<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ----------
Commission File Number: 0-10018
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DSC COMMUNICATIONS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 54-1025763
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Coit Road, Plano, Texas 75075
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(214) 519-3000
----------------------------------------------------
(Registrant's telephone number, including area code)
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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
<TABLE>
<CAPTION>
Number of Shares Outstanding
Title of Each Class as of July 31, 1996
- ------------------------------ ----------------------------
<S> <C>
Common Stock, $.01 Par Value 116,592,095
</TABLE>
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<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
- --------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents............................. $ 166,167 $ 258,565
Marketable securities................................. 296,428 310,699
Receivables........................................... 287,741 277,006
Inventories........................................... 348,369 303,962
Other current assets.................................. 91,984 70,315
----------- ------------
Total current assets............................. 1,190,689 1,220,547
----------- ------------
PROPERTY AND EQUIPMENT, at cost......................... 720,494 675,725
Less: accumulated depreciation
and amortization..................................... (323,635) (305,203)
----------- ------------
396,859 370,522
----------- ------------
LONG-TERM RECEIVABLES................................... 40,505 17,557
CAPITALIZED SOFTWARE DEVELOPMENT COSTS.................. 49,064 43,821
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET.............................. 150,518 155,102
OTHER................................................... 58,967 57,726
----------- ------------
Total assets................................. $ 1,886,602 $ 1,865,275
=========== ============
Liabilities and Shareholders' Equity
- --------------------------------------------------------
CURRENT LIABILITIES
Short-term debt....................................... $ 18,392 $ 83,438
Accounts payable...................................... 111,623 115,137
Accrued liabilities................................... 234,815 249,909
Current portion of long-term debt..................... 33,062 33,098
----------- ------------
Total current liabilities........................ 397,892 481,582
----------- ------------
LONG-TERM DEBT, net of current portion.................. 275,163 210,441
NONCURRENT INCOME TAXES
AND OTHER LIABILITIES.................................. 52,693 49,173
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, issued -
121,093 in 1996 and 120,591 in 1995;
outstanding - 116,104 in 1996 and
115,602 in 1995...................................... 1,211 1,206
Additional capital.................................... 709,198 703,448
Unrealized gains (losses) on securities,
net of income taxes.................................. (796) 391
Accumulated translation adjustment.................... 3,824 4,404
Retained earnings .................................... 490,528 457,741
----------- ------------
1,203,965 1,167,190
Treasury stock, at cost, 4,989 shares................. (43,111) (43,111)
----------- ------------
Total shareholders' equity....................... 1,160,854 1,124,079
----------- ------------
Total liabilities and
shareholders' equity....................... $ 1,886,602 $ 1,865,275
=========== ============
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
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DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue.............................................. $ 356,431 $ 360,011 $ 664,328 $ 678,008
Cost of revenue...................................... 209,412 182,285 387,843 341,612
--------- --------- --------- ---------
Gross profit....................................... 147,019 177,726 276,485 336,396
--------- --------- --------- ---------
Operating costs and expenses:
Research and product development................... 52,474 47,946 105,619 94,885
Selling, general and administrative................ 57,723 50,726 113,502 96,827
Other operating costs.............................. 2,464 2,257 5,046 4,412
--------- --------- --------- ---------
Total operating costs and expenses............... 112,661 100,929 224,167 196,124
--------- --------- --------- ---------
Operating income .................................. 34,358 76,797 52,318 140,272
Interest income...................................... 6,225 7,473 13,251 11,392
Interest expense..................................... (6,206) (4,296) (13,292) (5,327)
Other income (expense), net.......................... (84) (44) 605 (1,921)
--------- --------- --------- ---------
Income before income taxes....................... 34,293 79,930 52,882 144,416
Income taxes......................................... 13,031 27,975 20,095 50,545
--------- --------- --------- ---------
Net income ...................................... $ 21,262 $ 51,955 $ 32,787 $ 93,871
========= ========= ========= =========
Income per share..................................... $ 0.18 $ 0.44 $ 0.28 $ 0.80
========= ========= ========= =========
Average shares used in
per share computation.............................. 118,493 118,085 118,442 117,930
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
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DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 32,787 $ 93,871
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities:
Depreciation and amortization....................... 44,517 36,529
Amortization of capitalized software
development costs................................ 12,828 9,088
Increase in current and long-term receivables........... (33,082) (2,573)
Increase in inventories................................. (44,407) (55,777)
Other, including changes in current
payables and other current assets..................... (39,727) 42,599
Increase in noncurrent income taxes
and other liabilities................................. 3,520 21,861
----------- -----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES............................ (23,564) 145,598
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment..................... (68,160) (76,860)
Additions to capitalized software
development costs..................................... (18,071) (11,732)
Purchases of marketable securities...................... (883,919) (348,982)
Proceeds from sales and maturities of marketable
securities............................................ 898,209 298,673
Other................................................... 943 (2,749)
----------- -----------
NET CASH USED FOR
INVESTING ACTIVITIES............................ (70,998) (141,650)
----------- -----------
</TABLE>
(Continued)
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<PAGE> 5
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in short-term debt.................. 28,627 (20,441)
Borrowings under long-term debt arrangements............ -- 225,000
Payments on long-term debt arrangements................. (29,763) (26,859)
Proceeds from the sale of common stock
under stock programs................................ 2,888 8,475
Other................................................... 412 (218)
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES................................. 2,164 185,957
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.......................................... (92,398) 189,905
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.......... 258,565 52,942
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................ $ 166,167 $ 242,847
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid........................................... $ 11,674 $ 807
=========== ===========
Income taxes paid....................................... $ 48,228 $ 27,320
=========== ===========
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1996 and 1995 and December 31, 1995
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements reflect,
in the opinion of management, all adjustments necessary to present fairly the
Company's financial position, results of operations and cash flows. Such
adjustments are of a recurring nature unless otherwise disclosed herein.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations promulgated by
the Securities and Exchange Commission. However, the Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading. Quarterly consolidated financial results may not be indicative of
annual consolidated financial results.
The Company has not paid or declared a cash dividend on its common stock since
its organization.
Certain prior year's financial statement information has been reclassified to
conform with the current year financial statement presentation.
These unaudited financial statements should be read in conjunction with the
audited financial statements and accompanying notes included in the Company's
1995 Annual Report to Shareholders for the year ended December 31, 1995.
INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Raw Materials . . . . . . . . . . . . . . . . . . . . . . . $ 152,546 $ 137,002
Work in Process . . . . . . . . . . . . . . . . . . . . . . 27,164 20,015
Finished Goods . . . . . . . . . . . . . . . . . . . . . . . 168,659 146,945
--------- ---------
$ 348,369 $ 303,962
========= =========
</TABLE>
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CREDIT AGREEMENTS AND DEBT
At December 31, 1995, the Company had a domestic credit facility with two banks
providing for borrowings up to $50.0 million, reduced by the value of
outstanding letters of credit issued by the banks on behalf of the Company.
In May 1996, the Company entered into a five-year, unsecured $160.0 million
revolving credit facility with several banks. This new facility, which
replaced the existing domestic credit facility, provides for borrowings and
issuances of letters of credit in multiple currencies. Borrowings under the
new facility bear interest at various borrowing rates, including the prime rate
or 0.25% to 0.70% above the LIBOR rate. A commitment fee of 0.10% to 0.225% on
the daily average unused portion of the facility is also assessed. The maximum
borrowings available under the facility are reduced by the value of outstanding
letters of credit issued by the banks on behalf of the Company. The letters of
credit issued by the banks under this agreement at June 30, 1996 totaled $30.9
million at June 30, 1996, including $28.3 million issued to support various
foreign subsidiary credit arrangements. This new facility contains various
financial covenants.
In July 1996, approximately $93.7 million of $112.1 million in short-term
borrowings outstanding at June 30, 1996 were replaced with two unsecured term
loans, a $51.1 million loan maturing over five years and a $42.6 million loan
maturing over fifteen years. The new term loans have been classified as part
of long-term debt at June 30, 1996. The loans are denominated in Danish Kroner
and have adjustable interest rates based on market interest rates in Denmark.
The interest rates were initially established at 4.5% to 5.0%. Interest
payments are required quarterly with principal payments beginning in the fourth
year the loans are outstanding. These new loans contain various financial
covenant requirements.
INCOME TAX EXPENSE
The Company's income tax expense includes federal, foreign, and state
(including Puerto Rico) income taxes. The estimated effective income tax rate
is based upon estimates for the full year for a number of variables including,
among other things, forecasted income in the United States and foreign
jurisdictions. The effective tax rate could change as estimates of these and
other variables change throughout the year.
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COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company periodically sells customer receivables and operating leases under
agreements which contain recourse provisions. The Company could be obligated
to repurchase a portion of certain receivables and operating leases which were
sold in 1995 on a partial recourse basis, the terms of which allow the Company
to limit its risk of loss to approximately $7.8 million at June 30, 1996. The
Company also has guarantees of $33.1 million outstanding at June 30, 1996
supporting bid and performance bonds to customers and others, of which $2.6
million were 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.
The Company, in management of its exposure to fluctuations in foreign currency
exchange rates, enters into forward foreign exchange contracts for both firm
commitments and anticipated transactions of sales and purchases which are
denominated in foreign currencies. At June 30, 1996, the Company had forward
foreign exchange contracts of $51.7 million outstanding.
Litigation
On July 20, 1993, the Company filed suit against Advanced Fibre Communications
("AFC"), a California corporation; Quadrium Corporation ("Quadrium"), a
California corporation; and two individuals. AFC filed various counterclaims
against the Company. On June 24, 1996, the parties reached an agreement to
settle all claims. As part of the settlement, the Company received $3 million
and 719,424 shares of AFC common stock at the end of June 1996. In addition, in
late July 1996 AFC made an early payment of approximately $7.0 million
originally scheduled to be received over the next five years for the remaining
amounts due under the settlement. This amount will be recorded in the Company's
third quarter 1996 Consolidated Financial Statements, net of the applicable
expenses.
On April 10, 1995, the Company filed a lawsuit against Next Level
Communications ("NLC") and two former Company employees, alleging breach of
contract and the misuse of Company trade secrets. The Company is seeking an
injunction prohibiting NLC and the former employees from continued use of
Company trade secrets and opportunities. On March 28, 1996, the Company
received a favorable jury verdict in the amount of $369.2 million in damages.
On April 10, 1996, the court issued an injunction against NLC prohibiting the
transfer of the Company's trade secrets or disclosure of such trade secrets,
except in the ordinary course of business. On June 11, 1996, the court entered
a judgement reducing the jury verdict in the Company's favor to $137.7 million.
The Company and NLC have both
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appealed the judgement and oral arguments are scheduled for September 1996.
On February 14, 1996, the Company joined Bell Atlantic in bringing an antitrust
action against AT&T Corporation ("AT&T") and Lucent Technologies, Inc.
("Lucent") alleging the use of monopoly power in the central office switch
market as part of a scheme to gain an unfair competitive advantage in the
remote digital terminal market. The Company is seeking to compel AT&T and
Lucent to open up the interfaces to the central office switch so that any
manufacturer will have the ability to compete with applications, software,
features, and services, and will more rapidly deliver to its customers the
enhanced functionality that they have come to expect. In July 1996, AT&T
brought a counterclaim against the Company alleging a "false advertising" claim
under the Lanham Act.
The Company is also party to other routine legal proceedings incidental to its
business.
The Company does not believe the ultimate resolution of the above litigation
will have a material adverse effect on its consolidated financial position.
COMMON STOCK
At the April 25, 1996 Annual Shareholders' Meeting, the shareholders approved
certain amendments to and an increase of 6 million shares of common stock
subject to the DSC Communications Corporation 1993 Employee Stock Option and
Securities Award Plan.
STOCK RIGHTS
On April 25, 1996, the Board of Directors declared a dividend of one preferred
stock purchase right on each outstanding share of the Company's common stock.
The dividend was paid on May 22, 1996 to shareholders of record on that date,
the same date the existing stock rights expired. The rights become exercisable
only on the close of business ten days following a public announcement that a
person or group has acquired 15% or more of the outstanding shares of common
stock of the Company or a public announcement or commencement of a tender offer
or exchange offer which would result in the offeror's acquiring 15% or more of
the outstanding shares of common stock of the Company. Once exercisable, each
right would entitle a holder to buy 1/1000 of a share of the Company's Series B
Junior Participating Preferred Stock at an exercise price of $175.00. The
Company may redeem the rights, which expire on April 25, 2006, for $0.01 per
right prior to the rights becoming exercisable.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
With the exception of historical information, the matters discussed or
incorporated by reference in this Quarterly Report on Form 10-Q are
forward-looking statements that involve risks and uncertainties including, but
not limited to, economic conditions, product demand and industry capacity,
competitive products and pricing, manufacturing efficiencies, new product
development, ability to enforce patents, availability of raw materials and
critical manufacturing equipment, new plant startups, the regulatory and trade
environment, and other risks indicated in filings with the Securities and
Exchange Commission.
Results of Operations
For the three months ended June 30, 1996, the Company reported revenue of $356.4
million and net income of $21.3 million, or $0.18 per share, compared to revenue
of $360.0 million and net income of $52.0 million, or $0.44 per share, for the
three months ended June 30, 1995. For the six months ended June 30, 1996, the
Company reported revenue of $664.3 million and net income of $32.8 million, or
$0.28 per share, compared to revenue of $678.0 million and net income of $93.9
million, or $0.80 per share, for the six months ended June 30, 1995.
Although the revenue level for the second quarter and first half of 1996 was
comparable to the same periods in 1995, the 1996 revenue amounts included a
higher volume of access product shipments and a lower level of switching
product revenue. The product mix shift to lower gross margin content products
resulted in gross profit as a percentage of revenue declining to 41% and 42%
for the second quarter and six months ended June 30, 1996, respectively,
compared to 49% and 50% in the same periods of 1995. As experienced in the
1996 periods, the Company's gross margin percentage in future periods could
vary significantly due to changes in the relative mix of product deliveries and
software content.
Research and product development expense in the second quarter of 1996 was
$52.5 million, or 15% of revenue, compared to $47.9 million, or 13% of revenue,
in the second quarter of 1995. Research and product development expense for
the first half of 1996 and 1995 was $105.6 million, or 16% of revenue, and
$94.9 million, or 14% of revenue, respectively. The growth in research and
development expense reflects the Company's on-going development of new
products and enhancements to existing products across all strategic product
lines.
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Selling, general and administrative expense was $57.7 million and $113.5
million in the second quarter of 1996 and the six months ended June 30, 1996,
respectively, compared to $50.7 million and $96.8 million, respectively, for
the same periods of 1995. As a percentage of revenue, selling, general and
administrative expense was 16% for the second quarter of 1996 and 17% for the
first half of 1996 as compared to 14% for both the second quarter and first six
months of 1995. This expense growth resulted primarily from expanded
international selling activities and higher legal costs. The Company is
actively pursuing claims related to its intellectual property rights and, as
this litigation progresses, legal expenses may continue to increase. See
"Litigation" under "Commitment and Contingencies" in Notes to Condensed
Consolidated Financial Statements for further discussion.
DSC Communications A/S incurred an operating loss in the second quarter and
first half of 1996 due primarily to the delayed introduction of a new
generation of optical transmission equipment. While initial deliveries of
certain new products began during the second quarter, future near-term
profitability of the Company's Denmark subsidiary is dependent upon the
successful completion and market acceptance of these products.
Interest expense has increased in the quarter and six month period ended June
30, 1996 compared to the same periods of 1995 due primarily to the $225 million
loan entered into in April 1995 which bears interest at 9%. Interest expense
has also increased as a result of borrowings under several foreign subsidiary
borrowing arrangements entered into during the second half of 1995.
The Company's estimated effective income tax rate was 38% for the six month
period ended June 30, 1996 compared to 35% for the same period in 1995. This
increase in the effective income tax rate is due primarily to the full
utilization of net operating loss and tax credit carryforwards in 1995 and an
expected increase in foreign taxes in 1996. See "Income Tax Expense" in Notes
to Condensed Consolidated Financial Statements for further information.
The Company has certain forward exchange contracts which were entered into
based upon anticipated future business transactions. Although these forward
contracts totaled only $5.3 million at June 30, 1996, future earnings could be
affected by the Company's practice of entering into these types of forwards as
forward contracts related to anticipated transactions are marked-to-market each
period.
The Company's future quarterly and annual operating results may be affected by
a number of factors, including the timing and ultimate receipt of orders from
certain customers which continue to constitute a large portion of the Company's
revenue; the successful enhancement
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of existing products; introduction and market acceptance of new products on a
timely basis; mix of products sold; product costs; manufacturing lead times;
significant fluctuations in foreign currency exchange rates; and changes in
general worldwide economic conditions, any of which could have an adverse
impact on operations.
Financial Condition and Liquidity
The Company's cash and cash equivalents at June 30, 1996 were $166.2 million
compared to $258.6 million at December 31, 1995, and marketable securities were
$296.4 million at June 30, 1996 compared to $310.7 million at December 31,
1995.
The Company used cash for operating activities of $23.6 million as receivables
and inventories growth and a reduction of non-debt current liabilities
(including $48.2 million of domestic and foreign income tax payments) exceeded
earnings before depreciation and amortization. Receivables were higher by
$33.1 million in 1996 which included long-term receivables growth of $22.9
million as the Company continued to offer financing alternatives to customers.
The $44.4 million growth in inventories is to support existing customer backlog
and expected additional customer requirements.
Investing activities during the six months ended June 30, 1996 included
additions to property and equipment of $68.2 million. The Company's expected
future domestic and international business growth will require additional
capital expenditures. The timing and extent of additional capital requirements
are dependent on future business growth. However, the Company anticipates that
capital expenditures for 1996 could be in the range of approximately $150
million.
In April 1996, the Company made its first annual scheduled principal payment of
$28.1 million on the $225 million loan obtained during the second quarter of
1995.
In July 1996, the Company replaced approximately $93.7 million of the $112.1
million of the amounts outstanding at June 30, 1996 under short-term credit
agreements with two unsecured, long-term loans. See "Credit Agreements and
Debt" in Notes to Condensed Consolidated Financial Statements for further
information.
As discussed in "Credit Agreements and Debt" in Notes to Condensed Consolidated
Financial Statements, the Company replaced its existing domestic credit facility
with a new, unsecured $160.0 million revolving credit agreement in early May
1996. No borrowings were outstanding under this new credit facility at June 30,
1996. Outstanding letters of credit, which totaled $30.9 million at June 30,
1996, reduce the amount of available borrowings.
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The Company is party to certain litigation, as disclosed in "Litigation" under
"Commitment and Contingencies" in Notes to Condensed Consolidated Financial
Statements, the outcome of which the Company believes will not have a material
adverse effect on its consolidated financial position.
The Company believes that its existing cash and marketable securities and
available credit facilities will be adequate to support the Company's financial
resource needs, including working capital requirements, capital expenditures,
operating lease obligations, and debt payments. In order to be competitive in
the future, the Company believes that it will become increasingly necessary to
offer financing alternatives to both domestic and international customers. To
the extent such financing becomes significant, additional borrowings could
become necessary.
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PART II - OTHER INFORMATION
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
10.1 Promissory Note for 250 million Danish Kroner dated July 23,
1996 to Den Danske Bank
10.2 Line Letter for 250 million Danish Kroner dated July 23, 1996
issued by Den Danske Bank
10.3 Promissory Note for 300 million Danish Kroner dated July 23,
1996 to Den Danske Bank
10.4 Line Letter for 300 million Danish Kroner dated July 23, 1996
issued by Den Danske Bank
10.5 Guaranty dated July 23, 1996
10.6 Subordination Agreement dated July 23, 1996
11. Computation of Income Per Share.
27. Financial Data Schedule (for EDGAR filing purposes only).
B. Reports on Form 8-K.
Form 8-K, dated April 25, 1996
Item 5. Other Events - Declaration of Preferred Share
Purchase Right Dividend
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DSC COMMUNICATIONS CORPORATION
Dated: August 14, 1996 By: /s/ Kenneth R. Vines
--------------------
Kenneth R. Vines
Vice President, Finance,
duly authorized officer
and principal accounting
officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Promissory Note for 250 million Danish Kroner dated July 23,
1996 to Den Danske Bank
10.2 Line Letter for 250 million Danish Kroner dated July 23, 1996
issued by Den Danske Bank
10.3 Promissory Note for 300 million Danish Kroner dated July 23,
1996 to Den Danske Bank
10.4 Line Letter for 300 million Danish Kroner dated July 23, 1996
issued by Den Danske Bank
10.5 Guaranty dated July 23, 1996
10.6 Subordination Agreement dated July 23, 1996
11. Computation of Income Per Share.
27. Financial Data Schedule (for EDGAR filing purposes only).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
[DEN DANSKE BANK LOGO]
PROMISSORY NOTE
PROMISSORY NOTE (the "NOTE") of the Borrower named below delivered to DEN
DANSKE BANK (Den Danske Bank Aktieselskab, herein the "BANK") in New York, New
York, and dated:
JULY 23, 1996.
Section 1. SPECIAL TERMS
The following terms and provisions shall apply to this Note; definitions of
terms in this or other sections of this Note expressed in the singular shall
import the plural and vice versa.
BORROWER [Specify name, jurisdiction of organization, and address]:
DSC COMMUNICATIONS A/S, a Denmark corporation
Lautrupbjerg 7-11
DK-2750 Ballerup, Denmark
PRINCIPAL AMOUNT OF NOTE: DKK 250,000,000.00 (or, in words):
TWO HUNDRED FIFTY MILLION AND XX/100 DANISH KRONER.
MARGIN OVER BASE RATE [Express as a percentage]: NONE
MARGIN OVER COST OF FUNDS RATE [Express as a percentage]: 0.6875%
MARGIN OVER CIBOR RATE [Express as a percentage]: 0.6875%
LOAN DOCUMENTS:
LINE LETTER issued by the Bank and dated July 23, 1996.
GUARANTY issued by DSC Communications Corporation, DSC Marketing Services,
Inc., DSC Finance Corporation, DSC International Corporation, DSC of
Puerto Rico, Inc., DSC Telecommunications Corporation, DSC Telecom,
Inc., DSC Telecom L.P., and Sildor Investments B.V. (each a
"GUARANTOR" and together the "GUARANTORS") and dated July 23, 1996.
SUBORDINATION AGREEMENT issued by the Borrower and the Guarantors and dated
July 23, 1996.
Section 2. PRINCIPAL AND INTEREST
2.01 PRINCIPAL.FOR VALUE RECEIVED and in order to refinance in part bridge
financing advances extended by certain of the Bank's branches in Denmark, the
Borrower promises to pay to the order of the Bank on August 1, 2011 (the "FINAL
MATURITY DATE"), the Principal Amount of this Note specified in Section 1 or,
if less, the aggregate unpaid principal amount of all loans (each a "LOAN")
made to the Borrower pursuant to the Loan Documents.
2.02 ADDITIONAL AMORTIZATION OF PRINCIPAL. In addition to amounts payable
pursuant to Section 2.01, the Borrower promises to pay to the order of the Bank
on November 1, 1999, and on the first Business Day of each February, May,
August, and November thereafter through the first Business Day of May 2011, a
principal instalment of DKK 3,989,361.70.
2.03 INTEREST OPTIONS.The Borrower promises also to pay interest on the
unpaid principal amount of each Loan from the date thereof until paid at the
Stated Rate; or, if the Borrower shall so request with respect to a specific
Loan at least three Business Days before taking down or renewing that specific
Loan, at an Alternative Rate for the Interest Period requested in that same
request for drawing or renewal; provided that if the Interest Period of a Loan
on an Alternative Rate basis should mature without a specific timely request
having been received by the Bank to renew that Loan for a specific Interest
Period at an Alternative Rate available for such Interest Period, then interest
on such Loan shall be computed thereafter at the Stated Rate; further provided
that on and after maturity of this Note (whether by passage of time or by
Acceleration pursuant to
<PAGE> 2
PROMISSORY NOTE, P. 2
Section 6) or of any principal instalment or interest payment, such matured
amounts shall bear interest at a rate equal to the sum of 2% per annum and the
Stated Rate, payable on demand.
2.04 INTEREST COMPUTATION AND PAYMENT DATES.Interest shall be computed each
actual day elapsed on the basis of a 360 day year and shall be payable, in the
case of Loans with interest based on the Stated Rate, on the first Business Day
of each February, May, August, and November and, in the case of Loans with
interest based on an Alternative Rate, at the end of the respective Interest
Period as well as, in case of Loans with interest based on an Alternative Rate
and with Interest Periods in excess of three months, at each three month
anniversary of the commencement of the Interest Period; in addition, after
maturity of this Note (whether by passage of time or by Acceleration pursuant
to Section 6), interest shall be payable on demand.
The "STATED RATE" shall be a rate per annum equal to the sum of the Margin Over
Base Rate specified in Section 1 plus the Base Rate from time to time in
effect. The term "BASE RATE" means the rate announced by the Bank from time to
time at its Holmens Kanal Branch, presently located at 2-12 Holmens Kanal,
DK-1092 Copenhagen K, Denmark, as its prime rate for domestic overdraft
facilities. Each change in the prime rate shall result in a corresponding
change in the Base Rate and the Stated Rate and such change shall be effective
on the effective date of such change in the prime rate so announced by the
Bank.
An "ALTERNATIVE RATE" shall be either a "Cost of Funds Alternative Rate" or a
"Cibor Alternative Rate", depending on the request of the Borrower with respect
to a specific Loan for an Interest Period and any necessary agreement of the
Bank thereto. A "COST OF FUNDS ALTERNATIVE RATE" for a specific Loan during an
Interest Period shall be a rate per annum equal to the sum of the Margin Over
Cost of Funds Rate specified in Section 1 plus the Cost of Funds Rate for the
Interest Period requested. A "CIBOR ALTERNATIVE RATE" for a specific Loan
during an Interest Period shall be a rate per annum equal to the sum of the
Margin Over Cibor Rate specified in Section 1 plus the Cibor Rate for the
Interest Period requested. Each such Alternative Rate and Interest Period will
be confirmed in writing by the Bank to the Borrower. Each "INTEREST PERIOD"
requested by the Borrower shall be (a), if the Borrower shall have requested a
Cost of Funds Alternative Rate, of one, two, three, six, or twelve months or
such other period up to 10 years (or with the special consent of the Bank, up
to 15 years) as to which the Bank and the Borrower shall agree or (b), if the
Borrower shall have requested a Cibor Alternative Rate, of one, two, three, or
six months or such other period as to which the Bank and the Borrower shall
agree, and shall in either case commence on the day of takedown or renewal of
such Loan; provided, however, no Interest Period may be selected which would
extend beyond the Final Maturity Date of this Note or, taking into
consideration other Loans and Interest Periods previously established hereunder
as well as amortization payments due under Section 2.02 hereof, would otherwise
require a prepayment of a Loan prior to the end of the Interest Period
selected. If any Interest Period shall end or other interest payment date fall
on a day which is not a Business Day, such Interest Period or interest payment
date shall be extended to the next succeeding Business Day unless such day
falls in another calendar month, in which case such Interest Period shall end
or interest payment date shall fall on the next preceding Business Day. The
"COST OF FUNDS RATE" for any Loan shall mean the quotation offered two Business
Days prior to the commencement of such Interest Period in the Danish interbank
market to the Bank for Danish Krone deposits of amounts comparable to the
outstanding principal amount of the relevant Loan and with takedown and
maturities comparable to such Interest Period. The "CIBOR RATE" for any Loan
shall mean the rate offered for deposits in Danish Kroner for the respective
Interest Period which appears on the Reuters Screen DKNH Page under the caption
"CIBOR Fixing" as of 11:00 a.m., Copenhagen time, two Copenhagen Business Days
prior to the commencement of such Interest Period; provided, however, if a rate
is not shown for the exact Interest Period selected by the Borrower, the higher
of the rates for the two closest interest periods will be selected; and further
provided, that if no relevant rates appear on such Reuter Screen, then the
Cibor Rate shall be the similarly defined rate shown on the relevant Telerate
Page and if no relevant rates appear on the Reuter and Telerate Pages, then the
Cibor rate shall be the quotation offered to the Bank two Copenhagen Business
Days prior to the commencement of such Interest Period in the interbank market
for deposits for the Interest Period selected and in the amount of the relevant
Loan.
<PAGE> 3
PROMISSORY NOTE, P. 3
2.05 CERTAIN INTEREST RATE ADJUSTMENTS.In the event that the Bank shall
have determined (which determination shall, absent demonstrable error, be final
and conclusive and binding upon all parties) at any time, that:
(a) by reason of any change since the date of this Note in any applicable law
or governmental rule, regulation, guideline, tax, impost or order (or any
interpretation thereof and including the introduction of any new law or
governmental rule, regulation, guideline, tax, impost or order) (such as,
for example but not limited to, a change in official reserve requirements),
the Cost of Funds Rate or the Cibor Rate, as the case may be, shall not
represent the effective cost to such Bank for funding or maintaining any
Cost of Funds Alternative Rate Loan or Cibor Alternative Rate Loan, as the
case may be; or
(b) the making or continuance of any Loan based on an Alternative Rate has
become unlawful or restricted by compliance by the Bank in good faith with
any law, governmental rule, regulation, or guideline order, or an event has
occurred after the date of this Note which in the good faith reasonable
judgment of the Bank materially and adversely affects the Danish interbank
market for Danish Kroner,
then the Borrower shall pay to the Bank, upon written demand therefor, such
additional amounts as shall be required to cause the Bank to receive interest
for the affected Loan at a rate per annum which shall equal the effective cost
to the Bank to make or maintain the Loan plus the Margin Over Cost of Funds
Rate or, as the case may be, Margin over Cibor Rate (a written notice as to
additional amounts owed the Bank, showing the basis for the calculation
thereof, submitted to the Borrower by the Bank shall, absent demonstrable
error, be final and conclusive and binding upon all of the parties hereto).
2.06 DEFINITION OF BUSINESS DAY.For the purposes of this note, a "BUSINESS
DAY" shall be a day on which banks shall be open for business in Copenhagen and
in New York City; provided, however, for the purposes of determining the date
for setting interest rates in Danish Kroner, a "BUSINESS DAY" shall be a day on
which banks shall be open for business in Copenhagen.
2.07 PLACE AND CURRENCY FOR PAYMENTS OF PRINCIPAL AND INTEREST.Each payment
by the Borrower pursuant to this Note shall be made without set-off or
counterclaim to the Bank at its Copenhagen Head Office for the account of the
Bank's Cayman Islands branch or such branch of the Bank as the Bank may direct.
Each such payment shall be made in lawful currency of Denmark and by transfer
in immediately available or same day funds. Payments made other than by
transfer of immediately available funds a) shall not be given value in reducing
the obligations of the Borrower until such time, in the Bank's sole discretion,
as credit for said payment item in funds immediately available to the Bank is
received by the Bank in the clearing or collection process chosen, and b) are
credited subject to final collection and unconditional credit to, and accepted
by, the Bank.
2.08 WHEN LOANS MAY BE REPAID; COMPENSATION.Prior to the Final Maturity
Date of this Note, Loans may be repaid at the Borrower's option on the date at
least three days after the Borrower has given written notice to the Bank of its
intention to repay (or, if such date is not a Business Day, the first Business
Day thereafter); provided, however, as to Loans with interest based on an
Alternative Rate, said Loans shall not be repaid at the Borrower's option until
the end of the respective Interest Period applicable to the respective Loan.
If, however, any such Loans with interest based on an Alternative Rate are
repaid prior to the end of the respective Interest Period applicable to the
respective Loan, then Borrower shall compensate the Bank, on demand, for the
Bank's loss or expense in reemploying the funds repaid for the balance of the
applicable Interest Period. A written notice as to additional amounts owed the
Bank, showing the basis for the calculation thereof, submitted to the Borrower
by the Bank shall, absent demonstrable error, be final and conclusive and
binding upon the parties hereto.
<PAGE> 4
PROMISSORY NOTE, P. 4
2.09 AVAILABILITY OF LOANS; REDUCTION OF AVAILABILITY; TRANSACTION
SIZE.Loans repaid may not be reborrowed; the aggregate of the principal amounts
of all outstanding Loans under this Note may at no time exceed the Principal
Amount of this Note. Each takedown of principal hereof shall be in the minimum
amount of DKK 50,000,000.
On November 1, 1996, the Principal Amount of this Note shall be deemed to have
been reduced to the aggregate unpaid principal amount of all Loans hereunder and
no further Loans hereunder shall be permitted.
Section 3. REPRESENTATIONS AND WARRANTIES
3.01 The Borrower represents and warrants that:
(a) the obligations of the Borrower under this Note are duly authorized, legal,
valid and binding obligations enforceable in accordance with their
respective terms and all action required as a condition thereto (including,
without limitation, the obtaining of all corporate, governmental or other
approvals) has been taken;
(b) the issuance and performance of this Note will not violate any material
law, permit, agreement or instrument to which the Borrower is a party or is
subject, or result in the imposition of any lien upon any of the assets of
the Borrower or any subsidiary of the Borrower;
(c) 100% of the capital stock of the Borrower is owned directly by Sildor
Investments B.V., a Netherlands corporation ("SILDOR B.V.");
(d) 100% of the capital stock of Sildor B.V. is owned directly by DSC
Communications Corporation, a Delaware corporation ("PARENT");
(e) the Parent directly or indirectly owns 100% of the capital stock of DSC
Marketing Services, Inc., DSC Finance Corporation, DSC International
Corporation, DSC of Puerto Rico, Inc., DSC Telecommunications Corporation,
and DSC Telecom, Inc.;
(f) the Borrower owns 100% of the capital stock of DSC Communications Dedicom
A/S, a Denmark corporation, and DSC Communications Technics Limited, a
United Kingdom corporation ("TECHNICS");
(g) all information furnished the Bank concerning the financial condition of
the Borrower and its subsidiaries, including the consolidated and
consolidating financial statements as of December 31, 1995, fairly present
the financial condition of the Borrower and its subsidiaries as of those
dates and for the periods presented and there have been no material adverse
changes in the financial condition or business of the Borrower and its
subsidiaries from the date thereof to the date hereof, except as has been
disclosed to the Bank; and
(h) all information furnished the Bank concerning the financial condition of
the Parent and its subsidiaries, including the consolidated and
consolidating financial statements as of December 31, 1995 and 1994, fairly
present the financial condition of the Parent and its subsidiaries as of
those dates and for the periods presented and there have been no material
adverse changes in the financial condition or business of the Parent and
its subsidiaries taken as a whole from the date thereof to the date hereof,
except as has been disclosed to the Bank.
Section 4. COVENANTS
4.01 The Borrower covenants and agrees that, as long as (1) the Borrower
retains any right to Borrow under the Loan Documents or (2) this Note or any
Loans, interest, fees, costs, or expenses hereunder remain outstanding and
unpaid (each of (1) and (2) together, an "OBLIGATION", and together, the
"OBLIGATIONS"), it will:
(a) promptly upon their preparation, but in no case later than 120 days after
the close of each fiscal year, furnish the Bank with a. the audited
consolidated financial statements of the Borrower and its consolidated
<PAGE> 5
PROMISSORY NOTE, P. 5
subsidiaries for the year then ended prepared in accordance with generally
accepted accounting principles consistently applied, together with
appropriate notes, and b. consolidated and consolidating financial
statements of the Borrower and its consolidated subsidiaries for the year
then ended prepared consistently with similar unaudited statements
previously presented to the Bank (which statements need not be in
accordance with generally accepted accounting principles), together with
appropriate notes;
(b) at the time of the delivery of the financial statements to which Section
4.01(a) refers, provide a certificate of the Chief Financial Officer, Vice
President-Finance, or Treasurer of the Borrower to the effect that, to the
best of the knowledge of that officer, no Event of Default has occurred and
is continuing or, if any Event of Default shall have occurred and be
continuing, specifying the nature thereof;
(c) promptly upon their preparation, but in no case later than 120 days after
the close of each fiscal year, arrange for the Parent to furnish the Bank
with a. the audited consolidated financial statements of the Parent and its
consolidated subsidiaries for the year then ended prepared in accordance
with generally accepted accounting principles consistently applied,
together with appropriate notes, and b. consolidated and consolidating
financial statements of the Parent and its consolidated subsidiaries for
the year then ended prepared consistently with similar unaudited statements
previously presented to the Bank (which statements need not be in
accordance with generally accepted accounting principles), together with
appropriate notes;
(d) at the time of the delivery of the financial statements to which Section
4.01(c) refers, arrange for the Parent to provide a certificate of the
Chief Financial Officer, Vice President-Finance, or Treasurer of the Parent
to the effect that, to the best of the knowledge of that officer, no Event
of Default has occurred and is continuing or, if any Event of Default shall
have occurred and be continuing, specifying the nature thereof;
(e) promptly, and in any event within three Business Days after a Responsible
Officer of the Borrower or of the Parent obtains knowledge thereof, notice
of (1) the occurrence of any event which constitutes an Event of Default,
(2) any litigation or governmental proceeding pending against the Borrower
or any subsidiary which could be reasonably expected to have a material
adverse effect on the business, operations, or financial condition of any
of the Borrower, the Parent, or a Principal Subsidiary of the Parent (as
such term is defined hereafter) on a consolidated basis, or (3) any other
event which could have a material adverse effect on the business,
operations, or financial condition of the Borrower, the Parent, or a
Principal Subsidiary of the Parent on a consolidated basis taken as a whole
(for the purposes of this clause, a "Responsible Officer" shall be an
officer whose title is Managing Director (or "Direkter" in Danish),
Chairman, President, Senior Vice President, Treasurer, Controller, Vice
President- finance, or General Counsel, or the functional equivalent of any
of these);
(f) not, and will not permit any subsidiary to, create, incur, assume, or
suffer to exist any lien, pledge, assignment, encumbrance or security
interest of any kind or nature whatsoever (each, a "LIEN") upon or with
respect to any property or assets (real or personal, tangible or
intangible) of the Borrower, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets, or assign
any right to receive income; provided, that the provisions of this section
4.01(f) shall not prevent the creation, incurrence, assumption or existence
of the following:
(1) Liens for taxes not yet due, or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves
have been established;
(2) Liens imposed by law which were incurred in the ordinary course of
business such as carriers', warehousemen's and mechanics' liens for
sums not delinquent;
(3) Liens in existence on the date hereof which are listed, and the
property subject thereto described, in Schedule I (liens described in
this subsection 4.01(f)(3), "PERMITTED LIENS");
(4) Liens in respect of property or assets of the Borrower or any of its
subsidiaries, which property or assets i) were acquired subsequent to
the date hereof and ii) have an aggregate book value taken in
<PAGE> 6
PROMISSORY NOTE, P. 6
the aggregate not at any time in excess of the aggregate capital
expenditures of the Borrower and its subsidiaries for the period
commencing with the date hereof;
(5) Liens created or continued pursuant to the Subordination Agreement or
otherwise in favor of the Bank; and
(6) Liens aggregating up to DKK6,000,000 in addition to those described in
subsections 4.01(f)(1) through (5) above;
(g) not, and will not permit any subsidiary to, enter into any transaction of
merger or consolidation, or convey, sell, lease or otherwise dispose of (or
agree to do any of the foregoing at any future time) all or any part of its
property or assets, or purchase or otherwise acquire any part of the
property or assets (other than purchases or other acquisitions of
inventory, materials, and equipment in the ordinary course of business) of
any person or legal entity, except that the Borrower and any subsidiary may
(1) make sales, transfers, conveyances, and leases of inventory in the
ordinary course of business, (2) sell receivables, (3) sell equipment,
vehicles, fixtures or similar assets, (4) make capital expenditures in its
current lines of business, and (5) merge or consolidate with a subsidiary
of the Borrower, provided that, in the case of a merger or consolidation in
which the Borrower is a party, the Borrower shall be the surviving entity;
and further provided that Technics may merge or in any other way be
amalgamated with or become the subsidiary of DSC Communications Limited, a
United Kingdom corporation, a wholly- owned subsidiary of DSC International
Corporation, one of the guarantors hereof, and either of the aforementioned
merger partners may be the surviving entity; and
(h) at all times perform all its covenants, agreements, and undertakings in all
of the Loan Documents.
Section 5. EVENTS OF DEFAULT
5.01 It shall be an Event of Default if any of the following shall occur:
(a) the Borrower shall default in the payment when due of the principal hereof
and such default shall not be cured within three Business Days; or
(b) the Borrower shall default in the payment of interest, fees, costs, or
expenses under any of the Obligations hereunder and such default shall not
be cured within three Business Days; or
(c) the Borrower shall otherwise default in the performance of any of its
covenants, agreements, or other undertakings hereunder or under the Loan
Documents and such default shall not be cured within 30 days of notice
thereof; or
(d) any representation or warranty made by the Borrower or the Parent to the
Bank hereunder or under the Loan Documents proves to have been incorrect or
misleading in any material respect when made; or
(e) the Borrower, the Parent, or a Principal Subsidiary of the Parent (as such
term is defined hereafter) fails to pay when due any other indebtedness for
borrowed money having an unpaid principal balance of not less than
US$10,000,000, the maturity of which is accelerated or an event occurs
which, with notice or lapse of time or both, would permit acceleration of
such indebtedness; or
(f) 100% of the capital stock of the Borrower shall not be owned directly or
indirectly by the Parent; or
(g) any Person or group (within the meaning of Rule 13d-5 of the United States
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 Parent (for the purposes hereof, "Person"
and "Voting Stock" shall have the same meanings as in the MultiCurrency
Credit Agreement dated May 8, 1996, among the Parent, certain affiliates of
the Parent, certain lenders, and NationsBank of Texas, N.A., as Agent (the
"MultiCurrency Credit Agreement")); or
<PAGE> 7
PROMISSORY NOTE, P. 7
(h) on the last day of any fiscal quarter the Consolidated Net Worth of the
Parent and its subsidiaries shall be less than the sum of (1) 80% of
Consolidated Net Worth on December 31, 1995, plus (2) the aggregate of the
Fiscal Quarter Increases for all fiscal quarters of the Parent competed
thereafter, plus (3) an amount equal to 50% of any increase in shareholders
equity of the Parent pursuant to offerings of equity securities (including
as a result of the exercise of employee stock options and warrants or the
sale or issuance of Securities subsequently converted into common stock) of
the Parent or any of its Subsidiaries on or after the date hereof, plus (4)
without duplication, an amount equal to the net worth of any Person that,
on or after the date hereof, becomes a Subsidiary of the Parent or is
merged into or consolidated with the Parent or any Subsidiary of the Parent
or substantially all of the assets of which are acquired by the Parent or
any Subsidiary of the Parent to the extent the purchase price therefor is
paid in equity securities of the Parent or any Subsidiary of the Parent
(for the purposes hereof, "Consolidated Net Worth", "Fiscal Quarter
Increase", "Security", and "Subsidiary" shall have the same meanings as in
the MultiCurrency Credit Agreement); or
(i) on the last day of any fiscal quarter the ratio of Consolidated Funded Debt
of the Parent and its subsidiaries to the Consolidated Excess Cash Flow of
the Parent and its subsidiares shall exceed a ratio of 3.25 to 1 (for the
purposes hereof, "Consolidated Funded Debt", and "Consolidated Escess Cash
Flow" shall have the same meanings as in the MultiCurrency Credit
Agreement); or
(j) on the last day of any fiscal quarter either (1) the Consolidated Senior
Debt of the Parent and its subsidiaries, determined as of such day, shall
exceed 35% of Consolidated Capitalization of the Parent and its
subsidiaries, determined as of such day, or (2) Consolidated Debt of the
Parent and its subsidiaries, determined as of such dat, shall exceed 45% of
Consolidated Capitalization of the Parent and its subsidiaries, determined
as of such day (for the purposes hereof, "Consolidated Senior Debt",
"Consolidated Capitalization",and "Consolidated Debt" shall have the same
meanings as in the MultiCurrency Credit Agreement); or
(k) one or more judgments shall be entered against the Borrower, the Parent, or
a Principal Subsidiary of the Parent involving in the aggregate for the
Borrower, the Parent, or a Principal Subsidiary of the Parent a liability
not paid or fully discharged by insurance) of DKK 25,000,000 or more, and
all such judgments shall not have been vacated, discharged, or stayed or
bonded pending appeal within 30 days from the entry thereof; or
(l) the Borrower, the Parent, or a Principal Subsidiary of the Parent becomes
insolvent or unable to meet its debts as they become due, or is generally
not paying its debts as they become due, or suspends or ceases its
business, or a custodian, as defined in Title 11 of the United States Code
(or its Danish equivalent), of substantially all of its property shall have
been appointed or taken possession; or
(m) a case under such Title 11 (or its Danish equivalent), or any proceeding
under any other federal or state or Danish bankruptcy, insolvency, or other
law relating to the relief of debtors, the readjustment, composition or
extension of indebtedness or reorganization, is commenced by or against the
Borrower, the Parent, or a Principal Subsidiary of the Parent.
For the purposes of this Note "PRINCIPAL SUBSIDIARY OF THE PARENT" shall mean a
direct or indirect subsidiary of the Parent:
(1) whose total assets or gross revenues (on a consolidated basis in the
case of a subsidiary of the Parent which itself has one or more
subsidiaries) attributable to the Parent represent not less than 10 per
cent of the consolidated total assets or, as the case may be, consolidated
gross revenues of the Parent and its subsidiaries taken as a whole, all as
calculated by reference to the then-latest audited financial statements
(consolidated or, as the case may be, unconsolidated) of such subsidiary
and the then-latest consolidated audited accounts of the Parent and its
subsidiaries; or
(2) to which is transferred the whole or substantially the whole of the
assets and/or undertaking of a subsidiary of the Parent, which, immediately
prior to such transfer, was a Principal Subsidiary of the Parent.
<PAGE> 8
PROMISSORY NOTE, P. 8
Section 6. POST EVENT OF DEFAULT RIGHTS
6.01 Upon the occurrence of an Event of Default and at any time or from
time to time thereafter:
(a) in the case of an Event of Default other than the Events of Default to
which Section 5.01(l) or Section 5.01(m) refer, the Bank may declare, by
notice to the Borrower, any and all of the Obligations of the Borrower to
the Bank immediately due and payable, and, in the case of an Event of
Default to which Section 5.01(l) or Section 5.01(m) refers, all of the
Obligations of the Borrower to the Bank shall become immediately due and
payable, in either case without any other presentment, demand, protest, or
notice of any kind, anything in any other agreement to the contrary
notwithstanding (in either case, an "ACCELERATION"); and
(b) the Bank shall have no obligation to make further Loans under this Note.
Section 7. MISCELLANEOUS
7.01 RELATED LOAN DOCUMENTS.This Note is delivered pursuant to, and
entitled to the benefits of, the Loan Documents listed in Section 1.
7.02 EVIDENCE OF INDEBTEDNESS.All Loans and principal repayments thereof
shall be recorded on the internal records of the Bank, and, prior to any
transfer of, or any action to collect, this Note, the then outstanding
principal amount and rate basis of each outstanding Loan, as well as the
interest rates and Interest Periods if calculated at a Cost of Funds
Alternative Rate, shall be endorsed on the reverse side of this Note or any
continuation hereof, together with the date of such endorsement. Any such
endorsement shall constitute prima facie evidence of the accuracy of the
information so endorsed. The Bank may, but is not obligated to, charge any
account of the Borrower with the Bank (other than those accounts held in a
trust or fiduciary capacity) for amounts payable under this Note.
7.03 ACKNOWLEDGEMENT OF INDEBTEDNESS.Each payment of principal of, or
interest on, the Loans shall constitute an acknowledgement of the indebtedness
of the Borrower under the Loan Documents and this Note.
7.04 FORCE MAJEURE.The Bank shall not be liable for damage due to changes
of laws, rules, regulations, or other measures taken by the public authorities,
declared or imminent war, revolutions, civil commotion, Acts of God, or
strikes, lock-outs, boycotts, or picketing, irrespective of whether the Bank is
itself a party involved in such a matter or whether the Bank's functions are
only partly affected thereby.
7.05 ENFORCEMENT MATTERS.The Borrower (i) waives presentment, demand,
protest and other notice of any kind in connection with this Note and (ii)
agrees to pay to the holder hereof, on demand, all costs and reasonable
expenses (including reasonable legal fees) incurred in connection with the
enforcement and collection of this Note.
7.06 HEADINGS DESCRIPTIVE.The headings of the several sections and
subsections of this Note are inserted for convenience only and shall not in any
way affect the meaning or construction of any provision of this Note.
7.07 CHOICE OF LAW.This Note shall be construed in accordance with, and
governed by, Danish law.
7.08 JURISDICTION.The Borrower agrees that any legal action or proceeding
with respect to this Note or any agreement, instrument or document (including
the Loan Documents) entered into in furtherance hereof or thereof may be
brought in the Courts of Denmark, and, by execution and delivery of this Note,
the Borrower hereby accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower hereby irrevocably waives trial by jury and any objection, including,
without limitation, any objection based on the grounds of forum non conveniens
which it may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions. The Borrower hereby agrees that
service of process in any such action or proceeding may be made by the mailing
of copies of such process by registered or certified mail, postage prepaid, to
the Borrower at its address specified above or to any
<PAGE> 9
PROMISSORY NOTE, P. 9
address of which the Borrower shall have given notice to the Bank. Nothing
herein shall affect the right of the Bank to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise to proceed
against the Borrower or its property in any other jurisdiction.
NAME OF BORROWER: DSC COMMUNICATIONS A/S
By:
--------------------------------
Title: Vice President and Treasurer
By:
--------------------------------
Title:
<PAGE> 10
SCHEDULE 1 TO PROMISSORY NOTE
DATED JULY 23, 1996 (the "Note")
Terms defined in the Note shall have the same meanings in this Schedule.
Permitted Liens in accordance with subsection 4.01(f)(3) of the Note:
To the best of the Borrower's knowledge no Permitted Liens except for liens
comprised by subsection 4.01(f)(6) of the Note exist.
Notwithstanding the above the Borrower shall without restriction be permitted
to mortgage credit finance the recently acquired real estate, land registration
no. 5o Bernstorff and 9fu Ordrup by, situated at 32 Mosehojvej, DK-2920
Charlottenlund, Denmark and thereby permit the establishment of mortgage credit
liens upon such real estate should the Borrower so desire.
<PAGE> 1
EXHIBIT 10.2
[DEN DANSKE BANK LETTERHEAD]
DSC Communications A/S
Lautrupbjerg 7-11
DK-2750 Ballerup
Date:
July 23, 1996
Contact Person:
Mogens Sondergaard
(212) 984-8472
Gentlemen:
In connection with the financing of your newly constructed property in Denmark
we are pleased to grant your company a credit facility on the following terms:
Borrower: DSC Communications A/S
Guarantors: DSC Communications Corporation,
DSC Marketing Services, Inc.,
DSC Finance Corporation,
DSC International Corporation,
DSC of Puerto Rico, Inc.,
DSC Telecommunications Corporation,
DSC Telecom, Inc.,
DSC Telecom L.P., and
Sildor Investments B.V.
Facility: DKK 250,000,000 15-year Term Loan
Final Maturity Date: August 1, 2011.
Interest Rates: (i) 1, 2, 3 or 6 months Cibor plus 0.6875%
p.a., payable at the first to occur of
respective end of Interest Period and 3
month anniversary of Interest Period,
and or
(ii) 10 years fixed rate to be determined
at the time of drawdown, payable
quarterly. The interest will be
reset after 10 years for a new
interest period of up to 5 years.
The agreed rate will include a
margin to the Bank of 0.6875% p.a.
Arrangement fee: 0.05% flat.
Repayment: 47 quarterly principal installments of DKK
3,989,361.70 with the first principal
installment being paid on November 1, 1999.
The final payment at maturity will be in the
amount of DKK 62,500,000.10.
Financial covenants: Those listed in the promissory note and
otherwise comparable to those incorporated in
DSC Communications Corporation's USD 160
million Multicurrency Credit Facility dated
as of May 8, 1996.
<PAGE> 2
DSC Communications A/S
July 23, 1996
Page 2
Other covenants: Those listed in the promissory note,
including limitations on liens and
subordination to the Bank by the
Guarantors of present and future amounts
owed any of them by DSC Communications
A/S.
For us to establish the facility we would require the following documents to be
duly executed and returned to our Bank:
- A copy of this letter
- Promissory Note
- Guaranty
- Subordination Agreement.
- Appropriate Sealed Board Resolutions and Certificate of Secretary
from each of the Guarantors and the Subordinated Creditors
confirming that the Guarantors and the Subordinated Creditors are
bound by the terms of the Guaranty and the Subordination Agreement
(and comparable documents for Sildor Investments B.V. and DSC
Telecom, L.P.)
We look forward to accommodating your Danish financing requirements.
Sincerely yours,
DEN DANSKE BANK
/s/JOHN O'NEILL /s/MOGENS SONDERGAARD
John O'Neill Mogens Sondergaard
Vice President Vice President
The undersigned have read and understood the foregoing agreement and hereby
consent to all of the terms and conditions in the agreement.
DSC Communications A/S
By:
-------------------------------
Title: Vice President and Treasurer
----------------------------
<PAGE> 1
EXHIBIT 10.3
[DEN DANSKE BANK LOGO]
PROMISSORY NOTE
PROMISSORY NOTE (the "NOTE") of the Borrower named below delivered to DEN
DANSKE BANK (Den Danske Bank Aktieselskab, herein the "BANK") in New York, New
York, and dated:
JULY 23, 1996.
Section 1. SPECIAL TERMS
The following terms and provisions shall apply to this Note; definitions of
terms in this or other sections of this Note expressed in the singular shall
import the plural and vice versa.
BORROWER [Specify name, jurisdiction of organization, and address]:
DSC COMMUNICATIONS A/S, a Denmark corporation
Lautrupbjerg 7-11
DK-2750 Ballerup, Denmark
PRINCIPAL AMOUNT OF NOTE: DKK 300,000,000.00 (or, in words):
THREE HUNDRED MILLION AND XX/100 DANISH KRONER.
MARGIN OVER BASE RATE [Express as a percentage]: NONE
MARGIN OVER COST OF FUNDS RATE [Express as a percentage]: 0.5625%
MARGIN OVER CIBOR RATE [Express as a percentage]: 0.5625%
LOAN DOCUMENTS:
LINE LETTER issued by the Bank and dated July 23, 1996.
GUARANTY issued by DSC Communications Corporation, DSC Marketing Services,
Inc., DSC Finance Corporation, DSC International Corporation, DSC of
Puerto Rico, Inc., DSC Telecommunications Corporation, DSC Telecom,
Inc., DSC Telecom L.P., and Sildor Investments B.V. (each a
"GUARANTOR" and together the "GUARANTORS") and dated July 23, 1996.
SUBORDINATION AGREEMENT issued by the Borrower and the Guarantors and dated
July 23, 1996.
Section 2. PRINCIPAL AND INTEREST
2.01 PRINCIPAL.FOR VALUE RECEIVED and in order to refinance in part bridge
financing advances extended by certain of the Bank's branches in Denmark, the
Borrower promises to pay to the order of the Bank on August 1, 2001 (the "FINAL
MATURITY DATE"), the Principal Amount of this Note specified in Section 1 or,
if less, the aggregate unpaid principal amount of all loans (each a "LOAN")
made to the Borrower pursuant to the Loan Documents.
2.02 ADDITIONAL AMORTIZATION OF PRINCIPAL. In addition to amounts payable
pursuant to Section 2.01, the Borrower promises to pay to the order of the Bank
on August 1, 2000, a principal instalment of DKK 150,000,000.00.
2.03 INTEREST OPTIONS.The Borrower promises also to pay interest on the
unpaid principal amount of each Loan from the date thereof until paid at the
Stated Rate; or, if the Borrower shall so request with respect to a specific
Loan at least three Business Days before taking down or renewing that specific
Loan, at an Alternative Rate for the Interest Period requested in that same
request for drawing or renewal; provided that if the Interest Period of a Loan
on an Alternative Rate basis should mature without a specific timely request
having been received by the Bank to renew that Loan for a specific Interest
Period at an Alternative Rate available for such Interest Period, then interest
on such Loan shall be computed thereafter at the Stated Rate; further provided
that on and after maturity of this Note (whether by passage of time or by
Acceleration pursuant to
<PAGE> 2
PROMISSORY NOTE, P. 2
Section 6) or of any principal instalment or interest payment, such matured
amounts shall bear interest at a rate equal to the sum of 2% per annum and the
Stated Rate, payable on demand.
2.04 INTEREST COMPUTATION AND PAYMENT DATES.Interest shall be computed each
actual day elapsed on the basis of a 360 day year and shall be payable, in the
case of Loans with interest based on the Stated Rate, on the first Business Day
of each February, May, August, and November and, in the case of Loans with
interest based on an Alternative Rate, at the end of the respective Interest
Period as well as, in case of Loans with interest based on an Alternative Rate
and with Interest Periods in excess of three months, at each three month
anniversary of the commencement of the Interest Period; in addition, after
maturity of this Note (whether by passage of time or by Acceleration pursuant
to Section 6), interest shall be payable on demand.
The "STATED RATE" shall be a rate per annum equal to the sum of the Margin Over
Base Rate specified in Section 1 plus the Base Rate from time to time in
effect. The term "BASE RATE" means the rate announced by the Bank from time to
time at its Holmens Kanal Branch, presently located at 2-12 Holmens Kanal,
DK-1092 Copenhagen K, Denmark, as its prime rate for domestic overdraft
facilities. Each change in the prime rate shall result in a corresponding
change in the Base Rate and the Stated Rate and such change shall be effective
on the effective date of such change in the prime rate so announced by the
Bank.
An "ALTERNATIVE RATE" shall be either a "Cost of Funds Alternative Rate" or a
"Cibor Alternative Rate", depending on the request of the Borrower with respect
to a specific Loan for an Interest Period and any necessary agreement of the
Bank thereto. A "COST OF FUNDS ALTERNATIVE RATE" for a specific Loan during an
Interest Period shall be a rate per annum equal to the sum of the Margin Over
Cost of Funds Rate specified in Section 1 plus the Cost of Funds Rate for the
Interest Period requested. A "CIBOR ALTERNATIVE RATE" for a specific Loan
during an Interest Period shall be a rate per annum equal to the sum of the
Margin Over Cibor Rate specified in Section 1 plus the Cibor Rate for the
Interest Period requested. Each such Alternative Rate and Interest Period will
be confirmed in writing by the Bank to the Borrower. Each "INTEREST PERIOD"
requested by the Borrower shall be (a), if the Borrower shall have requested a
Cost of Funds Alternative Rate, of one, two, three, six, or twelve months or
such other period up to five years as to which the Bank and the Borrower shall
agree or (b), if the Borrower shall have requested a Cibor Alternative Rate, of
one, two, three, or six months or such other period as to which the Bank and
the Borrower shall agree, and shall in either case commence on the day of
takedown or renewal of such Loan; provided, however, no Interest Period may be
selected which would extend beyond the Final Maturity Date of this Note or,
taking into consideration other Loans and Interest Periods previously
established hereunder as well as amortization payments due under Section 2.02
hereof, would otherwise require a prepayment of a Loan prior to the end of the
Interest Period selected. If any Interest Period shall end or other interest
payment date fall on a day which is not a Business Day, such Interest Period or
interest payment date shall be extended to the next succeeding Business Day
unless such day falls in another calendar month, in which case such Interest
Period shall end or interest payment date shall fall on the next preceding
Business Day. The "COST OF FUNDS RATE" for any Loan shall mean the quotation
offered two Business Days prior to the commencement of such Interest Period in
the Danish interbank market to the Bank for Danish Krone deposits of amounts
comparable to the outstanding principal amount of the relevant Loan and with
takedown and maturities comparable to such Interest Period. The "CIBOR RATE"
for any Loan shall mean the rate offered for deposits in Danish Kroner for the
respective Interest Period which appears on the Reuters Screen DKNH Page under
the caption "CIBOR Fixing" as of 11:00 a.m., Copenhagen time, two Copenhagen
Business Days prior to the commencement of such Interest Period; provided,
however, if a rate is not shown for the exact Interest Period selected by the
Borrower, the higher of the rates for the two closest interest periods will be
selected; and further provided, that if no relevant rates appear on such Reuter
Screen, then the Cibor Rate shall be the similarly defined rate shown on the
relevant Telerate Page and if no relevant rates appear on the Reuter and
Telerate Pages, then the Cibor rate shall be the quotation offered to the Bank
two Copenhagen Business Days prior to the commencement of such Interest Period
in the interbank market for deposits for the Interest Period selected and in
the amount of the relevant Loan.
<PAGE> 3
PROMISSORY NOTE, P. 3
2.05 CERTAIN INTEREST RATE ADJUSTMENTS.In the event that the Bank shall
have determined (which determination shall, absent demonstrable error, be final
and conclusive and binding upon all parties) at any time, that:
(a) by reason of any change since the date of this Note in any applicable law
or governmental rule, regulation, guideline, tax, impost or order (or any
interpretation thereof and including the introduction of any new law or
governmental rule, regulation, guideline, tax, impost or order) (such as,
for example but not limited to, a change in official reserve requirements),
the Cost of Funds Rate or the Cibor Rate, as the case may be, shall not
represent the effective cost to such Bank for funding or maintaining any
Cost of Funds Alternative Rate Loan or Cibor Alternative Rate Loan, as the
case may be; or
(b) the making or continuance of any Loan based on an Alternative Rate has
become unlawful or restricted by compliance by the Bank in good faith with
any law, governmental rule, regulation, or guideline order, or an event has
occurred after the date of this Note which in the good faith reasonable
judgment of the Bank materially and adversely affects the Danish interbank
market for Danish Kroner,
then the Borrower shall pay to the Bank, upon written demand therefor, such
additional amounts as shall be required to cause the Bank to receive interest
for the affected Loan at a rate per annum which shall equal the effective cost
to the Bank to make or maintain the Loan plus the Margin Over Cost of Funds
Rate or, as the case may be, Margin over Cibor Rate (a written notice as to
additional amounts owed the Bank, showing the basis for the calculation
thereof, submitted to the Borrower by the Bank shall, absent demonstrable
error, be final and conclusive and binding upon all of the parties hereto).
2.06 DEFINITION OF BUSINESS DAY.For the purposes of this note, a "BUSINESS
DAY" shall be a day on which banks shall be open for business in Copenhagen and
in New York City; provided, however, for the purposes of determining the date
for setting interest rates in Danish Kroner, a "BUSINESS DAY" shall be a day on
which banks shall be open for business in Copenhagen.
2.07 PLACE AND CURRENCY FOR PAYMENTS OF PRINCIPAL AND INTEREST.Each payment
by the Borrower pursuant to this Note shall be made without set-off or
counterclaim to the Bank at its Copenhagen Head Office for the account of the
Bank's Cayman Islands branch or such branch of the Bank as the Bank may direct.
Each such payment shall be made in lawful currency of Denmark and by transfer
in immediately available or same day funds. Payments made other than by
transfer of immediately available funds a) shall not be given value in reducing
the obligations of the Borrower until such time, in the Bank's sole discretion,
as credit for said payment item in funds immediately available to the Bank is
received by the Bank in the clearing or collection process chosen, and b) are
credited subject to final collection and unconditional credit to, and accepted
by, the Bank.
2.08 WHEN LOANS MAY BE REPAID; COMPENSATION.Prior to the Final Maturity
Date of this Note, Loans may be repaid at the Borrower's option on the date at
least three days after the Borrower has given written notice to the Bank of its
intention to repay (or, if such date is not a Business Day, the first Business
Day thereafter); provided, however, as to Loans with interest based on an
Alternative Rate, said Loans shall not be repaid at the Borrower's option until
the end of the respective Interest Period applicable to the respective Loan.
If, however, any such Loans with interest based on an Alternative Rate are
repaid prior to the end of the respective Interest Period applicable to the
respective Loan, then Borrower shall compensate the Bank, on demand, for the
Bank's loss or expense in reemploying the funds repaid for the balance of the
applicable Interest Period. A written notice as to additional amounts owed the
Bank, showing the basis for the calculation thereof, submitted to the Borrower
by the Bank shall, absent demonstrable error, be final and conclusive and
binding upon the parties hereto.
<PAGE> 4
PROMISSORY NOTE, P. 4
2.09 AVAILABILITY OF LOANS; REDUCTION OF AVAILABILITY; TRANSACTION
SIZE.Loans repaid may not be reborrowed; the aggregate of the principal amounts
of all outstanding Loans under this Note may at no time exceed the Principal
Amount of this Note. Each takedown of principal hereof shall be in the minimum
amount of DKK 50,000,000.
On November 1, 1996, the Principal Amount of this Note shall be deemed to have
been reduced to the aggregate unpaid principal amount of all Loans hereunder
and no further Loans hereunder shall be permitted.
Section 3. REPRESENTATIONS AND WARRANTIES
3.01 The Borrower represents and warrants that:
(a) the obligations of the Borrower under this Note are duly authorized, legal,
valid and binding obligations enforceable in accordance with their
respective terms and all action required as a condition thereto (including,
without limitation, the obtaining of all corporate, governmental or other
approvals) has been taken;
(b) the issuance and performance of this Note will not violate any material
law, permit, agreement or instrument to which the Borrower is a party or is
subject, or result in the imposition of any lien upon any of the assets of
the Borrower or any subsidiary of the Borrower;
(c) 100% of the capital stock of the Borrower is owned directly by Sildor
Investments B.V., a Netherlands corporation ("SILDOR B.V.");
(d) 100% of the capital stock of Sildor B.V. is owned directly by DSC
Communications Corporation, a Delaware corporation ("PARENT");
(e) the Parent directly or indirectly owns 100% of the capital stock of DSC
Marketing Services, Inc., DSC Finance Corporation, DSC International
Corporation, DSC of Puerto Rico, Inc., DSC Telecommunications Corporation,
and DSC Telecom, Inc.;
(f) the Borrower owns 100% of the capital stock of DSC Communications Dedicom
A/S, a Denmark corporation, and DSC Communications Technics Limited, a
United Kingdom corporation ("TECHNICS");
(g) all information furnished the Bank concerning the financial condition of
the Borrower and its subsidiaries, including the consolidated and
consolidating financial statements as of December 31, 1995, fairly present
the financial condition of the Borrower and its subsidiaries as of those
dates and for the periods presented and there have been no material adverse
changes in the financial condition or business of the Borrower and its
subsidiaries from the date thereof to the date hereof, except as has been
disclosed to the Bank; and
(h) all information furnished the Bank concerning the financial condition of
the Parent and its subsidiaries, including the consolidated and
consolidating financial statements as of December 31, 1995 and 1994, fairly
present the financial condition of the Parent and its subsidiaries as of
those dates and for the periods presented and there have been no material
adverse changes in the financial condition or business of the Parent and
its subsidiaries taken as a whole from the date thereof to the date hereof,
except as has been disclosed to the Bank.
Section 4. COVENANTS
4.01 The Borrower covenants and agrees that, as long as (1) the Borrower
retains any right to Borrow under the Loan Documents or (2) this Note or any
Loans, interest, fees, costs, or expenses hereunder remain outstanding and
unpaid (each of (1) and (2) together, an "OBLIGATION", and together, the
"OBLIGATIONS"), it will:
(a) promptly upon their preparation, but in no case later than 120 days after
the close of each fiscal year, furnish the Bank with a. the audited
consolidated financial statements of the Borrower and its consolidated
<PAGE> 5
PROMISSORY NOTE, P. 5
subsidiaries for the year then ended prepared in accordance with generally
accepted accounting principles consistently applied, together with
appropriate notes, and b. consolidated and consolidating financial
statements of the Borrower and its consolidated subsidiaries for the year
then ended prepared consistently with similar unaudited statements
previously presented to the Bank (which statements need not be in
accordance with generally accepted accounting principles), together with
appropriate notes;
(b) at the time of the delivery of the financial statements to which Section
4.01(a) refers, provide a certificate of the Chief Financial Officer, Vice
President-Finance, or Treasurer of the Borrower to the effect that, to the
best of the knowledge of that officer, no Event of Default has occurred and
is continuing or, if any Event of Default shall have occurred and be
continuing, specifying the nature thereof;
(c) promptly upon their preparation, but in no case later than 120 days after
the close of each fiscal year, arrange for the Parent to furnish the Bank
with a. the audited consolidated financial statements of the Parent and its
consolidated subsidiaries for the year then ended prepared in accordance
with generally accepted accounting principles consistently applied,
together with appropriate notes, and b. consolidated and consolidating
financial statements of the Parent and its consolidated subsidiaries for
the year then ended prepared consistently with similar unaudited statements
previously presented to the Bank (which statements need not be in
accordance with generally accepted accounting principles), together with
appropriate notes;
(d) at the time of the delivery of the financial statements to which Section
4.01(c) refers, arrange for the Parent to provide a certificate of the
Chief Financial Officer, Vice President-Finance, or Treasurer of the Parent
to the effect that, to the best of the knowledge of that officer, no Event
of Default has occurred and is continuing or, if any Event of Default shall
have occurred and be continuing, specifying the nature thereof;
(e) promptly, and in any event within three Business Days after a Responsible
Officer of the Borrower or of the Parent obtains knowledge thereof, notice
of (1) the occurrence of any event which constitutes an Event of Default,
(2) any litigation or governmental proceeding pending against the Borrower
or any subsidiary which could be reasonably expected to have a material
adverse effect on the business, operations, or financial condition of any
of the Borrower, the Parent, or a Principal Subsidiary of the Parent (as
such term is defined hereafter) on a consolidated basis, or (3) any other
event which could have a material adverse effect on the business,
operations, or financial condition of the Borrower, the Parent, or a
Principal Subsidiary of the Parent on a consolidated basis taken as a whole
(for the purposes of this clause, a "Responsible Officer" shall be an
officer whose title is Managing Director (or "Direkter" in Danish),
Chairman, President, Senior Vice President, Treasurer, Controller, Vice
President- finance, or General Counsel, or the functional equivalent of any
of these);
(f) not, and will not permit any subsidiary to, create, incur, assume, or
suffer to exist any lien, pledge, assignment, encumbrance or security
interest of any kind or nature whatsoever (each, a "LIEN") upon or with
respect to any property or assets (real or personal, tangible or
intangible) of the Borrower, whether now owned or hereafter acquired, or
sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets, or assign
any right to receive income; provided, that the provisions of this section
4.01(f) shall not prevent the creation, incurrence, assumption or existence
of the following:
(1) Liens for taxes not yet due, or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves
have been established;
(2) Liens imposed by law which were incurred in the ordinary course of
business such as carriers', warehousemen's and mechanics' liens for
sums not delinquent;
(3) Liens in existence on the date hereof which are listed, and the
property subject thereto described, in Schedule I (liens described in
this subsection 4.01(f)(3), "PERMITTED LIENS");
(4) Liens in respect of property or assets of the Borrower or any of its
subsidiaries, which property or assets i) were acquired subsequent to
the date hereof and ii) have an aggregate book value taken in
<PAGE> 6
PROMISSORY NOTE, P. 6
the aggregate not at any time in excess of the aggregate capital
expenditures of the Borrower and its subsidiaries for the period
commencing with the date hereof;
(5) Liens created or continued pursuant to the Subordination Agreement or
otherwise in favor of the Bank; and
(6) Liens aggregating up to DKK6,000,000 in addition to those described in
subsections 4.01(f)(1) through (5) above;
(g) not, and will not permit any subsidiary to, enter into any transaction of
merger or consolidation, or convey, sell, lease or otherwise dispose of (or
agree to do any of the foregoing at any future time) all or any part of its
property or assets, or purchase or otherwise acquire any part of the
property or assets (other than purchases or other acquisitions of
inventory, materials, and equipment in the ordinary course of business) of
any person or legal entity, except that the Borrower and any subsidiary may
(1) make sales, transfers, conveyances, and leases of inventory in the
ordinary course of business, (2) sell receivables, (3) sell equipment,
vehicles, fixtures or similar assets, (4) make capital expenditures in its
current lines of business, and (5) merge or consolidate with a subsidiary
of the Borrower, provided that, in the case of a merger or consolidation in
which the Borrower is a party, the Borrower shall be the surviving entity;
and further provided that Technics may merge or in any other way be
amalgamated with or become the subsidiary of DSC Communications Limited, a
United Kingdom corporation, a wholly- owned subsidiary of DSC International
Corporation, one of the guarantors hereof, and either of the aforementioned
merger partners may be the surviving entity; and
(h) at all times perform all its covenants, agreements, and undertakings in all
of the Loan Documents.
Section 5. EVENTS OF DEFAULT
5.01 It shall be an Event of Default if any of the following shall occur:
(a) the Borrower shall default in the payment when due of the principal hereof
and such default shall not be cured within three Business Days; or
(b) the Borrower shall default in the payment of interest, fees, costs, or
expenses under any of the Obligations hereunder and such default shall not
be cured within three Business Days; or
(c) the Borrower shall otherwise default in the performance of any of its
covenants, agreements, or other undertakings hereunder or under the Loan
Documents and such default shall not be cured within 30 days of notice
thereof; or
(d) any representation or warranty made by the Borrower or the Parent to the
Bank hereunder or under the Loan Documents proves to have been incorrect or
misleading in any material respect when made; or
(e) the Borrower, the Parent, or a Principal Subsidiary of the Parent (as such
term is defined hereafter) fails to pay when due any other indebtedness for
borrowed money having an unpaid principal balance of not less than
US$10,000,000, the maturity of which is accelerated or an event occurs
which, with notice or lapse of time or both, would permit acceleration of
such indebtedness; or
(f) 100% of the capital stock of the Borrower shall not be owned directly or
indirectly by the Parent; or
(g) any Person or group (within the meaning of Rule 13d-5 of the United States
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 Parent (for the purposes hereof, "Person"
and "Voting Stock" shall have the same meanings as in the MultiCurrency
Credit Agreement dated May 8, 1996, among the Parent, certain affiliates of
the Parent, certain lenders, and NationsBank of Texas, N.A., as Agent (the
"MultiCurrency Credit Agreement")); or
<PAGE> 7
PROMISSORY NOTE, P. 7
(h) on the last day of any fiscal quarter the Consolidated Net Worth of the
Parent and its subsidiaries shall be less than the sum of (1) 80% of
Consolidated Net Worth on December 31, 1995, plus (2) the aggregate of the
Fiscal Quarter Increases for all fiscal quarters of the Parent competed
thereafter, plus (3) an amount equal to 50% of any increase in shareholders
equity of the Parent pursuant to offerings of equity securities (including
as a result of the exercise of employee stock options and warrants or the
sale or issuance of Securities subsequently converted into common stock) of
the Parent or any of its Subsidiaries on or after the date hereof, plus (4)
without duplication, an amount equal to the net worth of any Person that,
on or after the date hereof, becomes a Subsidiary of the Parent or is
merged into or consolidated with the Parent or any Subsidiary of the Parent
or substantially all of the assets of which are acquired by the Parent or
any Subsidiary of the Parent to the extent the purchase price therefor is
paid in equity securities of the Parent or any Subsidiary of the Parent
(for the purposes hereof, "Consolidated Net Worth", "Fiscal Quarter
Increase", "Security", and "Subsidiary" shall have the same meanings as in
the MultiCurrency Credit Agreement); or
(i) on the last day of any fiscal quarter the ratio of Consolidated Funded Debt
of the Parent and its subsidiaries to the Consolidated Excess Cash Flow of
the Parent and its subsidiares shall exceed a ratio of 3.25 to 1 (for the
purposes hereof, "Consolidated Funded Debt", and "Consolidated Escess Cash
Flow" shall have the same meanings as in the MultiCurrency Credit
Agreement); or
(j) on the last day of any fiscal quarter either (1) the Consolidated Senior
Debt of the Parent and its subsidiaries, determined as of such day, shall
exceed 35% of Consolidated Capitalization of the Parent and its
subsidiaries, determined as of such day, or (2) Consolidated Debt of the
Parent and its subsidiaries, determined as of such dat, shall exceed 45% of
Consolidated Capitalization of the Parent and its subsidiaries, determined
as of such day (for the purposes hereof, "Consolidated Senior Debt",
"Consolidated Capitalization",and "Consolidated Debt" shall have the same
meanings as in the MultiCurrency Credit Agreement); or
(k) one or more judgments shall be entered against the Borrower, the Parent, or
a Principal Subsidiary of the Parent involving in the aggregate for the
Borrower, the Parent, or a Principal Subsidiary of the Parent a liability
not paid or fully discharged by insurance) of DKK 25,000,000 or more, and
all such judgments shall not have been vacated, discharged, or stayed or
bonded pending appeal within 30 days from the entry thereof; or
(l) the Borrower, the Parent, or a Principal Subsidiary of the Parent becomes
insolvent or unable to meet its debts as they become due, or is generally
not paying its debts as they become due, or suspends or ceases its
business, or a custodian, as defined in Title 11 of the United States Code
(or its Danish equivalent), of substantially all of its property shall have
been appointed or taken possession; or
(m) a case under such Title 11 (or its Danish equivalent), or any proceeding
under any other federal or state or Danish bankruptcy, insolvency, or other
law relating to the relief of debtors, the readjustment, composition or
extension of indebtedness or reorganization, is commenced by or against the
Borrower, the Parent, or a Principal Subsidiary of the Parent.
For the purposes of this Note "PRINCIPAL SUBSIDIARY OF THE PARENT" shall mean a
direct or indirect subsidiary of the Parent:
(1) whose total assets or gross revenues (on a consolidated basis in the
case of a subsidiary of the Parent which itself has one or more
subsidiaries) attributable to the Parent represent not less than 10 per
cent of the consolidated total assets or, as the case may be, consolidated
gross revenues of the Parent and its subsidiaries taken as a whole, all as
calculated by reference to the then-latest audited financial statements
(consolidated or, as the case may be, unconsolidated) of such subsidiary
and the then-latest consolidated audited accounts of the Parent and its
subsidiaries; or
(2) to which is transferred the whole or substantially the whole of the
assets and/or undertaking of a subsidiary of the Parent, which, immediately
prior to such transfer, was a Principal Subsidiary of the Parent.
<PAGE> 8
PROMISSORY NOTE, P. 8
Section 6. POST EVENT OF DEFAULT RIGHTS
6.01 Upon the occurrence of an Event of Default and at any time or from
time to time thereafter:
(a) in the case of an Event of Default other than the Events of Default to
which Section 5.01(l) or Section 5.01(m) refer, the Bank may declare, by
notice to the Borrower, any and all of the Obligations of the Borrower to
the Bank immediately due and payable, and, in the case of an Event of
Default to which Section 5.01(l) or Section 5.01(m) refers, all of the
Obligations of the Borrower to the Bank shall become immediately due and
payable, in either case without any other presentment, demand, protest, or
notice of any kind, anything in any other agreement to the contrary
notwithstanding (in either case, an "ACCELERATION"); and
(b) the Bank shall have no obligation to make further Loans under this Note.
Section 7. MISCELLANEOUS
7.01 RELATED LOAN DOCUMENTS.This Note is delivered pursuant to, and
entitled to the benefits of, the Loan Documents listed in Section 1.
7.02 EVIDENCE OF INDEBTEDNESS.All Loans and principal repayments thereof
shall be recorded on the internal records of the Bank, and, prior to any
transfer of, or any action to collect, this Note, the then outstanding
principal amount and rate basis of each outstanding Loan, as well as the
interest rates and Interest Periods if calculated at a Cost of Funds
Alternative Rate, shall be endorsed on the reverse side of this Note or any
continuation hereof, together with the date of such endorsement. Any such
endorsement shall constitute prima facie evidence of the accuracy of the
information so endorsed. The Bank may, but is not obligated to, charge any
account of the Borrower with the Bank (other than those accounts held in a
trust or fiduciary capacity) for amounts payable under this Note.
7.03 ACKNOWLEDGEMENT OF INDEBTEDNESS.Each payment of principal of, or
interest on, the Loans shall constitute an acknowledgement of the indebtedness
of the Borrower under the Loan Documents and this Note.
7.04 FORCE MAJEURE.The Bank shall not be liable for damage due to changes
of laws, rules, regulations, or other measures taken by the public authorities,
declared or imminent war, revolutions, civil commotion, Acts of God, or
strikes, lock-outs, boycotts, or picketing, irrespective of whether the Bank is
itself a party involved in such a matter or whether the Bank's functions are
only partly affected thereby.
7.05 ENFORCEMENT MATTERS.The Borrower (i) waives presentment, demand,
protest and other notice of any kind in connection with this Note and (ii)
agrees to pay to the holder hereof, on demand, all costs and reasonable
expenses (including reasonable legal fees) incurred in connection with the
enforcement and collection of this Note.
7.06 HEADINGS DESCRIPTIVE.The headings of the several sections and
subsections of this Note are inserted for convenience only and shall not in any
way affect the meaning or construction of any provision of this Note.
7.07 CHOICE OF LAW.This Note shall be construed in accordance with, and
governed by, Danish law.
7.08 JURISDICTION.The Borrower agrees that any legal action or proceeding
with respect to this Note or any agreement, instrument or document (including
the Loan Documents) entered into in furtherance hereof or thereof may be
brought in the Courts of Denmark, and, by execution and delivery of this Note,
the Borrower hereby accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower hereby irrevocably waives trial by jury and any objection, including,
without limitation, any objection based on the grounds of forum non conveniens
which it may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions. The Borrower hereby agrees that
service of process in any such action or proceeding may be made by the mailing
of copies of such process by registered or certified mail, postage prepaid, to
the Borrower at its address specified above or to any
<PAGE> 9
PROMISSORY NOTE, P. 9
address of which the Borrower shall have given notice to the Bank. Nothing
herein shall affect the right of the Bank to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise to proceed
against the Borrower or its property in any other jurisdiction.
NAME OF BORROWER: DSC COMMUNICATIONS A/S
By:
------------------------------
Title: Vice President and Treasurer
By:
------------------------------
Title:
<PAGE> 10
SCHEDULE 1 TO PROMISSORY NOTE
DATED JULY 23, 1996 (the "Note")
Terms defined in the Note shall have the same meanings in this Schedule.
Permitted Liens in accordance with subsection 4.01(f)(3) of the Note:
To the best of the Borrower's knowledge no Permitted Liens except for liens
comprised by subsection 4.01(f)(6) of the Note exist.
Notwithstanding the above the Borrower shall without restriction be permitted
to mortgage credit finance the recently acquired real estate, land registration
no. 5o Bernstorff and 9fu Ordrup by, situated at 32 Mosehojvej, DK-2920
Charlottenlund, Denmark and thereby permit the establishment of mortgage credit
liens upon such real estate should the Borrower so desire.
<PAGE> 1
EXHIBIT 10.4
[DEN DANSKE BANK LETTERHEAD]
DSC Communications A/S
Lautrupbjerg 7-11
DK-2750 Ballerup
Date:
July 23, 1996
Contact Person:
Mogens Sondergaard
(212) 984-8472
Gentlemen:
In connection with the refinancing of your existing credit facilities for
working capital purposes with our Bank we are pleased to grant your company a
credit facility on the following terms:
Borrower: DSC Communications A/S
Guarantors: DSC Communications Corporation,
DSC Marketing Services, Inc.,
DSC Finance Corporation,
DSC International Corporation,
DSC of Puerto Rico, Inc.,
DSC Telecommunications Corporation,
DSC Telecom, Inc.,
DSC Telecom L.P., and
Sildor Investments B.V.
Facility: DKK 300,000,000 5-year Term Loan
Final Maturity Date: August 1, 2001.
Interest Rates: (i) 1, 2, 3 or 6 months Cibor plus 0.5625%
p.a., payable at the first to occur of
respective end of Interest Period and 3
month anniversary of Interest Period,
and or
(ii) 5 years fixed rate to be determined
at the time of drawdown, payable
quarterly. The agreed rate will
include a margin to the Bank of
0.5625% p.a.
Arrangement fee: 0.05% flat.
Repayment: Two equal principal payments of DKK
150,000,000 with the first principal
installment being paid on August 1, 2000,
and with the balance being paid on August 1,
2001.
Financial covenants: Those listed in the promissory note and
otherwise comparable to those incorporated in
DSC Communications Corporation's USD 160
million Multicurrency Credit Facility dated
as of May 8, 1996.
<PAGE> 2
Other covenants: Those listed in the promissory note,
including limitations on liens and
subordination to the Bank by the Guarantors
of present and future amounts owed any of
them by DSC Communications A/S.
For us to establish the facility we would require the following documents to be
duly executed and returned to our Bank:
- A copy of this letter
- Promissory Note
- Guaranty
- Subordination Agreement.
- Appropriate Sealed Board Resolutions and Certificate of Secretary
from each of the Guarantors and the Subordinated Creditors
confirming that the Guarantors and the Subordinated Creditors are
bound by the terms of the Guaranty and the Subordination Agreement
(and comparable documents for Sildor Investments B.V. and DSC
Telecom, L.P.)
It is a condition to the establishment of this facility that your existing DKK
300,000,000 Multiple Option Facility for loans, overdrafts and guaranties under
Facility Letter issued on or about February 8, 1996, by the Bank, be reduced by
DKK 150,000,000 to a new limit of DKK 150,000,000.
We look forward to accommodating your Danish financing requirements.
Sincerely yours,
DEN DANSKE BANK
/s/JOHN O'NEILL /s/MORGENS SONDERGAARD
John O'Neill Mogens Sondergaard
Vice President Vice President
The undersigned have read and understood the foregoing agreement and hereby
consent to all of the terms and conditions in the agreement.
DSC Communications A/S
By:
-------------------------------
Title: Vice President and Treasurer
----------------------------
<PAGE> 1
EXHIBIT 10.5
[DEN DANSKE BANK LOGO]
GUARANTY
JULY 23, 1996
In consideration of any financial accommodations given or to be given or
continued to:
DSC COMMUNICATIONS A/S (a Denmark corporation), herein called "the
Borrower", by:
DEN DANSKE BANK AKTIESELSKAB (Den Danske Bank), herein called "the Bank,"
and other good and valuable considerations (which accommodations and
considerations have been benefiting and/or will benefit each of the undersigned
individually as well as the DSC Communications group of which each of the
undersigned is a member), receipt of which is hereby acknowledged, the
undersigned:
DSC COMMUNICATIONS CORPORATION, a Delaware corporation,
DSC MARKETING SERVICES, INC., a Delaware corporation,
DSC FINANCE CORPORATION, a Delaware corporation,
DSC INTERNATIONAL CORPORATION, a Delaware corporation,
DSC OF PUERTO RICO, INC., a Delaware corporation,
DSC TELECOMMUNICATIONS CORPORATION, a Delaware corporation,
DSC TELECOM, INC., a Nevada corporation,
DSC TELECOM L.P., a Texas limited partnership, and
SILDOR INVESTMENTS B.V., a Netherlands corporation,
unconditionally guarantee to the Bank, payment when due, whether by
acceleration or otherwise, of the full amount of any and all liabilities,
direct or contingent, joint, several or independent, now or hereafter existing,
due or to become due to, or held or to be held by, the Bank, whether created
directly or acquired by assignment or otherwise, of the Borrower to the Bank
arising out of any of the following facilities:
- - DKK 250,000,000 (TWO HUNDRED FIFTY MILLION DANISH KRONER) principal amount
fifteen year term loan under facility letter dated as of July 23, 1996, by
the Bank and promissory note issued as of July 23, 1996; and
- - DKK 300,000,000 (THREE HUNDRED MILLION DANISH KRONER) principal amount five
year facility under facility letter dated as of July 23, 1996, for new term
loans and for the refinancing of loans made under a Multiple Option
Facility for loans, overdrafts and guaranties under Facility Letter issued
on or about February 8, 1996, by the Bank,
as either of such facilities or any of the loans or other engagements
thereunder may be amended, restated, restructured, continued, or otherwise
modified by the Borrower and the Bank from time to time, together with any and
all interest and fees as may be owed under such facilities, lines, loans,
transactions or other liabilities
<PAGE> 2
GUARANTY, PAGE 2/5
thereunder and all expense or other liability (including reasonable attorney's
fees) incurred by the Bank in enforcing any of such liabilities and/or the
terms hereof. The undersigned waive notice of acceptance of this guaranty and
of any liability to which it applies or may apply under the terms hereof, and
waive presentment, demand of payment, notice of dishonor or non-payment,
protest, notice of protest on any such liabilities, suit or taking other action
by the Bank against, and giving any notice of default or other notice to, or
making any demand on, any party liable thereon (including the undersigned).
Payment by the undersigned is in all cases to be made at the office of the
Bank's New York branch, presently located at 280 Park Avenue, New York City, NY
10017, or at such other office of the Bank as the Bank may direct, in funds
immediately available to the Bank in the currency in which the respective
liability is denominated.
The Bank may, at any time and from time to time (whether or not after
revocation or termination of this guaranty) without the consent of or notice to
the undersigned, except such notice as may be required by applicable statute
and cannot be waived, without incurring responsibility to the undersigned,
without impairing or releasing the obligations of the undersigned hereunder,
upon or without any terms or conditions and in whole or in part, (1) change the
manner, place or terms of payment and/or change or extend the time of payment
of, renew, or alter any liability of the Borrower hereby guaranteed, or any
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and the guaranty herein made shall apply to the
liabilities of the Borrower, changed, extended, renewed, or altered in any
manner, (2) sell, exchange, release, surrender, realize upon or otherwise deal
with in any manner and in any order any property by whomsoever at any time
pledged or mortgaged to secure or howsoever securing the liabilities hereby
guaranteed or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof and/or any offset
thereagainst, (3) exercise or refrain from exercising any rights against the
Borrower or others (including the undersigned) or otherwise act or refrain from
acting, (4) settle or compromise any liabilities hereby guaranteed and/or any
liabilities (including any of those hereunder) incurred directly or indirectly
in respect thereof or hereof, and may subordinate the payment of all or any
part thereof to the payment of any liabilities which may be due to the Bank or
others, (5) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Bank regardless of what
liability or liabilities of the Borrower to the Bank remain unpaid.
No invalidity, irregularity or unenforceability of the liabilities hereby
guaranteed shall affect, impair, or be a defense to this guaranty. This
guaranty is a primary, direct, immediate, and absolute obligation of the
undersigned to the Bank, and the Bank shall not be required to pursue any
remedies it may have against the Borrower or any other person before exercising
its rights hereunder.
This guaranty is a continuing one and all liabilities to which it applies or
may apply under the terms hereof shall be conclusively presumed to have been
created in reliance hereon. As to each of the undersigned, this guaranty shall
continue until written notice of revocation signed by such undersigned or until
written notice of the death of such undersigned shall in each case have been
actually received by the Bank, notwithstanding a revocation by, or the death
of, or complete or partial release for any cause of, any one or more of the
remainder of the undersigned, or of the Borrower or of anyone liable in any
manner for the liabilities hereby guaranteed or for liabilities (including
those hereunder) incurred directly or indirectly in respect thereof or hereof,
and notwithstanding the dissolution, termination, or increase, decrease or
change in personnel of any one or more of the undersigned which may be
partnerships. No revocation or termination hereof shall affect in any manner
rights arising under this guaranty with respect to liabilities arising prior to
receipt by the Bank of written notice of such revocation or termination and the
sole effect of revocation or termination hereof shall be to exclude from this
guaranty liabilities thereafter arising which are unconnected with liabilities
theretofore arising or transactions theretofore entered into.
In the event that the Borrower is a partnership, this guaranty shall continue
in effect and apply to all liabilities of the Borrower and/or any successor
partnership(s) from time to time contracted, assumed, incurred, or
<PAGE> 3
GUARANTY, PAGE 3/5
accruing before or after any dissolution, termination or changes in personnel
of the Borrower and/or any successor partnership(s).
Demands on, or any notices to, the undersigned may be made or given by the Bank
by leaving same at the address given below or the last known address of the
undersigned or by mailing, telegraphing, cabling or telecopying same to either
such address, with the same effect as if delivered to the undersigned in
person.
No delay on the part of the Bank in exercising any of its rights (including
those hereunder) and no partial or single exercise thereof and no action or
non-action by the Bank, with or without notice to the undersigned or anyone
else, shall constitute a waiver of any rights or shall affect or impair this
guaranty.
Any and all rights and claims of the undersigned against the Borrower or any
property of the Borrower arising by reason of any payment by the undersigned to
the Bank pursuant to this guaranty, shall be subject and subordinate in right
of payment to the prior payment in full of all liabilities of the Borrower to
the Bank.
This guaranty shall inure to the benefit of the successors and assigns of the
Bank who shall have, to the extent of their interest, the rights of the Bank
hereunder; provided, however, that the rights of the Bank hereunder, if any be
retained by it, shall have priority over and be senior to the rights of its
successors and assigns unless the Bank shall otherwise elect. This guaranty is
binding upon the undersigned and the estates, executors, administrators,
personal representatives, heirs, successors and assigns of the undersigned.
The undersigned agree(s) that this guaranty shall continue to be effective or
shall be reinstated, as the case may be, if all or any part of any payment of
principal of or interest on any of the obligations hereby guaranteed is at any
time avoided or rescinded or must otherwise be restored or repaid by the Bank
as a result of the bankruptcy of the Borrower, or otherwise, all as though such
payment had not been made.
The undersigned, if more than one, shall be jointly and severally liable
hereunder and the term "undersigned" shall mean the undersigned or any one or
more of them; provided, however, as to any of the undersigned as is not a
direct or indirect majority shareholder of the Borrower on the date of this
guaranty, the liability of such undersigned shall be limited to the maximum
amount of such liability as may be incurred by such undersigned without
rendering the obligation of such undersigned under this guaranty voidable under
applicable law relating to insolvency, fraudulent conveyance or fraudulent
transfer.
Anyone signing this guaranty shall be bound hereby, whether or not anyone else
signs this guaranty at any time. The term "Bank" or "the Bank" includes any
agent of the Bank acting for it.
THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE BANK AND OF THE UNDERSIGNED
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK.
EACH OF THE UNDERSIGNED AGREES THAT ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS GUARANTY, OR ANY AGREEMENT, INSTRUMENT, OR DOCUMENT ENTERED INTO IN
FURTHERANCE HEREOF OR THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW
YORK LOCATED IN NEW YORK COUNTY OR OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY,
EACH OF THE UNDERSIGNED HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
<PAGE> 4
GUARANTY, PAGE 4/5
AFORESAID COURTS. EACH OF THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES TRIAL BY
JURY AND ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION BASED ON
THE GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
EACH OF THE UNDERSIGNED HEREBY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE MADE BY THE MAILING OF COPIES OF SUCH PROCESS BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SPECIFIED
BELOW OR TO ANY OTHER ADDRESS OF WHICH IT SHALL HAVE GIVEN NOTICE TO THE BANK.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE TO
PROCEED AGAINST ANY OF THE UNDERSIGNED OR THE PROPERTY OF ANY OF THE
UNDERSIGNED IN ANY OTHER JURISDICTION.
<PAGE> 5
GUARANTY, PAGE 5/5
The respective addresses of each of the undersigned are C/O DSC COMMUNICATIONS
CORPORATION, 1000 COIT ROAD, PLANO TX 75075-5813.
IN WITNESS WHEREOF, the undersigned have hereunto set the hand(s) and seal(s)
of the undersigned, the day and year first above written.
DSC COMMUNICATIONS CORPORATION
By:
--------------------------
Title(s): Treasurer
DSC MARKETING SERVICES, INC. DSC FINANCE CORPORATION
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
DSC INTERNATIONAL CORPORATION DSC OF PUERTO RICO, INC.
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
DSC TELECOMMUNICATIONS CORPORATION DSC TELECOM, INC.
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
DSC TELECOM L.P. SILDOR INVESTMENTS B.V.
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
<PAGE> 1
EXHIBIT 10.6
SUBORDINATION AGREEMENT
This Agreement dated as of July 23, 1996, is between DSC
Communications Corporation, a Delaware corporation, DSC Marketing Services,
Inc., a Delaware corporation, DSC Finance Corporation, a Delaware corporation,
DSC International Corporation, a Delaware corporation, DSC of Puerto Rico,
Inc., a Delaware corporation, DSC Telecommunications Corporation, a Delaware
corporation, DSC Telecom, Inc., a Nevada corporation, DSC Telecom L.P., a Texas
limited partnership, and Sildor Investments B.V., a Netherlands corporation
(each herein referred to as a "SUBORDINATED CREDITOR" and together the
"SUBORDINATED CREDITORS"), and DSC Communications A/S, a Danish corporation
(herein referred to as the "OBLIGOR").
W I T N E S S E T H
WHEREAS, DSC Communications Corporation is the parent of and a
supplier to Obligor and the other Subordinated Creditors are sister companies
to and suppliers to Obligor, and together the Subordinated Creditors request
DEN DANSKE BANK Aktieselskab (herein the "BANK") to refinance certain existing
loans from certain of the Bank's branches and to make new loans resulting
together in the Bank's extending a DKK 250,000,000 15-year term loan (the
"15-YEAR TERM LOAN") and a DKK 300,000,000 5-year term loan (the "5-YEAR TERM
LOAN"; each a "TERM LOAN" and together, the "TERM LOANS") to Obligor in the
Bank's Cayman Islands branch;
WHEREAS, the Bank is willing to make those Term Loans to the Obligor
substantially according to the terms of certain credit documents including
notes in the aggregate amount of up to DKK 550,000,000 (the "NOTES") attached
hereto as Exhibit A and Exhibit B;
WHEREAS, the Bank requires that the Subordinated Creditors subordinate
the obligations owed or to be owed to the Subordinated Creditors by the Obligor
to the terms of a Subordination Agreement in support of the Obligor's
obligations to the Bank under the Notes;
WHEREAS, the Subordinated Creditors have agreed to subordinate their
present and future claims against the Obligor to the claims of the Bank under
the Notes against the Obligor; and
WHEREAS, the parties wish to set forth the terms of such
subordination;
NOW, THEREFORE, in consideration for the Bank's extension of credit
facilities to Obligor, the Obligor and the Subordinated Creditors agree as
follows:
<PAGE> 2
Subordination Agreement with DSC Communications A/S as Obligor page 2
1. All accounts payable, indebtedness, obligations, and
liabilities of the Obligor to each of the Subordinated Creditors individually
and to some or all of the Subordinated Creditors in the aggregate, including
principal and interest, whether direct or indirect, absolute or contingent,
secured or unsecured, due or to become due, now existing or hereafter arising
and howsoever evidenced, together with any renewal or renewals, extension or
extensions thereof, in whole or in part (the "SUBORDINATED DEBT"), shall be
subordinated and junior in right of payment, and the same hereby are
subordinated and made junior in right of payment to any and all indebtedness,
obligations and liabilities of the Obligor to the Bank pursuant to the Notes,
whether now existing or hereafter arising, including principal and interest,
whether direct or indirect, absolute or contingent, secured or unsecured, due
or to become due, and howsoever evidenced, together with any renewal or
renewals, extension or extensions thereof, in whole or in part, and all
post-petition interest in respect of the foregoing (the "SUPERIOR DEBT").
2. The Subordinated Creditors will not ask, demand, sue for, take
or receive from the Obligor, by way of setoff or in any other manner, all or
any part of the Subordinated Debt, and the Subordinated Creditors hereby waive
any right of offset with respect to the Subordinated Debt.
3. In the event that the Obligor becomes insolvent or bankrupt or
makes an assignment for the benefit of creditors or any proceedings shall be
commenced involving dissolution, insolvency, liquidation or adjustment of the
indebtedness of the Obligor, the Bank shall be entitled to receive for
application upon the Superior Debt (until payment in full of such Superior
Debt) any payment or distribution of any kind whatsoever which may be payable
or deliverable in such proceedings with respect to the Subordinated Debt.
4. As to each payment or distribution received by any
Subordinated Creditor upon or with respect to the Subordinated Debt prior to
the satisfaction in full of the Superior Debt, each Subordinated Creditor
receiving such payment or distribution for itself or for any other Subordinated
Creditor shall forthwith deliver the same to the Bank in the form received
(except for endorsement or assignment by said Subordinated Creditor(s) where
required by the Bank), for application on the Superior Debt, and, until so
delivered, the same shall be held in trust by said Subordinated Creditor(s) as
the property of the Bank. In the event of failure of any of the Subordinated
Creditors to make any such endorsement or assignment, the Bank, or any of its
officers or employees on behalf of the Bank, is hereby unequivocally authorized
to make the same. Each such payment or distribution is in all cases to be
delivered to the Bank's New York branch, presently located at 280 Park Avenue,
New York NY 10017, or to such other office of the Bank as the Bank may direct.
5. Notwithstanding anything to the contrary set forth in
paragraphs 1,2,3 or 4 above, if no Acceleration (as such term is defined in the
Notes) under the Notes and no Event of Default under the Notes (as such is
defined in the Notes, an "EVENT OF DEFAULT") or event, act or condition which
with notice or lapse of time or both would constitute an Event of Default (a
"DEFAULT") has occurred and no Event of Default or Default would occur
<PAGE> 3
Subordination Agreement with DSC Communications A/S as Obligor page 3
as a result of any payment described in this paragraph 5, the Obligor may pay
and the Subordinated Creditors may retain payments made with respect to all
accounts now or in the future payable to the Subordinated Creditors
6. The Subordinated Creditors, without the written consent of the
Bank, shall not assign, transfer, hypothecate or dispose of the Subordinated
Debt or any part thereof while any Superior Debt remains unpaid.
7. This Agreement shall constitute a continuing agreement of
subordination which shall remain in effect until the credit provided for under
the Notes (including any renewals, extensions or amendments thereof) and all
other commitments, contingent or otherwise, of the Bank with respect to any
loans or other indebtedness that would constitute Superior Debt have expired or
been terminated and the Superior Debt has been fully paid and satisfied.
8. At any time and from time to time, the Bank may (a) enter into
such agreement or agreements with the Obligor as the Bank may deem proper
extending the time of payment or renewing or otherwise altering the terms of
all or any part of the Superior Debt, or (b) exchange, sell or surrender or
otherwise deal with any security, mortgage, pledge or collateral or (c) release
any balance of funds of the Obligor on deposit with the Bank or (d) extend
other credit facilities to Obligor or permit to exist other debt of the Obligor
to the Bank which other facilities or debt are not Superior Debt ("OTHER
DEBT"), or (e) apply any payments from the Obligor to the payment of such Other
Debt, any or all of which may be done without notice to the Obligor or the
Subordinated Creditors and without in any way impairing or affecting this
Agreement or reducing the obligations of the Subordinated Creditors to the Bank
hereunder with respect to the Superior Debt. Presentment, demand, protest and
notice of protest or dishonor, and diligence in collecting any of the Superior
Debt are each hereby waived.
9. No waiver shall be deemed to be made by the Bank of any of its
rights hereunder unless the same shall be waived in a writing signed by the
Bank, and each such waiver, if any, shall be a waiver only with respect to the
specific matters to which the waiver relates and shall in no way impair the
rights of the Bank or the obligations of the Subordinated Creditors to the Bank
in any other respect at any time.
10. The possession by the Bank of the Notes or other evidence of
indebtedness of the Obligor made or endorsed by the Obligor in replacement,
renewal, amendment, or extension of the Notes, unless direct written evidence
to the contrary is produced, shall be conclusive that it is a part of the
Superior Debt covered by the Guaranty and that full value was given by the Bank
therefor.
11. Notice of acceptance by the Bank of this Agreement is hereby
waived by the Subordinated Creditors and the Obligor. This Agreement may not
be modified or terminated without the consent of the Bank.
<PAGE> 4
Subordination Agreement with DSC Communications A/S as Obligor page 4
12. This Agreement shall bind and inure to the benefit of the
Obligor, the Subordinated Creditors and the Bank and their respective
successors and assigns.
13. The Subordinated Creditors agree that no payment or
distribution by it directly to the holders of the Superior Debt pursuant to the
conditions of this Agreement shall entitle the Subordinated Creditors to any
rights of subrogation in respect thereof until all Superior Debt shall have
been paid in full in accordance with respective terms thereof.
14. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE OBLIGOR,
THE SUBORDINATED CREDITORS, AND OF THE BANK HEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
15. EACH OF THE UNDERSIGNED AGREES THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY AGREEMENT, INSTRUMENT, OR
DOCUMENT ENTERED INTO IN FURTHERANCE HEREOF MAY BE BROUGHT IN THE COURTS OF THE
STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
GUARANTY, EACH OF THE UNDERSIGNED HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF
ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH OF THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES TRIAL BY JURY AND
ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION BASED ON THE
GROUNDS OF FORUM NON CONVENIENS WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
EACH OF THE UNDERSIGNED HEREBY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE MADE BY THE MAILING OF COPIES OF SUCH PROCESS BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS ADDRESS SPECIFIED
BELOW OR TO ANY OTHER ADDRESS OF WHICH IT SHALL HAVE GIVEN NOTICE TO THE BANK.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE BANK TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE TO
PROCEED AGAINST ANY OF THE UNDERSIGNED OR THE PROPERTY OF ANY OF THE
UNDERSIGNED IN ANY OTHER JURISDICTION.
The address of each of the Subordinated Creditors is C/O DSC COMMUNICATIONS
CORPORATION, 1000 COIT ROAD, PLANO TX 75075- 5813.
<PAGE> 5
Subordination Agreement with DSC Communications A/S as Obligor page 5
Dated this 23rd day of July, 1996.
OBLIGOR:
DSC COMMUNICATIONS A/S
Lautrupbjerg 7-11, DK-2750, Ballerup, Denmark
By: By:
--------------------- ---------------------
Title: Vice President and Treasurer Title:
SUBORDINATED CREDITORS:
DSC COMMUNICATIONS CORPORATION
By:
--------------------------
Title(s): Treasurer
DSC MARKETING SERVICES, INC. DSC FINANCE CORPORATION
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
DSC INTERNATIONAL CORPORATION DSC OF PUERTO RICO, INC.
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
DSC TELECOMMUNICATIONS CORPORATION DSC TELECOM, INC.
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
DSC TELECOM L.P. SILDOR INVESTMENTS B.V.
By: By:
-------------------------- --------------------------
Title: Treasurer Title: Treasurer
<PAGE> 6
Subordination Agreement with DSC Communications A/S as Obligor page 6
ACCEPTED:
DEN DANSKE BANK AKTIESELSKAB
Cayman Islands Branch
c/o New York Branch
280 Park Avenue, 4th Floor - East Building
New York NY 10017
By:
--------------------------
Title: Vice President
By:
--------------------------
Title:
<PAGE> 1
Exhibit 11
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Computation of Income per Share
(In thousands)
(Unaudited)
The following table sets forth the computation of shares used in the
calculation of income per share for the three months and six months ended June
30, 1996 and 1995.
Average Shares Used in Income per Share Calculation:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding
during the period........................ 116,040 114,427 115,927 114,157
Common share equivalents
outstanding:
Options and warrants
issued and
contingently issuable.................. 3,843 5,676 3,915 5,594
Assumed purchase of
treasury shares........................ (1,390) (2,018) (1,400) (1,821)
------- ------- ------- -------
Weighted average shares
used in calculation...................... 118,493 118,085 118,442 117,930
======= ======= ======= =======
</TABLE>
Fully diluted income per share is not shown since the dilutive effect is less
than three percent for the three months and six months ended June 30, 1996 and
1995.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 166,167
<SECURITIES> 296,428
<RECEIVABLES> 287,741
<ALLOWANCES> 0
<INVENTORY> 348,369
<CURRENT-ASSETS> 1,190,689
<PP&E> 720,494
<DEPRECIATION> (323,635)
<TOTAL-ASSETS> 1,886,602
<CURRENT-LIABILITIES> 397,892
<BONDS> 275,163
<COMMON> 1,211
0
0
<OTHER-SE> 1,159,643
<TOTAL-LIABILITY-AND-EQUITY> 1,886,602
<SALES> 664,328
<TOTAL-REVENUES> 664,328
<CGS> 387,843
<TOTAL-COSTS> 387,843
<OTHER-EXPENSES> 224,167
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,292
<INCOME-PRETAX> 52,882
<INCOME-TAX> 20,095
<INCOME-CONTINUING> 32,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,787
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0
</TABLE>
