As filed with the Securities and Exchange Commission on August 20, 1996
Registration No. 333-______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
Registration Statement
Under
The Securities Act of 1933
------------------------
INTERDIGITAL COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Pennsylvania 3663 23-1882087
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Classification Identification No.)
of incorporation Code Number)
or organization)
781 Third Avenue
King of Prussia, Pennsylvania 19406-1409
(610) 878-7800
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
------------------------
William A. Doyle, President
InterDigital Communications Corporation
781 Third Avenue
King of Prussia, Pennsylvania 19406-1409
(610) 878-7800
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copy to:
James D. Epstein, Esq.
Brian M. Katz, Esq.
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103-2799
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction, check the following box. |_|
Cover Page Continued
On Next Page
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount to Offering Price Aggregate Amount of
to be Registered be Registered Per Share (1) Offering Price Registration Fee
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<S> <C> <C> <C> <C>
Common Stock,
$.01 par 2,050,000 Shares $7 7/16 $15,246,875 $5,258
value..............
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</TABLE>
(1) Calculated solely for purposes of determining the registration fee in
accordance with Rule 457(c) using the average of the high and low sales
price of the Common Stock on the American Stock Exchange on August 14,
1996.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such State.
SUBJECT TO COMPLETION, DATED AUGUST 20, 1996
PROSPECTUS
INTERDIGITAL COMMUNICATIONS CORPORATION
--------------------
___________ Shares of Common Stock
Par Value $.01 Per Share
--------------------
The shares of common stock, par value $.01 per share (the "Common Stock"),
of InterDigital Communications Corporation ("InterDigital" or the "Company") to
be issued pursuant to this Prospectus are being issued solely to certain holders
of common stock of InterDigital Patents Corporation ("IPC"), an approximately
94%-owned subsidiary of the Company, and are being issued in connection with
the merger of IP Acquisition Corporation ("MergerCo"), a wholly-owned subsidiary
of InterDigital, with and into IPC (the "Merger").
At the effective time of the Merger (the "Effective Time"), each
outstanding share of IPC common stock, other than shares of IPC held by the
Company, and other than shares of IPC held by stockholders who perfect their
appraisal rights under Delaware law, will be converted into that number of
shares of the Common Stock of the Company (the "Merger Consideration") equal to
(i) $7.33 divided by (ii) the average closing price per share of InterDigital
Common Stock as reported by the American Stock Exchange for the 30 calendar days
ending on the last trading day prior to the date the Registration Statement on
Form S-4 of which this Prospectus is a part is declared effective by the
Securities and Exchange Commission (the "Average Price"). No brokerage
commissions or discounts are being paid in connection with the issuance of the
Common Stock pursuant to the Merger. See "The Merger -- The Plan of Merger --
Payment for IPC Common Stock."
The Common Stock is quoted on the American Stock Exchange under the symbol
"IDC". On August 15, 1996, the last reported sale price of the Common Stock, as
shown on the American Stock Exchange Composite Tape, was $7 1/2.
--------------------
NO PROXIES ARE BEING SOLICITED IN CONNECTION WITH THE MERGER.
--------------------
THE SHARES OF COMMON STOCK TO BE ISSUED HEREBY HAVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 14.
--------------------
THE SHARES OF INTERDIGITAL COMMUNICATIONS CORPORATION COMMON STOCK HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
Holders of IPC common stock will be required to complete and submit a
Letter of Transmittal in order to receive the Common Stock to be issued pursuant
to this Prospectus.
The Date of this Prospectus is _______________ ___, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048, and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60611. Copies of such material also may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http://www.sec.gov. The Common Stock of the Company is
traded on the American Stock Exchange. Reports, proxy statements and other
information concerning the Company may be inspected at the offices of the
American Stock Exchange at 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission through EDGAR a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Act"), with respect to the Common Stock offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto, which may be inspected without charge at the
public reference facilities of the Commission or may be obtained from the
Commission at prescribed rates by writing to the Public Reference Section of the
Commission at such addresses.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act with respect to InterDigital (File No. 1-11152) are hereby incorporated by
reference into this Prospectus:
1. InterDigital's Annual Report on Form 10-K for the year ended December
31, 1995;
2. InterDigital's Annual Report on Form 10-K/A for the year ended
December 31, 1995;
3. InterDigital's Quarterly Report on Form 10-Q for the period ended
March 31, 1996;
4. InterDigital's Quarterly Report on Form 10-Q for the period ended June
30, 1996;
5. InterDigital's Current Report on Form 8-K filed August 19, 1996.
6. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated April 28, 1987, including any
amendments or reports filed for the purpose of updating such
description.
All documents filed by InterDigital with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated by reference herein from
their respective dates of filing. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein (or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed to constitute a part hereof except as so modified or superseded.
-2-
<PAGE>
All information appearing in this Prospectus is qualified in its entirety
by the information and financial statements (including notes thereto) appearing
in the documents incorporated herein or deemed to be incorporated herein by
reference.
The Company will furnish, without charge, to any person to whom a copy of
this Prospectus is delivered, upon such person's written or oral request, a copy
of any and all of the documents that have been incorporated by reference in the
Registration Statement and herein (not including exhibits to such documents,
unless such exhibits are specifically incorporated by reference into such
documents). Any such request should be directed to the Executive Vice President,
General Counsel and Secretary, InterDigital Communications Corporation, 781
Third Avenue, King of Prussia, Pennsylvania 19406-1409; telephone number: (610)
878-7800.
-----------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION
WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SECURITIES TO WHICH IT RELATES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY OR IPC, OR ANY OF
THEIR AFFILIATES OR SUBSIDIARIES FROM THE DATE HEREOF.
-----------------------
Table of Contents
PROSPECTUS SUMMARY........................................................... 4
RISK FACTORS................................................................. 14
THE MERGER................................................................... 20
COMPARISON OF RIGHTS OF HOLDERS OF IPC COMMON STOCK
AND INTERDIGITAL COMMON STOCK................................................ 31
DIVIDEND POLICY.............................................................. 39
BUSINESS OF IPC.............................................................. 40
SELECTED FINANCIAL DATA FOR IPC.............................................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF IPC................................................... 46
INFORMATION RELATING TO MERGERCO ............................................ 49
PRINCIPAL STOCKHOLDERS OF IPC................................................ 50
CERTAIN LEGAL MATTERS, EXPERTS AND REGULATORY APPROVALS...................... 51
ANNEX I - PLAN OF MERGER BY AND AMONG INTERDIGITAL COMMUNICATIONS
CORPORATION, INTERDIGITAL PATENTS CORPORATION AND IP ACQUISITION
CORPORATION
ANNEX II OPINION OF HOWARD, LAWSON & CO.
ANNEX III APPRAISAL RIGHTS STATUTE
-3-
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data appearing elsewhere in this Prospectus or
incorporated by reference herein. IPC stockholders are urged to read this
Prospectus and the annexes hereto in their entirety. As used in this Prospectus,
except where the context otherwise requires, the terms "InterDigital" and the
"Company" refer to InterDigital Communications Corporation and all of its
subsidiaries. This Prospectus contains certain statements of a forward-looking
nature relating to future events or the future financial performance of the
Company. Prospective investors are cautioned that such statements are only
predictions and that actual events or results may differ materially. In
evaluating such statements, prospective investors should specifically consider
the various factors identified in this Prospectus, including the matters set
forth under the caption "Risk Factors," which could cause actual results to
differ materially from those indicated by such forward-looking statements.
The Company and IPC
InterDigital 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 offers its customers, licensees and alliance partners
what it believes is unique access to both Time Division Multiple Access ("TDMA")
and Broadband Code Division Multiple Access(Trademark) ("B-CDMA(Trademark)")
proprietary digital wireless technology.
The Company's principal product is the UltraPhone(Registered) system, a
radio telephone system providing businesses and households access to basic
telephone service through a wireless local loop. The UltraPhone system offers
greater flexibility and ease of installation than conventional wireline-based
systems and is designed to provide higher transmission quality, capacity and
spectrum efficiency than other wireless systems presently in use. The UltraPhone
system, which incorporates the Company's TDMA technology, is sold predominantly
to foreign telephone companies to provide basic telephone service to their
customers, primarily in rural and near-urban areas, where the cost of, or time
required for, installing, upgrading or maintaining conventional wireline
telephone service supports selection of an UltraPhone system. Sales of
UltraPhone systems accounted for approximately 88%, 40%, 20% and 21%,
respectively, of the total revenues of the Company during 1993, 1994, 1995 and
the six month period ended June 30, 1996. Since 1987, the Company has sold over
250 UltraPhone systems worldwide, with aggregate UltraPhone sales totaling over
$140 million.
The Company's objective is to become a significant global supplier of
digital wireless communications technology and systems based on its proprietary
TDMA and B-CDMA technologies. To achieve that objective, the Company has
developed an alliance program under which it intends to align itself with key
entities in the telecommunications industry. Two key objectives of the Company's
alliance program, if fully and successfully implemented, are to generate
licensing revenues as well as to improve the Company's UltraPhone product
business by (i) making the Company and its UltraPhone products more credible
competitors in large scale telecommunications infrastructure programs, (ii)
expanding the depth and coverage of UltraPhone marketing efforts around the
world, (iii) facilitating greater focus in the Company's direct sale activities,
and (iv) funding and facilitating engineering changes and alternative supply and
production sources to attempt to significantly reduce costs and expand product
capabilities.
The third key objective of the alliance program is to bolster the Company's
on-going efforts to develop its B-CDMA air interface technology and to spread
the commercialization of B-CDMA-based wireless local loop applications and start
the development of wireless Personal Communication Service ("PCS") applications.
The successful commercial development and deployment of such products is
dependent upon technological achievement, including the continued validation of
the theories upon which the new technology is being designed, the continued
availability of debt, equity, alliance or partner funding sufficient to maintain
an increasing level of efforts over several years and, ultimately, market
acceptance of the resultant product.
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-4-
<PAGE>
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In December 1994, InterDigital completed the initial implementation of the
alliance program by entering into an integrated series of agreements with
Siemens Aktiengesellschaft ("Siemens") covering UltraPhone system product
marketing and product development, B-CDMA technology development, patent
licensing and other areas of cooperation. InterDigital continued its
implementation of the alliance program when it signed a series of agreements
with Samsung Electronics Co., Ltd. ("Samsung") in February 1996. These
agreements cover B-CDMA development, patent licensing, product development,
technology transfer and other areas of cooperation.
InterDigital Technology Corporation ("ITC"), being a wholly-owned
subsidiary of IPC, is an indirect approximately 94%-owned subsidiary of the
Company. Both the Company and IPC (through ITC), together, offer non-exclusive,
royalty bearing patent, technology and know-how licenses to telecommunications
manufacturers that manufacture, use or sell, or intend to manufacture, use or
sell, equipment that utilizes their extensive portfolio of TDMA and Code
Division Multiple Access ("CDMA") proprietary and patented technologies. The
Company believes that, through ITC's patent portfolio, and the Company's TDMA
and B-CDMA research and development capabilities and resultant know how, both it
and ITC are positioned to take advantage of the present evolution in wireless
telecommunications to digital technology from analog technology, which
represents a substantial portion of the worldwide installed base. ITC
implemented a strategy commencing in 1993 of negotiation and litigation with
certain entities which it believed were representative of the broader number of
entities infringing ITC's patents. These efforts resulted in patent license
agreements with twelve entities as of August 8, 1996, the recognition by IPC of
$28.7 million, $64.3 million and $16.4 million of licensing revenue in fiscal
1994, fiscal 1995 and the six month period ended June 30, 1996, respectively,
and the initiation of litigation against major telecommunications companies. See
"Risk Factors -- Adverse Results in Motorola Trial."
As an adjunct to its primary business, the Company had provided advanced
digital wireless research and development services to government and business
organizations. The Company also directly provided telecommunications services to
businesses and households through the ownership and operation of telephone
operating companies ("TELCO's") in certain rural areas of the United States. The
Company began to withdraw from the contract services market during 1994 and it
sold the TELCO operations during 1994.
Since its inception, the Company has expended substantial sums to develop
its proprietary and patented technologies, to establish and upgrade ITC's patent
portfolio, to develop and commercialize products delivering the advantages
afforded by its technologies, and to establish a market for those products. The
Company had an accumulated deficit of $145.8 million as of June 30, 1996.
The Company was incorporated in Pennsylvania in 1972 and IPC was
incorporated in Delaware in 1992. The executive offices of both InterDigital and
IPC are located at 781 Third Avenue, King of Prussia, Pennsylvania 19406- 1409
and their telephone number is 610-878-7800.
The Merger
Terms of the Merger. The Plan of Merger, a copy of which is attached as
Annex I and incorporated herein by this reference, provides for the merger of
MergerCo with and into IPC (the "Merger") with IPC being the surviving
corporation in the Merger (the "Surviving Corporation"). At the effective time
of the Merger, which will occur on or about _________ __, 1996 upon the filing
of a Certificate of Merger in Delaware (the "Effective Time"), each outstanding
share of IPC common stock, par value $.001, per share, other than shares of IPC
held by the Company (the "Excluded Shares"), and other than shares of IPC held
by stockholders who perfect their appraisal rights under Delaware law (the
"Dissenting Shares"), will be converted into that number of shares (the
"Conversion Number") of the Common Stock of the Company (the "Merger
Consideration") equal to (i) $7.33 divided by (ii) the average closing price per
share of InterDigital Common Stock as reported by the American Stock Exchange
for the 30 calendar days ending on the last trading day prior to the date the
Registration Statement is declared effective by the Commission (the "Average
Price"). Assuming an average closing price of the Common Stock of $7.33 per
share, which was the average closing price of the Common Stock for the 30
calendar days prior to August 15, 1996, 1,637,625 shares of Common Stock would
be issued to the holders of IPC common
- --------------------------------------------------------------------------------
-5-
<PAGE>
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stock (the "Investors") (assuming the exercise of all outstanding options to
purchase IPC Common Stock immediately prior to the Merger), other than holders
of Excluded Shares or Dissenting Shares in the Merger, representing
approximately 3.4% of the shares of Common Stock to be issued and outstanding
immediately after consummation of the Merger based on the shares outstanding as
of August 8, 1996. As a result of the Merger, each outstanding share of MergerCo
will be converted into a share of the Surviving Corporation.
Exchange of IPC Common Stock for the Merger Consideration. In order to
receive the Merger Consideration, each holder of a certificate theretofore
representing IPC common stock will be required to surrender his or her stock
certificate, together with a duly executed and properly completed letter of
transmittal (the "Letter of Transmittal") and any other required documents, to
the Company by following the procedures described under "The Plan of Merger
- -Payment for IPC Common Stock." Each Investor will receive a number of whole
shares of Common Stock determined by multiplying the number of shares of IPC
common stock owned by such Investor at the Effective Time by the Conversion
Number. Investors will be paid cash in lieu of any fractional shares of Common
Stock which they would otherwise be entitled to receive. See "The Plan of Merger
- -- Payment for IPC Common Stock."
Approval by the IPC and InterDigital Board of Directors and the
stockholders of MergerCo and IPC. On August 15, 1996, meetings of the Boards of
Directors of IPC (the "IPC Board") and InterDigital (the "InterDigital Board")
were held for the purpose of considering the Merger, including reviewing the
fairness of the Merger Consideration to be paid in the Merger. The IPC Board
engaged Howard, Lawson & Co. ("Howard Lawson") to serve as its independent
financial advisor for the transaction and to render an opinion as to the
fairness of the Merger Consideration, from a financial point of view, to the
Investors. The IPC Board also engaged the law firm of Archer & Greiner, a
Professional Corporation to advise the IPC Board as to certain legal issues
regarding the Merger. See "The Merger -- Approval of the IPC Board, InterDigital
Board and stockholders of MergerCo and IPC."
After considering all relevant information, including the opinion of Howard
Lawson to the effect that the Merger Consideration to be received by the
Investors is fair, from a financial point of view, to each Investor, the IPC
Board voted unanimously to approve the terms of the Merger and the Plan of
Merger. In addition, after considering all relevant information, the
InterDigital Board voted unanimously to approve the terms of the Merger and the
Plan of Merger on behalf of itself, but not in its capacities as the sole
stockholder of MergerCo and the majority stockholder of IPC. Approval of
InterDigital as the sole stockholder of MergerCo and the majority stockholder of
IPC remains a condition precedent to the Merger. Investors should be aware that
all members of the IPC Board have certain interests which may present them with
potential conflicts of interest in connection with the Merger, including the
fact that the IPC Board consists of persons, all of whom are members of the
Company's board of directors, some of whom are executive officers of the
Company, and one of which is a stockholder of IPC. See "The Merger -- Interests
of Certain Persons in the Merger."
Purpose, Structure and Certain Effects of the Merger. The purpose of the
Merger is to facilitate the further development and implementation of the
Company's and ITC's alliance program, eliminate potential conflicts of interest,
corporate governance and corporate opportunity issues that may arise in
connection with the operation of a subsidiary which is not 100% owned by the
Company, and simplify the negotiation of multi-faceted licensing and technology
transfer arrangements between the Company, ITC and third parties. At the same
time, the Merger is intended to give the Investors the opportunity to own, in a
tax-free exchange, a stock with greater liquidity, as well as to share in the
prospects of the combined organization. As a result of the Merger, the separate
existence of MergerCo will cease to exist, IPC will become a wholly-owned
subsidiary of the Company and the stockholders of IPC will become shareholders
of the Company. See "The Merger -- Purpose and Structure of the Merger and
Certain Effects of the Merger".
Recommendation of the Financial Advisor. On August 15, 1996, Howard Lawson
delivered to the IPC Board its opinion, confirmed by a written opinion dated
August 15, 1996, to the effect that, as of the respective dates and based upon
and subject to certain matters as stated in its written opinion, the Merger
Consideration to be received by the Investors in the Merger is fair, from a
financial point of view, to the Investors. The full text of the August 15, 1996
Howard Lawson written opinion setting forth the assumptions made, matters
considered and scope of review undertaken
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-6-
<PAGE>
- --------------------------------------------------------------------------------
in connection therewith is attached as Annex II to this Prospectus and should be
read in its entirety. See "The Merger -- Opinion of Financial Advisor."
Action Required to Approve the Merger. Under applicable law, the only
corporate approvals required in order to effect the Merger are those of the
respective Boards of Directors of MergerCo and IPC, and the approval of the
Board of Directors of InterDigital on its own behalf, as the sole stockholder of
MergerCo and as the majority stockholder of IPC. Shareholder approval of
InterDigital is not required to effect the Merger. No proxies are being
solicited in connection with the Merger. In addition, InterDigital has the
right, which it may exercise in its sole discretion, to terminate or abandon the
Merger prior to the Effective Time, if the average closing price per share of
InterDigital Common Stock as reported by the American Stock Exchange for the 30
calendar days ending on the last trading day prior to the date the Registration
Statement is declared effective by the Commission is less than or equal to $5.86
per share (i.e., eighty percent of $7.33). The Merger will become effective on
or about ________ __, 1996 upon the filing of a Certificate of Merger with the
Delaware Secretary of State.
Certain Benefits of the Merger. The Board of Directors of IPC has
identified a number of potential benefits of the Merger to IPC stockholders. See
"The Merger Background and Reasons for the Merger; Recommendation of the IPC
Board." These benefits include, among others:
* The opportunity for IPC stockholders to participate, as holders of
Company Common Stock, in a larger, more diversified company;
* Increase in liquidity for IPC stockholders;
* The terms and structure of the Merger, including its structure as a
tax-free exchange; and
* Certain strategic and business management benefits that the Merger
will provide to InterDigital and IPC including, but not limited to,
facilitating the further development and implementation of the
Company's and ITC's alliance program, eliminating potential conflicts
of interest and potential corporate governance and corporate
opportunity issues, and simplifying the negotiation of multi-faceted
licensing and technology transfer arrangements between the Company,
ITC and third parties.
Certain Federal Income Tax Considerations. IPC and the Company have
received an opinion of Pepper, Hamilton & Scheetz, the Company's outside counsel
("Special Tax Counsel") that the Merger, with the Investors receiving Company
Common Stock, will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). The opinion of Pepper, Hamilton & Scheetz
relating to the Merger is conditioned upon certain facts, representations and
assumptions provided to Pepper, Hamilton & Scheetz by the Company and IPC and is
subject to certain qualifications and other matters set forth therein. Provided
the Merger qualifies as a reorganization, then for federal income tax purposes:
(i) no gain or loss would be recognized by any of IPC, MergerCo or the Company
as a result of the Merger and (ii) no gain or loss would be recognized by a
stockholder of IPC upon the receipt of Company Common Stock in exchange for IPC
common stock in the Merger, except that gain or loss would be recognized on
receipt of any cash in lieu of fractional shares or because of the exercise of
dissenters' rights. See "Certain Federal Income Tax Consequences of the Merger."
Because of the complexities of the federal income tax laws and because the
tax consequences may vary depending upon an IPC stockholder's individual
circumstances or tax status, it is recommended that each IPC stockholder consult
with his or her tax advisor concerning the federal (and any applicable state,
local or other) tax consequences of the Merger.
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-7-
<PAGE>
- --------------------------------------------------------------------------------
Comparison of Stockholder Rights. As a result of the Merger, shares of IPC
common stock, which are issued by a Delaware corporation, will be converted into
the right to receive shares of InterDigital Common Stock, which are issued by a
Pennsylvania corporation. As a result of the differences between Delaware and
Pennsylvania law, and between the governing instruments of IPC and InterDigital,
there are differences in terms of, and rights of holders with respect to, IPC
common stock and Company Common Stock. For a discussion of the various
differences between the rights of IPC stockholders, as holders of IPC common
stock, and the rights of InterDigital stockholders, as the holders of the
Company Common Stock, see "Comparison of Stockholder Rights."
Appraisal Rights. Holders of record of shares of IPC common stock have the
right to have the "fair value" of their shares of IPC held at the Effective Time
to be judicially determined and to have such value paid in cash. To do so, the
holder of the IPC shares must comply with the requirements of Section 262 of the
DCL, a copy of which is attached as Annex III to the Prospectus. See "Terms of
the Merger -- Appraisal Rights."
Regulatory Approvals. No federal or state regulatory requirements remain to
be complied with in order to consummate the Merger. See "Certain Legal Matters,
Experts and Regulatory Approvals."
Accounting Treatment of the Merger. The acquisition of the minority
interest of IPC by InterDigital will be accounted for using the purchase method
of accounting and, accordingly, the purchase price will be allocated by
InterDigital to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition.
Share Information
InterDigital Common Stock Being Sold(1)............................. 1,637,625
InterDigital Common Stock Outstanding After the Merger(1)(2)........ 48,075,418
AMEX Symbol..................................................................IDC
- -------------------
(1) Based upon the assumed Merger Consideration.
(2) Excludes approximately 8.0 million shares of InterDigital Common Stock which
may be issued upon the exercise of outstanding options and warrants and
approximately 3.9 million shares of InterDigital Common Stock which may be
issued upon exercise of options which may be granted pursuant to the
Company's existing stock option plans.
Market Price Data
On August 15, 1996, the last reported trading day prior to the public
announcement of the Merger, the closing sale price for the InterDigital Common
Stock, as reported on the American Stock Exchange Composite Tape, was $7 1/2 per
share, and there were approximately 2,600 record holders of the Common Stock.
No active trading market exists for the IPC common stock and, accordingly,
there are no published market quotations available for such shares of stock. As
of August 15, 1996, there were seventeen record holders of IPC common stock
including the Company.
- --------------------------------------------------------------------------------
-8-
<PAGE>
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<TABLE>
<CAPTION>
Summary Selected Financial Data
InterDigital Communications Corporation
Historical
-----------------------------------------------------------------
For the Year Ended December 31,
-----------------------------------------------------------------
1991 1992(1) 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
(In thousands, except per share data)(6)
Revenues:
UltraPhone $ 31,482 $ 34,348 $ 11,748 $ 20,086 $ 16,581
Licensing and Alliance -- 3,015 -- 28,709 67,693
Contract services 2,140 2,347 1,551 1,171 681
--------- --------- --------- --------- ---------
Total revenues 33,622 39,710 13,299 49,966 84,955
Nonrecurring items(2) 925 (15,088) -- -- --
Income (loss) from continuing operations (6,179) (20,342) (32,929) (13,753) 34,605
Discontinued operations(6) (60) (2,283) (1,728) (295) --
Net income (loss) before preferred dividends (6,239) (22,625) (34,657) (14,048) 34,605
Net income (loss) applicable to common
shareholders $ (7,743) $ (22,917) $ (34,939) $ (14,330) $ 34,340
========= ========= ========= ========= =========
Net income (loss) per share
Net income (loss) from continuing operations $ (0.39) $ (0.86) $ (1.05) $ (0.37) $ 0.74
Net income (loss) - discontinued operations -- (0.09) (0.06) (0.01) --
--------- --------- --------- --------- ---------
Net income (loss) per common share $ (0.39) $ (0.95) $ (1.11) $ (0.38) $ 0.74
========= ========= ========= ========= =========
Weighted average number of shares outstanding 19,828 24,113 31,515 37,463 46,503
========= ========= ========= ========= =========
Operations and Other Date:
Number of UltraPhone systems sold 50 45 10 34 25
Number of UltraPhone subscriber stations sold 5,826 7,160 2,304 8,570 5,474
Historical
-----------------------------------------------------------------
December 31,
-----------------------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
Consolidated Balance Sheet Data (in thousands):
Cash and cash equivalents (3) $ 4,595 $ 9,146 $ 8,211 $ 6,264 $ 9,427
Short Term Investments -- -- -- -- 55,060
Working capital (deficit) (3,248) 10,340 8,064 10,118 59,008
Total assets 15,031 35,550 32,326 43,830 83,167
Short-term debt (4) 1,194 154 256 233 430
Long-term debt 158 150 650 520 631
Accumulated deficit (112,479) (135,396) (170,335) (184,665) (150,325)
Total shareholders' equity (5) 1,806 15,056 14,004 14,872 62,440
<CAPTION>
Historical Pro Forma
-------------------- ----------
Six Six
Months Months Six Months
Ended Ended Ended
Pro Forma June 30, June 30, June 30,
1995(7) 1995 1996(7) 1996(7)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
(In thousands, except per share data)(6)
Revenues:
UltraPhone $16,581 $11,456 $ 6,834 $ 6,834
Licensing and Alliance 67,693 62,093 24,707 24,707
Contract services 681 445 -- --
------- ------- ------- -------
Total revenues 84,955 73,994 31,541 31,541
Nonrecurring items(2) -- -- -- --
Income (loss) from continuing operations 36,392 40,793 4,707 5,234
Discontinued operations(6) -- -- -- --
Net income (loss) before preferred dividends 36,392 40,793 4,707 5,234
Net income (loss) applicable to common
shareholders $36,127 $40,659 $ 4,575 $ 5,102
======= ======= ======= =======
Net income (loss) per share
Net income (loss) from continuing operations $ 0.75 $ 0.88 $ 0.10 $ 0.10
Net income (loss) - discontinued operations -- -- -- --
======= ======= ======= =======
Net income (loss) per common share $ 0.75 $ 0.88 $ 0.10 $ 0.10
======= ======= ======= =======
Weighted average number of shares outstanding 48,141 46,195 47,931 49,569
======= ======= ======= =======
Operations and Other Date:
Number of UltraPhone systems sold 8 17
Number of UltraPhone subscriber stations sold 1,889 705
Historical Pro Forma
---------- ---------
June 30, June 30,
1996 1996(7)
---------- ---------
Consolidated Balance Sheet Data (in thousands):
Cash and cash equivalents (3) $ 20,306 $ 20,306
Short Term Investments 62,322 62,322
Working capital (deficit) 74,712 74,712
Total assets 115,550 122,822
Short-term debt (4) 484 484
Long-term debt 3,142 3,142
Accumulated deficit (145,750) (145,750)
Total shareholders' equity (5) 75,656 87,660
</TABLE>
(See footnotes on next page)
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-9-
<PAGE>
- --------------------------------------------------------------------------------
- -----------
(1) Includes the results of operations of SCS Telecom, Inc. and SCS
Mobilcom, Inc. ("SCS") from October 15, 1992, the respective date of
acquisition by the Company.
(2) Nonrecurring items for 1991 include a gain of $8,125,000 on the sale
of a cellular license and a loss of $7,200,000 on the cancellation of
a purchase commitment with Hughes Network Service Inc. ("HNS").
Nonrecurring items for 1992 include the expensing of $13,120,000 of
research and development costs acquired as part of the acquisition of
SCS and a loss of $1,968,000 on a revaluation of equipment acquired as
part of a cancellation of the purchase commitment referred to above.
(3) Including $6,710,000, $2,424,000, $471,000, $1,200,000 and $1,002,000
of restricted cash as at December 31, 1992, 1993, 1994 and 1995 and
June 30, 1996, respectively.
(4) Includes the current portion of long-term debt.
(5) The Company has not declared or paid any dividends on the Common Stock
since its inception.
(6) The accompanying selected financial data has been restated to present
the Company's TELCO operations as discontinued operations.
(7) The pro forma summary information gives effect to the Merger as if it
occurred at the beginning of the periods presented for the results of
operations information and at the end of the latest reporting period
for the balance sheet information. See InterDigital Communications
Corporation Pro Forma Consolidated Financial Statements.
- --------------------------------------------------------------------------------
-10-
<PAGE>
- --------------------------------------------------------------------------------
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA (1)
For the Six Months Ended
For the Year Ended December 31, June 30,
------------------------------------------- ---------------------
1992(2) 1993 1994 1995 1995 1996
------- ---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Licensing revenue $ 3,015 $ -- $ 28,709 $ 64,293 $ 60,093 $ 16,400
Operating income (loss) 1,483 (3,626) 18,720 56,612 54,340 14,447
Net income (loss) 984 (2,357) 12,277 39,040 36,530 10,704
Net income (loss) per share $ 0.04 ($ 0.10) $ 0.51 $ 1.62 $ 1.51 $ 0.44
Shares used in computing net
income (loss) per share 24,006 24,072 24,137 24,137 24,137 24,137
Dividends paid to common stockholders 2,500(3) -- 3,104 -- -- --
<CAPTION>
CONSOLIDATED BALANCE SHEET DATA (1)
December 31, June 30,
------------------------------------- --------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments $ 5,382 $ 2,341 $ 2,402 $59,287 $68,824
Working capital 5,238 1,753 11,947 51,261 61,978
Patents (net) 2,362 2,477 2,569 2,386 2,376
Total assets 7,781 4,915 26,063 62,980 74,054
Due to (Due from) InterDigital 798 (598) 4,891 5,246 6,966
Retained earnings (deficit) -- (2,357) 6,816 45,856 56,560
Stockholders' equity 6,829 4,887 14,669 53,709 64,413
</TABLE>
- ----------
(1) In February 1992, InterDigital formed InterDigital Technology
Corporation ("ITC"), as a wholly-owned subsidiary, and transferred all
of its patents, patent applications and rights to file patent
applications on certain future inventions to ITC. During the third
quarter of 1992, InterDigital formed IPC and contributed to IPC its
entire ownership in ITC in return for 100% of IPC's common stock.
Subsequently, InterDigital sold a 5.76% interest in IPC to the current
stockholders of IPC (except for InterDigital) for net proceeds of $5.2
million. IPC started operating as an active company during 1993. See
Note 1 to IPC's Consolidated Financial Statements.
(2) Operating results for 1992 include interest earned on IPC's cash
balances and ITC's patent enforcement activity beginning in February
1992. Prior to February 1992, InterDigital's patent portfolio
management activity was included in the operating results of
InterDigital. Prior period comparable data is not readily available.
(3) This amount represented a dividend paid by ITC to InterDigital in
1992 prior to the formation of IPC.
- --------------------------------------------------------------------------------
-11-
<PAGE>
- --------------------------------------------------------------------------------
Comparative Per Share Data
The following table sets forth historical per share data for InterDigital
and IPC, pro forma per share data for InterDigital giving effect to the Merger
and equivalent pro forma per share data for IPC. The information presented
should be read in conjunction with the historical financial statements and notes
thereto of InterDigital and IPC and the unaudited pro forma condensed
Consolidated Financial Statements and related notes thereto of InterDigital,
included or incorporated by reference in this Prospectus. Pro forma and
equivalent pro forma per share data reflect the consolidated results of
InterDigital and IPC, after giving effect to the Merger as if the event had
occurred on June 30, 1996 in the case of book value data, and on January 1,
1995, in the case of operations data. The pro forma per share data are not
necessarily indicative of actual results had the Merger occurred on such date or
of future expected results. See "Incorporation of Certain Documents by
Reference" for the incorporation by reference of certain InterDigital financial
statements, the Unaudited InterDigital Pro Forma Condensed Consolidated
Financial Statements, Audited and Unaudited InterDigital Patents Corporation and
Subsidiary Financial Statements included elsewhere in this Prospectus and "Risk
Factors -- Accumulated Deficit and History of Operating Losses."
<TABLE>
<CAPTION>
Year Ended Six months ended
December 31, 1995 June 30, 1996
----------------- -------------
Pro Forma Pro Forma
Historical InterDigital Historical InterDigital
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
IDC
Net Income per common share (1) $0.74 (1) $0.75 $0.10 $0.10
Cash dividends declared per common share -- -- -- --
Book value per common share at period end (2) $1.35 N/A $1.58 $1.77
<CAPTION>
Equivalent Equivalent
Pro Forma Pro Forma
Historical IPC (3) Historical IPC (3)
---------- ------- ---------- -------
<S> <C> <C> <C> <C>
IPC
Income per common share (1) $1.62 (2) $1.62 $0.44 (2) $0.44
Cash dividends declared per common share -- -- -- --
Book value per common share at period end (4) $2.23 N/A $2.67 $2.67
</TABLE>
(1) The number of shares used to compute the historical net income per
share is based upon weighted average shares outstanding and common
stock equivalents. The number of shares used to compute pro forma net
income per share is equal to the number used to calculate historical
net income per share increased by shares issued in the Merger.
(2) Computed by dividing historical or pro forma stockholders' equity less
the redemption value of the preferred stock by the historical or pro
forma number of shares outstanding at the end of the periods
presented. Taking into account the effect of common stock equivalents
under the treasury method, the net book value per share would be
$1.28, $1.52 and $1.71 as of December 31, 1995 historical, June 30,
1996 historical, and June 30, 1996 pro forma.
(3) The shares used in computing the equivalent pro forma net income per
share and equivalent pro forma book value per share are obtained by
dividing the shares used in the respective pro forma calculation by
the ratio equal to (i) $7.33 divided by (ii) the average closing price
per share of InterDigital Common Stock as reported by the American
Stock Exchange for the 30 calendar days ending on the last trading day
prior to the date the Registration Statement is declared effective by
the Commission. Assuming an average closing price of $7.33 per share
as of August 15, 1996, such ratio would be 1.0 to 1.0.
- --------------------------------------------------------------------------------
-12-
<PAGE>
- --------------------------------------------------------------------------------
(4) Computed by dividing historical stockholders' equity by the historical
number of shares outstanding at the end of the periods presented. For
purposes of this calculation, options outstanding to purchase 262,625
shares of IPC common stock have been considered outstanding.
- --------------------------------------------------------------------------------
-13-
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, the following factors should be considered carefully in
evaluating an investment in the Common Stock offered hereby.
Accumulated Deficit and History of Operating Losses. The Company has
experienced losses from its inception in 1972 through the third quarter of 1994
and in selected periods thereafter, and, as of June 30, 1996, the Company's
accumulated deficit was $145.8 million. In recent years, the Company has
incurred significant increases in expenses associated with its UltraPhone
business activities, the development of related product enhancements, the
acquisition and development, as applicable, of its TDMA and B-CDMA digital
wireless technologies, and the enforcement of ITC's patents. There can be no
assurance that the Company will realize revenues and gross profits sufficient to
achieve or sustain profitability on a quarterly or annual basis in the future.
In the event it fails to do so, the Company's operations could be adversely
affected and investors in the Common Stock could face the loss of part or all of
their investment.
Need for Expansion and Increased Profitability of UltraPhone Sales. Prior
to 1994, sales of the UltraPhone system historically accounted for a substantial
majority of the Company's revenues. During 1994, 1995 and the first half of
1996, licensing and alliance revenues constituted the majority of the total
revenues of the Company. The Company's future profitability may, in the event of
any significant decline in licensing and alliance revenues, depend significantly
on the expansion of UltraPhone system sales by increasing sales to its existing
customers, broadening the Company's customer base, or both. Since 1993, the
Company has experienced negative gross profit margins in its UltraPhone product
operations as a result of insufficient production volumes and higher than
desired variable costs relative to declining selling prices in such operations.
More specifically, the Company has accepted major orders for 1996 and 1997
delivery and is actively marketing the UltraPhone system in certain
opportunities, at sales prices which are expected to generate little, if any,
margin based on the current cost characteristics of the system configurations
being proposed. There can be no assurance that the Company will be able to
increase UltraPhone system sales and decrease UltraPhone system variable
operating costs sufficiently to achieve profitability in its UltraPhone system
operations. Moreover, many of the Company's contracts for UltraPhone product
sales contain provisions which could result in the imposition of liquidated
damages for late performance or the drawing of performance bonds for defaults.
Either of these events would put further downward pressure on UltraPhone product
profitability. Unless the Company is able to achieve positive profit margins in
its UltraPhone system operations, investors in the Common Stock could lose part
or all of their investment.
Dependence on a Limited Number of Customers, Alliance Partners and
Licensees. A substantial majority of UltraPhone system sales have historically
been concentrated among only a few major customers, and it is anticipated that
such concentration will continue for the foreseeable future. Customers engaged
in multi-year telecommunications infrastructure programs traditionally purchase
different types of telephone equipment in the various phases of a program and
therefore typically would not purchase a consistent number of UltraPhone systems
in each year of the program. Transitions to different phases of acquisition
programs by significant customers, other reductions in purchases from those
customers (unless replaced by other new orders), or the loss of such customers
could have a material adverse effect on the Company. Similarly, the Company's
licensing and alliance revenues have been generated from only a relatively few
licensees and alliance partners. There can be no assurance that ITC will enter
into patent license agreements with any additional entities or that additional
licensing revenue will be generated from ITC's existing patent license
agreements. There can be no assurance that the Company will enter into
additional alliances or that its current alliances will generate additional
revenues. The failure of ITC to enter into additional license agreements or of
the Company to achieve its alliance objectives could have a material adverse
effect on the Company. In either of such cases, the Company's operations could
be adversely affected and investors in the Common Stock could lose part or all
of their investment.
Quarterly Fluctuations in Financial Results. Historically, the fact that
new license agreements are not entered into on a regular, predictable basis has
been a factor in the significant fluctuations in the Company's revenues and
operating results from quarter to quarter, and there can be no assurance that
the Company's licensing activities will not diminish or cease during any
relevant time interval. Likewise, the concentration of UltraPhone product sales
to a few major customers and the signing of patent license agreements providing
for up-front license fees with a few licensees also contributes to quarterly
fluctuations in the Company's financial results. UltraPhone product sales are
expected to continue
-14-
<PAGE>
to be concentrated among only a few major customers who purchase UltraPhone
systems at sometimes unpredictable levels and intervals. As an example of the
fluctuation of quarterly financial results, the Company was profitable in the
first and second quarters of 1995 and unprofitable in the third and fourth
quarters of 1995. The variability of 1995 and 1996 quarterly operating results
was due to the revenue related to up-front license payments. The Company's
UltraPhone product sales and patent and technology licensing revenues may also
fluctuate as a result of other factors, including increased competition from
other products or technologies, announcements of new products or technologies by
the Company or its competitors, equipment acquisition and replacement patterns
of the Company's customers, general domestic and global economic and political
conditions, and perception of the strength and enforceability of the Company's
patent portfolio. As a result, the value of a Common Stock purchaser's
investment could be adversely affected.
Competition in the Telecommunications Industry. Competition in the
communications industry is intense. Generally, a number of entities, many of
which are substantially larger and have substantially greater financial,
technical, marketing and other resources than the Company, sell or may introduce
products which compete both domestically and internationally with the UltraPhone
system. Further, certain competing wireless telecommunications technologies
offer a lower-cost product as compared to the UltraPhone system as currently
configured and other wireless technologies offer or purport to offer certain
features not currently supported by the UltraPhone system. There can be no
assurance that the Company's competitors will not market competitive wireless
communications systems in an increasingly aggressive manner, which could
materially and adversely continue to affect the Company's UltraPhone system
business in the future. If this were to happen, the Company's assets could
diminish and the Company could experience an increase in accumulated deficit.
Such results could adversely affect the value of an investment in the Common
Stock.
Need for UltraPhone Engineering Modifications. The Company has experienced
and may continue to experience engineering delays and incur costs related to
engineering modifications in the introduction of new subscriber units and other
new enhancements or features. There can be no assurance that such engineering
delays or the costs of making any required engineering modifications will not be
substantial or that any required engineering modifications will be successfully
designed or implemented on a timely basis for any particular application. The
failure of any such engineering modifications to be successfully and timely
designed or implemented could have a material adverse effect upon the Company's
financial condition and results of operations. Such a result could adversely
affect the value of a Common Stock purchaser's investment.
Reliance on Sole Source Suppliers. The Company currently obtains certain
critical components for the UltraPhone system from sole source suppliers. The
failure of the Company to develop and enter into acceptable contracts with
alternative sources for other critical components, or to obtain sufficient sole
or limited source components of acceptable quality, as required, could result in
delays or reductions in product shipments which could adversely affect the
Company's business prospects and relations with its customers. This, in turn,
could adversely affect the value of a Common Stock purchaser's investment.
Dependence on Alliance Program. The Company has entered into an alliance
program designed, among other things, to enhance its UltraPhone product
marketing efforts and to promote its B-CDMA efforts. For example, in December
1994, the Company entered into an alliance agreement with Siemens which has
begun to market the UltraPhone product. In February 1996, the Company entered
into an alliance agreement with Samsung, under which Samsung has made a
financial contribution to the Company and is participating, in the development
of B-CDMA technology and the marketing of the UltraPhone system. The elements of
the alliance strategy are interdependent and the failure to successfully achieve
any of the objectives would adversely affect the success of the overall strategy
and could have a material adverse effect upon the Company's financial position
and results of operations. This, in turn, could adversely affect the value of a
Common Stock purchaser's investment. See "--Dependence on a Limited Number of
Customers, Alliance Partners and Licensees."
Dependence on Patented and Proprietary Technology. The Company's UltraPhone
product business depends substantially upon its proprietary technology,
including technology covered by patents owned by ITC. ITC's licensing
opportunities depend upon its ability to enforce its patents against third
parties. In high technology fields, the validity and enforceability of patents
are often subject to complex legal and factual challenges and other
uncertainties. There
-15-
<PAGE>
can be no assurance that ITC's existing patents or any patents that may be
issued to ITC in the future will not be declared invalid, or that ITC's patents
will afford the Company the required protection against competitors with similar
technology; nor can there be any assurance that ITC's patents will not be
infringed upon, or circumvented through design changes, by others. See "Adverse
Results in Motorola Trial" below. In addition, in the normal course of business,
third parties have asserted, and may assert in the future, that the Company is
engaged in the infringing use of such third party's patents or proprietary
technology. If any such third party successfully asserts that the Company is
engaged in any such infringing use, the Company may be required to contest the
validity of such patents or proprietary technology, to acquire licenses to use
such patented or proprietary technology and/or to redesign the Company's
products to avoid further infringement. There can be no assurance that such
licenses can be obtained or that the Company would prevail in any such contests.
Furthermore, the Company relies upon non-competition and non-disclosure
agreements for the protection of certain other proprietary technology. There can
be no assurance that these agreements will prove adequate to enforce the
Company's proprietary rights in such technology. If ITC's patents were declared
invalid or the Company's proprietary technology were otherwise used by third
parties without licensing such patents and technologies from the Company and/or
ITC, the Company's financial position and results or operations would be
materially adversely affected. This could substantially affect the Company's
prospects for realizing future income and, thereby, investors in the Common
Stock could lose part or all of their investment.
Adverse Results in Motorola Trial. In March 1995, a trial involving ITC and
Motorola, Inc., ended with the jury's verdict that the Motorola products
involved in the suit did not infringe ITC's patent claims at issue in the case
and that the 24 patent claims were invalid. ITC filed a motion requesting that
the jury verdict be overturned or, in the alternative, that a new trial be
granted. Motorola filed a motion requesting attorneys' fees and expenses
aggregating between $6 and $7 million. On June 17, 1996, the U.S. District Court
for the District of Delaware affirmed that portion of the jury's verdict
regarding infringement. The U.S. District Court further sustained the jury's
determination of invalidity with respect to 21 of the 24 patent claims, but
ruled that three patent claims are valid notwithstanding the jury's
determination. The U.S. District Court denied Motorola's motion for attorneys'
fees and expenses. On June 17, 1996 Motorola filed an appeal from the ruling by
the U.S. District Court for the District of Delaware with the U.S. Court of
Appeals for the Federal Circuit (Appeal No. 96-1408) and on June 21, 1996 the
Company filed its appeal (Appeal No. 96-1428). It is anticipated that the
parties will file their appeal briefs during the remainder of 1996 and that the
appeals will be argued and decided within approximately 12 to 18 months after
all of the briefs have been filed. The Company believes that there are
substantial grounds for reversal of the jury's invalidity determination and the
granting of a new trial regarding infringement. In the short term, the jury
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. This, in turn,
could adversely affect the value of a Common Stock purchaser's investment. The
ultimate outcome of the Motorola case may also temporarily or permanently
adversely affect ITC's pending U.S. patent infringement litigation against
Ericsson GE Mobile Communications, Inc. and certain of its affiliates
(collectively, "Ericsson") and its ability to realize royalties under certain of
its license agreements. In addition, an adverse ruling on appeal with regard to
Motorola's motion for legal fees could adversely affect the Company's cash
position. There can be no assurance that the Motorola verdict will be reversed
and any reversal of the verdict should be expected to occur in the intermediate-
to long-term rather than in the near future. In the event that the Motorola
verdict is not overturned or reversed, the Company's future prospects could be
materially adversely affected and investors in the Common Stock could lose part
or all of their investment.
Protecting Patents and Proprietary Technology. ITC is currently in
litigation or involved in administrative proceedings, both in the United States
and abroad, over certain of its patents. In the event any of these proceedings
were to have unfavorable results, or if any of ITC's patents were to be declared
invalid, it could have a material adverse effect on ITC's patent licensing
opportunities, if any. This could adversely affect the Company's ability to
realize additional licensing revenues. Such unfavorable results could also
adversely affect ITC's pending patent litigation against Ericsson and its
ability to realize royalty revenue. In such event, the Company's prospects could
be materially adversely affected and investors could lose part or all of their
investment.
Dependence on Foreign Sales. InterDigital expects that sales of UltraPhone
systems to foreign customers will continue to account for a substantial portion
of the Company's total product revenues. Sales of UltraPhone systems to foreign
customers accounted for approximately 65%, 79%, 84% and 86%, respectively, of
the Company's UltraPhone
-16-
<PAGE>
product revenues for 1993, 1994, 1995 and the six month period ended June 30,
1996. Foreign sales of UltraPhone systems are subject to local economic and
political factors which may result in delays in completing sales or the
inability to complete sales. Foreign sales of UltraPhone systems may be affected
by changes in demand resulting from fluctuations in currency exchange rates, as
well as by risks such as tariff and quota regulations and difficulties in
obtaining export or import licenses, among other things. The Company's
UltraPhone product sales usually depend upon a customer's ability to obtain
financing for the purchase, and there can be no assurance that the Company's
existing or prospective customers will be able to qualify for or obtain the
financing necessary to purchase UltraPhone systems. Failure to do so could
adversely affect the Company's cash flow and profitability. This, in turn, could
adversely affect the value of the Company's Common Stock.
Risk of International Operations. The Company's ability to conduct business
in certain areas outside the United States and its revenues derived from foreign
licensees may be adversely affected by certain risks inherent in international
operations. In conducting business in foreign jurisdictions the Company may be
subject, in addition to the effects of government regulation, to the effects of
tariffs and any other applicable trade barriers, currency control regulations,
political instability, potential adverse tax consequences, and general delays in
remittance and difficulties of collection of foreign payments, among other
things. Also, currency conversion gains and losses could contribute to
fluctuations in InterDigital's operating results. If for any reason exchange or
price controls or other restrictions on the conversion or repatriation of
foreign currencies were imposed, InterDigital's revenues derived from any
foreign customers or licensees could be adversely affected. In such event, the
value of a Common Stock purchaser's investment could be adversely affected.
Lack of Technological Change and Product Development. The
telecommunications industry is characterized by rapid technological change,
frequent product introductions and evolving domestic and international industry
standards. The Company believes that its potential for future success will
depend on, among other things, whether it will be able to (i) meet evolving
customer and country-specific requirements through continued refinements to the
UltraPhone system (including frequency modifications) and B-CDMA technology
development projects, and (ii) reduce product costs to allow for more aggressive
UltraPhone product pricing and increased gross profit margin and for continued
B-CDMA technology development projects. Such efforts will necessitate continued
significant investment by the Company in research and development and in sales
and marketing. There can be no assurance that the Company will have sufficient
resources to make such investments, that the Company will be able to make the
technological advances necessary to achieve these goals and thereby capture a
level of sales sufficient to achieve its future success, or that the costs of
such efforts will be acceptable to the Company. There can be no assurance that
the Company's products will not be rendered obsolete or noncompetitive by new
industry standards or changing technology or that the Company will be able
successfully to increase UltraPhone system sales or to develop and successfully
market new products. In such event, the Company's operations could be
jeopardized and investors in the Common Stock could lose part or all of their
investment.
Regulatory and Standards Compliance. In general, the telecommunications
industry is subject to continued regulation on the federal, state and
international levels and, in many cases, domestic, regional and international
organizations, including financing agencies, impose standards for acceptance or
type certification of telecommunications products. Changes in these regulations
or standards may adversely impact the Company's ability to sell UltraPhone
systems or impose additional costs and/or time delays with respect to such
sales. In such event, the value of a Common Stock holders's investment could be
adversely affected.
Changes to Government Regulations. The commercial potential for the
Company's proprietary technologies may be materially affected by regulations and
actions of various governmental agencies, including the Federal Communications
Commission ("FCC"), state public service and utility commissions, the United
States Congress and the courts relating to the regulation of competition, rate
tariffs and/or frequency use, which could affect the market, demand and
availability of communications systems. These restrictions, and those imposed by
counterpart agencies in foreign jurisdictions, may be important factors in
decisions by telephone companies, cellular system operators and other authorized
service providers concerning utilization of the Company's proprietary
technologies. Such restrictions could adversely affect the Company's sales and,
in turn, could adversely affect the value of the Common Stock.
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Effect of Litigation on Cash Position. The Company and ITC are currently in
patent and other litigation, both as plaintiffs and defendants, in the United
States, and are involved in administrative proceedings abroad, over certain of
its patents. The legal fees and costs associated with such litigation are
substantial. A judicial determination of liability requiring the Company to pay
substantial amounts could adversely affect the Company's cash position. In
addition, an adverse or inconclusive result in the Company's and ITC's pending
patent-related litigation against Motorola or Ericsson or any of the
patent-related administrative proceedings could adversely affect the Company's
efforts to generate further revenue and cash flow from its patent portfolio and
could impair generally the Company's ability to raise additional funds. Either
of these results, in turn, could adversely affect the value of a Common Stock
purchaser's investment.
Need for Additional Financing. The Company's operations to date have
required substantial amounts of working capital, and the Company expects to
spend substantial funds to support its UltraPhone operations, to develop
improvements and enhancements to the UltraPhone system, to further expand its
research and development activities relating to its B-CDMA technology and to
fund its patent enforcement activities. The Company's working capital
requirements will depend on numerous factors, including but not limited to the
level of demand for the UltraPhone system, the progress of the Company's
research and development programs, the ability to generate patent and technology
license fees and royalties, and the need to expend funds in connection with its
patent protection activities. To the extent that cash on hand and funds
generated from operations are insufficient, the Company will have to raise
additional funds to meet its working capital requirements. Continued
availability of working capital will be dependent on the financial condition of
the Company, and there is no assurance that additional financing will be
available or, if available, that it will be available on acceptable terms. In
the event sufficient working capital is not obtained or maintained, the
Company's operations could be substantially and adversely disrupted. This, in
turn, could adversely affect the value of a Common Stock purchaser's investment.
Dependence on and Availability of Key Personnel. The Company's business
will continue to depend upon certain key Company personnel, none of whom
currently are parties to agreements that require them to provide services to the
Company for any minimum period of time. The Company believes that to succeed in
the future it will be required to continue to attract, retain and motivate a
significant number of talented and qualified management, sales and technical
personnel. There can be no assurance that the Company will be able to retain its
key employees, or that the Company will be able to continue to attract,
assimilate and retain other skilled management, sales and technical personnel.
The loss of any of its existing key personnel or the inability to attract and
retain a sufficient number of key employees in the future could have a material
adverse effect on the Company. This, in turn, could adversely affect the value
of the Common Stock of the Company.
Adverse Effects to Common Stock Upon Issuance of Additional Preferred
Stock. InterDigital is authorized to issue 14,398,600 shares of its preferred
stock, par value $.10 per share ("Preferred Stock"), of which approximately
105,000 shares were issued and outstanding as of June 30, 1996. The InterDigital
Board, without any further action by InterDigital's shareholders, may issue from
time to time the authorized and unissued shares of Preferred Stock in one or
more series, and may determine as to each series the designation and number of
shares to be issued and the relative rights, preferences and limitations of the
shares of each series, including provisions with respect to voting powers,
redemption, conversion, dividend rights and liquidation preferences. The
issuance of Preferred Stock could adversely affect the voting power of the
holders of Common Stock, deny holders of Common Stock the receipt of a premium
on their Common Stock and have a depressive effect on the market price of the
Common Stock. The issuance of Preferred Stock could also have the effect of
deterring or delaying any attempt by a person or group to obtain control of
InterDigital.
Volatility of Securities Prices. Historically, market prices for securities
of companies involved in the wireless telecommunications industry have been
volatile. In addition, market prices for the Common Stock have historically been
particularly volatile due, in part, to the Company's history of quarterly
fluctuations of revenues and operating results. Announcements of, among other
things, technological innovations or new commercial products by the Company or
its competitors, developments concerning proprietary technologies, results of
patent enforcement activities, regulatory developments in both the United States
and other countries, and global and national economic and political factors, as
well as period-to-period fluctuations in financial results, may have a
significant impact on the market price of the Common Stock. See " - Adverse
Effects to Common Stock Upon Issuance of Additional Preferred Stock."
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Lack of Dividends on Common Stock. InterDigital has not declared or paid
cash dividends on the Common Stock since its inception. It is anticipated that
in the foreseeable future, no cash dividends will be declared or paid on the
Common Stock and any cash otherwise available for such dividends will be
reinvested in the Company's business.
Anti-Takeover Provisions. Unsolicited changes in control of InterDigital
could be deterred, delayed or made more expensive as a result of applicable
statutory protections (relating to transactions with certain "interested
persons" and "controlling persons"), the statutory authorization for the
InterDigital Board to consider the interests of constituent groups (other than
InterDigital's shareholders) when determining whether a particular action is in
the best interests of InterDigital, provisions of InterDigital's Bylaws
establishing a classified InterDigital Board, and certain provisions in
InterDigital's Articles of Incorporation. Accordingly, these provisions and
protections may have a depressive effect on the price of InterDigital's
securities.
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THE MERGER
Background and Reasons for the Merger
In the fourth quarter of 1994, the IPC Board, the InterDigital Board and
the management of IPC and InterDigital commenced a comprehensive and continuing
review of the Company's organizational structure in order to better address
management requirements regarding the companies' intellectual property portfolio
and prospective alliance activities. In their review, the Boards and management
of the two companies sought to address various issues which might result from
bundled licenses of such companies' patent, trademark and know-how rights. The
Boards and management of the two companies concluded that both companies would
benefit from the Merger of the companies by facilitating licensing negotiations,
easing the burden of redundant administrative, accounting and financial
operations, and providing the minority stockholders of IPC with liquidity in
respect to their investment in the common stock of IPC. After management of the
Company met with representatives of the minority stockholders of IPC, by the end
of the first quarter of 1995, the management of IPC and InterDigital had
concluded that the most effective way to combine the two companies and address
the objectives described above was to effect a tax-free stock-for-stock
combination.
On May 4, 1995, management of IPC met with several investment banking firms
to determine whether such firms should be retained to provide the company
investment advisory services in connection with the proposed combination. After
such meetings, IPC retained the services of Howard Lawson to provide investment
advisory services in connection with the Merger. Management of IPC met with
Howard Lawson several times between May 4, 1995 and August 23, 1995. On August
23, 1995, Howard Lawson presented its preliminary analyses as to indications of
value of the IPC common stock based on then existing conditions. However, no
valuation report was issued at such time. InterDigital management and directors
determined at such time that the merger transaction required additional
analysis.
On February 2, 1996 and February 27, 1996, members of IPC's management met
with Howard Lawson to discuss the status of the Merger and to provide Howard
Lawson a description of recent material events. On March 15, 1996, the IPC Board
met with Howard Lawson to discuss the status of the Merger and Howard Lawson's
revised preliminary analyses as to indications of value of the IPC common stock
based upon then existing conditions. However, due to demands on the time and
attention of IPC management resulting from the negotiation of the Samsung
alliance, the opposition proceeding in Germany regarding one of ITC's TDMA
system patents and certain management changes at InterDigital, the preliminary
estimates of the range of value of the IPC common stock were neither finalized
nor acted upon at such time.
On June 25, 1996 and July 12, 1996, members of IPC's management again met
with Howard Lawson to discuss the status of the Merger and to provide a summary
of recent material events. On August 15, 1996, the InterDigital and IPC Boards
met individually to discuss the progress of the Merger. On such date, the IPC
Board met with Howard Lawson to discuss the Merger consideration and the
structure of the Merger. Howard Lawson presented its opinion concerning the
range of values of the IPC common stock based on then existing conditions. See
"The Merger--Opinion of Financial Advisor." In addition, the Boards reviewed a
draft of the Registration Statement on Form S-4 and the Plan of Merger to be
filed with the Commission in connection with the Merger. At such meetings, each
of the InterDigital and the IPC Boards approved the Merger, subject to the
approval of the majority stockholder of IPC and the sole stockholder of
MergerCo, as required by Delaware law. The InterDigital Board also approved the
filing of the Registration Statement on Form S-4 in connection with the Merger.
The Registration Statement on Form S-4 was filed with the Commission on August
19, 1996.
On August 6, 1996, the Company incorporated MergerCo in the state of
Delaware. On August 15, 1996, the Board of Directors of MergerCo approved the
execution of the Plan of Merger, the effectiveness which is subject to the
approval of the Company as the majority stockholder of IPC and the sole
stockholder of MergerCo. The Plan of Merger was executed by all parties on
August 15, 1996. It is anticipated that the Company as the sole stockholder of
MergerCo and the majority stockholder of IPC will approve the Merger after the
Commission declares the Registration Statement effective.
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Purpose and Structure of the Merger and Certain Effects of the Merger
The reason for the Merger is to facilitate the further development and
implementation of the Company's and ITC's alliance program, eliminate potential
conflicts of interest which may arise between ITC and the Company, eliminate
corporate governance and corporate opportunity issues that may arise in
connection with the operation of a subsidiary that is not wholly owned by the
Company and simplify the negotiation of multi-faceted licensing and technology
transfer arrangements between the Company, ITC and third parties. The Merger
will also allow the Investors the opportunity to own stock with a greater
liquidity.
Conduct of the Business of the Surviving Corporation After the Merger
Following the Merger, the Surviving Corporation will be a wholly owned
subsidiary of InterDigital. The Surviving Corporation will exist and operate
under the name "InterDigital Patents Corporation." The Surviving Corporation's
Certificate of Incorporation will be the same as that of IPC as in effect
immediately prior to the Effective Time. The Surviving Corporation's board of
directors and management will be the same as that of IPC as in effect
immediately prior to the Effective Time.
Approval by the IPC Board, InterDigital Board and Stockholders of MergerCo and
IPC
On August 15, 1996, meetings of the IPC Board and the InterDigital Board
were held for the purpose of considering the Merger including reviewing the
fairness of the Merger Consideration to be paid in the Merger. The IPC Board had
previously engaged Howard Lawson to serve as its independent financial advisor
for the transaction and to render an opinion as to the fairness of the Merger
Consideration, from a financial point of view, to the Investors. In addition,
Archer & Greiner advised counsel to IPC as to the fiduciary duties of IPC's
Board of Directors. After considering all relevant information, including the
opinion of Howard Lawson to the effect that the Merger Consideration to be
received by the Investors is fair, from a financial point of view, to the
Investors, the IPC Board voted unanimously that it approve the terms of the
Merger and the Plan of Merger. In addition, after considering all relevant
information, the InterDigital Board voted unanimously that it approve the terms
of the Merger and the Plan of Merger on behalf of itself. Investors should be
aware that all of the members of the IPC Board have certain interests which may
present them with potential conflicts of interest in connection with the Merger
including, the fact that the IPC Board consists of persons, all of whom are
either members of the Company's board of directors, some of whom are executive
officers of the Company, and one of which is an Investor of IPC. See "The Merger
- -- Interests of Certain Persons in the Merger."
Opinion of Financial Advisor
Howard Lawson was retained by the IPC Board to act as its financial advisor
and to render a fairness opinion in connection with the Merger. Pursuant to such
engagement, the IPC Board requested that Howard Lawson evaluate the fairness,
from a financial point of view, to the Investors of the consideration to be
received in the Merger by the Investors. On August 15, 1996, Howard Lawson
delivered to the IPC Board its oral opinion, confirmed by a written opinion
dated August 15, 1996, to the effect that, as of the respective dates and based
upon and subject to certain matters as stated in its written opinion, the
consideration to be received by the Investors in the Merger was fair, from a
financial point of view, to the Investors.
The full text of the written opinion of Howard Lawson dated August 15,
1996, which sets forth assumptions made, factors considered and limitations on
the review undertaken by Howard Lawson, is attached to and made part of this
Prospectus as Annex II. Investors are urged to read such opinion carefully and
in its entirety.
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No limitations were imposed by the IPC Board on the scope of Howard
Lawson's investigation or the procedures to be followed by Howard Lawson in
rendering its opinion, except that the IPC Board did not authorize Howard Lawson
to solicit, and Howard Lawson did not solicit, any indications of interest from
any third party with respect to the purchase of all or a part of IPC's business.
Howard Lawson was not requested to and did not make, any recommendations to the
IPC Board as to the form of the Merger Consideration. In arriving at its
opinion, Howard Lawson did not ascribe a specific value to IPC, but instead made
its determination as to the fairness, from a financial point of view, of the per
share price received by the Investors from InterDigital, on the basis of a
financial analysis described below. Howard Lawson's opinion is directed to the
IPC Board only and does not constitute a recommendation to any Investor. Howard
Lawson was not requested to opine as to, and its opinion does not address, the
underlying business decision to proceed with or the effect of the Merger.
In arriving at its opinion, Howard Lawson reviewed the following financial
and other information, including but not limited to: (i) Draft of the Form S-4
Registration Statement dated August 14, 1996; (ii) IPC and InterDigital
Confidential Private Placement Memorandum dated October 1, 1992; (iii)
InterDigital Annual Reports and Forms 10-K for the fiscal years ending December
31, 1992, 1993, 1994 and 1995 and Forms 10-Q for the quarterly periods ended
March 31, 1996 and June 30, 1996; (iv) Press Releases, Commission filings and
other publicaly available information regarding InterDigital and IPC; (v)
InterDigital, 1995 Goals and Budget dated December 14, 1994 and 1996 Forecasted
Profit dated April 30, 1996; (vi) InterDigital and subsidiaries internal
consolidating financial statements for fiscal 1992, 1993, 1994 and 1995 and the
period ended June 30, 1996; (vii) historical prices and trading volume of the
Common Stock of InterDigital; (viii) information on ITC's patents and patent
applications and litigation regarding those patents; and (ix) information on the
wireless telecommunications equipment industry, including market reports,
analysts' reports, and information on companies in the industry.
In addition, Howard Lawson had discussions with the management of
InterDigital and IPC concerning the respective businesses, operations, assets,
financial condition and prospects of InterDigital and IPC including, but not
limited to, their proprietary technology, development efforts, patents and
patent applications, licensing, alliance and other agreements, the prospects for
the adoption of their technology in various markets, and the status of
litigation regarding ITC's patents, and undertook such other studies, analyses
and investigations as it deemed appropriate.
In rendering its opinion, Howard Lawson assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion without independent verification and further relied upon
the assurances of management of InterDigital and IPC that they were not aware of
any facts that would make such information inaccurate or misleading. With
respect to the projections of IPC prepared by Howard Lawson, upon advice of IPC,
Howard Lawson assumed that such projections were reasonably prepared on the
basis of assumptions which are reasonable given the economic and business
conditions under which IPC will operate in the future. In arriving at its
opinion, Howard Lawson did not conduct a physical inspection of the properties
and facilities of InterDigital or IPC and did not make nor obtain any
evaluations or appraisals of the assets (including intangible assets) or
liabilities of InterDigital or IPC. In addition, Howard Lawson was not
authorized to solicit, and did not solicit, any indications of interest from any
third party with respect to the purchase of all or a part of IPC's business.
Upon advice of IPC and its legal and accounting advisors, Howard Lawson assumed
that the proposed merger would be tax-free to the Investors. Howard Lawson's
opinion is necessarily based upon market, economic and other conditions as they
existed on, and could be evaluated as of, the date thereof.
Howard Lawson did not express an opinion as to the prices at which the
shares of InterDigital Common Stock will actually trade at any time.
The following paragraphs summarize the material financial analyses
performed by Howard Lawson in arriving at its opinion as to the fairness, from a
financial point of view, to the Investors of the Merger Consideration. Howard
Lawson delivered its written opinion on August 15, 1996. The following does not
purport to be a complete description of the analyses performed, or the matters
considered, by Howard Lawson in arriving at its opinion. The preparation of a
fairness opinion involves determinations as to the most appropriate and relevant
methods of financial analyses and the application of those methods to the
particular circumstances, and therefore such an opinion is not readily
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susceptible to summary description. Furthermore, in arriving at its fairness
opinion, Howard Lawson did not attribute any particular weight to any analysis
or factor considered by it but, rather, made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Howard
Lawson believes that its analyses must be considered as a whole and that
considering any portion of such analysis without considering all analyses and
factors could create a misleading or incomplete view of the process underlying
the opinion. In its analyses, Howard Lawson made numerous assumptions with
respect to industry performance, general business and economic conditions,
discount rates and other matters, many of which are beyond the control of IPC.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which businesses actually may be sold.
In arriving at its opinion as to the fairness, from a financial point of
view, to the Investors of the Merger Consideration, Howard Lawson reviewed the
terms of the initial purchase of the shares of IPC by the Investors. The shares
were purchased as part of units consisting of (i) 62,500 common shares of IPC
and (ii) ten year warrants to purchase 62,500 shares of InterDigital Common
Stock at $5.50 per share. Based on the application of a number of option and
warrant valuation models (including Black Scholes), Howard Lawson determined
that the value of IPC Common Stock implied by the price of the units was
approximately $1.38 per share in December 1992. Based on the August 14, 1996
closing price of InterDigital Common Stock, the current transaction represents
an annual return of approximately 57% to the Investors on the IPC stock portion
of their investment. In contrast, InterDigital Common Stock has appreciated only
7% on an annual basis over the same period. Howard Lawson was advised by IPC
that there have been no significant third party sales or purchases of IPC common
stock since the original sales which would provide subsequent reliable
indications of the value of the Shares.
Howard Lawson reviewed the relative financial performance of IPC and
InterDigital since 1992 on both a consolidated and unconsolidated basis. In
making its analysis, Howard Lawson concluded that since 1992, the financial
performance of non-IPC components of InterDigital had deteriorated, primarily as
a result of larger losses in the UltraPhone product line and the costs
associated with the development of the Company's B-CDMA technology, which were
acquired in 1992. IPC, on the other hand, had greatly improved its financial
performance since 1992 and, as of 1994, began collecting significant royalty
payments related to ITC's patent portfolio.
Howard Lawson prepared an analysis of the value of IPC as indicated by the
current market capitalization of the Common Stock of InterDigital. As IPC is
94.24% owned by InterDigital, the market capitalization of InterDigital reflects
in large part the market's perception of the value of IPC. A review of the
market price of InterDigital Common Stock since 1992 indicated that it is very
responsive to announcements regarding IPC's business. For example, following the
March 29, 1995 decision in the Motorola litigation regarding ITC's patents,
InterDigital's stock price declined from $12 on March 29, 1995 to $6-1/8 on
March 31, 1995. Howard Lawson prepared an allocation analysis of InterDigital's
current market capitalization, based on certain assumptions as to the value of
non-IPC businesses and, after considering a discount to the value of IPC shares
for the lack of a ready, liquid market, Howard Lawson concluded that this
analysis indicates an implied value for IPC shares of $9.45 based on the market
valuation of InterDigital Common Stock as of August 14, 1996.
Howard Lawson also prepared a discounted cash flow analysis of the value of
IPC common stock. It prepared a forecast of cash flows through the year 2010,
based on independent forecasts for the wireless telecommunications equipment
industry and certain assumptions with respect to IPC's ability to generate
royalties and cash flows and also with respect to the final outcomes of the
Motorola litigation and other challenges to ITC's patents. The cash flows were
discounted at annual rates between 20% and 40% and for periods from seven to 15
years. Howard Lawson concluded that such analysis indicated a value in the range
of $5.90 to $7.50 per share.
Howard Lawson also considered other valuation methodologies, including a
comparable company analysis and liquidation analysis, without coming to any
conclusion as to value. It concluded that such measures were not as reliable as
those discussed above and were not relied upon by Howard Lawson in its analysis.
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The IPC Board selected Howard Lawson as its financial advisor because
Howard Lawson is a recognized investment banking firm with substantial
experience in transactions similar to the Merger. As part of its investment
banking business, Howard Lawson regularly engages in the valuation of businesses
and securities in connection with mergers acquisitions, private placements and
valuations for estate, corporate and other purposes.
In consideration of its services as financial advisor to the IPC Board,
Howard Lawson has received a fee of $55,000 for work performed prior to July
1996 in connection with services related to the Merger and, in addition, will
receive an hourly fee for work performed since July 1996. IPC has also agreed to
reimburse Howard Lawson for its out-of-pocket expenses, including the reasonable
fees and expenses of its legal counsel, and to indemnify Howard Lawson against
certain liabilities which may arise out of or in connection with the services
rendered by Howard Lawson which may arise under the engagement letter. Howard
Lawson has performed investment banking services for InterDigital in the past
for which it received customary compensation. During the past five years, these
services included a valuation analysis with respect to the acquisition of SCS
Mobilecom, Inc. and SCS Telecom, Inc. in 1992 and financial advisory services
with respect to a proposed financing in 1994.
Appraisal Rights
Holders of shares of IPC common stock are entitled to appraisal rights
under Section 262 of the DCL ("Section 262"), provided that they comply with the
conditions established by Section 262. Section 262 is reprinted in its entirety
as Annex III to this Prospectus. The following discussion is not a complete
statement of the law relating to appraisal rights and is qualified in its
entirety by reference to Annex III. This discussion and Annex III should be
reviewed carefully by any IPC stockholder who wishes to exercise statutory
appraisal rights or who wishes to preserve the right to do so, as failure to
comply with the procedures set forth herein or therein will result in the loss
of appraisal rights.
Stockholders of record who desire to exercise their appraisal rights must:
- hold shares of IPC common stock on the date of making a demand for
appraisal;
- continuously hold such shares through the Effective Time;
- deliver a properly executed written demand for appraisal to IPC, as
the Surviving Corporation, prior to the date which is 20 days after
the date of the mailing of this Prospectus to such holder of record;
- file any necessary petition in the Delaware Court of Chancery (the
"Delaware Court"), as more fully described below, within 120 days
after the Effective Time; and
- otherwise satisfy all of the conditions described more fully below.
A record holder of shares of IPC common stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, and who otherwise complies
with the statutory requirements of Section 262 will be entitled to an appraisal
by the Delaware Court of the fair value of his shares of IPC common stock. All
references in Section 262 and in this summary of appraisal rights to an
"Investor," a "stockholder" or "holders of shares of IPC common stock" are to
the record holder or holders of shares of IPC common stock.
IPC stockholders who desire to exercise their appraisal rights must deliver
a separate written demand for appraisal to IPC as the Surviving Corporation
prior to the date which is 20 days after the date of the mailing of the
Prospectus to such holder of record. The mailing of this Prospectus shall
constitute the notice required to be given by IPC pursuant to Section 262. A
demand for appraisal must be executed by or on behalf of the stockholder of
record, fully and correctly, as such stockholder's name appears on the
certificate or certificates representing the shares of IPC common stock. A
person having a beneficial interest in shares of IPC common stock that are held
of record in the name of another person,
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such as a broker, fiduciary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to perfect whatever appraisal rights are available. If the shares of IPC
common stock are owned of record by a person other than the beneficial owner,
including a broker, fiduciary (such as a trustee, guardian or custodian) or
other nominee, such demand must be executed by or for the record owner. If the
shares of IPC common stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such person is acting as agent for the
record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of IPC common stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of IPC common stock outstanding in the name of such record
owner.
An IPC stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: InterDigital Patents Corporation, 781
Third Avenue, King of Prussia, Pennsylvania 19406-1409, Attention: William J.
Merritt, Associate General Counsel and Secretary. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of IPC common stock owned, and that the
stockholder is thereby demanding appraisal of his or her shares. Within ten days
after the Effective Time, the Surviving Corporation must provide notice of the
Effective Time to all stockholders who have complied with Section 262. The
mailing of this Prospectus shall constitute the notice required to be given by
IPC pursuant to Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any IPC stockholder who has complied with the required conditions of Section
262 may file a petition in the Delaware Court, with a copy served on the
Surviving Corporation in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. The Surviving Corporation does not presently intend to file an
appraisal petition and stockholders seeking to exercise appraisal rights should
not assume that the Surviving Corporation will file such a petition or that the
Surviving Corporation will initiate any negotiations with respect to the fair
value of such shares. Accordingly, stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of IPC common stock with
respect to which demands for appraisal were received by the Surviving
Corporation and the number of holders of such shares. Such statement must be
mailed within 10 days after the written request therefor has been received by
the Surviving Corporation or within 10 days after expiration of the time for
delivery of demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights and will appraise the shares of IPC common stock owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of
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the merger and not the product of speculation, may be considered." Section 262,
however, provides that fair value is to be "exclusive of any element of value
arising from the accomplishment or expectation of the merger."
Stockholders considering seeking appraisal should recognize that the fair
value of their shares determined under Section 262 could be more than, the same
as or less than the consideration they are to receive pursuant to the Merger if
they do not seek appraisal of their shares. The cost of the appraisal proceeding
may be determined by the Delaware Court and taxed against the parties as the
Delaware Court deems equitable in the circumstances. Upon application, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of IPC common stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends of
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Surviving Corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of IPC common stock will be entitled to receive the Merger
Consideration. Inasmuch as the Surviving Corporation has no obligation to file
such a petition, and has no present intention to do so, any holder of shares of
common stock who desires such a petition to be filed is advised to file it on a
timely basis.
Interests of Certain Persons in the Merger
IPC stockholders should be aware that certain members of IPC's management
and all members of the IPC Board have certain interests that may present them
with potential conflicts of interest in connection with the Merger. D. Ridgely
Bolgiano, Harry G. Campagna, Harley L. Sims, and William A. Doyle are each
directors of IPC and the Company and shareholders of the Company. William A.
Doyle, the President of the Company, and James W. Garrison, the Company's chief
financial officer, are also officers of IPC. D. Ridgely Bolgiano is also an
officer of IPC and the Company and a stockholder of IPC. See "The
Merger--Resales of Common Stock by Investors."
The Plan Of Merger
The terms of the Merger are contained in the Plan of Merger, a copy of
which is attached as Annex I to this Prospectus and incorporated herein by
reference. Statements in this Prospectus with respect to the terms of the Merger
are qualified in their entirety by reference to the full text of the Plan of
Merger. IPC stockholders are urged to read the full text of the Plan of Merger.
General. Under the Plan of Merger, MergerCo will be merged with and into
IPC, and IPC, as the Surviving Corporation in the Merger, will continue its
corporate existence under the laws of Delaware under the name "InterDigital
Patents Corporation." The Surviving Corporation will be a wholly owned
subsidiary of InterDigital.
Effective Time of the Merger. The Effective Time of the Merger will occur
upon the filing of a Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with applicable Delaware law. It is anticipated
that the Certificate of Merger will be filed on or about ________ __, 1996 and,
accordingly, the Merger will become effective on such date.
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Conversion of Stock. At the Effective Time, each outstanding share of IPC
common stock (other than the Excluded Shares which will be canceled and the
Dissenting Shares) shall be converted into the right to receive that number of
shares (the "Conversion Number") of the Common Stock of InterDigital (the
"Merger Consideration") equal to (i) $7.33 divided by (ii) the average closing
price per share of InterDigital Common Stock as reported by the American Stock
Exchange for the 30 calendar days ending on the last trading day prior to the
date the Registration Statement is declared effective by the Commission (the
"Average Price"). As a result, holders of shares of IPC common stock will have
no continuing interests in or rights as stockholders of IPC. Each share of
MergerCo's common stock issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of InterDigital, be converted into one share of the Surviving Corporation.
Holders of shares of IPC common stock have the right under Section 251 of the
DCL to dissent from the Merger and obtain an appraisal of the fair value of such
shares pursuant to Section 262 of the DCL. See "- Appraisal Rights."
Payment for IPC Common Stock. In order to receive the Merger Consideration,
each holder of certificates representing IPC common stock (each, a
"Certificate") will be required to surrender his or her Certificate or
Certificates, together with a duly executed and properly completed Letter of
Transmittal and any other required documents, to the Company. The Company will
provide each stockholder with the requisite forms of the letter of transmittal
and other documents referred to above, together with instructions for their use.
Upon receipt of such Certificate or Certificates, together with a duly executed
and properly completed Letter of Transmittal and any other required documents
from a holder of IPC common stock, the Company will arrange for the issuance and
delivery to the person or persons entitled thereto of a certificate or
certificates representing that number of whole shares of InterDigital Common
Stock equal to the Conversion Number multiplied by the number of shares of IPC
common stock represented by the surrendered Certificate or Certificates. Shares
of InterDigital Common Stock will be issued only in whole shares. Stockholders
will not be entitled to receive fractions of shares of InterDigital Common Stock
("Fractional Shares") but, instead, will be entitled to receive promptly from
the Company a cash payment in lieu of Fractional Shares in an amount equal to
the Average Price multiplied by the Fractional Share in question.
No dividends or other distributions that are otherwise payable on the
shares of InterDigital Common Stock issued in connection with the Merger will be
paid to the holder of any unsurrendered Certificate until such Certificate is
properly surrendered to the Company.
If the Merger Consideration is to be paid to a person other than the
registered holder of the Certificates surrendered, it is a condition of such
issuance that the Certificate or Certificates so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment or issuance either pay to the Company any transfer or
other taxes required by reason of the issuance to a person other than the
registered owner of the Certificate or Certificates surrendered, or shall
establish to the satisfaction of InterDigital that such tax has been paid or is
not applicable.
The Company will send instructions to the Investors with regard to the
procedure for surrendering Certificates in exchange for the Merger
Consideration, together with a letter of transmittal to be used for this
purpose, as promptly as practicable after the Effective Time. Investors should
surrender Certificates only with a letter of transmittal.
Effect of the Merger on IPC Stock Options. Robert S. Bramson, a former
employee of IPC, was granted an option to purchase 262,625 shares of IPC common
stock, all of which are fully vested. Mr. Bramson, the Company and IPC have
agreed that Mr. Bramson will fully exercise such option immediately prior to the
Merger. The shares of IPC common stock issued upon such exercise shall be deemed
outstanding at the Effective Time and shall be entitled to the Merger
Consideration. There are no other options outstanding for the purchase of IPC
common stock.
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Certificate of Incorporation, By-laws, Officers and Directors. The Plan of
Merger provides that, at the Effective Time, the Certificate of Incorporation
and the By-laws of IPC, each as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation and the By-laws of the Surviving
Corporation. The Plan of Merger also provides that the officers and directors of
IPC at the Effective Time shall be the initial officers and directors of the
Surviving Corporation and shall serve until their respective successors are duly
elected or appointed and qualify in the manner provided in the Certificate of
Incorporation and the By-laws of the Surviving Corporation, or as otherwise
provided by law.
Action Required to Approve the Merger; Conditions to the Merger. Under
applicable law, since InterDigital owns in excess of 50% of the outstanding
common stock of IPC and IPC will be the Surviving Corporation, the only
approvals required in order to effect the Merger are those of (a) the Boards of
Directors of MergerCo and IPC and (b) InterDigital on its own behalf and as the
sole stockholder of MergerCo and the majority stockholder of IPC. Shareholder
approval of InterDigital is not required to effect the Merger. A condition to
the Merger is the declaration by the Commission of the effectiveness of the
Company's Registration Statement on Form S-4, of which this Prospectus forms a
part, and the approval of the sole stockholder of MergerCo and the majority
stockholder of IPC. No proxies are being solicited in connection with the
Merger. In addition, InterDigital has the right, which it may exercise in its
sole discretion, to terminate or abandon the Merger prior to the Effective Time,
if the average closing price per share of InterDigital common stock as reported
by the American Stock Exchange for the 30 calendar days ending on the last
trading day prior to the date the Registration Statement is declared effective
by the Commission is less than or equal to $5.86 per share (i.e., eighty percent
of $7.33). The Merger will become effective on or about _____________, 1996.
Indemnification and D&O Insurance Coverage. In the Plan of Merger,
InterDigital has agreed that all rights to indemnification existing as of the
date of the Plan of Merger in favor of the employees, agents, directors or
officers of IPC and its subsidiaries (collectively, the "Indemnified Parties"),
as provided in their respective charters, codes of regulations, or by-laws, by
agreement or otherwise in effect on the date of the Plan of Merger, shall
survive the Merger and shall, with respect to any action or omission occurring
prior to the Effective Time, continue in full force and effect in accordance
with their terms. In addition, the Plan of Merger provides that if any
Indemnified Party becomes involved in any capacity in any action, proceeding or
investigation in connection with any matter, including the transactions
contemplated by the Plan of Merger occurring prior to, and including, the
Effective Time, IPC will periodically advance to such Indemnified Party its
legal and other expenses incurred in connection therewith.
InterDigital has also agreed to use its best efforts to cause to be
maintained in effect for a period of two years from the Effective Time policies
of the directors' and officers' liability insurance maintained by or for the
benefit of IPC with at least the same dollar policy limitation as those
currently in effect (the "D&O Insurance Coverage") with respect to matters
occurring prior to the Effective Time.
Resales of Common Stock by Investors
Shares of Common Stock to be issued to the Investors pursuant to this
Prospectus have been registered under the Securities Act. All shares of Common
Stock received by the Investors upon consummation of the Merger will be freely
transferable by those Investors who, at the Effective Time, are not deemed to be
"Affiliates" of IPC for purposes of Rule 145 under the Securities Act.
"Affiliates" of IPC are generally defined as persons who control, are controlled
by or under common control with IPC (generally, certain executive officers and
directors).
Affiliates of IPC may not sell their shares of Common Stock acquired in
connection with the Merger, except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 (or Rule
144 under the Securities Act in the case of persons who are or become Affiliates
of InterDigital) or another applicable exemption from the registration
requirements of the Securities Act. In general, under Rule 145, for two years
following the Effective Time, an Affiliate of IPC (together with certain related
persons) would be entitled to sell shares of Common Stock received in connection
with the Merger only through unsolicited "broker transactions" or in
transactions directly with a "market maker" (as such terms are defined in Rule
144). Additionally, the number of shares to be sold by
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an Affiliate of IPC (together with such Affiliate's related persons and others
who act in concert with such Affiliate) within any three-month period for
purposes of Rule 145 may not exceed the greater of 1% of the outstanding shares
of Common Stock or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding such sale. Rule 145 would only remain
available to Affiliates of IPC so long as InterDigital remained current with its
informational filings with the Commission under the Exchange Act. Two years
after the Effective Time, an Affiliate of IPC would be able to sell the shares
of Common Stock received in the Merger without such manner of sale or volume
limitations provided that InterDigital was current with its Exchange Act
informational filings and such Affiliate of IPC was not then an Affiliate of
InterDigital. Three years after the Effective Time, an Affiliate of IPC would be
able to sell the shares of Common Stock received in the Merger without any
restrictions so long as such Affiliate of IPC had not been an Affiliate of
InterDigital for a least three months prior to the sale.
Financing Of The Merger; Source And Amount Of Funds
Out-of-pocket costs and expenses incurred by InterDigital and IPC in
connection with the Merger will be paid by the party incurring such costs and
expenses. The approximate fees and expenses expected to be incurred by
InterDigital and IPC in connection with the Merger are as set forth below:
InterDigital IPC
------------ -------
Investment Bankers' Fees and Expenses $40,000 $75,000
Attorneys' Fees and Expenses [ * ] 6,000
Accountants' Fees and Expenses 20,000 20,000
AMEX Listing Fee [ * ] --
Fee for Filing with the SEC 5,258 --
Miscellaneous [___*__] [___*__]
TOTAL $[___*__] $[___*__]
- ------------
* To be supplied by amendment
Expenses incurred by InterDigital and IPC in connection with the Merger are
expected to be paid out of available funds of InterDigital and IPC, as
applicable.
Certain Federal Income Tax Consequences Of The Merger
The federal income tax discussion set forth below is included for general
information only. The following represents the opinion of Special Tax Counsel as
to the material federal income tax consequences of the Merger to IPC and the
Investors. Neither this summary nor the opinion is intended to be a complete
description of the federal income tax consequences of the Merger. This summary
is included for general information purposes only. The federal income tax laws
are complex, and each Investor's individual circumstances may affect the tax
consequences to the Investor or may give rise to federal income tax issues that
are not addressed herein. In certain situations this discussion may not be
applicable to certain classes of taxpayers, including insurance companies,
securities dealers, financial institutions, foreign persons and persons who
acquired shares of IPC common stock pursuant to the exercise of employee stock
options or rights or otherwise as compensation. In addition, no information is
provided with respect to the tax consequences of the Merger under the laws of
any state, local or other taxing jurisdiction in the United States or any taxing
jurisdiction outside the United States. Consequently, each Investor is urged to
consult a tax adviser regarding the tax consequences of the Merger to such
Investor, including the applicability and effect of state, local and other tax
laws and any proposed changes in such laws.
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Tax Opinion
IPC and the Company have received an opinion of Special Tax Counsel that,
subject to the qualifications and other matters set forth therein, the Merger
will be treated as a reorganization within the meaning of Code Section 368(a),
with the material federal income tax consequences set forth below.
Special Tax Counsel's opinion is based on laws, regulations, rulings and
judicial decisions as they currently exist, none of which squarely addresses
every precise factual circumstance present in connection with the Merger but all
of which, taken together, in Special Tax Counsel's opinion, provide a sufficient
legal basis for its opinions described below. The possibility exists, however,
that Special Tax Counsel's opinion as to the proper application of the law to
the facts of the Merger would not be accepted by the Internal Revenue Service or
would not prevail in court. In addition, the authorities upon which Special Tax
Counsel has relied upon in rendering its opinion are all subject to change and
such change may be made with retroactive effect. Special Tax Counsel can give no
assurance that, after any such change, its opinion would not be different, and
it has not undertaken any responsibility to update or supplement its opinion.
Special Tax Counsel's opinion is based on the understanding that the
relevant facts are, and will be at the Effective Time, as set forth in its
opinion. If this understanding is incorrect or incomplete in any respect,
Special Tax Counsel's opinion could be affected. Special Tax Counsel's opinion
is based on the facts and the understandings, assumptions and representations
relied upon by Special Tax Counsel as set forth in its opinion.
Consummation of the Merger is conditioned upon Special Tax Counsel's
opinion not having been revoked as of the Effective Time.
Certain Consequences of Reorganization Status. Provided that the Merger
qualifies as a reorganization within the meaning of Code Section 368(a), then,
for federal income tax purposes: (i) no gain or loss would be recognized by any
of IPC, MergerCo or InterDigital as a result of the Merger; (ii) no gain or loss
would be recognized by an Investor upon the receipt of InterDigital Common Stock
in exchange for IPC common stock in the Merger, except as discussed below with
respect to cash received in lieu of a fractional share interest in InterDigital
Common Stock or cash received by an Investor who exercises dissenters' rights;
(iii) the aggregate adjusted tax basis of the shares of InterDigital Common
Stock to be received by an Investor in the Merger would be the same as the
aggregate adjusted tax basis in the shares of IPC common stock surrendered in
exchange therefor; and (iv) the holding period of the shares of InterDigital
Common Stock to be received by an Investor in the Merger would include the
holding period of the shares of IPC common stock surrendered in exchange
therefor, provided that such shares of IPC common stock are held by the Investor
as capital assets at the Effective Time.
Consequences of Receipt of Cash in Lieu of Fractional Shares. An Investor
who receives cash in the Merger in lieu of a fractional share interest in the
InterDigital Common Stock will be treated for federal income tax purposes as
having received cash in redemption of such fractional share interest. The
receipt of such cash generally should result in capital gain or loss in an
amount equal to the difference between the amount of cash received and the
portion of such Investor's adjusted tax basis in the shares of IPC common stock
allocable to the fractional share interest. Such capital gain or loss will be
long-term capital gain or loss if the Investor holds the shares as capital
assets and the holding period for the fractional shares of the InterDigital
Common Stock deemed to be received and then redeemed is more than one year.
Cash Received by Holders of IPC Common Stock who Dissent. An Investor who
perfects dissenters' rights under the laws of the State of Delaware and who
receives a cash payment of the fair value of his shares of IPC common stock will
be treated as having received such payment in redemption of such shares. Such
redemption will be subject to the conditions and limitations of Code Section
302, including the attribution rules of Code Section 318. In general, if the
shares of IPC common stock are held by a dissenting Investor as a capital asset
at the Effective Time, the dissenting Investor will recognize capital gain or
loss measured by the difference between the amount of cash received by such
Investor and the Investor's basis for such shares. If, however, such Investor
owns, either actually or constructively, any other IPC common stock or
InterDigital Common Stock, the payment made to such Investor could be treated as
dividend income. In general,
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under the constructive ownership rules of the Code, an Investor may be
considered to own shares of stock that are owned, and in some cases
constructively owned, by certain related individuals or entities, as well as
stock that such Investor (or related individuals or entities) has the right to
acquire by exercising an option or converting a convertible security. Each IPC
stockholder who contemplates exercising his dissenters' rights should consult
his own tax advisor as to the possibility that the payment to him will be
treated as dividend income.
COMPARISON OF RIGHTS OF HOLDERS OF IPC COMMON STOCK
AND INTERDIGITAL COMMON STOCK
Upon the exchange of their shares for shares of Common Stock pursuant to
the Merger, the stockholders of IPC, a Delaware corporation, will become
shareholders of InterDigital, a Pennsylvania corporation, and Pennsylvania law
will govern shareholder rights after the Merger. Differences between the
Pennsylvania Business Corporation Law (referred to in this section as the
"PBCL") and the DCL and between IPC's existing Certificate of Incorporation and
Bylaws (respectively, the "IPC Certificate" and "IPC Bylaws") and InterDigital's
Articles of Incorporation and Bylaws (respectively, the "InterDigital Articles"
and "InterDigital Bylaws") will result in various changes in the rights of
stockholders of IPC.
The following is a summary of some of material differences between the
rights of InterDigital shareholders under Pennsylvania law and the InterDigital
Articles and InterDigital Bylaws, as compared with those of IPC stockholders
under Delaware law and the IPC Certificate and IPC Bylaws. This summary does not
purport to be a complete description of the provisions discussed and is
qualified in its entirety by the PBCL, DCL, IPC Certificate, IPC Bylaws,
InterDigital Articles and InterDigital Bylaws, to which IPC stockholders are
referred. The identification of specific differences is not meant to indicate
that other equally or more significant differences do not exist.
Removal of Directors; Filling Vacancies on the Board of Directors
Under the DCL, directors generally may be removed, with or without cause,
by a vote of the holders of a majority of the shares being voted. Under the
PBCL, unless the articles of incorporation or bylaws provide otherwise,
directors may be removed by the shareholders of a corporation with or without
cause, and by the board of directors for any proper cause specified in the
bylaws. However, the InterDigital Articles and Bylaws provide that directors may
be removed without cause but only by the affirmative vote of the holders of at
least 80% 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.
The PBCL and the InterDigital Bylaws provide that vacancies on the board of
directors, including vacancies resulting from an increase in the number of
directors, may be filled by a majority of the remaining directors, although less
than a quorum, and such person shall be a director to serve for the balance of
the unexpired term unless otherwise restricted in the articles of incorporation
or bylaws. The IPC Bylaws provide, as permitted by the DCL, that a vacancy on
the board occurring during the course of the year, including a vacancy created
by an increase in the number of directors, shall be filled until the next annual
election of directors by a majority of the remaining directors or by a sole
remaining director. Thus, there will be no material change in the rights of IPC
stockholders in this respect as a result of the Merger.
Quorum of Stockholders
Under the DCL, a quorum consists of a majority of the shares entitled to
vote, present in person or represented by proxy, unless otherwise provided in
the charter or bylaws, but in no event can the quorum be less than one-third of
the outstanding shares entitled to vote. A quorum for a meeting of IPC
stockholders under the IPC Bylaws consists of the holders of a majority of the
shares issued and outstanding which are entitled to vote thereat, present in
person or represented by proxy. Under the PBCL, a quorum consists of a majority
of the shares entitled to vote, present in person
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or represented by proxy, unless otherwise provided in the bylaws. The
InterDigital Bylaws provide that a quorum for a meeting of holders of Common
Stock consists of a majority of the shares entitled to vote, present in person
or represented by proxy. Thus, there will be no material change in the rights of
IPC stockholders in this respect as a result of the Merger.
Adjournment and Notice of Stockholder Meetings
Both the InterDigital Bylaws and the IPC Bylaws provide that if a quorum is
not present or represented at a stockholders meeting, the stockholders entitled
to vote may adjourn the meeting without notice other than an announcement at the
meeting. The InterDigital Bylaws provide further that if the meeting is to elect
directors, such meeting may not be adjourned for periods longer than 15 days
each. The PBCL provides that notice of an adjourned meeting need not be given to
shareholders unless a new record date is fixed for the adjourned meeting or
notice of the business to be transacted at such adjourned meeting had not been
previously given.
Under the DCL and IPC Bylaws, notice of stockholder meetings must be given
between ten and sixty days before a meeting. Under the PBCL, notice of
shareholder meetings must be given more than ten days prior to any meeting
called to consider a fundamental corporate change or five days prior to the
meeting in any other case. The InterDigital Bylaws require notice to be given at
least five days before a shareholder meeting.
Call of Special Stockholder Meetings
Under the PBCL, special meetings of the shareholders may be called by the
board of directors, shareholders entitled to cast at least 20% of the votes
which all stockholders are entitled to cast at the particular meeting unless
otherwise provided in the articles of incorporation and by such officers or
other persons as may be provided in the bylaws. The InterDigital Bylaws provide
that a special meeting of shareholders may be called by InterDigital's Chairman
of the Board, the President of InterDigital, the board of directors or by
shareholders entitled to cast at least 20% of the votes at such a meeting.
Stockholders of a Delaware corporation do not have a right to call special
meetings unless it is conferred in the corporation's certificate of
incorporation or bylaws. The DCL provides that special meetings of stockholders
may be called by the board of directors or by a person authorized by the charter
or bylaws. The IPC Bylaws provide that special meetings of stockholders may be
called by the president, and shall be called by the president or secretary at
the written request of the chairman of the board, a majority of the board of
directors, or the written request of the majority of voting power of all
outstanding shares of voting stock.
Stockholder Consent in Lieu of Meeting
The DCL permits and the IPC Bylaws provide that action by stockholders may
be taken without a meeting if a consent in writing is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote thereon were present and voted. The PBCL permits action which may be taken
at a meeting of the shareholders may be taken without a meeting if there is
written consent of shareholders who would have been entitled to cast the minimum
number of votes that would be necessary to authorize the action at a meeting at
which all the shareholders were present and voting. Thus, there will be no
charge in the rights of stockholders to act by written consent in lieu of a
meeting.
Appraisal Rights
The DCL generally entitles a stockholder to exercise its appraisal rights
upon a merger or consolidation of the corporation effected pursuant to the DCL
if the holder complies with the requirements of Section 262 thereof. The DCL,
however, does not provide (unless required by a charter provision which the IPC
Certificate does not include) appraisal rights for stockholders of a corporation
that engages in (a) a sale of substantially all of its assets; (b) an
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amendment to its certificate of incorporation; (c) in the event of a merger or
consolidation of the corporation if the stock of the Delaware corporation is
listed on a national securities exchange or held of record by more than 2,000
stockholders; or (d) in the case of a merger in which a Delaware corporation is
the surviving corporation, if (i) the merger agreement does not amend the
surviving corporation's certificate of incorporation, (ii) each share of stock
of the surviving corporation outstanding immediately prior to the effective date
of the merger is to be an identical outstanding share of the surviving
corporation after the merger, and (iii) the increase in the outstanding shares
as a result of the merger does not exceed 20% of the shares of common stock of
the surviving corporation outstanding immediately prior to the effective date of
the merger. Under the PBCL, stockholders may perfect appraisal rights with
regard to corporate actions involving certain mergers; consolidations; the sale,
lease or exchange of substantially all the assets of the corporation (under
limited circumstances); or the elimination of cumulative voting.
Under the PBCL and DCL, appraisal rights are generally denied when a
corporation's shares are listed on a national securities exchange or held of
record by more than 2,000 persons. Therefore, because the Common Stock is listed
on a national securities exchange, the Investors of IPC, under Pennsylvania law,
will no longer have the right to seek appraisal with respect to the shares of
Common Stock received in the Merger, in connection with a subsequent sale,
lease, exchange or other disposition of the property and assets of InterDigital
that occurs outside the ordinary course after the Merger.
Derivative Action
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. The DCL provides that a stockholder
must aver in the complaint that he was a stockholder of the corporation at the
time of the transaction of which he complains. However, no action may be brought
by a stockholder unless he first seeks remedial action on his claim from his
corporation's board of directors unless such a demand for redress is excused.
The board of directors of a Delaware corporation can appoint an independent
litigation committee to review a stockholder's request for a derivative action
and the litigation committee, acting reasonably and in good faith, can terminate
the stockholder's action subject to a court's review of such committee's
independence, good faith and reasonable investigation. Under the DCL, the court
in a derivative action may apply a variety of legal and equitable remedies on
behalf of the corporation which vary depending on the facts and circumstances of
the case and the nature of the claim brought.
Derivative actions may be brought under the PBCL by a shareholder, even if
the shareholder was not a shareholder at the time of the alleged wrongdoing, if
there is a strong prima facie case in favor of the claim asserted and if the
court determines in its discretion that serious injustice will result without
such action. With this exception, there will be no material change in the rights
of IPC stockholders to bring derivative actions as InterDigital shareholders.
Dividends and Distributions
Subject to any restrictions in its bylaws, the PBCL generally provides that
a corporation may make distributions to its shareholders unless after giving
effect thereto (i) the corporation would not be able to pay its debts as they
become due in the usual course of business, or (ii) the corporation's assets
would be less than the sum of its total liabilities plus the amount that would
be needed upon the dissolution of the corporation to satisfy the preferential
rights, if any, of shareholders having superior preferential rights to those
shareholders receiving the distribution.
Subject to any restrictions contained in a corporation's charter, the DCL
generally provides that a corporation may declare and pay dividends out of
surplus (defined as the excess, if any, of net assets over stated capital) or,
when no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Dividends may not be paid
out of net profits if the stated capital of the corporation is less than the
amount of stated capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets.
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Director Qualifications and Number
The articles or bylaws of a Pennsylvania corporation specify the number of
directors. If not otherwise fixed, a Pennsylvania corporation shall have three
directors. The PBCL provides that directors need not be state residents or
stockholders of the corporation to qualify to serve unless the bylaws so
require. Further, the bylaws may prescribe other qualifications for directors.
The InterDigital Certificate of Incorporation and Bylaws do not impose more
restrictive qualifications for directors. The InterDigital Bylaws provide for a
board consisting of not less than five nor more than fifteen directors, the
exact number to be determined by resolution of the board of directors. The
number of directors of a Delaware corporation shall be fixed by, or in the
manner provided in, the bylaws, unless the charter fixes the number of
directors. Under the DCL, a director need not be a state resident or a
stockholder of the corporation to qualify to serve unless so required by the
charter or bylaws. The IPC Bylaws provide for such number of directors as is
determined by action of a majority of the directors. As such, there is no
meaningful difference between InterDigital and IPC regarding director
qualifications and as to number of directors. IPC and InterDigital each
presently have five directors.
Indemnification of Officers and Directors
Both the DCL and the PBCL permit a corporation to indemnify its directors
and officers against expenses, judgments, fines and amounts paid in settlement
incurred by them in connection with any pending, threatened or completed action
or proceeding (other, in the case of a Delaware corporation, than an action by
or in the right of the corporation (a "derivative action"), and permit such
indemnification against expenses incurred in connection with any pending,
threatened or completed derivation action, if the director or officer has acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. Furthermore, both states' laws provide that expenses incurred in
defending any action or proceeding may be paid by the corporation in advance of
the final disposition upon receipt of an undertaking by or on behalf of the
director or officer to repay the amount if it is ultimately determined that the
director or officer is not entitled to be indemnified by the corporation.
In both states the statutory provisions for indemnification and advancement
of expenses are non-exclusive with respect to any other rights, such as
contractual rights (and in the case of a Pennsylvania corporation, under a bylaw
or vote of stockholders or disinterested directors), to which a person seeking
indemnification or advancement of expenses may be entitled. Such contractual or
other rights may, for example, under the PBCL, provide for indemnification
against judgments, fines and amounts paid in settlement incurred by the
indemnified person in connection with derivative actions. The PBCL permits such
derivative action indemnification in any case except where the act or failure to
act giving rise to the claim for indemnification is determined by a court to
have constituted willful misconduct or recklessness.
Both the DCL and the PBCL permit a corporation to purchase and maintain
insurance on behalf of any director or officer of the corporation against any
liability asserted against the director or officer and incurred in such
capacity, whether or not the corporation would have the power to indemnify the
director or officer against such liability. InterDigital and IPC has directors'
and officers' liability insurance underwritten by InterDigital has directors'
and officers' liability insurance underwritten by National Union Fire Insurance
(Primary), Zurich Insurance Company (first excess) and Agricultural Excess and
Surplus Insurance Company (second excess).
The IPC Certificate and Bylaws provide that directors, officers, employees
and agents of InterDigital are entitled to be indemnified to the maximum extent
permitted by the DCL. The InterDigital Bylaws provide that directors, officers
and agents of InterDigital are entitled to be indemnified to the maximum extent
permitted by the PBCL.
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Director Liability
The charter of a Delaware corporation may include a provision which limits
or eliminates the liability of directors to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, provided such
liability does not arise from certain proscribed conduct, including intentional
misconduct and breach of the duty of loyalty. The IPC Certificate contains such
a provision limiting the liability of its directors.
The bylaws of a Pennsylvania corporation may include a provision limiting
the personal liability of directors for monetary damages for actions taken as a
director, except to the extent that the director has breached or failed to
perform his duties to the corporation and the breach or failure to perform
constitutes self-dealing, willful misconduct or recklessness. The InterDigital
Bylaws contain such a provision limiting the liability of its directors.
Amendment to Certificate of Incorporation and Bylaws
The PBCL requires the affirmative vote of the holders entitled to cast at
least a majority of the votes actually cast on an amendment to amend the
articles of incorporation, provided that stockholder approval is not required
for certain non-material amendments, such as a change in the corporate name, a
provision for perpetual existence or, if the corporation has only one class of
shares outstanding, a change in the number and par value of authorized shares to
effect a stock split. Under Pennsylvania law the power to adopt, amend or repeal
bylaws may be vested by the bylaws in the directors, with certain statutory
exceptions for certain actions and subject to the power of shareholders to
change such action. Pennsylvania law provides that unless the articles of
incorporation otherwise provide, shareholders may change the bylaws without the
consent of the directors. The InterDigital Bylaws provide that the InterDigital
Bylaws may be amended by (i) a majority of the directors or (ii) a majority of
the InterDigital shareholders, except that the vote of the holders of at least
eighty percent of the combined voting power of all of the outstanding shares
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend the provisions relating to the number
of directors, vacancies on the Board, removal of directors by shareholders and
amendment to the Bylaws.
The DCL requires the approval of the holders of a majority of the
outstanding stock entitled to vote for any amendment to the certificate of
incorporation, unless such level of approval is increased by the certificate of
incorporation. The IPC Certificate does not provide for an increased level of
approval. The DCL provides stockholders with the right to amend the bylaws, and
a corporation is permitted in its charter to give this right to the directors as
well, subject to any director action being amended or repealed by stockholders.
The IPC Certificate gives the directors this right, and the IPC Bylaws impose a
majority vote requirement for amendments by the board of directors.
Statutory Provisions Affecting Business Combinations and Similar Transactions
There are four "anti-takeover" sections of the PBCL which are generally
applicable to registered corporations and relate to (i) "control transactions,"
(ii) "business combinations," (iii) "control-share acquisitions" and (iv)
"disgorgement of profits." Pursuant to amendments to its bylaws adopted in
accordance with the PBCL, InterDigital has opted out of the latter two
"anti-takeover" sections. Accordingly, these sections and the sections related
to severance compensation for employees terminated following certain
"control-share acquisitions" and to the effect of certain business combinations
on certain labor contracts of the PBCL are not applicable to InterDigital.
Pennsylvania law provides that any shareholder of a corporation may demand
fair value (as defined in the PBCL) for his shares if a person or group of
persons acquire voting power over voting shares of the corporation that would
entitle the holders thereof to cast at least 20% of the votes that all
shareholders would be entitled to cast in an election of directors of the
corporation (a "Control Transaction").
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Pennsylvania law provides that if a shareholder of a corporation is a party
to a sale of assets transaction, share exchange, merger or consolidation
involving the corporation or a subsidiary, or if a shareholder is to be treated
differently in a corporate dissolution from other shareholders of the same
class, then approval must be obtained of the shareholders entitled to cast at
least a majority of the votes which all shareholders other than the interested
shareholder are entitled to cast with respect to the transaction, without
counting the votes of the interested shareholders. Such additional shareholder
approval is not required if the consideration to be received by the other
shareholders in such transaction for shares of any class is not less than the
highest amount paid by the interested shareholder in acquiring shares of the
same class, or if the proposed transaction is approved by a majority of the
board of directors other than certain directors ("disqualified directors")
affiliated or associated with, or nominated by, the interested shareholder. The
PBCL provides that a director who has held office for at least 24 months prior
to the date of vote on the proposed transaction is not a disqualified director.
Delaware has enacted a business combination statute that is contained in
Section 203 of the DCL ("Section 203"). Section 203 provides that any person who
acquires 15% or more of a corporation's voting stock (thereby becoming an
"interested stockholder") may not engage in a wide range of "business
combinations" with that corporation for a period of three years following the
date that person became an interested stockholder, unless (i) the board of
directors of that corporation approved, prior to such date, either the business
combination or the transaction that resulted in that person becoming an
interested stockholder, (ii) upon consummation of the transaction that resulted
in that person becoming an interested stockholder, that person owns at least 85%
of that corporation's voting stock outstanding at the time the transaction
commenced (excluding for purposes of determining the number of shares
outstanding shares owned by persons who are directors and also officers of that
corporation and shares owned by employee stock plans in which participants do
not have the right to determine confidentially whether shares will be tendered
in a tender or exchange offer), or (iii) the business combination is approved by
the board of directors and authorized by the affirmative vote (at an annual or
special meeting and not by written consent) of the holders of at least 66-2/3%
of the outstanding shares of voting stock not owned by the interested
stockholder.
In determining whether a stockholder is the "owner" of 15% or more of a
corporation's voting stock for purposes of Section 203, ownership is defined
broadly to include the right, directly or indirectly, to acquire stock or to
control the voting or disposition of stock. A "business combination" is also
defined broadly to include (i) mergers or consolidations of a corporation with
an interested stockholder, (ii) sales or other dispositions of 10% or more of
the assets of a corporation with or to an interested stockholder, (iii) certain
transactions resulting in the issuance or transfer to an interested stockholder
of any stock of a corporation or its subsidiaries, (iv) certain transactions
which would result in increasing the proportionate share of the stock of a
corporation or its subsidiaries owned by an interested stockholder, and (v)
receipt by an interested stockholder of the benefit (except proportionately as a
stockholder) of any loans, advances, guarantees, pledges or other financial
benefits from, by or to a corporation or any of its majority-owned subsidiaries.
The restrictions placed on an interested stockholder by Section 203 do not
apply under certain circumstances, including (but not limited to): (i) if the
corporation's original certificate of incorporation contains a provision
expressly electing not to be governed by Section 203, or (ii) if the
corporation, by action of its stockholders, adopts an amendment to its bylaws or
certificate of incorporation expressly electing not to be governed by Section
203; provided, that such an amendment is approved by the affirmative vote of the
holders of not less than a majority of the outstanding shares entitled to vote
and that such an amendment will not be effective until twelve months after its
adoption and will not apply to any business combination with a person who became
an interested stockholder at or prior to such adoption. Neither the IPC
Certificate nor the IPC Bylaws contains a provision expressly electing not to be
governed by Section 203.
Upon consummation of the Merger, the stockholders of IPC will cease being
subject to Section 203, and the corresponding "anti-takeover" provisions of the
PBCL noted above will become applicable.
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Exchange Rules Affecting Certain Transactions
The rules of the American Stock Exchange (the "AMEX"), on which Common
Stock is listed, require InterDigital stockholder approval prior to the issuance
by InterDigital of any Common Stock, or securities convertible into Common Stock
("Common Stock Equivalents"), if such shares are to be issued as sole or partial
consideration for an acquisition of the stock or assets of another company, (i)
if any director, officer or substantial shareholder of InterDigital has a 5% or
a greater interest, directly or indirectly, in the company or assets to be
acquired or in the consideration to be paid in the transaction and the present
or potential issuance of Common Stock or Common Stock Equivalents could result
in an increase in outstanding Common Stock of 5% or more or (ii) where the
present or potential issuance of Common Stock or Common Stock Equivalents could
result in an increase in outstanding common shares of 20% or more. In addition
the rules of the AMEX require shareholder approval prior to the issuance by
InterDigital of any Common Stock or Common Stock Equivalents, if such shares are
to be used in a transaction involving (i) the sale or issuance by InterDigital
of Common Stock or Common Stock Equivalents at a price less than the greater of
book or market value which together with sales by officers, directors or
principal shareholders of InterDigital equals 20% of more of InterDigital's
outstanding Common Stock or (ii) the sale or issuance by InterDigital of Common
Stock or Common Stock Equivalents equal to 20% or more of InterDigital's
outstanding Common Stock for less than the greater of book or market value of
the stock.
Cumulative Voting
The PBCL states that, except as otherwise provided in a Pennsylvania
corporation's articles of incorporation and except for certain types of
Pennsylvania corporations, in each election of directors every shareholder
entitled to vote will have the right to multiply the number of votes which he
may be entitled to vote on any other matter by the total number of directors to
be elected in that election and he may cast the whole number of his votes for
one candidate or he may distribute them among any two or more candidates. The
InterDigital Articles have eliminated such cumulative voting.
The DCL states that the certificate of incorporation of any Delaware
corporation may provide that at all or at certain elections of directors each
holder of stock entitled to vote may vote cumulatively for directors. The IPC
Certificate does not so provide.
Fiduciary Duty
Under Pennsylvania law a director may, in considering the best interests of
a corporation, consider (i) the effects of any action on shareholders,
employees, suppliers, customers and creditors of the corporation, and upon
communities in which offices or other facilities of the corporation are located,
(ii) the short-term and long-term interests of the corporation, including the
possibility that the best interests of the corporation may be served by the
continued independence of the corporation; (iii) the resources, intent and
conduct of any person seeking to take control of the corporation; and (iv) all
other pertinent factors. Delaware law contains no similar provisions.
Provisions with Possible Anti-Takeover Effects
The following provisions of the InterDigital Articles and the InterDigital
Bylaws may be considered to have anti-takeover implications: (a) the ability of
the board to fill (but only until the next annual meeting of shareholders) the
vacancies resulting from an increase in the number of directors; and (b) the
ability of the board of directors to establish the rights of, and to issue,
substantial amounts of preferred stock without the need for shareholder approval
which preferred stock, among other things, may be used to create voting
impediments with respect to changes in control of InterDigital or, to dilute the
stock ownership of holders of Common Stock seeking to obtain control of
InterDigital. In addition, the provisions of the InterDigital Articles which
provide for staggered election of directors through a classified board of
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directors may make it more difficult to effect a change in control of
InterDigital's Board, and therefore, may have an anti-takeover effect.
IPC also adopted provisions in its articles and bylaws which may have
anti-takeover effects. Therefore, the rights of IPC stockholders in respect of
such possible anti-takeover effects will not change after the Merger.
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PRICE RANGE OF COMMON STOCK
InterDigital's Common Stock is traded on the American Stock Exchange under
the symbol "IDC." The following table sets forth the high and low reported sale
prices for the Common Stock for the Common Stock on the American Stock Exchange
for the periods indicated.
High Low
---- ---
Year Ended December 31, 1994
First Quarter.................................. 5 5/8 3 3/4
Second Quarter................................. 5 5/8 2 1/2
Third Quarter.................................. 4 1/4 2
Fourth Quarter................................. 7 7/8 2 3/4
Year Ended December 31, 1995
First Quarter.................................. 12 7/8 5
Second Quarter................................. 7 7/8 5 5/8
Third Quarter.................................. 9 3/16 6 3/8
Fourth Quarter................................. 9 1/2 6 7/16
Year Ended December 31, 1996
First Quarter.................................. 10 3/8 7 5/16
Second Quarter................................. 11 1/4 7 7/16
Third Quarter (through August 15, 1996)........ 8 1/2 6 3/16
On August 15, 1996, the last reported trading day prior to the public
announcement of the Merger, the closing sale price for the InterDigital Common
Stock, as reported on the American Stock Exchange Composite Tape, was $7 1/2 per
share, and there were approximately 2,600 record holders of the Common Stock.
No active trading market exists for the IPC common stock and, accordingly,
there are no published market quotations available for such shares of stock. As
of August 15, 1996, there were seventeen record holders of IPC common stock
including InterDigital.
DIVIDEND POLICY
To date, neither the Company nor IPC has paid any dividends on its common
stock, except for a special dividend of $3.1 million paid by IPC in 1994 and
$2.5 million paid by ITC in 1992. The Company has paid a $1.25 per share
bi-annual dividend to holders of its Preferred Stock. The Company currently
intends to retain any future earnings to fund operations and the continued
development of its business and, therefore, does not anticipate paying any cash
dividends on the InterDigital Common Stock in the foreseeable future. Future
cash dividends, if any, will be determined by the Board of Directors of the
Company, and will be based upon the Company's earnings, capital requirements,
financial condition and other factors deemed relevant by its Board of Directors.
IPC expects that during 1996 it will begin to pay dividends on its common stock.
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BUSINESS OF IPC
General
In February 1992, InterDigital transferred all of its patents, patent
applications and rights to file patent applications on certain future inventions
to ITC, a wholly-owned subsidiary of IPC. In December 1992, IPC sold
approximately 6% of its common stock in a private offering in order to fund
patent procurement, maintenance, licensing and enforcement activities, resulting
in net proceeds of approximately $5.2 million. ITC currently holds 65 United
States patents relating specifically to digital wireless spectrum-efficient
radiotelephony technology (both TDMA and CDMA) which expire at various times
beginning in 2004. ITC has also obtained patents, mostly related to TDMA
technologies, in 36 foreign countries. Thirty-eight other patent applications
have been filed by ITC in the United States Patent and Trademark Office and 160
other patent applications have been filed in numerous foreign countries
throughout the world, relating variously to the CDMA and TDMA technologies.
ITC's patents have effective terms that range between 14 and 20 years.
IPC (through ITC), offers non-exclusive, royalty bearing patent licenses to
telecommunications manufacturers that manufacture, use or sell, or intend to
manufacture, use or sell, equipment that utilizes ITC's extensive portfolio of
TDMA and CDMA patented technologies. IPC believes that, through ITC's patent
portfolio, and the Company's TDMA and B-CDMA research and development
capabilities and resultant know-how, IPC and the Company are positioned to take
advantage of the present evolution in wireless telecommunications to digital
technology from the analog technology, which represents a substantial portion of
the worldwide installed base. ITC implemented a strategy during 1993 of
negotiation and litigation with certain entities which it believed were
representative of the broader number of entities infringing ITC's patents. These
efforts have resulted in patent license agreements with a total of twelve
entities as of August 8, 1996, the recognition of an aggregate of $28.7, $64.3
million and $24.7 million of licensing revenue in 1994, 1995 and the six month
period ended June 30, 1996, respectively, and the initiation of litigation
against major telecommunications companies.
In high technology fields characterized by rapid change and engineering
distinctions, the validity and value of patents are often subject to complex
legal and factual challenges and other uncertainties. Accordingly, ITC's patent
claims are subject to uncertainties which are typical of patent enforcement
generally. The cost of enforcing and protecting the patent portfolio can be
significant.
Siemens Agreements
On December 16, 1994, ITC together with its parent InterDigital, entered
into a Master Agreement and a series of four related agreements as elements of
an integrated transaction in which the Company established a broad based
marketing and technology alliance with Siemens. These agreements were amended in
February 1996 in connection with the Samsung alliance. See "--Samsung
Agreements."
As partial consideration for the rights and licenses granted by the
Company, Siemens agreed to pay $20 million, of which $14.8 million had been paid
by December 31, 1995. In connection with the Samsung agreements, the Company and
Siemens deferred the December 31, 1995 and March 31, 1996 payments and, in July
1996, offset $4.9 million of such payments against payments due to Siemens from
InterDigital in conjunction with the Samsung alliance. The Company expects the
balance of the consideration ($300,000) to be paid by September 30, 1996. The
Company did not recognize any revenue related to the agreements in 1994. In
accordance with accounting requirements, the Company will recognize the $20
million of revenue over the contract performance period due to the combined
nature of the contracts. Based on management's allocation, IPC's portion of the
agreements related to patent licenses is $15 million. In 1995, IPC recognized
$10.2 million of the revenue under this agreement based on the progress of the
completed work. The remaining $4.8 million of revenue is expected to be
recognized through December 1996, the expected date of completion of functional
testing at the system component level. As of December 31, 1995 and June 30,
1996, IPC owed InterDigital $3.4 million and $3.4 million, respectively, for
work performed pursuant to its portion of the agreements.
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Samsung Agreements
On February 9, 1996, ITC, together with its parent InterDigital, entered
into a series of agreements with Samsung and amended its agreements with Siemens
as a second major step in implementing its alliance strategy. Under the various
agreements, Samsung made upfront payments to the Company in excess of $35
million (of which approximately one-half constituted patent and technology
royalty prepayments), less applicable withholding taxes. All payments from
Samsung were received by June 30, 1996. The net amount received by the Company
was approximately $29 million. In July 1996, InterDigital paid, via offset, $4.9
million to Siemens which, in turn, committed to provide additional technical
assistance to the Company. See "--Siemens Agreements." Samsung will also be
obligated to provide engineering manpower, to the alliance for the development
of the Company's B-CDMA technology. IPC recognized $14 million of revenue in the
first quarter of 1996 as part of the Samsung agreement that represented the
patent license portion of the agreement.
Patent Licensing
As part of its licensing strategy, ITC has identified non-licensed entities
which it believes are infringing its TDMA patents, and ITC has undertaken a
licensing and, where necessary, litigation program, the ultimate objective of
which is the realization of licensing revenues from its patent portfolio. ITC
intends to pursue such revenues through a process of negotiation and, when
necessary, litigation. ITC generally seeks to license its patents on reasonable
terms and conditions, including reasonable royalty rates. ITC believes that
making its patented digital wireless technologies available to third parties
will provide a potentially significant source of revenue. In 1990, the initial
digital cellular telephone standard known as IS-54 employing TDMA technology was
jointly adopted by the Telecommunications Industry Association ("TIA") and
Electronics Industry Association ("EIA") as an interim standard. ITC believes
that licenses for certain of its patents are required in order for third parties
to manufacture and sell digital cellular products in compliance with the
TIA/EIA/IS-54-B Cellular System Dual-Mode Mobile Station-Base Station
Compatibility Standard (the "IS-54-B Standard") and the 800 MHZ Cellular System,
TDMA Radio Interface, Dual-Mode Mobile Station Base Station Compatibility
Standard (the "IS-136 Standard"). Currently, numerous manufacturers supply
digital cellular equipment conforming to standards employing TDMA technology,
such as the North American IS-54-B, Japanese JDC and European GSM standards.
ITC has granted non-exclusive, non-transferable, perpetual, worldwide,
royalty-bearing licenses to use certain TDMA patents (and in certain instances,
technology) to Hughes Network Systems ("HNS"), AT&T, Siemens, Matsushita, Sanyo,
Pacific Communications Systems, Mitsubishi, Hitachi, Kokusai, OKI Electric
Industry Company ("OKI") and Samsung. The licenses typically contain "most
favored nations" provisions, applied on a going forward basis only, and other
provisions which could, in certain events, cause the licensee's obligation to
pay royalties to the Company to be suspended for an indefinite period, with or
without the accrual of the royalty obligation.
In 1994, ITC also entered into a CDMA cross-license agreement with Qualcomm
Incorporated ("Qualcomm") to settle litigation filed in 1993. In return for a
one-time payment of $5.5 million, ITC granted to Qualcomm a fully-paid, royalty
free, worldwide license to use and sublicense certain specified and existing ITC
CDMA patents (including related divisional and continuation patents) to make and
sell products for IS-95-type wireless applications, including, but not limited
to, cellular, PCS, wireless local loop and satellite applications. Qualcomm has
the right to sublicense certain of ITC's licensed CDMA patents so that
Qualcomm's licensees will be free to manufacture and sell IS-95-type CDMA
products without requiring any payment to ITC. Neither ITC's patents concerning
cellular overlay and interference cancellation nor its current inventions are
licensed to Qualcomm. Under the settlement, Qualcomm granted to InterDigital a
royalty-free license to use and to sublicense the patent that Qualcomm had
asserted against InterDigital and a royalty-bearing license to use certain
Qualcomm CDMA patents in InterDigital's B-CDMA products, if needed. InterDigital
does not believe that it will be necessary to use any of Qualcomm's
royalty-bearing or non-licensed patents in its B-CDMA system. In addition,
Qualcomm agreed, subject certain restrictions, to license certain CDMA patents
on a royalty bearing basis to those InterDigital customers that desire to use
Qualcomm's patents. The license to InterDigital does
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not apply to IS-95-type systems, or to satellite systems. Certain of Qualcomm's
patents, relating to key IS-95 features such as soft and softer hand-off,
variable rate vocoding, and orthogonal (Walsh) coding, are not licensed to
InterDigital.
Patent Litigation
In September 1993, ITC filed a patent infringement action against Ericsson
GE Mobile Communications, Inc. ("Ericsson GE"), its Swedish parent,
Telefonaktieboleget LM Ericsson ("LM Ericsson") and Ericsson Radio Systems, Inc.
("Ericsson Radio"), in the United States District Court for the Eastern District
of Virginia (Civil Action No. 93-1158-A (E.D.Va.)). The Ericsson action seeks a
jury's determination that in making, selling, or using, and/or in participating
in the making, selling or using of digital wireless telephone systems and/or
related mobile stations, Ericsson has infringed, contributed to the infringement
of and/or induced the infringement of eight patents from ITC's patent portfolio.
The Ericsson action also seeks an injunction against Ericsson from further
infringement and seeks damages, royalties, costs and attorneys' fees. Ericsson
GE filed an answer to the Virginia action in which it denied the allegations of
the complaint and asserted a counterclaim seeking a declaratory judgment that
the asserted patents are either invalid or not infringed. On the same day that
ITC filed the Ericsson action in Virginia, two of the Ericsson Defendants,
Ericsson Radio and Ericsson GE, filed a lawsuit against the Company and ITC in
the United States District Court for the Northern District of Texas (Civil
Action No. 3-93CV1809-H (N.D.Tx.)) (the "Texas action"). The Texas action, which
involves the same patents that are the subject of the Ericsson action, seeks the
court's declaration that Ericsson's products do not infringe ITC's patents, that
ITC's patents are invalid and that ITC's patents are unenforceable. The Texas
action also seeks judgment against the Company and ITC for tortious interference
with contractual and business relations, defamation and commercial
disparagement, and Lanham Act violations. Ericsson Radio and Ericsson GE filed a
motion to transfer ITC's action to the United States District Court for the
Northern District of Texas which was granted by the Court. Both Ericsson actions
have been consolidated in the United States Federal District Court for the
Northern District of Texas. ITC agreed to the dismissal without prejudice of LM
Ericsson. The Company and ITC intend to vigorously defend the Texas action. At
the request and with the consent of the parties, the District Judge has executed
an order indefinitely extending a stay of the proceedings until the U.S. Court
of Appeals for the Federal Circuit decides the appeals filed in the Motorola
action.
In October 1993, Motorola, Inc. filed an action against ITC in the United
States District Court for the District of Delaware 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 an answer and
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 infringement of certain
ITC patents. ITC also sought an injunction against Motorola from further
infringement and sought damages. 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 that the
Motorola products involved in the suit did not infringe ITC's patent claims at
issue in the case and that the 24 patent claims were invalid. ITC filed a motion
requesting that the jury verdict be overturned or, in the alternative, that a
new trial be granted. Motorola filed a motion requesting attorneys' fees and
expenses aggregating between $5 and $7 million. On June 17, 1996, the U.S.
District Court for the District of Delaware affirmed that portion of the jury's
verdict regarding infringement. The U.S. District Court further sustained the
jury's determination of invalidity with respect to 21 of the 24 patent claims,
but ruled that three patent claims are valid notwithstanding the jury's
determination. The U.S. District Court denied Motorola's motion for attorneys'
fees and expenses. On June 17, 1996 Motorola filed an appeal from the ruling by
the U.S. District Court for the District of Delaware with the U.S. Court of
Appeals for the Federal Circuit (Appeal No. 96-1408) and on June 21, 1996 the
Company filed its appeal (Appeal No. 96-1428). It is anticipated that the
parties will file their appeal briefs during the remainder of 1996 and that the
appeals will be argued and decided within approximately 12 to 18 months after
all of the briefs have been filed. The Company believes that there are
substantial grounds for reversal of the jury's invalidity determination and the
granting of a new trial regarding infringement.
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International Patents. ITC has filed patent applications in numerous
foreign countries. Typical of the processes involved in the issuance of foreign
patents, Philips, Alcatel and Siemens each filed petitions in the German Patent
Office seeking to revoke the issuance of ITC's basic German TDMA system patent
granted on June 28, 1990. On October 19, 1993, after formal opposition
proceedings, the German Patent Office confirmed the validity of the ITC basic
German system patent. An appeal has been filed by Philips, Alcatel and Siemens
and additional arguments have been made based upon prior art not previously
considered by the patent office. ITC is and may from time to time be subject to
additional challenges with respect to its patents and patent applications in
foreign countries. Although no assurance can be given as to the eventual outcome
of these patent challenges, ITC intends to vigorously defend its patents. If any
of these patents are revoked, ITC's patent licensing opportunities in such
relevant foreign countries could be materially and adversely affected.
-43-
<PAGE>
SELECTED FINANCIAL DATA FOR IPC
The selected historical financial data presented below as of December 31,
1993, 1994 and for each of the two years in the period ended December 31, 1994
have been derived from the unaudited Consolidated Financial Statements of the
Company included elsewhere in this Prospectus. The selected historical financial
data as of December 31, 1995 and for the year ended December 31, 1995 are
derived from audited Consolidated Financial Statements of IPC included elsewhere
in this Prospectus. The selected historical financial data as of December 31,
1992 and for the year ended December 31, 1992 are derived from the unaudited
financial statements of IPC not included in this Prospectus. The selected
financial data as of June 30, 1996 and for the six months ended June 30, 1995
and 1996 are derived from unaudited financial statements of the Company, which,
in management's opinion, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. The results of operations for prior periods, including the six
months ended June 30, 1995 and 1996, are not necessarily indicative of the
results that may be expected for 1996 or future years. The information set forth
below should be read in conjunction with IPC's financial statements and the
notes thereto, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1)
<TABLE>
<CAPTION>
For the Six Months Ended
For the Year Ended December 31, June 30,
--------------------------------------------------- -------------------------
1992(2) 1993 1994 1995 1995 1996
------- ---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Licensing revenue $ 3,015 $ -- $ 28,709 $ 64,293 $ 60,093 $ 16,400
OPERATING EXPENSES:
General and administrative 1,112 3,160 9,489 7,171 5,498 1,695
Amortization of patents 420 466 500 510 255 258
-------- -------- -------- -------- -------- --------
TOTAL OPERATING EXPENSES 1,532 3,626 9,989 7,681 5,753 1,953
-------- -------- -------- -------- -------- --------
Income (loss) from operations 1,483 (3,626) 18,720 56,612 54,340 14,447
INTEREST INCOME 9 116 45 2,751 1,076 1,940
-------- -------- -------- -------- -------- --------
Income before income taxes 1,492 (3,510) 18,765 59,363 55,416 16,387
INCOME TAX PROVISION (BENEFIT) 508 (1,153) 6,488 20,323 18,886 5,683
-------- -------- -------- -------- -------- --------
Net Income (loss) $ 984 $ (2,357) $ 12,277 $ 39,040 $ 36,530 $ 10,704
======== ======== ======== ======== ======== ========
DIVIDENDS PAID TO COMMON
STOCKHOLDERS 2,500(3) -- 3,104 -- -- --
Net income (loss) per share $ 0.04 ($ 0.10) $ 0.51 $ 1.62 $ 1.51 $ 0.44
======== ======== ======== ======== ======== ========
Shares used in computing net
income (loss) per share 24,006 24,072 24,137 24,137 24,137 24,137
CONSOLIDATED BALANCE SHEET DATA(1)
December 31, June 30,
------------ --------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands)
Cash, cash equivalents and
short-term investments $ 5,382 $ 2,341 $ 2,402 $59,287 $68,824
Working capital 5,238 1,753 11,947 51,261 61,978
Patents (net) 2,362 2,477 2,569 2,386 2,376
Total assets 7,781 4,915 26,063 62,980 74,054
Due to (receivable from) InterDigital 798 (598) 4,891 5,246 6,966
Retained earnings (deficit) -- (2,357) 6,816 45,856 56,560
Stockholders' equity 6,829 4,887 14,669 53,709 64,413
</TABLE>
- ----------
(1) In February 1992, InterDigital formed ITC as a wholly-owned
subsidiary, and transferred all of its patents, patent applications
and rights to file patent applications on certain future inventions to
ITC. During the third quarter of 1992, InterDigital formed IPC and
contributed to IPC its entire ownership in ITC in return for 100% of
IPC's common stock. Subsequently, InterDigital sold a 5.76% interest
in IPC to the current stockholders of IPC (except for InterDigital)
for net proceeds of $5.2 million. IPC started operating as an active
company during 1993. See Note 1 to IPC's Consolidated Financial
Statements.
(2) Operating results for 1992 include interest earned on IPC's cash
balances and ITC's patent enforcement activity beginning in February
1992. Prior to February 1992, InterDigital's patent portfolio
management activity was included in the operating results of
InterDigital. Prior period comparable data is not readily available.
-44-
<PAGE>
(3) This amount represented a dividend paid by ITC to InterDigital in
1992 prior to the formation of IPC.
-45-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF IPC
In February 1992, InterDigital transferred all of its patents, patent
applications and rights to file patent applications on certain future inventions
to ITC, a wholly-owned subsidiary of IPC. In December 1992, IPC sold
approximately 6% of its common stock in a private offering in order to fund
patent procurement, maintenance, licensing and enforcement activities, resulting
in net proceeds of approximately $5.2 million. As part of its licensing
strategy, ITC has identified non-licensed entities which it believes are
infringing its TDMA patents, and ITC has undertaken a program, the ultimate
objective of which is the realization of licensing revenues from its patent
portfolio. ITC intends to pursue such revenues through a process of negotiation
and, when necessary, litigation. In addition, ITC and IDC have adopted a
strategy of pursuing patent license revenue in conjunction with IDC's alliance
strategy by offering patent licenses in conjunction with technology transfer,
manufacturing, sales or other rights available from IDC. ITC generally seeks to
license its patents on reasonable terms and conditions, including reasonable
royalty rates.
Results of Operations
Six Months Ended June 30, 1996 Compared With the Six Months Ended June 30, 1995
Total Revenues. Revenues decreased 73% from $60.0 million in the six months
ended June 30, 1995 to $16.4 million in the comparable 1996 period. ITC entered
into license agreements during the 1995 period with five new licensees,
generating $54.0 million in revenue and recognized $6.0 million of revenue
related to the Siemens license granted in 1994. During the six months ended June
30, 1996, only one (Samsung) new license was granted, generating $14.0 million
of revenue, and revenue recognized relating to Siemens was $2.4 million.
Non-refundable license payments clearly identified as such in the
applicable agreements are recognized as revenue when the agreements become
effective. Based on management's allocation, $15 million of the total cash
consideration paid by Siemens ($20 million) will be recognized as revenue by ITC
over the expected time period of performance of all of the Company's and IDC's
obligations under the Siemens agreements, and the remaining $5 million has been
allocated to IDC.
Operating Expenses. Operating expenses include general and administrative
expenses and amortization of patent acquisition costs. General and
administrative expenses decreased 69% from $5.5 million in the six months ended
June 30, 1995 to $1.7 million in the comparable 1996 period. Total compensation
costs, including charges to reserve the maximum potential payments under bonus
plans, decreased by $1.0 million. The remainder of the decrease resulted
primarily from a decrease in legal and professional fees incurred during the six
months ended June 30, 1996 as compared to the comparable period in 1995. The
Motorola litigation was responsible for the majority of such costs incurred in
1995. See "Business of IPC -- Patent Litigation."
Patent amortization costs increased by only 1% during the six months ended
June 30, 1996 compared with the comparable period in 1995. ITC generally
amortizes patent acquisition costs over 10 years on a straight-line basis.
Interest Income. Interest income recognized during the six months ended
June 30, 1996 increased 80% to $1.9 million from $1.1 million during the
comparable 1995 period. The increase is primarily due to higher average invested
balances during the 1996 period compared to 1995.
Income Taxes. The provision for income taxes in the 1996 and 1995 periods
includes $2.3 million and $2.4 million, respectively, of foreign withholding
taxes applicable to certain license revenues, provision for taxes payable under
a tax sharing agreement between IPC, ITC, InterDigital and InterDigital's other
subsidiaries of $3.3 million and $16.4 million, respectively, and for state
income taxes. The amount of foreign withholding taxes varies depending on the
tax rates,
-46-
<PAGE>
exemptions and other regulations in effect at the time of remittance in the
respective countries involved. See Note 6 to the Financial Statements.
1995 Compared With 1994
Total Revenues. Total revenues in 1995 increased 124% to $64.3 million from
$28.7 million in 1994 primarily as a result of an increase in the number of
licenses granted and non-refundable advances against future royalties received
upon signing those agreements. License revenue in 1995 resulted from license
agreements with Mitsubishi, NEC, Hitachi, Kokusai, PCSI and Sanyo and revenue of
$10.2 million associated with the Siemens alliance. Revenues in 1994 resulted
primarily from license agreements with AT&T and Matsushita and the settlement of
litigation with OKI and Qualcomm.
Operating Expenses. General and administrative expenses decreased 24% to
$7.2 million in 1995 from $9.5 million in 1994. The decrease was due primarily
to a decrease in legal and professional fees incurred in 1995 compared to 1994.
Expenses in 1994 included significant costs associated with the OKI/Qualcomm and
Motorola actions. The OKI/Qualcomm litigation was settled in 1994 and a jury
verdict was reached in the Motorola action in March 1995. See "Business of IPC
- -- Patent Licensing and Patent Litigation." Expenses in 1994 also included
compensation costs of approximately $600,000 associated with compensatory
options to purchase IPC common stock. The charge relating to the compensatory
options was based on the difference between the deemed value for accounting
purposes of the shares subject to the options and the exercise price of the
option. Those decreases were partially offset by an increase of $1.25 million in
charges to reserve the maximum potential payments under bonus plans.
Patent amortization costs increased by only 2% during 1995 compared with
1994. ITC generally amortizes patent acquisition costs over 10 years on a
straight-line basis.
Interest Income. Interest income in 1995 was $2.8 million as compared to
$45,000 for 1994. The increase is due primarily to greater average invested cash
balances in 1995 compared to 1994 due to the receipt of cash and investment of
funds from licensing revenues.
Income Taxes. The provision for income taxes in 1995 and 1994 included $2.4
million and $900,000, respectively of foreign withholding taxes applicable to
certain license revenue, provision for taxes payable under a tax sharing
agreement between IPC, ITC, InterDigital and InterDigital's other subsidiaries
of $17.8 million and $5.5 million, respectively, and a provision for state
income taxes. The amount of foreign withholding varies depending on the tax
rates, exemptions and other regulations in effect at the time of remittance in
the respective countries involved.
1994 Compared With 1993
Total Revenues. Total revenues increased to $28.7 million compared to no
revenue in 1993. License revenue of $5.5 million in 1994 resulted from the
settlement of the Qualcomm litigation. The remaining license and alliance
revenue represents non-refundable royalty advances from AT&T and OKI Electric,
and revenue associated with a patent license granted to Matsushita.
Operating Expenses. General and administrative expenses of $9.5 million
were approximately three times the level of expenses incurred in 1993. Expenses
in 1994 included charges of $750,000 to reserve the maximum potential payments
under bonus plans. The remainder of the increase was primarily due to increased
legal and professional fees associated with the OKI/Qualcomm and Motorola
litigation. See "Business of IPC -- Patent Licensing and Patent Litigation."
Patent amortization costs increased by 7% during 1994 compared with 1993.
ITC generally amortizes patent acquisition costs over 10 years on a
straight-line basis.
-47-
<PAGE>
Interest Income. Interest income for 1994 was $45,000 as compared to
$116,000 for 1993. The decrease is primarily attributable to a decrease in
average invested balances in 1994 compared to 1993 reflecting expenditure of the
proceeds of the December 1992 sale of 6% of the common stock of IPC to private
investors.
Income Taxes. The Company recorded an income tax benefit of $1.2 million in
1993 compared to a tax provision of $6.5 million in 1994. The benefit represents
recognition of a tax asset which was realized in 1994 through a reduced
provision for taxes payable pursuant to the tax sharing agreement between
InterDigital and its subsidiary companies. The 1994 provision includes $900,000
and $5.5 million, respectively, of foreign withholding taxes applicable to
certain license revenues and a provision for taxes payable under the tax sharing
agreement.
Liquidity and Capital Resources
IPC had working capital of $62.0 million as of June 30, 1996 as compared to
$51.3 million at December 31, 1995 and $11.9 million at December 31, 1994. The
increase in working capital since December is due primarily to $86.1 million and
$13.1 million of cash received on patent licensing agreements during 1995 and
the six months ended June 30, 1996, respectively. IPC's capital requirements
will be determined largely by: (i) the extent of its involvement in , and the
outcome, of current and future litigation and administrative proceedings; (ii)
the extent, if any, of realization of additional licensing revenue from current
or future licensees; and (iii) the amount of payments made to or received from
its stockholders pursuant to various contractual arrangements or by dividend.
IPC has experienced positive cash flows of $57.2 million and $ 9.8 million
from operations during 1995 and the six months ended June 30, 1996,
respectively. The positive cash flows from operations are primarily due to the
receipt of $82.9 million and $11.7 million related to ITC's patent licensing
activities, partially offset by income taxes paid to InterDigital.
Net cash flows used by investing activities for 1995 and the six months
ended June 30, 1996 include the investment of $55.1 million and $7.3 million of
excess funds in short-term, highly liquid securities.
During 1995 and the six months ended June 30, 1996, financing activities
were not material.
Included in accounts payable and accrued expenses at June 30, 1996 are
professional fees, consulting and other accruals and amounts payable in the
ordinary course of business.
-48-
<PAGE>
INFORMATION RELATING TO MERGERCO
General
MergerCo was organized by InterDigital on August 6, 1996 under Delaware law
in order to effect the Merger. MergerCo is a wholly owned subsidiary of
InterDigital. MergerCo has not engaged in any activities other than those
incident to its formation. If the Merger is consummated, MergerCo will be merged
into IPC and IPC will be the Surviving Corporation. MergerCo's principal
executive offices are located at the offices of InterDigital, 781 Third Avenue,
King of Prussia, Pennsylvania 19406-1409 and its telephone number is (610)
878-7800. See "Information Relating to MergerCo".
MergerCo does not have any assets or liabilities (other than those arising
under the Plan of Merger) or engage in any activities other than those incident
to its formation and capitalization and the Merger. As of the date of this
Prospectus, the authorized capital stock of MergerCo consists of 100 shares of
common stock, par value $.01 per share, all of which are issued and outstanding
and owned by InterDigital. In the Merger, MergerCo will merge with and into IPC
with IPC being the Surviving Corporation.
Executive Officers and Directors of MergerCo
The following table sets forth certain information regarding the directors
and executive officers of MergerCo. All of such individuals are U.S. citizens.
Name Age Position
---- --- --------
Harry G. Campagna 57 Chairman of the Board
William A. Doyle 47 Director and President
D. Ridgely Bolgiano 63 Director, Vice President and Treasurer
Harley L. Sims 68 Director
William J. Merritt 37 Secretary
Each director has been elected to serve until the next annual meeting of
MergerCo stockholders and until his successor is duly chosen and qualified or
until his prior death, resignation or removal. The term of office of each
executive officer is until the organizational meeting of the MergerCo Board of
Directors following the next annual meeting of MergerCo stockholders and until
his successor is elected and qualified or until his prior death, resignation or
removal.
-49-
<PAGE>
PRINCIPAL STOCKHOLDERS OF IPC
The following table sets forth as of August 15, 1996, certain information
with respect to the beneficial ownership of IPC common stock by (i) each person
known by InterDigital to own beneficially 5% or more of the outstanding IPC
common stock, (ii) each director of IPC, and (iii) all directors and officers of
IPC as a group. Each person listed has the sole voting and investment power as
to all of the shares of IPC common stock shown as being beneficially owned by
them. Unless otherwise indicated, the address of each person named in the
following table is: c/o IPC, 781 Third Avenue, King of Prussia, PA 19406-1409.
Name and Address Amount and Nature Percentage of
of Beneficial Owner of Ownership Outstanding Common Stock
- ------------------- ------------ ------------------------
InterDigital Communications 22,500,000 94.24%
Corporation
781 Third Avenue
King of Prussia, PA 19406-1409
D. Ridgely Bolgiano 31,250 *
Harry G. Campagna -- --
William A. Doyle -- --
Harley L. Sims -- --
All Directors and Officers
as a group (7 persons) 31,250 *
- ----------------------------------
*less than 1% of the outstanding shares.
-50-
<PAGE>
CERTAIN LEGAL MATTERS, EXPERTS AND REGULATORY APPROVALS
Federal and State Approvals
The Company's Registration Statement on Form S-4, of which this Prospectus
forms a part, has been declared effective by the Commission and all state blue
sky filings required in connection with the issuance of the InterDigital Common
Stock being sold hereby have been made. The shares of InterDigital Common Stock
being sold hereby have been admitted to trading on the American Stock Exchange.
No additional federal or state regulatory requirements remain to be complied
with in order to consummate the Merger.
Legal Opinions
The validity of the Common Stock offered hereby has been passed upon for
the Company by Jane S. Schultz, 781 Third Avenue, King of Prussia, Pennsylvania
19406. Ms. Schultz is Associate General Counsel of the Company. As of the date
of this Prospectus, Ms. Schultz owns options to purchase 1,499 shares of
InterDigital Common Stock which are currently vested and exercisable.
Experts
The InterDigital audited consolidated financial statements and related
consolidated financial statement schedules incorporated by reference in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are incorporated in reliance upon the authority of said firm as
experts in giving said reports.
The IPC audited consolidated financial statements included in this
Prospectus and elsewhere in the Registration Statement, as of December 31, 1995
and the year then ended have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report thereto and is included herein
in reliance upon the authority of said firm as experts in giving said report.
-51-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
InterDigital Communications Corporation Unaudited
Pro Forma Consolidated Financial Statements F-2
Report of Independent Accountants F-5
InterDigital Patents Corporation and Subsidiary
Consolidated Historical Financial Statements F-6
Notes to InterDigital Patents Corporation
Consolidated Historical Financial Statements F-10
IP Acquisition Corporation Unaudited
Historical Balance Sheet F-17
F-1
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(Unaudited)
The accompanying Pro Forma Consolidated Balance Sheet as of June 30, 1996,
and the related Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 give effect to
(i) the acquisition by InterDigital Communications Corporation of the minority
interest in InterDigital Patents Corporation (IPC); and (ii) the other pro forma
adjustments as described in the Notes to the Pro Forma Consolidated Financial
Statements, as if this transaction had occurred as of June 30, 1996 in the case
of the Pro Forma Consolidated Balance Sheet, or as of January 1, 1995 and
January 1, 1996 in the case of the Pro Forma Consolidated Statements of
Operations.
The Pro Forma Consolidated Financial Statements have been prepared by
management and should be read in conjunction with the historical financial
statements of InterDigital and IPC. The Pro Forma Consolidated Financial
Statements are based on certain assumptions and preliminary estimates which are
subject to change. These statements do not purport to be indicative of the
financial position or results of operations that might have occurred, nor are
they indicative of future operating results.
F-2
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
Historical Pro forma
June 30, Pro forma June 30,
1996 Adjustments 1996
---------- ----------- ---------
Current Assets:
Cash and cash equivalents $ 20,306 $ 20,306
Short term investments 62,322 62,322
License fees receivable 702 702
Accounts receivable 5,397 5,397
Inventories 4,751 4,751
Other current assets 5,670 5,670
--------- --------- ---------
Total current assets 99,148 -- 99,148
Other Assets:
Patents 2,395 7,272(A) 9,667
Property, net 8,975 8,975
Other 5,032 5,032
--------- ---------
Total other assets 16,402 7,272 23,674
--------- --------- ---------
Total Assets $ 115,550 $ 7,272 $ 122,822
========= ========= =========
Current Liabilities:
Current portion of long term debt $ 484 $ 484
Accounts payable 6,681 6,681
Accrued Compensation 4,034 4,034
Purchase commitment reserve 505 505
Income taxes payable 614 614
Deferred Revenue 9,198 9,198
Other Accrued liabilities 2,920 2,920
--------- --------- ---------
Total current liabilities 24,436 -- 24,436
Long term debt 3,142 3,142
Other long term liabilities 7,584 7,584
Minority interest 4,732 (4,732)(A) --
Shareholders' Equity:
Preferred stock 11 11
Common stock 463 16(A) 479
Additional paid -- in capital 220,932 11,988(A) 232,920
Accumulated deficit (145,750) (145,750)
--------- --------- ---------
Total shareholders' equity $ 75,656 $ 12,004 $ 87,660
Total liabilities & equity $ 115,550 $ 7,272 $ 122,822
========= ========= =========
(A) Record purchase accounting for the purchase of the minority interest of IPC
for approximately $12 million (assume $7.33/shares at 1,637,625 shares)
F-3
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995 For the Six Months Ended June 30, 1996
------------------------------------ --------------------------------------
Pro forma Pro forma
Historical Adjustments Pro forma Historical Adjustments Pro forma
-------- ------------ -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income Statement
UltraPhone revenues $ 16,581 $ 16,581 $ 6,834 $ 6,834
Licensing and alliance 67,693 67,693 24,707 24,707
Contract services 681 681 -- --
-------- -------- -------- --------
Total revenues 84,955 -- 84,955 31,541 -- 31,541
Operating expenses:
Cost of UltraPhone 17,932 17,932 7,897 7,897
Contract services cost 762 762 -- --
Sales and Marketing 3,597 3,597 1,916 1,916
General and Administrative 14,838 727 (B) 15,565 5,453 364 (B) 5,817
Research and Development 9,738 9,738 9,166 9,166
-------- -------- -------- --------
46,867 727 47,594 24,432 364 24,796
-------- ------------ -------- -------- ----------- --------
Income from operations 38,088 (727) 37,361 7,109 (364) 6,745
Other:
Interest income 3,073 3,073 2,071 2,071
Interest expense (724) (724) (77) (77)
Income tax provision (3,318) (3,318) (3,505) (3,505)
Minority interest (2,514) 2,514 (A) -- (891) 891 (A) --
-------- ------------ -------- -------- ----------- --------
Net income 34,605 1,787 36,392 4,707 527 5,234
Preferred stock dividends (265) (265) (132) (132)
-------- ------------ -------- -------- --------
Net income applicable to
common shareholders $ 34,340 $ 1,787 $ 36,127 $ 4,575 $ 527 $ 5,102
======== ============ ======== ======== =========== ========
Weighted average shares
outstanding 46,503 46,503 47,931 47,931
Additional shares issued -- 1,638(C) 1,638 -- 1,638(C) 1,638
-------- ------------ -------- -------- ----------- --------
Weighted average shares
outstanding after Merger 46,503 1,638 48,141 47,931 1,638 49,569
======== ============ ======== ======== =========== ========
Net income per share $ 0.74 $ 0.75 $ 0.10 $ 0.10
======== ======== ======== ========
</TABLE>
- ----------
(A) To remove minority interest
(B) Record pro forma amortization of additional value of patents assuming a
ten year average life
(C) Record issuance of shares (assume $7.33/share, 1,637,625 shares)
F-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterDigital Patents Corporation:
We have audited the accompanying consolidated balance sheet of InterDigital
Patents Corporation and subsidiary (a Delaware corporation) as of December 31,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Interdigital Patents
Corporation and subsidiary as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Philadelphia, PA
August 14, 1996
F-5
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands except par value)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
ASSETS 1994 1995 1996
------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,402 $ 4,227 $ 6,494
Short term investments -- 55,060 62,330
License fees receivable 20,900 400 1,702
Other current assets 39 845 1,093
------- ------- -------
Total current assets 23,341 60,532 71,619
------- ------- -------
PROPERTY AND EQUIPMENT:
Net of accumulated depreciation 15 11 8
OTHER ASSETS:
Patents, net of accumulated amortization of 2,569 2,386 2,376
$2,946, $3,456 and $3,714, respectively
Other 138 51 51
------- ------- -------
Total other assets 2,707 2,437 2,427
------- ------- -------
$26,063 $62,980 $74,054
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,119 $ 263 $ 510
Accrued compensation and related expenses 966 2,116 1,856
Income and foreign withholding taxes payable 173 121 --
Deferred revenue -- 1,200 --
Intercompany Payable to InterDigital 4,891 5,246 6,966
Other accrued expenses 1,245 325 309
------- ------- -------
Total current liabilities 11,394 9,271 9,641
------- ------- -------
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value, 45,000 shares 24 24 24
authorized, 23,875 shares issued and outstanding
Additional paid-in capital 7,829 7,829 7,829
Retained earnings 6,816 45,856 56,560
------- ------- -------
Total stockholders' equity 14,669 53,709 64,413
------- ------- -------
$26,063 $62,980 $74,054
======= ======= =======
</TABLE>
F-6
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31, For the Six Months Ended June 30,
-------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
LICENSING REVENUE $ -- $ 28,709 $ 64,293 $ 60,093 $ 16,400
OPERATING EXPENSES
General and administrative 3,160 9,489 7,171 5,498 1,695
Amortization of patents 466 500 510 255 258
-------- -------- -------- -------- --------
Total operating expenses 3,626 9,989 7,681 5,753 1,953
-------- -------- -------- -------- --------
Income (loss) from operations (3,626) 18,720 56,612 54,340 14,447
INTEREST INCOME 116 45 2,751 1,076 1,940
-------- -------- -------- -------- --------
Income before income taxes (3,510) 18,765 59,363 55,416 16,387
INCOME TAX PROVISION (BENEFIT) (1,153) 6,488 20,323 18,886 5,683
-------- -------- -------- -------- --------
Net income (loss) $ (2,357) $ 12,277 $ 39,040 $ 36,530 $ 10,704
-------- -------- -------- -------- --------
Net income (loss) per share ($ 0.10) $ 0.51 $ 1.62 $ 1.51 $ 0.44
======== ======== ======== ======== ========
Shares used in computing net income (loss)
per share 24,072 24,137 24,137 24,137 24,137
======== ======== ======== ======== ========
</TABLE>
F-7
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended For the Six Months Ended
------------------ ------------------------
December 31, June 30,
------------ --------
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------ ----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (2,357) $ 12,277 $ 39,040 $ 36,530 $ 10,704
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities -
Depreciation and amortization 466 506 520 259 261
Issuance of stock options below deemed
accounting value 415 609 -- -- --
Other (13) (98) 87 79 --
Decrease (increase) in assets-
License fees receivables -- (20,900) 20,500 15,100 (1,302)
Other current assets (41) 2 (806) (202) (248)
Increase (decrease) in liabilities-
Accounts payable 463 3,619 (3,856) (3,918) 247
Accrued compensation 88 878 1,150 1,910 (260)
Deferred revenue -- -- 1,200 1,600 (1,200)
Intercompany payable to Interdigital (1,396) 5,488 355 7,107 1,720
Other accrued expenses (66) 1,378 (972) (528) (137)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities (2,441) 3,759 57,218 57,937 9,785
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments -- -- (55,060) (44,472) (7,270)
Additions to property and equipment (19) (2) (6) (8) --
Additions to patents (581) (592) (327) (219) (248)
-------- -------- -------- -------- --------
Net cash used in investing activities (600) (594) (55,393) (44,699) (7,518)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend to stockholders -- (3,104) -- -- --
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (3,041) 61 1,825 13,238 2,267
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 5,382 2,341 2,402 2,402 4,227
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 2,341 $ 2,402 $ 4,227 $ 15,640 $ 6,494
======== ======== ======== ======== ========
</TABLE>
F-8
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Additional Retained
Stock Paid-In Capital Earnings (Deficit) Total
----- --------------- ------------------ -----
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ 24 $ 6,805 $ -- $ 6,829
Issuance of stock options below -- 415 -- 415
deemed accounting value
Net loss -- -- (2,357) (2,357)
------- ------- ------- --------
BALANCE, DECEMBER 31, 1993 $ 24 $ 7,220 $ (2,357) $ 4,887
(UNAUDITED)
Issuance of stock options below -- 609 -- 609
deemed accounting value
Dividend to Common Stockholders -- -- (3,104) (3,104)
Net income -- -- 12,277 12,277
------- ------- ------ ------
BALANCE, DECEMBER 31, 1994 $ 24 $ 7,829 $ 6,816 $14,669
(UNAUDITED)
Net income -- -- 39,040 39,040
------- ------- ------ ------
BALANCE, DECEMBER 31, 1995 $ 24 $ 7,829 $45,856 $53,709
Net income -- -- 10,704 10,704
------- ------- ------ ------
BALANCE, JUNE 30, 1996
(UNAUDITED) $ 24 $ 7,829 $56,560 $64,413
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
1. BACKGROUND:
InterDigital Patents Corporation, a Delaware Corporation ("IPC"), through
its wholly-owned subsidiary InterDigital Technology Corporation ("ITC"), is
seeking to capitalize upon the revenue potential of ITC's extensive Time
Division Multiple Access ("TDMA") and Code Division Multiple Access ("CDMA")
patent portfolio. ITC implemented a strategy during 1993 of negotiation and
litigation with certain entities which it believed were representative of a
number of entities infringing ITC's patents. These efforts have resulted in
patent license agreements with five entities in 1994, six entities in 1995 and a
twelfth entity during 1996, the recognition of $28.7 million, $64.3 million and
$16.4 million of licensing revenue in 1994, 1995 and the six months ended June
30, 1996 respectively, and the initiation of litigation with major
telecommunications equipment providers. ITC, along with IPC's parent
corporation, InterDigital Communications Corporation ("InterDigital" or together
with all of its subsidiaries "the Company") has also formed two business
alliances based upon its TDMA and Broadband Code Division Multiple Access(TM)
("B-CDMA(TM)") technologies. (See Notes 2, 3, 4 and 5).
In February 1992, InterDigital transferred all of its patents, patent
applications and rights to file patent applications on certain future inventions
to ITC. During the fourth quarter of 1992, InterDigital formed IPC and
contributed to IPC InterDigital's entire ownership interest in ITC in return for
100% of IPC's common stock. InterDigital had previously contributed all of its
past, present and future (conceived on or before February 2002) patent rights to
ITC. Subsequently, IPC issued 22 Units in a private placement at $250,000 per
Unit, receiving net proceeds of $5.2 million in return for 5.76% of the
ownership interest in IPC. Each Unit consisted of 62,500 shares of IPC Common
Stock and warrants to purchase 62,500 of InterDigital's Common Stock at an
exercise price of $5.50 per share.
The proceeds from licensing transactions are paid to ITC. (See Notes 3, 4
and 5). The availability of such funds for uses related to UltraPhone(R) system
marketing efforts, TDMA or B-CDMA product development efforts or other
InterDigital uses is dependent upon such funds being transferred from IPC to
InterDigital pursuant to contractual arrangements or in conjunction with a
dividend declaration.
IPC and its subsidiary are subject to certain risks and uncertainties,
including, but not limited to, the ability to effectively prosecute and enforce
patents, the willingness of other companies to enter into acceptable patent
license agreements that utilize this company technology, compliance by licensees
of the Company's technology, the development and commercialization of products
relying on ITC's patents, uncertainty and volatility of future profitability and
access to capital and dependence on license arrangements and key personnel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of IPC and its
wholly-owned subsidiary. All significant intercompany accounts and transactions
have been eliminated in consolidation.
F-10
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
Interim Financial Statements
The financial statements as of June 30, 1996 and for the six months ended
June 30, 1995 and 1996 are unaudited. In the opinion of the management of IPC,
the unaudited financial statements as of June 30, 1996 and for the six months
ended June 30, 1995 and 1996, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation. The results of
operations for the six months ended June 30, 1996 are not necessarily indicative
of the results to be expected for the full year.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
IPC considers all highly liquid investments purchased with remaining
maturities of three months or less to be cash equivalents. Investments are held
at amortized cost which approximates market value, and at December 31, 1995 and
June 30, 1996 are classified as short-term. At December 31, 1995 and June 30,
1996, all of the Company's short-term investments are classified as available
for sale pursuant to Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115).
Therefore, any unrealized holding gains or losses should be presented in a
separate component of stockholders' equity. At December 31, 1995 and June 30,
1996, there were no significant unrealized holding gains or losses.
Cash and cash equivalents consisted of the following:
December 31, June 30,
------------
1994 1995 1996
---- ---- --------
Money market funds and demand accounts $2,402 $1,168 $1,515
Certificates of deposit -- -- --
Repurchase agreements -- 680 --
Commercial paper -- 2,379 4,979
------ ------ ------
$2,402 $4,227 $6,494
====== ====== ======
The repurchase agreements are fully collateralized by United States
Government securities and are stated at cost which approximates fair market
value.
Short-term investments available for sale as of December 31, 1995 consisted
of $40.5 million in government-issued discount notes, $2.5 million in municipal
securities and $12.1 million in corporate debt securities. Short term
investments available for sale as of June 30, 1996 consist of $51.4 million in
government-issued discount notes, and $10.9 million in corporate debt
securities.
F-11
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
The aggregate cash, cash equivalents and short-term investments held by IPC
was $68.8 million as of June 30, 1996. Such funds can be made available for uses
related to UltraPhone activities, 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.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property, plant and equipment are provided using the straight-line method. The
estimated useful lives for computer equipment, furniture and fixtures are
generally three to five years.
Patents
The costs to obtain certain patents for the Company's TDMA and CDMA
technologies have been capitalized and are being amortized on a straight-line
basis over their estimated useful lives, generally 10 years. Amortization was
$466,000, $500,000, $510,000 and $255,000 and $258,000 in the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1995 and
1996, respectively.
Revenue Recognition
Licensing revenues in 1994, 1995 and the six months ended June 30, 1995 and
1996 consist of upfront, non-refundable fees which were recognized at the time
of the applicable agreement. Due to the combined nature of the Siemens
agreements, revenue is recognized over the performance period of the Company's
obligations under the agreements. (See Note 3.) Recurring royalty revenues under
licensing agreements may be recognized in the future according to the terms of
the agreements.
Concentration of Credit Risk
Financial instruments which potentially subject IPC to concentration of
credit risk consist primarily of cash equivalents, short-term investments and
accounts receivable. By policy, IPC places its cash equivalents and short-term
investments only with high quality financial institutions and in United States
Government obligations. The Company's accounts receivable are derived
principally from patent license agreements which provide for deferred and/or
installment payments.
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long
Lived Assets and for Long Lived Assets to be Disposed Of" (SFAS No. 121). SFAS
No. 121 establishes accounting standards for the impairment of long lived
assets, certain identifiable intangibles and goodwill. IPC has adopted SFAS No.
121 effective January 1, 1996. The adoption of SFAS No. 121 did not have a
material effect on IPC's patents, financial condition or results of operations.
Supplemental Cash Flow Information
The Company paid $3.3 million, $3.3 million and $2.3 million of foreign
withholding taxes during 1995 and the six months ended June 30, 1995 and 1996,
respectively. (See also Note 6.) Income taxes paid in 1993 and 1994 were not
material.
F-12
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
3. SIEMENS AGREEMENTS:
On December 16, 1994, ITC along with its parent InterDigital, entered into
a Master Agreement and a series of four related agreements as elements of an
integrated transaction in which the Company established a broad based marketing
and technology alliance with Siemens. These agreements were amended in February
1996 in connection with the Samsung agreements. (See Note 4.)
As partial consideration for the rights and licenses granted by the
Company, Siemens agreed to pay $20 million, of which $14.8 million had been paid
by December 31, 1995. In connection with the Samsung alliance, the Company and
Siemens deferred the December 31, 1995 and March 31, 1996 payments and, in July
1996, offset $4.9 million of such payments against payments due to Siemens from
InterDigital in conjunction with the Samsung alliance. The Company expects the
balance of the consideration ($300,000) to be paid by September 30, 1996. The
Company did not recognize any revenue related to the agreements in 1994. In
accordance with accounting requirements, the Company will recognize the $20
million of revenue over the contract performance period due to the combined
nature of the contracts. Based on management's allocation, IPC's portion of the
agreements related to patent licenses is $15 million. In 1995, IPC recognized
$10.2 million of the revenue under this agreement based on the progress of the
completed work. The remaining $4.8 million of revenue is expected to be
recognized through December 1996, the expected date of completion of functional
testing at the system component level. As of December 31, 1995 and June 30,
1996, IPC owed InterDigital $3.4 million and $3.4 million, respectively, for
work performed pursuant to its portion of the agreements.
4. SAMSUNG AGREEMENTS:
On February 9, 1996, ITC, along with its parent InterDigital, entered into
a series of agreements with Samsung and amended its agreements with Siemens as a
second major step in implementing its alliance strategy. Under the various
agreements, Samsung made upfront payments to the Company in excess of $35
million (of which approximately one-half constituted patent and technology
royalty prepayments), less applicable withholding taxes. All payments from
Samsung were received by June 30, 1996. The net amount received by the Company
was approximately $29 million. In July 1996, InterDigital paid, via offset (see
Note 3) $4.9 million to Siemens which, in turn, committed to provide additional
technical assistance to the Company. Samsung will also be obligated to provide
engineering manpower, to the alliance for the development of the Company's
B-CDMA technology. IPC recognized $14 million of revenue in the first quarter of
1996 as part of the Samsung agreement that represented the patent license
portion of the agreement.
5. MAJOR CUSTOMERS AND GEOGRAPHIC DATA:
Licensing Revenue:
ITC has granted non-exclusive, non-transferable, perpetual, worldwide,
royalty-bearing licenses to use certain TDMA patents (and in certain instances,
technology) to Hughes Network Systems, AT&T, Siemens (see Note 3), Matsushita,
Sanyo, Pacific Communications Systems, Mitsubishi, Hitachi, Kokusai, OKI
Electric Industry Company and Samsung (see Note 4). The licenses typically
contain "most favored nations" provisions, applied on a going forward basis
only, and other provisions which could, in certain events, cause the licensee's
obligation to pay royalties to ITC to be suspended for an indefinite period,
with or without the accrual of the royalty obligation.
The Licensing revenues for the six months ended June 30, 1996 contain $14.0
million from Samsung and $2.4 million from Siemens. The 1995 Licensing revenues
contain $20.1 million from Mitsubishi, $10.2 million for Siemens and $26.9
million from NEC. The 1994 licensing revenues contain $20.0 million from
Matsushita. Additionally, in 1994, ITC also entered into a CDMA license
agreement with Qualcomm Incorporated to settle litigation filed in 1993. In
return for one-time payment of $5.5 million, ITC granted to Qualcomm a
fully-paid, royalty free, worldwide license to use and sublicense ITC's existing
CDMA patents and certain future CDMA patents to make and sell products for
IS-95-type wireless applications, including, but not limited to, cellular, PCS,
wireless local loop and satellite applications. Qualcomm has the right to
sublicense ITC's CDMA patents so that Qualcomm's licensees will be free to
manufacture and sell IS-95-type CDMA products without requiring any payment to
ITC.
F-13
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
6. INCOME TAXES:
As of January 1, 1994, InterDigital Communications Corporation entered into
an income tax sharing agreement with all of its subsidiaries, including IPC and
ITC. This agreement allowed for the allocation of the federal income tax
liability to be shared amongst the companies included in the consolidated
federal income tax return. The agreement requires reimbursement from the
subsidiary for use of any Net Operating Loss ("NOL") that it generated and was
used in the consolidated return.
Income tax provisions (benefit) consists of the following:
For the Year Ended Six Months Ended
December 31, June 30,
------------------ ----------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
Federal $(1,193) $5,455 $17,748 $16,399 $3,255
State 40 133 167 79 118
Foreign Withholding -- 900 2,408 2,408 2,310
------- ------ ------- ------- ------
$(1,153) $6,488 $20,323 $18,886 $5,683
======= ====== ======= ======= ======
IPC's income tax provision has been calculated on a separate company basis
using the applicable Federal and state rules and regulations. IPC's current
Federal income tax provision is calculated based on book income or loss and is
paid on a current basis to InterDigital. IPC paid Federal taxes to InterDigital
of $20.8 million in December 1995 and $1.7 million in January 1996. As of
December 31, 1994 and 1995 and June 30, 1996, IPC had Federal income taxes of
$4.8 million, $1.7 million and $2.0 million, respectively, payable to
InterDigital, which are included in the Intercompany Due to InterDigital account
on the accompanying balance sheets.
7. BONUS INCENTIVE PLAN:
Three IPC employees were eligible to receive compensation under an IPC
Executive Bonus Plan ("Plan"). Bonus payments under the Plan were tied to the
profitability of IPC and the awarding of points, both of which were
prerequisites in order to qualify for bonus payments. The Plan was terminated in
1995.
As of June 30, 1996, two of the three employees have received their bonus
payments and have agreed that such amounts represent a final settlement under
the Plan. The third employee has received a partial bonus payment, but is
currently litigating the adequacy of such bonus and the propriety of terminating
the Plan. IPC has fully reserved the maximum amount payable under the Plan and
expects that the final resolution will not materially affect IPC's financial
position or results of operation.
During 1994 and 1995, the Company accrued approximately $750,000 and $2.0
million to reserve for the maximum potential payments under the Plan.
8. EMPLOYEE STOCK OPTION AGREEMENT:
As part of the settlement of IPC's former president's employment agreement,
the grant of a five year option to purchase 262,625 shares of common stock of
IPC at an exercise price of $.01 per share (the "Option") was confirmed. In
addition, the former president has the right to participate ratably in any
buy-out of IPC in which InterDigital participates which has the effect of
reducing the number or percentage of IPC shares not owned by InterDigital and
the right to require IPC to purchase the stock issued or issuable upon exercise
of the Option for approximately one million dollars at any time on or before
June 30, 1998 if such shares are not purchased from him or exchanged for shares
of InterDigital
F-14
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
prior to December 31, 1996. Pursuant to the settlement agreement, the former
president has agreed to exercise the Option prior to the completion of the
Merger as to which this Registration Statement relates.
9. LITIGATION:
In September 1993, ITC filed a patent infringement action against Ericsson
GE Mobile Communications, Inc. ("Ericsson GE"), its Swedish parent,
Telefonaktieboleget LM Ericsson ("LM Ericsson") and Ericsson Radio Systems, Inc.
("Ericsson Radio"), in the United States District Court for the Eastern District
of Virginia (Civil Action No. 93-1158-A (E.D.Va.)). The Ericsson action seeks a
jury's determination that in making, selling, or using, and/or in participating
in the making, selling or using of digital wireless telephone systems and/or
related mobile stations, Ericsson has infringed, contributed to the infringement
of and/or induced the infringement of eight patents from ITC's patent portfolio.
The Ericsson action also seeks an injunction against Ericsson from further
infringement and seeks damages, royalties, costs and attorneys' fees. Ericsson
GE filed an answer to the Virginia action in which it denied the allegations of
the complaint and asserted a counterclaim seeking a declaratory judgment that
the asserted patents are either invalid or not infringed. On the same day that
ITC filed the Ericsson action in Virginia, two of the Ericsson Defendants,
Ericsson Radio and Ericsson GE, filed a lawsuit against the Company and ITC in
the United States District Court for the Northern District of Texas (Civil
Action No. 3-93CV1809-H (N.D.Tx.)) (the "Texas action"). The Texas action, which
involves the same patents that are the subject of the Ericsson action, seeks the
court's declaration that Ericsson's products do not infringe ITC's patents, that
ITC's patents are invalid and that ITC's patents are unenforceable. The Texas
action also seeks judgment against the Company and ITC for tortious interference
with contractual and business relations, defamation and commercial
disparagement, and Lanham Act violations. Ericsson Radio and Ericsson GE filed a
motion to transfer ITC's action to the United States District Court for the
Northern District of Texas which was granted by the Court. Both Ericsson actions
have been consolidated and are scheduled to go forward in the United States
Federal District Court for the Northern District of Texas. ITC agreed to the
dismissal without prejudice of LM Ericsson. The Company and ITC intend to
vigorously defend the Texas action. At the request and with the consent of the
parties, the District Judge has executed an order indefinitely extending a stay
of the proceedings until April 23, 1996. At the request and with the consent of
the parties, the District Judge entered an order further extending the stay
until the U.S. Court of Appeals for the Federal Circuit decides the appeals
filed in the Motorola litigation.
In October 1993, Motorola, Inc. filed an action against ITC in the United
States District Court for the District of Delaware 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 an answer and
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 infringement of certain
ITC patents. ITC also sought an injunction against Motorola from further
infringement and sought damages. 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 that the
Motorola products involved in the suit did not infringe ITC's patent claims at
issue in the case and that the 24 patent claims were invalid. ITC filed a motion
requesting that the jury verdict be overturned or, in the alternative, that a
new trial be granted. Motorola filed a motion requesting attorneys' fees and
expenses aggregating between $6 and $7 million. On June 17, 1996, the U.S.
District Court for the District of Delaware affirmed that portion of the jury's
verdict dealing with infringement. The U.S. District Court further sustained the
jury's determination of invalidity with respect to 21 of the 24 patent claims,
but ruled that three patent claims are valid notwithstanding the jury's
determination. The U.S. District Court denied Motorola's motion for attorneys'
fees and expenses. On June 17, 1996 Motorola filed an appeal from the ruling by
the U.S. District Court for the District of Delaware with the U.S. Court of
Appeals for the Federal Circuit (Appeal No. 96-1408) and on June 21, 1996 the
Company filed its appeal (Appeal No. 96-1428). It is anticipated that the
parties will file their appeal briefs during the remainder of 1996 and that the
appeals will be argued and decided within approximately 12 to 18 months after
all of the
F-15
<PAGE>
INTERDIGITAL PATENTS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
JUNE 30, 1996
(Information as of December 31, 1994 and June 30, 1996, for the years ended
December 31, 1993 and 1994 and for the six months ended June 30, 1995
and June 30, 1996 is unaudited)
briefs have been filed. The Company believes that there are substantial grounds
for reversal of the jury's invalidity determination and the granting of a new
trial regarding infringement.
ITC has filed patent applications in numerous foreign countries. Typical of
the processes involved in the issuance of foreign patents, Philips, Alcatel and
Siemens each filed petitions in the German Patent Office seeking to revoke the
issuance of ITC's basic German TDMA system patent granted on June 28, 1990. On
October 19, 1993, after formal opposition proceedings, the German Patent Office
confirmed the validity of the ITC basic German system patent. An appeal has been
filed by Philips, Alcatel and Siemens and additional arguments have been made
based upon prior art not previously considered by the patent office. ITC is and
may from time to time be subject to additional challenges with respect to its
patents and patent applications in foreign countries. Although no assurance can
be given as to the eventual outcome of these patent challenges, ITC intends to
vigorously defend its patents. If any of these patents are revoked, ITC's patent
licensing opportunities in such relevant foreign countries could be materially
and adversely affected.
In connection with ITC's various patent infringement lawsuits, IPC has
entered into several contingent fee arrangements, principally with outside legal
counsel. Those agreements provided that, in the event of a successful outcome in
any of the various lawsuits, as defined in the agreements, IPC would owe
additional fees to its service providers. The agreements with outside counsel
have been terminated. IPC is currently discussing with its service providers
regarding any compensation that may be due. No provision has been made in the
financial statements for such contingent fee arrangements.
In addition to litigation associated with patent enforcement and licensing
activities and the other litigation described above, IPC and ITC are parties to
certain legal actions arising in the ordinary course of its business. Based upon
information presently available to IPC and ITC, IPC and ITC believe that the
ultimate outcome of these other actions will not materially affect the Company.
10. RELATED-PARTY TRANSACTIONS:
From January 1993 through December 1994, Great Circle Communications Ltd.
Bda. ("Great Circle") provided consulting services to IPC for which Great Circle
has been remunerated, in the aggregate, $4,000 per month (including
reimbursement of certain out-of-pocket expenses). The President, and a director
of, Great Circle, served as a member of the Board of Directors of the Company
from November 1985 through June 1994 and as a member of the Board of Directors
of IPC from its inception to November 1994.
During the second quarter of 1994, InterDigital borrowed $1,500,000 from
IPC pursuant to a promissory note, bearing interest at a rate of 11% per annum.
InterDigital repaid the note during the fourth quarter of 1994.
IPC and InterDigital are parties to a service agreement under which
InterDigital provides certain facilities, administrative and other services to
IPC for which IPC pays $2,000 per month.
See also Notes 3, 4 and 6 concerning license and income tax sharing
transactions with InterDigital.
F-16
<PAGE>
IP ACQUISITION CORPORATION
BALANCE SHEET
August 6, 1996
(Unaudited)
ASSETS ................................................................. $ --
-----
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value; 100 authorized,
100 shares issued and outstanding ...................................... $ 1
Additional Paid-In Capital.............................................. $ 99
Receivable from InterDigital Communications Corporation ................ ($100)
-----
$ --
=====
The accompanying notes are an integral part of this balance sheet.
F-17
<PAGE>
IP ACQUISITION CORPORATION
NOTES TO BALANCE SHEET
August 6, 1996
(Unaudited)
1. BASIS OF PRESENTATION:
IP Acquisition Corporation ("MergerCo") was incorporated in Delaware on
August 6, 1996 and has been an inactive wholly-owned subsidiary of InterDigital.
MergerCo was established to effectuate the merger discussed below (see Note 2).
2. PLAN OF MERGER:
On August 15, 1996, the respective Boards of Directors of InterDigital
Patents Corporation, an approximately 94% owned subsidiary of InterDigital
("IPC") and InterDigital, each unanimously approved and adopted an Agreement and
Plan of Merger (the "Plan of Merger"), providing for the merger of MergerCo with
and into IPC (the "Merger"), with IPC being the surviving corporation in the
Merger, and the issuance of InterDigital common stock to the holders of IPC
common stock.
At the effective time of the Merger, each outstanding share of IPC common
stock, other than shares of IPC common stock held by InterDigital and any IPC
dissenting stockholders, will be converted into that number of shares of Common
Stock of InterDigital equal to: (i) $7.33 divided by (ii) the average closing
price per share of InterDigital Common Stock for the 30 calendar days ending on
the last trading day prior to the date of this Registration Statement is
declared effective by the Securities and Exchange Commission.
F-18
<PAGE>
ANNEX I
PLAN OF MERGER
BY AND AMONG
INTERDIGITAL COMMUNICATIONS CORPORATION,
INTERDIGITAL PATENTS CORPORATION
AND
IP ACQUISITION CORPORATION
Dated as of August 16, 1996
AGREEMENT AND PLAN OF MERGER, dated as of August 16, 1996 ("Agreement"), by
and among INTERDIGITAL COMMUNICATIONS CORPORATION, a Pennsylvania corporation
("Parent"), IP ACQUISITION CORPORATION, a Delaware corporation ("Sub") and a
wholly-owned subsidiary of Parent, and INTERDIGITAL PATENTS CORPORATION, a
Delaware corporation (the "Company") and an approximately 94%-owned subsidiary
of Parent.
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have declared the merger of the Sub into the Company (the "Merger") pursuant to
and subject to the terms and conditions of this Agreement to be in the best
interests of their respective companies and shareholders, have approved the
Merger, and have submitted the Merger to the shareholder of Sub and the majority
shareholder of the Company for their approval;
WHEREAS, the parties intend that the Merger qualify as a reorganization
pursuant to Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code");
NOW THEREFORE, in consideration of the foregoing premises and of the mutual
covenants, representations, warranties and agreements herein contained, the
parties, intending to be legally bound, hereby agree as follows:
1. THE MERGER AND RELATED MATTERS
1.1 The Merger.
(a) Subject to the terms and conditions of this Agreement, a
certificate of ownership and merger (the "Delaware Certificate of Merger")
acknowledged by Sub and the Company in accordance with the Delaware General
Corporation Law (the "DGCL") and, at the time of the Closing (as defined in
Section 1.9 hereof), shall be filed. The Merger shall become effective upon the
filing of the Delaware Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with the provisions and requirements of the
DGCL, or at such other time as may be set forth, by mutual agreement of the
parties, in the Delaware Certificate of Merger. The date and time when the
Merger shall become effective is hereinafter referred to as the "Effective
Time."
<PAGE>
(b) At the Effective Time, the Sub shall be merged with and into the
Company and the separate corporate existence of the Sub shall cease, and the
Company shall continue as the surviving corporation under the laws of the State
of Delaware under the name of InterDigital Patents Corporation (the "Surviving
Corporation"). The Surviving Corporation shall have all the rights, privileges,
immunities and powers and be subject to all the duties and liabilities granted
or imposed by the DGCL. The Surviving Corporation shall also thereupon and
thereafter possess all the rights, privileges, immunities, powers and
franchises, of a public as well as of a private nature, of the Company and the
Sub; and all property, real, personal and mixed, and all debts due on whatever
account and all other choses in action and all and every other interest of, or
belonging to or due to, Company or the Sub, shall be deemed to be transferred to
and vested in such Surviving Corporation without further act or deed; and the
title to any real estate, or any interest therein, vested in either of the
merged companies shall not revert or in any way be impaired by reason of such
Merger. The Surviving Corporation shall thereafter be responsible and liable for
all of the liabilities and obligations of Company and the Sub; any claim
existing or action or proceeding pending by or against either of the merged
companies may be prosecuted to judgement as if such Merger had not taken place,
or the Surviving Corporation may be substituted in the place of Company. Neither
the rights of the creditors nor any liens upon the property of the Company or
Sub shall be impaired by such Merger but such liens shall be limited to the
property upon which they were liens immediately prior to the Effective Date.
(c) From and after the Effective Time, the Merger shall have the
effects set forth in Section 259 of the DGCL.
1.2 Conversion of Stock.
(a) At the Effective Time, each share of Common Stock, $.001 par
value, of the Company (the "Company Common Stock") then issued and outstanding
(other than (i) any shares of Company Common Stock which are held by any
subsidiary of the Company or in the treasury of the Company, or which are held,
directly or indirectly, by Parent or any subsidiary of Parent (including Sub),
all of which shall be canceled and none of which shall receive any payment with
respect thereto, and (ii) shares of Company Common Stock held by Dissenting
Shareholders (as defined in Section 1.3 hereof) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into and
represent the Per Share Merger Consideration (as defined in paragraph (b)
below); and each issued and outstanding share of common stock of Sub, $.01 par
value, shall be converted into and represent an issued and outstanding share of
common stock of the Surviving Corporation.
(b) As used herein, the term "Per Share Merger Consideration" shall
mean that number of shares (the "Conversion Number") of common stock, par value
$.01 per share, of Parent (the "Parent Stock") equal to (i) $7.33 divided by
(ii) the Average Closing Price of a share of Parent Stock (as defined in Section
1.2(c) below). In the event that prior to the Effective Time the outstanding
shares of Parent Stock shall have been increased, decreased or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in Parent's capitalization, all without Parent receiving
adequate consideration therefor, then an appropriate and proportionate
adjustment shall be made in the Conversion Number and in the number and kind of
shares of Parent Stock to be thereafter delivered pursuant to this Agreement.
(c) Notwithstanding the foregoing, no fractional shares of Parent
Stock shall be issued to holders of Company Common Stock. In lieu thereof, each
holder of shares of Company Common Stock who would otherwise have been entitled
to receive a fraction of a share of Parent Stock (after taking into account all
certificates delivered by such holder at any one time) shall receive an amount
in cash equal to such fraction of a share of Parent Stock, multiplied by the
Average Closing Price of a share of Parent Stock. "Average Closing Price of a
share of Parent Stock" means the average of the closing price per share of
Parent Stock, as reported by the American Stock Exchange (as reported by The
Wall Street Journal or, if not reported thereby, by another authoritative
source), for the 30 calendar days ending on the last trading date prior to the
date the Registration Statement is declared effective by the SEC.
(d) The shares of the Parent Stock issued and outstanding immediately
prior to the Effective Time shall remain outstanding and unchanged after the
Merger.
-2-
<PAGE>
1.3 Dissenting Shareholders. Notwithstanding anything in this Agreement to
the contrary but only to the extent required by Section 262 of the DGCL, shares
of Company Common Stock that are issued and outstanding immediately prior to the
Effective Time and are held by holders who comply with all the provisions of
Delaware law concerning the right of holders of Company Common Stock to dissent
from the Merger and require appraisal of their shares of Company Common Stock
("Dissenting Shareholders") shall not be converted into the Per Share Merger
Consideration but, instead, shall become the right to receive such consideration
as may be determined to be due such Dissenting Shareholders pursuant to Delaware
law; provided, however, that shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a Dissenting Shareholder who
shall, after the Effective Time, withdraw his or her demand for appraisal or
lose his or her right of appraisal, in either case pursuant to the DGCL, shall
thereupon be deemed to have been converted, as of the Effective Time, into the
Per Share Merger Consideration, without interest. The Company shall give Parent
(i) prompt notice of any written demands for appraisal, withdrawals of demands
for appraisal and any other related instruments received by the Company, and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under Delaware law. All payments shall be made solely from
funds of the Company. Except with the prior written consent of Parent, the
Company will not voluntarily make any payment with respect to any demands for
appraisal and will not settle or offer to settle any demand.
1.4 Exchange Procedures.
(a) At and after the Effective Time, certificates previously
representing shares of Company Common Stock, taking into account all
certificates of a holder of Company Common Stock delivered by such holder at any
one time (taken together, a "Certificate"), shall represent (i) the number of
whole shares of Parent Stock (determined pursuant to Section 1.2 hereof) and
(ii) the right, if any, to receive cash in lieu of fractional shares into which
such Company Common Stock has been converted (determined pursuant to Section 1.2
hereof). Certificates previously representing shares of Company Common Stock
shall be exchanged for certificates representing whole shares of Parent Stock
and cash in lieu of fractional shares issued in consideration therefor upon the
surrender of such Certificates in accordance with this Section 1.4 without any
interest thereon.
(b) As of the Effective Time, for the benefit of the holders of shares
of Company Common Stock, Parent shall reserve, or shall cause to be reserved for
exchange in accordance with this Section 1.4, certificates representing the
shares of Parent Stock and the Parent shall cause to be reserved cash in lieu of
fractional shares (such cash and certificates for shares of Parent Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issued pursuant to Section 1.2
and to be paid pursuant to this Section 1.4 in exchange for outstanding shares
of Company Common Stock.
(c) Promptly after the Effective Time, Parent shall mail to each
holder of record of Certificates the following: (i) a letter of transmittal
specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Parent,
which shall be in a form and contain any other provisions as Parent and the
Surviving Corporation may reasonably agree and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Stock and cash in lieu of fractional shares. Upon
the proper surrender of a Certificate to Parent, together with a properly
completed and duly executed letter of transmittal, the holder of such
Certificate shall be entitled to receive in exchange therefor (x) a certificate
representing that number of whole shares of Parent Stock and (y) a check
representing the amount of cash in lieu of any fractional shares and unpaid
dividends and distributions, if any, which such holder has the right to receive
in respect of the Certificate surrendered pursuant to the provisions of Section
1.2, and the Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on the cash in lieu of fractional shares or on unpaid
dividends and distributions, if any, payable to holders of Certificates. In the
event of a transfer of ownership of any shares of the Company Common Stock not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Stock, together with a check for the cash
to be paid in lieu of fractional shares, may be issued to the transferee if the
Certificate representing such Company Common Stock is presented to Parent,
accompanied by documents sufficient (1) to evidence and effect such transfer and
(2) to evidence that all applicable stock transfer taxes, if any, have been
paid.
-3-
<PAGE>
(d) Until surrendered in accordance with the provisions of this
Section 1.4, from and after the Effective Time each Certificate shall, subject
to this paragraph (d), be deemed for all purposes to evidence ownership of the
number of shares of Parent Stock into which the shares of Company Common Stock
represented by such Certificate have been changed or converted. Whenever a
dividend or other distribution is declared by Parent on the Parent Stock, the
record date for which is at or after the Effective Time, the declaration shall
include dividends or other distributions on all shares issuable pursuant to this
Agreement; provided that no dividend or other distribution declared or made on
the Parent Stock shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Stock represented thereby until the holder
of such Certificate shall duly surrender such Certificate in accordance with
this Section 1.4. Following such surrender of any such Certificate, there shall
be paid to the holder of the certificates representing whole shares of Parent
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions having a record date
on or after the Effective Time theretofore payable with respect to such whole
shares of Parent Stock and not yet paid and (ii) at the appropriate payment
date, the amount of dividends or other distributions having (x) a record date on
or after the Effective Time but prior to surrender and (y) a payment date
subsequent to surrender payable with respect to such whole shares of Parent
Stock.
(e) From and after the Effective Time, there shall be no transfers on
the stock transfer records of the Company of any shares of the Company Common
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to Parent for transfer, they
shall be canceled and exchanged for the shares of Parent Stock and cash in lieu
of fractional shares, if any, deliverable in respect thereof pursuant to this
Agreement in accordance with the procedures set forth in this Section 1.4.
(f) If outstanding certificates for shares of Company Common Stock are
not surrendered or the payment for them not claimed prior to the date on which
such payments would otherwise escheat to or become the property of any
governmental unit or agency, the unclaimed items shall, to the extent permitted
by abandoned property and any other applicable law, become the property of
Parent, free and clear of all claims or interest of any person previously
entitled to such claims, except that any cash in lieu of fractional shares shall
become the property of the Surviving Corporation. Notwithstanding the foregoing,
neither Parent nor any other person shall be liable to any former holder of
Company Common Stock for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, Parent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Stock and cash in lieu of fractional shares
deliverable (and unpaid dividends and distributions) in respect thereof pursuant
to this Agreement.
1.5 Options and Warrants. Robert S. Bramson, a former employee of the
Company, was granted an option to purchase 262,625 shares of the Company's
Common Stock, all of which are fully vested (the "Bramson Options"). Mr.
Bramson, the Company and Parent have agreed that Mr. Bramson will fully exercise
such option immediately prior to the Merger. The shares of the Company's Common
Stock issued upon such exercise will be deemed outstanding at the Effective Time
and shall be entitled to the Per Share Merger Consideration. The Company hereby
represents and warrants that there are no other outstanding options, warrants or
other rights to purchase the Company's Common Stock, or other outstanding
securities which are convertible into or exchangeable for the Company's Common
Stock.
1.6 Certificate of Incorporation of the Surviving Corporation. The
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of the Surviving
Corporation.
1.7 Bylaws of the Surviving Corporation. The Bylaws of the Company, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by law.
-4-
<PAGE>
1.8 Directors and Officers of the Surviving Corporation. At the Effective
Time, the directors of the Company shall be the directors of the Surviving
Corporation, each of such directors to hold office, subject to the applicable
provisions of the Certificate of Incorporation and Bylaws of the Surviving
Corporation, until the next annual stockholders' meeting of the Surviving
Corporation and until their respective successors shall be duly elected or
appointed and qualified. At the Effective Time, the officers of the Company
shall be the officers of the Surviving Corporation, each of such officers to
hold office, subject to the applicable provisions of the Certificate of
Incorporation and Bylaws of the Surviving Corporation, until their respective
successors shall be duly elected or appointed and qualified.
1.9 Closing. The closing of the Merger (the "Closing") shall take place at
the offices of Pepper, Hamilton & Scheetz, 3000 Two Logan Square, Philadelphia,
Pennsylvania, at 10:00 A.M., local time, on the day which is the third business
day after the day on which the last of the conditions set forth in Section 5
hereof is fulfilled or waived (subject to applicable law), or at such other time
and place and on such other date as Sub, Parent and the Company shall mutually
agree (the "Closing Date").
2. Representations and Warranties.
2.1 Company Representations. The Company hereby represents and warrants to
the Parent and Sub follows:
(a) Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its property. The
Company is duly qualified to transact business as a foreign corporation in each
jurisdiction which would require its qualification.
(b) Capitalization and Subsidiaries. The authorized, issued and
outstanding capital stock of the Company consists of 45,000,000 shares of Common
Stock, of which 23,875,000 shares have been validly issued and outstanding,
fully paid and nonassessable, and 262,625 shares of which have been reserved for
issuance upon exercise of the Bramson Options.
Except InterDigital Technology Corporation ("ITC"), the Company does
not own or control any capital stock or other ownership interest in any
corporation, association, partnership, trust, joint venture or other entity
(each a "Subsidiary"). All shares of capital stock of ITC, which are owned by
the Company, are validly issued and outstanding, fully paid and nonassessable,
and not subject to any lien or encumbrance.
(c) Authorization and Enforceability. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite action on the part of the Company. This Agreement has been duly
executed and delivered by the Company, enforceable in accordance with its
respective terms, except as enforcement thereof may be limited by fraudulent
conveyance, bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles and
except as rights to indemnity and contribution hereunder may be limited by
applicable law, and constitutes a valid and binding obligation of the Company.
The execution, delivery and performance of this Agreement, the execution, filing
and performance of the Delaware Certificate of Merger, and the compliance with
the provisions hereof and thereof by the Company, will not:
(i) violate any provision of law, statute, ordinance, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body to which the Company or
any subsidiary (or their respective properties or assets) is subject;
(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under (i) any agreement, document, instrument, contract,
understanding, arrangement, note, indenture, mortgage
-5-
<PAGE>
or lease to which the Company is a party, or under which the Company or any
subsidiary or any of their respective properties or assets is bound or affected,
(ii) the certificate of incorporation of the Company, or (iii) the By-laws of
the Company; or
(iii) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Company or any
subsidiary.
(d) Consents and Approvals. Except for the approval of the Merger by
Parent as the majority shareholder of the the Company, no authorization,
consent, approval or other order of, or declaration to or filing with, any
governmental agency or body (other than filings required to be made under
applicable federal and state securities laws) or any other person, entity or
association is required for the valid authorization, execution, delivery and
performance by the Company of this Agreement. The Company has obtained all other
consents that are necessary to permit the consummation by it of the transactions
contemplated hereby and thereby.
(e) Pending Litigation, Proceedings or Investigations. Except as
disclosed in the Parent's filings with the Securities and Exchange Commission
(the "SEC") under the Securities Exchange Act of 1934, as amended (the "SEC
Filings"), there is no suit, action, claim, arbitration, litigation,
administrative or legal or other proceeding, or investigation pending, or, to
the Company's knowledge, threatened, against or related to the Company or any
Sub, whether or not fully covered by insurance which would have a material
adverse effect on the Company or its ability to execute and deliver this
Agreement and consummate the Merger.
2.2 Parent and Sub Representations. Parent and Sub hereby, jointly and
severally, represent and warrant to the Company as follows:
(a) Organization. Parent and Sub are each corporations duly organized,
validly existing and in good standing under the laws of the respective
jurisdictions of incorporation and each have all requisite corporate power and
authority to own and lease its property. Parent and Sub are each duly qualified
to transact business as a foreign corporation in each jurisdiction which would
require its qualification.
(b) Capitalization and Subsidiaries. As of August 8, 1996, the
authorized, issued and outstanding capital stock of the Parent consists of (i)
75,000,000 shares of Common Stock, of which 46,437,793 shares have been validly
issued and outstanding, fully paid and nonassessable, and (ii) 14,398,600 shares
of Preferred Stock par value $.10 purchase, of which 105,000 are issued and
outstanding. The authorized, issued and outstanding capital stock of the Sub
consists of 100 shares of Common Stock, all of which have been validly issued
and outstanding and are fully paid and nonassessable.
(c) Authorization and Enforceability. The execution, delivery and
performance by each of Parent and the Sub of this Agreement and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all requisite action on the part of Parent and the Sub. This Agreement has been
duly executed and delivered by Parent and the Sub and constitutes a valid and
binding obligation of each of the Parent and the Sub enforceable in accordance
with its respective terms, except as enforcement thereof may be limited by
fraudulent conveyance, bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by general equitable
principles and except as rights to indemnity and contribution hereunder may be
limited by applicable law. The execution, delivery and performance of this
Agreement, the execution, filing and performance of the Delaware Certificate,
and the compliance with the provisions hereof and thereof by the each of the
Parent and the Sub, will not:
(i) violate any provision of law, statute, ordinance, rule or
regulation or any ruling, writ, injunction, order, judgment or decree of any
court, administrative agency or other governmental body to which Parent and the
Sub (or their properties or assets) is subject;
(ii) conflict with or result in any breach of any of the terms,
conditions or provisions of, or constitute (with due notice or lapse of time, or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under (i) any agreement, document, instrument, contract,
understanding, arrangement, note, indenture, mortgage
-6-
<PAGE>
or lease to which the Parent or the Sub is a party, or under which the Parent or
the Sub or any of their respective properties or assets is bound or affected,
(ii) the certificate of incorporation of the Parent or the Sub, or (iii) the
By-laws of the Parent or the Sub, or
(iii) result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of the Parent or the
Sub.
(d) Consents and Approvals. Except for the approval of the Merger by
Parent as the sole shareholder of Sub, no authorization, consent approval
or other order of, or declaration to or filing with, any governmental agency or
body (other than filings required to be made under applicable federal and state
securities laws) or any other person, entity or association is required for the
valid authorization, execution, delivery and performance by Parent or the Sub of
this Agreement. Parent and the Sub have each obtained all other consents that
are necessary to permit the consummation by it of the transactions contemplated
hereby and thereby.
(e) Pending Litigation, Proceedings or Investigations. Except as
disclosed in the SEC Filings, there is no suit, action, claim, arbitration,
litigation, administrative or legal or other proceeding, or investigation
pending, or, to the Parent or Sub's knowledge, threatened, against or related to
the Parent or Sub, whether or not fully covered by insurance which would have a
material adverse effect on the Parent or the Sub, or their respective abilities
to execute and deliver this Agreement and consummate the Merger.
3. Further Assistance. From time to time, as and when required by the Surviving
Corporation or by its successors or assigns, there shall be executed and
delivered on behalf of the Company and the Sub such deeds and other instruments,
and there shall be taken or caused to be taken by all such further and other
action, as shall be appropriate, advisable or necessary in order to vest,
perfect or confirm, or record or otherwise, in the Surviving Corporation the
title to and possession of all property interests, assets, rights, privileges,
immunities, powers, franchises and authority of Sub and the Company, and
otherwise to carry out the purposes of these resolutions. The officers and
directors of the Surviving Corporation are fully authorized in the name and on
behalf of Sub and the Company or otherwise, to take any and all such action and
to execute and deliver any and all such deeds and other instruments.
4. Abandonment and Termination. The Merger may be abandoned and this Plan
terminated by the mutual consent of the Board of Directors of Parent, Sub and
the Company at any time prior to the Effective Date. In the event of the
abandonment and termination of the Merger and this Plan, this Plan shall become
void and have no effect, without any liability on the part of Parent, Sub and
the Company or the stockholders, directors or officers of any of them. In
addition, Parent shall have the right to terminate and abandon the Merger prior
to the Effective Time, which right may be exercised in its sole discretion, if
the Average Closing Price of a share of Parent Stock (as that term is defined
herein) is less than or equal to $5.86 per share (i.e., eighty percent of the
average closing price per share of Parent Common Stock as reported by the
American Stock Exchange for the 30 calendar days immediately prior to August 15,
1996).
5. Covenants.
5.1 Indemnification and Insurance.
(a) Subject to applicable law, the Company will indemnify the present
and former directors, officers, employees and agents of the Company and its
subsidiaries to the extent provided in their respective charters, codes of
regulations or bylaws, by agreement or otherwise in effect on the date hereof,
with respect to any action or omission occurring prior to the Effective Time and
will not amend, reduce or limit rights of indemnity afforded to them or the
ability of the Company to indemnify them, nor hinder, delay or make more
difficult the exercise of such rights of indemnity. For a period of two years
after the Effective Time, Parent shall use its best efforts to cause to be
maintained in effect directors' and officers' liability insurance policies
maintained by or for the benefit of IPC with at least the same dollar policy
limitation as those currently in effect (provided that Parent may substitute
therefore policies with at least substantially similar coverage) with respect to
matters occurring prior to the Effective Time.
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<PAGE>
(b) The provisions of this Section 5.1 shall be binding on any
successor entity to the Company.
5.2 Registration Statement. As soon as practicable after the date hereof,
the Parent shall prepare and file with the SEC a registration statement relating
to the Parent Stock to be issued in the Merger (the "Registration Statement").
As soon as practicable following receipt of final comments from the staff of the
SEC on the Registration Statement (or advice that such staff will not review
such filing), Parent shall use its best efforts to have the Registration
Statement declared effective by the SEC and to maintain the effectiveness of
such Registration Statement until completion of the Merger. Promptly after the
effectiveness of the Registration Statement, Parent shall mail the prospectus
forming a part of the Registration Statement to all holders of Company Common
Stock. Parent and the Company shall cooperate with each other in the preparation
of the Registration Statement and shall advise the other in writing if, at any
time prior to the Effective Time, any such party (including it's officers) shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Registration Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. Notwithstanding the foregoing, each party shall be responsible
for the information and disclosures which it makes or incorporates by reference
in all regulatory filings and the Registration Statement.
5.3 Antitakeover Statutes. The Company shall take all steps reasonably
requested by Parent for the purpose of (i) compliance with the requirements of
any state antitakeover law by action of its board of directors or otherwise and
(ii) assistance in any challenge by Parent to the applicability to the Merger of
any state antitakeover law.
5.4 Listing. Parent shall use its best efforts to list on AMEX, upon
official notice of issuance, the Parent Stock to be issued in the Merger.
6. Conditions Precedent to Merger.
6.1 Conditions Precedent to Obligations of Parent, Sub and the Company. The
respective obligations of Parent and Sub, on the one hand, and the Company, on
the other hand, to effect the Merger are subject to the satisfaction or waiver
(subject to applicable law) at or prior to the Effective Time of each of the
following conditions:
(a) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and remain in effect.
(b) Injunction. No preliminary or permanent injunction or other order
shall have been issued by any court or by any governmental or regulatory agency,
body or authority which prohibits the consummation of the Merger and which is in
effect at the Effective Time.
(c) Statutes. No statute, rule, regulation, executive order, decree or
order of any kind shall have been enacted, entered, promulgated or enforced by
any court or governmental authority which prohibits the consummation of the
Merger.
(d) AMEX. The Parent Stock, including the shares issuable in the
Merger, shall have been designated for inclusion on AMEX.
(e) Blue Sky Approvals. Parent shall have received all state
securities laws and "Blue Sky" permits and other authorizations necessary to
consummate the transactions contemplated hereby.
(f) Company Fairness Opinion. The Company shall have received an
opinion from Howard, Lawson & Co. to the effect that the Conversion Number is
fair to the Company's shareholders, from a financial point of view, and such
opinion shall not have been withdrawn as of the Effective Time.
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<PAGE>
(g) Consent of Stockholders of the Company and Sub. Parent, as the
majority stockholder of the Company and the sole stockholder of Sub, shall have
reviewed, consented to and approved the Merger in accordance with the applicable
provisions of the laws of the state of Delaware.
(h) Tax Opinion. Parent and Company shall have received an opinion
from Pepper, Hamilton & Scheetz that, subject to the qualifications and other
matters set forth therein, the Merger will be treated as a tax free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
and such opinion shall not have been withdrawn as of the Effective Date.
(i) Representations and Warranties. The representations and warranties
contained in Sections 2.1 and 2.2 shall be true and correct at and as of the
Effective Time.
7. Miscellaneous.
7.1 Survival. Only those agreements and covenants of the parties that are
applicable in whole or in part after the Effective Time shall survive the
Effective Time. All representations and warranties and other agreements and
covenants shall be deemed to be conditions of this Agreement and shall not
survive the Effective Time.
7.2 Waiver. Prior to the Effective Time, any provision of this Agreement
may be (i) waived by the party benefitted by the provision or by both parties by
a writing executed by an executive officer, or (ii) amended or modified at any
time (including the structure of the transaction) by an agreement in writing
between the parties hereto approved by their respective boards of directors.
7.3 Entire Agreement; Etc. This Agreement represents the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore or contemporaneously made. All terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Except for the provisions of Section
1.4, nothing in this Agreement is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
7.4 Assignment. This Agreement may not be assigned by any party hereto
without the written consent of the other parties, provided that Parent and Sub
may assign their rights and obligations hereunder to a direct or indirect
wholly-owned subsidiary, but no such assignment shall relieve Parent of its
obligations hereunder.
7.5 Headings. The descriptive headings of the several Articles and Sections
of this Agreement are inserted for convenience only, do not constitute a part of
this Agreement and shall not affect in any way the meaning or interpretation of
this Agreement.
7.6 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, and all of which together shall
be deemed to be one and the same instrument.
7.7 Applicable Law. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to the conflict of laws rules thereof.
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<PAGE>
7.8 Severability. If any term, provision, covenant or restriction contained
in this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void, unenforceable or against its regulatory policy,
the remainder of the terms, provisions, covenants and restrictions contained in
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of this day and year first
above written.
INTERDIGITAL COMMUNICATIONS CORPORATION
By: /s/ WILLIAM A. DOYLE
-----------------------
Name: William A. Doyle
Title: President
INTERDIGITAL PATENTS CORPORATION
By: /s/ D. RIDGELY BOLGIANO
-----------------------
Name: D. Ridgely Bolgiano
Title: Executive Vice President
IP ACQUISITION CORPORATION
By: /s/ WILLIAM A. DOYLE
-----------------------
Name: William A. Doyle
Title: President
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<PAGE>
ANNEX II
OPINION OF HOWARD, LAWSON & CO.
August 15, 1996
Board of Directors
InterDigital Patents Corporation
781 Third Avenue
King of Prussia, PA 19406
To the Members of the Board of Directors:
InterDigital Patents Corporation, a Delaware corporation, ("IPC") and
InterDigital Communications Corporation, a Pennsylvania corporation,
("InterDigital") have proposed an Agreement and Plan of Merger pursuant to which
a wholly-owned subsidiary of InterDigital will be merged with and into IPC in a
transaction (the "Merger") in which each share of IPC Common Stock not owned by
InterDigital or shareholders dissenting to the Merger will be converted into
that number of shares of the common stock of InterDigital equal to $7.33 (the
"Merger Consideration") divided by the average closing price per share of
InterDigital common stock for the 30 calendar days ending on the last trading
day prior to the date the Registration Statement or form S-4 relating to the
Merger is declared effective by the Securities and Exchange Commission.
You have asked us whether, in our opinion, the Merger Consideration is
fair, from a financial point of view, to IPC's shareholders, excluding
InterDigital.
Materials Reviewed and Activities Conducted
In arriving at our opinion, we reviewed and analyzed materials we deemed
relevant regarding the Merger, including the following:
1. Draft of the Form S-4 Registration Statement dated August 14,
1996, 1996, including the draft Agreement and Plan of Merger;
2. IPC and InterDigital, Confidential Private Placement Memorandum
dated October 1, 1992;
3. InterDigital Annual Reports and Forms 10-K for the fiscal years
ended December 31, 1992, 1993, 1994, and 1995; Form 10-Q for the
quarterly periods ended March 31, 1996 and June 30, 1996;
4. Press releases, SEC filings, and other publicly available
information regarding InterDigital and IPC;
<PAGE>
Board of Directors
InterDigital Patents Corporation
August 15, 1996
Page 2
Materials Reviewed and Activities Conducted
5. InterDigital, 1995 Goals and Budget dated December 14, 1994 and
1996 Forecasted Profit dated April 30, 1996;
6. InterDigital and subsidiaries, internal consolidating financial
statements, 1992, 1993, 1994, and 1995 and for the six months
ended June 30, 1996;
7. Historical prices and trading volume of the common shares of
InterDigital;
8. Information on IPC's patents and patent applications and
litigation regarding those patents;
9. Information on the wireless telecommunications equipment
industry, including market reports, analysts' reports, and
information on companies in the industry; and,
10. Such other information, studies, analyses, inquiries, and
investigations as we deemed appropriate for the purposes of this
opinion.
We also conducted certain other activities we deemed relevant regarding the
Merger, including meetings with certain members of IPC and InterDigital's senior
management to discuss the businesses, operations, assets, historical financial
statements, and future prospects of IPC and InterDigital including, but not
limited to their proprietary technology, development efforts, patents and patent
applications, licensing, alliance and other agreements, the prospects for the
adoption of their technology in various markets, and the status of litigation
regarding IPC's patents.
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<PAGE>
Board of Directors
InterDigital Patents Corporation
August 15, 1996
Page 2
Limiting Conditions
In rendering our opinion, we have not independently verified any of the
foregoing information provided to us by IPC and InterDigital (the "Companies")
or publicly available and we have relied on its completeness and accuracy in all
respects. We have not made independent appraisals or evaluations of the assets
of the Companies nor have we contacted any other prospective acquirers of IPC or
any of its assets. We have relied on managements' representations concerning the
Companies and the financial statements provided to us. We have also assumed that
information relating to the prospects of the Companies furnished to us by the
Companies reflects the best currently available estimates and judgments of the
managements of the Companies of the future financial performance of the
Companies and have relied upon the Companies to advise us promptly if any
information previously provided became inaccurate or was required to be updated
during the period of our review. Our opinion is necessarily based upon economic,
market and other conditions, and the information made available to us, as of the
date hereof.
We were not authorized to solicit, and did not solicit, any indications of
interest from any third party with respect to the purchase of all or part of
IPC's business. Upon advice of IPC and its legal and accounting advisors, we
assumed that the proposed merger would be tax free to IPC's shareholders.
Opinion
Based upon and subject to the foregoing, it is our opinion that the Merger
Consideration is fair, from a financial point of view, to IPC's shareholders,
excluding InterDigital.
HOWARD, LAWSON & CO.
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<PAGE>
ANNEX III
APPRAISAL RIGHTS STATUTE
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section
228 of this title shall be entitled to an appraisal by the Court of Chancery of
the fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a non-stock corporation; the words "stock" and "share"
mean and include what is ordinarily meant by those words and also membership or
membership interest of a member of a non-stock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
subsection (g) of Section 251), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware corporation.
<PAGE>
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available for
any or all of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to demand the
appraisal of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the corporation
of the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to take
such action must do so by a separate written demand as herein provided. Within
10 days after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in favor of
or consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock of
such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are available
for any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within twenty days after the date
of mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger of consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice that
such notice has been given shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation may
fix, in advance, a record date that shall be not more than 10 days prior to the
date the notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day next
preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock
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<PAGE>
of all such stockholders. Notwithstanding the foregoing, at any time within 60
days after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw his demand for appraisal and to accept the
terms offered upon the merger or consolidation. Within 120 days after the
effective date of the merger or consolidation, any stockholder who has complied
with the requirements of subsections (a) and (d) hereof, upon written request,
shall be entitled to receive from the corporation surviving the merger or
resulting from the consolidation a statement setting forth the aggregate number
of shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of
a copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. If determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or
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<PAGE>
a portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's fees
and the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 1741-1750 of the Pennsylvania Business Corporation Law of 1988 (the
"BCL"), Section 8365 of Title 42 of the Pennsylvania Consolidated Statutes
("Section 8365") and the Company's By-Laws provide for indemnification of the
Company's directors and officers and certain other persons. Under Sections
1741-1750 of the BCL, directors and officers of the Company may be indemnified
by the Company against all expenses incurred in connection with actions
(including, under certain circumstances, derivative actions) brought against
such director or officer by reason of his or her status as a representative of
the Company, or by reason of the fact that such director or officer serves or
served as a representative of another entity at the Company's request, so long
as the director or officer acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
Company. As permitted under Section 1741-1750 of the BCL and Section 8365, the
Company's By-Laws provide that the Company shall indemnify directors and
officers against all expenses incurred in connection with actions (including
derivative actions) brought against such director or officer by reason of the
fact that he or she is or was a director or officer of the Company, or by reason
of the fact that such director or officer serves or served as an employee or
agent of any entity at the Company's request, unless the act or failure to act
on the part of the director or officer giving rise to the claim for
indemnification is determined by a court in a final, binding adjudication to
have constituted willful misconduct or recklessness.
Reference is made to Item 22 of this Registration Statement for additional
information regarding indemnification of directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. Exhibits.
Exhibit
Number Exhibit Description
- -------- -------------------
2 Plan of Merger dated August 16, 1996 (included as
Annex I to Prospectus).
5 Opinion of Jane S. Schultz re: legality (To be filed
by amendment).
8 Form of Opinion of Pepper, Hamilton & Scheetz
re: tax matters.
23.01 Consents of Arthur Andersen LLP (Included on Pages
II-3 and III-4).
23.02 Consents of Pepper, Hamilton & Scheetz (To be
included in Exhibit 8).
23.03 Consent of Howard, Lawson & Co.
24 Powers of Attorney (Included on Pages II-5 and II-6).
99.01 Letter to InterDigital Patents Corporation
Stockholders.
99.02 Letter of Transmittal.
B. Financial Statement Schedules - Not Applicable
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
A. 1. The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
2. The Registrant undertakes that every prospectus (I) that is filed
pursuant to paragraph (1) immediately preceding, or (II) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person of the
Registrant in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against the public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
D. The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
E. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-2
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterDigital Communications Corporation:
As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-4 Registration Statement of our report dated March
26, 1996, included in the InterDigital Communications Corporation's Form 10-K
for the year ended December 31, 1995, and to all references to our Firm included
in this Registration Statement.
Arthur Andersen LLP
Philadelphia, Pa.,
August 15, 1996
II-3
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterDigital Communications Corporation:
As independent public accountants, we hereby consent to the use of our
report, dated August 14, 1996, related to the consolidated financial statements
of InterDigital Patents Corporation and Subsidiary as of December 31, 1995 and
for the year then ended and all references to our Firm included in or made a
part of this S-4 Registration Statement.
Arthur Andersen LLP
Philadelphia, Pa.,
August 15, 1996
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in King of Prussia, Pennsylvania, on
August 20, 1996.
InterDigital Communications Corporation
By: /s/ William A. Doyle
----------------------------------------------
William A. Doyle, President and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints William A. Doyle, Howard E. Goldberg and
James W. Garrison, and each or any of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their, his or her substitutes
or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Date: August 20, 1996 /s/ William A. Doyle
-----------------------------------------------
William A. Doyle, President and Director
Date: August 20, 1996 /s/ James W. Garrison
-----------------------------------------------
James W. Garrison, Vice President, Chief
Financial Officer and Treasurer, the principal
financial officer and principal accounting
officer
[EXECUTIONS CONTINUED]
II-5
<PAGE>
Date: August 20, 1996 /s/ Harry Campagna
-----------------------------------------------
Harry Campagna, Director
Date: August 20, 1996 /s/ D. Ridgely Bolgiano
-----------------------------------------------
D. Ridgely Bolgiano, Director
Date: August 20, 1996 /s/ Barney J. Cacioppo,
-----------------------------------------------
Barney J. Cacioppo, Director
Date: August 20, 1996 /s/ Harley L. Sims
-----------------------------------------------
Harley L. Sims, Director
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description Page Number
- -------- ------------------- -----------
2 Plan of Merger dated August 16, 1996 (included
as Annex I to Prospectus).
5 Opinion of Jane S. Schultz re: legality (To be
filed by amendment).
8 Form of Opinion of Pepper, Hamilton & Scheetz re: tax
matters.
23.01 Consents of Arthur Andersen LLP (Included on
Pages II-3 and III-4).
23.02 Consents of Pepper, Hamilton & Scheetz (To be
included in Exhibit 8).
23.03 Consent of Howard, Lawson & Co.
24 Powers of Attorney (Included on Page II-5 and
II-6).
99.01 Letter to InterDigital Patents Corporation
Stockholders.
99.02 Letter of Transmittal.
________ __, 1996
InterDigital Communications Corporation
InterDigital Patents Corporation
781 Third Avenue
King of Prussia, PA 19406-1409
Ladies and Gentlemen:
You have requested our opinion regarding certain federal
income tax consequences of the proposed merger (the "Merger") of IP Acquisition
Corporation ("Merger Co."), a Delaware corporation and a wholly owned subsidiary
of InterDigital Communications Corporation, ("InterDigital"), a Pennsylvania
corporation with and into InterDigital Patents Corporation ("IPC"), a Delaware
corporation, approximately ninety-four percent (94%) of the stock of which is
owned by InterDigital, under the circumstances and on the terms and conditions
more fully described herein.
The terms of the Merger are contained in the Agreement and
Plan of Merger dated as of August 16, 1996 (the "Plan of Merger"). Terms not
otherwise defined in this letter shall have the meanings assigned to them in the
Plan of Merger.
You have directed us to assume in preparing this opinion that
(1) the Merger will be consummated in accordance with the terms, conditions and
other provisions of the Plan of Merger, and (2) all of the factual information,
descriptions, representations and assumptions set forth in this letter (an
advance copy of which has been provided to you), in the Plan of Merger, in the
letters to us from IPC dated ________ __, 1996, and from InterDigital dated
________ __, 1996 (collectively, the "Letters," copies of which are attached
hereto), and in the Prospectus pertaining to the Merger (the "Prospectus") as
filed with the Securities and Exchange Commission, are accurate and complete and
will be accurate and complete at the time the Merger becomes effective (the
"Effective Time"). We have not independently verified any factual matters
relating to the Merger in connection with our preparation of this opinion and,
<PAGE>
InterDigital Communications Corporation
Page 2
______ __, 1996
accordingly, our opinion does not take into account any other matters not set
forth herein which might have been disclosed by independent verification.
I. PARTIES TO THE MERGER
1. InterDigital
InterDigital is a corporation which was organized under the
laws of the Commonwealth of Pennsylvania in 1972. Its principal office is
located at 781 Third Avenue, King of Prussia, PA 19406. InterDigital 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 these technologies.
InterDigital owns one hundred percent (100%) of the issued and
outstanding common stock of MergerCo and approximately ninety-four (94%) of the
issued and outstanding common stock of IPC. InterDigital's stock ownership of
IPC resulted from the following transactions: In February 1992, InterDigital
transferred all of its patents, patent applications, and rights to file patent
applications on certain future inventions to InterDigital Technology
Corporation, a Delaware corporation ("ITC") in exchange for all of the issued
and outstanding common stock of ITC. In October 1992, InterDigital transferred
all of its ITC common stock to IPC in exchange for all of the issued and
outstanding common stock of IPC. Later that year, IPC engaged in a private
offering of approximately six percent (6%) of IPC common stock, thereby leaving
InterDigital owning approximately ninety-four percent (94%) of the issued and
outstanding common stock of IPC. None of the IPC common stock held by
InterDigital was acquired by Interdigital or an affiliate of InterDigital in
contemplation of the Merger or at any time during which discussions relating to
the Merger were taking place.
2. IPC
IPC was incorporated in Delaware in 1992. Its principal office
is located at 781 Third Avenue, King of Prussia, PA 19406. The issued and
outstanding common stock of IPC is held ninety-four percent (94%) by
InterDigital and the remaining six percent (6%) by various investors.
The sole activity of IPC is to own and manage its
investment in all of the issued and outstanding common stock of
<PAGE>
InterDigital Communications Corporation
Page 3
______ __, 1996
ITC. As discussed above, IPC acquired all of the outstanding common stock of ITC
from InterDigital in 1992 in exchange for all of its issued and outstanding
common stock. In 1992, IPC engaged in a private offering of approximately six
percent (6%) of IPC common stock.
Immediately prior to the Merger, IPC will have one option
outstanding for the purchase of 262,625 shares of IPC common stock which option
is held by Robert S. Bramson, a former employee of IPC (the "Bramson Option").
Mr Bramson, InterDigital, and IPC have agreed that Mr. Bramson will fully
exercise such option immediately prior to the Merger. The shares of IPC common
stock issued upon exercise of the option shall be deemed outstanding at the
Effective Time and shall be entitled to participate in the Merger. Except for
the Bramson Option, there are no outstanding options or warrants to purchase IPC
common stock and there are no outstanding securities, stock or other instruments
convertible into IPC common stock.
3. MergerCo
MergerCo is a newly organized Delaware corporation created for
the sole purpose of facilitating, by virtue of the Merger, InterDigital's
acquisition of the six percent (6%) of IPC common stock held by various
investors. The authorized capital of MergerCo consists of 100 shares of common
stock, par value $.01 per share, all of which are issued and outstanding and
owned by InterDigital. MergerCo does not and will not have any assets (other
than the minimum assets required for state law capitalization purposes) or
liabilities or engage in any activities other than those incident to its
formation and capitalization and the Merger.
II. THE MERGER
Pursuant to the Plan of Merger, MergerCo will be merged, in
accordance with the applicable provisions of the Delaware General Corporation
Law (the "DCL"), with and into IPC, with IPC as the surviving corporation. Under
Delaware law, since InterDigital owns in excess of ninety percent (90%) of the
outstanding common stock of IPC and IPC will be the surviving entity in the
Merger, the approvals of the boards of directors of MergerCo and IPC are
required as is the approval of InterDigital, as the sole stockholder of MergerCo
and the majority stockholder of IPC. Except for these approvals, no further
action is required to approve or effect the Merger including any action by
<PAGE>
InterDigital Communications Corporation
Page 4
______ __, 1996
the stockholders of InterDigital. No proxies are being solicited in connection
with the Merger.
Stockholders of record of IPC common stock have the right
under Section 253 of the DCL to dissent from the merger and may exercise
appraisal rights provided that they comply with the conditions established by
Section 262 of the DCL. Stockholders of IPC who comply with the requirements of
Section 262 of the DCL may elect to receive the fair cash value of their shares
of IPC common stock.
At the Effective Time:
1. all assets and liabilities of MergerCo will be transferred
by operation of law to IPC;
2. the separate corporate existence of MergerCo will cease;
3. each share of MergerCo's common stock issued and
outstanding immediately prior to the Effective Time will be canceled and cease
to exist;
4. each outstanding share of IPC common stock, other than
Excluded Shares, will be converted into the right to receive the Merger
Consideration, subject to adjustment as described in the Plan of Merger and the
Prospectus. "Excluded Shares" shall mean those shares of IPC common stock held
by InterDigital and shares of IPC common stock held by stockholders who perfect
their appraisal rights under Delaware law;
5. assuming the Average Closing Price of a share of Parent
Stock equals $7.33, approximately 1,637,625 shares of InterDigital Common Stock
will be issued in the Merger to the holders of IPC common stock other than the
holders of Excluded Shares (the "Investors") (assuming the exercise of the
Bramson Option), representing approximately 3.4% of the shares of
InterDigital Common Stock to be issued and outstanding immediately after the
consummation of the Merger based on the shares outstanding as of August 8, 1996;
and
6. shares of IPC common stock held by persons who perfect
their appraisal rights shall become the right to receive from IPC cash in an
amount equal to the fair value of their shares as determined in accordance with
Delaware law.
<PAGE>
InterDigital Communications Corporation
Page 5
______ __, 1996
In the event that during the period commencing on the date of
the Plan of Merger and ending at the Effective Time, the outstanding shares of
InterDigital Common Stock shall have been increased, decreased or changed into
or exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in InterDigital's capitalization, without InterDigital's
receiving consideration therefor, then, an appropriate and proportionate
adjustment shall be made in the number and kind of shares of InterDigital Common
Stock to be delivered to the Investors pursuant to the Plan of Merger.
No fractional shares of InterDigital Common Stock will be
issued in the Merger. Each Investor who otherwise would be entitled to receive a
fraction of a share of InterDigital Common Stock, instead, will receive from
InterDigital an amount of cash equal to the Fair Market Value (as defined in the
Plan of Merger) of one share of InterDigital Common Stock multiplied by the
fractional share in question.
Except for cash paid to dissenters and cash exchanged in lieu
of issuing fractional shares of InterDigital Common Stock, no cash will be
exchanged for shares of IPC common stock or shares of MergerCo common stock
pursuant to the Merger. IPC will provide the funds to pay dissenters out of the
post-Merger cash flow from its operations. No portion of the funds used to pay
dissenters will be derived, directly or indirectly, from InterDigital, MergerCo,
or any of their affiliates, nor will InterDigital, MergerCo, or any of their
affiliates, directly or indirectly, reimburse IPC for payments to dissenters.
Except for the Bramson Option, described above, there are no
options or warrants to purchase IPC common stock, and no securities or other
instruments convertible into IPC common stock will be outstanding at the
Effective Time.
III. Representations and Assumptions
We also have relied with your permission on the following
additional representations and/or assumptions:
1. MergerCo was organized by InterDigital under the laws of
Delaware solely in order to effect the Merger.
2. MergerCo has not engaged in any activities other than those
incident to its formation.
<PAGE>
InterDigital Communications Corporation
Page 6
______ __, 1996
3. The Merger will be effected for bona fide business reasons.
4. To the best of the knowledge of the management of IPC, the
fair market value of the InterDigital Common Stock received by each Investor in
the Merger will be approximately equal to the fair market value of the IPC
common stock exchanged pursuant to the Merger.
5. To the best of the knowledge of the management of IPC and
InterDigital, there is no plan or intention by the Investors to sell, exchange,
or otherwise dispose of a number of shares of InterDigital Common Stock received
in the Merger that would reduce the Investors' ownership of InterDigital Common
Stock to a number of shares having a value, as of the date of the Merger, of
less than 50% of the value of all of the formerly outstanding common stock of
IPC held by the Investors as of the same date.
6. Prior to the Merger, InterDigital will be in control of
MergerCo within the meaning of Code Section 368(c).1
7. Immediately following the Merger, InterDigital will own
directly all of the issued and outstanding capital stock of IPC and therefore,
InterDigital will be in control of IPC as defined in Code Section 368(c).
8. IPC has no plan or intention to issue additional shares of
its stock that would result in InterDigital losing control of IPC within the
meaning of Code Section 368(c).
9. InterDigital has no plan or intention to liquidate IPC; to
merge IPC into another corporation; to cause IPC to sell or otherwise dispose of
any of its assets, except for dispositions made in the ordinary course of
business; or to sell or otherwise dispose of any of the IPC common stock
acquired in the Merger, except for transfers described in Code Section
368(a)(2)(C).
10. InterDigital has no plan or intention to reacquire any of
its stock issued in the Merger. InterDigital may make purchases of shares of its
stock on the American Stock Exchange or otherwise. It is possible that
InterDigital might so purchase
- --------
1. All references herein to the "Code" are to the Internal Revenue Code of 1986,
as amended, unless otherwise indicated.
<PAGE>
InterDigital Communications Corporation
Page 7
______ __, 1996
shares issued to the Investors pursuant to the Merger, but any such purchases
would be made without actual knowledge by InterDigital that the seller is a
former IPC stockholder.
11. InterDigital, MergerCo, IPC and the stockholders of IPC
will pay their respective expenses, if any, incurred in connection with the
Merger.
12. InterDigital will acquire IPC common stock solely in
exchange for InterDigital voting stock. For purposes of this representation, IPC
common stock redeemed for cash or other property furnished by InterDigital will
be considered as acquired by InterDigital. Further, no liabilities of IPC or IPC
stockholders will be assumed by InterDigital, nor will any of the IPC common
stock be subject to any liabilities.
13. There is no intercorporate indebtedness existing between
InterDigital and IPC or between MergerCo and IPC that was issued or acquired, or
will be settled, at a discount.
14. MergerCo will have no liabilities assumed by IPC in the
Merger, nor will MergerCo transfer to IPC any assets subject to liabilities
pursuant to the Merger other than those liabilities related to its obligations
under the Plan of Merger.
15. At the Effective Time, IPC will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in IPC that, if exercised or converted,
would affect InterDigital's retention of control of IPC, as defined in Code
Section 368(c).
16. InterDigital currently owns approximately 94% of the
issued and outstanding IPC common stock. InterDigital's ownership of such stock
resulted from the following transactions: In February 1992, InterDigital
transferred all of its patents, patent applications, and rights to file patent
applications on certain future inventions to ITC in exchange for all of the
issued and outstanding common stock of ITC. In October 1992, InterDigital
transferred all of its ITC common stock to IPC (a newly formed corporation) in
exchange for all of the issued and outstanding common stock IPC. Later that
year, IPC and InterDigital engaged in a private offering of approximately six
percent (6%) of IPC common stock, thereby leaving InterDigital owning
approximately ninety-four percent (94%) of the issued and outstanding common
stock of IPC.
<PAGE>
InterDigital Communications Corporation
Page 8
______ __, 1996
17. The IPC common stock held by InterDigital was not acquired
as part of, in connection with, or in contemplation of the Merger.
18. Following the Merger, IPC will continue its historic
business and use a significant portion of its historic business assets in a
business.
19. No two parties to the Merger are investment companies as
defined in Code Sections 368(a)(2)(F)(iii) and (iv).
20. IPC will pay its dissenting stockholders the value of
their stock out of its own funds. No funds will be supplied for that purpose,
directly or indirectly, by InterDigital or any person affiliated with
InterDigital, nor will InterDigital or any person affiliated with InterDigital,
directly or indirectly, reimburse IPC for any payments to dissenters.
21. At the Effective Time, the fair market value of the assets
of IPC will exceed the sum of its liabilities (including, without limitation,
any liabilities to which its assets are subject).
22. No dividends or distributions will be made with respect to
any IPC common stock prior to the Merger. After the Merger, no dividends or
distributions will be made to the former IPC stockholders by InterDigital, other
than dividend distributions made with regard to all shares of InterDigital
Common Stock.
23. None of the compensation received by any
stockholder-employee of IPC will be separate consideration for, or allocable to,
any of their shares of IPC common stock. The compensation paid to any
stockholder-employee of IPC will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services. None of the InterDigital Common Stock received in the Merger
by any stockholder-employee of IPC in exchange for his IPC common stock will be
in exchange for, or in consideration of, services rendered to InterDigital, IPC
or any other entity by such stockholder-employee.
24. The payment of cash in lieu of fractional shares of
InterDigital Common Stock is solely for the purpose of avoiding the expense and
inconvenience to InterDigital of issuing fractional shares and does not
represent separately bargained-for consideration. In addition, this cash payment
will not be made
<PAGE>
InterDigital Communications Corporation
Page 9
______ __, 1996
pro rata either to all IPC stockholders or to all InterDigital stockholders. The
total cash consideration that will be paid in the Merger to the Investors in
lieu of issuing fractional shares of InterDigital Common Stock will not exceed
one percent (1%) of the total consideration that will be issued in the Merger to
the Investors in exchange for their shares of IPC common stock. The fractional
share interests of each IPC stockholder will be aggregated, and no Investor will
receive cash in an amount equal to or greater than the value of one full share
of InterDigital Common Stock.
IV. OPINION
Assuming that the Merger is consummated in accordance with the
terms and conditions set forth in the Plan of Merger and based on the facts set
forth in the Letters and this letter (including all assumptions and
representations) and subject to the qualifications and other matters set forth
herein, it is our opinion that for federal income tax purposes the Merger will
be treated as a reorganization within the meaning of Code Section 368(a), and
therefore, will have the following material federal income tax consequences:
1. No gain or loss would be recognized by any of IPC, MergerCo
or InterDigital as a result of the Merger. Code Sections 354, 361 and 1032. See
also, Rev. Rul. 67-448, 1967-2 C.B. 144.
2. No gain or loss would be recognized by an Investor upon the
receipt of InterDigital Common Stock in exchange for IPC common stock in the
Merger, except as discussed below with respect to cash received in lieu of a
fractional share interest in InterDigital Common Stock. Code Section 354.
3. The aggregate adjusted tax basis of the shares of
InterDigital Common Stock to be received by an Investor in the Merger would be
the same as the aggregate adjusted tax basis in the shares of IPC common stock
surrendered in exchange therefor.
Code Section 358.
4. The holding period under the Code of the shares of
InterDigital Common Stock to be received by the Investors in the Merger would
include the holding period of the shares of IPC common stock surrendered in
exchange therefor, provided that such shares of IPC common stock are held as
capital assets at the Effective Time. Code Section 1223.
<PAGE>
InterDigital Communications Corporation
Page 10
______ __, 1996
It is our further opinion that an Investor who receives cash
in the Merger in lieu of a fractional share interest in InterDigital Common
Stock will be treated for federal income tax purposes as having received cash in
redemption of such fractional share interest. Such redemption will be subject to
the conditions and limitations of Code Section 302, including the attribution
rules of Code Section 318. Subject to the discussion of Code Section 318 below,
the receipt of such cash generally should result in capital gain or loss in an
amount equal to the difference between the amount of cash received and the
portion of such Investor's adjusted tax basis in the shares of IPC common stock
allocable to the fractional share interest. Such capital gain or loss will be
long-term capital gain or loss if the Investor holds the shares as capital
assets and the holding period for the fractional shares of InterDigital Common
Stock deemed to be received and then redeemed is more than one year.
It also is our opinion that a holder of shares of IPC common
stock who perfects dissenters' rights under the laws of the State of Delaware
and who receives a cash payment of the fair market value of his shares of IPC
common stock will be treated as having received such payment in redemption of
such shares. Such redemption will be subject to the conditions and limitations
of Code Section 302, including the attribution rules of Code Section 318. In
general, if, at the Effective Time, a dissenting stockholder solely owns
(actually or constructively) shares of IPC common stock as a capital asset, the
dissenting stockholder will recognize capital gain or loss measured by the
difference between the amount of cash received by such holder and the basis for
such shares. If, however, such holder owns, either actually or constructively,
any other IPC common stock or InterDigital Common Stock, the payment made to
such holder could be treated as a dividend. In general, under the constructive
ownership rules of the Code, a holder may be considered to own stock that is
owned, and in some cases constructively owned, by certain related individuals or
entities, as well as stock that such holder (or related individuals or entities)
has the right to acquire by exercising an option or converting a convertible
security.
Our opinion is limited to the foregoing federal income tax
consequences of the Merger, which are the only matters as to which you have
requested our opinion. We have not addressed any other federal income tax
consequences of the Merger other than those specifically set forth herein and we
have not considered any matters (including state or local tax consequences)
arising under the laws of any jurisdiction other than matters of federal
<PAGE>
InterDigital Communications Corporation
Page 11
______ __, 1996
law arising under the laws of the United States as expressly set
forth herein.
Our opinion is based on the understanding that the relevant
facts are, and will be at the Effective Time, as set forth or referred to in
this letter. If this understanding is incorrect or incomplete in any respect,
our opinion could be affected. Our opinion is based on the facts and
representations as expressed herein.
Our opinion is based upon existing law, including the
provisions of the Code, Treasury Regulations promulgated thereunder, current
administrative rulings and practices of the Internal Revenue Service, case law,
and judicial decisions interpreting the same, none of which squarely addresses
every precise factual circumstance present in the connection with the Merger but
all of which, taken together, in our opinion provide a sufficient legal basis
for our opinions set forth herein. The possibility exists, however, that our
opinion as to the proper application of the law to the facts of the Merger would
not be accepted by the Internal Revenue Service or would not prevail in court.
In addition, the authorities upon which we have relied are all
subject to change and such change may be made with retroactive effect. No
assurances can be provided as to future judicial interpretations of these laws
or their effect on this opinion. We are not hereby undertaking to advise you as
to any changes in the law, facts, or circumstances which may hereafter occur or
come to our attention. No assurance can be provided that after any such change
our opinion would not be different. Further, we undertake no responsibility and
are under no obligation to update or supplement our opinion at any future time
nor render any further opinion to you.
Only InterDigital and IPC may rely on this opinion, and only
with respect to the Merger.
We hereby consent to the filing with the Securities and
Exchange Commission of this opinion as an exhibit to InterDigital's Registration
Statement on Form S-4 relating to shares of InterDigital Common Stock that may
be issued in connection with the Merger and to the reference to our firm under
the headings "Summary -- Certain Federal Income Tax Consequences" and "Certain
Federal Income Tax Consequences of the Merger" in
<PAGE>
InterDigital Communications Corporation
Page 12
______ __, 1996
the Prospectus. In giving such consent, we do not thereby admit that we are in
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Very truly yours,
PEPPER, HAMILTON & SCHEETZ
---------------------------------
Lisa Petkun, a Partner
CONSENT OF HOWARD, LAWSON & CO.
To InterDigital Patents Corporation:
We hereby consent to the inclusion in this Registration Statement on Form
S-4 of our opinion dated August 15, 1996 and to all references to our Firm
included in this Registration Statement.
Howard, Lawson & Co.
Philadelphia, PA
August 15, 1996
INTERDIGITAL PATENTS CORPORATION
781 Third Avenue
King of Prussia, PA 19406-1409
To Our Stockholders:
On August 15, 1996, the respective boards of directors of InterDigital
Patents Corporation, a Delaware corporation ("IPC"), InterDigital Communications
Corporation, a Pennsylvania corporation ("InterDigital"), and IP Acquisition
Corporation, a Delaware corporation and a wholly-owned subsidiary of
InterDigital ("MergerCo"), each unanimously approved and adopted an Agreement
and Plan of Merger (the "Plan of Merger"), providing for the merger of MergerCo
with and into IPC (the "Merger"), with IPC being the surviving corporation in
the Merger (the "Surviving Corporation"), and the issuance of InterDigital
common stock to you in exchange for your IPC common stock. Enclosed is a copy of
a Prospectus prepared by InterDigital relating to the shares of InterDigital
common stock to be issued to you in connection with the Merger. Please read it
carefully as it describes certain information relating to InterDigital and IPC,
including certain risk factors. A copy of the Plan of Merger is attached as
Annex I to the enclosed Prospectus.
At the effective time of the Merger, which will occur on or about ________
__, 1996 upon the filing of a Certificate of Merger in Delaware (the "Effective
Time"), each outstanding share of IPC common stock, par value $.001 per share,
other than shares of IPC common stock held by InterDigital, and other than
shares of IPC common stock held by stockholders who perfect their appraisal
rights under Delaware law, will be converted into that number of shares of
Common Stock of InterDigital (the "Merger Consideration") equal to (i) $7.33
divided by (ii) the average closing price per share of InterDigital Common Stock
as reported by the American Stock Exchange for the 30 calendar days ending on
the last trading day prior to the date the Registration Statement on Form S-4
relating to the Merger is declared effective by the Securities and Exchange
Commission (the "Average Price"). Investors will not be entitled to receive
fractions of shares of InterDigital Common Stock ("Fractional Shares") but,
instead, will receive a cash payment in lieu of Fractional Shares in an amount
equal to the Average Price multiplied by the Fractional Share in question. Only
the approval of InterDigital as the majority stockholder of IPC and the sole
stockholder of MergerCo is required to effect the Merger. This is not a
solicitation of a proxy and you are requested not to send us a proxy.
In making its determination to approve the Merger, the Board of Directors
of IPC (the "Board") considered the fairness of the terms and conditions of the
Merger and the Merger Consideration. In connection with such consideration, the
Board retained Howard, Lawson & Co. ("Howard Lawson") to act as its financial
advisor. A copy of Howard Lawson's written opinion as to the fairness, from a
financial point of view, to IPC's stockholders (other than MergerCo) of the
Merger Consideration to be received by such stockholders, is included as Annex
II to the Prospectus. The Board also engaged the law firm of Archer & Griener, a
Professional Corporation to advise the Board as to certain legal issues.
This letter and the accompanying Prospectus shall also serve as notice
under Section 262 of the General Corporation Law of Delaware (the "DCL") that,
in lieu of accepting the Merger Consideration, you may seek to have the "fair
value" of the shares of IPC common stock held by you at the Effective Time to be
judicially determined and to have such value to be paid to you in cash. To do
so, you must comply with the requirements of Section 262 of the DCL, a copy of
which is attached as Annex III to the Prospectus. Your attention is directed to
the section of the Prospectus entitled "Terms of the Merger - Appraisal Rights"
for a more complete discussion of the foregoing statutory rights under Delaware
law.
In order to receive the Merger Consideration, please complete the enclosed
Letter of Transmittal and return it to InterDigital, together with your original
certificates representing shares of IPC common stock. If you are unable to
locate your original IPC stock certificates, please follow the instructions in
the Letter of Transmittal under the caption "Lost Certificates."
Sincerely yours,
D. Ridgely Bolgiano, Chairman of the Board and
Executive Vice President
Enclosure ____________, 1996
LETTER OF TRANSMITTAL
To Accompany Certificate(s) Formerly Representing
Shares of Common Stock, $.001 Par Value
of
INTERDIGITAL PATENTS CORPORATION
surrendered for payment as described within
pursuant to the merger with
IP ACQUISITION CORPORATION
a wholly owned subsidiary of
INTERDIGITAL COMMUNICATIONS CORPORATION
To: InterDigital Communications Corporation
By Mail or Hand Delivery: By Facsimile:
InterDigital Communications Corp. (610) 992-9432
781 Third Avenue ______________
King of Prussia, PA 19406-2755 Confirm by Telephone:
Attn: Jane Schultz (610)878-7800
Delivery of this instrument to an address other than as set
forth above does not constitute a valid delivery.
The Instructions accompanying this Letter of Transmittal
should be read carefully before this Letter of Transmittal is
completed.
This Letter of Transmittal is to be completed, signed and
mailed or delivered by Stockholders (as defined below) together with stock
certificates to InterDigital Communications Corporation (the "Paying Agent").
See Instruction 2.
- -------------------------------------------------------------------------------
DESCRIPTION OF SHARE CERTIFICATES ENCLOSED
- -------------------------------------------------------------------------------
Name(s) and Address(es) of Certificate(s) Enclosed
Registered Holder(s) (Attach Additional List If Necessary)
- -------------------------------------------------------------------------------
Certificate Number of
Number(s) Shares
----------- ---------
---------
Total Shares:
Tax Identification or Social Security No.
- -------------------------------------------------------------------------------
/__/ Check here if any of your certificates have been lost, stolen, mutilated
or destroyed. See Instruction 8.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
STOCKHOLDER(S) AGREEMENT
Gentlemen:
The stockholder(s) whose signature(s) appear(s) on this Letter
of Transmittal (the "Stockholder") hereby surrenders to you, in connection with
the merger (the "Merger") of IP Acquisition Corporation (the "MergerCo"), a
Delaware corporation and a wholly owned subsidiary of InterDigital
Communications Corporation ("Parent"), a Pennsylvania corporation, with and into
InterDigital Patents Corporation (the "Company"), a Delaware corporation, the
certificate(s) listed above, which prior to the Merger represented shares of
common stock, $.001 par value (the "Shares") of the Company, in exchange for
_____ shares of Common Stock of Parent. The terms of the Merger are described in
the Agreement and Plan of Merger dated as of August 16, 1996, among Parent, the
MergerCo and the Company (the "Merger Agreement"). This Letter of Transmittal is
provided for in the Merger Agreement. By delivery of this Letter of Transmittal,
the undersigned hereby forever waives all appraisal rights under applicable
Delaware law and withdraws all written demands for appraisal, if any, with
respect to the Shares listed above.
The Stockholder hereby acknowledges receipt of a notice of the
Merger from Parent. The Stockholder hereby represents and warrants that the
Stockholder has full power and authority to surrender the certificate(s) being
transmitted herewith and that such certificate(s) are free and clear of all
liens, restrictions, charges and encumbrances and are not subject to any adverse
claims. The Stockholder hereby acknowledges that delivery of the enclosed
certificate(s) shall be effected and risk of loss and title to such
certificate(s) shall pass only upon proper delivery thereof to you.
All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the Stockholder, and any obligation of the
Stockholder hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the Stockholder.
Subject to the Merger Agreement and the proper completion of
this Letter of Transmittal, the Paying Agent, unless otherwise indicated herein
under "Special Payment Instructions" or "Special Delivery Instructions," is
hereby authorized to issue all Certificates of Common Stock of Parent in the
name of the registered holder(s) set forth above and to mail such certificates
to the address of the registered holder(s) set forth above.
-2-
<PAGE>
Please check the appropriate boxes below and complete the
corresponding items. If no boxes are checked, all certificates will be issued in
the name of the registered holder(s) set forth above and delivered to the
address of the registered holder(s) set forth above.
- -------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS (See Instructions 1, 4, 5 and 6)
To be completed ONLY if the certificates of Common Stock of Parent to be issued
in exchange for the Shares surrendered herewith are to be issued in the name of
someone other than the registered holder(s).
/__/ Issue certificate(s) to:
Name ________________________________
(Please Print)
Address _____________________________
_____________________________________
(Zip Code)
_____________________________________
(Taxpayer Identification or Social
Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 4, 5 and 6)
To be completed ONLY if the Certificates of Common Stock of Parent to be issued
in exchange for the Shares surrendered herewith are to be issued in the name of
the registered holder(s), and mailed to someone other than the registered
holder(s), or to an address other than that of the registered holder(s) set
forth above.
/__/ Mail certificate(s) to:
Name _______________________________
(Please Print)
Address ____________________________
____________________________________
(Zip Code)
- -------------------------------------------------------------------------------
The undersigned represents that he is the Stockholder as described above and
that he has read and agrees to all of the terms and conditions of the
Stockholder's agreements set forth above.
-3-
<PAGE>
SIGNATURE(S) OF STOCKHOLDER(S)
(Please Complete the Substitute W-9 Form attached,
and see the Guarantee requirements below.)
SIGN HERE: ___________________________________________________________________
SIGN HERE: ___________________________________________________________________
Additional Stockholder(s)
SIGN HERE: ___________________________________________________________________
Additional Stockholder(s)
Date: ____________________, 19__
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please provide the following information. See Instruction 4.)
Name(s) ______________________________________________________________________
______________________________________________________________________
______________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity (full title) ________________________________________________________
Address ______________________________________________________________________
______________________________________________________________________________
(zip code)
Area Code and
Telephone No. ________________________________________________________________
Taxpayer Identification or
Social Security No. __________________________________________________________
Guarantee of Signature(s)
(See Instructions 1 and 4)
Name of Firm _________________________________________________________________
Address of Firm ______________________________________________________________
Authorized Signature _________________________________________________________
Title ________________________________________________________________________
Title ________________________________________________________________________
Dated: ___________________, 19__.
-4-
<PAGE>
INSTRUCTIONS
1. Guarantee of Signatures. Signatures on this Letter of
Transmittal or facsimile copies must be guaranteed by a firm which is a member
of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
located in the Untied States (each an "Eligible Institution"), EXCEPT in cases
where certificates formerly representing Shares are surrendered (a) by a
registered holder who has not completed the "Special Payment Instructions" box
or the "Special Delivery Instructions" box or (b) for the account of an Eligible
Institution. See Instruction 4.
2. Delivery of Letter of Transmittal and Certificates. This
Letter of Transmittal (or facsimile thereof) is to be completed by Stockholders
in accordance with the Instructions set forth herein. Certificates formerly
representing Shares together with a Letter of Transmittal (or facsimile thereof)
which has been properly completed and duly executed and any other documents
required by this Letter of Transmittal must be received by the Paying Agent.
The method of delivery of certificates for Shares and all
other required documents is at the option and risk of the Stockholder. If
certificates for Shares are sent by mail, registered mail with return receipt
requested, properly insured, is recommended.
3. If the space provided herein is inadequate, the certificate
numbers and/or the number of Shares should be listed on a separate signed
schedule attached hereto.
4. Signatures on Letter of Transmittal: Stock Powers and
Endorsements. If this Letter of Transmittal is signed by the registered
holder(s) of the certificates surrendered hereby, the signature(s) must
correspond with the name(s) of such registered holder(s) as written on the face
of the certificates without alteration, enlargement or any change whatsoever.
If any of the certificates surrendered hereby are held of
record by two or more persons, all such persons must sign this Letter of
Transmittal.
If any of the certificates surrendered hereby are registered
in different names on different certificates, it will be necessary to complete,
sign and submit as many separate Letters of Transmittal or facsimile copies as
there are different registrations of certificates.
-5-
<PAGE>
If this Letter of Transmittal is signed by the registered
holder(s) of the certificate(s) listed above and transmitted herewith, no
endorsements of certificates or separate stock powers are required. If this
Letter of Transmittal is signed by a person other than the registered holder(s)
of the certificate(s) listed, certificate(s) must be endorsed or accompanied by
appropriate stock powers, in either case, signed exactly as the name(s) of the
registered holder(s) appears(s) on the certificates.
If this Letter of Transmittal or any certificate or stock
power is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to Paying Agent of the authority of such person so
to act must be submitted.
5. Stock Transfer Taxes. Parent will pay all stock transfer
taxes, if any, imposed by any state tax law with respect to the surrender of any
certificates pursuant to this Letter of Transmittal. If, however, a certificate
for the Common Stock of Parent is to be issued for certificates formerly
representing Shares surrendered herewith in the name of any person other than
the registered holder(s), the amount of any stock transfer taxes (whether
imposed on the registered holder(s), such other person or otherwise) payable on
account of the transfer to such person will be deducted from the amount to be
paid for such certificates unless satisfactory evidence of the payment of such
taxes, or exemption therefrom, is submitted to the Paying Agent.
6. Special Payment and Delivery Instructions. If a certificate
of Common Stock of Parent is to be issued for certificates formerly representing
Shares surrendered herewith in the name of a person other than the registered
holder(s) or if such certificate of Common Stock of Parent to be issued for
certificates formerly representing Shares surrendered herewith are to be sent to
someone other than the registered holder(s) or to the registered holder(s) at an
address other than that of the registered holder(s) as shown above, the
appropriate boxes on this Letter of Transmittal should be completed.
7. Requests for Assistance or Additional Copies. Requests for
assistance may be made or additional copies of this Letter of Transmittal may be
obtained from the Paying Agent at the address or telephone numbers set forth
herein.
8. Lost Certificates. In the event that the Stockholder is
unable to deliver to the Paying Agent certificate(s) formerly representing his
or her Shares due to the mutilation, loss, theft or destruction of such
certificate(s), the Stockholder should notify the Paying Agent of this fact
-6-
<PAGE>
promptly. The Paying Agent will instruct the Stockholder as to the steps to
be taken.
9. Substitute Form W-9. Under the federal income tax laws, the
Paying Agent will be required to withhold 20% of the amount of any payments made
to certain Stockholders pursuant to the Merger. In order to avoid such backup
withholding, a Stockholder surrendering certificates formerly representing
Shares pursuant to the Merger must provide the Paying Agent with such
Stockholder's correct taxpayer identification number ("TIN") by completing the
Substitute Form W-9 set forth below and indicate that he is not subject to
backup withholding by checking the box in Part 3. In general, if such
Stockholder is an individual, the taxpayer identification number is the Social
Security number of such individual. If the Paying Agent is not provided with the
correct taxpayer identification number, the Stockholder may be subject to a $50
penalty imposed by the Internal Revenue Service. The box in Part 2 of Substitute
Form W-9 may be checked if the Stockholder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future. If the
box in Part 2 is checked and the Paying Agent is not provided with a TIN within
60 days, the consideration payable pursuant to the Merger will be subject to 20%
backup withholding.
Certain Stockholders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order to satisfy the Paying Agent
that a foreign individual qualifies as an exempt recipient, such Stockholder
must submit a statement (Form W-8), signed under penalties of perjury, attesting
to that individual's exempt status. Such statements can be obtained from the
Paying Agent. For further information concerning backup withholding and
instructions for completing the Substitute Form W-9 (including how to obtain a
taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Shares are held in more than one name), consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by
itself, cause certificates formerly representing Shares to be deemed invalidly
surrendered, but may require the Paying Agent to withhold 20% of the amount of
any payments made to the Stockholder. Backup withholding is not an additional
federal income tax. Rather, the federal income tax liability of a person subject
to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a tax refund may be obtained.
-7-
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBSTITUTE FORM
W-9
<S> <C> <C>
Department of the Treasury Part 1 - Please provide your Social Security Number
Internal Revenue Service TIN for ALL Accounts and
certify by signing and dating __________________________
below.
-OR-
Payer's Request for Taxpayer Note: If the account is in
Identification Number ("TIN") more than one name, see the Employer Identification Number
chart on page 2 of the
Payer's Name: enclosed guidelines on which ___________________________
INTERDIGITAL COMMUNICATIONS number to give the Payer.
CORPORATION
</TABLE>
- -------------------------------------------------------------------------------
/__/ PART 2 - Awaiting TIN (Please See Below).
- -------------------------------------------------------------------------------
/__/ PART 3 - Check the box if you are not subject to backup withholding
either because you have not been notified by the Internal Revenue
Service ("IRS") that you are subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has
notified you that you are no longer subject to backup withholding.
- -------------------------------------------------------------------------------
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE
Signature _________________________________ Date _______________, 19__
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 20% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE MERGER.
PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 2 OF THE SUBSTITUTE FORM W-9.
- -------------------------------------------------------------------------------
CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a taxpayer identification
number ("TIN") has not been issued to me, and that I mailed or
delivered an application to receive a TIN to the appropriate Internal
Revenue Service Center or Social Security Administration Office (or I
intend to mail or deliver an application in the near future). I
understand that if I do not provide a TIN to the payer named above, 20
percent of all reportable payments due to me pursuant to the merger
will be withheld until I provide a TIN to the Payer and that, if I do
not provide any TIN to the Payer within 60 days, such withheld amounts
will be remitted to the IRS as backup withholding.
Signature ________________________________ Date _______________, 19__
- -------------------------------------------------------------------------------
-8-
