<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 1-11152
INTERDIGITAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 23-1882087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2200 Renaissance Boulevard, Suite 105, King of Prussia, PA 19406
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code (610) 278-7800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, par value $.01 per share 44,061,176 shares
Class Outstanding at May 10, 1995
</TABLE>
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
Part I - Financial Information:
<TABLE>
<CAPTION>
PAGES
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - 3-4
December 31, 1994 and March 31, 1995 (unaudited)
Consolidated Statements of Operations 5
Three Months Ended March 31, 1994 and 1995 (unaudited)
Consolidated Statements of Cash Flows - 6-7
Three Months Ended March 31, 1994 and 1995 (unaudited)
Notes to Consolidated Financial Statements 8-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
Part II - Other Information:
Item 1. Legal Proceedings 18-19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
2
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1994 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted
cash of $471 and $500, respectively $ 6,264 $ 43,426
License fees receivable 20,900 16,800
Accounts receivable, net of allowance for
uncollectable accounts of $2,333 and $2260, respectively 3,683 2,638
Inventories 5,014 3,737
Deposits on inventory purchases 539 970
Other current assets 860 960
-------- --------
Total current assets 37,260 68,531
-------- --------
PROPERTY AND EQUIPMENT:
Machinery and equipment 3,780 3,868
Computer equipment 3,476 3,712
Furniture and fixtures 1,521 1,522
Leasehold improvements 831 896
-------- --------
9,608 9,998
Less-accumulated depreciation and amortization (7,333) (7,550)
-------- --------
Net property and equipment 2,275 2,448
-------- --------
OTHER ASSETS:
Patents, net of accumulated amortization of
$2,946 and $3,074 respectively 2,588 2,604
Deferred software costs, net of accumulated amortization
of $503 and $588, respectively 922 885
Other 785 1,123
-------- --------
Total other assets 4,295 4,612
-------- --------
$ 43,830 $ 75,591
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1995
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 233 $ 205
Due to Hughes Network Systems, Inc. 7,003 7,003
Accounts payable 9,536 4,025
Accrued compensation 2,904 3,472
Purchase commitment reserve 1,304 1,283
Deferred revenue 665 3,615
Income and foreign withholding taxes payable 1,573 1,835
Accrued distributor commissions 616 583
Accrued warranty costs 765 867
Other accrued expenses 2,543 3,595
--------- ---------
Total current liabilities 27,142 26,483
--------- ---------
LONG TERM DEBT 520 531
--------- ---------
MINORITY INTEREST 1,296 3,196
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred Stock, $ .10 par value, 14,399 shares authorized-
$2.50 Convertible Preferred, 113 shares and 106 shares
issued and outstanding 11 11
Common Stock, $.01 par value, 75,000 shares authorized,
41,811 shares and 43,848 shares issued and
outstanding 418 438
Additional paid-in capital 199,158 209,484
Accumulated deficit (184,665) (164,527)
--------- ---------
14,922 45,406
Deferred compensation (50) (25)
--------- ---------
Total shareholders' equity 14,872 45,381
--------- ---------
$ 43,830 $ 75,591
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1994 1995
---- ----
<S> <C> <C>
REVENUES:
UltraPhone $ 1,006 $ 5,311
Licensing 45 31,119
Contract Services 196 304
-------- --------
1,247 36,734
-------- --------
OPERATING EXPENSES:
Cost of UltraPhone revenues 1,405 5,845
Contract service costs 297 254
Sales and marketing 1,218 1,092
General and administrative 3,373 4,415
Research and development 1,565 1,825
-------- --------
7,858 13,431
-------- --------
Income (loss) from operations (6,611) 23,303
OTHER INCOME (EXPENSE):
Interest income 44 402
Interest and financing expenses (84) (166)
-------- --------
Income (loss) from continuing operations before income taxes
and minority interest (6,651) 23,539
INCOME TAX PROVISION -- (1,476)
-------- --------
Income (loss) from continuing operations before minority interest (6,651) 22,063
MINORITY INTEREST 57 (1,859)
-------- --------
Net income (loss) from continuing operations (6,594) 20,204
-------- --------
DISCONTINUED OPERATIONS:
Loss from discontinued operations (216) --
Provision for losses prior to expected disposal date (200) --
-------- --------
(416) --
-------- --------
Net income (loss) (7,010) 20,204
PREFERRED STOCK DIVIDENDS (71) (66)
-------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $ (7,081) $ 20,138
======== ========
NET INCOME (LOSS) PER SHARE - CONTINUING OPERATIONS $ (0.19) $ 0.43
NET INCOME (LOSS) PER SHARE - DISCONTINUED OPERATIONS (0.01) --
-------- --------
NET INCOME (LOSS) PER COMMON SHARE $ (0.20) $ 0.43
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (NOTE 7) 34,996 46,854
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1994 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(6,594) $20,204
Adjustments to reconcile net loss to net
cash used for operating activities-
Minority interest in subsidiary (57) 1,900
Depreciation and amortization 411 430
Compensation on stock issued
and stock options granted 29 25
Loss from discontinued operations (416) --
Cash provided by discontinued operations 97 --
Other (7) (66)
Decrease (increase) in assets-
Receivables 567 5,145
Inventories (1,083) 1,277
Deposits on inventory purchases (215) (431)
Other current assets 264 (100)
Increase (decrease) in liabilities-
Accounts payable 1,984 (5,511)
Reserve for Hughes Network Systems, Inc. 43 --
Accrued compensation 587 568
Purchase commitment reserve -- (21)
Deferred revenue 35 2,950
Income and foreign withholding
taxes payable -- 262
Accrued distributor commissions (147) (33)
Accrued warranty costs (66) 102
Other accrued expenses (1,291) 1,052
-------- -------
Net cash provided by (used for)
operating activities $(5,859) $27,753
-------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
------------------------------------
1994 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment $ (641) $ (319)
Capitalized software development costs (214) (48)
Additions to patents (119) (144)
Other non-current assets (140) (338)
------- -------
Net cash used for investing activities (1,114) (849)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of Common Stock
and exercises of stock options and warrants 55 10,346
Proceeds from long-term debt 3,000 --
Payments on long-term debt (80) (88)
------- -------
Net cash provided by financing activities 2,975 10,258
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,998) 37,162
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,211 6,264
------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,213 $43,426
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 15 $ 8
======= =======
Income taxes paid -- --
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
1. BACKGROUND:
InterDigital Communications Corporation ("IDC") develops and markets advanced
digital wireless telecommunications systems using proprietary technologies for
voice and data communications and has developed an extensive patent portfolio
related to those technologies. The Company's principal product is the
UltraPhone, a telephone system providing business and households access to basic
telephone service through a wireless local loop. UltraPhone revenues have
historically accounted for the majority of the Company's revenues, but accounted
for only 40% of total revenues during 1994 and only 14% during the first quarter
of 1995. Since 1987, the Company has sold over 220 UltraPhone systems worldwide,
with aggregate UltraPhone revenues totaling over $125 million.
In addition to its UltraPhone business, the Company, through InterDigital
Technology Corporation ("ITC"), is seeking to capitalize upon the revenue
potential of its extensive TDMA and CDMA patent portfolio. ITC implemented a
strategy during 1993 of negotiation and litigation with certain entities which
it believed were infringing the Company's patents. These efforts have resulted
in patent license agreements with 11 entities in 1994 and through May 10, 1995,
and the recognition of $28.7 million of licensing revenue in 1994 and $31.1
million during the first quarter of 1995.
On December 16, 1994, the Company formed its first business alliance based
upon its TDMA and B-CDMA technologies. On that date, the Company entered into a
Master Agreement and a series of four related agreements as elements of an
integrated transaction establishing a broad based marketing and technology
alliance with Siemens Aktiengesellschaft ("Siemens"). Under the UltraPhone OEM
Purchase Agreement, Siemens will be obligated to purchase its requirement of
wireless local loop products for certain specified applications from the Company
on an OEM basis. Under the TDMA/CDMA Development and Technical Assistance
Agreement, Siemens will provide technical assistance to accelerate the
commercialization and deployment of the Company's B-CDMA technology and the
parties will work on UltraPhone product improvements and enhancements when
product changes are required to satisfy market demands. The agreement provides
that Siemens will have an exclusive, royalty-bearing license of the Company's
Know-how associated with the B-CDMA ASIC chip, with a two year exclusive of
certain other B-CDMA technology. Pursuant to the know-how licenses, Siemens
shall pay to the Company a running royalty of five (5%) percent of all sales of
B-CDMA equipment worldwide which incorporates B-CDMA ASICs or otherwise
incorporates B-CDMA know-how. InterDigital will continue to maintain the right
to sell ASIC chips to other telecommunications manufacturers and/or license
certain specified non-ASIC specific technology and know-how embodied in the
B-CDMA systems. Under the Patent License Agreement, the parties granted
reciprocal, non-exclusive, world-wide, paid-up, perpetual licenses for the life
of their respective current TDMA and CDMA patents and future patents with an
effective filing date of not later than five years after the date of the Patent
License Agreement, subject to certain application limitations. Siemens may
additionally provide certain other benefits under the Cooperation Agreement.
As partial consideration for the rights and licenses granted by the Company,
Siemens is obligated to pay $20 million, of which $9.6 million was paid as of
May 10, 1995, with the remainder being payable in quarterly installments through
March 30, 1996. In accordance with accounting requirements, ITC will recognize
the $20 million of revenue ratably over the 15 month payment period starting in
January 1995 due to the combined nature of the contracts.
As an adjunct to its primary business, the Company provided advanced digital
wireless research and development services to government and business
organizations. During the third quarter of 1994, the Company substantially
withdrew from the contract services market in order to focus on its other core
8
<PAGE>
business activities. Beginning in 1991, the Company also provided
telecommunications services to businesses and households through the ownership
and operation of Telephone Operating Companies ("TELCOs"), primarily Haviland
Telephone Company ("Haviland"), in rural areas of the United States. During
1994, the Company exited this business through the sale of its investments in
the TELCOs and accordingly has accounted for the TELCO operations as
discontinued operations. (See Note 4).
On March 29, 1995, a trial involving ITC and Motorola, Inc. ended with the
jury's verdict, which is subject to varying interpretation, but which is
interpreted by the Company to mean that ITC's patent claims at issue in the
case, involving four of ITC's patents, are not infringed by Motorola and, if
construed to be infringed, are invalid. While the Company intends to appeal the
jury verdict and believes that a strong basis exists to overturn the verdict,
the ultimate resolution of this matter will likely occur in the intermediate to
long term. In the short term, the verdict may adversely affect the Company's
efforts to generate further revenue and cash flow from ITC's patent portfolio
and may impair generally the Company's ability to raise additional funds for
general corporate purposes. The outcome of the jury trial may also temporarily
or permanently adversely affect ITC's pending U.S. litigation against Ericsson
and its ability to realize running royalties under certain of its license
agreements.
2. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
InterDigital Communications Corporation and Subsidiaries' financial position as
of March 31, 1995 and the results of their operations for the three month period
ended March 31, 1994 and 1995 and cash flows for the three month periods ended
March 31, 1994 and 1995. The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions for Form 10-Q
and accordingly do not include all of the detailed schedules, information and
notes necessary for a fair presentation of financial condition, results of
operations and cash flows in conformity with generally accepted accounting
principles. Therefore, these financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
latest annual report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire year.
The Consolidated Statement of Operations for the three month period
ended March 31, 1994 has been reclassified to conform with the current
period expense presentation.
3. CONTINGENCIES:
IDC is the defendant and counterclaim plaintiff in a lawsuit brought by Hughes
Network Systems, Inc. ("HNS") which alleges breach of certain agreements by IDC.
Additionally, IDC and ITC are variously parties to patent related litigation.
ITC is the plaintiff in two actions alleging patent infringement (in one such
action, IDC has received an adverse jury verdict and is in the post trial appeal
process) and, in each such instance, is or was seeking damages and equitable
remedies. IDC and ITC are or were variously defendants in two actions filed by
the alleged infringers seeking declaratory relief, damages, and, in some
instances, variously attempting to enjoin IDC and ITC from prospectively
asserting equitable and legal claims arising from any additional, alleged patent
infringement. (In one such action, ITC has received an adverse jury verdict and
is in the post trial appeal process. In that action, the plaintiff has
filed a motion requesting attorney's fees and costs). The Company and its
subsidiary intend to vigorously pursue and defend the lawsuits. (See Part II,
Item 1. Legal Proceedings.)
On November 7, 1994, a purported class action complaint was filed against the
Company and its former chief executive officer alleging certain violations of
the disclosure requirements of the federal securities laws. The Company believes
that the complaint is without merit and intends to contest it vigorously. (See
Part II, Item 1. Legal Proceedings.)
In addition to litigation associated with patent enforcement and licensing
activities and the other litigation described above, the Company is a party to
certain legal actions arising in the ordinary course of its business. Based
upon information presently available to the Company, the Company believes
that the ultimate outcome of these other actions will not materially affect
the Company. (see Part II, Item 1. Legal Proceedings.)
9
<PAGE>
4. SALE OF TELEPHONE OPERATING COMPANIES
During the first quarter of 1994, the Company committed to a formal plan to
sell its interests in the TELCOs. The Company entered into a definitive
agreement of sale of Haviland on September 26, 1994. The Company sold its
remaining interest in another TELCO during December 1994. The results of
operations of the TELCOs for the three months ended March 31, 1994 have been
classified as discontinued operations and the Company recorded a provision of
$200,000 during the first quarter of 1994 for expected losses through the
expected disposal date.
5. CASH AND CASH EQUIVALENTS:
The Company considers investments purchased with an original maturity of three
months or less to be cash equivalents for purposes of the statements of cash
flows. The Company invests its excess cash in various time deposits and
marketable securities, which are included in cash and cash equivalents, as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
---- ----
<S> <C> <C>
Cash, money market and demand deposits $ 124 $ 3,592
Certificates of deposit 340 340
Repurchase agreements 5,800 39,494
-------- ---------
$ 6,264 $ 43,426
======== =========
</TABLE>
The repurchase agreements are fully collateralized by United States Government
securities and are stated at cost which approximates fair market value.
6. MAJOR ULTRAPHONE CUSTOMERS:
In fiscal 1994, the Company's Indonesian and Myanmarian customers
represented 54% and 12%, of UltraPhone revenues, respectively.
During the first quarter of 1994 and 1995, the Company's Indonesian
customer accounted for 0% and 83%, respectively of UltraPhone revenues.
UltraPhone revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1994 1995
---- ----
<S> <C> <C>
Domestic $ 649 $ 758
Foreign 357 4,553
-------- ---------
$ 1,006 $ 5,311
======== =========
</TABLE>
7. NET INCOME (LOSS) PER COMMON SHARE:
The net income (loss) per share is based upon the weighted average common
shares outstanding during the period adjusted for cumulative dividends on $2.50
Preferred Stock. Stock options and warrants have been considered as common stock
equivalents and have been included in the 1995 computation since their effect
would be dilutive. (See Item 6, Exhibit 11 Computation of Net Income (Loss) Per
Share.)
10
<PAGE>
8. LICENSING REVENUES AND AGREEMENTS:
During the first quarter of 1995, ITC entered into royalty bearing license
agreements with Pacific Communication Sciences, Inc., a subsidiary of Cirrus
Logic, Inc., Sanyo Electric Company, Ltd., Mitsubishi Electric Corporation and
Hitachi, Ltd. together with its affiliate Kokysai Electric Co. Ltd., under its
patent portfolio for the manufacture, use and sale of TDMA based subscriber
units and infrastructure equipment. Each of these agreements contained advance
payment obligations pursuant to which ITC is entitled to receive an aggregate of
approximately $27.1 million, which was recognized as revenue during the first
quarter of 1995. An additional $4 million of revenue was recognized
during the first quarter of 1995 pursuant to the Siemens Agreements.
9. INVENTORIES:
<TABLE>
<CAPTION>
December 31, March 31,
1994 1995
---- ----
(In thousands)
<S> <C> <C>
Component parts and work-in-progress $ 3,864 $ 2,885
Finished goods 1,150 852
------- -------
$ 5,014 $ 3,737
======= =======
</TABLE>
Inventories are stated net of valuation reserves of $7.5 million and $7.8
million as of December 31, 1994 and March 31, 1995, respectively. In addition,
inventory purchase commitment reserves were $1.3 million as of December 31, 1994
and March 31, 1995.
10. SHORT-TERM BORROWINGS:
In March 1994, the Company entered into a $3.0 million secured borrowing
arrangement, evidenced by Promissory Notes, in connection with a proposed
long-term financing arrangement. The Promissory Notes, which bore interest at
11% per annum, were repaid in 2 installments in June and July, 1994 when the
parties to the long-term financing arrangement agreed not to proceed.
During the second quarter of 1994, the Company received $2.4 million in
proceeds from the issuance of a series of Promissory Notes. The Notes were
collateralized by the proceeds from the sale of Haviland, accrued interest at a
rate of 11% which was payable at maturity and had initial terms of 90 days, with
original maturities occurring during August and September 1994. At maturity, the
holder could elect to have the repayment of principal, in whole or in part, in
the form of Common Stock at the conversion price of $3.75 per share. In the
event of such election, the Company's obligation to pay interest to noteholders
was to be waived. Additionally, as an inducement to enter into the note
agreement, the noteholders were granted 280,000 warrants with a term of 10 years
and an exercise price of $3.75 per share. At September 30, 1994, $2.3 million of
the Notes were extended in consideration for a reduction in the conversion rate
to $1.78 per share and a reduced exercise price in the warrants. As of December
31, 1994, $2.2 million of the Notes had been repaid and $189,000 had converted
in exchange for 106,000 shares of Common Stock.
11
<PAGE>
11. INCOME TAXES:
Effective January 1, 1991, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The income tax provision for the three months ended March 31, 1995, consists
of a current foreign withholding tax provision of $1.0 million, a current state
and local tax provision of $38,000 and a Federal Alternative Minimum Tax
provision of $400,000. At December 31, 1994, the Company had net operating loss
carryforwards of approximately $130 million. Since realization of the tax
benefits associated with these carryforwards is not assured, a valuation
allowance of 100% of the potential tax benefit is recorded as of March 31, 1995.
The net operating loss carryforwards are scheduled to expire as follows:
<TABLE>
<S> <C>
1995 $ --
1996 0.5 million
1997 0.5 million
1998 2.5 million
1999 5.2 million
thereafter 121.3 million
-----------------
$ 130.0 million
=================
</TABLE>
Pursuant to the Tax Reform Act of 1986, annual use of the Company's net
operating loss and credit carryforwards may be limited if a cumulative change in
ownership of more than 50% occurs within a three-year period. The annual
limitation is generally equal to the product of (x) the aggregate fair market
value of the Company's stock immediately before the ownership change times (y)
the "long-term tax exempt rate" (within the meaning of Section 382(f) of the
Code) in effect at that time. The Company believes that no ownership change for
purposes of Section 382 occurred up to and including March 31, 1995. The
Company's calculations reflect the adoption of new Treasury Regulations which
became effective on November 4, 1992 and which have beneficial effects regarding
the treatment of options and other aspects of the ownership change calculation.
12. SUBSEQUENT EVENT:
The Company, through ITC, entered into a royalty bearing license agreement
with NEC Corporation covering the manufacture, use and sale of TDMA based
subscriber units and infrastructure equipment. Under the agreement, ITC will
receive a royalty advance in excess of $20 million, and, if certain conditions
exist at the date of manufacture of defined products, additional royalties on
digital wireless telephones and infrastructure equipment built in accordance
with the TDMA based IS-54, IS-136, GSM, DCS-1800/1900, PDC and PHS standards.
The advance payment is due on May 25, 1995 and is irrevocable and
non-refundable.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, contained elsewhere in this Form 10-Q.
InterDigital commenced operations in 1972 and until 1987 was primarily engaged
in research and development activities related to its TDMA wireless digital
communications technology. In 1986, the Company introduced the UltraPhone
system, a fixed digital wireless local loop telephone system employing its
patented and proprietary TDMA technology, which it began installing in 1987. The
Company's operations from 1987 through 1992 were characterized by increasing
revenues accompanied by significant operating losses. During this period,
significant costs were incurred related to the commercialization and continued
development of the UltraPhone system, development of production sources and
capacity, and the implementation of a broad-based sales and marketing effort
designed to promote regulatory and market acceptance of the UltraPhone system.
During 1993 and 1994, UltraPhone revenues were significantly lower than in 1992;
losses increased significantly as a result of the decline in UltraPhone revenues
and other increases in costs, such as the increased investment in B-CDMA
research and development, engineering of product redesigns and enhancements, the
increase in litigation costs and the costs associated with enforcement of ITC's
intellectual property rights. In 1994, the Company began to realize positive
results from its efforts to capitalize upon the revenue potential of its TDMA
and CDMA patent portfolio and recognized $28.7 million of licensing revenue,
representing over 57% of total revenues for 1994. The licensing revenue and
increased UltraPhone sales in 1994 over 1993 led to reduced losses in 1994
compared to 1993 despite large increases in the costs of litigation associated
with enforcement of ITC's intellectual property rights and other costs. During
the first quarter of 1995, the Company recognized $31.1 million of licensing
revenue and generated $20.1 million of net income for the quarter which
decreased the Company's accumulated deficit as of March 31, 1995 to $164.5
million.
On March 29, 1995, a trial involving ITC and Motorola, Inc. ended with the
jury's verdict, which is subject to varying interpretation, but which is
interpreted by the Company to mean that ITC's patent claims at issue in the
case, involving four of ITC's patents, are not infringed by Motorola and, if
construed to be infringed, are invalid. While the Company intends to appeal
the jury verdict and believes that a strong basis exists to overturn the
verdict, the ultimate resolution of this matter will likely occur in the
intermediate to long term. In the short term, the verdict may adversely affect
the Company's efforts to generate further revenue and cash flow from ITC's
patent portfolio and may impair generally the Company's ability to raise
additional funds for general corporate purposes. The outcome of the jury trial
may also temporarily or permanently adversely affect ITC's pending U.S.
litigation against Ericsson and its ability to realize running royalties under
certain of its license agreements.
Notwithstanding the Motorola verdict, based on agreements signed as of May 10,
1995, the Company anticipates minimum additional license revenue, primarily in
the remainder of 1995, of approximately $42.9 million, representing
non-refundable advance or paid-up license fees.
Historically, InterDigital's primary source of revenue was derived from sales
of the UltraPhone digital wireless local loop telephone system. In recent years,
foreign sales have represented a majority of the sales of UltraPhone systems,
and it is anticipated that foreign sales will represent a majority of UltraPhone
sales for the foreseeable future. UltraPhone sales have, on a historical basis,
varied significantly from quarter to quarter due to the concentration of
revenues from the Company's largest customers over a few fiscal quarters.
Recently this trend has become more significant due to the Company's reliance
upon a few major customers for a substantial portion of the Company's UltraPhone
sales. See Note 6 to "Notes to Consolidated Financial Statements".
The Company began to experience a significant decline in UltraPhone order
volume during 1992. Beginning in 1992, competition for sales of wireless
telephone systems intensified as providers of both analog and digital cellular
systems, many of which have significantly greater resources than the Company,
more actively promoted their products for fixed site installations in the
Company's target
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markets. At the same time, the Company began to restructure its
sales and marketing efforts to focus on multi-year, large-scale
telecommunications infrastructure programs in which the UltraPhone would be
positioned as a fundamental component in the rural and near-urban telephone
networks of such programs.
During 1993 and 1994, the Company sought to counter these competitive
pressures by emphasizing the advantages which it believes the UltraPhone offers
over fixed cellular and other wireless systems and by lowering UltraPhone system
prices.
In order to support the flexible pricing generally required in multi-year
programs, the Company introduced a redesigned central office terminal which
expanded base station capacity by over 50% and a significantly lower-priced
cluster unit during the last half of 1994 and expects to introduce a more
fully-featured subscriber unit during the last half of 1995. The Company
anticipates that reductions in product costs will be most fully realized in
cluster systems and will be realized, to a lesser degree, in other non-cluster
configurations in which there is a high ratio of subscriber units to base
stations. Price reductions in 1993 and thereafter resulted in and will result in
continued pressure upon gross profit margins until such time as the Company is
able to reduce product costs commensurately.
The inability to competitively approach the aggressive pricing from fixed
cellular and other competitors, the significant additional complexities of, and
time required in, competing for large scale programs, as well as the
restructuring of the sales force, have all adversely impacted order volume and
revenues since 1993. The Company is continuing to adjust its sales and marketing
strategies by focusing its direct efforts, improving its UltraPhone distribution
network and pursuing various alliance partners. The Company entered into its
first major alliance in December 1994 with Siemens Aktiengesellschaft
("Siemens"). As part of the relationship, Siemens has begun to market the
UltraPhone product. The Company does not currently anticipate that the Siemens
relationship will generate significant UltraPhone shipments and revenues in
1995.
In addition to the effects of varying selling prices and product materials
costs, the Company's gross profit margin ratios are ordinarily affected by the
relative proportions of direct and distributor sales, by the average number of
subscribers per system sold, by its ability to absorb manufacturing overhead
costs through generation of sufficient production volume and by the field
service costs for installation, warranty, training and post-sale support.
Consistent with industry practices, distributor commissions have been included
in both revenues and cost of sales. Historically, the Company's gross profit
margin from sales has been inadequate to support its operating and other
expenses. The low sales volumes experienced in previous years have resulted in
production volumes, which were inadequate to fully absorb fixed production
overhead costs, resulting in negative gross margins; at current sale
price levels, UltraPhone gross profits would be positive if higher
production and sales volumes were achieved.
Results of Operations - First Quarter of 1995 Compared to the First Quarter of
1994
Total Revenues. Total revenues in the first quarter ended March 31, 1995
increased to $36.7 million, from $1.2 million in the first quarter ended March
31, 1994 primarily due to the recognition of $31.1 of licensing revenue in the
1995 period. UltraPhone sales increased 428% in the first quarter of 1995 to
$5.3 million from $1.0 million in the comparable quarter of 1994. The Company
shipped $4.4 million of UltraPhone equipment to Indonesia during the first
quarter of 1995 which represented the balance of the $14.9 million Indonesian
order which began shipment in the third quarter of 1994.
During the first quarter of 1995, ITC entered into royalty bearing license
agreements with four licensees under its patent portfolio for the manufacture,
use and sale of TDMA based subscriber units and infrastructure equipment. Each
of these agreements contained advance payment obligations pursuant to which ITC
is entitled to receive an aggregate of approximately $27.1 million, which was
recognized as revenue during the first quarter of 1995. Additionally, the
Company recognized $4.0 million as part of the Siemens series of agreements.
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The Company had contract revenue related to its U.S. Federal government and
other services contracts for the first quarter in both 1994 and 1995. During the
first quarter of 1995, the Company had $304,000 of contract revenue as compared
to $196,000 during the first quarter of 1994. The increase in revenue is due to
the completion of the remaining contracts for which the Company was obligated.
During the third quarter of 1994, the Company began withdrawing from the
contract services market in order to focus on its other core business
activities.
Cost of UltraPhone Sales. The cost of UltraPhone sales for the first quarter of
1995 increased 316% to $5.8 million from $1.4 million for the first quarter of
1994. The Company incurred a negative gross margin on UltraPhone sales of 10.0%
for the three months ended March 31, 1995 as compared to a negative gross margin
of 39.7% for the three month period ended March 31, 1994. Included in cost of
UltraPhone sales are costs of product assembly, integration and testing,
distributor commissions, freight and tariffs, and expenses associated with
installation, support and warranty services related to the UltraPhone systems.
Also included in the cost of sales are the overhead expenses the Company has
incurred in maintaining its production resources that were not absorbed into
inventory due to the low volume of production.
Contract Services Costs. Contract services costs decreased 14.4% to $254,000 in
the three month period ended March 31, 1995 from $297,000 in the first quarter
of 1994, primarily due to the shutdown of the facilities and the termination of
employees, accrued for in the prior year, related to this segment of business.
Other Operating Expenses. Other operating expenses include sales and
marketing expenses, general and administrative expenses and research and
development expenses.
Sales and marketing expenses decreased 10.3% to $1.1 million during the first
quarter of 1995 as compared to $1.2 million during the first quarter of 1994.
The decrease is primarily due to reduced staff and activity levels, but was
partially offset by an increase in commission expense due to the increase in
UltraPhone revenues in the three month period of 1995.
General and administrative expenses for the first quarter of 1995 increased
30.9% to $4.4 million from $3.4 million for the first quarter of 1994. Expenses
related to the protection and exploitation of the Company's patents, including
legal costs of the Motorola trial, increased by approximately $2.3 million in
the 1995 period compared to the 1994 period. The first quarter of 1994
includes $560,000 of severance costs for terminated personnel.
Research and development expenses increased 16.6% for the first quarter of
1995 to $1.8 million from $1.6 million for the first quarter of 1994. The
increase over the prior year period is due primarily to increased staff and
activity levels devoted to the development of the B-CDMA technology and the
development of the Company's fourth generation UltraPhone product expected
during the second half of 1995. Statement of Financial Accounting Standards No.
86 requires capitalization of certain software development costs. The effects of
this statement reduced the research and development expenses for the three month
periods ended March 31, 1994 and 1995 by $214,000 and $47,000, respectively.
Other Income and Expense. Interest income for the first quarter of 1995 was
$402,000 as compared to $44,000 for the first quarter of 1994. The increase is
due primarily to greater average invested cash balances in 1995 compared
to 1994. Interest expense for the three month period ended March 31, 1995 was
$166,000 as compared to $84,000 for the three month period ended March 31, 1994.
The increase is due primarily to the additional interest expense related to the
HNS obligation.
Minority Interest. In December 1992, the Company sold 5.76% of the common shares
of Patents Corp., which had, prior thereto, been a wholly-owned subsidiary of
the Company. The Company recorded $1.9 million as an increase in minority
interest in the first quarter of 1995 representing the minority interest's
portion of the net income of Patents Corp. for the first quarter of 1995. During
the comparable 1994
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period, the Company recorded a reduction of $57,000 in
minority interest representing the minority interest's portion of the net loss
of Patents Corp. for the first quarter of 1994.
Financial Position, Liquidity and Capital Requirements:
Historically, the Company has experienced liquidity problems due to its lack
of significant revenues, its record of significant operating losses and its need
to invest in additional equipment, UltraPhone technology development and patent
activities, as well as the TELCO program. In addition, since October 1992, the
Company has allocated significant cash resources towards its B-CDMA research and
development activities. The Company has addressed such cash needs, primarily
by public offerings, private placements and other sales of its securities,
and more recently through the proceeds of license and alliance transactions.
The proceeds from licensing transactions are paid to ITC. Such funds can be
made available for uses related to UltraPhone marketing efforts, product
development efforts or other Company uses upon such funds being transferred to
InterDigital pursuant to contractual arrangements or in conjunction with
a dividend declaration.
The Company had working capital of $42.4 million at March 31, 1995 compared to
working capital of $10.1 million at December 31, 1994. The increase in working
capital since December is due primarily to $38.2 million of cash received on
patent licensing agreements and $10.3 million received from stock option and
warrant exercises.
The Company's operations to date have required substantial amounts of working
capital. The Company may, at some future date subsequent to 1995, require
additional debt or equity capitalization to fully support its product
development and marketing activities relating to its proprietary technologies
and to fund its patent enforcement activities. The Company's working capital
requirements will depend on numerous additional factors, including but not
limited to the level of demand for the UltraPhone system, the progress
and cash requirements of the Company's research and product development
programs, the ability to generate patent license fees and royalties, and the
need to expend funds in connection with its patent enforcement activities. In
addition, when the Company builds to specification to complete an order, it
traditionally experiences negative cash flows from inception of its production
ordering through customer payment at the time of, or subsequent to, order
shipment. If the Company were to experience additional sudden and significant
increases in orders to be built to specification, it would intensify the need
for significant short-term financing arrangements. The Company is increasingly
marketing the UltraPhone System in urban and near-urban applications and has
received a $17 million order for such an application. It is likely that
the Company will expend funds for certain engineering modifications to the
UltraPhone System required to facilitate any such particular urban or
near-urban application and such engineering requirements could cause
delays in fulfilling related orders.
The Company believes that its investment in inventories and non-current assets
are stated on its March 31, 1995 balance sheet at realizable values based on
expected selling price and order volumes. Property and equipment are currently
being utilized in the Company's on-going business activities, and the Company
believes that no additional write-downs are required at this time due to lack of
use or technological obsolescence. With respect to other assets, the Company
believes that the value of its patents is at least equal to the value included
in the March 31, 1995 balance sheet.
Changes in Cash Flows and Financial Condition:
The Company has experienced positive cash flows from operations during the
three months ended March 31, 1995. The positive cash flows from operations
are primarily due to the receipt of $38.2 million related to the
Company's patent licensing activities offset by expenses incurred for
UltraPhone production and marketing, B-CDMA technology development and
the Company's general and administrative activities.
Net cash flows from investing activities were negative for the three months
ended March 31, 1995 due to the Company's investment in property and
equipment, software development costs and patents. Notwithstanding the above,
the amount of cash used in investing activities has, historically, been low
relative to cash used in operations.
During the three month period ended March 31, 1995, the Company
generated $10.3 million from investing activities. The funds were
primarily generated by the exercise of stock options and warrants.
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The Company raised substantial sums of money during 1993 and 1994
through the sale of Common Stock and other securities. The net cash provided by
financing activities during 1993 and 1994 and the cash provided by the
sales of TELCO operations during 1994 was sufficient, in the
aggregate, to more than offset the combined negative cash flows from operating
and investing activities in those years.
Cash and cash equivalents of $43.4 million as of March 31, 1995 includes $34.2
million held by Patents Corp. and $500,000 of restricted cash. The
UltraPhone accounts receivable of $2.6 million at March 31, 1995 reflect amounts
due from normal trade receivables, including non-domestic open accounts, as well
as funds to be remitted under letters of credit. Of the outstanding trade
receivables as of March 31, 1995, $243,000 has been collected through May 10,
1995. Of the $16.8 million license fees receivable as of March 31, 1995,
$3.5 million has been received as of May 10, 1995.
Inventory levels have decreased at March 31, 1995 to $3.7 million from $5.0
million as of December 31, 1994, reflecting the sale of systems, principally to
Indonesia. Inventories at December 31, 1994 and March 31, 1995 are stated net of
valuation reserves of $7.5 million and $7.8 million, respectively.
Included in other accrued expenses at March 31, 1995 are professional fees,
consulting and other accruals and deferred rent relating to the corporate
headquarters and manufacturing facilities, as well as sales taxes payable.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In February 1993, the Company was sued by HNS in the United States District
Court for the District of Maryland (Civil Action No. WN-93-576). HNS previously
produced the UltraPhone system on behalf of the Company pursuant to a series of
production agreements (the "Production Agreements"). In the lawsuit, HNS alleges
that the Company breached certain agreements which were entered into between HNS
and the Company in February 1992 relating to the termination of certain
UltraPhone production agreements. HNS is seeking damages approximating $7.5
million, plus interest, attorneys' fees and court costs. HNS is also seeking
delivery of certain collateral, execution of a lock box agreement, information
relating to a warrant certificate held by HNS pursuant to which HNS has the
right to purchase shares of the Company's Common Stock, and an unspecified
amount of damages arising from the Company's alleged failure to provide such
information to HNS.
The Company filed an answer to the complaint alleging a number of
counterclaims and affirmative defenses. On August 22, 1994, HNS filed a motion
for partial summary judgment and a motion for entry of final judgment on Counts
II and III of its complaint, which involve the Company's purchase of certain
Prod III units, machinery and equipment from HNS. On February 6, 1995, the Court
granted HNS's motion for partial summary judgment on both counts. The judge
denied HNS's motion for entry of final judgment, however, and therefore the
Company will not owe the money on these counts -- and cannot appeal the judge's
ruling -- until the judgment is made final. The amount claimed under Count II is
$2,945,834 and the amount claimed under Count III is $2,700,000, for a total of
$5,645,834. In addition, HNS has asked the Court for interest of $1,269,962, for
a total claim of $6,915,796 on the two claims on which summary judgment was
granted. HNS also has advised the Court that it intends to seek attorneys' fees
at the end of the case. The Court has not yet ruled on HNS's request for
interest or attorneys' fees. The case is scheduled to be tried on July 3, 1995.
On February 28, 1995, HNS filed a motion for summary judgment on the remaining
claims and counterclaims. IDC opposed the motion and filed a cross-motion to
stay Count I of the complaint regarding non-recurring engineering charges. The
motions are fully briefed and oral argument is scheduled for June 5, 1995.
Except for the potential obligation of the Company to issue shares of Common
Stock to HNS under one of the agreements in dispute and by reason of certain
anti-dilution provisions contained in the warrant certificate held by HNS, all
amounts claimed by HNS (exclusive of attorneys' fees and court costs) to be owed
are reflected as a liability on the Company's Consolidated Balance Sheet at
March 31, 1995. The Company has filed a counterclaim against HNS for breach of
one of the Licenses.
On November 7, 1994, a purported class action complaint was filed in the
United States District Court for the Eastern District of Pennsylvania (Civil
Action No. 94-CV-6751) against the Company and its former chief executive
officer alleging certain violations of the disclosure requirements of the
federal securities laws and seeking damages on behalf of shareholders who
purchased the Company's stock during the class period stated to be March 31,
1994 to August 5, 1994. The alleged violations relate to the disclosure of three
proposed financing transactions: (1) a revised financing offered through
Prudential Securities Incorporated; (2) a Purchase Agreement entered into on
March 11, 1994 between the Company and a proposed purchaser to sell $30 million
of the Company's discounted common stock and warrants, and a related $3 million
loan to the Company; and (3) a $25 million loan to the Company from Oregon
Financial Group, Inc. On April 25, 1995, the Court entered an order certifying
the case as a class action. The Company believes that the complaint is without
merit and intends to contest it vigorously. The Company intends to file a motion
for summary judgment on or before June 5, 1995.
In October 1993, Motorola, Inc. filed an action against ITC seeking the
court's declaration that Motorola's products do not infringe certain ITC patents
and that these patents are invalid and unenforceable. ITC filed counterclaims
seeking a jury's determination that in making, selling, or using and/or
participating in the making, selling or using of digital wireless telephone
systems and/or related mobile stations, Motorola has infringed, contributed to
the infringement of and/or induced the
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infringement of certain patents from ITC's patent portfolio. ITC also sought
preliminary and permanent injunctions against Motorola from further infringement
and sought damages, royalties, costs and attorneys' fees. A trial was held in
United States District Court for the District of Delaware (Civil Action No.
94-73 (D. Del.)) on the issue of validity and infringement of 24 patent claims
involving four ITC patents, U.S. Patent Nos. 4,675,863; 4,817,089; 5,119,375
and 4,912,705. By stipulation of the parties, the case was limited to certain
TDMA products made, used and/or sold by Motorola.
On March 29, 1995, the trial ended with the jury's verdict, which is subject
to varying interpretations, but which is interpreted by the Company to mean that
ITC's patent claims at issue in the case are not infringed by Motorola and, if
contrued to be infringed, are invalid. Motorola has filed a motion requesting
attorney's fees and costs aggregating between $6 and $7 million. The Company has
filed a motion with the U.S. District Court for the District of Delaware
requesting that the court overturn and/or clarify all or part of the jury
verdict and, if that motion is unsuccessful, intends to appeal the jury verdict
to the U.S. Court of Appeals of the Federal Circuit. In addition, the Company
believes that there are substantial grounds for reversal of the jury's verdict
and that the motion for attorney's fees and costs is without merit.
In connection with a proposed transaction with Oregon Financial Group, Inc.
("OFG"), the Company commenced an arbitration proceeding against OFG on December
30, 1994. The Company seeks repayment from OFG of a $250,000 facility fee paid
to OFG that was "refundable" under the terms of a commitment agreement to lend
the Company $25 million in 1994 and 1995. In addition, the Company seeks
compensatory damages for losses incurred by the Company as a result of OFG's
breach. The matter was arbitrated on May 11, 1995 and the results are
pending.
In addition to litigation associated with patent enforcement and licensing
activities and the other litigation described above, the Company is a party
to certain legal actions arising in the ordinary course of its business.
Based upon information presently available to the Company, the Company
believes that the ultimate outcome of these actions will not materially
affect the Company.
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following is a list of exhibits filed as part of the Form 10-Q.
Exhibit 3.1 - Amendment to Bylaws
Exhibit 11 - Computation of Net Income (Loss) Per Share
(b) Reports on Form 8-K
During the quarter ended March 31, 1995, the Company filed a Current Report
on Form 8-K which was dated March 29, 1995 and related to the results of the
Company's lawsuit with Motorola. No financial statements were filed with
this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION
<TABLE>
<S> <C>
Date: May 11, 1995 /s/ William J. Burns
--------------------------------------
William J. Burns, Chairman and Chief
Executive Officer
Date: May 11, 1995 /s/ James W. Garrison
--------------------------------------
James W. Garrison, Vice President -
Finance, Chief Financial Officer and
Treasurer
</TABLE>
INTERDIGITAL COMMUNICATIONS CORPORATION
(a Pennsylvania Corporation)
BY-LAWS
(as amended through May 1, 1995)
Section 1.1 Registered Office:
The Registered Office of the Corporation shall be at 2200
Renaissance Boulevard, Suite 105, King of Prussia, Pennsylvania
until otherwise changed by the Board of Directors.
Section 2.1 Place of Shareholders' Meetings:
Meetings of the shareholders shall be held at the Registered
Office of the Corporation or at such other place within or without Pennsylvania
as the Board of Directors may fix.
Section 2.2 Annual Meeting of Shareholders:
An Annual Meeting of shareholders shall be held in every
calendar year at such time as the Board of Directors may fix. At the Annual
Meeting of shareholders, directors shall be elected to serve for the ensuing
year or until their successors shall be duly elected and qualified, and there
shall be transacted such other business as may properly be brought before the
Meeting.
A financial report of the Corporation's business as of the
close of the preceding fiscal year shall be presented at the Annual Meeting, and
shall be sent to shareholders.
Section 2.3 Special Meetings of Shareholders:
Special Meetings of shareholders may be called at any time by
the Chairman of the Board, the President or the Board of Directors, or
shareholders entitled to cast not less than one-fifth of the votes which all
shareholders are entitled to cast at the particular meeting. At any time, upon
written request of any person entitled to call a Special Meeting, it shall be
the duty of the Secretary to fix the date of such Special Meeting to be held
<PAGE>
not less than five or more than sixty days after the receipt of the request and
to give due notice thereof. If the Secretary shall neglect or refuse to fix the
date of the meeting and give notice thereof, the person or persons making the
request may do so.
Section 2.4 Notice of Shareholders' Meetings:
At least five days' written notice shall be given of any
meeting of shareholders, unless a greater period of notice is required by law.
Such notice shall specify the place, day and hour of the meeting, and in the
case of a Special Meeting of shareholders, the general nature of the business to
be transacted.
Section 2.5 Waiver of Notice of Shareholders' Meetings:
Whenever written notice is required to be given by law, by the
Articles or these By-Laws, a written waiver thereof signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Except in the
case of a Special Meeting of shareholders, neither the business to be transacted
nor the purpose of the meeting need be specified in the Waiver of Notice of such
Meeting.
Attendance of a person, either in person or by proxy, at any meeting
shall constitute a waiver of notice of such meeting, except where a person
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting was not lawfully called or convened.
Section 2.6 Quorum for Shareholders' Meetings:
The presence, in person or by proxy, of the shareholders
entitled to cast a majority of the votes which all shareholders are entitled to
cast on a matter to be voted upon at a meeting of shareholders shall constitute
a quorum, and the acts of such quorum, at a duly organized meeting of
shareholders, shall constitute the acts of all the shareholders. The
shareholders present at a duly organized meeting can continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
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<PAGE>
Section 2.7 Conduct of Shareholders' Meetings:
Meetings of the shareholders shall be presided over by the
Chairman of the Board, or if he is not present, by the President or, if he is
not present, by a Vice-President or, if none of the Chairman of the Board or the
President or Vice-President is present, by a Chairman to be chosen at the
meeting. The Secretary of the Corporation, or in his absence, an Assistant
Secretary or one temporarily designated as such shall act as Secretary of the
meeting.
Section 2.8 Shareholders Participation by Telephone:
One or more shareholders may participate in any meeting of
shareholders by means of conference telephone or similar communications
equipment by means of which all persons participating in such meeting can hear
each other.
Section 2.9 Voting by Shareholders:
Except as otherwise provided by law or in the Articles, every
shareholder of record shall have the right, at every shareholders' meeting, to
one vote for every share standing in his name on the books of the Corporation.
Every shareholder entitled to vote at a meeting of shareholders or to express
consent to corporate action in writing without a meeting may authorize another
person or persons to act for him by proxy.
All voting and elections shall be taken viva voce unless a
vote by ballot shall be demanded by a shareholder before the voting or election
begins, or unless otherwise required by law or by the Articles.
Section 2.10 Judges of Election:
In advance of any meeting of shareholders, the Board of
Directors may appoint Judges of Election, who need not be shareholders, to act
at such meeting or any adjournment thereof. If Judges of Election be not so
appointed, the Chairman of the meeting may, and on the request of any
shareholder or his proxy shall, make such appointment at the meeting. The number
of Judges shall be one or three, and no candidate shall act as a Judge. On
request of the Chairman of the meeting or of any shareholder or his
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<PAGE>
proxy, the Judges shall make a report in writing of any challenge or question or
matter determined by them and execute a certificate of any fact found by them.
Section 2.11 Adjournment of Meetings:
Adjournment of any meeting may be taken, but any meeting at
which Directors are to be elected shall be adjourned only from day to day, or
for such longer periods not exceeding fifteen days each, as may be directed by
the holders of at least a majority of the shares entitled to be voted at an
election of directors, until such Directors have been elected. When a meeting is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted thereat, other than by announcement at the
meeting at which such adjournment is taken. In case of any meeting called for
the election of Directors, those who attend the second of such adjourned
meeting, although less than a quorum, shall nevertheless constitute a quorum for
the purpose of electing Directors.
Section 3.1 Board of Directors, Number, Qualification,
Elections, Term of Office and Compensation:
The business and affairs of the Corporation shall be managed
by a Board of not less than five (5) nor more than fifteen (15) Directors, as
may be fixed from time to time by the vote of a majority of the whole Board.
Directors shall be of full age, but need not be residents of Pennsylvania or
shareholders of the Corporation.
The Directors, other than any who may be elected by the
holders of shares of any class or series of stock entitled to elect Directors
separately pursuant to the terms of Articles Fifth of the Articles of
Incorporation or any resolution or resolutions providing for the issuance of
such stock adopted by the Board of Directors shall be classified, with respect
to the duration of the term for which they severally hold office, into three
classes as nearly equal as possible (each, individually a "Three Year Class",
and collectively the "Three Year Classes"). Such Three Year Class which shall be
elected at the Annual Meeting of Shareholders held in 1993 for a term expiring
at the Annual Meeting of Shareholders to be held in 1996 shall be designated as
"Class A"; the second Three Year Class to be elected at the Annual Meeting of
4
<PAGE>
Shareholders held in 1994 for a term expiring at the Annual Meeting of
Shareholders to be held in 1997 shall be designated as "Class B"; and the third
Three Year Class to be elected at the Annual Meeting of Shareholders held in
1995 for a term expiring at the Annual Meeting of Shareholders to be held in
1998 shall be designated as "Class C". The Board of Directors shall increase or
decrease the number of Directors in one or more classes as may be appropriate
whenever it increases or decreases the number of Directors pursuant to this
Section 3.1, in order to ensure that the three Three Year Classes shall be as
nearly equal in number of possible. At each Annual Meeting of Shareholders, the
successors of the class of Directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the Annual Meeting of Shareholders
held in the third year following the year of their election.
The Board of Directors shall have the authority to fix the
compensation of Directors for their services and to authorize payment for
expenses of attendance at meetings. A Director may also be a salaried officer or
employee of the Corporation.
Section 3.2 Quorum for Directors' Meetings:
A majority of the Directors in office shall be necessary to constitute a quorum
for the transaction of business, and the acts of a majority of the Directors
present at a meeting at which a quorum is present shall be the acts of the Board
of Directors. A Director who is present at a meeting shall be counted in
determining the presence of a quorum even though a contract or transaction
between the Corporation and such Director or another business in which such
Director has a financial interest is authorized at the meeting.
Section 3.3 Directors' Consent in Lieu of Meeting:
Any action which may be taken at a meeting of the Board of
Directors or of any Committee thereof may be taken without a meeting if a
consent or consents in writing, setting forth the action so taken, shall be
signed by all of the Directors or the members of the Committee, as the case may
be, and shall be filed with the Secretary of the Corporation. One or more
Directors may participate in a meeting of the Board of Directors or a Committee
thereof by means of a conference telephone or similar
5
<PAGE>
communications equipment by means of which all persons participating in such
meeting can hear each other.
Section 3.4 Vacancies in Board of Directors:
Except as otherwise provided for or fixed pursuant to the
Articles of Incorporation of the Corporation, newly created directorships
resulting from an increase in the number of Directors, and any vacancies on the
Board of Directors resulting from death, resignation, disqualification, removal
or other cause shall be filled by the vote of a majority of the remaining
members of the Board, even though less than a quorum. Any person so elected
shall hold office for the remainder of the full term of the class of Directors
in which the directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the term
of any incumbent Director.
Section 3.5 Place of Meeting of Board of Directors:
The meetings of the Board of Directors may be held at such
place within Pennsylvania, or elsewhere, as a majority of the Directors may from
time to time appoint or as may be designated in the notice calling the meeting.
Section 3.6 Organization Meeting of the Board of
Directors:
After the election of Directors by the shareholders, the newly
elected Board may meet for the purpose of organization or otherwise:
(a) Immediately following their election, or at such
time and place as shall be fixed by vote of the shareholders
at the Annual Meeting (and in either such case no notice of
such meeting to the newly elected Directors shall be necessary
in order legally to constitute the meeting, provided a
majority of the whole Board shall be present); or
(b) At such time and place as may be fixed by
consent in writing of all the Directors.
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Section 3.7 Regular Meetings of the Board of Directors:
Regular Meetings of the Board of Directors
shall be held at such time and place as shall be determined by
a majority of the Board.
Section 3.8 Special Meetings of the Board of Directors:
Special Meetings of the Board of Directors
may be called by the Chairman of the Board, President or
Secretary on at least two days' notice to each Director,
either personally or by mail or by telegram, of the time and
place of such Special Meeting. At the written request of two
Directors, Special Meetings shall be called by the Chairman of
the Board or President or Secretary in like manner and on like
notice.
Section 3.9 Adjournments of Meetings of the Board of
Directors:
If a meeting of the Board of Directors is
adjourned, it shall not be necessary to give any notice of the
adjourned meeting, or of the business to be transacted at an
adjourned meeting, other than by announcement at the meeting
at which such adjournment is taken.
Section 3.10 Powers of Board of Directors:
A. Organizational Meeting: At the first meeting of the
Board of Directors in each year (at which a quorum shall be
present) held next after the Annual Meeting of shareholders,
it shall be the duty of the Board of Directors to elect or
appoint the officers of the Corporation.
B. General Powers: The Board of Directors shall have
all the power and authority granted by law to Directors except
as may be specifically excepted by the Articles or by these
By-Laws.
C. Committees: The Board of Directors, by Resolution
adopted by a majority thereof, may designate an Executive
Committee and one or more other committees, each of which
shall consist of at least two Directors and such other
Directors as shall be appointed by the Board of Directors to
serve as alternate members of any such Committee to replace
any absent or disqualified member at any
7
<PAGE>
Committee Meeting. In the event that any member of any such
Committee shall be absent from or disqualified at such
Meeting, the member or members thereof present at any such
Meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another
Director to act at the Meeting in the place of any such absent
or disqualified member. Any such Committee shall have and
exercise the authority of the Board of Directors in the
management of the business and affairs of the Corporation to
the extent provided in the Resolution creating such Committee.
Section 3.11 Removal of Directors by Shareholders:
Subject to the right of any class or series
of stock entitled to elect Directors separately, any Director
may be removed from office, without assigning any cause, but
only by the affirmative vote of the holders of at least 80
percent of the combined voting power of the then outstanding
shares of stock entitled to vote generally in the election of
Directors, voting together as a single class.
Section 4.1 Officers:
The Officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, and a
Treasurer, all of whom shall be elected or appointed by the
Board of Directors. The Board of Directors may also elect one
or more Vice-Presidents, one or more Assistant Treasurers and
one or more Assistant Secretaries. Any two or more offices may
be held by the same person.
The Board of Directors may at any time also
elect or appoint such other officers, assistant officers and
agents as it shall deem necessary and as the needs of the
Corporation may require. Such other officers, assistant
officers and agents shall have such authority and shall
perform such duties as from time to time may be prescribed by
the Board of Directors.
The Officers shall be elected each year at
the organization meeting of the Board of Directors, but if not
so elected, they, and any assistant officers or agents the
Board of Directors shall desire to appoint, may be elected
from time to time during the year. It shall not be necessary
for any officer of the Corporation to be a Director.
8
<PAGE>
Section 4.2 The Chairman of the Board - Powers
and Duties:
The Chairman of the Board shall, when
present, preside at all meetings of the Board of Directors and
at all meetings of shareholders. Unless otherwise directed by
the Board of Directors, the Chairman of the Board shall have
full power and authority on behalf of the Corporation to
attend and act and vote at any meeting of the shareholders of
any corporation in which the corporation may hold stock, and
at any such meeting he shall possess and may exercise any and
all of the rights and powers incident to the ownership of such
stock which the Corporation, as the owner thereof, might have
possessed and exercised if present. The Board of Directors
may, by resolution, from time to time confer like powers upon
any other person or persons. He shall also do and perform such
other duties as from time to time may be assigned to him by
the Board of Directors.
Section 4.3 The President - Powers and Duties:
The President shall be the Chief Executive
Officer of the Corporation. He shall have the customary duties
of a chief executive officer with responsibility for general
supervision and direction of the regular business and
operations of the Corporation, subject to the overall
supervision of the Board of Directors. He shall, when the
Chairman of the Board is not present, preside at all meetings
of the Board of Directors and at all meetings of the
shareholders. Unless otherwise directed by the Board of
Directors, the President shall, in the absence of the Chairman
of the Board, have full power and authority on behalf of the
shareholders of the Corporation to attend and act and vote at
any meeting of the shareholders of any corporation in which
the Corporation may hold stock, and at any such meeting shall
possess and may exercise any and all of the rights and powers
incident to the ownership of such stock which the Corporation,
as the owner thereof, might have possessed and exercised if
present. Further, unless otherwise directed by the Board of
Directors, the President is authorized to execute in the name
of the Corporation contracts and other documents requiring the
signature of the Corporation. He shall also do and perform
such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 4.4 The Vice-President - Powers and
Duties:
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<PAGE>
A Vice-President or Vice-Presidents shall be
elected by the Board of Directors, if the Board of Directors
determines that such offices shall be created. The
Vice-President (or, if there are more than one, then each
Vice-President) shall have such powers and shall perform such
duties as may from time to time be assigned to him or them by
the Board of Directors or by the Chairman of the Board or by
the President. Unless otherwise ordered by the Board of
Directors, the Vice-President (or Vice-Presidents in order of
their numbered designations) shall, in the case of death,
resignation, absence or disability of the President, perform
the duties of that Officer, until the return of the President,
or until the disability shall have been removed or a new
President shall have been elected.
Section 4.5 Treasurer - Powers and Duties:
The Treasurer shall have the custody of all
the funds and securities of the Corporation which may come
into his hands. When necessary or proper (unless otherwise
ordered by the Board of Directors) he shall (a) endorse for
collection on behalf of the Corporation, checks, notes and
other obligations, (b) deposit the same to the credit of the
Corporation in such banks or depositaries as the Board of
Directors may designate and (c) sign all receipts and vouchers
for payments made by the Corporation. He shall, at all
reasonable times, exhibit his books and accounts to the Board
of Directors of the Corporation upon the request of any
Director, and he shall also, if so directed by the Board of
Directors, annually prepare and submit to the Annual Meeting
of the shareholders a full statement of the assets and
liabilities of the Corporation and of its transactions during
the preceding year, and he shall have such other powers and
shall perform such other duties as may be assigned to him from
time to time by the Board of Directors. He shall give such
bond for the faithful performance of his duties as may be
required by the Board of Directors.
Section 4.6 Assistant-Treasurer - Powers and
Duties:
Each Assistant-Treasurer shall have such
powers and perform such duties as may be assigned to him by
the Board of Directors.
Section 4.7 Secretary - Powers and Duties:
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<PAGE>
Unless otherwise ordered by the Board of
Directors, the Secretary shall keep the minutes of all
meetings of the shareholders and of the Board of Directors in
proper books to be kept for such purpose, and shall attend to
the giving of all notices by the Corporation, including
notices of meetings of shareholders and of the Board of
Directors. He shall have charge of the share certificate
books, transfer books, capital stock ledger and such other
books and papers as the Board of Directors may direct. He
shall in general perform all the duties incident to the office
of Secretary and shall have such other powers and perform such
other duties as may be assigned to him by the Board of
Directors.
Section 4.8 Assistant Secretary - Powers and
Duties:
Each Assistant Secretary shall have such
powers and perform such duties as may be assigned to him or
them by the Board of Directors.
Section 4.9 Removal and Vacancies:
The Board of Directors shall have power to
remove any officer from office at any time and shall also have
the power to fill any vacancies in any office occurring from
whatever reason. Such power shall be exercised by a majority
vote of the Directors in office at the time of such removal or
vacancy, although less than a quorum.
Section 5.1 Share Certificates:
Every shareholder of record shall be
entitled to a share certificate representing the shares owned
by him, provided that the shares represented thereby shall
have been fully paid for. Such share certificate shall be
signed by the Chairman of the Board, President, or a Vice-
President, and by the Secretary or Treasurer except where
such share certificate is signed by a transfer agent or a
registrar, in which case the signature of any officer of the
Corporation upon such share certificate may be a facsimile,
engraved or printed.
Section 5.2 Transfer of Share Certificates:
The transfer of a share certificate and the
shares
11
<PAGE>
represented thereby shall be made on the books of the
Corporation only by the registered owner thereof or by his
attorney duly authorized in writing to make such transfer, and
only upon surrender of such share certificate, which shall be
canceled at the time of transfer.
The Corporation shall be entitled to treat
the holder of record of any share certificate or certificates
and the shares represented thereby as the holder in fact
thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in such share
certificate or certificates and shares on the part of any
other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law
or by the Articles.
Section 5.3 Lost Share Certificate:
The holder of any certificate representing
shares of stock of the Corporation shall immediately notify
the Corporation of any mutilation, loss or destruction
thereof, and the Board of Directors may, in its discretion,
cause one or more new certificates for the same number of
shares in the aggregate to be issued to such holder upon the
surrender of the mutilated certificate, or in the case of loss
or destruction of the certificate, upon satisfactory proof of
such loss or destruction and deposit of indemnity by bond or
otherwise in such form and amount and with such surety or
sureties as the Board of Directors may require to indemnify
the Corporation against loss or liability by reason of the
issuance of such new certificate, but the Board may, in its
discretion, refuse to issue such new certificates save upon
the order of some court having jurisdiction in such matters.
Section 6.1 Fiscal Year:
The fiscal year of the Corporation shall be
established by the Board of Directors.
Section 7.1 Indemnification:
(a) The Corporation shall indemnify and hold
harmless to the fullest extent permitted under the
Pennsylvania Business Corporation Law, the Directors'
Liability Act (the "DLA") and other applicable law, as
12
<PAGE>
such laws existed on the date this Section 7.1 was adopted by
the Board Of Directors or, except as provided in Section
7.1(f) hereof, as such laws may thereafter by amended
("Pennsylvania Law"), any person who was or is a party or was
or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including, without
limitation, an action by or in the right of the Corporation
(collectively, for purposes of this Section 7.1 and Section
7.2 hereof, "Proceeding"), by reason of the fact that he is or
was or has agreed to become a director or officer of the
Corporation, or is or was serving or has agreed to serve at
the request of the Corporation as a director or officer of
another corporation, or if a director or officer of the
Corporation, is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been
taken or omitted in any such capacity, and may indemnify and
hold harmless to the fullest extent permitted under
Pennsylvania Law any person who was or is a party or was or is
threatened to be made a party to such a Proceeding by reason
of the fact that he is or was or has agreed to become an
employee or agent of the Corporation, or, if any employee or
agent of the Corporation, is or was serving or has agreed to
serve at the request of the Corporation as an employee or
agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, liability and
loss (including, without limitation, attorneys' fees and
disbursements, punitive and other damages, judgments, fines,
penalties, excise taxes assessed with respect to an employee
benefit plan, amounts paid or to be paid in settlement and
costs and expenses of any nature) incurred by him in
connection with such Proceeding and any appeal therefrom:
provided, that such indemnification shall not be made in any
case where the act or failure to act giving rise to the claim
for indemnification is determined by a court in a final,
binding adjudication to have constituted willful misconduct or
recklessness.
13
<PAGE>
(b) The Corporation may indemnify and hold harmless
to the fullest extent permitted under Pennsylvania Law any
person who was or is a party or was or is threatened to be
made a party to any Proceeding, by reason of any of his
actions in a non-official capacity while serving as a
director, officer, employee or agent of the Corporation,
against expenses, liability and loss including, without
limitation, attorneys's fees and disbursements, punitive and
other damages, judgements, fines, penalties, excise taxes
assessed with respect to an employee benefit plan, amounts
paid or to be paid in settlement and costs and expenses of any
nature incurred by him in connection with such Proceeding and
any appeal therefrom: provided, that such indemnification
shall not be made in any case where the act or failure to act
giving rise to the claim for indemnification is determined by
a court in a final, binding adjudication to have constituted
willful misconduct or recklessness.
(c) The termination of any Proceeding by judgment,
order, settlement, conviction, or upon a plea of guilty or
nolo contendere, or its equivalent, shall not, of itself,
create a presumption that the persons's conduct constituted
willful misconduct or recklessness.
(d) Expenses incurred by a director or officer in
defending a Proceeding shall be paid by the Corporation in
advance of the final disposition of the Proceeding, provided
that, if Pennsylvania Law requires, the payment of such
expenses shall be made only upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount
if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as mandated in this
Section 7.1 or otherwise. Expenses incurred by other employees
and agents may be so paid to the extent provided by the Board
of Directors, upon receipt of the foregoing undertaking by or
on behalf of the employee or agent.
(e) The indemnification provided by this Section
7.1 shall be in addition to and not exclusive of any other
rights to which those seeking indemnification may be entitled
under Pennsylvania Law, or under any By-Law,
14
<PAGE>
agreement executed by the Corporation, insurance policy, fund
of any nature established by the Corporation, vote of
shareholders or disinterested directors or otherwise. The
indemnification so provided by this Section 7.1 or otherwise,
may be granted whether or not the Corporation would have the
power to indemnify such person under any provision of
Pennsylvania Law other than the DLA.
(f) The indemnification provisions of this Section
7.1 shall constitute a contract between the Corporation and
each of its directors, officers, employees and agents who are
or may be entitled to indemnification hereunder and who serve
in any such capacity at any time while such provisions are in
effect. Any appeal or modification of the indemnification
provisions of this Section 7.1 shall not limit any such
person's rights to indemnification (including the advancement
of expenses) then existing or arising out of events, acts or
omissions occurring prior to such repeal or modification,
including, without limitation, the right to indemnification
with respect to Proceedings commenced after such repeal or
modification based in whole or in part upon any such event,
act or omission.
(g) The Corporation may create a fund of any
nature, which may, but need not be, under the control of a
trustee, or otherwise may secure or insure in any manner its
indemnification obligations, whether arising under or pursuant
to this Section 7.1 or otherwise.
(h) The Corporation may purchase and maintain
insurance to insure its indemnification obligations on behalf
of any person who is or was or has agreed to become a
director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
any expense, liability or loss asserted against him and
incurred by him or on his behalf in any such capacity, or
arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such
liability under the provisions of this Section 7.1 or under
any provision of
15
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Pennsylvania Law other than the DLA.
(i) The indemnification provided by this Section
7.1 shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
(j) If Section 7.1 or any portion thereof shall be
invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless
indemnify each director or officer, and may indemnify each
employee or agent of the Corporation, as to expenses,
liability and loss (including, without limitation, attorneys'
fees and disbursements, punitive and other damages, judgments,
fines, penalties, excise taxes assessed with respect to an
employee benefit plan, amounts paid or to be paid in
settlement and costs and expenses of any nature) incurred by
him in connection with any Proceeding, including an action by
or in the right of the Corporation, to the fullest extent
permitted by any applicable portion of this Section 7.1 that
shall not have been invalidated and to the fullest extent
permitted by applicable law.
Section 7.2 Limitation on Directors' Personal
Liability:
(a) To the fullest extent permitted under the DLA,
as it existed on the date this Section 7.2 was adopted or,
except as provided in subsection 7.2(e), as such law may
thereafter be amended, a director of this Corporation shall
not be personally liable for monetary damages as a result of
any action or failure to act unless both: (1) the director has
breached or failed to perform the duties of his office under
Section 8363 of the DLA: and (2) the breach or failure to
perform constitutes self-dealing, willful misconduct or
recklessness.
(b) The provisions of this Section 7.2 shall not
apply to: (1) the responsibility or liability of a
director pursuant to any criminal statute: or (2) the
liability of a director for the payment of taxes pursuant
to local, state or federal law.
16
<PAGE>
(c) The termination of any Proceeding by judgment,
order, settlement, conviction, or upon a plea of guilty or
nolo contendere, or its equivalent, shall not, of itself,
create a presumption that the director breached or failed to
perform the duties of his office under Section 8363 of the DLA
and that the breach or failure to perform constituted
self-dealing, willful misconduct or recklessness.
(d) Notwithstanding the date of adoption of this
Section 7.2, the provisions of Section 7.2 shall apply to any
action filed or breaches of performance of duty or any failure
of performance of duty by any director on or after January 27,
1987.
(e) No amendment to or repeal of this Section 7.2
or the relevant provisions of the DLA shall reduce the
limitation on directors' personal liability for or with
respect to any events, acts or omissions of such director
occurring prior to such amendment or repeal, including,
without limitation, the limitation on personal liability with
respect to any Proceedings commenced after such repeal or
modification based in whole or in part upon any such event,
act or omission.
Section 8.1 Amendments to By-Laws:
The holders of all the shares outstanding
and entitled to vote may, by a majority vote, make, alter,
amend or repeal any provision of these By-Laws at any Annual
or Special Meeting duly convened after notice to the
shareholder of the meeting to be held for such purpose,
provided, however, that the affirmative vote of the holders of
at least 80 percent of the combined voting power of all the
then outstanding shares of stock entitled to vote generally in
the election of directors, voting together as a single class
shall be required to alter, amend or repeal Sections 3.1, 3.4,
3.11 or this Section 8.1, or to adopt any provision
inconsistent therewith.
The Board of Directors, by a majority vote
of the members thereof, may make, alter, amend or repeal any
provisions of these By-Laws at any Regular or Special Meeting,
duly convened after notice to the Directors of such purpose.
The shareholders shall
17
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have the right to change such action by a majority vote of the
shareholders entitled to vote thereon at any Annual Meeting
which may be duly convened for the purpose of changing such
action, after notice to the shareholders entitled to notice
thereof, provided, however, that the vote of the holders of at
least 80 percent of the combined voting power of all of the
then outstanding shares of stock entitled to vote generally in
the election of directors, voting together as a single class,
shall be required to change such action with respect to
Sections 3.1, 3.4, 3.11 or this Section 8.1.
Section 9.1 Control-Share Acquisitions:
Subchapter G - "Control-Share Acquisitions"
of Chapter 25 of Title 15 of the Pennsylvania Consolidated
Statutes, as existing on July 18, 1990 or as may thereafter be
amended, shall not be applicable to the Corporation.
Section 10.1 Disgorgement by Certain Controlling
Shareholders:
Subchapter H - "Disgorgement by Certain
Controlling Shareholders Following Attempts to Acquire
Control" of Chapter 25 of Title 15 of the Pennsylvania
Consolidated Statutes, as existing on July 18, 1990 or as may
thereafter be amended, shall not be applicable to the
Corporation.
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EXHIBIT 11
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(In Thousands, Except Per Share Amounts)
(UNAUDITED)
<TABLE>
<CAPTION> Three Months
Ended
March 31, 1995
--------------
<S> <C>
Computation of Primary Earnings Per Share:
- -----------------------------------------
Net Income Applicable to Common Shareholders .............. $20,138
=======
Weighted Average of Primary Shares:
Common Stock .......................................... 42,938
Assumed Conversion of Options and Warrants ............ 3,916
-------
46,854
=======
Primary Earnings Per Share ................................ $ .43
=======
</TABLE>
A calculation for the three month period ended March 31, 1994 has not been
presented since the effect of the options and warrants would be anti-dilutive.
