-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OwsKvbce0nWHen9icmEgcXoUgCdka1K8Y7Hx+m1h0v1i2yKqXagLcpKLnhjFXxSU pPjoXvpVlI1nHkgT0aePfQ== 0000950134-96-004344.txt : 19960816 0000950134-96-004344.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950134-96-004344 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSC COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000316004 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 541025763 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10018 FILM NUMBER: 96614288 BUSINESS ADDRESS: STREET 1: 1000 COIT RD CITY: PLANO STATE: TX ZIP: 75075 BUSINESS PHONE: 2145193000 MAIL ADDRESS: STREET 1: 1000 COIT ROAD CITY: PLANO STATE: TX ZIP: 75075-5813 FORMER COMPANY: FORMER CONFORMED NAME: DIGITAL SWITCH CORP DATE OF NAME CHANGE: 19850425 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996 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 ------- 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.
Number of Shares Outstanding Title of Each Class as of July 31, 1996 - ------------------------------ ---------------------------- Common Stock, $.01 Par Value 116,592,095
Page 1 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements. DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands)
June 30, December 31, 1996 1995 ----------- ------------ (Unaudited) 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 =========== ============
See the accompanying Notes to Condensed Consolidated Financial Statements. Page 2 3 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income (In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------- -------------------------- 1996 1995 1996 1995 --------- --------- --------- --------- 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
See the accompanying Notes to Condensed Consolidated Financial Statements. Page 3 4 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited)
Six Months Ended June 30, ---------------------------- 1996 1995 ----------- ----------- 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) ----------- -----------
(Continued) Page 4 5 DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Continued) (In thousands) (Unaudited)
Six Months Ended June 30, ---------------------------- 1996 1995 ----------- ----------- 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 =========== ===========
See the accompanying Notes to Condensed Consolidated Financial Statements. Page 5 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):
June 30, December 31, 1996 1995 --------- ------------ Raw Materials . . . . . . . . . . . . . . . . . . . . . . . $ 152,546 $ 137,002 Work in Process . . . . . . . . . . . . . . . . . . . . . . 27,164 20,015 Finished Goods . . . . . . . . . . . . . . . . . . . . . . . 168,659 146,945 --------- --------- $ 348,369 $ 303,962 ========= =========
Page 6 7 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. Page 7 8 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 Page 8 9 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. Page 9 10 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. Page 10 11 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 Page 11 12 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. Page 12 13 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. Page 13 14 PART II - OTHER INFORMATION 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 Page 14 16 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 Page 15 17 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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).
EX-10.1 2 PROMISSORY NOTE 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 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. 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. 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 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 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 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. 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 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: 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. EX-10.2 3 LINE LETTER 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. 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 ---------------------------- EX-10.3 4 PROMISSORY NOTE 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 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. 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. 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 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 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 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. 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 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: 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. EX-10.4 5 LINE LETTER 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. 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 ---------------------------- EX-10.5 6 GUARANTY 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 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 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 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. 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 EX-10.6 7 SUBORDINATION AGREEMENT 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: 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 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. 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. 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 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: EX-11 8 COMPUTATION OF INCOME PER SHARE 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:
Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------- 1996 1995 1996 1995 ------- ------- ------- ------- 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 ======= ======= ======= =======
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. EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 166,167 296,428 287,741 0 348,369 1,190,689 720,494 (323,635) 1,886,602 397,892 275,163 1,211 0 0 1,159,643 1,886,602 664,328 664,328 387,843 387,843 224,167 0 13,292 52,882 20,095 32,787 0 0 0 32,787 0.28 0
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