.75 $4.19-$12.13
December 31, 1993--
Shares issuable
upon exercise.................... -- 3,382,000 34,000
Price per share.................... -- $.01-$67.00 $12.13-$17.00
Average price
per share........................ -- $14.07 $13.56
Expiration......................... -- 1994-2003 1994-1997
</TABLE>
Page 45
<PAGE>
Restricted Stock
The Company's Board of Directors authorized the issuance of restricted
shares of the Company's common stock to certain key employees under its 1993,
1988 and 1984 employee stock option plans. Holders of restricted stock retain
all rights of a shareholder, except the shares cannot be sold until they are
vested. Upon employee termination, all unvested shares are forfeited to the
Company. The shares vest annually through 1996.
The Company issued 255,000, 104,000 and 313,000 shares of restricted stock
to employees in 1993, 1992, and 1991, respectively, and increased common stock
and additional capital by the fair market value of the stock at the date of
issuance ($7,348,000, $778,000 and $1,714,000 in 1993, 1992 and 1991,
respectively), net of unearned compensation. At December 31, 1993, 1992
and 1991, unearned compensation related to the restricted shares was
$3,266,000, $1,507,000 and $1,424,000, respectively. The unearned
compensation will be charged to expense ratably over the vesting period.
During 1992, 14,000 restricted shares were forfeited.
Reserved Stock
Common stock has been reserved for the following purposes (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
-------- --------
<S> <C> <C>
Options outstanding............................... 3,416 4,283
Options available for grant under
the stock option plans.......................... 1,787 448
Subordinated convertible debentures............... 668 4,515
Warrants outstanding.............................. -- 300
Stock purchase plans.............................. 778 321
----- -----
6,649 9,867
----- -----
----- -----
</TABLE>
SPECIAL CHARGES
Special charges for 1991 included the following (in thousands):
<TABLE>
<S> <C>
Write-down of assets:
Inventory................................................. $25,300
Capitalized software development costs.................... 9,500
Property and equipment.................................... 1,700
Other..................................................... 300
-----
36,800
Provision for doubtful receivables.......................... 7,100
Restructuring costs......................................... 4,184
------
$48,084
------
------
</TABLE>
These charges resulted from the Company's reassessment in 1991 of
anticipated near-term business levels in light of the current economic
Page 46
<PAGE>
environment and the related impact on estimated revenue levels.
Also during 1991, the Company realigned its management structure on a
product line basis to refocus key management on product line performance. This
realignment resulted in the restructuring charge of $4,184,000 related to excess
lease and personnel related costs.
OTHER OPERATING COSTS
The agreement to acquire a company (Optilink) in 1990 requires the Company
to pay certain former employees of Optilink up to $7,900,000 if certain revenue
targets are achieved through December 31, 1995. At December 31, 1993,
approximately $5,514,000 had been earned under the agreement, including
$4,052,000 in 1993, $912,000 in 1992 and $288,000 in 1991. Such amounts are
included in "Other Operating Costs" on the Consolidated Statements of
Operations.
OTHER EXPENSE, NET
Other expense, net for the year ended December 31, 1993 included a gain of
$2,154,000 from the sale of securities acquired several years ago as part of
financing provided to a customer.
Other expense, net for the year ended December 31, 1992 included provisions
of approximately $1,500,000 for legal and related costs associated with
litigation activities and approximately $2,000,000 for costs related to the
restructuring of the Company's senior unsecured debt.
RELATED PARTIES
The Company has agreements to pay consulting fees, which amounted to
$486,000 in 1993, $424,000 in 1992 and $411,000 in 1991 to members of the
Company's Board of Directors.
The Company paid legal fees of $175,000 in 1992 and $199,000 in 1991 to
a legal firm with a shareholder who became a member of the Company's Board of
Directors during 1989 and subsequently resigned during 1992.
During 1992, the Company purchased approximately 98,000 shares of its
outstanding common stock from various employees and an officer of the Company,
who is also a member of the Board of Directors, at the existing market price at
the date of the transactions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of the fair value of
certain financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities are reflected in the financial
statements at fair value. Marketable securities are recorded in the financial
Page 47
<PAGE>
statements at current market values (see "Investments in Debt and Equity
Securities"). The following methods and assumptions were used by the Company
in estimating its fair value disclosures for the Company's financial
instruments:
Debt
The carrying amounts of the Company's borrowings under its senior unsecured
debt agreement and other debt approximate their fair value at December 1993 and
1992 due to renegotiation of the senior unsecured debt in December 1992 combined
with similar interest rates at December 1993 and 1992, and the other debt
containing market interest rates. The subordinated convertible debentures are
based on quoted market values.
Forward foreign exchange contracts, letters of credit and guarantees
The fair values of the Company's off-balance sheet instruments are based on
current settlement values (forward foreign exchange contracts) and fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing
(guarantees and letters of credit). The difference between these contract
values and the fair value of these instruments is included when it is material.
The carrying amounts and fair values of the Company's significant financial
instruments at December 31, 1993 and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying
December 31, 1993 Amount Fair Value
----------------- --------- ----------
<S> <C> <C>
Debt:
Senior unsecured debt........................... $18,750 $18,750
Other........................................... 15,246 15,246
Forward foreign exchange contracts................ 22,277 21,481
</TABLE>
Page 48
<PAGE>
<TABLE>
<CAPTION>
Carrying
December 31, 1993 Amount Fair Value
----------------- --------- ----------
<S> <C> <C>
Debt:
Senior unsecured debt........................... $25,000 $25,000
7.75% subordinated convertible
debentures.................................... 71,490 84,709
8.00% subordinated convertible
debentures.................................... 36,611 31,806
Other........................................... 7,308 7,308
</TABLE>
COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
The Company leases certain facilities and equipment which require future
rental payments. These rental arrangements do not impose any financing or
dividend restrictions on the Company or contain contingent rental provisions.
Certain of these leases have renewal and purchase options generally at the fair
value at the renewal or purchase option date.
Future minimum rental commitments under operating leases with
noncancellable lease terms in excess of one year were as follows at December 31,
1993 (in thousands):
<TABLE>
<S> <C>
1994........................................................ $17,680
1995........................................................ 13,692
1996........................................................ 8,919
1997........................................................ 6,937
1998........................................................ 4,837
Thereafter.................................................. 10,699
------
$62,764
------
------
</TABLE>
Operating lease rental expense was $19,268,000, $17,296,000 and
$18,203,000, for the years ended December 31, 1993, 1992 and 1991, respectively.
Additionally, for the year ended December 31, 1991, the Company received
sublease rental income of $2,530,000.
Contingent Liabilities
The Company periodically sells customer receivables and operating leases
under agreements which contain recourse provisions. The Company could be
obligated to repurchase receivables and operating leases which were previously
sold on a partial recourse basis, the terms of which allow the Company to limit
its risk of loss to approximately $5,328,000 at December 31, 1993. The Company
has guarantees of approximately $12,973,000 outstanding at December 31, 1993,
supporting Company and third-party performance bonds to customers and others, of
which approximately $8,081,000 was collateralized by letters of credit issued
under the Company's credit facility. The Company believes it has adequate
reserves for any ultimate losses associated with these contingencies.
Page 49
<PAGE>
The Company enters into forward foreign exchange contracts to hedge certain
receivables and firm contracts for delivery of products and services which are
denominated in foreign currencies. At December 31, 1993, the Company had
forward foreign exchange contracts of $22,277,000 to hedge future receipts in
such currencies. Gains and losses related to the forward contracts are
recognized as part of the cost of the underlying transactions being hedged.
Forward foreign exchange contracts generally have maturities of one year or less
and contain an element of risk that the counterparty may be unable to meet the
terms of the agreement. However, the Company minimizes such risk exposure by
limiting the counterparty to major financial institutions. Management believes
the risk of incurring such losses is remote and any losses therefrom would be
immaterial.
Litigation
In February 1994, the United States Fifth Circuit Court of Appeals (the
"Court of Appeals") affirmed dismissal by the United States District Court for
the Northern District of Texas of a shareholder suit against the Company and
certain of its present and former officers and directors. The suit was
purportedly filed as a class action on behalf of an alleged class of persons who
purchased common stock of the Company from February 7, 1991, through October 31,
1991. The complaint had alleged violations of Section 10(b) of the Securities
and Exchange Act of 1934, Rule 10b-5 promulgated thereunder and negligent
misrepresentation. The complaint sought actual and punitive damages in
unspecified amounts. The plaintiffs have been granted an extension of time
through March 25, 1994, in which to determine whether or not to request a
rehearing by the Court of Appeals. In addition, the plaintiffs have the option
to seek further review by the United States Supreme Court. The Company does not
believe the ultimate resolution of this matter will have a material adverse
effect on the Company's consolidated financial position.
On July 20, 1993, the Company filed suit against Advanced Fibre
Communications ("AFC"), Quadrium Corporation and two former employees in the
United States District Court for the Eastern District of Texas. The Company
seeks: (i) a declaratory judgment that the two former employees are not entitled
to any stock options or cash payments under certain employee plans due to
alleged breaches of certain employment related agreements; (ii) a declaration
that AFC's products are proprietary property of the Company; and (iii)
unspecified damages for breach of contract, civil conspiracy and tortious
interference. Counterclaims have been filed by the former employees claiming
entitlement to certain stock options and cash payments. Additionally, AFC has
filed counterclaims including various tort claims and claims based on alleged
violations of various Federal and State antitrust and unfair competition laws.
AFC also seeks a declaratory judgment that it owns all rights to its products
and seeks unspecified damages, including treble damages under antitrust statutes
Page 50
<PAGE>
and punitive damages. The case is in the early stages of discovery, and the
Company intends to vigorously prosecute its claims and defend all of the
defendants' counterclaims. The Company believes that it has valid and
substantial claims against all of the defendants and valid defenses to all of
the counterclaims and does not believe the ultimate resolution of this matter
will have a material adverse effect on the Company's consolidated financial
position.
The Company is a party to other legal proceedings which, in the opinion of
management, are not expected to have a material adverse effect on the Company's
consolidated financial position.
INTERNATIONAL OPERATIONS AND MAJOR CUSTOMERS
Export Sales
Revenue generated from export sales in 1991 was $48,012,000. Revenue
generated from export sales was less than 10% of total revenue in 1993 and 1992.
Major Customers
Customers that accounted for 10% or more of consolidated revenue and their
related percentage of consolidated revenue were as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
MCI Communications Corporation.......... 18% 15% 22%
Ameritech Services, Inc.
and subsidiaries...................... 13% * *
Motorola, Inc........................... 12% 13% 13%
Bell Atlantic........................... 11% 10% *
NYNEX................................... 11% * *
<FN>
*Represented less than 10% of consolidated revenue.
</TABLE>
Page 51
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of DSC Communications Corporation:
We have audited the accompanying consolidated balance sheets of DSC
Communications Corporation and subsidiaries (the "Company") as of December 31,
1993 and 1992 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. Our audits also included the financial statement
schedules listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
Ernst & Young
Dallas, Texas
January 24, 1994
Page 52
<PAGE>
DSC Communications Corporation and Subsidiaries
QUARTERLY RESULTS
(Unaudited) (In thousands, except per share data)
<TABLE>
<CAPTION>
1993 1992
--------------------------------------------- ---------------------------------------------
Fourth Third (B) Second First Fourth Third(A) Second First
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue. . . . . . . $ 217,934 $ 187,971 $ 168,676 $ 156,193 $ 162,713 $ 142,358 $ 128,532 $ 102,716
Gross profit . . . . 96,050 81,559 73,119 67,241 69,876 56,681 45,771 30,448
Net income (loss). . $ 28,764 $ 23,288 $ 18,236 $ 11,372 $ 13,105 $ 6,937 $ 2,031 $ (10,479)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss)
per share. . . . . $ 0.51 $ 0.43 $ 0.34 $ 0.24 $ 0.28 $ 0.16 $ 0.05 $ (0.25)
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
<FN>
(A) The 1992 third quarter includes provisions of approximately $1,500 for
legal and related costs associated with litigation activities and
approximately $1,000 for costs related to the Company's senior unsecured
debt.
(B) The 1993 third quarter includes a gain of approximately $2,154 from the
sale of securities acquired several years ago as part of financing provided
to a customer.
</TABLE>
Page 53
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to the directors and
nominees for election to the Board of Directors of the Company is incorporated
by reference from the information set forth on page 1 of the definitive proxy
statement of the Company, previously filed in connection with its 1994 Annual
Meeting of Stockholders under the heading "ELECTION OF DIRECTORS", and on pages
11 and 12 of such definitive proxy material under the heading "DIRECTORS
CONTINUING IN OFFICE". The information regarding executive officers of the
Company is contained in Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information set forth under the heading "EXECUTIVE COMPENSATION" on pages 5
through 11 of the definitive proxy statement of the Company, previously filed in
connection with its 1994 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
information set forth under the heading "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" on page 14 of the definitive proxy statement
of the Company, previously filed in connection with the 1994 Annual Meeting of
Stockholders.
Page 54
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
information set forth under the heading "COMPENSATION OF DIRECTORS" on pages
12 and 13 of the definitive proxy statement of the Company, previously filed in
connection with the 1994 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following is a list of the consolidated financial statements and
financial statement schedules which are included in this Form 10-K or
which are incorporated herein by reference.
1. Financial Statements:
As of December 31, 1993 and 1992: Consolidated Balance
Sheets
For the Years Ended December 31, 1993, 1992, and 1991
-- Consolidated Statements of Operations
-- Consolidated Statements of Cash Flows
-- Consolidated Statements of Changes in Shareholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Financial Statement Schedules:
As of December 31, 1993:
-- Schedule I -- Marketable Securities - Other Investments
For the years Ended December 31, 1993, 1992, and 1991:
-- Schedule II -- Amounts Receivable From Related Parties,
Underwriters, Promoters, and Employees Other Than Related
Parties
-- Schedule V -- Property and Equipment
-- Schedule VI -- Accumulated Depreciation and Amortization of
Property and Equipment
-- Schedule VIII -- Valuation and Qualifying Accounts
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<PAGE>
-- Schedule IX -- Short Term Borrowings
-- Schedule X -- Supplementary Income Statement Information
All other financial statements and financial statement schedules have been
omitted because they are not applicable, or the required information is
included in the consolidated financial statements or notes thereto.
3. Exhibits:
3.1 Amended and Restated Certificate of Incorporation of the
Company (1)
3.2 Amended and Restated By-laws of the Company (8)
4.3 Rights Agreement, Dated as of May 12, 1986, Between the
Company and The Chase Manhattan Bank, N.A., as Rights
Agent (3)
4.4 Form of Letter to the Company's Stockholders, Dated
May 22, 1986, Relating to the Adoption of the Rights
Agreement Described in Exhibit 4.3 (3)
10.1 Employment Agreement Between the Company and James L. Donald,
Dated January 1, 1990 (9)
10.2 Executive Income Continuation Plan, Dated January 1, 1990,
Between the Company and James L. Donald (9)
10.3 Insurance Ownership Agreement, Dated January 1, 1990,
Between the Company and James L. Donald (9)
10.4 Management Consulting Agreement Among the Company, Nolan
Consulting, Inc., and James M. Nolan, Dated
March 15, 1982 (4)
10.5 Amended and Restated Note Agreement, Dated December 31, 1992,
Between the Company and an Institutional Lender (10)
10.6 Revolving Credit Agreement, Dated as of February 24, 1994,
Between the Company and Certain of its Subsidiaries and Certain
Financial Institutions Providing for Secured Revolving
Credit (13)
Page 56
<PAGE>
10.7 The Company's Amended and Restated 1979 Employee Stock Option
Plan (5)
10.8 The Company's Amended and Restated 1981 Employee Stock Option
Plan (5)
10.9 The Company's Amended and Restated 1984 Employee Stock Option
Plan (7)
10.10 The Company's Amended and Restated 1988 Employee Stock Option
Plan (7)
10.11 The Company's Amended and Restated 1985 Convertible Debenture
Plan (2)
10.12 The Company's 1993 Employee Stock Option and Securities Award
Plan (11)
10.13 The Company's 1993 Non-Employee Directors Stock Option Plan (11)
10.14 The Company's Employee Thrift Plan as Amended and Restated (2)
10.15 The Company's 1988 Employee Stock Ownership Plan (6)
10.16 Form of Amended and Restated Severance Compensation Agreement
Between the Company and Certain of its Executive Officers (8)
10.17 The Company's Restoration Plan, Dated July 1, 1988 (6)
10.18 Form of Indemnification Agreement Between the Company and its
Directors and Senior Officers as Approved by the Board of
Directors and Entered Into on or After January 22, 1990, and the
Related Trust Agreement, Dated March 1, 1990, Between the
Company and First City, Texas-Dallas, as Trustee (7)
10.19 The Company's Long-Term Incentive Compensation Plan, Effective
as of January 1, 1990 (9)
10.20 The 1990 Optilink Stock Option and Cash Payment Plan, Dated
May 15, 1990 (9)
Page 57
<PAGE>
10.21 The Company's Long-Term Incentive Compensation Plan, Effective
as of January 1, 1994 (12)
11.1 Statement re: Computation of Per Share Earnings (13)
22.1 Subsidiaries of the Registrant (13)
23.1 Consent of Ernst & Young (13)
MANAGEMENT CONTRACTS OR COMPENSATORY PLANS AND ARRANGEMENTS
The following above-described exhibits are management contracts or
compensatory plans and arrangements: 10.1 Employment Agreement Between the
Company and James L. Donald, Dated January 1, 1990; 10.2 Executive Income
Continuation Plan, Dated January 1, 1990, Between the Company and James L.
Donald; 10.3 Insurance Ownership Agreement, Dated January 1, 1990, Between the
Company and James L. Donald; 10.4 Management Consulting Agreement Among the
Company, Nolan Consulting, Inc., and James M. Nolan, Dated March 15, 1982;
10.7 the Company's Amended and Restated 1979 Exployee Stock Option Plan;
10.8 The Company's Amended and Restated 1981 Employee Stock Option Plan;
10.9 The Company's Amended and Restated 1984 Employee Stock Option Plan;
10.10 The Company's Amended and Restated 1988 Employee Stock Option Plan;
10.11 The Company's Amended and Restated 1985 Convertible Debenture Plan;
10.12 The Company's 1993 Employee Stock Option and Securities Award Plan;
10.13 The Company's 1993 Non-Employee Directors Stock Option Plan;
10.14 The Company's Employee Thrift Plan as Amended and Restated;
10.15 The Company's 1988 Employee Stock Ownership Plan; 10.16 Form of Amended
and Restated Severance Compensation Agreement Between the Company and Certain
of its Executive Officers; 10.17 The Company's Restoration Plan, Dated July 1,
1988; 10.18 Form of Indemnification Agreement Between the Company and its
Directors and Senior Officers as Approved by the Board of Directors and
Entered Into on or After January 22, 1990, and the Related Trust Agreement,
Dated March 1, 1990, Between the Company and First City, Texas-Dallas, as
Trustee; 10.19 The Company's Long-Term Incentive Compensation Plan, Effective
as of January 1, 1990; 10.21 The Company's Long-Term Incentive Compensation
Plan, Effective as of January 1, 1994.
(b) Reports on Form 8-K: None
- ------------------------------------------------------------------------------
(1) Incorporated by reference from the Company's Amendment to Application or
Report on Form 8, dated July 28, 1989
(2) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1986
(3) Incorporated by reference from the Company's Registration Statement on
Form 8-A, dated May 21, 1986, as amended by Amendment No. 1 on Form 8,
dated July 28, 1989, and Amendment No 2. on Form 8, dated May 28, 1991,
each as filed with the Securities and Exchange Commission pursuant to
Section 12(g) of the Exchange Act
(4) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1981
(5) Incorporated by reference from the Company's Registration Statement on
Form S-8 (Registration No. 2-83398)
(6) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1988
(7) Incorporated by reference from the definitive proxy statement of the
Company, filed in connection with the 1990 Annual Meeting of Stockholders
(8) Incorporated by reference from the Company's Annual Report for the year
ended December 31, 1989
(9) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1990
Page 58
<PAGE>
(10) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1992
(11) Incorporated by reference from the definitive proxy statement of the
Company, filed in connection with the 1993 Annual Meeting of Stockholders
(12) Incorporated by reference from the definition proxy statement of the
Company, filed in connection with the 1994 Annual Meeting of Stockholders
(13) Filed herewith
Page 59
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DSC COMMUNICATIONS CORPORATION
(Registrant)
/s/ James L. Donald
------------------------------
James L. Donald, Chairman of
the Board, President, Chief
Executive Officer, and Director
60
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
------------------- ----
/s/ James L. Donald March 30, 1994
- ------------------------------
James L. Donald, Chairman
of the Board, President, Chief
Executive Officer, and Director
(Principal Executive Officer)
/s/ Clement M. Brown, Jr. March 30, 1994
- ------------------------------
Clement M. Brown, Jr.
Director
/s/ Frank J. Cummiskey March 30, 1994
- ------------------------------
Frank J. Cummiskey
Director
/s/ Sir John Fairclough March 30, 1994
- ------------------------------
Sir John Fairclough
Director
/s/ Raymond J. Dempsey March 30, 1994
- ------------------------------
Raymond J. Dempsey
Director
/s/ James L. Fischer March 30, 1994
- ------------------------------
James L. Fischer
Director
/s/ Robert S. Folsom March 30, 1994
- ------------------------------
Robert S. Folsom
Director
61
<PAGE>
Signature and Title Date
------------------- ----
/s/ Gerald F. Montry March 30, 1994
- ------------------------------
Gerald F. Montry, Senior Vice
President, Chief Financial
Officer, and Director
(Principal Financial Officer)
/s/ James M. Nolan March 30, 1994
- ------------------------------
James M. Nolan
Director
/s/ Kenneth R. Vines March 30, 1994
- ------------------------------
Kenneth R. Vines
Vice President and Controller
(Principal Accounting Officer)
62
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE I
MARKETABLE SECURITIES-OTHER INVESTMENTS
FOR THE YEAR ENDED DECEMBER 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Number of Amount at Which
Shares or Each Portfolio of
Units - Equity Security
Principal Market Value of Issues and Each
Amounts of Each Issue at Other Security
Name of Issuer and Bonds and Cost of Balance Sheet Issue Carried in
Title of Each Issue Notes Each Issue Date the Balance Sheet
- --------------------------------------------- ---------- ---------- --------------- ------------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE (1)
U.S. Treasury obligations $112,243 $112,243 $112,243
Mortgage-backed securities (2)
Federal National Mortgage Association
Pool #70169 Maturing 12/1/18 $5,712 5,896 5,896 5,896
Bear Stearns Secured Investments Inc.
Collateralized Mortgage Obligation
Series 88-2 Class 2-D
Maturing 4/1/18 $5,000 5,027 5,027 5,027
Resolution Trust Corporation
Mortgage Pass Through Securities
Maturing 5/25/24 $2,754 2,799 2,799 2,799
Other 15,368 15,368 15,368
--------- --------- ---------
29,090 29,090 29,090
Corporate debt securities 17,587 17,587 17,587
--------- --------- ---------
$158,920 $158,920 $158,920
--------- --------- ---------
--------- --------- ---------
<FN>
(1) Securities available for sale are carried at fair value with the unrealized
gains and losses, net of tax, reported in a separate component of
shareholders' equity. At December 31, 1993 there are no unrealized gains
or losses.
(2) Certain investments in mortgage-backed securities are guaranteed by an
agency of the United States government.
</TABLE>
63
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Deductions Balance at End
Balance at -------------------- of Period
Beginning Amounts Amounts --------------------
Name of Debtor of Period Additions Collected Written-Off Current Noncurrent
- ----------------- ---------- --------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mike Bodine (4) $ 42,220 $ 72,496 $ 112,954 $ -- $ 1,762 $ --
Kim Marshall (4) 39,983 82,627 122,610 -- -- --
Dane Hobbs (4) 1,422 113,401 102,559 -- 12,264 --
--------- --------- --------- ------- -------- -------
$ 83,625 $ 268,524 $ 338,123 $ -- $ 14,026 $ --
--------- --------- --------- ------- -------- -------
--------- --------- --------- ------- -------- -------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
Deductions Balance at End
Balance at ---------------------- of Period
Beginning Amounts Amounts --------------------
Name of Debtor of Period Additions Collected Written-Off Current Noncurrent
- ----------------- ---------- --------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Louis Wooldridge (3) $ 330,500 $ 39,000 $ 369,500 $ -- $ -- $ --
Dennis Duffy (3) 186,250 20,750 207,000 -- -- --
--------- --------- --------- ------- -------- -------
$ 516,750 $ 59,750 $ 576,500 $ -- $ -- $ --
--------- --------- --------- ------- -------- -------
--------- --------- --------- ------- -------- -------
</TABLE>
(CONTINUED)
64
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II (CONTINUED)
AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
Caption>
Deductions Balance at End
Balance at --------------------- of Period
Beginning Amounts Amounts --------------------
Name of Debtor of Period Additions Collected Written-Off Current Noncurrent
- ----------------- ---------- --------- --------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
James Donald (2) $ 918,750 $ -- $ 918,750 $ -- $ -- $ --
Gerald Montry (2) 204,250 -- 204,250 -- -- --
Gunnar Korpinen (2) 612,500 -- 612,500 -- -- --
William Tempest (2) 308,000 -- 308,000 -- -- --
Pete Waal (1)(2) 203,750 -- 203,750 -- -- --
Louis Wooldridge (3) 254,000 76,500 -- -- 330,500 --
Dennis Duffy (3) 146,500 39,750 -- -- 186,250 --
Doug Bailey (2) 181,750 -- 181,750 -- -- --
John Bischoff (2) 121,250 -- 121,250 -- -- --
Gerald Carlton (2) 242,500 -- 242,500 -- -- --
Dave Holland (2) 583,000 -- 583,000 -- -- --
Frank Perpiglia (2) 121,250 -- 121,250 -- -- --
---------- --------- ---------- ------- --------- -------
$3,897,500 $ 116,250 $3,497,000 $ -- $ 516,750 $ --
---------- --------- ---------- ------- --------- -------
---------- --------- ---------- ------- --------- -------
<FN>
(1) Employee - 0% to 12% notes made in connection with relocation of employee,
due April 1991.
(2) Employee - 8% to 12% notes for the purchase of non-negotiable convertible
subordinated debentures, due on various dates through April, 2000. During
1991, the Company allowed the officers and employees to exchange the
outstanding notes for subordinated convertible debentures due to the
officers and employees in the same amount.
(3) Employee - 8% notes associated with expatriate income taxes, due on demand.
(4) Employee - Advances associated with expatriate income taxes.
</TABLE>
65
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE V
PROPERTY AND EQUIPMENT
(In Thousands)
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Balance
at Additions Other Balance
Beginning at Changes at End
Classification of Period Cost Retirements Add (Deduct) of Period
- -------------- --------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Land $ 17,807 $ 1,833 $ -- $ -- $ 19,640
Buildings and
Leasehold Improvements 69,621 4,977 (2,677) (1) 71,920
Manufacturing &
Test Equipment 148,612 33,464 (5,667) (292) 176,117
Office Furniture,
Equipment & Other 87,952 30,754 (6,100) 197 112,803
--------- -------- --------- ------- ---------
TOTAL $ 323,992 $ 71,028 $ (14,444) $ (96) $ 380,480
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
Balance
at Additions Other Balance
Beginning at Changes at End
Classification(4) of Period Cost Retirements Add (Deduct) of Period
- -------------- --------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Land $ 17,807 $ -- $ -- $ -- $ 17,807
Buildings and
Leasehold Improvements 70,456 102 (946) 9 69,621
Manufacturing &
Test Equipment 143,786 14,671 (4,779) (5,066)(3) 148,612
Office Furniture,
Equipment & Other 81,526 11,041 (4,015) (600) 87,952
--------- -------- --------- ------- ---------
TOTAL $ 313,575 $ 25,814 $ (9,740) $(5,657) $ 323,992
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
</TABLE>
(CONTINUED)
66
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE V (CONTINUED)
PROPERTY AND EQUIPMENT
(In Thousands)
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
Balance
at Additions Other Balance
Beginning at Changes at End
Classification(4) of Period Cost Retirements Add (Deduct) of Period
- -------------- --------- --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Land $ 17,807 $ -- $ -- $ -- $ 17,807
Buildings and
Leasehold Improvements 68,217 2,980 (741) -- 70,456
Manufacturing &
Test Equipment 142,814 12,555 (2,792) (8,791)(2) 143,786
Office Furniture,
Equipment & Other 81,884 9,105 (8,587)(1) (876) 81,526
--------- -------- --------- ------- ---------
TOTAL $ 310,722 $ 24,640 $ (12,120) $(9,667) $ 313,575
--------- -------- --------- ------- ---------
--------- -------- --------- ------- ---------
<FN>
(1) Includes approximately $3,000 related to a write-down of assets in 1991.
(2) Test equipment transferred to inventory for resale to customers.
(3) Includes equipment transfers to inventory and other reclassifications.
(4) Certain prior year balances have been adjusted to be consistent with
current year presentation.
</TABLE>
67
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
(In Thousands)
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
Balance Additions
at Charged To Other Balance
Beginning Costs and Changes at End
Description of Period Expenses Retirements Add (Deduct)* of Period
----------- --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Buildings &
Leasehold Improvements $ 21,725 $ 3,674 $ (1,653) $ 17 $ 23,763
Manufacturing &
Test Equipment 97,464 20,255 (5,033) (274) 112,412
Office Furniture,
Equipment & Other 55,594 14,608 (5,932) 252 64,522
---------- --------- ---------- -------- ---------
TOTAL $ 174,783 $ 38,537 $ (12,618) $ (5) $ 200,697
---------- --------- ---------- -------- ---------
---------- --------- ---------- -------- ---------
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
Balance Additions
at Charged To Other Balance
Beginning Costs and Changes at End
Description(4) of Period Expenses Retirements Add (Deduct)* of Period
----------- --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Buildings &
Leasehold Improvements $ 18,906 $ 3,679 $ (867) $ 7 $ 21,725
Manufacturing &
Test Equipment 81,882 21,450 (3,646) (2,222)(3) 97,464
Office Furniture,
Equipment & Other 46,835 12,179 (3,610) 190 55,594
---------- --------- ---------- -------- ---------
TOTAL $ 147,623 $ 37,308 $ (8,123) $ (2,025) $ 174,783
---------- --------- ---------- -------- ---------
---------- --------- ---------- -------- ---------
</TABLE>
(CONTINUED)
68
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE VI (CONTINUED)
ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
(In Thousands)
FOR THE YEAR ENDED DECEMBER 31, 1991
<TABLE>
<CAPTION>
Balance Additions
at Charged To Other Balance
Beginning Costs and Changes at End
Description(4) of Period Expenses Retirements Add (Deduct)* of Period
----------- --------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Buildings &
Leasehold Improvements $ 15,704 $ 4,071 $ (873) $ 4 $ 18,906
Manufacturing &
Test Equipment 65,880 21,797 (2,468) (3,327)(2) 81,882
Office Furniture,
Equipment & Other 39,356 11,344 (4,360) (1) 495 46,835
---------- --------- ---------- -------- ---------
TOTAL $ 120,940 $ 37,212 $ (7,701) $ (2,828) $ 147,623
---------- --------- ---------- -------- ---------
---------- --------- ---------- -------- ---------
<FN>
* Transfers and reclassifications
(1) Includes approximately $1,300 related to a write-down of assets in 1991.
(2) Test equipment transferred to inventory for resale to customers and other
reclassifications.
(3) Includes equipment transfers to inventory and other reclassifications.
(4) Certain prior year balances have been adjusted to be consistent with
current year presentation.
</TABLE>
69
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged Deductions Balance at
Beginning Charged to to Other from End of
Receivables of Period Income Accounts Reserves Period
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993 $ 3,593 $ 942 $ -- $ 926 (2) $ 3,609
Year Ended December 31, 1992 9,124 1,761 800 (1) 8,092 (2) 3,593
Year Ended December 31, 1991 5,770 5,000 -- 1,646 (2) 9,124
<FN>
(1) Transfers from a reserve for customer guarantees, which were included in
"Accrued Liabilities", to Allowance for Doubtful Accounts".
(2) Accounts written off, net of collections.
</TABLE>
70
<PAGE>
DSC COMMUNICATIONS CORPORATION
SCHEDULE IX
SHORT-TERM BORROWINGS
(In thousands)
<TABLE>
<CAPTION>
Maximum Average Weighted
Category of Weighted Amount Amount Average
Aggregate Balance Average Outstanding Outstanding Interest Rate
Short-term at End of Interest During the During the During the
Borrowing Period Rate Period Period (1) Period (1)
---------- --------- --------- ----------- ------------ ------------
FOR THE YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C> <C>
Notes payable to banks $ -- -- $ -- $ -- (3) --
FOR THE YEAR ENDED DECEMBER 31, 1992
Notes payable to banks $ -- -- $ -- $ -- (3) --
FOR THE YEAR ENDED DECEMBER 31, 1991
Notes payable to banks $ -- (2) 8.50% $ 93,000 $ 79,638 8.94%
<FN>
(1) The average amount outstanding during the period is the average of the
daily balances. The weighted average interest rate during the period is
determined by dividing interest expense related to short-term borrowings by
the average of daily balances.
(2) At December 31, 1991, $93,000 of short-term borrowings was reclassified to
"Senior debt subject to accelerated maturity." (See Notes to Consolidated
Financial Statements in the 1991 Annual Report, which is incorporated by
reference herein.)
(3) There were no short-term borrowings for the years ended December 31, 1992
and December 31, 1993.
</TABLE>
71
<PAGE>
DSC COMMUNICATIONS CORPORATION
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Charged to Costs and Expenses
Years Ended December 31,
-------------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Maintenance and repairs $ 9,502 $ 6,908 $ 5,901
Taxes, other than payroll and income taxes * 6,180 5,881
Depreciation and amortization, other than
property, plant and equipment * 6,320 8,215
<FN>
* Amount is less than 1% of total sales.
</TABLE>
72
<PAGE>
EXHIBIT INDEX
10.6 Revolving Credit Agreement, Dated as of February 24, 1994,
Between the Company and Certain of its Subsidiaries and Certain
Financial Institutions Providing for Secured Revolving Credit
11.1 Statement re: Computation of Per Share Earnings
22.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young
<PAGE>
Exhibit 10.6
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$50,000,000
CREDIT AGREEMENT
AMONG
DSC COMMUNICATIONS CORPORATION
DSC TECHNOLOGIES CORPORATION
DSC FINANCE CORPORATION
DSC INTERNATIONAL CORPORATION
DSC MARKETING SERVICES, INC.
DSC OF PUERTO RICO, INC.
CERTAIN LENDERS
and
NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
February 24, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. . . . . . . . . . . . . . . . . . 1
SECTION 1.02. ACCOUNTING TERMS.. . . . . . . . . . . . . . . . . . . . 16
SECTION 1.03. INTERPRETATION.. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE II
ADVANCES
SECTION 2.01. THE ADVANCES.. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.02. MANNER OF BORROWING AND DISBURSEMENT.. . . . . . . . . . 18
SECTION 2.03. INTEREST.. . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 2.04. FEES.. . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.05. PREPAYMENT.. . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.06. REDUCTION OF COMMITMENTS.. . . . . . . . . . . . . . . . 21
SECTION 2.07. NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER. . . . 22
SECTION 2.08. PAYMENT OF PRINCIPAL OF ADVANCES.. . . . . . . . . . . . 22
SECTION 2.09. REIMBURSEMENT. . . . . . . . . . . . . . . . . . . . . . 23
SECTION 2.10. MANNER OF PAYMENT. . . . . . . . . . . . . . . . . . . . 24
SECTION 2.11. LIBOR LENDING OFFICES. . . . . . . . . . . . . . . . . . 24
SECTION 2.12. SHARING OF PAYMENTS. . . . . . . . . . . . . . . . . . . 24
SECTION 2.13. CALCULATION OF LIBOR RATE. . . . . . . . . . . . . . . . 25
SECTION 2.14. BOOKING ADVANCES.. . . . . . . . . . . . . . . . . . . . 25
SECTION 2.15. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 2.16. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . 26
SECTION 2.17. EXTENSION OF MATURITY DATE.. . . . . . . . . . . . . . . 30
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND THE
LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . 30
SECTION 3.02. CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF
CREDIT.. . . . . . . . . . . . . . . . . . . . . . . . . 31
i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES
SECTION 4.01. ORGANIZATION, QUALIFICATION, AUTHORIZATION, ETC. . . . . 33
SECTION 4.02. FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.03. CHANGES, ETC.. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.04. FINANCIAL STATEMENTS, ETC. . . . . . . . . . . . . . . . 34
SECTION 4.05. TAX RETURNS AND PAYMENTS.. . . . . . . . . . . . . . . . 34
SECTION 4.06. DEFAULTS RESPECTING INDEBTEDNESS.. . . . . . . . . . . . 34
SECTION 4.07. PROPERTY.. . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.08. CONFLICTING AGREEMENTS OR RESTRICTIONS.. . . . . . . . . 35
SECTION 4.09. LITIGATION, ETC. . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.10. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.11. USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . 36
SECTION 4.12. FEDERAL RESERVE REGULATIONS. . . . . . . . . . . . . . . 36
SECTION 4.13. FOREIGN ASSETS CONTROL REGULATIONS, ETC. . . . . . . . . 36
SECTION 4.14. STATUS UNDER CERTAIN FEDERAL STATUTES. . . . . . . . . . 36
SECTION 4.15. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . 37
SECTION 4.16. SOLVENCY.. . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 4.17. SENIOR INDEBTEDNESS. . . . . . . . . . . . . . . . . . . 39
SECTION 4.18. PATENTS, TRADEMARKS, ETC.. . . . . . . . . . . . . . . . 39
SECTION 4.19. LABOR MATTERS. . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE V
COVENANTS
SECTION 5.01. REPORTING REQUIREMENTS.. . . . . . . . . . . . . . . . . 40
SECTION 5.02. INSPECTION OF PROPERTY; BOOKS AND RECORDS. . . . . . . . 42
SECTION 5.03. SUBORDINATED DEBT. . . . . . . . . . . . . . . . . . . . 43
SECTION 5.04. PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . 43
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE.. . . . . . . . . . 44
SECTION 5.06. COMPLIANCE WITH LAWS.. . . . . . . . . . . . . . . . . . 44
SECTION 5.07. PERFORMANCE OF LOAN DOCUMENTS. . . . . . . . . . . . . . 45
SECTION 5.08. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 45
SECTION 5.09. CORPORATE EXISTENCE, ETC.. . . . . . . . . . . . . . . . 46
SECTION 5.10. OWNERSHIP OF LOAN PARTIES. . . . . . . . . . . . . . . . 46
SECTION 5.11. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.12. MERGERS, CONSOLIDATIONS AND DISPOSITIONS . . . . . . . . 48
SECTION 5.13. TRANSACTIONS WITH AFFILIATES.. . . . . . . . . . . . . . 49
SECTION 5.14. INVESTMENT.. . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.15. RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . 50
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SECTION 5.16. MINIMUM CURRENT RATIO. . . . . . . . . . . . . . . . . . 50
SECTION 5.17. MAXIMUM LEVERAGE RATIO.. . . . . . . . . . . . . . . . . 50
SECTION 5.18. MINIMUM TANGIBLE NET WORTH.. . . . . . . . . . . . . . . 50
SECTION 5.19. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EXCESS CASH
FLOW RATIO.. . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.20. PATENTS, TRADEMARKS AND LICENSES.. . . . . . . . . . . . 51
SECTION 5.21. NOTICE OF LABOR DISPUTES.. . . . . . . . . . . . . . . . 51
SECTION 5.22. NATURE OF BUSINESS.. . . . . . . . . . . . . . . . . . . 51
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT AND REMEDIES.. . . . . . . . . . . . . 51
SECTION 6.02. REMEDIES.. . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.03. INJUNCTIVE RELIEF. . . . . . . . . . . . . . . . . . . . 55
ARTICLE VII
GUARANTY
SECTION 7.01. GUARANTY.. . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 7.02. CONTINUING GUARANTY. . . . . . . . . . . . . . . . . . . 56
SECTION 7.03. EFFECT OF DEBTOR RELIEF LAWS.. . . . . . . . . . . . . . 57
SECTION 7.04. WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . . 58
SECTION 7.05. SUBORDINATION. . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.06. WAIVER.. . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 7.07. FULL FORCE AND EFFECT. . . . . . . . . . . . . . . . . . 59
SECTION 7.08. ENFORCEABILITY.. . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VIII
CHANGES IN CIRCUMSTANCES
SECTION 8.01. LIBOR BASIS DETERMINATION INADEQUATE.. . . . . . . . . . 59
SECTION 8.02. ILLEGALITY.. . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.03. INCREASED COSTS. . . . . . . . . . . . . . . . . . . . . 60
SECTION 8.04. BASE RATE ADVANCES RATHER THAN LIBOR ADVANCES. . . . . . 61
SECTION 8.05. CAPITAL ADEQUACY.. . . . . . . . . . . . . . . . . . . . 61
ARTICLE IX
AGREEMENT AMONG LENDERS
SECTION 9.01. AGREEMENT AMONG LENDERS. . . . . . . . . . . . . . . . . 62
SECTION 9.02. LENDER CREDIT DECISION.. . . . . . . . . . . . . . . . . 64
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ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.02. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 65
SECTION 10.03. WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 10.04. DETERMINATION BY THE LENDERS CONCLUSIVE AND
BINDING. . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.05. SET-OFF. . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.06. ASSIGNMENT.. . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 10.07. COUNTERPARTS.. . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.08. SEVERABILITY.. . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.09. INTEREST AND CHARGES.. . . . . . . . . . . . . . . . . . 69
SECTION 10.10. HEADINGS.. . . . . . . . . . . . . . . . . . . . . . . . 69
SECTION 10.11. AMENDMENT AND WAIVER.. . . . . . . . . . . . . . . . . . 70
SECTION 10.12. EXCEPTION TO COVENANTS.. . . . . . . . . . . . . . . . . 70
SECTION 10.13. RELEASE OF LIENS.. . . . . . . . . . . . . . . . . . . . 70
SECTION 10.14. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . 70
SECTION 10.15. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 71
SECTION 10.16. WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. . . . . . 71
SECTION 10.17. WAIVER OF JURY TRIAL.. . . . . . . . . . . . . . . . . . 71
SECTION 10.18. FINAL AGREEMENT OF THE PARTIES.. . . . . . . . . . . . . 72
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EXHIBITS
Form of Note Exhibit A
Form of Compliance Certificate Exhibit B
Form of Assignment Agreement Exhibit C
Form of Notice of Advance Request Exhibit D
Form of Request for Issuance Exhibit E
SCHEDULES
Schedule 1.01 (a) Existing Letters of Credit
Schedule 1.01 (b) Subordinated Debt
Schedule 2.11 LIBOR Lending Offices
Schedule 4.01 Jurisdiction of Incorporation
Schedule 4.04 Disclosure of Certain Events
Schedule 4.09 Litigation
Schedule 4.19 Labor Matters
Schedule 5.11 Permitted Liens
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CREDIT AGREEMENT
CREDIT AGREEMENT dated as of February 24, 1994, among DSC COMMUNICATIONS
CORPORATION, a Delaware corporation (the "Company"), DSC TECHNOLOGIES
CORPORATION, a Delaware corporation, DSC FINANCE CORPORATION, a Delaware
corporation, DSC INTERNATIONAL CORPORATION, a Delaware corporation, DSC
MARKETING SERVICES, INC., a Delaware corporation, and DSC OF PUERTO RICO, INC.,
a Delaware corporation (such other corporations being collectively, the
"GUARANTORS") (the Company and the Guarantors being collectively, the "LOAN
PARTIES"), the Lenders from time to time party hereto (the "LENDERS") and
NATIONSBANK OF TEXAS, N.A., a national banking association, as Administrative
Lender for the Lenders (the "ADMINISTRATIVE LENDER").
BACKGROUND
The Company has requested that the Lenders make a revolving credit facility
available to the Company in the maximum principal amount of $50,000,000. The
Lenders have agreed to do so, subject to the terms and conditions set forth
below.
In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration hereby acknowledged, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ADMINISTRATIVE LENDER FEE LETTER" has the meaning ascribed thereto in
SECTION 2.04 (c).
"ADVANCE" means any amount advanced by the Lenders to the Company
pursuant to ARTICLE II hereof on the occasion of any borrowing, including
without limitation any Refinancing Advance.
"AFFILIATE" means when used with respect to any Person any other Person
which controls or is controlled by or is under common control with such Person.
As used in this definition, "control" means the possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or ownership interests,
by contract or otherwise).
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"AGREEMENT" means this Credit Agreement, as the same may be amended,
supplemented or modified from time to time.
"AGREEMENT DATE" means the date of this Agreement.
"APPLICABLE LAW" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art.1.04"), and any other statute of
the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit; provided that the parties hereto
agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, shall not apply to Advances, this Agreement, the Notes
or any other Loan Documents.
"APPLICABLE MARGIN" means the following per annum percentages, applicable
in the following situations:
LIBOR
APPLICABILITY MARGIN
-------------------------------------------------------------
(i) If the Consolidated Funded Debt to Consolidated 1.50%
Excess Cash Flow Ratio is equal to or greater
than 2.0 to 1
(ii) If the Consolidated Funded Debt to Consolidated 1.25%
Excess Cash Flow Ratio is less than 2.0 to 1 but
is equal to or greater than 1.50 to 1
(iii) If the Consolidated Funded Debt to Consolidated 1.00%
Excess Cash Flow Ratio is less than 1.50 to 1 but
equal to or greater than 1.00 to 1
(iv) If the Consolidated Funded Debt to Consolidated 0.75%
Excess Cash Flow Ratio is less than 1.00 to 1
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The Applicable Margin payable by the Company on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above according to the performance of the Company as tested
by the Consolidated Funded Debt to Consolidated Excess Cash Flow Ratio;
PROVIDED, that each adjustment in the Applicable Margin shall be effective with
respect to LIBOR Advances (i) made following the date of receipt by the
Administrative Lender of the financial statements required pursuant to SECTION
5.01(a) or (b) hereof, on the date of making such LIBOR Advance and (ii)
outstanding on the date of receipt of the financial statements referred to in
clause (i) immediately preceding and which are continued as LIBOR Advances
beyond the then effective Interest Period therefor, on the first day of the
immediately succeeding Interest Period. If financial statements of the Company
(and corresponding Compliance Certificate setting forth the Consolidated Funded
Debt to Consolidated Excess Cash Flow Ratio) are not received by the
Administrative Lender by the fifth day following the date required pursuant to
SECTION 5.01 hereof, the Applicable Margin shall be determined as if the
Consolidated Funded Debt to Consolidated Excess Cash Flow Ratio is equal to or
greater than 2.00 to 1 until such time as such financial statements and
Compliance Certificate are received. Anything herein to the contrary
notwithstanding, the Applicable Margin from and including the Agreement Date to
but not including the fifth day following receipt of the Company's June 30,
1994, financial statements shall be 1.25%.
"ASSIGNEES" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in SECTION 10.06.
"ASSIGNMENT AGREEMENT" has the meaning ascribed thereto in Section 10.06.
"AUTHORIZED SIGNATORY" means such senior personnel of the Company as may
be duly authorized and designated in writing by the Company to execute
documents, agreements and instruments on behalf of the Company, and to request
Advances and Letters of Credit hereunder.
"BASE RATE" means, for any day, a per annum interest rate equal to the
lesser of (a) the Highest Lawful Rate on such day, or (b) the higher of (i) the
Prime Rate on such day, or (ii) the sum of the Federal Funds Effective Rate on
such day plus .50%. The Base Rate shall be adjusted automatically as of the
opening of business on the effective date of each change in the Prime Rate or
Federal Funds Effective Rate, as the case may be, to account for such change.
"BASE RATE ADVANCE" means any Advance bearing interest at the Base Rate.
"BENEFIT ARRANGEMENT" means an employee benefit plan within the meaning
of section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and with
respect to which any Loan Party or a member of the ERISA Group has a liability
or an obligation, whether or not current, accrued or contingent, to make
contributions.
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"BOARD" means the Board of Governors of the Federal Reserve System of the
United States.
"BUSINESS DAY" means a day (1) when the main office of each Lender is open
for business, and (2) with respect to any transaction involving the issuance of
a Letter of Credit, or otherwise requiring the facilities or services of any
financial institution, in England, on which commercial banks are open for
domestic or international business in London, England.
"CAPITAL LEASE" means any lease in respect of which the obligations of any
Loan Party constitute Capitalized Lease Obligations.
"CAPITALIZED LEASE OBLIGATIONS" means, without duplication, all lease
obligations which shall have been or should be, in accordance with GAAP,
capitalized on the books of the Loan Parties.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 (42 U.S.C. SECTION 9601 et.seq.).
"CODE" means Internal Revenue Code of 1986 and the regulations
promulgated thereunder.
"COMMITMENT" means, collectively, $50,000,000, as reduced from time to
time, pursuant to SECTION 2.06, and as to each Lender, such Lender's Specified
Percentage of such amount.
"COMPANY" has the meaning specified in the introduction to this Agreement.
"COMPLIANCE CERTIFICATE" means a certificate in the form of EXHIBIT B to be
executed by a Financial Officer of the Company certifying, INTER ALIA, the truth
and accuracy of the information required to be contained therein, and delivered
to each Lender on a quarterly basis as provided in ARTICLE V.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, expenditures
made by the Company and its Subsidiaries to acquire or construct fixed assets,
plants and equipment, computed in accordance with GAAP, consistently applied,
including, without limitation renewals, improvements and replacements during
such period and the aggregate amount of items leased or acquired under Capital
Leases at the cost of the item, but excluding expenditures on capitalized
software development cost.
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"CONSOLIDATED CURRENT ASSETS" means, at any time, all amounts which, in
accordance with GAAP, would be included as current assets on a consolidated
balance sheet of the Company and its consolidated Subsidiaries at such time.
"CONSOLIDATED CURRENT LIABILITIES" means, at any time, all amounts which,
in accordance with GAAP, would be included as current liabilities on a
consolidated balance sheet of the Company and its consolidated Subsidiaries at
such time.
"CONSOLIDATED EBITDA" means, for any period, without duplication, an
amount equal to (a) Consolidated Income From Continuing Operations Before
Income Taxes and Extraordinary Items for such period plus (b) the aggregate
amount which in accordance with GAAP, was deducted, in determining
Consolidated Income From Continuing Operations Before Income Taxes and
Extraordinary Items for such period under clause (a) in respect of Consolidated
Interest Expense, depreciation and amortization (including the amortization of
capitalized software development costs of the Company and its consolidated
Subsidiaries for such period) of the Company and its consolidated Subsidiaries
for such period.
"CONSOLIDATED EXCESS CASH FLOW" means, for any four consecutive fiscal
quarters of the Company, an amount equal to the sum of (i) Consolidated EBITDA
for such period minus (ii) Consolidated Capital Expenditures for such period.
"CONSOLIDATED FUNDED DEBT" means, for the Company and its Subsidiaries on
a consolidated basis determined in accordance with GAAP, at any time, without
duplication, an amount equal to the sum of Capital Leases and debt created,
issued or incurred or assumed for money borrowed or for the capitalized deferred
purchase price of property or services purchased (excluding accounts payable in
the ordinary course of business and obligations in respect of undrawn letters of
credit).
"CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EXCESS CASH FLOW RATIO" means,
with respect to any fiscal quarter of the Company, the ratio of Consolidated
Funded Debt as of the last day of such fiscal quarter to Consolidated Excess
Cash Flow for the immediately preceding four consecutive fiscal quarters of the
Company ending on such fiscal quarter.
"CONSOLIDATED INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS" means, without duplication, for any period, all amounts
which, in accordance with GAAP, would be included as income from continuing
operations of the Company and its consolidated Subsidiaries before income taxes
and extraordinary items and cumulative effects of accounting changes, if any,
for such period.
"CONSOLIDATED INCOME TAX EXPENSE" means, with respect to any period, the
aggregate of the income tax expense of the Company and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
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"CONSOLIDATED INTEREST EXPENSE" means, without duplication, for any period,
the sum of:
(a) aggregate interest expense of the Company and its consolidated
Subsidiaries for such period, as determined in accordance with GAAP and in
any event including, all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers acceptances and net
costs under interest rate protection agreements and the portion of any
Capitalized Lease Obligations allocable to consolidated interest expense;
plus
(b) interest expense of the type described in clause (a) above of the
Company and its consolidated Subsidiaries capitalized during such period.
"CONSOLIDATED NET EARNINGS" means, with respect to any period, the net
income (or loss) of the Company and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means at any time, determined on a
consolidated basis in accordance with GAAP:
(a) the sum of capital stock, additional paid-in capital and retained
earnings (minus treasury stock and accumulated deficits) of the Company
and its consolidated Subsidiaries, all as shown on a consolidated balance
sheet of the Company and its consolidated Subsidiaries prepared at such
date;
reduced by
(b) to the extent reflected as an asset in such consolidated balance
sheet at such date, the sum of unamortized debt discount and expenses,
deferred charges, goodwill, licenses, franchises, patents, patent
applications, trade names, trademarks, acquired technology, capitalized
software development costs, and capitalized research and development costs
or other like intangibles (excluding, however, contract development costs
as shown on such consolidated balance sheet) shown on such consolidated
balance sheet.
"CONSOLIDATED TOTAL ASSETS" means, at any time, all amounts which, in
accordance with GAAP, would be included as total assets on a consolidated
balance sheet of the Company and its consolidated Subsidiaries at such time.
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"CONSOLIDATED TOTAL LIABILITIES" means, at any time, the sum of all amounts
which, in accordance with GAAP, would be included as a liability on a
consolidated balance sheet of the Company and its consolidated Subsidiaries at
such time plus, to the extent not reflected on such balance sheet, all
Guarantees of (a) Indebtedness of the type described in clause (g) of the
definition of the term Indebtedness with respect to letters of credit issued for
the account of the Company or any of its consolidated Subsidiaries with respect
to transactions not in the ordinary course of their respective businesses and
(b) debt for borrowed money.
"DEBTOR RELIEF LAWS" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to
time in effect.
"DEFAULT" means the occurrence of any event which with the giving of notice
or the passage of time could become an Event of Default.
"DEFAULT RATE" means a simple per annum interest rate equal to the lesser
of (a) the Highest Lawful Rate, or (b) the sum of the Base Rate plus two
percent.
"DETERMINING LENDERS" shall mean, on any date of determination, any
combination of the Lenders having at least 100% of the aggregate amount of the
Advances then outstanding; provided, however, that if there are no Advances
outstanding hereunder, "Determining Lenders" shall mean any combination of
Lenders whose Specified Percentages aggregate at least 100%; PROVIDED, FURTHER,
HOWEVER, if on any date of determination there are more than two Lenders,
"Determining Lenders" shall mean, on such date, any combination of the Lenders
having at least 66-2/3% of the aggregate amount of Advances then outstanding;
provided, however, that if on any date of determination there are more than two
Lenders and there are no Advances outstanding, "Determining Lenders" shall mean
any combination of Lenders whose Specified Percentages aggregate at least
66-2/3%.
"DOLLARS" and the symbol "$" mean the lawful currency of the United States.
"EFFECTIVE DATE" means the date on which the conditions set forth in
ARTICLE III are first met.
"ENVIRONMENTAL LAWS" means any Laws (including the common law) of any
Tribunal (including, without limitation, related determinations, orders,
decrees, judgments, opinions or interpretations by any Tribunal) pertaining to
pollution, environmental, health, safety, industrial hygiene or similar matters.
"ERISA" means the United States Employee Retirement Income Security Act
of 1974 and the regulations promulgated thereunder.
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"ERISA GROUP" means all corporations, trades or businesses (whether or not
incorporated) and other Persons which, together with any Loan Party, are treated
as a single employer under either section 414(b), (c), (m) or (o) of the Code or
Sections 4001(a)(14) or 4001(b)(1) of ERISA.
"EVENT OF DEFAULT" means any of the events described in Article VI.
"FDIC" means the Federal Deposit Insurance Corporation (or any successor).
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds broker, as published on the
succeeding Business Day by the Federal Reserve Bank of Dallas, or, if such rate
is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Administrative
Lender from three federal funds brokers of recognized standing selected by it.
"FINANCE" means DSC Finance Corporation, a Delaware corporation, and a
Loan Party.
"FINANCIAL OFFICER" of any Person means its chief financial officer,
principal accounting officer, or treasurer or assistant treasurer.
"FOREIGN SUBSIDIARIES" means DSC Communications Australia (Pty.) Ltd., a
corporation organized under the laws of Australia, DSC Communications (Europe)
Ltd., a corporation organized under the laws of the United Kingdom, DSC
Communications Limited, a corporation organized under the laws of the United
Kingdom, DSC Japan Incorporated, a corporation organized under the laws of
Japan, DSC Communications Canada Inc., a corporation organized under the laws
of Canada, DSC Local Networks (Europe) Ltd., a corporation organized under the
laws of the United Kingdom, DSC Communications (Asia-Pacific) Pte. Ltd., a
corporation organized under the laws of Hong Kong, and any New Subsidiary
which is organized under the laws of a jurisdiction other than the fifty states
of the United States of America, Puerto Rico or the District of Columbia.
"GAAP" means generally accepted accounting principles as in effect from
time to time as set forth in the opinions, statements and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, the Financial Accounting Standards Board and such other Persons
who shall be approved by a significant segment of the accounting profession and
concurred in by the independent certified public accountants certifying any
audited financial statements of the Company.
"GOVERNMENT ACTS" has the meaning specified in Section 2.16(e).
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"GOVERNMENT SECURITIES" means readily marketable direct full faith and
credit obligations of the United States or obligations unconditionally
guaranteed by the full faith and credit of the United States.
"GUARANTEE" means as to a Person any guarantee or other contingent
liability (other than any endorsement for collection or deposit in the ordinary
course of business), direct or indirect, with respect to any obligation of
another Person, through an agreement or otherwise, including, without
limitation, (a) any other endorsement or discount with recourse or undertaking
substantially equivalent to or having economic effect similar to a guarantee in
respect of any such obligation and (b) any agreement (i) to purchase, or to
advance or supply funds for the payment or purchase of, any such obligation,
(ii) to purchase, sell or lease property, products, materials or supplies, or
transportation or services, in respect of enabling such other Person to pay any
such obligation or to assure the owner thereof against loss regardless of the
delivery or nondelivery of the property, products, materials or supplies or
transportation or services or (iii) to make any loan, advance or capital
contribution to or other investment in, or to otherwise provide funds to or for,
such other Person in respect of enabling such Person to satisfy any obligation
(including any liability for a dividend, stock liquidation payment or expense)
or to assure a minimum equity, working capital or other balance sheet condition
in respect of any such obligation. The amount of any Guarantee shall be equal to
the outstanding amount of the obligation directly or indirectly guaranteed. The
term "Guarantee" used as a verb has a corresponding meaning.
"GUARANTEED OBLIGATIONS" has the meaning specified in SECTION 7.01.
"GUARANTORS" has the meaning specified in the introduction to this
Agreement.
"GUARANTORS' AGREEMENT" means that certain Guarantors' Agreement dated as
of the date hereof among the Guarantors.
"GUARANTY" means the guaranty contained in ARTICLE VII.
"HAZARDOUS MATERIALS" means any pollutants, contaminants, toxic or
hazardous materials or substances, wastes, petroleum or petroleum products,
flammable, explosive or radioactive materials or other substances or materials
listed, designated, defined or regulated under any Environmental Law.
"HIGHEST LAWFUL RATE" means at the particular time in question the
maximum rate of interest which, under Applicable Law, the Lenders are then
permitted to charge on the Obligations. If the maximum rate of interest which,
under Applicable Law, the Lenders are permitted to charge on the Obligations
shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of
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the effective time of each change in the Highest Lawful Rate without notice to
the Company. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be (a)
the indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently
contract as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that
at any time the indicated rate ceiling, the quarterly ceiling or the annualized
ceiling shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for
purposes of such determination, as applicable.
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion by independent
public accountants as to any financial statement of the Company and its
consolidated Subsidiaries, any qualification or exception to such opinion:
(a) which is of a so-called "going concern" or a similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement (other than scope limitations included
in the standard form of opinion utilized by such accountants); or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
any Loan Party to be in default of any of its obligations under SECTION
5.03, SECTION 5.16, SECTION 5.17, SECTION 5.18 or SECTION 5.19.
"INDEBTEDNESS" with respect to any Person means, without duplication, (a)
all indebtedness for borrowed money of such Person or for the deferred purchase
price of property acquired by, or services rendered to, such Person, (b) all
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to any property acquired by such
Person, (c) Capitalized Lease Obligations of such Person, (d) all indebtedness
for borrowed money or for the deferred purchase price of property or services
secured by any Lien upon or in any property owned by such Person whether or not
such Person has assumed or become liable for the payment of such indebtedness
for borrowed money, (e) indebtedness arising in connection with surety or other
similar bonds, (f) obligations of such Person in respect of banker's
acceptances, (g) the undrawn maximum face amount of all outstanding letters of
credit issued for the account of such Person and, without duplication, the
outstanding amount of all drafts drawn thereunder, (h) obligations of such
Person in respect of interest rate protection agreements, (i) all liabilities in
respect of unfunded vested benefits under Benefit Arrangements, and (j) all
Guarantees by such Person of indebtedness described in clauses (a) through
(i) of this definition of any other Person;
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PROVIDED, that, for purposes of this definition trade payables incurred within
the ordinary course of business and payable within 120 days of the incurrence
thereof shall not be included.
"INDEMNITEES" means each Lender and the holders of participations in the
Notes and other Obligations and each of their successors and assigns, along with
each of their respective officers, directors, shareholders, employees, agents
and servants.
"INTEREST PERIOD" means, for any LIBOR Advance, the period beginning on the
day the Advance is made and ending one, two, three or six months thereafter (as
the Company shall select).
"INVESTMENT" means any investment so classified under GAAP by a Person
made by stock purchase, capital contribution, loan or advance or by purchase of
property or otherwise, but in any event shall include as an investment of such
Person in any other Person the amount of all Indebtedness owed by the other
Person to the investing Person and all receivables from such other Person owed
to the investing Person which are not current assets and did not arise from
service rendered or sales to such other Person in the ordinary course of the
investing Person's business.
"ISSUING BANK" means NationsBank of Texas, N.A. in its capacity as issuer
of the Letters of Credit.
"LAWS" means all statutes, laws, ordinances, rules, regulations, orders,
writs, injunctions, decrees, judgments, opinions or interpretations of any
Tribunal.
"LETTER OF CREDIT" means a Letter of Credit described in SECTION 2.16(a)
and issued under the Letter of Credit Facility or issued pursuant to the
NationsBank Revolving Credit Agreement and listed on SCHEDULE 1.01(a).
"LETTER OF CREDIT AGREEMENT" shall have the meaning specified in
SECTION 2.16(b).
"LETTER OF CREDIT FACILITY" shall have the meaning specified in SECTION
2.16(a).
"LIBOR ADVANCE" means an Advance which the Company requests to be
made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance
with the provisions of SECTION 2.02 hereof.
"LIBOR BASIS" means a simple per annum interest rate equal to the lesser of
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable Margin. The LIBOR Basis shall, with respect to LIBOR Advances
subject to reserve or deposit requirements, be subject to premiums therefor
assessed by each Lender, which are payable
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directly to each Lender. Once determined at the beginning of an Interest
Period, the LIBOR Basis shall remain unchanged during the applicable Interest
Period.
"LIBOR LENDING OFFICE" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on SCHEDULE 2.11 attached hereto, and
such other office of the Lender or any of its affiliates hereafter designated by
notice to the Company and the Administrative Lender.
"LIBOR RATE" means, for any Interest Period, the interest rate per annum
(rounded upward to the nearest one-sixteenth (1/16th) of one percent) at which
deposits in United States Dollars are offered to the Administrative Lender by
leading banks reasonably selected by the Administrative Lender in the London
interbank market at approximately 11:00 a.m. (London time), two Business Days
before the first day of such Interest Period, in an amount approximately equal
to the principal amount of, and for a length of time approximately equal to the
Interest Period for, the LIBOR Advance sought by the Company.
"LIEN" means, as to any Person, any mortgage, lien, pledge, adverse claim,
charge, security interest or other encumbrance in or on, or any interest or
title of any vendor, lessor, lender or other secured party to or of the Person
under any conditional sale or other title retention agreement or Capital Lease
with respect to, any property or asset of the Person, or the signing or filing
of a financing statement which names the Person as debtor, or the signing of any
security or other agreement authorizing any other Person as the secured party
thereunder to file any financing statement.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Guarantors'
Agreement, the Letters of Credit and all other documents and instruments
executed by any Loan Party in connection with this Agreement, the Advances and
the Letters of Credit for the benefit of the Lenders and the Issuing Bank.
"LOAN PARTY" has the meaning specified in the introduction to this
Agreement.
"MATERIAL ADVERSE EFFECT" means, relative to any occurrence of whatever
nature (including any adverse determination in any litigation, arbitration or
governmental investigation or proceeding) and after taking into account actual
insurance coverage and effective indemnification with respect to such
occurrence, (a) a material adverse effect on the financial condition, business
or operations of the Company and its Subsidiaries taken as a whole or (b) any
material impairment upon the collective ability of the Loan Parties to perform
their payment or other obligations hereunder or under the Notes or the right of
the Administrative Lender or any Lender to enforce any of such obligations or
any of their remedies under the Loan Documents.
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"MATERIAL INDEBTEDNESS" means any one or more items of Indebtedness of a
domestic Subsidiary which is not a Loan Party, which Indebtedness in the
aggregate exceeds, based on the most recent audited financial statements of the
Company and its Consolidated Subsidiaries, 5% of Consolidated Tangible Net
Worth.
"MATURITY DATE" means February 24, 1997 or the earlier date of termination
in whole of the Commitment pursuant to SECTION 2.06 or 6.02 hereof, or such
later date as established pursuant to SECTION 2.17.
"MAXIMUM AMOUNT" means the maximum amount of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations.
"MULTIEMPLOYER PLAN" means any employee pension benefit plan as defined in
Section 4001(a)(3) of ERISA to which any Loan Party or a member of its ERISA
Group has a liability or an obligation, whether or not current, accrued or
contingent, to make contributions or has within the preceding five plan years
made or accrued an obligation to make contributions.
"NATIONSBANK REVOLVING CREDIT AGREEMENT" means that certain Revolving
Credit Agreement, dated as of June 18, 1993, among the Loan Parties and
NationsBank of Texas, N.A., as amended or modified from time to time.
"NEW SUBSIDIARY" has the meaning specified in SECTION 5.12(c).
"NON-EXCLUDED TAXES" has the meaning ascribed to it in SECTION 2.15.
"NOTE" means each Promissory Note of Company evidencing Advances
hereunder, substantially in the form of EXHIBIT A hereto, together with any
extension, renewal or amendment thereof, or substitution therefor.
"NOTICE OF ADVANCE REQUEST" has the meaning ascribed to it in SECTION
2.02(a).
"NOTICE OF ISSUANCE" has the meaning ascribed to it in SECTION 2.16(b) .
"OBLIGATIONS" means (a) all obligations of any nature (whether matured or
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Company or any Subsidiary to the Lenders under the Loan Documents as they may
be amended from time to time, and (b) all obligations of the Company or any
Subsidiary for losses, damages, expenses or any other liabilities of any kind
that any Lender may suffer by reason of a breach by the Company or any
Subsidiary of any obligation, covenant or undertaking with respect to any Loan
Document.
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"OFFICER'S CERTIFICATE" means a certificate signed in the name of a Loan
Party by a Responsible Officer of such Loan Party.
"OTHER RETURNS" has the meaning specified in SECTION 4.05.
"PAYMENT DATE" shall mean the last day of the Interest Period for any LIBOR
Advance.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"PERMITS" means any and all registrations, notifications, licenses,
authorizations, permits, certificates, approvals and consents required by any
Tribunal.
"PERMITTED PORTFOLIO INVESTMENTS" means, when used in connection with any
Person, the Person's Investments in:
(a) Government Securities;
(b) repurchase agreements collateralized by Government Securities;
(c) commercial paper rated at time of purchase at least P-1 or A-1
by Moody's Investors Service, Inc. or Standard & Poor's Corporation,
respectively, or an equivalent rating by a recognized rating agency;
(d) corporate notes rated at time of purchase at least Baa or BBB by
Moody's Investors Service, Inc. or Standard & Poor's Corporation,
respectively, or an equivalent rating by a recognized rating agency;
(e) bank obligations with a financial institution rated at time of
purchase at least Baa or BBB by Moody's Investors Service, Inc. or Standard
& Poor's Corporation, respectively, or an equivalent rating by a recognized
rating agency;
(f) mortgage-backed securities rated at time of purchase at least
Baa or BBB by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, respectively, or an equivalent rating by a recognized rating
agency;
(g) asset-backed securities rated at time of purchase at least Baa or
BBB by Moody's Investors Service, Inc. or Standard & Poor's Corporation,
respectively, or an equivalent rating by a recognized rating agency;
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(h) other securities which satisfy the criteria of being rated at
time of purchase at least Baa or BBB by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, respectively, or an equivalent rating by a
recognized rating agency; or
(i) Investments in shares of the Merrill Lynch Institutional Fund
or the Goldman Sachs ILA/POP fund, or investments in other mutual funds
with investment objectives substantially equivalent to either of these
mutual funds.
"PERSON" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a foreign state or political subdivision thereof or
any agency of such state or subdivision.
"PLAN" means an employee pension benefit plan (other than a Multiemployer
Plan) which is covered by Title IV of ERISA or is subject to the minimum funding
standards under section 412 of the Code and with respect to which (i) any Loan
Party or any member of the ERISA Group has a liability or an obligation, whether
or not current, accrued or contingent, to make contributions or (ii) at any time
within the preceding six years any Loan Party or any Person which was at such
time a member of the ERISA Group made or had a liability or obligation, whether
or not current, accrued or contingent, to make contributions.
"PRIME RATE" means, as of a particular date, the rate of interest for loans
established by the Administrative Lender from time to time as its prime rate,
automatically fluctuating upward and downward with and at the time specified in
each such establishment without special notice to the Company, the other Loan
Parties or any other Person, which prime rate may not necessarily represent the
lowest or best rate actually charged to a customer.
"PUERTO RICO" means DSC of Puerto Rico, Inc., a Delaware corporation.
"QUARTERLY DATE" means the last day of each March, June, September and
December, beginning March 31, 1994.
"REFINANCING ADVANCE" means any LIBOR Advance which is used to pay the
principal amount (or any portion thereof) of a LIBOR Advance at the end of its
Interest Period and which, after giving effect to such application, does not
result in an increase in the aggregate amount of outstanding LIBOR Advances.
"REGULATION G" means Regulation G of the Board, as the same is from time to
time in effect, and all official rulings and interpretations thereunder or
thereof.
"REGULATION T" means Regulation T of the Board, as the same is from time to
time in effect, and all official rulings and interpretations thereunder or
thereof.
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"REGULATION U" means Regulation U of the Board, as the same is from time to
time in effect, and all official rulings and interpretations thereunder or
thereof.
"REGULATION X" means Regulation X of the Board, as the same is from time to
time in effect, and all official rulings and interpretations thereunder or
thereof.
"REIMBURSEMENT OBLIGATIONS" shall mean, in respect of any Letter of Credit
as at any date of determination, the maximum aggregate amount which is then
available to be drawn under such Letter of Credit.
"RELEASE" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles).
"RESPONSIBLE OFFICER" means (a) as to any Loan Party, the Chairman of its
Board of Directors, its President, any Senior Vice President, its Treasurer, its
Controller, or its General Counsel, and (b) as to any other Person, the Chairman
of its Board of Directors, its President, any Senior Vice President, its
Treasurer, its Controller, its General Counsel, any Vice President, or the chief
financial officer of such Person.
"RESTRICTED PAYMENT" means, with respect to any Loan Party:
(a) the declaration of any dividend on, or the incurrence of any
liability to make any other payment or distribution in respect of, any
shares of such Loan Party (other than one payable solely in its common
shares); or
(b) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of such Loan Party, or the
purchase, redemption or other retirement of any warrant, option or other
right to acquire such shares, or any other payment or distribution (other
than pursuant to a dividend theretofore declared or liability theretofore
incurred as specified in subsection (a)), made in respect thereof, (i)
either directly or indirectly or (ii) the purchase, redemption or other
retirement of shares of such Loan Party in exchange for, or out of the net
cash proceeds received by such Loan Party from a substantially concurrent
sale of, other shares of such Loan Party.
"SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll, P.C.,
or such other legal counsel as Administrative Lender may select.
"SPECIFIED PERCENTAGE" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.
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"SUBORDINATED DEBT" means, without duplication, the subordinated debt of
the Loan Parties which is listed on Schedule 1.01(b).
"SUBSIDIARY" means, as to any Person, any corporation, partnership or other
entity a majority of (a) the total combined voting power of all classes of
Voting Stock of which or (b) the outstanding equity interest of which shall, at
the time as of which any determination is being made, is owned by such Person
either directly or through one or more Subsidiaries.
"TAXES" means all taxes, assessments, fees or other charges at any time
imposed by any Laws or Tribunal.
"TRIBUNAL" means any municipal, state, commonwealth, federal, foreign,
territorial or other court, governmental body, subdivision, agency, department,
commission, board, bureau or instrumentality.
"U.S." and "United States" means the United States of America.
"UNUSED PORTION" means, at any time, the excess of the Commitment at such
time over the sum of (i) the aggregate principal amount of Advances outstanding
at such time, plus (ii) the aggregate unfunded portion of the Letter of Credit
Facility at such time.
"VOTING STOCK" means any share of stock or other equity ownership interest
of a Person having general voting power under ordinary circumstances to elect a
majority of the Board of Directors or other governing body of such Person
(irrespective of whether at the time stock or equity ownership interests of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).
"WITHDRAWAL LIABILITY" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02. ACCOUNTING TERMS. All accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP and,
except as otherwise herein expressly provided, the GAAP which shall be applied
under this Agreement are those which shall be in effect from time to time.
SECTION 1.03. INTERPRETATION. (a) In this Agreement, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and vice versa;
(ii) reference to any gender includes each other gender;
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(iii) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually,
PROVIDED that nothing in this clause (iv) is intended to authorize any
assignment not otherwise permitted by this Agreement;
(v) reference to any agreement, document, or instrument means
such agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms hereof, and reference to the Notes
includes any note issued pursuant hereto in extension or renewal thereof
and in substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to any Article,
Section, Schedule or Exhibit means such Article or Section hereof or such
Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning "include")
means including, without limiting the generality of any description
preceding such term;
(viii) with respect to the determination of any period of time, the
word "from" means "from and including" and the word "to" means "to but
excluding";
(ix) reference to any Law means such as amended, modified, codified
or reenacted, in whole or in part, and in effect from time to time; and
(x) whenever the character or amount of any asset or liability or
item of income or expense is required to be determined, or any
consolidation or accounting computation is required to be made, for
purposes hereof, such determination or computation shall be made in
accordance with GAAP.
(b) The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
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(d) Whenever this Agreement refers to any Person having knowledge of a
particular fact or situation, such Person and the Financial Officer or
Responsible Officer making any representation or warranty on behalf of such
Person shall be deemed to possess the actual knowledge of all Responsible
Officers (but not other employees) of the Person in question relating to said
fact or situation.
ARTICLE II
ADVANCES
SECTION 2.01. THE ADVANCES. Each Lender severally agrees, upon the
terms and subject to the conditions of this Agreement, to make Advances to the
Company from time to time in an aggregate amount not to exceed an amount equal
to its Specified Percentage of the Commitment less an amount equal to its
Specified Percentage of the aggregate amount of all Reimbursement Obligations
then outstanding (assuming compliance with all conditions to drawing) for the
purposes set forth in SECTION 4.11 hereof. Subject to SECTION 2.09 hereof,
Advances, in part or in whole, may be repaid and then reborrowed. Any Advance
shall, at the option of the Company as provided in SECTION 2.02 hereof (and, in
the case of LIBOR Advances, subject to availability and to the provisions of
ARTICLE VIII hereof), be made as a Base Rate Advance or a LIBOR Advance;
provided that there shall not be outstanding to any Lender, at any one time,
more than five LIBOR Advances. On the Maturity Date unless sooner paid as
provided herein, the outstanding Advances shall be repaid in full.
SECTION 2.02. MANNER OF BORROWING AND DISBURSEMENT.
(a) In the case of Base Rate Advances, the Company, through a Financial
Officer, shall give the Administrative Lender prior to 11:00 a.m., Dallas, Texas
time, on the date of any proposed Base Rate Advance irrevocable written notice,
or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Company's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
a Base Rate Advance hereunder. Such notice of borrowing (a "NOTICE OF ADVANCE
REQUEST") shall be substantially in the form of EXHIBIT D hereto.
(b) In the case of LIBOR Advances, the Company, through a Financial
Officer, shall give the Administrative Lender at least three Business Days'
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Company's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), of its intention to borrow a LIBOR Advance hereunder. Notice shall be
given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in
order for such Business Day to count toward the minimum number of Business Days
required. LIBOR Advances shall in all cases be subject to availability and to
ARTICLE VIII hereof. For LIBOR Advances, the Notice of Advance Request shall
specify the requested funding date, which shall be a Business Day, the amount of
the proposed aggregate LIBOR Advances to be made by
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Lenders and the Interest Period selected by the Company, provided that no such
Interest Period shall extend past the Maturity Date, or prohibit or impair the
Company's ability to comply with SECTION 2.08 hereof. The Administrative
Lender, whose determination shall be conclusive, shall determine the LIBOR Basis
no later than the second Business Day prior to the applicable funding date and
shall notify (which notice may be telephonic) the Company and the Lenders of
such LIBOR Basis. The Company, no later than the second Business Day prior to
the applicable funding date, through a Financial Officer shall give the
Administrative Lender irrevocable written notice, or irrevocable telephonic
notice followed immediately by written notice (provided, however, that the
Company's failure to confirm any telephonic notice in writing shall not
invalidate any notice so given) of its decision to borrow such LIBOR Advance.
(c) Subject to SECTIONS 2.01 and 2.09 hereof, at least three Business Days
prior to each Payment Date for a LIBOR Advance, the Company, through an
Authorized Signatory, shall give the Administrative Lender irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Company's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), specifying whether all or
a portion of such LIBOR Advance outstanding on the Payment Date (i) is to be
repaid and then reborrowed in whole or in part as a LIBOR Advance, (ii) is to be
repaid and then reborrowed in whole or in part as a Base Rate Advance, or (iii)
is to be repaid and not reborrowed at that time; provided, however,
notwithstanding anything in this Agreement to the contrary, if on any Payment
Date a Default shall exist, such LIBOR Advance may only be reborrowed as a Base
Rate Advance. Upon such Payment Date, such LIBOR Advance shall, subject to the
provisions hereof, be so repaid and, as applicable, reborrowed.
(d) The aggregate amount of Base Rate Advances to be made by the Lenders
on any day shall be in a principal amount which is at least $250,000 and which
is an integral multiple of $50,000; provided, however, that such amount may
equal the Unused Portion. The aggregate amount of LIBOR Advances having the
same Interest Period and to be made by the Lenders on any day shall be in a
principal amount which is at least $1,000,000 and which is an integral multiple
of $100,000.
(e) The Administrative Lender shall promptly notify the Lenders of each
notice received from the Company pursuant to this Section. Failure of the
Company to give any oral notice in accordance with SECTION 2.02(c) hereof shall
result in a repayment of any such existing LIBOR Advance on the applicable
Payment Date by an Advance which is a Base Rate Advance. Each Lender shall,
not later than 1:00 p.m., Dallas, Texas time, on the date of any Advance that is
not a Refinancing Advance, deliver to the Administrative Lender, at its address
set forth herein, an amount equal to such Lender's Specified Percentage of such
Advance in immediately available funds in accordance with the Administrative
Lender's instructions. Prior to 2:00 p.m., Dallas, Texas time, on the date of
any Advance which is not a Refinancing Advance, the Administrative Lender shall,
subject to satisfaction of the
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conditions set forth in ARTICLE III, disburse the amounts made available to the
Administrative Lender by the Lenders by (i) transferring such amounts by wire
transfer pursuant to the Company's instructions, or (ii) in the absence of such
instructions, crediting such amounts to the account of the Company maintained
with the Administrative Lender. All Advances shall be made by each Lender
according to its Specified Percentage.
SECTION 2.03. INTEREST.
(a) ON BASE RATE ADVANCES.
(i) The Company shall pay interest on the unpaid principal amount of
the Base Rate Advances outstanding from time to time, until due (whether at
maturity or by reason of acceleration) or repaid, which shall be payable as set
forth in SECTION 2.03(a)(ii) hereof, at a simple interest rate per annum equal
to the Base Rate as in effect from time to time.
(ii) Interest on Base Rate Advances shall be computed on the basis of
a year of 365 or 366 days, as applicable, for the number of days actually
elapsed, and shall be payable in arrears on each Quarterly Date and on the
Maturity Date.
(b) ON LIBOR ADVANCES.
(i) The Company shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due (whether
at maturity or by reason of acceleration) or repaid, at a rate per annum equal
to the LIBOR Basis for such Advance.
(ii) Subject to SECTION 10.09 hereof, interest on each LIBOR Advance
shall be computed on the basis of a 360-day year for the actual number of days
elapsed, and shall be payable in arrears on the applicable Payment Date and on
the Maturity Date; provided, however, that if the Interest Period for such
Advance exceeds three months, interest shall also be due and payable in arrears
on the 90th day of such Interest Period.
(c) INTEREST IF NO NOTICE OF SELECTION OF INTEREST RATE BASIS. If the
Company fails to give the Administrative Lender timely notice of its selection
of a LIBOR Basis or an Interest Period for a LIBOR Advance, or if for any reason
a determination of a LIBOR Basis for any Advance is not timely concluded due to
the fault of the Company in the reasonable opinion of the Determining Lenders,
the Base Rate shall apply to the applicable Advance.
(d) INTEREST AFTER AN EVENT OF DEFAULT. (i) Commencing 30 days after an
Event of Default (other than an Event of Default specified in Section 6.01(g) or
(h) hereof) and during any continuance thereof, at the option of Determining
Lenders, and (ii) after an Event of
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Default specified in SECTION 6.01(g) or (h) hereof and during any continuance
thereof, automatically and without any action by the Administrative Lender or
any Lender, the Obligations shall bear interest at a rate per annum equal to the
Default Rate. Such interest shall be payable on the earlier of demand or the
Maturity Date, and shall accrue until the earlier of (i) waiver or cure (to the
reasonable satisfaction of the Determining Lenders) of the applicable Event of
Default, (ii) agreement by the Lenders to rescind the charging of interest at
the Default Rate, or (iii) payment in full of the Obligations. The Lenders
shall not be required to (i) accelerate the maturity of the Advances, (ii)
exercise any other rights or remedies under the Loan Documents, or (iii) give
notice to the Company of the decision to charge interest at the Default Rate.
The Lenders will undertake to notify the Company, after the effective date, of
the decision to charge interest at the Default Rate.
SECTION 2.04. FEES.
(a) COMMITMENT FEE. Subject to SECTION 10.09 hereof, the Company agrees
to pay to the Administrative Lender, for the ratable account of the Lenders, a
commitment fee (which shall be payable quarterly in arrears on each Quarterly
Date and on the Maturity Date) equal to 0.35% per annum of the daily average
Unused Portion (subject to Section 10.09 hereof, computed on the basis of a year
of 365 or 366 days, as applicable, for the actual number of days elapsed).
(b) PARTICIPATION FEE. Subject to SECTION 10.09 hereof, the Company
agrees to pay to the Administrative Lender, for the account of the Lenders a
one-time participation fee of 0.25% based on the amount of each Lender's
Commitment. Such fee shall be payable on the Agreement Date, and shall be
fully-earned when due and, subject to SECTION 10.09 hereof, nonrefundable when
paid.
(c) OTHER FEES. Subject to SECTION 10.09 hereof, the Company agrees to
pay to the Administrative Lender, for its account and not the account of the
Lenders, the fees provided for in the letter agreement ("ADMINISTRATIVE LENDER
FEE LETTER"), dated as of the Agreement Date, between the Company and the
Administrative Lender on the date and in the amounts specified therein.
SECTION 2.05. PREPAYMENT.
(a) VOLUNTARY PREPAYMENTS. The principal amount of any Base Rate Advance
may be voluntarily prepaid in full or in part at any time without penalty, upon
telephonic notice (to be promptly followed by written notice) by an Authorized
Signatory to the Administrative Lender prior to 10:00 a.m., Dallas, Texas time,
on the date of such prepayment. The principal amount of any LIBOR Advances may
be voluntarily prepaid in full or in part at any time without penalty upon three
Business Days' prior telephonic notice (to be promptly followed by written
notice) by an Authorized Signatory to the Administrative Lender, but only so
long as
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the Company concurrently reimburses the Lenders in accordance with SECTION 2.09
hereof. Any notice of prepayment shall be irrevocable.
(b) MANDATORY PREPAYMENT. On or before the date of any reduction of the
Commitment, the Company shall prepay outstanding Advances in an amount necessary
to cause the sum of outstanding Advances and Reimbursement Obligations to be an
amount not greater than the Commitment as so reduced pursuant to Section 2.06
hereof. The Company shall first prepay all Base Rate Advances and shall
thereafter prepay LIBOR Advances. To the extent that any prepayment requires
that a LIBOR Advance be repaid on a date other than the last day of its Interest
Period, the Company shall reimburse each Lender in accordance with Section 2.09
hereof.
(c) PREPAYMENTS, GENERALLY. Any prepayment of a Base Rate Advance or
LIBOR Advance shall be accompanied by interest accrued on the principal amount
being prepaid. Any voluntary partial prepayment of a Base Rate Advance shall be
in a principal amount of $100,000 or an integral multiple thereof.
SECTION 2.06. REDUCTION OF COMMITMENTS.
(a) VOLUNTARY REDUCTION. The Company shall have the right, upon not less
than 10 Business Days' notice (provided only 1 Business Day's notice shall be
required for a termination in whole of Commitment) by an Authorized Signatory to
the Administrative Lender (if telephonic, to be confirmed by telex or in writing
on or before the date of reduction or termination), which shall promptly notify
the Lenders, to reduce the Commitment in part. Each partial termination shall
be in an aggregate amount which is at least $5,000,000 and which is an integral
multiple of $1,000,000, and no voluntary reduction in the Commitment shall cause
any LIBOR Advance to be repaid prior to the last day of its Interest Period
unless the Company concurrently reimburses the Lenders in accordance with
SECTION 2.09 hereof.
(b) MANDATORY REDUCTION. On the Maturity Date, the Commitment (other than
the obligation of the Issuing Bank to honor drawings against Letters of Credit
outstanding on the Maturity Date) shall automatically reduce to zero.
(c) GENERAL REQUIREMENTS. Upon any reduction of a Commitment pursuant to
this Section, the Company shall immediately make a repayment of applicable
Advances in accordance with SECTION 2.05(b) hereof. The Company shall reimburse
each Lender for any loss or out-of-pocket expense incurred by each Lender in
connection with any such payment, as set forth in SECTION 2.09 hereof to the
extent applicable. The Company shall not have any right to rescind any
termination or reduction. Once reduced, the Commitment may not be increased or
reinstated.
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SECTION 2.07. NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER. Unless
the Administrative Lender shall have been notified by a Lender prior to the date
of any proposed Advance (which notice shall be effective upon receipt) that such
Lender does not intend to make the proceeds of such Advance available to the
Administrative Lender, the Administrative Lender may assume that such Lender has
made such proceeds available to the Administrative Lender on such date, and the
Administrative Lender may in reliance upon such assumption (but shall not be
required to) make available to the Company a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Lender
by such Lender, the Company and the Lender severally agree to repay to the
Administrative Lender forthwith on demand such corresponding amount together
with interest thereon in respect of each day during the period commencing on the
date such amount was available to the Company and ending on (but excluding) the
date the Administrative Lender receives such amount from the Lender or the
Company at a per annum rate equal to the lesser of (i) the Highest Lawful Rate
or (ii) (A) in the case of such Lender, the Federal Funds Effective Rate and (B)
in the case of the Company, the interest rate applicable to such Advance;
provided, however, no provision of this Agreement or any other Loan Document
shall require the Company to pay interest on such amount except as provided in
this Section 2.07. If such Lender shall repay to the Administrative Lender such
corresponding amount, such amount shall constitute such Lender's Advance for
purposes of this Agreement. No Lender shall be liable for any other Lender's
failure to fund an Advance hereunder.
SECTION 2.08. PAYMENT OF PRINCIPAL OF ADVANCES. The Company agrees to pay
the principal amount of the Advances to the Administrative Lender for the
account of the Lenders as follows:
(a) BASE RATE ADVANCES. The unpaid principal amount of the Base Rate
Advances shall be due and payable on the Maturity Date.
(b) LIBOR ADVANCES. The principal amount of each LIBOR Advance hereunder
shall be due and payable on its Payment Date, which principal payment may be
made by means of a Refinancing Advance.
(c) COMMITMENT REDUCTION. On the date of any reduction of the Commitment
pursuant to SECTION 2.06 hereof, including the Maturity Date, the aggregate
amount of the Advances outstanding on such date of reduction in excess of the
Commitment as reduced minus all outstanding Reimbursement Obligations shall be
due and payable, which principal payment may not be made by means of Refinancing
Advances.
(d) MATURITY DATE. To the extent not otherwise required to be paid
earlier as provided herein, the principal amount of the Advances, all accrued
interest and fees thereon, and all other Obligations related thereto, shall be
due and payable in full on the Maturity Date.
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SECTION 2.09. REIMBURSEMENT. Whenever any Lender shall sustain or incur
any losses or reasonable out-of-pocket expenses in connection with (a) failure
by the Company to borrow any LIBOR Advance after having given notice of its
intention to borrow in accordance with SECTION 2.02 hereof (whether by reason of
the Company's election not to proceed or the non-fulfillment of any of the
conditions set forth in ARTICLE III hereof), or (b) any payment or prepayment
for any reason of any LIBOR Advance in whole or in part (including a prepayment
pursuant to SECTIONS 2.05(c) and 8.03(b) hereof), the Company agrees to pay to
any such Lender, upon its demand, subject to SECTION 10.09 hereof, an amount
sufficient to compensate such Lender for all such losses and out-of-pocket
expenses, including, but not limited to, any loss or reasonable expense
sustained or incurred or to be sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain such LIBOR Advance or
any part thereof as a LIBOR Advance. Such loss shall equal an amount equal to
the excess, if any, as reasonably determined by each Lender of (i) its cost of
obtaining the funds for the LIBOR Advance being paid, prepaid or converted
pursuant to ARTICLE VIII hereof or not borrowed (based on the LIBOR Basis
applicable thereto) for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
LIBOR Advance (or, in the case of a failure to borrow, the Interest Period for
such LIBOR Advance which would have commenced on the date of such failure to
borrow) over (ii) the amount of interest (as reasonably determined by such
Lender) that could be realized by such Lender in reemploying during such period
the funds so paid, prepaid or converted or not borrowed in an instrument or
investment of substantially similar yield to such LIBOR Advance. Such Lender's
good faith determination of the amount of such losses or out-of-pocket expenses,
calculated in its usual fashion, absent demonstrable error, shall be binding and
conclusive. Such Lender shall provide a certificate setting forth the amount to
be paid to it by the Company hereunder and calculations therefor.
SECTION 2.10. MANNER OF PAYMENT.
(a) Each payment (including prepayments) by the Company of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.
(b) If any payment under this Agreement or any other Loan Document shall
be specified to be made upon a day which is not a Business Day, it shall be made
on the next succeeding day which is a Business Day, unless such Business Day
falls in another calendar month, in which case payment shall be made on the
preceding Business Day. Any extension of time shall in such case be included in
computing interest and fees, if any, in connection with such payment.
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(c) The Company agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.
(d) If some but less than all amounts due from the Company are received by
the Administrative Lender, the Administrative Lender shall apply such amounts in
the following order of priority: (i) to the payment of the Administrative
Lender's expenses incurred on behalf of the Lenders then due and payable, if
any; (ii) to the payment of all other fees then due and payable; (iii) to the
payment of interest then due and payable on the Advances; (iv) to the payment of
all other amounts not otherwise referred to in this clause (d) then due and
payable under the Loan Documents; and (v) to the payment of principal then due
and payable on the Advances.
SECTION 2.11. LIBOR LENDING OFFICES. Each Lender's initial LIBOR
Lending Office is set forth opposite its name in SCHEDULE 2.11 attached hereto.
Each Lender shall have the right at any time and from time to time to designate
a different office of itself or of any Affiliate as such Lender's LIBOR Lending
Office, and to transfer any outstanding LIBOR Advance to such LIBOR Lending
Office. No such designation or transfer shall result in any liability on the
part of the Company for increased costs or expenses resulting solely from such
designation or transfer (except any such transfer which is made by a Lender
pursuant to SECTION 8.02 or 8.03 hereof, or otherwise for the purpose of
complying with Applicable Law). Increased costs for expenses resulting from a
change in law occurring subsequent to any such designation or transfer shall be
deemed not to result solely from such designation or transfer.
SECTION 2.12. SHARING OF PAYMENTS. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances in excess of its Specified Percentage
of all payments made by the Company with respect to Advances shall purchase from
each other Lender such participation in the Advances made by such other Lender
as shall be necessary to cause such purchasing Lender to share the excess
payment pro rata according to Specified Percentages with each other Lender;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, the purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest. The Company agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section, to the fullest
extent permitted by law, may exercise all its rights of payment (including the
right of set-off) with respect to such participation as fully as if such Lender
were the direct creditor of the Company in the amount of such participation.
SECTION 2.13. CALCULATION OF LIBOR RATE. The provisions of this Agreement
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being
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understood that each Lender shall be entitled to fund and maintain its funding
of all or any part of a LIBOR Advance as it sees fit.
SECTION 2.14. BOOKING ADVANCES. Any Lender may make, carry or transfer
Advances at, to or for the account of any of its branch offices or the office of
any Affiliate.
SECTION 2.15. TAXES. If each Lender has complied with the provisions of
the last paragraph of this SECTION 2.15, all payments by the Company for the
account of such Lender of principal of, and interest on, the Advances and all
other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp, or franchise taxes
and other taxes, fees, duties, withholdings, or other charges of any nature
whatsoever imposed by any taxing authority, but excluding franchise taxes and
taxes imposed on or measured by any Lender's net income or receipts (such
non-excluded items being called "Non-Excluded Taxes"). In the event that any
withholding or deduction from any payment to be made by the Company hereunder is
required in respect of any Non-Excluded Taxes pursuant to any Applicable Law,
then the Company will:
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Administrative Lender an official receipt
or other documentation satisfactory to the Administrative Lender evidencing
such payment; and
(c) pay to the Administrative Lender for the account of the Lenders
such additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount such
Lender would have received had no such withholding or deduction been
required.
Moreover, if any Non-Excluded Taxes are directly asserted against the
Administrative Lender or any Lender with respect to any payment received by the
Administrative Lender or such Lender hereunder, the Administrative Lender or
such Lender may pay such Non-Excluded Taxes and the Company will promptly pay
such additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by such Person after the payment
of such Non-Excluded Taxes (including any Non-Excluded Taxes on such additional
amount) shall equal the amount such Person would have received had no such Non-
Excluded Taxes been asserted.
If the Company fails to pay any Non-Excluded Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Lender, for
the account of the respective Lenders, the required receipts or other required
documentary evidence, the Company shall indemnify the Lenders for any
incremental Non-Excluded Taxes, interest or penalties that may become payable by
any Lender as a result of any such failure. For purposes of this
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SECTION 2.15, a distribution hereunder by the Administrative Lender or any
Lender to or for the account of any Lender shall be deemed a payment by the
Company.
Upon the request of the Company or the Administrative Lender from time to
time and on each anniversary of the Effective Date, each Lender shall execute
and deliver to the Company and the Administrative Lender one or more (as the
Company and the Administrative Lender may reasonably request) United States
Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or
documents (or successor forms or documents), appropriately completed, as may be
necessary to establish the extent, if any, to which a payment to such Lender is
exempt from withholding or deduction of Non-Excluded Taxes.
SECTION 2.16. LETTERS OF CREDIT.
(a) THE LETTER OF CREDIT FACILITY. The Company may request the Issuing
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, Letters of Credit for the account of
any Loan Party from time to time on any Business Day from the Effective Date
until the Maturity Date in an aggregate maximum amount (assuming compliance with
all conditions to drawing) not to exceed at any time outstanding the lesser of
(i) $25,000,000 or (ii) the sum of (A) the Commitment minus (B) the aggregate
principal amount of Advances then outstanding (the "LETTER OF CREDIT FACILITY").
No Letter of Credit shall have an expiration date (including all rights of
renewal) later than February 24, 1997. Immediately upon the issuance of each
Letter of Credit, the Issuing Bank shall be deemed to have sold and transferred
to each Lender, and each Lender shall be deemed to have purchased and received
from the Issuing Bank, in each case irrevocably and without any further action
by any party, an undivided interest and participation in such Letter of Credit,
each drawing thereunder and the obligations of the Company under this Agreement
in respect thereof in an amount equal to the product of such Lender's Specified
Percentage of the Commitment times the maximum amount available to be drawn
under such Letter of Credit (assuming compliance with all conditions to
drawing). Within the limits of the Letter of Credit Facility, and subject to
the limits referred to above, the Company may request the issuance of Letters of
Credit under this SECTION 2.16(a), repay any Advances resulting from drawings
thereunder pursuant to SECTION 2.16(c) and request the issuance of additional
Letters of Credit under this SECTION 2.16(a).
(b) REQUEST FOR ISSUANCE. Each Letter of Credit shall be issued upon
notice, given not later than 11:00 A.M. (Dallas time) on the Business Day prior
to the date of the proposed issuance of such Letter of Credit, by the Company to
the Issuing Bank, which shall give to the Administrative Lender and each Lender
prompt notice thereof by telex, telecopier or cable. Each Letter of Credit
shall be issued upon notice given in accordance with the terms of any separate
application and agreement between the Company (or, if different, the Loan Party
for whose account such Letter of Credit is being issued) and the Issuing Bank in
form and substance reasonably satisfactory to the Company and the Issuing Bank
providing for the
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issuance of Letters of Credit pursuant to this Agreement and containing terms
and conditions not inconsistent with this Agreement (a "LETTER OF CREDIT
AGREEMENT"), provided that if any such terms and conditions are inconsistent
with this Agreement, this Agreement shall control. Each such request for
issuance of a Letter of Credit (a "REQUEST FOR ISSUANCE") shall be by telex or
telecopier, and shall be in substantially the form of EXHIBIT E hereto. If the
requested terms of such Letter of Credit are acceptable to the Issuing Bank in
its reasonable discretion, the Issuing Bank will, upon fulfillment of the
applicable conditions set forth in ARTICLE III hereof, make such Letter of
Credit available to the Company at the Company's office referred to in SECTION
10.01 or as otherwise agreed with the Company in connection with such issuance
on the proper issuance date.
(c) DRAWING AND REIMBURSEMENT. The payment by the Issuing Bank of a draft
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of an Advance, which shall bear
interest at the Base Rate, in the amount of such draft (but without any
requirement for compliance with the conditions set forth in ARTICLE III hereof).
In the event that such Advance is not reimbursed by the Company by 11:00 A.M.
(Dallas time) on the first Business Day after such drawing, the Issuing Bank
shall promptly notify Administrative Lender and each other Lender. Each such
Lender shall, on the first Business Day following such notification, make an
Advance, which shall bear interest at the Base Rate, and shall be used to repay
the applicable portion of the Issuing Bank's Advance with respect to such Letter
of Credit, in an amount equal to the amount of its participation in such drawing
for application to reimburse the Issuing Bank (but without any requirement for
compliance with the applicable conditions set forth in ARTICLE III hereof) and
shall make available to the Administrative Lender for the account of the Issuing
Bank, by deposit at the Administrative Lender's office, in same day funds, the
amount of such Advance. In the event that any Lender fails to make available to
the Administrative Lender for the account of the Issuing Bank the amount of such
Advance, the Issuing Bank shall be entitled to recover such amount on demand
from such Lender together with interest thereon at a rate per annum equal to the
lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Effective Rate.
(d) INCREASED COSTS. If any change in any law or regulation or in the
interpretation thereof by any court or administrative or governmental authority
charged with the administration thereof shall either (i) impose, modify or deem
applicable any reserve, special deposit or similar requirement against letters
of credit or guarantees issued by, or assets held by, or deposits in or for the
account of, the Issuing Bank or any Lender or (ii) impose on the Issuing Bank or
any Lender any other condition regarding this Agreement or such Lender or any
Letter of Credit, and the result of any event referred to in the preceding
clause (i) or (ii) shall be to increase the cost to the Issuing Bank of issuing
or maintaining any Letter of Credit or to any Lender of purchasing any
participation therein or making any Advance pursuant to SECTION 2.16(c), then,
upon written demand by the Issuing Bank or such Lender, the Company shall,
subject to SECTION 10.09 hereof, pay to the Issuing Bank or such Lender, from
time to time as specified by the Issuing Bank or such Lender in the
below-mentioned certificate,
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additional amounts that shall be sufficient to reasonably compensate the Issuing
Bank or such Lender for such increased cost. A certificate as to the amount of
such increased cost, submitted to the Company by the Issuing Bank or such
Lender, shall include in reasonable detail the basis for the demand for
additional compensation and shall be conclusive and binding for all purposes,
absent demonstrable error. The obligations of the Company under this SECTION
2.16(d) shall survive termination of this Agreement. The Issuing Bank or any
Lender claiming any additional compensation under this SECTION 2.16(d) shall use
reasonable efforts (consistent with legal and regulatory restrictions) to reduce
or eliminate any such additional compensation which may thereafter accrue and
which efforts would not, in the sole discretion of the Issuing Bank or such
Lender, be otherwise disadvantageous.
(e) INDEMNITY. In addition to amounts payable as elsewhere provided in
this ARTICLE II, the Company hereby agrees to protect, indemnify, pay and save
the Issuing Bank and each Lender harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) which the Issuing Bank or any Lender may incur or be
subject to as a consequence, direct or indirect, of (1) the issuance of any
Letter of Credit other than, as a result of its willful misconduct or gross
negligence, as determined by a court of competent jurisdiction, or (2) the
failure of the Issuing Bank to honor a drawing under a Letter of Credit as a
result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto Tribunal (all such acts or omissions herein called
"GOVERNMENT ACTS").
(f) ASSUMPTION OF RISK. As among the Company, the other Loan Parties, the
Issuing Bank and the Lenders, the Company and the other Loan Parties assume all
risks of the acts and omissions of, or misuse of the Letters of Credit by, the
respective beneficiaries of the Letters of Credit. In furtherance and not in
limitation of the foregoing, subject to the provisions of the Request for
Issuance, neither the Issuing Bank nor any Lender or any of their respective
officers or directors shall be liable or responsible: (i) for the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
the Letters of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply duly with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in interpretation of
technical terms; (vi) for any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under any Letter of Credit or
of the proceeds thereof; (vii) for the misapplication by the beneficiary of a
Letter of Credit of the proceeds of any drawing under such Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Issuing
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Bank or any Lender, including, without limitation, any Government Acts. In
furtherance and extension and not in limitation of the specific provisions
hereinabove set forth, any action taken or omitted by the Issuing Bank or any
Lender under or in connection with the Letters of Credit or any related
certificates, shall not put the Issuing Bank or any Lender under any resulting
liability to any Loan Party or relieve any Loan Party of any of its obligations
hereunder to any such Person unless such liability to a Loan Party is
proximately caused by the gross negligence of the Issuing Bank or any Lender, as
determined by a court of competent jurisdiction, and in such case, any resulting
liability shall be solely that of the party so adjudicated to have legal
responsibility therefor.
(g) COMPENSATION FOR LETTERS OF CREDIT.
(i) LETTER OF CREDIT FEES. Subject to SECTION 10.09 hereof, the
Company shall pay to the Administrative Lender for the account of each
Lender a letter of credit fee (which shall be payable quarterly in arrears
on each Quarterly Date and on the Maturity Date) on the average daily
amount available for drawing under all outstanding Letters of Credit (other
than the Letters of Credit set forth on SCHEDULE 1.01(a)), computed,
subject to SECTION 10.09 hereof, on the basis of a year of 365 or 366 days,
as appropriate, for the actual number of days elapsed, at a rate per annum
equal to the LIBOR Margin percentages set forth in the definition of
Applicable Margin in SECTION 1.01. The letter of credit fees for the
Letters of Credit set forth on SCHEDULE 1.01(a) shall be calculated and
payable in accordance with terms of the Letter of Credit Agreements
executed in connection with such Letters of Credit, and such letter of
credit fees shall, commencing on the Agreement Date, be for the account of
each Lender.
(ii) ADJUSTMENT OF LETTER OF CREDIT FEE. The letter of credit fee
payable in respect of the Letters of Credit (other than the Letters of
Credit set forth on SCHEDULE 1.01(a)) shall be subject to reduction or
increase, as applicable and as set forth in the table contained in the
definition of Applicable Margin in SECTION 1.01 according to the
performance of the Company as tested by the Consolidated Funded Debt to
Consolidated Excess Cash Flow Ratio. Any such increase or reduction in such
fee shall be effective as of the fifth day following the date of receipt of
the financial statements required pursuant to SECTION 5.01(a) or (b)
hereof, as appropriate. If such financial statements are not received by
the fifth day following the date required, the fee payable in respect of
the Letters of Credit shall be determined as if the Consolidated Funded
Debt to Consolidated Excess Cash Flow Ratio is greater than or equal to
2.00 to 1 until such time as such financial statements are received.
Notwithstanding anything herein to the contrary, the letter of credit fee
payable in respect of the Letters of Credit from and including the
Agreement Date to but not including the 5th day following receipt of the
Company's June 30, 1994, financial statements shall be 1.25%.
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(iii) ISSUANCE FEE. Subject to SECTION 10.09 hereof, the Company shall
pay to the Administrative Lender for the sole account of the Issuing Bank
an issuance fee (which fee shall be payable quarterly in arrears on each
Quarterly Date and on the Maturity Date) equal to 0.125% per annum on the
average daily amount available for drawing under all outstanding Letters of
Credit (other than the Letters of Credit set forth on SCHEDULE 1.01(a)),
and computed, subject to SECTION 10.09 hereof, on the basis of a year of
365 or 366 days, as appropriate, for the actual number of days elapsed.
SECTION 2.17. EXTENSION OF MATURITY DATE. The Company may notify the
Administrative Lender in writing by October 15 of each year while this Agreement
is in effect, commencing October 15, 1994, of its desire to extend the Maturity
Date for an additional 12 months beyond the then present Maturity Date. If such
notice is given by the Company, the Administrative Lender, by December 1 of each
year while this Agreement is in effect will notify the Company in writing of the
Lenders' decision whether to extend the Maturity Date. Extension of the Maturity
Date shall be at the sole option and discretion of the Lenders, and the decision
to extend the Maturity Date shall require the consent of all Lenders. If either
the Company or the Administrative Lender fail to give notice within the time
prescribed above, the Maturity Date shall be the then present Maturity Date. An
extension of the Maturity Date pursuant to this SECTION 2.17 shall not require
any renewal Note or amendment of or a supplement to this Agreement or any other
Loan Document (other than to extend the date set forth in SECTION 2.16(a) by an
additional twelve months) unless otherwise required by Administrative Lender.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01. CONDITIONS PRECEDENT TO THE INITIAL ADVANCE AND THE LETTERS
OF CREDIT. The obligation of each Lender to make the initial Advance and the
obligation of the Issuing Bank to issue the initial Letter of Credit is subject
to (i) receipt by the Administrative Lender of each of the following, in form
and substance satisfactory to each Lender, with a copy (except for this
Agreement and the Notes) for each Lender and (ii) satisfaction of the following
conditions, except as otherwise waived by each Lender:
(a) A certificate of the Secretary or an Assistant Secretary of the
Company certifying, inter alia, (i) true and correct copies of (A) the
Certificate of Incorporation and Bylaws of the Company and (B) resolutions
adopted by the Executive Committee of the Company authorizing the Company to
borrow and effect other transactions hereunder, (ii) the incumbency and specimen
signatures of the Persons executing any documents on behalf of the Company, and
(iii) a good standing certificate for the Company from the Secretaries of State
of Delaware and California, and a good standing certificate for the Company from
the Comptroller of the State of Texas, each to be dated a recent date prior to
the Agreement Date:
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(b) A certificate of the Secretary or an Assistant Secretary of each
Guarantor certifying, INTER ALIA, (i) true and correct copies of (A) the
Certificate of Incorporation and Bylaws of such Guarantor and (B) resolutions
adopted by the Board of Directors of such Guarantor authorizing such Guarantor
to guaranty the Obligations and effect other transactions hereunder, (ii) the
incumbency and specimen signatures of the Persons executing any documents on
behalf of such Guarantor, and (iii) a certificate of existence and a good
standing certificate or similar evidence of qualification to do business (or
their equivalents) for each Guarantor from the Secretary of State (or other
appropriate Tribunal) of the state in which each of the Guarantors is
incorporated and from the States of Texas, California (except Finance and DSC
International Corporation) and (with respect to DSC of Puerto Rico, Inc.) Puerto
Rico, each to be dated a recent date prior to the Agreement Date;
(c) duly executed Notes, payable to the order of each Lender and in an
amount for each Lender equal to its Specified Percentage of the Commitment;
(d) this Agreement, duly executed by the Loan Parties, together with all
exhibits and schedules which shall be true, complete and correct in all material
respects as of the Effective Date;
(e) opinions of counsel to the Company and its Subsidiaries addressed to
the Lenders and in form and substance satisfactory to the Lenders, dated the
Agreement Date, and covering such matters incident to the transactions
contemplated hereby as the Administrative Lender or Special Counsel may
reasonably request;
(f) reimbursement for the Administrative Lender for Special Counsel's
reasonable fees and expenses rendered as of the date set forth in the invoice of
Special Counsel;
(g) the participation fee and other fees as required pursuant to SECTIONS
2.04(b) and (c) hereof, respectively;
(h) a duly executed and completed Guarantors' Agreement, dated as of the
Agreement Date; and
(i) payment in full of the existing Indebtedness (other than with respect
to letters of credit outstanding under the NationsBank Revolving Credit
Agreement) of the Company to NationsBank of Texas, N.A., outstanding on the
Agreement Date.
SECTION 3.02. CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT.
The obligation of each Lender to make each Advance hereunder (including the
initial Advance) and the obligation of the Issuing Bank to issue each Letter of
Credit (including the initial Letter of
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Credit) is subject to fulfillment of the following conditions immediately prior
to or contemporaneously with each such Advance or issuance:
(a) With respect to Advances (other than Refinancing Advances and deemed
Advances in respect of Letters of Credit pursuant to SECTION 2.16(c)) and each
issuance of a Letter of Credit, all of the representations and warranties of the
Company under this Agreement are deemed made at and as of the time of such
Advance or issuance unless modified as permitted herein (unless stated to relate
solely to an earlier date, in which case such representations and warranties
shall be true and correct in all material respects as to such earlier date),
shall be true and correct at such time in all material respects, both before and
after giving effect to the application of the proceeds of the Advance or
issuance;
(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Company's loan certificate pursuant
to SECTION 3.01(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Company made to such effect if no written notice to the contrary, dated on or
before the date of such Advance and deemed Advance pursuant to SECTION 2.16(c)
or issuance, is received by the Administrative Lender from the Company prior to
the making of such Advance or issuance;
(c) There shall not exist a Default hereunder, with respect to Advances
(other than Refinancing Advances and deemed Advance pursuant to SECTION 2.16(c))
and with respect to issuance of each Letter of Credit, or an Event of Default,
with respect to any Refinancing Advance, and, with respect to each Advance
(other than a Refinancing Advance or a deemed Advance pursuant to SECTION
2.16(c)) and with respect to issuance of each Letter of Credit, the
Administrative Lender shall have received written or telephonic certification
thereof by an Authorized Signatory (which certification, if telephonic, shall be
followed promptly by written certification);
(d) The aggregate Advances and amount available for draws under Letters of
Credit, after giving effect to such proposed Advance or Letter of Credit, shall
not exceed the Commitment;
(e) No Law shall prohibit, and no order, judgment or decree of any
Tribunal shall enjoin, prohibit or restrain the Lenders from making the
requested Advance or the Issuing Bank from making the deemed Advance pursuant to
SECTION 2.16(c) or from issuing the Letter of Credit requested to be issued; and
(f) The Administrative Lender shall have received all such other
certificates, reports, statements, or other documents as the Administrative
Lender or any Lender may reasonably request.
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Each request by the Company to the Administrative Lender or the Issuing
Bank, as appropriate, for an Advance (including a Refinancing Advance) or the
issuance of a Letter of Credit shall constitute a representation and warranty by
the Company as of the date of the making of such Advance or the issuance of such
Letter of Credit that all the conditions contained in this SECTION 3.02 have
been satisfied.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES
Each Loan Party represents and warrants as to itself that:
SECTION 4.01. ORGANIZATION, QUALIFICATION, AUTHORIZATION, ETC. (a) Each
Loan Party (i) is a corporation duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation, (ii) is
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction in which the failure to be so qualified or be in good standing
(when considered alone or together with the failure of any other one or more of
them to be so qualified or be in good standing) would reasonably be expected to
have a Material Adverse Effect and (iii) has all requisite power and authority
(corporate or, to the knowledge of each Loan Party, otherwise) to own, lease,
operate and maintain its assets and to carry on its business as now conducted.
The jurisdiction under which each Loan Party is incorporated is listed on
SCHEDULE 4.01.
(b) The execution, delivery and performance by each Loan Party of this
Agreement, the Notes and the other Loan Documents to which it is a party have
been duly authorized by all necessary corporate action on the part of such Loan
Party. Each of this Agreement and the other Loan Documents to which any Loan
Party is a party constitutes, and the Notes (when executed and delivered as
contemplated hereby) will constitute, legal, valid and binding obligations of
such Loan Party, enforceable in accordance with their respective terms, except
as enforcement thereof may be limited by Debtor Relief Laws and general
principles of equity (whether applied in a proceeding at law or in equity).
SECTION 4.02. FULL DISCLOSURE. (a) Neither this Agreement, the Notes, the
other Loan Documents, the documents and statements referred to in SECTION 4.04,
nor any other document delivered by or on behalf of any Loan Party contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading. The
Company has furnished certain financial and operational forecasts to the
Lenders, and with respect to such forecasts, this representation is not intended
to warrant the ability of the Company to achieve such forecasts.
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(b) There is no fact peculiar to any Loan Party which has a Material
Adverse Effect which has not been set forth in the Loan Documents or in the
other documents, certificates and statements furnished to the Lenders by or on
behalf of the Loan Parties at the direction of such Loan Party prior to the date
hereof in connection with the transactions contemplated hereby.
SECTION 4.03. CHANGES, ETC. Neither the business nor the properties of
any Loan Party is presently affected by any fire, explosion, accident, labor
controversy, strike, lockout or other dispute, embargo, act of God or act of a
public enemy or other similar event, condition or casualty which would
reasonably be expected to have a Material Adverse Effect, or if any such
existing event, condition or casualty were to continue for more than 30
additional days (unless in the reasonable opinion of such Loan Party such event
or condition is not likely to continue for such period) would reasonably be
expected to have a Material Adverse Effect.
SECTION 4.04. FINANCIAL STATEMENTS, ETC. The Company has furnished the
Lenders with its annual audited consolidated financial statements as at December
31, 1992. Such financial statements (including any related schedules and/or
notes) are true, correct and complete in all material respects (subject, as to
interim statements, to changes resulting from audits and year-end adjustments),
and have been prepared in accordance with GAAP followed throughout the periods
involved. The balance sheets fairly present the consolidated condition of the
Company and its consolidated Subsidiaries as at the dates thereof, and the
statements of income and statements of cash flow fairly present the consolidated
results of the operations of the Company and its consolidated Subsidiaries for
the periods indicated. Since December 31, 1992, no events have occurred which,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect, except as disclosed in this SCHEDULE 4.04 or as
otherwise disclosed to the Lenders in writing.
SECTION 4.05. TAX RETURNS AND PAYMENTS. Each Loan Party has filed or has
caused to be filed all United States federal income tax returns and all other
tax returns ("Other Returns") which are required by Law to be filed by it (or
obtained extensions with respect thereto) and has paid all Taxes levied upon it
or any of its properties, assets, income or franchises which are due and
payable; PROVIDED, HOWEVER, THAT, if the Company is in compliance with Section
5.11, the Loan Parties shall not be required to pay any Taxes or to file any
other Returns if (a) such Other Returns and Taxes do not involve an obligation
to pay Taxes of $2,000,000 or more, or (b) regardless of the amount involved,
the Taxes are being contested in good faith by appropriate proceedings
diligently conducted for which such reserves or other appropriate provisions, if
any, as shall be required by GAAP, have been made. The consolidated federal
income tax returns of the Company and its consolidated Subsidiaries have been
examined and reported upon by the Internal Revenue Service for all fiscal years
to and including the fiscal year ended December 31, 1985.
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SECTION 4.06. DEFAULTS RESPECTING INDEBTEDNESS. No payment default under
the provisions of any instrument evidencing any Indebtedness (other than with
respect to trade payables the payment of which is being contested in good faith
by appropriate proceedings diligently conducted for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP, have been made) or
under any agreement relating thereto and no other default under any such
instrument or agreement which is a default covered under SECTION 6.01(e) has
occurred which would reasonably be expected to have a Material Adverse Effect.
SECTION 4.07. PROPERTY. Each Loan Party has good and defensible title to
its real property and good and defensible title to all of its other property and
assets which are materially necessary for the operation of its business,
including the property and assets reflected in the consolidated balance sheet as
at December 31, 1992 referred to in SECTION 4.04 (other than properties and
assets disposed of in the ordinary course of business or as otherwise permitted
pursuant to the terms of this Agreement), and shall not be subject to any Lien
prohibited by SECTION 5.11. All leases of real property, and all other material
leases necessary for the conduct of the respective businesses of the Loan
Parties are valid and subsisting and are in full force and effect.
SECTION 4.08. CONFLICTING AGREEMENTS OR RESTRICTIONS. The execution and
delivery of this Agreement and the other Loan Documents and the consummation of
the transactions contemplated hereby or thereby will not (i) conflict with, or
result in a breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument relating to Indebtedness of such Loan Party to which any Loan
Party is a party (ii) result in the creation of any Lien upon any of the
properties or assets of any Loan Party pursuant to any agreement or instrument
relating to Indebtedness of such Loan Party to which any Loan Party is a party
or (iii) result in any violation of (A) the provisions of the charter documents
of any Loan Party or (B) any Law, which, in the case of clause (iii)(B), would
reasonably be expected to have a Material Adverse Effect; and, to the knowledge
of the Loan Parties, no consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is required
for the consummation by the Loan Parties of the transactions contemplated by
this Agreement.
SECTION 4.09. LITIGATION, ETC. Except as listed on SCHEDULE 4.09, or as
otherwise disclosed to the Lenders in writing, there is no action, suit,
investigation or proceeding pending or, to the knowledge of the Loan Parties,
threatened against any Loan Party, or any property or rights of any Loan Party,
by or before any court, arbitrator or administrative or governmental body which,
having regard to (a) the size of the claim and (b) whether there is a reasonable
possibility of an adverse determination, would reasonably be expected to have a
Material Adverse Effect.
SECTION 4.10. ERISA. Each Loan Party and each member of its ERISA Group
is in compliance in all material respects with the applicable provisions of
ERISA, the Code and
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other Law with respect to the Plan(s) and Benefit Arrangement(s), (for purposes
of this sentence, "compliance in all material respects" means such failure(s) to
comply with respect to one or more Plan(s), and/or Benefit Arrangement(s),
individually or in the aggregate, would not result in a Material Adverse
Effect.) All payments required to be made to or in respect of a Plan, whether or
not previously terminated, Multiemployer Plan or Benefit Arrangement by a Loan
Party or a member of its ERISA Group have been paid to the extent that
nonpayment would have a Material Adverse Effect. No Loan Party or any member of
its ERISA Group has any unpaid liability under Title IV of ERISA (other than a
liability to the PBGC for premiums under section 4007 of ERISA), which would
result in a Material Adverse Effect. There is no "amount of unfunded benefit
liabilities," as defined in section 4001(a)(18) of ERISA, under any Plan and
should complete or partial withdrawals occur with respect to all Multiemployer
Plans, the aggregate amount of such withdrawal liability(ies), if any, would not
reasonably be expected to have a Material Adverse Effect. To the knowledge of
the Loan Parties after reasonable investigation, no litigation, proceeding(s),
investigation(s) or claim(s) (other than a routine, undisputed claim for
benefits) is or are pending or, to the knowledge of the Loan Parties, threatened
concerning any Plan(s), Multiemployer Plan(s) or Benefit Arrangement(s), which,
individually or in the aggregate, would result in a Material Adverse Effect.
Except as disclosed in writing to the Administrative Lender prior to the
Agreement Date, the Loan Parties or a member of their ERISA Group may terminate
any and/or all currently existing Plan(s) and/or Benefit Arrangement(s) so long
as such termination would not reasonably be expected to have a Material Adverse
Effect. As of the Agreement Date, the Loan Parties and/or members of the ERISA
Group do not currently maintain, sponsor or contribute to any employee pension
benefit plan, as defined in Section 3(2) of ERISA, which is subject to Title IV
of ERISA or Section 412 of the Code.
SECTION 4.11. USE OF PROCEEDS. The Company will apply the proceeds of the
Advances for working capital and other general corporate purposes, including
loans to its Subsidiaries. The Loan Parties represent and warrant to the Lenders
that the proceeds of the Advances and the Letters of Credit will be used to
benefit all the Loan Parties, directly or indirectly.
SECTION 4.12. FEDERAL RESERVE REGULATIONS. No Loan Party is engaged,
principally or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying "margin stock" (within the
meaning of Regulation G, T, U or X). The making of the Advances, the issuance of
the Letters of Credit and the execution, delivery, and performance of this
Agreement, the Notes and the other Loan Documents, and the use of the proceeds
of the Advances and the Letters of Credit do not and will not constitute a
violation of Regulation G, T, U or X.
SECTION 4.13. FOREIGN ASSETS CONTROL REGULATIONS, ETC. Neither the issue
of the Notes by the Company nor the use of the proceeds thereof or of any Letter
of Credit contemplated by this Agreement will violate the Export Administration
Act, the Foreign
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Corrupt Practices Act of 1977, the Foreign Assets Control Regulations, the
Transaction Control Regulations, the Cuban Assets Control Regulations, the
Foreign Funds Control Regulations, the Iranian Assets Control Regulations, the
Nicaragua Trade Control Regulations, the South African Transactions Regulations,
the Libyan Sanctions Regulations, the Soviet Gold Coin Regulations or the
Panamanian Transactions Regulations of the United States Treasury Department (31
C.F.R., Subtitle B, Chapter V, as amended).
SECTION 4.14. STATUS UNDER CERTAIN FEDERAL STATUTES. No Loan Party is (a)
an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended, (b) a
"holding company" or a "subsidiary company" of a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (c) a "public utility" as such term is defined in the Federal
Power Act, as amended, (d) a "rail carrier or a person controlled by or
affiliated with a rail carrier," within the meaning of Title 49, U.S.C., or (e)
a "carrier" to which 49 U.S.C. Section 11301(b)(1) is applicable.
SECTION 4.15. ENVIRONMENTAL MATTERS.
(a) Each Loan Party and has all environmental Permits which are necessary
for the conduct of its business as presently conducted and for the ownership,
use, maintenance and operation of its assets (except where the failure to have
such environmental Permits would not, individually or in the aggregate,
reasonably be expected to have or have a Material Adverse Effect), and is in
compliance with all material terms of its environmental Permits; and, as to any
such environmental Permit that has expired or is about to expire or is needed
for the proposed conduct of its business, each Loan Party has timely and
properly applied for renewal or receipt of the same or, if such Permit is not
reasonably expected to be renewed, such nonrenewal would not reasonably be
expected to have a Material Adverse Effect.
(b) Without in any manner limiting any other representations and
warranties set forth in this Agreement:
(i) neither any Loan Party nor any real property or facility
currently owned, used, maintained or operated by any such Person, nor any
of the other assets of any such Person is in violation of or is in
noncompliance with, any applicable Environmental Laws in connection with
the ownership, use, maintenance or operation of such real property,
facility or other assets or the conduct of the business related thereto,
except for violations or noncompliances which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse
Effect; and
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(ii) without in any manner limiting the generality of (i) above:
(A) except for those of the activities described below
(including Releases or threatened Releases) which, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect, no Hazardous Materials have been used, generated,
manufactured, stored or treated or disposed of, landfilled or in any
other way Released (and no Release is threatened), on, under or about
any property owned, used, maintained or operated by any Loan Party or
transported to or from any such property, and, to the knowledge of
each Loan Party, no Hazardous Materials have been generated,
manufactured, stored or treated or disposed of, landfilled or in any
other way Released (and no Release is threatened), on, under, about or
from any property adjacent to any such property, except in accordance
with Environmental Laws (including, without limitation, the obtaining
of necessary Permits);
(B) except for liabilities or requirements which, individually
or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect, no Loan Party is, as a result of the
ownership, operation or condition of its business or assets prior to
or at the Agreement Date, subject to any (1) contingent liability in
connection with any Release or threatened Release of any Hazardous
Materials into the environment whether on or off any property
currently or formerly owned, used, maintained or operated by any Loan
Party or (2) reclamation or remediation requirements under
Environmental Laws, or any reporting requirements related thereto;
(C) no Loan Party has been named as a potentially responsible
party under, and, to the knowledge of any Loan Party none of the
property currently or formerly owned, used, maintained or operated by
any Loan Party has been nominated or identified as a facility which is
subject to an existing or potential claim under, CERCLA or other
Environmental Laws (other than any violation or noncompliance which is
the subject of the cause of action styled VARIAN ASSOCIATES, INC., a
DELAWARE CORPORATION, PLAINTIFF v. DSC COMMUNICATIONS CORPORATION, et
al, pending before the United States District Court for the Northern
District of California), and no such property is subject to any Lien
arising under Environmental Laws except for Liens which individually
or in the aggregate would not reasonably be expected to have a
Material Adverse Effect;
(D) each Loan Party has all environmental and pollution control
equipment necessary for compliance in all material respects with all
applicable Environmental Laws (including, without limitation, all
applicable Permits) and operation of the business of any Loan Party as
it is presently conducted;
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(E) except in accordance with Environmental Laws, no Hazardous
Materials have been incorporated by any Loan Party into or, to the
knowledge of any Loan Party, contained in any of the personal property
or improvements to the real property owned, used, maintained or
operated by any Loan Party such that such Hazardous Materials would
reasonably be expected to have a Material Adverse Effect;
(F) none of the off-site locations where Hazardous Materials
from any of the current or former assets of any Loan Party have been
stored, treated, recycled, disposed of or Released, has been, to the
knowledge of any Loan Party, nominated or identified as a facility
which is subject to an existing or potential claim under CERCLA or
other Environmental Laws such that such nomination or indemnification
would reasonably be expected to have a Material Adverse Effect;
(G) no Loan Party has received any notices of any violation of,
noncompliance with, or remedial obligation under, Environmental Laws,
relating to the current or former ownership, use, maintenance,
operation of, or conduct of business related to, any property or
assets of such Loan Party, or of any Release or threatened Release of
Hazardous Materials, except for violations, noncompliances,
obligations, Releases or threatened Releases which, individually or in
the aggregate, would not reasonably be expected to have a Material
Adverse Effect;
(H) except for writs, injunctions, decrees, orders, judgments,
lawsuits, claims, proceedings or investigations which, individually or
in the aggregate, would not reasonably be expected to have a Material
Adverse Effect, there are no writs, injunctions, decrees, orders or
judgments outstanding, or lawsuits, claims, proceedings or
investigations pending or, to the knowledge of any Loan Party,
threatened, relating to the current or former ownership, use,
maintenance, operation of, or conduct of business related to, any
property or assets of any Loan Party, nor is there any basis for any
of the foregoing;
(I) to the knowledge of the Loan Parties, no underground or
aboveground storage tanks or surface impoundments, not in material
compliance with all applicable Environmental Laws, are located at any
property owned, used, maintained or operated by any Loan Party, and to
the knowledge of any Loan Party there are no remedial or other
liabilities with respect to underground or aboveground storage tanks
or surface impoundments that may have been located at any property
owned, used, maintained or operated by any Loan Party, except for
liabilities which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect; and
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(J) there are no material obligations, undertakings or
liabilities arising out of or relating to Environmental Laws which any
Loan Party has agreed to, assumed or retained, by contract or other
agreement.
SECTION 4.16. SOLVENCY. The Loan Parties, viewing their businesses and
operations as a single consolidated entity, have capital sufficient to carry on
their businesses and transactions and all businesses and transactions in which
they are about to engage, and are now solvent and able to pay their collective
debts as they mature, and the Loan Parties now collectively own property having
a value, both at fair valuation and at present fair saleable value, greater than
the amount required to pay all existing debts of the Loan Parties.
SECTION 4.17. SENIOR INDEBTEDNESS. The Indebtedness evidenced by the
Notes and this Agreement is senior to the Indebtedness evidenced by the
Subordinated Debt. The terms and provisions of the Subordinated Debt have been
disclosed to the Lenders, the instruments evidencing the Subordinated Debt have
not been amended or modified except as disclosed in writing to the Lenders, and
no payments have been made in respect of the Subordinated Debt other than
regularly scheduled interest payments.
SECTION 4.18. PATENTS, TRADEMARKS, ETC. The Loan Parties collectively
possess adequate assets, licenses, patents, patent applications, copyrights,
trademarks, service marks, trademark applications, trade names, technology,
processes, logotypes and Permits and other governmental approvals and
authorizations to conduct their businesses. Except as previously disclosed to
the Lenders in writing, there are no existing or, to the Loan Parties'
knowledge, threatened claims of any Person based on the use of such Permits,
patents, trademarks, trade names, copyrights, technology and processes by the
Loan Parties. The consummation of the transactions contemplated by the Loan
Documents will not impair the ownership by the Loan Parties of or the rights of
any of such parties under (or the license or other right to use, as the case may
be) any Permits, patents, trademarks, trade names, copyrights, technology or
processes.
SECTION 4.19. LABOR MATTERS. Except as disclosed in writing to the
Lenders, as provided in SECTION 5.21 hereof, SCHEDULE 4.19 sets forth a complete
and correct list of all labor union contracts to which any of the Loan Parties
is a party, specifying the expiration date of each such contract and the nature
of any strikes, walkouts or other disputes related thereto.
ARTICLE V
COVENANTS
SECTION 5.01. REPORTING REQUIREMENTS. The Company will deliver to each
Lender:
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(a) as soon as practicable and in any event within 90 days after the end
of each fiscal year of the Company, audited consolidated and unaudited
consolidating statements of income, audited consolidated cash flows and changes
in shareholders equity of the Company and its consolidated Subsidiaries for such
fiscal year, and audited consolidated and unaudited consolidating (consolidating
may be non- GAAP) balance sheets of the Company and its consolidated
Subsidiaries as at the end of such fiscal year, and, with respect to such
consolidated statements, setting forth in comparative form corresponding figures
from the immediately preceding fiscal year end, and, with respect to the
consolidated statements, certified without any Impermissible Qualification by
Ernst & Young or other independent public accountants of recognized national
standing selected by the Company, together with a certificate of such
accountants stating in connection with performing their audit of such
consolidated financial statements, the scope of which was not directed toward
obtaining knowledge regarding any Loan Party's compliance with any of the
covenants, terms, provisions or other conditions of this Agreement or the
occurrence of an Event of Default hereunder, that nothing came to their
attention to cause them to believe that, as at the end of such fiscal year, the
Company and its consolidated Subsidiaries were not in compliance with any of the
financial covenants hereof, except as specifically stated therein, indicating
the nature of such non-compliance or other Default or Event of Default; it being
understood that such accountants shall have no liability to any Lender by reason
of the failure of such accountants to obtain knowledge of the occurrence of such
Default or Event of Default.
(b) as soon as practicable and in any event within 45 days after the end
of the first three fiscal quarters of each fiscal year of the Company, an
unaudited consolidated and consolidating (consolidating may be non-GAAP) balance
sheet and statements of income and an unaudited consolidated statement of cash
flows of the Company and its consolidated Subsidiaries as reported on Form 10-Q
and filed with the Securities and Exchange Commission for each such fiscal
quarter, and an unaudited consolidated statement of changes in shareholders'
equity of the Company and its consolidated Subsidiaries for each such fiscal
quarter, and, with respect to the consolidated statements, certified by a
Financial Officer of the Company as presenting fairly, in accordance with GAAP
applied on a basis consistent with prior fiscal quarters, the information
contained therein, subject to changes resulting from year-end adjustments;
(c) if requested by any Lender, promptly upon the Company's receipt
thereof, copies of all other accounting or financial reports or statements
submitted to the Company by independent public accountants in connection with
any annual, interim or special audit of the books of the Company and its
consolidated Subsidiaries;
(d) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as the Company shall send to
its public stockholders and copies of all registration statements (without
exhibits) and all reports which it files with the
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Securities and Exchange Commission (or any governmental body or agency
succeeding to the functions of the Securities and Exchange Commission);
(e) as soon as practicable and in any event within five Business Days
after any Loan Party obtains knowledge (i) of any condition or event which would
reasonably be expected to have a Material Adverse Effect, (ii) of the occurrence
of a Default or Event of Default, (iii) of the institution of any litigation
involving claim against any Loan Party equal to or greater than $2,000,000 with
respect to any single cause of action, or (iv) of any regulatory proceeding
which, if determined adversely to such Loan Party, would reasonably be expected
to have a Material Adverse Effect, a Responsible Officer of the Company will
deliver an Officer's Certificate to the Lenders specifying the nature and period
of existence of any such condition or event, or specifying the notice given or
action taken by such Person and the nature of any such Default or Event of
Default, or specifying the details of such proceeding or litigation and what
action, if any, such Loan Party has taken, is taking or proposes to take with
respect thereto;
(f) promptly, but in any event within 15 calendar days, after any Loan
Party obtains knowledge thereof, if and when any member of the ERISA Group (i)
gives or is required to give notice to the PBGC of any "reportable event" (as
defined in section 4043 of ERISA) (other than a "reportable event" not subject
to the provisions for 30-day notice to the PBGC under the regulations issued
under section 4043 of ERISA) with respect to any Material Plan which may
reasonably be expected to constitute grounds for a termination of such Material
Plan under Title IV of ERISA, or knows that the plan administrator of any
Material Plan has given or is required to give notice of any such reportable
event, a copy of the notice of such reportable event given or required to be
given to the PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any Multiemployer Plan is (or
may become) in reorganization or partitioned, is (or may become) insolvent or
has been (or may be) terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under section 4007 of ERISA) in respect of,
or appoint a trustee to administer, any Material Plan, a copy of such notice;
(iv) applies for a waiver of the minimum funding standard under section 412 of
the Code, a copy of such application; (v) gives notice of intent to terminate
any Material Plan under section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Material Plan pursuant to section 4063 of ERISA (or an event is deemed under
section 4062(e) of ERISA to be a withdrawal under section 4063); (vii) fails to
timely make any required payment(s) or contribution(s) to any Plan(s) or
Multiemployer Plan(s) or in respect of any Benefit Arrangement(s) in an amount
individually or in the aggregate in excess of $2,000,000 or makes any
amendment(s) to any Plan(s) which could result in the imposition of a lien(s) or
the posting of a bond(s) or other security under ERISA or the Code in an amount
individually or in the aggregate in excess of $2,000,000, a statement of the
chief financial officer of such Loan Party reasonably describing such event and
the action which such Loan Party or applicable member of the ERISA Group
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has taken, is taking or proposes to take with respect to such event; (viii)
engages in one or more prohibited transactions (as defined in section 406 of
ERISA or section 4975 of the Code) or receives notice of a claim or claims
involving one or more violations of fiduciary duties under ERISA which
individually or in combination could result in a liability in excess of
$2,000,000, a statement of the chief financial officer of such Loan Party
reasonably describing such event of notice and the action which such Loan Party
or applicable member of the ERISA Group has taken, is taking or proposes to take
with respect thereto; or (ix) receives any proposed unfavorable determination
letter (or notice proposing to revoke a favorable letter) from the Internal
Revenue Service regarding the qualification of a Plan under section 401(a) of
the Code, a copy of such notice (for purposes of this paragraph (f), a "MATERIAL
PLAN" is one or more Plans, Multiemployer Plans and/or Benefit Arrangements
(individually or collectively) with respect to which a Loan Party and/or one or
more members of the ERISA Group has incurred or can be reasonably expected to
incur liabilities, whether or not current, in excess of $2,000,000); and
(g) with reasonable promptness, such other information respecting the
business, financial condition or results or operations of the Loan Parties as
the Lenders may reasonably request.
Together with each delivery of financial statements required by clause (b)
above, the Company will deliver a Compliance Certificate signed by a Financial
Officer of the Company demonstrating (with computations in reasonable detail)
compliance by the Loan Parties with the provisions of SECTION 5.03 and SECTIONS
5.16 through SECTION 5.20 and stating that there exists no Event of Default or a
Default, or, if any Event of Default or a Default exists, specifying the nature
and period of existence thereof and what action, if any, the Loan Parties
propose to take or cause to be taken with respect thereto; PROVIDED, HOWEVER,
the certification as to whether a Default or Event of Default is a result of the
representation contained in SECTION 4.02 may be to the knowledge of a Financial
Officer, after due inquiry has been made by such Financial Officer.
SECTION 5.02. INSPECTION OF PROPERTY; BOOKS AND RECORDS. (a) Each Loan
Party covenants that it will permit or cause to be permitted any Person
designated by any Lender to examine and inspect any properties of the Loan
Parties, to examine and inspect and take extracts from the corporate books and
financial records of the Loan Parties and to discuss the affairs, finances and
accounts of any of such corporations with the principal officers of such Loan
Party and (with the prior written consent of the Controller of the Company,
which consent shall not be unreasonably withheld) the certified public
accountants of the Company, all at such reasonable times and as often as any
Lender may reasonably request. During such visits and inspections such Person
will comply with the Loan Parties' normal safety and security procedures which
have been made available to such Person in writing or as to which such Person
has been apprised prior to such visit or inspection.
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(b) The Company will keep or cause to be kept, adequate records and books
of account on a Consolidated basis in which complete entries are to be made
reflecting the business and financial transactions of it and the other Loan
Parties and as required by applicable rules and regulations of any Tribunal
having jurisdiction over the Company or any such Loan Party or the transactions
contemplated by this Agreement. Such books of account shall be kept in a manner
consistent with GAAP;
SECTION 5.03. SUBORDINATED DEBT.
(a) No Loan Party shall make any payment or distribution of cash or other
property on account of the purchase, redemption or other acquisition or
retirement of any Subordinated Debt or the setting aside or payment to a trustee
of money with respect to any Subordinated Debt, PROVIDED, so long as no Default
or Event of Default shall exist prior to or immediately after giving effect to
such payment or distribution, the Company may make
(i) redemptions of its 8% Convertible Subordinated Debentures due
2003 for an aggregate amount not to exceed $37,000,000;
(ii) distributions of its common stock, on account of its Subordinated
Debt, including, without limitation, the Company exercising any rights of
conversion or redemption; and
(iii) mandatory payments of cash on account of the payment of interest
thereon on the regularly scheduled due dates therefor.
(b) No Loan Party will materially amend or otherwise materially modify any
provision of its Subordinated Debt without the prior written consent of the
Lenders.
SECTION 5.04. PAYMENT OF TAXES AND CLAIMS. Each Loan Party covenants that
it will pay or discharge all Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or profits
before any penalty accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by Law have or may become a Lien upon any
of its property or assets, PROVIDED that no such Tax or claim need be paid or
discharged (a) while the same is being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such accrual or
other appropriate provision, if any, as shall be required by GAAP shall have
been made therefor or (b) if the aggregate amount of all such unpaid Taxes and
claims for all Loan Parties does not exceed $2,000,000 (without regard to
whether such Taxes and claims under this clause (b) are being contested in good
faith by appropriate proceedings diligently conducted for which such reserves or
other appropriate provisions, if any, as shall be required by GAAP, have been
made); provided,
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further, that clauses (a) and (b) of this SECTION 5.04 shall apply only if the
Company otherwise complies with SECTION 5.11.
SECTION 5.05. MAINTENANCE OF PROPERTIES; INSURANCE.
(a) Each Loan Party will maintain or cause to be maintained in good
repair, working order and condition, all property materially necessary for the
operation of the business of such Loan Party and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof; and
(b) Each Loan Party will maintain or cause to be maintained with
financially sound and reputable insurers, insurance with respect to their
property and business against such liabilities, casualties, risks and
contingencies (including business interruption insurance) and in such types and
amounts as is customary in the case of Persons engaged in the same or similar
businesses and similarly situated unless such coverage is not available at
commercially reasonable rates for reasons other than the acts or omissions of
such Loan Party. The Loan Parties shall furnish or cause to be furnished to
each Lender (i) at least annually, a summary of all insurance coverage of the
Loan Parties prepared by an independent insurance broker and (ii) upon request
of any Lender during the continuance of any Default or Event of Default, copies
of all policies of insurance.
SECTION 5.06. COMPLIANCE WITH LAWS.
(a) The Company shall comply with all Laws, the non-compliance with which,
when considered alone or together with all non-compliance with such Laws by all
such Loan Parties, would reasonably be expected to have a Material Adverse
Effect; PROVIDED, HOWEVER, such Loan Party shall have the right to diligently
contest any Law so long as (i) the contest is in good faith and by appropriate
proceedings and such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor and (ii) such contest shall
operate to suspend the collection of any disputed amount from any property of
such Loan Party and any forfeiture or sale of such property.
(b) Notwithstanding, and without limitation of the foregoing, each Loan
Party shall (i) comply in a timely fashion with, or operate pursuant to valid
waivers of the provisions of, all Environmental Laws, including, without
limitation, any such Laws relating to contamination from, or remedial
obligations in connection with, any Hazardous Materials, (ii) obtain, where its
business is to be changed so it is different than the business presently
conducted, all environmental Permits necessary for the conduct of its business
as intended to be so conducted, with such Permits obtained prior to such change,
(iii) notify each Lender promptly in the event of any actual or alleged
noncompliance with any Environmental Laws and (iv) promptly forward to each
Lender a copy of any claim, judgment, order, notice, applications for Permits,
Permits or other communication or report in connection with any
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material matter relating to Environmental Law as it may affect any Loan Party or
any of their respective assets.
SECTION 5.07. PERFORMANCE OF LOAN DOCUMENTS. Each Loan Party will duly
and punctually pay and perform their respective obligations under the Loan
Documents to which it is a party in accordance with, and without breach of, the
terms of each thereof.
SECTION 5.08. INDEMNIFICATION.
(a) The Loan Parties shall, jointly and severally indemnify and hold
harmless each Indemnitee from and against any and all claims, damages and
liabilities whatsoever which any Indemnitee may directly or indirectly incur (or
which may be claimed against such Indemnitee by any Person or entity whatsoever)
by reason of or in connection with (i) this Agreement, Advances or the Letters
of Credit (including without limitation the enforcement of this Agreement, the
Notes and the other Loan Documents and the defense of such Indemnitee's actions
and inactions in connection therewith); (ii) any breach of any Loan Party or any
other Person of any warranty, covenant, term or condition in, or the occurrence
of any default under, this Agreement, the Notes or any other Loan Document,
including all reasonable fees or expenses resulting from the settlement or
defense of any claims or liabilities arising as a result of any such breach or
default; and (iii) involvement in any legal suit, investigation, proceeding,
inquiry or action as to which any Indemnitee is involved as a consequence,
directly or indirectly, of the making of any Advance, the issuance of any Letter
of Credit, its execution of this Agreement or the other Loan Documents or any
other event or transaction contemplated by any of the foregoing. Nothing in
this SECTION 5.08 is intended to limit the obligations of the Loan Parties
contained in any other Section of this Agreement. The Loan Parties jointly and
severally shall pay all expenses (including without limitation fees and
disbursements of counsel) reasonably incurred by each Indemnitee in
investigating, defending or preparing to defend against any such claim, damage
or liability and for all costs of settlement made with the written consent of
the Company in connection with any such claim, damage or liability. However,
such indemnities shall not apply to any particular Indemnitee (but shall apply
to the other Indemnitees) to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful misconduct of such
particular Indemnitee. Notwithstanding any provision to the contrary contained
herein, no Indemnitee will be indemnified for liability arising in connection
with its gross negligence or willful misconduct.
(b) Without limiting any provision of this Agreement, it is the express
intention of the parties hereto that each Indemnitee shall be indemnified and
held harmless against any and all losses, liabilities, claims or damages arising
out of or resulting from the ordinary, sole or contributory negligence of such
Indemnitee. Without prejudice to the survival of any other obligations of the
Loan Parties under this Agreement, the Notes or the other Loan Documents,
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the obligations of the Loan Parties under this SECTION 5.08 shall survive the
termination of this Agreement.
SECTION 5.09. CORPORATE EXISTENCE, ETC. Except as expressly permitted by
SECTION 5.12(b), each Loan Party covenants that it will, at all times, preserve
and maintain its corporate existence, rights, privileges and franchises material
to its business and will qualify to do business in any jurisdiction where the
failure to do so when considered alone or together with the failure of any or
all of the other Loan Parties to do so would reasonably be expected to have a
Material Adverse Effect.
SECTION 5.10. OWNERSHIP OF LOAN PARTIES. The Company will at all times
own and hold the entire legal title to and beneficial interest, either directly
or indirectly through one or more intermediaries, in all outstanding shares of
all classes of the capital stock of the other Loan Parties.
SECTION 5.11. LIENS. The Loan Parties will not create or otherwise allow
any Liens to exist on or otherwise to affect any of its assets, except the
following Liens which shall be permitted:
(1) Liens imposed by Law, carriers', warehousemen's or mechanics'
liens, and liens to secure claims for labor, material or supplies arising
in the ordinary course of business, but only to the extent that payment
thereof shall not at the time be due or is being contested in good faith by
appropriate proceedings diligently conducted and with respect to which
appropriate reserves have been set aside in accordance with GAAP, and so
long as the enforcement thereof has been stayed and such Liens do not
individually or in the aggregate materially impair the value or materially
interfere with the use of the property subject thereto or the operation of
the usual business of the Loan Party(ies) involved;
(2) Deposits or pledges to enable the Loan Parties to exercise any
privilege or license, deposits or pledges made in connection with, or to
secure payment of, worker's compensation, unemployment insurance, old age
pensions or other social security, or to secure the performance of bids,
tenders, contracts (other than those relating to borrowed money) or leases
or to secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business, or in connection with contests, to the extent that payment
thereof shall not at the time be due or is being contested in good faith by
appropriate proceedings diligently conducted and there have been set aside
on its books appropriate reserves with respect thereto and in accordance
with GAAP, and so long as the enforcement thereof has been stayed and such
Liens do not individually or in the aggregate materially impair the value
or materially interfere with the use of the property subject thereto or the
operation of the usual business of the Loan Party(ies) involved;
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(3) Liens arising out of judgments or awards against a Loan Party
with respect to which such Person shall be in good faith prosecuting an
appeal or a proceeding for review, or Liens incurred by a Loan Party for
the purpose of obtaining a stay or discharge of any legal proceeding to
which such Person is a party, PROVIDED, HOWEVER, nothing herein is intended
to waive any Event of Default that may result from any such judgment, award
or proceeding under SECTION 6.01(i);
(4) Liens which relate to Taxes, assessments, levies or other
governmental charges which in the aggregate do not exceed $2,000,000,
whether contested or otherwise, or Liens which relate to Taxes,
assessments, levies or other governmental charges which in the aggregate
are greater than $2,000,000, in which latter case, such Taxes, assessments,
levies or charges must either (i) not yet be due or (ii) be the subject of
a pending contest made in good faith by appropriate proceedings diligently
conducted and with respect to which appropriate reserves have been set
aside in accordance with GAAP (so long as the enforcement of the Liens with
respect to the contested amounts has been stayed and such Liens do not
individually or in the aggregate materially impair the operation of the
usual business of the Loan Parties involved);
(5) Liens covering the cash or deposit accounts of the Loan Parties;
(6) Purchase money Liens having a duration of effectiveness of not
longer than forty-five days which are created in connection with the
purchase by a Loan Party of any raw materials comprising a part of its
inventory, which are filed in favor of a vendor as part of its payment
terms on credit sales of raw materials to a Loan Party;
(7) Easements, rights of way, restrictions and other similar
encumbrances on the use of real property that do not render title to the
property encumbered thereby unmarketable or materially adversely offset the
use of such property for its present purposes;
(8) Liens which are described on SCHEDULE 5.11 and renewals and
extensions thereof, provided such Liens as renewed or extended shall not
cover additional assets;
(9) Other Liens created to secure Indebtedness incurred solely for
the purpose of financing Consolidated Capital Expenditures, whether or not
incurred at the time of acquisition, so long as each such Lien shall at all
times be confined solely to the asset or assets so financed (and proceeds
thereof), so long as any such Lien remains solely on the asset or assets
financed and the aggregate amount of Indebtedness incurred during each
fiscal year and secured by such Liens does not exceed the aggregate
Consolidated Capital Expenditures during such fiscal year;
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(10) Landlord's Liens covering any part of the Loan Parties' assets
which secure an amount of past due rent not to exceed $500,000 in aggregate
amount; or
(11) Liens granted by a Loan Party upon a customer's obligation
payable to such Loan Party and the collateral securing such obligation and
including without limitation any chattel paper, document, instrument, account,
or general intangible arising therefrom, or necessary or related thereto and all
products and proceeds thereof, as a result of the sale or lease of any item of
goods, materials, equipment, supplies, merchandise or other personal property of
such Loan Party through any type of conditional sales contract, note and
security agreement, operating or financing lease, or other form of chattel
paper, including without limitation such obligations being financed at Agreement
Date or at any time thereafter, by Sanwa Business Credit or any similar lender.
SECTION 5.12. MERGERS, CONSOLIDATIONS AND DISPOSITIONS.
(a) The Loan Parties will not in any single transaction or series of
transactions:
(i) be a party to any merger or consolidation;
(ii) change or modify any of their corporate structures;
(iii) sell, transfer, convey or lease (or agree to take any such
action) any assets; or
(iv) take any action with a view toward dissolution, liquidation,
winding up its affairs or termination.
(b) Notwithstanding the foregoing, so long as no Default or Event of
Default would exist after giving effect thereto or would result therefrom:
(i) the Loan Parties may sell, transfer, convey or lease any asset,
except that sales, transfers, conveyances and leases of assets to Persons
who are not Loan Parties, together with the aggregate amount of Investments
(not including Permitted Portfolio Investments) made pursuant to SECTION
5.14(H), shall not at any time exceed 50% of the Consolidated Total Assets,
based on the most recent audited financial statements of the Company and
its consolidated Subsidiaries; PROVIDED, HOWEVER, notwithstanding anything
in this Section 5.12(b)(i) to the contrary, the Loan Parties may sell,
transfer, convey or lease inventory in the ordinary course of business
without any restriction or limitation.
(ii) the Company may merge into or consolidate with any other Loan
Party provided that in each case the Company is the survivor;
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(iii) any Loan Party (other than the Company) may merge into or
consolidate with any Loan Party (other than the Company), PROVIDED that the
Company and its consolidated Subsidiaries are no less creditworthy in the
reasonable opinion of the Lenders immediately after such merger or
consolidation; or
(iv) any Loan Party may accomplish a consolidation or merger via a
stock for stock transaction, PROVIDED, that in each case (A) a Loan Party
(provided, in the event the Company is involved in any such consolidation
or merger, the Company must be the survivor) is the survivor and (B) the
consolidation or merger would not have a Material Adverse Effect.
(c) The Company may, at the Company's option, after any Person organized
under the Laws of any domestic jurisdiction shall become a direct or indirect
Subsidiary of the Company (each such Subsidiary being a "NEW SUBSIDIARY"), (i)
give written notice thereof to the Lenders and (ii) deliver or cause to be
delivered to the Administrative Lender (A) an amendment to this Agreement
(including SCHEDULE 4.01 hereto) executed by the New Subsidiary and the Loan
Parties, which has the effect of adding the New Subsidiary as a Loan Party to
this Agreement, and, as a guarantor of the Guaranteed Obligations, all in form
and substance satisfactory to the Lenders, and (B) a copy of the resolutions of
the board of directors or similar governing body of such Subsidiary approving
the form of such amendment and such guaranty, their respective execution and
delivery, the transactions under this Agreement as amended by such amendment and
the guaranteeing of the Guaranteed Obligations by such New Subsidiary hereunder,
which copy shall be certified to be a true and complete copy by the Secretary or
Assistant Secretary of such New Subsidiary.
SECTION 5.13. TRANSACTIONS WITH AFFILIATES. The Loan Parties will not
enter into any material Investment, transaction, contract or agreement of any
kind (except for ordinary and reasonable compensation arrangements for full-time
employees of such Person) with any officer, director or holder of any of the
outstanding capital stock of such Person or any Affiliate, unless such
Investment, transaction, contract or agreement is made (i) upon terms and
conditions no less favorable to any Loan Party that is a party thereto than
terms and conditions which could have been obtained from wholly independent and
unrelated sources, and (ii) in the ordinary course of business of the Loan Party
and Affiliate in question; PROVIDED, HOWEVER, nothing in this SECTION 5.13 shall
prohibit sales or transfers of inventory, equipment or any other asset from any
Loan Party to another Loan Party or an Affiliate of a Loan Party in the ordinary
course of business that is not otherwise prohibited by this Agreement; provided,
however, that notwithstanding anything in this Agreement to the contrary, no
Loan Party shall directly or indirectly transfer or dispose of any of its
properties to an Affiliate of such Loan Party or to any other Person with actual
intent to delay, defraud or hinder collection or enforcement of any rights of
the Administrative Lender or any Lender under this Agreement, or otherwise at
Law or in equity; and provided, further, that no Loan
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Party shall directly or indirectly transfer or otherwise dispose of any of its
assets in a transaction with an Affiliate of such Loan Party wherein the Loan
Party receives less than reasonably equivalent value (as such term is used and
construed in Section 548 of the United States Bankruptcy Code) in exchange for
such transfer, regardless of the solvency of such Loan Party.
SECTION 5.14. INVESTMENT. The Loan Parties will not make or have any
Investment in any Person, or make any commitment to make such Investment, except
the following which shall be permitted as stated below:
(a) Permitted Portfolio Investments;
(b) stock or securities received in the settlement of debts (created in
the ordinary course of business) or as a premium from a customer;
(c) travel advances to officers and employees made in the ordinary course
of business;
(d) loans made by the Loan Parties in the ordinary course of business to
officers and employees not exceeding $1,000,000 at any one time outstanding for
all such loans made by all Loan Parties;
(e) customer obligations and receivables owing to the Loan Parties in the
ordinary course of business;
(f) loans made to expatriate officers and employees to compensate or
reimburse such Persons for foreign tax obligations, which loans shall not be
included for purposes of calculating the amount of loans made under SECTION
5.14(D);
(g) Investments by a Loan Party in any other Loan Party; and
(h) Investments (not including Permitted Portfolio Investments) in Persons
who are not Loan Parties, together with the aggregate amount of assets sold,
transferred, conveyed or leased to Persons who are not Loan Parties as provided
in SECTION 5.12(B)(I) (other than asset sales in the ordinary course of
business), in an aggregate amount at any time not in excess of 50% of the
Consolidated Total Assets, based on the most recent audited financial statements
of the Company and its Consolidated Subsidiaries.
SECTION 5.15. RESTRICTED PAYMENTS. The Loan Parties will not directly or
indirectly, declare, order, pay, make or set apart any Restricted Payment which
together with all other Restricted Payments made during the term of this
Agreement exceed the amount of $20,000,000, other than dividends from a
Subsidiary of the Company to any Loan Party.
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SECTION 5.16. MINIMUM CURRENT RATIO. On the last day of each fiscal
quarter, the ratio of Consolidated Current Assets to Consolidated Current
Liabilities shall be at least 1.75 to 1.
SECTION 5.17. MAXIMUM LEVERAGE RATIO. On the last day of each fiscal
quarter, the ratio of Consolidated Total Liabilities to Consolidated Tangible
Net Worth shall not exceed 1.25 to 1.
SECTION 5.18. MINIMUM TANGIBLE NET WORTH. Consolidated Tangible Net Worth
shall be at least $479,000,000, plus (a) an amount equal to 50% of cumulative
Consolidated Net Earnings for the period from January 1, 1994 to the date of
calculation (but excluding from the calculation of such cumulative Consolidated
Net Earnings the effect, if any, of any fiscal quarter, or a portion of a fiscal
quarter not yet ended, of the Company for which Consolidated Net Earnings was a
negative number), plus (b) an amount equal to 50% of any increase in
shareholders equity of the Company pursuant to offerings of equity securities
(including as a result of the exercise of employee stock options and warrants)
of the Company or any of its Subsidiaries on or after the Agreement Date, plus
(c) without duplication, an amount equal to the tangible net worth of any Person
that, on or after the Agreement Date, becomes a Subsidiary of the Company or is
merged into or consolidated with the Company or any Subsidiary or substantially
all of the assets of which are acquired by the Company or any Subsidiary to the
extent the purchase price therefor is paid in equity securities of the Company
or any Subsidiary.
SECTION 5.19. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED EXCESS CASH FLOW
RATIO. On the last day of each fiscal quarter, the ratio of Consolidated Funded
Debt to Consolidated Excess Cash Flow shall not exceed 3.25 to 1.
SECTION 5.20. PATENTS, TRADEMARKS AND LICENSES. The Loan Parties shall
collectively maintain adequate assets, licenses, patents, copyrights,
trademarks, service marks, trade names, Permits and other governmental approvals
and authorizations to conduct their respective businesses.
SECTION 5.21. NOTICE OF LABOR DISPUTES. The Loan Parties shall notify the
Lenders in writing, promptly upon learning thereof, of any labor union dispute
to which any Loan Party may become a party, any strikes or walkouts relating to
any of the Loan Parties' plants or other facilities, and the expiration or
termination of any labor union contract to which any Loan Party is a party or by
which any Loan Party is bound or of any negotiations with respect thereto.
SECTION 5.22. NATURE OF BUSINESS. The Loan Parties shall not make any
material change in the nature of its business as carried on at the Agreement
Date. The Loan Parties
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shall not make an Investment in any Person whose business is not in the same or
similar line of business as the business carried on by the Loan Parties at the
Agreement Date.
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT AND REMEDIES. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) (i) principal of any Note or any other amount due hereunder (other
than amounts due (A) in respect of any drawing after acceleration of the
Maturity Date pursuant to SECTION 6.02 hereof with respect to a Letter of Credit
or (B) in respect of any LIBOR Advance at the end of its Interest Period) shall
not be paid on the date on which such payment is due, (ii) any installment of
interest of any Note (other than amounts due in respect of any LIBOR Advance at
the end of its Interest Period) shall not be paid within two Business Days
following the date on which such payment is due, (iii) any amount due in respect
of any drawing after the Maturity Date with respect to a Letter of Credit shall
not be paid within one Business Day following the date on which such payment is
due or (iv) any amount due in respect of any LIBOR Advance at the end of its
Interest Period shall not be paid within three Business Days following the date
on which such payment is due; or
(b) any representation or warranty made by any Loan Party herein or in any
document, certificate or financial statement delivered in connection with this
Agreement shall prove to have been incorrect in any material respect when made
or deemed made or reaffirmed, as the case may be; or
(c) any Loan Party shall fail to perform or observe any covenant contained
in SECTION 5.03 or SECTIONS 5.11 through SECTION 5.23 of this Agreement; or
(d) any Loan Party shall fail to perform or observe any other term,
covenant (provided that such a failure with respect to a covenant in subsection
(i), (ii) or (iii) of SECTION 5.06(b) shall be an Event of Default only in the
event that the failure to comply in the case of subsection (i), the failure to
obtain a Permit in the case of subsection (ii) or the noncompliance referenced
in subsection (iii) would reasonably be expected to have a Material Adverse
Effect) or agreement contained in this Agreement (other than those specified in
SECTION 6.01(A), SECTION 6.01(B) or SECTION 6.01(C)), and any such failure shall
remain unremedied for 30 calendar days after the earlier of (i) written notice
of such failure shall have been given to a Responsible Officer of the Company by
the Administrative Lender or (ii) any Loan Party knows of such failure; or
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(e) (i) any Loan Party shall default in the payment of principal or
interest of any Indebtedness having an unpaid principal balance in excess of
$2,000,000 (excluding Indebtedness evidenced by the Notes or any other amounts
due under the Loan Documents) of such Loan Party, when due whether by
acceleration or otherwise, beyond any period of grace provided with respect
thereto, or (ii) any event shall occur or condition shall exist which gives rise
to a default in the performance or observance of any other obligation or
condition with respect to any Indebtedness having an unpaid principal balance in
excess of $2,000,000 (excluding Indebtedness evidenced by the Notes or any other
amounts due under the Loan Documents) if the effect of such default results in
the holder of such other Indebtedness or any Person acting on such holder's
behalf being authorized to accelerate the maturity of such other Indebtedness
(or any portion thereof which is greater than $2,000,000); or
(f) any Loan Party shall default in its obligation to pay any dividend
respecting its capital stock when due, or to purchase, redeem, retire or
otherwise acquire shares of its capital stock; or
(g) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking (i) relief
in respect of any Loan Party, or of a substantial part of the property or assets
of such Loan Party, under Title 11 of the United States Code, as now constituted
or hereafter amended, or any other federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for any Loan Party or
for a substantial part of the property or assets of such Loan Party or (iii) the
winding-up or liquidation of any Loan Party; and such proceeding or petition
shall continue undismissed for 90 days or an order or decree approving or
ordering any of the foregoing shall be entered; or
(h) any Loan Party shall (i) voluntarily commence any proceeding or file
any petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other federal or state bankruptcy,
insolvency, receivership or similar law, (ii) consent to the institution of, or
fail to contest in a timely and appropriate manner, any proceeding or the filing
of any petition described in (g) above, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for such Loan Party or for a substantial part of the property
or assets of such Loan Party, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become unable, admit in
writing its inability or fail generally to pay its debts as they become due or
(vii) take any action for the purpose of effecting any of the foregoing, or
(i) a final judgment or judgments for the payment of money shall be
entered by a court or courts against any Loan Party and such judgment or
judgments remain unstayed or undischarged (or provision shall not be made for
such discharge) for a period of 30 days from the date of entry thereof and the
aggregate amount of all such judgments against all such
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Persons exceeds $2,000,000 (net of actual insurance coverage if the Lenders
receive evidence satisfactory to it that coverage exists); or
(j) (i) a proceeding shall be commenced to have a trustee appointed, or a
trustee shall be appointed, to terminate or administer a Plan under Section
4042(b) of ERISA which proceeding or appointment is, in the reasonable opinion
of the Lenders, likely to result in the termination of such Plan and to give
rise to a material liability of any member(s) of the ERISA Group with respect to
such termination, (ii) a notice of intent to terminate a Plan under Section
4041(c) of ERISA is filed with the PBGC, if such termination would give rise to
a material liability of any member(s) of the ERISA Group, (iii) any
Multiemployer Plan is in reorganization or is insolvent and the circumstances
are such that, in the reasonable opinion of the Lenders, a material liability is
likely to be incurred by any member(s) of the ERISA Group, (iv) there is a
complete or partial withdrawal from a Multiemployer Plan that subjects any
member(s) of the ERISA Group to a material liability, (v) any member(s) of the
ERISA Group shall fail to pay an amount or amounts aggregating in excess of
$10,000,000 which it (or they) shall have become liable to pay to or with
respect to one or more Plans, Multiemployer Plans and/or Benefit Arrangements,
(vi) a waiver of the minimum funding standard under section 412 of the Code or
an extension of any amortization period thereunder is requested by any member(s)
of the ERISA Group with respect to a Plan that has "unfunded benefit
liabilities," within the meaning of Section 4001(a)(18) of ERISA, in excess of
$10,000,000, (vii) any member(s) of the ERISA Group shall have any liability for
health benefits pursuant to a group health plan to any group of employees or
former employees beyond their retirement or other termination of service, other
than coverage mandated by Part 6 of Subtitle B of Title I of ERISA or coverage
that can be unilaterally terminated by the member(s) of the ERISA Group at any
time without resulting in a material liability, (viii) any member(s) of the
ERISA Group or any of its (or their) agents or representatives shall engage in
any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975
of the Code) for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the Department of Labor
and such prohibited transaction subjects any member(s) of the ERISA Group to a
material liability, or (ix) more than one or any combination of the events or
conditions described in (i) through (viii) above shall occur or exist
(determined without regard to whether each such event or condition taken alone
would result in a material liability) and such events or conditions in the
aggregate result in a material liability to any member(s) of the ERISA Group
(for purposes of this SECTION 6.01(J), an obligation or liability shall be
considered material if it equals or exceeds $10,000,000);
(k) Any Person or group (within the meaning of Rule 13d-5 of the
Securities and Exchange Commission as in effect on the date hereof) shall own,
directly or indirectly, beneficially or of record 50% or more of any class of
the Voting Stock of the Company; or
(l) Any holder or holders of any Material Indebtedness or any Person
acting on such holder's or holders' behalf shall accelerate the maturity of such
Material Indebtedness.
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SECTION 6.02. REMEDIES. If an Event of Default shall have occurred and
shall be continuing:
(a) With the exception of an Event of Default specified in SECTION 6.01(g)
or SECTION 6.01(H), the Administrative Lender shall, upon the direction of the
Determining Lenders, by notice to the Company terminate the Commitment and/or
declare the principal of and interest on the Advances and all other Obligations
(including the aggregate amount of the Reimbursement Obligations outstanding at
such time) to be forthwith due and payable without presentation, demand,
protest, notice of intent to accelerate, notice of acceleration or other notice
of any kind (other than notice as expressly provided herein), all of which are
hereby expressly waived, anything in this Agreement or the other Loan Documents
to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in SECTION
6.01(G) or SECTION 6.02(H) hereof, the principal of and interest on the Advances
and all other Obligations (including the aggregate amount of the Reimbursement
Obligations outstanding at such time) shall thereupon and concurrently therewith
become due and payable and the Commitment shall forthwith terminate, all without
any action by the Administrative Lender, any Lender or any holders of the Notes
and without presentment, demand, protest, notice of intent to accelerate, notice
of acceleration or other notice of any kind, all of which are expressly waived,
anything in this Agreement or the other Loan Documents to the contrary
notwithstanding.
(c) The Loan Parties recognize that notwithstanding any termination of the
Commitment pursuant to SECTION 6.02(A) or SECTION 6.02(B) hereof, the obligation
of the Issuing Bank to fund draws against Letters of Credit outstanding on the
Maturity Date, as accelerated pursuant to the said SECTION 6.02, shall continue
until expiration of each such Letter of Credit. In consideration of the
agreement of the Lenders to not require that the Loan Parties provide cash
collateral to secure the Reimbursement Obligations in respect of the Letters of
Credit outstanding on the Maturity Date, as so accelerated, the Loan Parties
hereby unconditionally and irrevocably agree that upon any acceleration of the
Obligations pursuant to SECTION 6.02(A) or SECTION 6.02(B) hereof, the aggregate
amount of the Reimbursement Obligations outstanding at such time shall be
immediately due and payable in full.
To the extent that amounts received by the Administrative Lender and
the Lenders in the exercise of their post-default rights granted to them under
the Loan Documents and under applicable law exceed the unpaid Obligations (other
than the outstanding Reimbursement Obligations), such excess, up to an amount
equal to the aggregate amount of the Reimbursement Obligations, shall be
deposited in a deposit account maintained by the Administrative Lender (the
"REIMBURSEMENT OBLIGATION ACCOUNT"). Title to, and ownership of, the
Reimbursement Obligation Account shall be in and for the benefit of the Lenders
and the Reimbursement Obligation Account shall be under the sole dominion and
control of the
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Administrative Lender. Except as set forth herein, no Loan Party shall have any
interest or right with respect to the Reimbursement Obligation Account. The
Administrative Lender, as draws are made against Letters of Credit, shall apply
the funds in the Reimbursement Obligation Account to the unpaid Obligations then
outstanding. After all Letters of Credit have been funded or expired by their
terms, and all unpaid Obligations then outstanding have been paid in full, the
Administrative Lender shall refund any amount remaining in the Reimbursement
Obligation Account to the Company. The Loan Parties acknowledge that (i) if the
Letters of Credit outstanding on the Maturity Date are not extended beyond their
respective expiration dates in effect on the Maturity Date, such Letters of
Credit will be drawn upon on or prior to their respective expiration dates, (ii)
the Issuing Bank will not extend the expiration date of any Letter of Credit
outstanding on the Maturity Date, (iii) as a result of clauses (i) and (ii)
immediately preceding, the Reimbursement Obligations of the Company will be a
fixed amount in the aggregate amount of the Letters of Credit outstanding on the
Maturity Date and not a contingent amount and (iv) as a result of clauses (i),
(ii) and (iii) immediately preceding, no provision herein shall be deemed to be
a confession of judgment.
(d) Subject to the terms and provisions of the Loan Documents, the
Administrative Lender and the Lenders may exercise all of the post-default
rights granted to them under the Loan Documents or under Applicable Law.
(e) The rights and remedies of the Administrative Lender and the Lenders
hereunder shall be cumulative, and not exclusive.
SECTION 6.03. INJUNCTIVE RELIEF. The Loan Parties recognize that in the
event they fail to perform, observe or discharge any of their obligations or
liabilities under this Agreement or any other Loan Document, any remedy of law
may prove to be inadequate relief to the Lenders; therefore, the Loan Parties
agree that the Lenders, if the Lenders so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages. The Lenders recognize that in the event it fails to
perform, observe or discharge any of their obligations or liabilities under this
Agreement or any other Loan Document, any remedy of law may prove to be
inadequate relief to the Loan Parties; therefore, the Lenders agree that the
Loan Parties shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
ARTICLE VII
GUARANTY
SECTION 7.01. GUARANTY. In consideration of the Commitment, the
Guarantors hereby absolutely, unconditionally and irrevocably, jointly and
severally guarantee the punctual payment and performance when due, whether at
stated maturity, by acceleration or otherwise, of the Obligations (including,
without limitation, interest accruing or becoming
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owing both prior to and subsequent to the commencement of any proceeding against
or with respect to the Company under any chapter of the Bankruptcy Code of 1978
(11 U.S.C. Section 101 ET SEQ.), fees, commissions, expenses (including
reasonable attorneys' fees and expenses) or otherwise, and all reasonable costs
and expenses, if any, incurred by the Lenders in connection with enforcing any
rights under this Guaranty (all such obligations being the "GUARANTEED
OBLIGATIONS"), and agree to pay any and all reasonable expenses incurred by the
Lenders in enforcing this Guaranty. This Guaranty is an absolute, unconditional,
present and continuing guaranty of payment and not of collectibility and is in
no way conditioned upon any attempt to collect from the Company or any other
action, occurrence or circumstance whatsoever.
SECTION 7.02. CONTINUING GUARANTY. Each Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement, the Notes and the other Loan Documents. Each Guarantor agrees
that the Guaranteed Obligations and Loan Documents may be extended or renewed,
and Advances repaid and reborrowed in whole or in part, without notice to or
assent by such Guarantor, and that it will remain bound upon this Guaranty
notwithstanding any extension, renewal or other alteration of any Guaranteed
Obligations or Loan Documents, or any repayment and reborrowing of Advances. The
obligations of each Guarantor under this Guaranty shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms hereof under any circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement, compromise, waiver
or release in respect of any Guaranteed Obligations;
(b) any extension, renewal, amendment, modification, rescission, waiver or
release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection or invalidity of,
or failure to exercise rights or remedies with respect to, any direct or
indirect security for any Guaranteed Obligations, including the release of any
other Guarantor or other Person liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or ownership of the
Company, any Guarantor, or any insolvency, bankruptcy, reorganization or other
similar proceeding affecting the Company, such Guarantor, any other Guarantor or
any of their respective assets;
(e) the existence of any claim, defense, set-off or other rights or
remedies which such Guarantor at any time may have against the Company, or the
Company or such Guarantor may have at any time against the Lenders, any other
Guarantor or any other Person, whether in connection with this Guaranty, the
Loan Documents, the transactions contemplated thereby or any other transaction;
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(f) any invalidity or unenforceability for any reason of this Agreement or
other Loan Documents, or any provision of Law purporting to prohibit the payment
or performance by the Company, such Guarantor or any other Guarantor of the
Guaranteed Obligations or Loan Documents;
(g) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing.
SECTION 7.03. EFFECT OF DEBTOR RELIEF LAWS. If after receipt of any
payment of, or proceeds of any security applied (or intended to be applied) to
the payment of all or any part of the Guaranteed Obligations, any Lender is for
any reason compelled to surrender or voluntarily surrenders, such payment or
proceeds to any Person (a) because such payment or application of proceeds is or
may be avoided, invalidated, declared fraudulent, set aside, determined to be
void or voidable as a preference, fraudulent conveyance, fraudulent transfer,
impermissible set-off or a diversion of trust funds, or (b) for any other
reason, including (i) any judgment, decree or order of any court or
administrative body having jurisdiction over any Lender or any of its
properties, or (ii) any settlement or compromise of any such claim effected by
any Lender with any such claimant (including the Company), then the Guaranteed
Obligations or part thereof intended to be satisfied shall be reinstated and
continue, and this Guaranty shall continue in full force as if such payment or
proceeds have not been received, notwithstanding any revocation thereof or the
cancellation of the Notes or any other instrument evidencing any Guaranteed
Obligations or otherwise; and the Guarantors, jointly and severally, shall be
liable to pay such Lender, and hereby do indemnify such Lender and hold it
harmless for the amount of such payment or proceeds so surrendered and all
expenses (including reasonable attorneys' fees, court costs and expenses
attributable thereto) incurred by such Lender in the defense of any claim made
against it that any payment or proceeds received by such Lender in respect of
all or part of the Guaranteed Obligations must be surrendered. The provisions of
this paragraph shall survive the termination of this Guaranty, and any
satisfaction and discharge of the Company by virtue of any payment, court order
or any federal or state law.
SECTION 7.04. WAIVER OF SUBROGATION. Notwithstanding any payment or
payments made by any Guarantor hereunder, or any set-off or application by any
Lender of any security or of any credits or claims, no Guarantor will assert or
exercise any rights of any Lender or of such Guarantor against the Company to
recover the amount of any payment made by such Guarantor to any Lender hereunder
by way of subrogation, reimbursement, contribution, indemnity, or otherwise
arising by contract or operation of law, and such Guarantor shall not have any
right of recourse to or any claim against assets or property of the Company,
whether or not the obligations of the Company have been satisfied, all of such
rights being herein expressly waived by such Guarantor. Each Guarantor agrees
not to seek contribution or indemnity or other recourse from any other Guarantor
or other Person. If any amount shall nevertheless be paid to a Guarantor by the
Company or another Guarantor prior
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to payment in full of the Guaranteed Obligations, such amount shall be held in
trust for the benefit of the Lenders and shall forthwith be paid to the
Administrative Lender to be credited and applied to the Guaranteed Obligations,
whether matured or unmatured. The provisions of this paragraph shall survive the
termination of this Guaranty, and any satisfaction and discharge of the Company
by virtue of any payment, court order or any Law.
SECTION 7.05. SUBORDINATION. If any Guarantor becomes the holder of any
indebtedness payable by the Company, each Guarantor hereby subordinates all
indebtedness owing to it from the Company to all indebtedness of the Company to
the Lenders, and agrees that upon the occurrence and continuance of a Default or
an Event of Default, it shall not accept any payment on the same until payment
in full of the obligations of the Company under this Agreement, the Notes and
all other Loan Documents, and shall in no circumstance whatsoever attempt to
set-off or reduce any obligations hereunder because of such indebtedness. If any
amount shall nevertheless be paid to a Guarantor by the Company or another
Guarantor prior to payment in full of the Guaranteed Obligations, such amount
shall be held in trust for the benefit of the Lenders and shall forthwith be
paid to the Administrative Lender to be credited and applied to the Guaranteed
Obligations, whether matured or unmatured.
SECTION 7.06. WAIVER. Each Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and waives presentment, demand of payment, notice
of intent to accelerate, notice of dishonor or nonpayment and any requirement
that the Administrative Lender or any Lender institute suit, collection
proceedings or take any other action to collect the Guaranteed Obligations,
including any requirement that the Administrative Lender or any Lender protect,
secure, perfect or insure any Lien against any property subject thereto or
exhaust any right or take any action against the Company or any other Person or
any collateral (it being the intention of each Lender and each Guarantor that
this Guaranty is to be a guaranty of payment and not of collection). It shall
not be necessary for the Administrative Lender or any Lender, in order to
enforce any payment by any Guarantor hereunder, to institute suit or exhaust its
rights and remedies against the Company, any other Guarantor or any other
Person, including others liable to pay any Guaranteed Obligations, or to enforce
its rights against any security ever given to secure payment thereof. Each
Guarantor hereby expressly waives each and every right to which it may be
entitled by virtue of the suretyship laws of the State of Texas, including,
without limitation, any and all rights it may have pursuant to Rule 31, Texas
Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and
Remedies Code and Chapter 34 of the Texas Business and Commerce Code. Each
Guarantor hereby waives marshaling of assets and liabilities, notice by any
Lender of any indebtedness or liability to which any Lender applies or may apply
any amounts received by any Lender, and of the creation, advancement, increase,
existence, extension, renewal, rearrangement and/or modification of the
Guaranteed Obligations. Each Guarantor expressly waives, to the extent
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permitted by applicable law, the benefit of any and all laws providing for
exemption of property from execution or for valuation and appraisal upon
foreclosure.
SECTION 7.07. FULL FORCE AND EFFECT. This Guaranty is a continuing
guaranty and shall remain in full force and effect until payment in full of the
Obligations of the Company under this Agreement, the Note and all other Loan
Documents and all other amounts payable under this Guaranty.
SECTION 7.08. ENFORCEABILITY. Notwithstanding any other provision of this
ARTICLE VII, if any one or more provisions of this Guaranty should be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected, impaired, prejudiced or disturbed thereby. If at any time any
portion of the obligations of the Guarantors under this Guaranty shall be
determined by any Tribunal to be invalid, unenforceable or avoidable, the
remaining portion of the obligations of the Guarantors under this Guaranty shall
not in any way be affected, impaired, prejudiced or disturbed thereby and shall
remain valid and enforceable to the fullest extent permitted by Applicable Law.
If at any time all or any portion of the obligation of the Guarantors under this
Guaranty would otherwise be determined by a court of competent jurisdiction to
be invalid, unenforceable or avoidable under Section 548 of the United States
Bankruptcy Code or under a similar Applicable Law of any jurisdiction, then
notwithstanding any other provisions of this Guaranty to the contrary such
obligation or portion thereof of the Guarantors under this Guaranty shall be
limited to the greatest of (i) the value of any quantifiable economic benefits
accruing to the Guarantors as a result of this Guaranty, (ii) an amount equal to
95% of the excess on the date the relevant liabilities were incurred of the
present fair saleable value of the assets of the Guarantors over the amount of
all liabilities of the Guarantors, contingent or otherwise, and (iii) the
maximum amount for which this Guaranty is determined to be enforceable under
applicable Law.
ARTICLE VIII
CHANGES IN CIRCUMSTANCES
SECTION 8.01. LIBOR BASIS DETERMINATION INADEQUATE. If with respect to
any proposed LIBOR Advance for any Interest Period, any Lender determines that
(i) deposits in dollars (in the applicable amount) are not being offered to that
Lender in the relevant market for such Interest Period or (ii) the LIBOR Basis
for such proposed LIBOR Advance does not adequately cover the cost to such
Lender of making and maintaining such proposed LIBOR Advance for such Interest
Period, such Lender shall forthwith give notice thereof to the Company,
whereupon until such Lender notifies the Company that the circumstances giving
rise to such situation no longer exist, the obligation of such Lender to make
LIBOR Advances shall be suspended.
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SECTION 8.02. ILLEGALITY. If any applicable law, rule or regulation, or
any change therein or adoption thereof, or interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its LIBOR Lending Office) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency, shall make it unlawful or impossible for such Lender (or its LIBOR
Lending Office) to make, maintain or fund its LIBOR Advances, such Lender shall
so notify the Company and the Administrative Lender. Before giving any notice
to the Company pursuant to this Section, the notifying Lender shall designate a
different LIBOR Lending Office or other lending office if such designation will
avoid the need for giving such notice and will not, in the sole judgment of the
Lender, be materially disadvantageous to the Lender. Upon receipt of such
notice, notwithstanding anything contained in ARTICLE II hereof, the Company
shall repay in full the then outstanding principal amount of each LIBOR Advance
owing to the notifying Lender, together with accrued interest thereon, on either
(a) the last day of the Interest Period applicable to such Advance, if the
Lender may lawfully continue to maintain and fund such Advance to such day, or
(b) immediately, if the Lender may not lawfully continue to fund and maintain
such Advance to such day. Concurrently with repaying each affected LIBOR
Advance owing to such Lender along with any reimbursement required under SECTION
2.09 hereof, notwithstanding anything contained in ARTICLE II hereof, the
Company shall borrow a Base Rate Advance from such Lender, and such Lender shall
make such Base Rate Advance, in an amount such that the outstanding principal
amount of the Advances owing to such Lender shall equal the outstanding
principal amount of the Advances owing immediately prior to such repayment.
SECTION 8.03. INCREASED COSTS.
(a) If any applicable law, rule or regulation, or any change in or
adoption of any law, rule or regulation, or any interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof or compliance by any Lender
(or its LIBOR Lending Office) with any request or directive (whether or not
having the force of law) or any such authority, central bank or compatible
agency:
(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any tax benefit engendered thereby) with respect to its LIBOR
Advances or its obligation to make such Advances, or shall change the basis
of taxation of payments to a Lender (or to its LIBOR Lending Office) of the
principal of or interest on its LIBOR Advances or in respect of any other
amounts due under this Agreement, as the case may be, or its obligation to
make such Advances (except for changes in the rate of tax on the overall
net income, net worth or capital of the Lender and franchise taxes, doing
business taxes or minimum taxes imposed upon such Lender); or
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(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the United States market for certificates of deposit or the
London interbank market any other condition affecting its LIBOR Advances or
its obligation to make such Advances;
and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount reasonably deemed by a Lender
to be material, then, within 15 days after demand by a Lender, the Company
agrees to pay to such Lender such additional amount as will reasonably
compensate such Lender for such increased costs or reduced amounts, subject to
SECTION 10.09 hereof. The affected Lender will as soon as practicable notify
the Company of any event of which it has knowledge, occurring after the date
hereof, which will entitle such Lender to compensation pursuant to this Section
and will designate a different LIBOR Lending Office or other lending office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the sole judgment of the affected Lender made in
good faith, be disadvantageous to such Lender.
(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder and
calculations therefor shall be conclusive in the absence of demonstrable error.
In determining such amount, a Lender may use any reasonable averaging and
attribution methods. If a Lender demands compensation under this Section, the
Company may at any time, upon at least five Business Days' prior notice to the
Lender, after reimbursement to the Lender by the Company in accordance with this
Section of all costs incurred, prepay in full the then outstanding LIBOR
Advances of the Lender, together with accrued interest thereon to the date of
prepayment, along with any reimbursement required under SECTION 2.09 hereof.
Concurrently with prepaying such LIBOR Advances, the Company may borrow a Base
Rate Advance from the Lender, and the Lender shall make such Base Rate Advance,
in an amount such that the outstanding principal amount of the Advances owing to
such Lender shall equal the outstanding principal amount of the Advances owing
immediately prior to such prepayment.
SECTION 8.04. BASE RATE ADVANCES RATHER THAN LIBOR ADVANCES. If notice
has been given pursuant to SECTION 8.01, 8.02 or 8.03 hereof suspending the
obligation of a Lender to make LIBOR Advances, or requiring LIBOR Advances of a
Lender to be repaid or prepaid, then, unless and until the Lender notifies the
Company that the circumstances giving rise to such repayment no longer apply,
all Advances which would otherwise be made by such Lender as LIBOR Advances
shall be made instead as Base Rate Advances.
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SECTION 8.05. CAPITAL ADEQUACY. If either (a) the introduction of or any
change in or in the interpretation of any law, rule or regulation or (b)
compliance by a Lender with any law, rule or regulation or any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) affects or would affect the amount of capital required
or expected to be maintained by a Lender or any corporation controlling such
Lender, and such Lender determines that the amount of such capital is increased
by or based upon the existence of such Lender's commitments or Advances
hereunder and other commitments or advances of such Lender of this type, then,
upon demand by such Lender, subject to SECTION 10.09, the Company shall
immediately pay to such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender with respect to such
circumstances, to the extent that such Lender reasonably determines in good
faith such increase in capital to be allocable to the existence of such Lender's
Commitment hereunder. A certificate as to such amounts submitted to the Company
by a Lender hereunder, shall, in the absence of demonstrable error, be
conclusive and binding for all purposes. The failure of any Lender to demand
compensation hereunder shall not constitute a waiver of such Lender's rights to
demand such compensation. Without prejudice to the survival of any other
obligations of the Company hereunder, the obligations of the Company under this
SECTION 8.05 shall survive the payment of the Obligations and termination of
this Agreement.
ARTICLE IX
AGREEMENT AMONG LENDERS
SECTION 9.01. AGREEMENT AMONG LENDERS. The Lenders agree among
themselves that:
(a) ADMINISTRATIVE LENDER. Each Lender hereby appoints the Administrative
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Documents; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, unless and until the Administrative Lender shall have received
such requests, the Administrative Lender may take such administrative action, or
refrain from taking such administrative action, as it may deem advisable and in
the best interests of the Lenders; to arrange the means whereby the proceeds of
the Advances of the Lenders are to be made available to the Company; to
distribute promptly to each Lender information, requests and documents received
from the Company, and each payment (in like funds received) with respect to any
of such Lender's Advances, fee or other amount; and to deliver to the Company
requests, demands, approvals and consents received from the Lenders.
Administrative Lender agrees to promptly distribute to each Lender, at such
Lender's address set forth below information, requests, documents and payments
received from the Company.
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(b) REPLACEMENT OF ADMINISTRATIVE LENDER. Should the Administrative
Lender or any successor Administrative Lender ever cease to be a Lender
hereunder, or should the Administrative Lender or any successor Administrative
Lender ever resign as Administrative Lender, or should the Administrative Lender
or any successor Administrative Lender ever be removed with cause by the
Determining Lenders, then the Lender appointed by the other Lenders, with the
consent of the Company, shall forthwith become the Administrative Lender, and
the Company and the Lenders shall execute such documents as any Lender may
reasonably request to reflect such change. Any resignation or removal of the
Administrative Lender or any successor Administrative Lender shall become
effective upon the appointment by the Lenders, with the consent of the Company,
of a successor Administrative Lender; provided, however, that if the Lenders
fail for any reason to appoint a successor within 60 days after the resigning
Administrative Lender's giving notice of resignation or the Determining Lenders'
removal of the Administrative Lender, the Administrative Lender or any successor
Administrative Lender (as the case may be) may, on behalf of the Lenders,
appoint a successor Administrative Lender, which shall be a commercial bank
organized under the Laws of the United States of America or of any state thereof
and having a combined capital and surplus of at least $10,000,000, and the
resigning Administrative Lender shall thereafter have no obligation to act as
Administrative Lender hereunder.
(c) EXPENSES. Each Lender shall pay its pro rata share, based on its
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Documents if Administrative Lender
does not receive reimbursement therefor from other sources within 60 days after
the date incurred, unless payment of such fees is being diligently disputed by
such Lender or the Company in good faith. Any amount so paid by the Lenders to
the Administrative Lender shall be returned by the Administrative Lender pro
rata to each paying Lender to the extent later paid by the Company or any other
Person on the Company's behalf to the Administrative Lender.
(d) DELEGATION OF DUTIES. The Administrative Lender may execute any of
its duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.
(e) RELIANCE BY ADMINISTRATIVE LENDER. The Administrative Lender and its
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected the Administrative Lender. The Administrative Lender may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.
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(f) LIMITATION OF ADMINISTRATIVE LENDER'S LIABILITY. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards the
execution or enforcement of the powers hereby created or to prosecute or defend
any suit in respect hereof, unless indemnified to its satisfaction against loss,
cost, liability and expense. The Administrative Lender shall not be responsible
in any manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Company. To the extent not reimbursed by the Company, each Lender hereby
jointly and severally indemnifies and holds harmless the Administrative Lender,
pro rata according to its Specified Percentage, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and/or disbursements of any kind or nature whatsoever which may
be imposed on, asserted against, or incurred by the Administrative Lender (in
its capacity as Administrative Lender and not as a Lender) in any way with
respect to any Loan Documents or any action taken or omitted by the
Administrative Lender in its capacity as Administrative Lender and not as a
Lender under the Loan Documents (including any negligent action of the
Administrative Lender), except to the extent the same result from gross
negligence or wilful misconduct by the Administrative Lender.
(g) LIABILITY AMONG LENDERS. No Lender shall incur any liability (other
than the sharing of expenses and other matters specifically set forth herein and
in the other Loan Documents) to any other Lender, except for acts or omissions
in bad faith.
(h) RIGHTS AS LENDER. With respect to its commitment hereunder, the
Advances made by it and Note issued to it, the Administrative Lender shall have
the same rights as a Lender and may exercise the same as though it were not the
Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Company and any of its Affiliates, and any Person who may do business
with or own securities of the Company or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder and without
any duty to account therefor to the Lenders.
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SECTION 9.02. LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Lender or any
other Lender and based upon the financial statements referred to in SECTIONS
4.04, 5.01(a) and 5.01(b) hereof, and such other documents and information as it
has deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Lender or any other Lender and based
upon such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and the other Loan Documents.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. NOTICES.
(a) All notices and other communications under this Agreement shall be in
writing and shall be deemed to have been given on the date personally delivered
or sent by telecopy, or three days after deposit in the mail, designated as
certified mail, return receipt requested, postage-prepaid, or one day after
being entrusted to a reputable commercial overnight delivery service, or one day
after being delivered to the telegraph office or sent out by telex addressed to
the party to which such notice is directed at its address determined as provided
in this Section. All notices and other communications under this Agreement
shall be given to the parties hereto at the following addresses:
(i) If to the Company, to it or if to any other Loan Party, to it in
care of the Company, in each case, at:
DSC Communications Corporation
3701 Plano Parkway
Plano, Texas 75075
Telecopy Number: (214) 519-3000
Attn: Christian J. Ornes, Vice President and Treasurer
(ii) If to the Administrative Lender, at:
NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Telecopy Number: (214) 508-0980
Attn: Yousuf Omar, Vice President
Chad Coben, Assistant Vice President
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(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.
(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.
SECTION 10.02. EXPENSES. The Company shall promptly pay:
(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, the transactions contemplated hereunder
and thereunder, and the making of Advances and the issuance of Letters of Credit
hereunder, including, without limitation, the reasonable fees of Special Counsel
not to exceed $40,000 and the out-of-pocket expenses incurred by Special
Counsel;
(b) all reasonable out-of-pocket expenses and attorneys' fees of the
Administrative Lender in connection with the administration of the transactions
contemplated in this Agreement and the other Loan Documents and the preparation,
negotiation, execution and delivery of any waiver, amendment or consent by the
Lenders relating to this Agreement or the other Loan Documents; and
(c) (i) all costs, out-of-pocket expenses and attorneys' fees of the
Administrative Lender incurred for enforcement, collection, restructuring,
refinancing and "work-out", or otherwise incurred in obtaining performance under
the Loan Documents, which in each case shall include, without limitation, fees
and expenses of counsel for the Administrative Lender, and administrative fees
for the Administrative Lender, (ii) after the occurrence of an Event of Default
specified in SECTION 6.01(a), all costs, out-of-pocket expenses and attorneys'
fees of each Lender incurred for enforcement, collection, restructuring,
refinancing and "work-out", or otherwise incurred in obtaining performance under
the Loan Documents, and all costs and out-of-pocket expenses of collection,
which in each case shall include, without limitation, fees and expenses of
consultants and counsel for each Lender, and (iii) after the occurrence of an
Event of Default other than that specified in SECTION 6.01(a), all non-legal
out-of-pocket expenses of each Lender and all attorneys' fees of one counsel
acting on behalf of all the Lenders incurred for enforcement, restructuring,
refinancing and "work-out", or otherwise incurred in obtaining performance under
the Loan Documents.
SECTION 10.03. WAIVERS. The rights and remedies of the Lenders under this
Agreement and the other Loan Documents shall be cumulative and not exclusive of
any rights or remedies which they would otherwise have. No failure or delay by
the Administrative Lender or any Lender in exercising any right shall operate as
a waiver of such right. The Lenders expressly reserve the right to require
strict compliance with the terms of this
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Agreement in connection with any funding of a request for an Advance and the
Issuing Bank expressly reserves the right to require strict compliance with the
terms of this Agreement in connection with any issuance of a Letter of Credit.
In the event that any Lender decides to fund an Advance or the Issuing Bank
decides to issue a Letter of Credit at a time when the Company is not in strict
compliance with the terms of this Agreement, such decision by such Lender shall
not be deemed to constitute an undertaking by the Lender to fund any further
requests for Advances or by the Issuing Bank to issue any additional Letters of
Credit or preclude the Lenders from exercising any rights available under the
Loan Documents or at law or equity. Any waiver or indulgence granted by the
Lenders shall not constitute a modification of this Agreement, except to the
extent expressly provided in such waiver or indulgence, or constitute a course
of dealing by the Lenders at variance with the terms of the Agreement such as to
require further notice by the Lenders of the Lenders' intent to require strict
adherence to the terms of the Agreement in the future. Any such actions shall
not in any way affect the ability of the Administrative Lender or the Lenders,
in their discretion, to exercise any rights available to them under this
Agreement or under any other agreement, whether or not the Administrative Lender
or any of the Lenders are a party thereto, relating to any Loan Party.
SECTION 10.04. DETERMINATION BY THE LENDERS CONCLUDIVE AND BINDING. Any
material determination required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent demonstrable
error, be conclusive and binding on all parties.
SECTION 10.05. SET-OFF. Upon the occurrence and continuance of an Event of
Default and acceleration of the Note and Obligations, each Lender and any
subsequent holder of any Note, and any assignee in any Note is hereby authorized
by each Loan Party at any time or from time to time to set-off, appropriate and
apply any deposits (general or special (except trust and escrow accounts), time
or demand, including without limitation Indebtedness evidenced by certificates
of deposit, in each case whether matured or unmatured) and any other
Indebtedness at any time held or owing by such Lender or holder to or for the
credit or the account of any Loan Party, against and on account of the
Obligations and other liabilities of any Loan Party to such Lender or holder,
irrespective of whether or not the Lender or holder shall have made any demand
hereunder (other than as expressly provided in SECTION 6.02) and although
certain of such obligations and liabilities, or any of them, shall be
contingent. Any sums obtained by any Lender or by any assignee or subsequent
holder of any Note shall be subject to pro rata treatment of all Obligations and
other liabilities hereunder. Each Lender agrees promptly to notify any Loan
Party after any such set-off and application by such Lender, but the failure to
give such notice shall not affect the validity of such set-off and application.
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SECTION 10.06. ASSIGNMENT.
(a) No Loan Party may assign or transfer any of its rights or obligations
hereunder or under the other Loan Documents without the prior written consent of
the Lenders.
(b) No Lender shall be entitled to assign its interest in this Agreement,
its Notes or its Advances, except as hereinafter set forth.
(c) No Lender may at any time sell participations in all or any part of
its Commitment, Advances or participation interests in the Letters of Credit.
(d) Each Lender may assign to one or more financial institutions or funds
organized under the laws of the United States, or any state thereof, or under
the laws of any other country that is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country,
which is engaged in making, purchasing or otherwise investing in commercial
loans in the ordinary course of its business (each, an "ASSIGNEE") its rights
and obligations under this Agreement and the other Loan Documents; PROVIDED,
HOWEVER, that (i) each such assignment shall be subject to the prior written
consent of the Administrative Lender and the Loan Parties, which consent shall
not be unreasonably withheld, (ii) each such assignment shall be of a constant,
and not a varying, percentage of the Lender's rights and obligations under this
Agreement, (iii) the amount of the Advances and Reimbursement Obligations being
assigned pursuant to each such assignment (determined as of the date of the
assignment with respect to such assignment) shall in no event be less than the
lesser of (A) $5,000,000, or (B) the applicable Lender's Commitment, (iv) the
applicable Lender, Administrative Lender and applicable Assignee shall execute
and deliver to the Administrative Lender an Assignment and Acceptance Agreement
(an "ASSIGNMENT AGREEMENT") in substantially the form of EXHIBIT C hereto,
together with the Notes subject to such assignment, (v) the Assignee or the
Lender executing the Assignment Agreement as the case may be, shall deliver to
the Administrative Lender a processing fee of $2,500, and (vi) the
Administrative Lender shall give the Company notice of any proposed assignment
no later than 30 days prior to any assignment by any Lender. Upon such
execution, delivery and acceptance from and after the effective date specified
in each Assignment Agreement, which effective date shall be at least three
Business Days after the execution thereof, (A) the Assignee thereunder shall be
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment, have the rights and obligations of a
Lender hereunder and (B) the assigning Lender shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
Agreement, relinquish such rights and be released from such obligations under
this Agreement.
(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular
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issued by such Federal Reserve Bank; provided, however, that no such assignment
under this clause (e) shall release the assignor Lender from its obligations
hereunder.
(f) Upon its receipt of an Assignment Agreement executed by a Lender and
an Assignee, and any Note or Notes subject to such assignment, the Company
shall, within three Business Days after its receipt of such Assignment
Agreement, at its own expense, execute and deliver to the Administrative Lender,
in exchange for the surrendered Notes, new Notes to the order of such Assignee
in an amount equal to the portion of the Commitment assigned to it pursuant to
such Assignment Agreement and new Notes to the order of the assigning Lender in
an amount equal to the portion of the Advances and Commitment retained by it
hereunder. Such new Notes shall be in an aggregate principal amount equal to
the aggregate principal amount of such surrendered Notes, shall be dated the
effective date of such Assignment Agreement and shall otherwise be in
substantially the form of EXHIBIT A hereto.
(g) Any Lender may, in connection with any assignment or proposed
assignment pursuant to this SECTION 10.06, disclose to the Assignee or proposed
Assignee, any information relating to the Loan Parties furnished to such Lender
by or on behalf of the Company.
(h) Except as specifically set forth in this SECTION 10.06, nothing in
this Agreement or any other Loan Documents, expressed or implied, is intended to
or shall confer on any Person other than the respective parties hereto and
thereto and their successors and Assignees permitted hereunder and thereunder
any benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan documents.
(i) Notwithstanding anything in this SECTION 10.06 to the contrary, no
Assignee shall be entitled to receive any greater payment under SECTION 2.15 or
SECTION 8.03 than such assigning Lender would have been entitled to receive with
respect to the interest assigned to such Assignee.
SECTION 10.07. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
SECTION 10.08. SEVERABILITY. Any provision of this Agreement which is for
any reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 10.09. INTEREST AND CHARGES. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be
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entitled to receive, collect or apply, as interest on the Obligations, any
amount in excess of the Maximum Amount. If any Lender ever receives, collects
or applies, as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial repayment of principal and treated hereunder
as such; and if principal is paid in full, any remaining excess shall be paid to
the Company. In determining whether or not the interest paid or payable, under
any specific contingency, exceeds the Maximum Amount, the Loan Parties and the
Lenders shall, to the maximum extent permitted under Applicable Law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effect thereof, and (c)
amortize, prorate, allocate and spread in equal parts, the total amount of
interest throughout the entire contemplated term of the Obligations so that the
interest rate is uniform throughout the entire term of the Obligations;
provided, however, that if the Obligations are paid and performed in full prior
to the end of the full contemplated term thereof, and if the interest received
for the actual period of existence thereof exceeds the Maximum Amount, the
Lenders shall refund to the Company the amount of such excess or credit the
amount of such excess against the total principal amount of the Obligations
owing, and, in such event, the Lenders shall not be subject to any penalties
provided by any laws for contracting for, charging or receiving interest in
excess of the Maximum Amount. This Section shall control every other provision
of all agreements pertaining to the transactions contemplated by or contained in
the Loan Documents.
SECTION 10.10. HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.
SECTION 10.11. AMENDMENT AND WAIVER. The provisions of this Agreement may
not be amended, modified or waived except by the written agreement of the Loan
Parties and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend the date of maturity of, extend the due date for any payment of
principal or interest on, reduce the amount of any principal of or interest on,
or reduce the rate of interest on, any Advance or other amount owing under any
Loan Documents, or (iii) release any guaranty of the Obligations (except
pursuant to this Agreement), or (iv) reduce the fees payable hereunder, or (v)
revise this SECTION 10.11, (vi) waive the date for payment of any of the
Obligations, or (vii) amend the definition of Determining Lenders, or (vii)
amend or waive the provisions of SECTION 5.03(b); or (b) without the consent of
the Administrative Lender, if it would alter the rights, duties or obligations
of the Administrative Lender. Neither this Agreement nor any term hereof may be
amended orally, nor may any provision hereof be waived orally but only by an
instrument in writing signed by the Administrative Lender and, in the case of an
amendment, by the Loan Parties.
SECTION 10.12. EXCEPTION TO COVENANTS. Neither the Company, any Loan Party
nor any Subsidiary of the Company shall be deemed to be permitted to take any
action or fail
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to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.
SECTION 10.13. RELEASE OF LIENS. Upon payment in full of the existing
Indebtedness (other than in respect of the letters of credit outstanding under
the NationsBank Revolving Credit Agreement) of the Company to NationsBank of
Texas, N.A. outstanding on the Agreement Date, such bank shall release all liens
related thereto.
SECTION 10.14. CONFIDENTIALITY. Each Lender and the Administrative Lender
agrees (on behalf of itself and each of its affiliates, directors,
officers, employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Company pursuant to
this Agreement which is identified by the Company as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any litigation involving a Loan Party to
which any one or more of Lenders is a party, provided, further, that, unless
specifically prohibited by Applicable Law or court order, each Lender shall,
prior to disclosure thereof, notify the Company of any request for disclosure of
any such not-public information (i) by any governmental agency or representative
thereof (other than any such request in connection with an examination of such
Lender's financial condition by such governmental agency) or (ii) pursuant to
legal process, or (f) to any Assignee (or prospective Assignee) so long as such
Assignee (or prospective Assignee) agrees to handle such information
confidentially.
SECTION 10.15. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79,
REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS
AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE COMPANY AGREES THAT
THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS. THIS AGREEMENT AND
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THE OTHER LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS.
SECTION 10.16. WAIVER OF TEXAS DECEPTIVE TRADE PRACTICES ACT. EACH LOAN
PARTY HEREBY WAIVES AND RELEASES ALL OF SUCH LOAN PARTY'S RIGHTS AND REMEDIES
UNDER THE TEXAS DECEPTIVE TRADE PRACTICES--CONSUMER PROTECTION ACT (HEREINAFTER
REFERRED TO AS THE "DTPA"), SUBCHAPTER E OF CHAPTER 17 OF THE TEXAS BUSINESS
AND COMMERCE CODE, IF ANY, INCLUDING WITHOUT LIMITATION ALL RIGHTS AND REMEDIES
RESULTING FROM, ARISING OUT OF OR ASSOCIATED WITH ANY AND ALL ACTS OR PRACTICES
OF ANY OF THE INDEMNITEES IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, WHETHER SUCH ACTS OR
PRACTICES OCCUR BEFORE OR AFTER THE EXECUTION OF THE AGREEMENT OR SUCH OTHER
LOAN DOCUMENTS. EACH LOAN PARTY UNDERSTANDS THAT ITS RIGHTS AND REMEDIES WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND WITH RESPECT TO
ALL ACTS OR TRANSACTIONS SHALL BE GOVERNED BY LEGAL PRINCIPLES OTHER THAN THE
DTPA. IN CONNECTION WITH THIS WAIVER, EACH LOAN PARTY ACKNOWLEDGES, REPRESENTS
AND WARRANTS THAT IT HAS ASSETS OF $5,000,000 OR MORE CALCULATED IN ACCORDANCE
WITH GAAP, THAT IT HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS
MATTERS THAT ENABLE IT TO EVALUATE THE MERITS AND RISKS OF TRANSACTIONS SUCH AS
THOSE CONTEMPLATED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND THAT IT
IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH ANY OF THE
INDEMNITEES.
SECTION 10.17. WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY
LAW, EACH LOAN PARTY HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY
LOAN DOCUMENT, AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM OR
RELATING TO THIS AGREEMENT, THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
SECTION 10.18. FINAL AGREEMENT OF THE PARTIES. A LOAN DOCUMENT IN WHICH THE
AMOUNT INVOLVED EXCEEDS $50,000 IN VALUE IS NOT ENFORCEABLE UNLESS THE LOAN
DOCUMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE BOUND OR BY THAT PARTY'S
AUTHORIZED
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REPRESENTATIVE. THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS
SUBJECT TO THE IMMEDIATELY PRECEDING SENTENCE SHALL BE DETERMINED SOLELY FROM
THE WRITTEN LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES
ARE SUPERSEDED BY THIS AGREEMENT AND OTHER LOAN DOCUMENTS. THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES. THIS SECTION 10.18 IS INCLUDED IN THIS AGREEMENT PURSUANT TO SECTION
26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE LOAN PARTIES: DSC COMMUNICATIONS
CORPORATION,
a Delaware corporation
By: /s/ CHRISTIAN J. ORNES
-----------------------------
Christian J. Ornes
Vice President and Treasurer
DSC TECHNOLOGIES CORPORATION
a Delaware corporation
By: /s/ CHRISTIAN J. ORNES
-----------------------------
Christian J. Ornes
Vice President and Treasurer
DSC MARKETING SERVICES, INC.
a Delaware corporation
By: /s/ CHRISTIAN J. ORNES
-----------------------------
Christian J. Ornes
Vice President and Treasurer
-77-
<PAGE>
DSC INTERNATIONAL CORPORATION
a Delaware corporation
By: /s/ CHRISTIAN J. ORNES
-----------------------------
Christian J. Ornes
Vice President and Treasurer
DSC FINANCE CORPORATION
a Delaware corporation
By: /s/ CHRISTIAN J. ORNES
-----------------------------
Christian J. Ornes
Vice President and Treasurer
DSC OF PUERTO RICO, INC.
a Delaware corporation
By: /s/ CHRISTIAN J. ORNES
-----------------------------
Christian J. Ornes
Vice President and Treasurer
ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By: /s/ DONALD L. HARRISON, JR.
-----------------------------
Donald L. Harrison, Jr.
Senior Vice President
LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender and as Issuing Bank
Specified Percentage:
-78-
<PAGE>
60%
By: /s/ DONALD L. HARRISON, JR.
-----------------------------
Donald L. Harrison, Jr.
Senior Vice President
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: Yousuf Omar, Vice President
THE FIRST NATIONAL BANK OF
CHICAGO
40%
By: /s/ JEANETTE GANOUSIS
-----------------------------
Jeanette Ganousis
Title:
One First National Plaza
Mail Stop 0088, 1-14
Chicago, Illinois 60670-0088
Attn: Jeanette Ganousis
-79-
<PAGE>
EXHIBIT A
PROMISSORY NOTE
February 24, 1994
FOR VALUE RECEIVED, the undersigned DSC COMMUNICATIONS CORPORATION, a
Delaware corporation (the "Company"), hereby promises to pay to the order of
_______________________ (the "Bank") the lesser of (i) the amount of the Bank's
Commitment or (ii) the aggregate amount of Advances made or deemed made by the
Bank to the Company and outstanding on the Maturity Date or thereafter deemed
made as a result of a post-Maturity Date funding under any Letter of Credit
which is issued and outstanding on or before the Maturity Date. The principal
amount of each Advance made by the Bank to the Company pursuant to the Credit
Agreement (as hereinafter defined) (including Advances deemed made pursuant to a
funding under any Letter of Credit) shall be due and payable as provided in the
Credit Agreement.
The Company promises to pay interest on the unpaid principal amount of each
Advance (including Advances made pursuant to a drawing under any Letter of
Credit) from the date of such Advance until such principal amount is paid in
full, at such interest rates, and payable at such dates and times, as are
specified in the Credit Agreement dated as of February 24, 1994 (as the same may
from time to time be amended, modified or supplemented, the "Credit Agreement,"
the terms defined therein and not otherwise defined herein being used herein as
therein defined) among the Company, DSC Technologies Corporation, DSC Marketing
Services, Inc., DSC Finance Corporation, DSC International Corporation and DSC
of Puerto Rico, Inc., NationsBank of Texas, N.A., as Administrative Lender, and
the Lenders party thereto.
Both principal and interest are payable in same day funds in lawful money
of the United States to NationsBank of Texas, N.A. at 901 Main Street, Dallas,
Texas 75202, or at such other place as the Bank shall designate in writing to
the Company. The amount of each Advance made or deemed made by the Bank to the
Company and the date on which such Advance was made and the maturity thereof,
and all payments made on account of principal and interest hereof, shall be
recorded by the Bank in its books and records maintained for such purposes and
such books and records shall be deemed to be accurate absent demonstrable error.
This Note is one of the Notes referred to in, and is entitled to the
benefits of, the Credit Agreement. The Credit Agreement, among other things,
(i) provides for the making of Advances by the Bank to the Company from time to
time, the indebtedness of the Company resulting from each such Advance being
evidenced by this Note, (ii) provides for the making of Advances pursuant to
drawings under Letters of Credit issued by the Bank, (iii) provides that in no
event shall the aggregate amount of Advances made or deemed made by the Lenders
plus the aggregate unfunded portion of the Letters of Credit under the Credit
Agreement
<PAGE>
exceed the Commitment and (iv) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events, and to the effect
that no provision of the Credit Agreement, this Note or any other Loan Document
shall require the payment or permit the collection of interest in excess of the
Highest Lawful Rate.
Except as otherwise expressly provided in the Loan Documents, the Company
and any and all endorsers, guarantors and sureties severally waive grace,
demand, presentment for payment, notice of dishonor or default or intent to
accelerate or acceleration, protest and notice of protest and diligence in
collecting and bringing of suit against any party hereto, and agree to all
renewals, extensions or partial payments hereon, in whole or in part, with or
without notice, before or after maturity.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of Texas and any applicable laws of the United
States of America.
A LOAN DOCUMENT IN WHICH THE AMOUNT INVOLVED EXCEEDS $50,000 IN VALUE IS
NOT ENFORCEABLE UNLESS THE LOAN DOCUMENT IS IN WRITING AND SIGNED BY THE PARTY
TO BE BOUND OR BY THAT PARTY'S AUTHORIZED REPRESENTATIVE. THE RIGHTS AND
OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS SUBJECT TO THE IMMEDIATELY
PRECEDING SENTENCE SHALL BE DETERMINED SOLELY FROM THIS NOTE AND THE OTHER
WRITTEN LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE
SUPERSEDED BY THIS NOTE AND THE OTHER WRITTEN LOAN DOCUMENTS. THIS NOTE AND THE
OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES. THIS PARAGRAPH IS INCLUDED IN THIS NOTE PURSUANT TO SECTION 26.02
OF THE TEXAS BUSINESS AND COMMERCE CODE, AS AMENDED FROM TIME TO TIME.
DSC COMMUNICATIONS
CORPORATION
By:__________________________________________
Name:_______________________________________
Title:______________________________________
<PAGE>
EXHIBIT B
FORM OF COMPLIANCE CERTIFICATE
NationsBank of Texas, N.A., as Administrative Lender
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Yousuf Omar, Vice President [Date]
Dear Sirs:
Reference is made to the Credit Agreement dated as of February 24, 1994
(the "Credit Agreement") among DSC Communications Corporation (the "Company"),
DSC Technologies Corporation (formerly known as DSC Corporate Services, Inc.),
DSC Marketing Services, Inc., DSC Finance Corporation, DSC International
Corporation, DSC of Puerto Rico, Inc., NationsBank of Texas, N.A., as
Administrative Lender, and the Lenders party thereto. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Company hereby delivers to you this
Compliance Certificate pursuant to Section 5.01 of the Credit Agreement, and
certifies as follows:
<TABLE>
<CAPTION>
In
Compliance
(PLEASE
INDICATE)
<S> <C> <C>
1. FINANCIAL STATEMENTS AND REPORTS
(i) Quarterly unaudited financial statements within 45 days after the end of each of the
first three fiscal quarters of each fiscal year (Section 5.01(b)). Yes No
(ii) Other accounting or financial reports specially requested by any Lender (Section 5.01(c)). Yes No
(iii) All documents disclosed to shareholders or the Securities and Exchange Commission (5.01(d)). Yes No
(iv) Any required disclosure of certain conditions or events (Section 5.01(e)). Yes No
2. CURRENT RATIO
Minimum 1.75:1.00
Actual for [date] _____:1.00
$__________________ DIVIDED BY $________ =__________ Yes No
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Current Assets Consolidated Current
Current Ratio
Liabilities
<S> <C> <C>
3. MAXIMUM LEVERAGE RATIO
A. Maximum 1.25:1.00
B. Actual for [date] _____:1.00
1. Consolidated Total Liabilities
(a) liabilities according to GAAP $_________
(b) PLUS Guaranties with respect
to letters of credit $_________
(c) PLUS Guaranties of debt for
borrowed money $_________
Consolidated Total Liabilities $_________
[(a) + (b) + (c)]
2. Consolidated Tangible Net Worth
(a) sum of capital stock, $_________
additional paid-in capital
and retained earnings (minus
treasury stock and
accumulated deficits)
(b) MINUS to the extent $_________
reflected as an asset in a
consolidated balance sheet
at such date, the sum of
unamortized debt discount
and expenses, deferred charges,
goodwill, licenses, franchises,
patents, patent applications,
trade names, trademarks,
acquired technology, capitalized
software development costs,
and capitalized research and
development costs or other like
intangibles (excluding contract
development costs)
Consolidated Tangible Net Worth [(a)
+ (b)]
3. ______________________________ DIVIDED BY $_________ = ____ Yes No
Consolidated Total Liabilities Consolidated Maximum
Tangible Net Leverage
Worth Ratio
4. MINIMUM TANGIBLE NET WORTH
A. Minimum
(i) Minimum $479,000,00
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C> <C>
(ii) 50% of cumulative Consolidated $_________
Net Earnings for the period from
January 1, 1994 to the date of
calculation (excluding therefrom
cumulative Consolidated Net
Earnings for any fiscal quarter
such number was a negative)
(iii) 50% of increase in stock- $_________
holder's equity pursuant to
offerings (including as a
result of exercise of employee
stock options and warrants)
(iv) Without duplication, tangible $_________
net worth of any Person becoming
a Subsidiary on or after the
Agreement Date or substantially
all of the assets of which are
acquired and paid for in equity
securities
Minimum $________
(i) + (ii) + (iii) + (iv)
Consolidated Tangible Net Worth from 3.B.2 $________ Yes No
5. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED
EXCESS CASH FLOW RATIO
Minimum for the quarter ending _________ 3.25:1.00
Actual for the quarter ending _________ ____:1.00
6. INVESTMENTS AND DISPOSITIONS OF ASSETS
A. Maximum
(i) Maximum $________
50% of Consolidated Total Assets
based on most recent audited
financial statements
B. Actual
(i) Aggregate amount of Investments $________
to date to Persons who are not
Loan Parties (not including
Permitted Portfolio Investments)
(ii)Aggregate amount of sales, $________
transfers, conveyances or leases
of assets to date to Persons not
Loan Parties outside the ordinary
course of business
Actual [(i) + (ii)] $________
</TABLE>
-3-
<PAGE>
7. RESTRICTED PAYMENTS
<TABLE>
<CAPTION>
A. Maximum
<S> <C>
(i) Aggregate maximum amount $20,000,000
during term of Agreement
B. Actual
(ii)Aggregate amount to date $__________
(excluding dividends from a
Subsidiary of the Company to any
Loan Party)
</TABLE>
The undersigned hereby certifies that the above information and computations
are true and correct and not misleading as of the date hereof, and that no
Default or Event of Default has occurred and is continuing.
Executed this ________ day of _____________, 19___.
Very truly yours,
DSC COMMUNICATIONS CORPORATION
By:_______________________________
Name:___________________________
Title:__________________________
- 4 -
<PAGE>
EXHIBIT C
ASSIGNMENT AND ACCEPTANCE
Dated _______________, 199__
Reference is made to the Credit Agreement dated as of February 24, 1994
(the "Credit Agreement") among DSC Communications Corporation, DSC Marketing
Services, Inc., DSC Finance Corporation, DSC International Corporation, DSC of
Puerto Rico, Inc., NationsBank of Texas, N.A. as Administrative Lender
("Administrative Lender"), and the Lenders parties thereto. Terms defined in
the Credit Agreement are used herein with the same meaning.
______________________("Assignor") and _____________("Assignee") agree as
follows:
1. Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, a % interest in and to all of
Assignor's rights and obligations under the Credit Agreement as of the Effective
Date (as defined below), with respect to such percentage interest in Assignor's
Commitment as in effect on the Effective Date, the principal amount of Advances
owing to Assignor on the Effective Date, and the Note held by Assignor, and
Assignor's participation in any Letters of Credit and Reimbursement Obligations
outstanding on the Effective Date, subject to the terms and conditions of this
Assignment and Acceptance.
2. Assignor (a) represents and warrants that (i) as of the date hereof
its Commitment (without giving effect to assignments thereof which have not yet
become effective) is $____________ and, as of the date hereof, the outstanding
principal amount of the Advances owing to it (without giving effect to
assignments thereof which have not yet become effective) is $_______, (ii) as of
the date hereof its participation in Letters of Credit and Reimbursement
Obligations (without giving effect to assignments thereof which have not yet
become effective) is $____________, and (iii) it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any adverse claim; (b) makes no representation or warranty and
assumes no responsibility with respect to (i) any statements, warranties, or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency, or
value of the Credit Agreement or any other instrument or document furnished
pursuant thereto or (ii) the financial condition of any Loan Party or the
performance or observance by any Loan Party of any of its obligations under the
Credit Agreement or any other instrument or document furnished pursuant thereto;
and (c) attaches the Note referred to in Paragraph 1 above to exchange such Note
for new Notes as follows: a Note dated ______________, 199 __, in the principal
amount of $_____________________ payable to the order of Assignee, and a Note
dated ________________, 199 __, in the principal amount of $____________________
payable to the order of Assignor.
-1-
<PAGE>
3. Assignee (a) confirms that it has received a copy of the Credit
Agreement and the other Loan Documents, together with copies of the financial
statements referred to in Sections 4.04 and 5.01 of the Credit Agreement and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and Acceptance;
(b) agrees that it will, independently and without reliance upon the
Administrative Lender, Assignor, or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement and the other Loan Documents; (c) appoints and authorizes the
Administrative Lender to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement, the other Loan Documents, and this
Assignment and Acceptance as are delegated to the Administrative Lender by the
terms thereof and hereof, together with such powers as are reasonably incidental
thereto and hereto; (d) agrees that it will perform in accordance with its terms
all of the obligations which by the terms of the Credit Agreement, the other
Loan Documents, and this Assignment and Acceptance are required to be performed
by it as a Lender; [and] (e) specifies the addresses set forth in Schedule I
attached hereto as its address for the receipt of notices and as its initial
LIBOR Lender Office, respectively[; and (f) attaches the forms prescribed by the
IRS certifying as to Assignee's status for purposes of determining exception
from United States withholding taxes with respect to all payments to be made to
Assignee under the Credit Agreement, the other Loan Documents, and this
Assignment and Acceptance or such other documents as are necessary to indicate
that all such payments are subject to such taxes at a rate reduced by an
applicable tax treaty].
4. The effective date for this Assignment and Acceptance shall be
_____________, 199 __ (the "Effective Date").
5. Upon such acceptance as of the Effective Date and upon the remittance
of a $2,500 processing fee to the Administrative Lender, (a) Assignee shall be a
party to the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (b)
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Credit
Agreement.
6. Upon such acceptance from and after the Effective Date, whenever the
Administrative Lender shall receive a payment, or whenever the Administrative
Lender shall make an application of funds, in respect of any aggregate
outstanding principal amount of the Advances or in respect of any aggregate
amount of interest accrued on the Advances, or in respect of the commitment fee
(other than a payment or an application of funds in respect of any amount due
and owing to any Lender or the Administrative Lender under Sections 2.09, 5.08,
8.03, 8.05, or 10.02 of the Credit Agreement), the Administrative Lender shall
pay over to each of the Lenders an amount equal to (i) such Lender's Pro Rata
Share (as defined below) of such aggregate amount of principal, (ii) such
Lender's Pro Rata Share of such aggregate
-2-
<PAGE>
amount of interest, and (iii) such Lender's Pro Rata Share of such
aggregate amount of the commitment fee.
The "Pro Rata Share" of any aggregate amount means, with respect to
such Lender, the amount equal to the product obtained by multiplying (i) such
aggregate amount and (ii) a fraction, the numerator of which is such Lender's
Commitment, or after the Advances have been made, the principal amount of the
Advances owing to such Lender and the denominator of which is the sum of the
Commitments of all of the Lenders, or after the Advances have been made, the
aggregate principal amount of the Advances owing to all of the Lenders.
7. In the event that, after the Administrative Lender has paid to any
Lender its Pro Rata Share of any such payment received by the Administrative
Lender or any such application made by the Administrative Lender, such payment
or application is rescinded or must otherwise be returned or must be paid over
by the Administrative Lender for any reason, such Lender shall, upon notice by
the Administrative Lender, forthwith pay back to the Administrative Lender such
Lender's Pro Rata Share of the amount so rescinded or so returned or paid over.
8. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of Texas and the United States of America.
Without excluding any other jurisdiction, Assignee agrees that the courts of
Texas will have jurisdiction over proceedings in connection herewith.
9. Assignee's Specified Percentage shall be _____ %.
10. This Assignment and Acceptance may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
[NAME OF ASSIGNOR]
By:__________________________________________
____________________,____________________
(Print Name) (Print Title)
[NAME OF ASSIGNEE]
By:__________________________________________
____________________,____________________
(Print Name) (Print Title)
-3-
<PAGE>
Accepted this ___ day of ____________, 199___
NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender
By:__________________________________________
____________________,____________________
(Print Name) (Print Title)
DSC COMMUNICATIONS CORPORATION
DSC MARKETING SERVICES, INC.
DSC FINANCE CORPORATION
DSC INTERNATIONAL CORPORATION
DSC OF PUERTO RICO, INC.
By:__________________________________________
____________________,____________________
(Print Name) (Print Title)
-4-
<PAGE>
Schedule I
ASSIGNEE'S ADDRESS
1. ADDRESS FOR THE ADVANCES AND RECEIPT OF NOTICES
2. INITIAL LIBOR LENDING OFFICE
<PAGE>
EXHIBIT D
FORM OF NOTICE OF ADVANCE REQUEST
NationsBank of Texas, N.A., as Administrative Lender
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Yousuf Omar, Vice President [Date]
Dear Sirs:
Reference is made to the Credit Agreement dated as of February 24, 1994
(the "Credit Agreement"), among DSC Communications Corporation (the
"Company"), DSC Technologies Corporation, DSC Marketing Services, Inc., DSC
Finance Corporation, DSC International Corporation, DSC of Puerto Rico, Inc.,
NationsBank of Texas, N.A., as Administrative Lender, and the Lenders party
thereto. Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement. The Company
hereby gives you notice pursuant to Section 2.02 of the Credit Agreement that it
requests an Advance under the Credit Agreement, and in that connection sets
forth below the terms on which such Advance is requested to be made:
(A) Advance Date of
Advance (which is a
Business Day) ________________________________
(B) Aggregate Principal
Amount of Advance(1) ______________________________
The Company further requests and directs that the proceeds of such Advance
be deposited into Account No._______________ of DSC Technologies Corporation
maintained with Administrative Lender.
By each of the delivery of this Notice of Advance Request and the
acceptance of any or all of the Advances made by Lenders in response to this
Notice of Advance Request, the
_______________________
(1) Not less than $250,000 and in integral multiples of $50,000 for Base
Rate Advances. Not less than $1,000,000 and in integral multiples of $100,000
for LIBOR Advances.
- 1 -
<PAGE>
Company shall be deemed to have represented and warranted that the
conditions to lending specified in Article III of the Credit Agreement have been
satisfied with respect to the Advance requested hereby.
Very truly yours,
DSC COMMUNICATIONS CORPORATION
By:___________________________________
Name:______________________________
Title:_____________________________
- 2 -
<PAGE>
EXHIBIT E
REQUEST FOR ISSUANCE
[Date]
NationsBank of Texas, N.A., as Issuing Bank
901 Main Street, 67th Floor
Dallas, Texas 75202
Attention: Yousuf Omar, Vice President
Dear Sir:
Reference is made to the Credit Agreement dated as of February 24, 1994
(the "Credit Agreement") among DSC Communications Corporation (the
"Company"), DSC Marketing Services, Inc., DSC Finance Corporation, DSC
International Corporation, DSC of Puerto Rico, Inc., NationsBank of Texas, N.A.,
as Administrative Lender, and the Lenders party thereto. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Company hereby gives NationsBank of Texas,
N.A., as the Issuing Bank, notice pursuant to Section 2.16 of the Credit
Agreement that it requests the issuance by the Issuing Bank of a Letter of
Credit under the Credit Agreement, and in that connection sets forth the
following requested terms:
(A) Issuance Date of
Letter of Credit (which is a
Business Day)
___________________________
(B) Face amount and
Currency Denominated(1) ___________________________
(C) Requested Expiry Date(2) ___________________________
(D) Requested Account Party ___________________________
______________________________
(1) Which together with all other Letters of Credit issued and outstanding
do not exceed the lesser of (a) $25,000,000 and (b) the sum of (x) the
Commitment MINUS (y) the aggregate principal amount of Advances then
outstanding.
(2) Not later than February 24, 1997.
-1-
<PAGE>
(E) Requested Beneficiary ___________________________
(F) Special Terms ___________________________
___________________________
By each of the delivery of this Notice of Issuance and the issuance of a
Letter of Credit pursuant hereto by the Issuing Bank in response to this Notice
of Issuance, the Company shall be deemed to have represented and warranted that
the conditions to lending specified in Article III of the Credit Agreement and
the special conditions to the issuance of a Letter of Credit specified in
Section 2.16(b) of the Credit Agreement have been satisfied with respect to the
Letter of Credit requested hereby.
Very truly yours,
DSC COMMUNICATIONS CORPORATION
By:________________________________
Name:___________________________
Title:__________________________
-2-
<PAGE>
Exhibit 11.1
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Computation of Income (Loss) per Share
(In thousands)
The following table sets forth the computation of shares used in the calculation
of income (loss) per share for the years ended December 31, 1993, 1992, and
1991.
AVERAGE SHARES USED IN INCOME (LOSS) PER SHARE CALCULATION:
<TABLE>
<CAPTION>
1993 1992 1991
----------------- ----------------- --------------------
Fully Fully Fully
Primary Diluted(A) Primary Diluted Primary Diluted(C)
------- ---------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
shares outstanding
during the year. . . . . . . . . . . 49,709 -- 42,222 42,222 41,339 --
Common share equivalents
outstanding:
Options and warrants
issued and
contingently issuable. . . . . . . 4,471 -- 4,819 6,332 --(B) --
Assumed purchase of
treasury shares. . . . . . . . . . (855) -- (2,811) (1,955) --(B) --
------ ------ ------ ------ ------ ------
Weighted average shares
used in calculation. . . . . . . . . 53,325 -- 44,230 46,599 41,339 --
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
<FN>
(A) Fully diluted income per share is not shown in 1993 since the dilutive
effect is less than three percent.
(B) Common stock equivalents are not included in the income (loss) per share
calculation when there is a net loss since their inclusion would result in
antidilution.
(C) Fully diluted loss per share is not shown in 1991 since the effect is
anti-dilutive.
</TABLE>
<PAGE>
Form 10-K
Exhibit 22.1
DSC COMMUNICATIONS CORPORATION
Subsidiaries Incorporated In
------------ ---------------
DSC Communications (Asia/Pacific) Pte Ltd Singapore
DSC Communications Canada Inc. Canada
DSC Finance Corporation Delaware
DSC Korea, Inc. Delaware
DSC International Corporation Delaware
DSC Marketing Services, Inc. Delaware
DSC Technologies Corporation Delaware
DSC Taiwan, Inc. Delaware
DSC Communications Limited* United Kingdom
DSC of Puerto Rico, Inc. Delaware
DSC of the Virgin Islands, Inc. Virgin Islands
DSC Communications (Australia) Pty. Ltd. Australia
DSC Communications (Japan), Inc.** Japan
Granger Associates, Inc. Delaware
- --------------------------------------------------------------------------------
*Subsidiary: DSC Local Networks (Europe) Ltd. United Kingdom
**Jointly-owned Japanese subsidiary of DSC Communications Corporation and
Mitsubishi Corporation.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements File
No. 2-83398 (Amendment No. 2), 2-95833, 2-97314 (Amendment No. 1), 2-85528
(Amendment No. 1), 33-17459, 33-22745, 33-23505, 33-38544, 33-65212, 33-65214,
and 33-64784 of DSC Communications Corporation and in the related Prospectuses
of our report dated January 24, 1994, with respect to the consolidated financial
statements and schedules of DSC Communications Corporation included in this
Annual Report on Form 10-K for the year ended December 31, 1993.
ERNST & YOUNG
Dallas, Texas
March 29, 1994
