UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission File Number 1-11152
INTERDIGITAL COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1882087
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
781 Third Avenue, King of Prussia, PA 19406
-------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 878-7800
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 48,167,389 shares
- -------------------------------------- ----------------------------
Class Outstanding at July 31, 1997
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX
PAGE
----
Part I - Financial Information:
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets - 3
December 31, 1996 and June 30, 1997 (unaudited)
Consolidated Statements of Operations - 4
Three and Six Months Ended June 30, 1996 and 1997
(unaudited)
Consolidated Statements of Cash Flows - 5
Six Months Ended June 30, 1996 and 1997 (unaudited)
Notes to Consolidated Financial Statements 6
Item 1I. Management's Discussion and Analysis of 11
Financial Condition and Results of Operations
Part II - Other Information:
Item 1. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
ASSETS 1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted
cash of $204 and $209 respectively $ 11,954 $ 15,320
Short term investments 43,063 17,317
Accounts receivable, net of allowance for
uncollectable accounts of $558 and $546 13,921 8,730
Inventories 13,863 7,999
Other current assets 3,913 11,763
--------- ---------
Total current assets 86,714 61,129
--------- ---------
Property, plant and equipment, net of accumulated
depreciation of $8,383 and $9,865, respectively 10,517 10,662
Patents, net of accumulated amortization of
$4,152 and $4,513 respectively 9,753 9,520
Long term deposits 3,822 4,035
Other 1,830 1,834
--------- ---------
25,922 26,051
--------- ---------
$ 112,636 $ 87,180
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 790 $ 807
Accounts payable 15,127 5,775
Accrued compensation and related expenses 3,551 4,498
Deferred revenue 4,790 3,105
Other accrued expenses 5,380 6,107
--------- ---------
Total current liabilities 29,638 20,292
--------- ---------
LONG TERM DEBT 4,221 3,929
--------- ---------
OTHER LONG TERM LIABILITIES 6,270 4,657
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred Stock, $ .10 par value, 14,399 shares
authorized $2.50 Convertible
Preferred, 103 shares and 102 shares
issued and outstanding 10 10
Common Stock, $.01 par value, 75,000 shares
authorized, 48,109 shares and 48,167 shares
issued and outstanding 481 481
Additional paid-in capital 234,245 234,496
Accumulated deficit (162,229) (176,685)
--------- ---------
Total shareholders' equity 72,507 58,302
--------- ---------
$112,636 $ 87,180
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
UltraPhone product revenues $ 5,007 $ 16,442 $ 6,834 $ 40,218
Licensing and alliance 9,107 1,768 24,707 3,955
-------- -------- ------- --------
14,114 18,210 31,541 44,173
-------- -------- ------- --------
OPERATING EXPENSES:
Cost of UltraPhone revenues 5,020 14,765 7,897 35,731
Sales and marketing 1,143 2,118 1,916 4,191
General and administrative 2,283 3,367 5,453 6,638
Product development 4,835 6,451 9,166 12,702
-------- -------- ------- --------
13,281 26,701 24,432 59,262
-------- -------- ------- --------
Income (loss) from operations 833 (8,491) 7,109 (15,089)
OTHER INCOME (EXPENSE):
Interest income 956 665 2,071 1,023
Interest and financing expenses (44) (108) (77) (228)
-------- -------- ------- --------
Income (loss) before income taxes and
minority interest 1,744 (7,934) 9,103 (14,294)
INCOME TAX PROVISION (998) (17) (3,505) (34)
-------- -------- ------- --------
Income (loss) before minority interest 747 (7,951) 5,598 (14,328)
MINORITY INTEREST (4) -- (891) --
-------- -------- ------- --------
Net income (loss) 743 (7,951) 4,707 (14,328)
PREFERRED STOCK DIVIDENDS (66) (63) (132) (128)
-------- -------- ------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS $ 677 $ (8,014) $ 4,575 $(14,456)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.17) $ 0.10 $ (0.30)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 48,572 48,161 47,931 48,138
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1996 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,707 $(14,456)
Adjustments to reconcile net income (loss) to net
cash used for operating activities-
Minority interest in subsidiary 891 --
Depreciation and amortization 898 2,346
Other (80) (1,614)
Decrease (increase) in assets-
Receivables (2,942) 5,191
Inventories 102 5,865
Other current assets (4,195) (7,850)
Increase (decrease) in liabilities-
Accounts payable 2,367 (9,351)
Accrued compensation (301) 947
Deferred revenue 7,601 (1,685)
Other accrued expenses 6,012 727
-------- --------
Net cash used for operating activities $ 15,060 $(19,880)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments $ (7,262) $ 25,746
Additions to property and equipment, net of non-cash additions
of $0 and $ 141, respectively (2,110) (1,486)
Additions to patents (248) (489)
Other non-current assets (2,881) (360)
-------- --------
Net cash provided by investing activities $(12,501) $ 23,411
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of Common Stock
and exercises of stock options and warrants $ 8,621 $ 251
Payments on long-term debt, including capital lease obligations (301) (416)
-------- --------
Net cash provided by financing activities $ 8,320 $ (165)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 10,879 $ 3,366
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,427 11,954
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,306 $ 15,320
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 63 $ 158
======== ========
Income taxes paid, excluding foreign withholding taxes $ 308 $ 104
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. BACKGROUND:
InterDigital Communications Corporation ("InterDigital"(R) or the
"Company"), a public corporation incorporated in the Commonwealth of
Pennsylvania, 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(TM) ("B-CDMA"(TM)) proprietary digital wireless
technology.
The Company's principal product is the UltraPhone(R) 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 high transmission quality, capacity and spectrum
efficiency. The UltraPhone system, which incorporates the Company's proprietary
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 40%,
20% and 47%, respectively, of the total revenues of the Company during 1994,
1995 and 1996. Through June 30, 1997, the Company has sold over 345 UltraPhone
systems worldwide, with aggregate UltraPhone product revenue totaling over $200
million.
The Company and its alliance partners are developing a new air interface
technology and products, based on the Company's patented B-CDMA technology and
other proprietary technologies. The initial phases of the development effort are
oriented towards development of wireless local loop products with performance
and cost characteristics applicable to a market segment distinct from the
Company's UltraPhone system. The Company has started to market its new
TrueLink(TM) wireless local loop product based on the Company's proprietary
B-CDMA technology.
InterDigital Technology Corporation ("ITC"), a wholly-owned subsidiary, and
the Company, 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 the
Company's extensive portfolio of TDMA, code division multiple access ("CDMA")
and other patented technologies. These efforts have resulted in patent license
agreements with a total of thirteen entities, the recognition of $28.7 million,
$67.7 million and $28.7 million of licensing revenue in 1994, 1995 and 1996,
respectively.
2. BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal,
recurring adjustments) necessary to present fairly the Company's financial
position as of June 30, 1997 and the results of their operations for the three
and six month periods ended June 30, 1996 and 1997 and cash flows for the six
month periods ended June 30, 1996 and 1997. The accompanying unaudited
consolidated financial statements have been prepared in accordance with the
instructions for Form 10-Q and accordingly do not include all of the detailed
schedules, information and notes necessary for a fair presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. Therefore, these financial statements should be
6
<PAGE>
read in conjunction with the financial statements and notes thereto contained in
the Company's latest annual report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire year.
The 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.
3. CONTINGENCIES:
IDC and ITC are variously parties to certain patent-related litigation in
which ITC is asserting that certain third parties infringe ITC's patents. ITC
generally is seeking injunctive relief and monetary damages. The alleged
infringers generally seek declarations that their products do not infringe ITC's
patents or that ITC's patents in suit are invalid. In one such action involving
Motorola, Inc., a Court of Appeals has partially overturned a U.S. District
Court decision by reinstating two claims that had previously been held invalid.
The Court of Appeals also affirmed the validity of three other claims, affirmed
the invalidity of nineteen claims, and denied ITC's request for a new trial as
to validity and infringement issues. ITC is presently requesting a rehearing in
the Court of Appeals, and is considering an appeal to the United States Supreme
Court. In another action, the Court had stayed the proceeding at the request of
the parties pending a decision by the Court of Appeals on the Motorola case. The
parties are in the process of requesting a continuance of the stay pending a
decision by the Court of Appeals on ITC's Petition for Rehearing. ITC is also
involved in administrative proceedings in which various parties have challenged
the validity of ITC's patents.
In addition to litigation associated with patent enforcement and licensing
activities and the other litigation described above, the Company is a party to
certain legal actions arising in the ordinary course of its business.
4. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
The Company considers investments purchased with an remaining maturity of
three months or less to be cash equivalents for purposes of the statements of
cash flows. The Company invests its excess cash in various time deposits and
marketable securities, which are included in cash and cash equivalents, as
follows (in thousands):
December 31, June 30,
1996 1997
----------- ----------
Money market funds and demand deposits $ 2,871 $11,049
Certificates of deposit 204 ---
Repurchase agreements 1,457 437
Commercial paper 7,422 3,834
------ ------
$11,954 $15,320
====== ======
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, 1996 consisted
of $26.0 million in government-issued discount notes, $2.8 million in municipal
securities and $14.2 million in corporate debt securities. Short-term
investments available for sale as of June 30, 1997 consisted of $7.7 million in
government-issued discount notes, $2.9 million in municipal securities and $6.7
million in corporate debt securities.
7
<PAGE>
5. MAJOR CUSTOMERS AND GEOGRAPHIC DATA:
UltraPhone Equipment Revenue:
In fiscal 1996, the Company's Philippine and Indonesian customers
represented 56% and 16%, of UltraPhone product revenues, respectively. For the
three months ended June 30, 1996, the Company's Philippine and Puerto Rican
customers accounted for 66% and 14% of UltraPhone product revenues,
respectively. For the three months ended June 30, 1997, the Company's Indonesian
customer accounted for 83% of UltraPhone product revenues. For the six months
ended June 30, 1996, the Company's Philippine, Puerto Rican and Myanmarian
customers accounted for 54%, 15% and 12%, respectively, of UltraPhone product
revenues. For the six months ended June 30, 1997, the Company's Indonesian
customer accounted for 80% of UltraPhone product revenues.
UltraPhone product revenues by geographic area are as follows (in
thousands):
Three Months Six Months
Ended Ended
June 30, June 30,
1996 1997 1996 1997
---- ---- ---- ----
Domestic $ 491 $ 330 $ 940 $ 578
Foreign 4,516 16,112 5,894 39,640
======= ======= ======= =======
$ 5,007 $16,442 $ 6,834 $40,218
======= ======= ======= =======
Licensing and Alliance Revenue:
During the three months ended June 30, 1996, ITC recognized $7.5 million
related to the Samsung agreements and $1.6 million related to the Siemens
agreements. The Licensing and Alliance revenues for the three months ended June
30, 1997 include $704,000 from Samsung, $264,000 of recurring royalty revenue
from one licensee and $800,000 from Siemens. During the six months ended June
30, 1996, the Company recognized $21.5 million of revenue related to its
agreements with Siemens. During the six months ended June 30, 1997, Licensing
and Alliance revenues include $1.4 million from Samsung, $1.6 million from
Siemens and $947,000 of recurring royalty revenue from one licensee.
6. NET INCOME PER COMMON SHARE:
The net income per share is based upon the weighted average common shares
outstanding during the period adjusted for cumulative dividends on $2.50
Preferred Stock. Stock options and warrants have been considered as common stock
equivalents and have been included in the computation for the three and six
month periods for 1996 since their effect is dilutive. (See Item 6, Exhibit 11 -
Computation of Net Income Per Share.)
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share," which supersedes APB Opinion No. 15 "Earnings per Share", was issued
in February 1997. SFAS 128 requires dual presentation of basic and diluted
earnings per share (EPS) for complex capital structures on the face of the
income statement. Basic EPS is computed by dividing income by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution from the exercise or conversion of stock options and
other securities into common stock. SFAS 128 is required to be adopted for year
end 1997; earlier application is not permitted. The Company does not expect any
material change to the current period presentation of EPS; there was no effect
of this accounting change on previously reported EPS for the three and six
months ended June 30, 1996.
8
<PAGE>
7. INVENTORIES:
December 31, June 30,
1996 1997
---- ----
(In thousands)
Component parts and work-in-progress $11,640 $7,715
Finished goods 2,223 284
======== =======
$13,863 $7,999
======== =======
Inventories are stated net of valuation reserves of $5.9 million and $6.3
million as of December 31, 1996 and June 30, 1997, respectively.
8. LONG-TERM DEBT:
During the second quarter of 1996, the Company purchased its King of
Prussia facility for $3.7 million. The Company paid cash of $930,000 and
arranged a 16 year mortgage of $2.8 million with interest payable at a rate of
8.28% per annum. The entire cost of the land and buildings purchased, as well as
the improvements made to the building, have been classified as Land, Building
and Improvements within the property section of the balance sheet. The mortgage
has been classified as long-term debt on the balance sheet, with $95,000
classified as current portion of Long-term Debt.
9. INCOME TAXES:
Effective January 1, 1991, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
The income provision for the three months ended June 30, 1996 consists of a
current foreign withholding tax provision of $990,000, a current state tax
provision of $3,000 and a Federal Alternative Minimum Tax provision of $5,000.
The income tax provision for the three months ended June 30, 1997 consisted of a
current state tax provision of $17,000. For the six months ended June 30, 1996,
the income tax provision consisted of a foreign withholding tax provision of
$3.3 million, a current state tax provision of $114,000 and a Federal
Alternative Minimum Tax provision of $91,000. The income tax provision for the
six months ended June 30, 1997 consisted of a current state provision of
$34,000. At December 31, 1996, the Company had net operating loss carryforwards
of approximately $100 million. Since realization of the tax benefits associated
with these carryforwards is not assured, a valuation allowance of 100% of the
potential tax benefit is recorded as of June 30, 1997.
Pursuant to the Tax Reform Act of 1986, annual use of the Company's net
operating loss and credit carryforwards may be limited if a cumulative change in
ownership of more than 50% occurs within a three-year period. The annual
limitation is generally equal to the product of (x) the aggregate fair market
value of the Company's stock immediately before the ownership change times (y)
the "long-term tax exempt rate" (within the meaning of Section 382(f) of the
Code) in effect at that time. The Company believes that no ownership change for
purposes of Section 382 occurred up to and including June 30, 1997. The
Company's calculations reflect the adoption of new Treasury Regulations which
became effective on November 4, 1992 and which have beneficial effects regarding
the treatment of options and other aspects of the ownership change calculation.
9
<PAGE>
10. MYANMAR CONTRACT:
On May 16, 1997, the Company signed a contract with Myanma Posts and
Telecommunications (MPT) in the Union of Myanmar, for UltraPhone systems, B-CDMA
equipment and related telecommunications equipment. The value in the agreement
is $250 million, including UltraPhone systems, infrastructure equipment and
services, as well as capital costs for a manufacturing facility to be built in
Myanmar. The agreement calls for establishment of a joint venture in Myanmar
between InterDigital and MPT for local manufacture of UltraPhone systems and
other infrastructure equipment. In addition, the agreement provides an option
for the joint venture to manufacture InterDigital's B-CDMA technology products.
The agreement is subject to certain Myanmar governmental approvals, and
finalization of the financing documents, the joint venture agreement, certain
pricing, payment and other terms.
11. SHAREHOLDER RIGHTS PLAN
In December 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan and declared a distribution of one right ("Right") for each
outstanding common share of the Company to shareholders of record as of the
close of business on January 3, 1997. In addition, each share of common stock
issued after January 3, 1997 will receive one right for each common share. Each
right entitles the registered holder, subject to the terms of a Rights
Agreement, to buy one one-thousandth of a share of Series B Junior Participating
Preferred Stock at a purchase price of $45 per Right, subject to adjustment. The
Plan provides that the threshold for triggering subsequent distribution of the
rights is 10 days following the acquisition by a non-exempt person as a result
of which such person becomes the beneficial owner of 15% or more of then
outstanding shares of Company Common Stock, or 10 days following commencement of
an offer to acquire 15% or more of the then outstanding shares of Company Common
Stock. In May and July 1997, the Company's Board of Directors increased the
percentage applicable to one of its investors, provided that investor remains a
passive investor eligible to file a Schedule 13G, to 16% and 18%, respectively.
In the event that (i) the Company is the surviving corporation in a merger with
an acquiring person and shares of Company Common Stock shall remain outstanding,
(ii) a person becomes the beneficial owner of 15% (or with respect to the
aforementioned investor, 18%) or more of the then outstanding shares of Company
Common Stock, (iii) an acquiring person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (iv) during such time
there is an acquiring person, an event occurs which results in such acquiring
person's ownership interest being increased by more than 1% (e.g. by means of a
reverse stock split or recapitalization), then in each case, each holder of a
Right (other than those held by an acquiring person) will thereafter have the
right to receive, upon exercise, Units of Preferred Stock (or, in certain
circumstances, Company Common Stock, cash, property or other securities of the
Company) having a current market value equal to two times the exercise price of
the Right.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
Overview
The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto, contained elsewhere in this
document.
The Company's ability to derive revenue from product sales will be affected
by, among other things, the intensified competition for sales of wireless local
loop telephone systems. Competing products and technologies have proliferated
and competitors, many of which have significantly greater resources than the
Company, are more actively promoting their products in the Company's target
markets. In spite of this competitive environment, the Company increased
UltraPhone system revenues in 1996 compared to 1995 by over 50% to nearly $25
million and built 1996 year-end product backlog to $80.7 million, including $43
million subsequently removed from backlog for the Pakistan contract (See
"Backlog"), from $20.0 million at December 31, 1995. These successes were
achieved by lowering UltraPhone system prices, offering the UltraPhone system in
conjunction with alliance partners, focusing on larger scale telecommunications
infrastructure programs and successfully marketing to the Company's existing
customer base in Indonesia. On large scale opportunities when commencement of
product delivery significantly lags contract negotiation and where deliveries
are expected to extend over a significant period of time, the Company is
actively marketing the UltraPhone system at sales prices which would generate
little, if any, margin based on the current cost characteristics of the system
configurations being proposed. In these situations, and in any additional
situations where the Company elects to accept similarly margined orders, it
would do so because of collateral profit potential, as next enumerated, or
because of other strategic positioning considerations. The Company believes that
any profit potential would primarily relate to design engineering to reduce
produce costs prior to delivery of the order, the expected positive effects on
vendor pricing of the increased production volume, change orders (including post
contract systems reconfiguration), post contract add-ons and systems expansions
and servicing, as well as follow on orders.
The Company anticipates that it will continuously need to reduce prices and
expand product features due to industry demands which will result in continued
pressure upon gross profit margins until such time as the Company is able to
reduce product costs by amounts significantly greater than the selling price
reductions. The Company has experienced and may continue to experience
engineering delays in the introduction of new, more efficient, lower cost system
components and other new enhancements or features. Given the possibility of
engineering delays and difficulties, and the continuing inability to sell
UltraPhone systems with a high cluster utilization, the Company can give no
assurance that it will be able to achieve sufficient product cost reductions or
otherwise achieve satisfactory gross profit margins. In addition, there can be
no assurance that the development costs necessary to achieve such potential
product cost reductions will be acceptable to the Company.
The Company does not currently have a material backlog of product orders.
(See "Backlog".) Accordingly, the Company cannot predict with certainty when it
will begin shipping any significant orders, and the volume of production and
shipments prior to that time may not fully absorb fixed manufacturing costs,
which would negatively affect gross margins. Additionally, the Company signed a
contract with MPT for $250 million which is currently not included in backlog.
The contract amount includes UltraPhone systems, infrastructure equipment and
services, as well as capital costs for a manufacturing facility to be built in
Myanmar. The contract is subject to certain Myanmar governmental approvals, and
finalization of the financing documents, the joint venture agreement, certain
pricing, payment and other terms.
In addition to the effects of varying selling prices and product material
costs, the Company's gross profit margin ratios are ordinarily affected by the
relative proportions of direct and distributor sales, by the average number of
subscribers per system sold, by its ability to absorb manufacturing overhead
costs through generation of sufficient production volume, and by the field
service costs for installation, warranty,
11
<PAGE>
training and post-sale support. Consistent with industry practices,
distributor commissions have been included in both revenues and cost of sales.
Historically, the Company's gross profit margin from UltraPhone system sales has
been inadequate to support its operating and other expenses. The low sales
volumes experienced in recent years have resulted in production volumes which
were inadequate to fully absorb fixed production overhead costs, producing
negative gross margins.
Liquidity
The Company had working capital of $40.8 million at June 30, 1997 compared
to working capital of $57.1 million at December 31, 1996. The decrease in
working capital since December is due primarily to the operating cash needs of
the Company.
Demands on working capital in 1997 and beyond are expected to increase. The
Company expects to continue its B-CDMA technology development expenditures at
significant levels in order to commercialize its technology. Additional
expenditures are being incurred for marketing and other activities and
subsequent, substantial additional expenditures will be required to support
later stage development. Engineering efforts required to support the UltraPhone
product are also continuing at significant levels as the Company continues its
efforts to reduce the cost of the UltraPhone product and increase its market
share. Marketing, administrative and other costs are expected to increase as
well, as the Company seeks to more effectively support its alliance and
licensing program.
The Company's working capital requirements will depend on numerous
additional factors, including but not limited to the success of the Siemens and
Samsung relationships and the broader alliance strategy, the level of demand and
related margins for the UltraPhone system, the ability to generate license fees
and royalties, and the need to expend funds in connection with its patent
related activities. In addition, when the Company builds to specification to
complete an order, it traditionally experiences negative cash flows from
inception of its production ordering through customer payment at the time of, or
increasingly subsequent to, order shipment. If the Company were to experience
additional sudden and significant increases in orders to be built to
specification, it would intensify the need for significant short to intermediate
term financing arrangements. Also, the Company has ordered, and may continue to
order, inventory in support of anticipated shipments not currently supported by
shippable backlog (see "Backlog"). Should the Company incur a significant delay
in securing the applicable shippable backlog it would have a negative impact on
its cash resources.
Accordingly, absent significant increases in cash generated by operations,
the Company will, at some future date, require additional debt or equity
capitalization to fully support its technical and product development and
marketing activities and to fund its patent related activities. The Company
does not presently maintain bank lines of credit and may therefore, in such
event, seek to meet such needs through the sale of debt or equity securities.
There can be no assurance that the Company will be able to sell any such
securities when it needs to, or, if it can, that it will be able to do so on
terms acceptable to the Company.
The Company believes that its investment in inventories and non-current
assets are stated on its December 31, 1996 and June 30, 1997 balance sheets at
realizable values based on expected selling price and order volumes. Property
and equipment are currently being utilized in the Company's on-going business
activities, and the Company believes that no additional write-downs are required
at this time due to lack of use or technological obsolescence. With respect to
other assets, the Company believes that the value of its patents is at least
equal to the value included in the December 31, 1996 and June 30, 1997 balance
sheets.
Backlog
At June 30, 1997, the Company's backlog of orders for UltraPhone telephone
equipment and services was $1.4 million. All of the backlog is scheduled to be
delivered during the remainder of fiscal year 1997. Previously, the Company
included in backlog a $43 million order from Pakistan Telecommunications Company
Limited ("PTCL"). PTCL allowed the contract to lapse on July 17, 1997, when it
did not accept
12
<PAGE>
InterDigital's proposal to finance the order. The Company continues to work
through the issues associated with the contract but the Company cannot say with
any degree of certainty whether it will be able to reestablish the agreement.
Additionally, the Company signed a contract with MPT for $250 million which
is currently not included in backlog. The contract amount includes UltraPhone
and B-CDMA systems, infrastructure equipment and services, as well as capital
costs for a manufacturing facility to be built in Myanmar. The contract is
subject to certain Myanmar governmental approvals, and finalization of the
financing documents, the joint venture agreement, certain pricing, payment and
other terms. In any event, shipments during the remainder of 1997 will not be
significant due to lengthy materials procurement lead times.
At June 30, 1996, the Company's backlog of orders for UltraPhone telephone
equipment and services was $53.0 million.
Cash Flows and Financial Condition
The Company has experienced negative cash flows from operations during the
six months ended June 30, 1997. The negative cash flows from operations are
primarily due to expenses incurred for UltraPhone engineering and marketing,
B-CDMA technology development and the Company's general and administrative
activities.
Net cash flows from investing activities were positive for the six months
ended June 30, 1997 due to the conversion of some of the Company's short-term
investments into cash or cash equivalents. Notwithstanding the above, the amount
of cash used in investing activities has, historically, been low relative to
cash used in operations.
During the six months ended June 30, 1997, the Company experienced negative
cash flows of $165,000 from financing activities. The funds were used for
payments on long-term debt (including capital lease obligations) but were
partially offset by proceeds from the exercise of stock options and warrants and
the sale of stock through the Company's Employee Stock Purchase Plan.
Cash, cash equivalents and short-term investments of $32.6 million as of
June 30, 1997 includes $209,000 of restricted cash. The UltraPhone product
accounts receivable of $8.7 million at June 30, 1997 reflect amounts due from
normal trade receivables, including non-domestic open accounts, as well as funds
to be remitted under letters of credit. Of the outstanding trade receivables as
of June 30, 1997, $3.2 million has been collected through July 31, 1997.
Inventory levels at June 30, 1997 of $8.0 million have decreased as
compared to $13.9 million as of December 31, 1996, reflecting the shipment of
inventory for the Indonesian order. Inventories at December 31, 1996 and June
30, 1997 are stated net of valuation reserves of $5.9 million and $6.3 million,
respectively.
Included in other accrued expenses at June 30, 1997 are professional fees,
consulting and other accruals as well as sales taxes payable.
Results of Operations -- Second Quarter of 1997 Compared to the
Second Quarter of 1996
Total Revenues. Total revenues in the second quarter ended June 30, 1997
increased to $18.2 million from $14.1 million in the second quarter ended June
30, 1996 due to an increase in UltraPhone product sales. UltraPhone product
sales increased in the second quarter of 1997 to $16.4 million from $5.0 million
in the comparable quarter of 1996, partially offset by a decline in licensing
and alliance revenues to $1.8 million in the second quarter of 1997 as compared
to $9.1 million in the comparable quarter of the prior year.
During the second quarter of 1997, the Company recognized $704,000 of
Samsung revenue that related to the UltraPhone B-CDMA technology development
portion of the agreement. The Company also recognized $264,000 of recurring
royalty revenue during the second quarter of 1997 from one of its
13
<PAGE>
licensees. Additionally, the Company recognized revenue of $800,000 as part
of the Siemens series of agreements. During the second quarter of 1996, the
Company recognized $7.5 million as part of the Samsung agreements and $1.6
million as part of the Siemens series of agreements.
Cost of UltraPhone Product Revenues. The cost of UltraPhone sales for the second
quarter of 1997 increased to $14.8 million from $5.0 million for the second
quarter of 1996, primarily due to the increase in UltraPhone product revenues.
The Company had approximately 10.2% positive gross margin on UltraPhone system
sales for the quarter ended June 30, 1997 as compared to a break-even gross
margin for the quarter ended June 30, 1996. Due to the increased volume of
UltraPhone product revenues, manufacturing overhead expenses were more fully
absorbed. Additionally, the Company has been successful in reducing the cost of
the UltraPhone product and has gained efficiencies in the manufacturing process.
Included in cost of UltraPhone system sales are costs of product assembly,
integration and testing, distributor commissions, freight and tariffs, and
expenses associated with installation, support and warranty services related to
the UltraPhone systems. Also included in the cost of sales are any manufacturing
overhead expenses the Company has incurred that are not absorbed into inventory
based on the low volume of production during the quarter.
Other Operating Expenses. Other operating expenses include sales and marketing
expenses, general and administrative expenses and product development expenses.
Sales and marketing expenses increased 85% to $2.1 million during the
second quarter of 1997 as compared to $1.1 million during the second quarter of
1996. The increase is primarily due to an increase in commission expense due to
the increase in UltraPhone product revenues in the three month period of 1997
and increased staff and activity levels, including costs associated with
increasing activity related to the Company's B-CDMA based product.
General and administrative expenses for the second quarter of 1997
increased 47% to $3.4 million from $2.3 million for the second quarter of 1996.
The increase is primarily due to an increase in expenses related to severance
costs for the Company's former CEO during the 1997 period and corporate
communications activities.
Product development expenses for the second quarter of 1997 increased 33%
to $6.5 million as compared to $4.8 million during the second quarter of 1996.
Staff and activity levels devoted to the development of the B-CDMA technology
increased significantly.
Other Income and Expense. Interest income for the second quarter of 1997 was
$664,000 as compared to $1.0 million for the second quarter of 1996. The Company
had lower average invested cash balances in the 1997 period as compared to the
1996 period. Interest expense for the quarter ended June 30, 1997 was $108,000
as compared to $44,000 for the quarter ended June 30, 1996. The increase is due
primarily to the mortgage interest related to the Company's purchase of its King
of Prussia facilities in the second quarter of 1996.
Minority Interest. In December 1992, the Company sold 5.76% of the common shares
of InterDigital Patents Corporation ("Patents Corp,"), which had, prior thereto,
been a wholly-owned subsidiary of the Company. The Company recorded an increase
in minority interest in the second quarter of 1996 of $4,000. During September
1996, the Company reacquired the minority interest of Patents Corp. in exchange
for shares of the Company's Common Stock and will therefore no longer record a
change in the Minority Interest liability.
14
<PAGE>
Results of Operations -- Six Months Ended June 30, 1997 Compared to
Six Months Ended June 30, 1996
Total Revenues. Total revenues for the six months ended June 30, 1997 increased
40% to $44.2 million from $31.5 million for the six months ended June 30, 1996
primarily due to an increase in the amount of UltraPhone product revenues
partially offset by a decrease in Licensing and Alliance revenues. UltraPhone
equipment sales increased 488% during the six months ended June 30, 1997 to
$40.2 million from $6.8 million in the comparable period of 1996 primarily due
to the completion of shipments of the Indonesian order. License and Alliance
revenues for the six months ended June 30, 1997 includes $1.4 million as part of
the Samsung Agreements, $1.6 million as part of the Siemens Agreements and
$947,000 of recurring royalty revenue from one licensee. Licensing and Alliance
revenues for the six months ended June 30, 1996 includes $21.5 million as part
of the Samsung agreements and $3.2 million as part of the Siemens agreements.
Cost of UltraPhone Sales. The cost of UltraPhone equipment sales for the six
months ended June 30, 1997 increased 349% to $35.7 million from $7.9 million for
the six months ended June 30, 1996. The Company incurred a positive gross margin
on UltraPhone equipment sales of 11.1% for the six months ended June 30, 1997 as
compared to a negative gross margin of 15.5% for the six month period ended June
30, 1996. Included in cost of UltraPhone equipment sales are costs of product
assembly, integration and testing, distributor commissions, freight and tariffs,
and expenses associated with installation, support and warranty services related
to the UltraPhone systems, as well as the overhead expenses the Company has
incurred in maintaining its production resources that were not absorbed into
inventory due to the low volume of production. At low production levels, such as
those experienced in the first half of 1996, the Company incurs substantial
negative gross profit margins because production costs are spread over only a
limited number of units of production.
Other Operating Expenses. Other operating expenses include sales and marketing
expenses, general and administrative expenses and product development expenses.
Sales and marketing expenses increased 119% to $4.2 million during the six
months ended June 30, 1997 compared from $1.9 million during the six months
ended June 30, 1996. The increase is primarily due to increased commissions
expense, commensurate with the increase in UltraPhone system revenues and
increased levels of marketing and sales activities.
General and administrative expenses for the six months ended June 30, 1997
increased 22% to $6.6 million from $5.5 million for the six months ended June
30, 1996. The increase in general and administrative expense is due primarily to
higher activity levels.
Product development expenses increased 39% for the six months ended June
30, 1997 to $12.7 million from $9.2 million for the six months ended June 30,
1996. The increase over the prior year period is due primarily to increased
staff and activity levels devoted to the development of the B-CDMA technology
and the continued development of the Company's UltraPhone product.
Other Income and Expense. Interest income for the six months ended June 30, 1997
was $1.0 million as compared to $2.1 million for the six months ended June 30,
1996. The decrease is due primarily to lower average invested cash and
investment balances in 1997 compared to 1996. Interest expense for the six month
period ended June 30, 1997 was $228,000 as compared to $77,000 for the six month
period ended June 30, 1996. The increase is due primarily to the mortgage
interest related to the Company's purchase of its King of Prussia facilities in
the second quarter of 1996.
Minority Interest. In December 1992, the Company sold 5.76% of the common shares
of Patents Corp., which had, prior thereto, been a wholly-owned subsidiary of
the Company. The Company recorded $891,000 as an increase in minority interest
in the six months ended June 30, 1996 representing the minority interest's
portion of the net income of Patents Corp. for the six months ended June 30,
1996. During September 1996, the Company reacquired the minority interest of
Patents Corp. in exchange for
15
<PAGE>
shares of the Company's Common Stock and will therefore no longer record a
change in the Minority Interest liability.
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis and discussions of the
Company's business contain forward looking statements reflecting, among other
things, the Company's current beliefs, intentions and expectations as to its
objectives, including with respect to its contract with MPT, its contract with
PTCL and its backlog. Such statements are subject to risks and uncertainties.
The Company cautions the readers that important factors in some case have
affected and, in the future, could materially affect the Company's actual
results and cause the Company's actual results to differ materially from the
results expressed in any such forward looking statement. These factors include
but are not limited to: difficulties or delays in the development, production,
testing and marketing or sale of the Company's products; failure to consummate
the Myanmar contract due to inability to finalize the documentation, secure
acceptable financing, lack of governmental or regulatory approval, U.S.
sanctions or other governmental prohibitions, or other factors; the failure to
reestablish negotiations or renegotiate a mutually acceptable contract with
PTCL; the effects of, and changes in, foreign trade, monetary and fiscal
policies, laws and regulations or other activities of foreign and the United
States governments, agencies and similar organizations; and the availability of
competitive products superior on a perceived, relative or actual basis with the
Company's products. The Company undertakes no obligation to publicly update any
forward looking statements, whether as a result of new information, future
events or otherwise.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In July, 1997, the U.S. Court of Appeals for the Federal Circuit partially
overturned a U.S. District Court decision in the patent infringement case
between ITC and Motorola, Inc. by reinstating two claims that had previously
been held invalid. The Court of Appeals also affirmed the validity of three
other claims, affirmed the invalidity of nineteen claims, and denied ITC's
request for a new trial as to validity and infringement issues. ITC is presently
requesting a rehearing in the Court of Appeals, and is considering an appeal to
the United States Supreme Court.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on June 20, 1997, the
shareholders of the Company elected two directors of the Company and ratified
the appointment of Arthur Andersen LLP as the Company's independent accountants
for the year ending December 31, 1997. Messrs. William A. Doyle and D. Ridgely
Bolgiano were elected to serve as directors at the meeting. 45,400,867 shares
were voted in favor of Mr. Doyle, 483,684 shares being withheld, and 45,383,708
shares were voted in favor of Mr. Bolgiano, 500,843 shares being withheld.
Messrs. Harry G. Campagna, Barney Cacioppo and Robert S. Roath also continued to
serve their terms as directors. The vote ratifying the appointment of Arthur
Andersen LLP was 45,555,890 shares for, 161,444 shares against and 167,217
shares abstaining.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following is a list of exhibits filed as part of this Form 10-Q:
Exhibit 4.1 Rights Agreement between InterDigital Communications
Corporation and American Stock Transfer and Trust (Exhibit 4
to the Company's Current Report on Form 8-K filed on
December 13, 1987).
Exhibit 4.2 Amendment No. 1 to the Rights Agreement between InterDigital
Communications Corporation and American Stock Transfer and
Trust Company
Exhibit 4.3 Amendment No. 2 to the Rights Agreement between InterDigital
Communications Corporation and American Stock Transfer and
Trust Company
Exhibit 10.33 Employment Agreement dated May 7, 1997 by and between
InterDigital Communications Corporation and Joseph Gifford
Exhibit 11 Computation of Net Income Per Share
Exhibit 27 Financial Data Schedule
(b) The following is a list of Current Reports on Form 8-K filed during the
second quarter of 1997:
The Company filed a Current Report on Form 8-K dated April 7, 1997 under
Item 5 - Other Events, with a copy of its quarterly letter to shareholders.
No financial statements were filed with this report.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERDIGITAL COMMUNICATIONS CORPORATION
Date: August 8, 1997 /s/ William A. Doyle
----------------------------------
William A. Doyle, President
Date: August 8, 1997 /s/ James W. Garrison
----------------------------------
James W. Garrison, Vice President
- Finance, Chief Financial
Officer and Treasurer
19
Exhibit 4.2
AMENDMENT NO. 1
to the
RIGHTS AGREEMENT
Between
INTERDIGITAL COMMUNICATIONS CORPORATION
and
AMERICAN STOCK TRANSFER AND TRUST COMPANY
dated as of
DECEMBER 31, 1996
THIS AMENDMENT NO. 1, dated May 6, 1997, to the RIGHTS AGREEMENT between
INTERDIGITAL COMMUNICATIONS CORPORATION and AMERICAN STOCK
TRANSFER AND TRUST COMPANY dated as of DECEMBER 31, 1996
WHEREAS, InterDigital Communications Corporation ("InterDigital") and American
Stock Transfer and Trust Company ("ASTT") entered into a Rights Agreement, dated
as of December 31, 1996, (the "Agreement") dealing with, among other things, the
voting rights of the holders of InterDigital Common Stock; and
WHEREAS, InterDigital has entered into an agreement with Heartland Advisors
dated May 5, 1997 (the "Letter Agreement") under which the Company, in exchange
for other consideration, has agreed to permit Heartland not to become and
"Acquiring Person", as defined under the Agreement, subject to the terms and
conditions of the Agreement and the Letter Agreement; and
WHEREAS, to implement the requirements of the Letter Agreement, InterDigital and
ASTT, pursuant to Section 26 of the Agreement, have agreed to amend the
Agreement as set forth herein.
NOW THEREFORE, the parties, intending to be legally bound, agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1, paragraph (a),
is amended by adding a new clause at the end of the definition reading as
follows:
;provided, however, that Heartland Advisors shall not be an Acquiring
Person unless and until Heartland Advisors (i) is the Beneficial Owner of
more than 16% of the shares of Common Stock then outstanding, or (ii) is
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding and Heartland is not permitted to file a Schedule 13G, in lieu
of Schedule 13D, pursuant to the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder.
2. All other terms conditions remained unaltered and in full force and effect.
<PAGE>
Amendment No. 1 to the Rights Agreement
dated December 31, 1996
Page 2
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to be duly
executed, all as of the date first written above.
ATTEST: INTERDIGITAL COMMUNICATIONS
CORPORATION
BY: /s/ Lisa Axt Alexande BY: /s/ William A. Doyle
-------------------------- ---------------------------
Lisa Axt Alexander William A. Doyle
Assistant Secretary President
ATTEST: AMERICAN STOCK TRANSFER AND TRUST
COMPANY
BY: /s/ Susan Silber BY: /s/ Herbert J. Lemmer
-------------------------- ---------------------------
Susan Silber Herbert J. Lemmer
Assistant Secretary Senior Vice President and
General Counsel
Exhibit 4.3
AMENDMENT NO. 2
to the
RIGHTS AGREEMENT
Between
INTERDIGITAL COMMUNICATIONS CORPORATION
and
AMERICAN STOCK TRANSFER AND TRUST COMPANY
dated as of
DECEMBER 31, 1996
THIS AMENDMENT NO. 2, dated July 29, 1997, to the RIGHTS AGREEMENT between
INTERDIGITAL COMMUNICATIONS CORPORATION and AMERICAN STOCK
TRANSFER AND TRUST COMPANY dated as of DECEMBER 31, 1996
WHEREAS, InterDigital Communications Corporation ("InterDigital") and American
Stock Transfer and Trust Company ("ASTT") entered into a Rights Agreement, dated
as of December 31, 1996, (the "Agreement") dealing with, among other things, the
voting rights of the holders of InterDigital Common Stock; and
WHEREAS, InterDigital has entered into an agreement with Heartland Advisors
dated July 8, 1997 (the "Letter Agreement") under which the Company, in exchange
for other consideration, has agreed to permit Heartland not to become and
"Acquiring Person", as defined under the Agreement, subject to the terms and
conditions of the Agreement and the Letter Agreement; and
WHEREAS, to implement the requirements of the Letter Agreement, InterDigital and
ASTT, pursuant to Section 26 of the Agreement, have agreed to amend the
Agreement as set forth herein.
NOW THEREFORE, the parties, intending to be legally bound, agree as follows:
1. The definition of "Acquiring Person" set forth in Section 1, paragraph (a),
is amended by adding a new clause at the end of the definition reading as
follows:
;provided, however, that Heartland Advisors shall not be an Acquiring
Person unless and until Heartland Advisors (i) is the Beneficial Owner of
more than 18% of the shares of Common Stock then outstanding, or (ii) is
the Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding and Heartland is not permitted to file a Schedule 13G, in lieu
of Schedule 13D, pursuant to the Securities Exchange Act of 1934 and the
rules and regulations promulgated thereunder.
<PAGE>
Amendment No. 1 to the Rights Agreement
dated December 31, 1996
Page 2
2. All other terms conditions remained unaltered and in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2 to be duly
executed, all as of the date first written above.
ATTEST: INTERDIGITAL COMMUNICATIONS
CORPORATION
BY: /s/ Jane S. Schultz BY: /s/ William A. Doyle
-------------------------- ---------------------------
Jane S. Schultz William A. Doyle
Assistant Secretary President
ATTEST: AMERICAN STOCK TRANSFER AND TRUST
COMPANY
BY: /s/ Susan Silber BY: /s/ Herbert J. Lemmer
-------------------------- ---------------------------
Susan Silber Herbert J. Lemmer
Assistant Secretary Senior Vice President and
General Counsel
Exhibit 10.33
================================================================================
EMPLOYMENT AGREEMENT
BETWEEN
MARK LEMMO
AND
INTERDIGITAL COMMUNICATIONS CORPORATION
================================================================================
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 7th day of May, 1997, by and between
Mark Lemmo, a Pennsylvania resident (the "Employee"), and InterDigital
Communications Corporation, a corporation organized and existing under the laws
of the Commonwealth of Pennsylvania (the "Company").
WHEREAS, the Company is engaged in the business of developing and
marketing certain types of advanced digital wireless telecommunications systems
using proprietary technologies for voice and data communications, as more
particularly described in the Company's Form 10-K as filed from time to time,
and the licensing of wireless digital telephone technology (the "Business").
WHEREAS, Employee serves in the position of Senior Vice President
- -UltraPhone(R) Operations of the Company (Employee's "Position").
WHEREAS, the Company has offered Employee a substantial increase in
base salary on the condition that Employee enter into this Agreement with
Company in order to set forth certain terms and conditions relating to
Employee's continued employment with the Company.
NOW, THEREFORE, in consideration of the mutual covenants and
obligations contained herein, and intending to be legally bound, the parties,
subject to the terms and conditions set forth herein, agree as follows:
1. Salary Increase. The Company hereby grants Employee an increase to
his base salary as set forth in Section 4 below and Employee hereby accepts such
increase.
2. Term and Duties. Until such time as Employee's employment hereunder
is terminated pursuant to the provisions of
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<PAGE>
Section 9 hereto (the "Term"), Employee shall serve the Company faithfully and
to the best of his ability and shall devote his full time, attention, skill and
efforts to the performance of the duties required by or appropriate for his
Position. Employee agrees to assume such duties and responsibilities as may be
customarily incident to such position, and as may be reasonably assigned to
Employee from time to time by the President or the Chief Executive Officer of
the Company. Employee shall report to the President and the Chief Executive
Officer of the Company.
3. Other Business Activities. During the Term, Employee will not,
without the prior written consent of the Company, directly or indirectly engage
in any other business activities or pursuits whatsoever, except activities in
connection with any charitable or civic activities, personal investments and
serving as an executor, trustee or in other similar fiduciary capacity;
provided, however, that such activities do not interfere with his performance of
his responsibilities and obligations pursuant to this Agreement.
4. Compensation. The Company shall pay Employee, and Employee hereby
agrees to accept, as compensation for all services rendered hereunder and for
Employee's covenant not to compete as provided for in Section 8 hereof, a base
salary at the annual rate of One Hundred and Seventy Thousand Dollars (subject
to any increase from time to time, the "Base Salary"). The Base Salary shall be
inclusive of all applicable income, social security and other taxes and charges
which are required by law to be withheld by the Company or which are requested
to be withheld by Employee, and which shall be withheld and paid in accordance
with the Company's normal payroll practice for its similarly situated employees
from time to time in effect. In addition to the Base Salary, Employee shall be
eligible to participate in whatever bonus plan, if any, the Company shall adopt
for its executive officers, including without limitation, the Executive Bonus
Plan the Company currently intends to develop and implement with the assistance
of Ernst & Young. Notwithstanding the foregoing sentence, the Company shall be
under no obligation to develop and/or implement any bonus plan, including
without limitation, the aforesaid Executive Bonus Plan, or to continue any such
plan, if adopted.
2
<PAGE>
5. Benefits and Expenses. Employee shall be entitled to receive those
employee benefits (including expense reimbursement) as shall be provided to
similarly situated executive employees of the Company ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason either directly or indirectly divulge to any third-party
or use for his own benefit, or for any purpose other than the exclusive benefit
of the Company, any confidential, proprietary, business and technical
information or trade secrets of the Company or of any subsidiary or affiliate of
the Company ("Proprietary Information") revealed, obtained or developed in the
course of his employment with the Company. Such Proprietary Information shall
include, but shall not be limited to, the intangible personal property described
in Section 7(b) hereof, any information relating to methods of production and
manufacture, research, computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, concepts, layouts,
flowcharts, specifications, know-how, any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing the Employee's duties), all computer inputs and outputs (regardless
of the media on which stored or located), hardware and software configurations,
designs, architecture, interfaces, plans, sketches, blueprints, and any other
materials prepared by the Employee in the course of, relating to or arising out
of his employment by the Company, or prepared by any other Company employee,
representative, or contractor for the Company, or its customers (including
information and other material relating to the ASIC), costs, business studies,
business procedures, finances, marketing data, methods, plans and efforts, the
identities of licensees, strategic partners, customers, contractors and
suppliers and prospective licensees, strategic partners, customers, contractors
and suppliers, the terms of contracts and agreements with licensees, strategic
partners, customers, contractors and suppliers, the Company's relationship with
actual and prospective licensees, strategic partners, customers, contractors and
suppliers and the needs and requirements of, and the Company's course of dealing
with, any such actual or prospective licensees, strategic partners, customers,
contractors and
3
<PAGE>
suppliers, personnel information, customer and vendor credit information, and
any other materials that have not been made available to the general public,
provided, that nothing herein contained shall restrict Employee's ability to
make such disclosures during the course of his employment as may be necessary or
appropriate to the effective and efficient discharge of the duties required by
or appropriate for his Position or as such disclosures may be required by law;
and further provided, that nothing herein contained shall restrict Employee from
divulging or using for his own benefit or for any other purpose any Proprietary
Information that is readily available to the general public so long as such
information did not become available to the general public as a direct or
indirect result of Employee's breach of this Section 6. Failure by the Company
to mark any of the Proprietary Information as confidential or proprietary shall
not affect its status as Proprietary Information under the terms of this
Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary Information
shall be and remain the sole and exclusive property of the Company. During the
Term, Employee shall not remove from the Company's offices or premises any
documents, records, notebooks, files, correspondence, reports, memoranda or
similar materials of or containing Proprietary Information, or other materials
or property of any kind belonging to the Company unless necessary or appropriate
in accordance with the duties and responsibilities required by or appropriate
for his Position and, in the event that such materials or property are removed,
all of the foregoing shall be returned to their proper files or places of
safekeeping as promptly as possible after the removal shall serve its specific
purpose. Employee shall not make, retain, remove and/or distribute any copies of
any of the foregoing for any reason whatsoever except as may be necessary in the
discharge of his assigned duties and shall not divulge to any third person the
nature of and/or contents of any of the foregoing or of any other oral or
written information to
4
<PAGE>
which he may have access or with which for any reason he may become familiar,
except as disclosure shall be necessary in the performance of his duties; and
upon the termination of his employment with the Company, he shall leave with or
return to the Company all originals and copies of the foregoing then in his
possession, whether prepared by Employee or by others.
(b) (i) Employee agrees that all right, title and interest in and
to any innovations, designs, systems, analyses, ideas for marketing programs,
and all copyrights, patents, trademarks and trade names, or similar intangible
personal property which have been or are developed or created in whole or in
part by Employee (1) at any time and at any place while the Employee is employed
by Company and which, in the case of any or all of the foregoing, are related to
and used in connection with the Business of the Company, (2) as a result of
tasks assigned to Employee by the Company, or (3) from the use of premises or
personal property (whether tangible or intangible) owned, leased or contracted
for by the Company (collectively, the "Intellectual Property"), shall be and
remain forever the sole and exclusive property of the Company. The Employee
shall promptly disclose to the Company all Intellectual Property, and the
Employee shall have no claim for additional compensation for the Intellectual
Property.
(ii) The Employee acknowledges that all the Intellectual
Property that is copyrightable shall be considered a work made for hire under
United States Copyright Law. To the extent that any copyrightable Intellectual
Property may not be considered a work made for hire under the applicable
provisions of the United States Copyright Law, or to the extent that,
notwithstanding the foregoing provisions, the Employee may retain an interest in
any Intellectual Property that is not copyrightable, the Employee hereby
irrevocably assigns and transfers to the Company any and all right, title, or
interest that the Employee may have in the Intellectual Property under
copyright, patent, trade secret and trademark law, in perpetuity or for the
longest period otherwise permitted by law, without the necessity of further
consideration. The Company shall be entitled to obtain and hold in its own name
all copyrights, patents, trade secrets, and trademarks with respect thereto.
5
<PAGE>
(iii) Employee further agrees to reveal promptly all
information relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after reasonable effort
to secure Employee's signature on any of the documents referenced in Section
7(b)(iii) hereof, whether because of Employee's physical or mental incapacity or
for any other reason whatsoever, Employee hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Employee's
agent and attorney-in-fact, to act for and in his behalf and stead to execute
and file any such documents and to do all other lawfully permitted acts to
further the prosecution and issuance of any such copyright, patent or trademark
protection, or other analogous protection, with the same legal force and effect
as if executed by Employee.
8. Covenant Not to Compete. The Employee shall not, during the Term
and thereafter for the Restricted Period (as defined below), do any of the
following, directly or indirectly, without the prior written consent of the
Company:
(a) engage or participate in any product business directly
competitive with the Company's Business, or the business of any of the Company's
subsidiaries or affiliates, as same are conducted during the Term with respect
to any period during the Term, or upon the termination of Employee's employment
hereunder with respect to any period thereafter;
(b) become interested in (as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise) any
person, firm, corporation, association or other entity engaged in any business
that is
6
<PAGE>
competitive with the Business of the Company or of any subsidiary or affiliate
of the Company as conducted during the Term with respect to any period during
the Term, or upon the termination of Employee's employment hereunder with
respect to any period thereafter, or become interested in (as owner,
stockholder, lender, partner, co-venturer, director, officer, employee, agent,
consultant or otherwise) any portion of the business of any person, firm,
corporation, association or other entity where such portion of such business is
competitive with the business of the Company or of any subsidiary or affiliate
of the Company as conducted during the Term with respect to any period during
the Term, or upon termination of Employee's employment hereunder with respect to
any period thereafter. Notwithstanding the foregoing, Employee may hold not more
than one percent (1%) of the outstanding securities of any class of any
publicly-traded securities of a company that is engaged in activities referenced
in Section 8(a) hereof;
(c) influence or attempt to influence any licensee, strategic
partner, supplier, or customer of the Company or potential licensee, strategic
partner, supplier or customer of the Company to terminate or modify any written
or oral agreement or course of dealing with the Company; or
(d) influence or attempt to influence any person to either (i)
terminate or modify his employment, consulting, agency, distributorship or other
arrangement with the Company, or (ii) employ or retain, or arrange to have any
other person or entity employ or retain, any person who has been employed or
retained by the Company as an employee, consultant, agent or distributor of the
Company at any time during the twelve (12) month period immediately preceding
the termination of Employee's employment hereunder.
For purposes of this Section 8, the Restricted Period shall constitute (as
applicable) (i) the period, if any, that Employee shall receive severance as set
forth in Section 9 hereof, (ii) in the event Employee's employment hereunder is
terminated for cause pursuant to Section 9 hereof, a period of one (1) year
following such termination, or (iii) in the event that Employee terminates this
Agreement without Good Reason, so long as the Company voluntarily pays severance
to Employee (which the Company shall be under no obligation to do), for the
period that Employee shall
7
<PAGE>
receive such severance, but in no event for a period longer than one (1) year.
In the case of (iii) above, Employee's termination notice shall specify the name
of any employer that Employee intends to accept employment with and the nature
of the proposed position. Company shall render its decision whether or not to
enforce the Restricted Period and notify Employee thereof within one week of
Employee's notice of termination to Company. In the event Company elects to
enforce the Restricted Period, Employee may rescind his notice of termination by
notice to Company within one week of the Company's decision. Notwithstanding the
foregoing, if Employee fails to provide Company with at least thirty (30) days
prior notice of his termination, then Company shall so render its decision and
notify Employee within thirty (30) days of the date of termination. In the event
Company elects to enforce the Restricted Period, Company may elect to terminate
its voluntary severance payments to Employee prior to the end of the one (1)
year period by providing at least ninety (90) days prior notice to Employee.
9. Termination. Employee's employment hereunder may be terminated
during the Term upon the occurrence of any one of the events described in this
Section 9. Upon termination, Employee shall be entitled only to such
compensation and benefits as described in this Section 9.
9.1. Termination for Disability.
(a) In the event of a long-term disability of the Employee (as
such term is defined in the Company's Long-Term Disability Plan) such that the
Employee is not otherwise qualified to perform the essential functions of the
job with or without reasonable accommodation ("Disability"), Employee's
employment hereunder may be terminated by the Company.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.1(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and bonus payable or provided in accordance with
the terms of any then existing compensation, bonus or benefit plan or
arrangement ("Other Compensation"),
8
<PAGE>
including payments prescribed under any disability or life insurance plan or
arrangement in which Employee is a participant or to which Employee is a party
as an employee of the Company. In addition, for a period of one year following
such termination, Employee shall be entitled to receive (i) regular installments
of Base Salary at the rate in effect at the time of such termination, such
amount being reduced by the amount of payments received by the Employee with
respect to this period pursuant to any Social Security entitlement or any long
term disability or any other employee benefit plan, policy or program maintained
to provide benefits in the event of disability in which the Employee was
entitled to participate at the time of termination under Section 9.1(a), and
(ii) medical and dental coverage on terms and conditions comparable to those
most recently provided to the Employee pursuant to this Agreement, to the extent
such coverage is not provided under other Company policies, plans or programs
relating to Disability. Except as specifically set forth in this Section 9.1(b),
the Company shall have no liability or obligation to Employee for compensation
or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, the determination as to
whether Employee has a long-term disability (as such term is defined in the
Company's Long-Term Disability Plan) shall be made by a licensed physician
selected by the Company (and reasonably acceptable to Employee) and shall be
based upon a full physical examination and good faith opinion by such physician.
9.2. Termination by Death. In the event that Employee dies during
the Term, Employee's employment hereunder shall be terminated thereby and the
Company shall pay to Employee's executors, legal representatives or
administrators an amount equal to the accrued and unpaid portion of his Base
Salary, Benefits and Other Compensation up through the date on which he dies.
Except as specifically set forth in this Section 9.2, the Company shall have no
liability or obligation hereunder to Employee's executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him by reason of Employee's death, except that Employee's
executors, legal representatives or administrators will be
9
<PAGE>
entitled to receive the payment prescribed under any death or disability
benefits plan in which he is a participant as an employee of the Company, and to
exercise any rights afforded under any compensation or benefit plan then in
effect.
9.3. Termination for Cause.
(a) The Company may terminate Employee's employment hereunder
at any time for "cause" upon written notice to Employee. For purposes of this
Agreement, "cause" shall mean: (i) any material breach by Employee of any of his
obligations under this Agreement, which breach is not cured within thirty (30)
days after Employee's receipt of written notification from the Company of such
breach, (ii) other conduct of Employee involving any type of willful misconduct
with respect to the Company, including without limitation fraud, embezzlement,
theft or proven dishonesty in the course of his employment or conviction of a
felony.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.3(a), Employee shall be entitled to receive all
accrued but unpaid (as of the effective date of such termination) Base Salary,
Benefits and Other Compensation. All Base Salary, Benefits and Other
Compensation shall cease at the time of such termination, subject to the terms
of any benefit or compensation plan then in force and applicable to Employee.
Except as specifically set forth in this Section 9.3, the Company shall have no
liability or obligation hereunder, including without limitation for any
severance whatsoever, by reason of such termination.
9.4. Termination Without Cause.
(a) The Company may terminate Employee's employment hereunder
at any time, for any reason, without cause, effective upon the date designated
by the Company upon thirty (30) days prior written notice to Employee. Company
may elect to have Employee remain absent from the workplace and cease Company
business during all or part of such thirty (30) day period.
10
<PAGE>
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.4(a) (including by the Company's delivery of
written notice not to renew the Term in accordance with the provisions of
Section 1 hereof in the event such termination is not for cause), Employee shall
be entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary, Benefits and Other Compensation. In addition, Employee
shall be entitled to receive (i) severance in an amount equal to Employee's Base
Salary and (ii) medical and dental coverage on terms and conditions comparable
to those most recently provided to the Employee pursuant to this Agreement, both
for the period of one year commencing upon the date of such termination. Such
severance shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company and
shall be withheld and paid in accordance with the Company's normal payroll
practice for its executives from time to time in effect. All Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plan then in force and applicable to
Employee. Except as specifically set forth in this Section 9.4, the Company
shall have no liability or obligation hereunder by reason of such termination.
9.5. Termination by Employee.
(a) Employee may terminate Employee's employment hereunder at
any time, for Good Reason or without Good Reason, effective upon the date
designated by Employee in written notice of the termination of his employment
hereunder pursuant to this Section 9.5(a); provided that, such date shall be at
least thirty (30) days after the date of such notice. For purposes of this
Agreement, Good Reason shall mean: (i) the failure by the Company to pay in a
timely manner Base Salary or any other material form of compensation or material
benefit to be paid or provided to Employee hereunder, or (ii) any material
breach, not encompassed within clause (i) of this Section 9.5(a), of the
obligations of the Company under this Agreement which breach is not cured within
thirty (30) days after the Company's receipt of written notification from the
Employee of such breach.
11
<PAGE>
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.5(a) hereof, Employee shall be entitled to
receive all accrued but unpaid (as of the effective date of such termination)
Base Salary, Benefits and Other Compensation. In addition, solely if such
termination is for Good Reason, Employee shall be entitled to receive (i)
severance in an amount equal to the Employee's Base Salary, and (ii) medical and
dental coverage on terms and conditions comparable to those most recently
provided to the Employee pursuant to this Agreement, both for the period of one
year commencing upon the date of such termination. Such severance shall be
payable as set forth in Section 9.4(b) hereof. Except as specifically set forth
in this Section 9.5(b), all Base Salary, Benefits and Other Compensation shall
cease at the time of such termination, subject to the terms of any benefit or
compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.5, the Company shall have no liability
or obligation hereunder by reason of such termination.
9.6. Change of Control.
(a) If there is a Change of Control during the Term, and
Employee's employment with the Company hereunder is terminated within one (1)
year following such Change of Control by the Company (except for cause) or by
Employee (whether or not for Good Reason), Employee shall be entitled to receive
all accrued but unpaid (as of the effective date of such termination) Base
Salary, Benefits and Other Compensation. In addition, (i) Employee shall be
entitled to receive, on the date of such termination, an amount equal to two
years' worth of Employee's Base Salary, and (ii) all stock options granted to
Employee by Company which pursuant to the terms of the applicable stock option
plan vest upon a Change in Control (e.g., Section 17(b) of the 1995 Stock Option
Plan for Employees and Outside Directors) shall vest. Except as specifically set
forth in this Section 9.6, all Base Salary, Benefits and Other Compensation
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plans then in force and applicable to Employee, and the Company
shall have no liability or obligation hereunder by reason of such termination.
12
<PAGE>
(b) For purposes of this Section 9.6, a "Change of Control"
means the acquisition (including by merger or consolidation, or by the issuance
by the Company of its securities) by one or more persons in one transaction or a
series of related transactions, of more than fifty percent (50%) of the voting
power represented by the outstanding stock of the Company on the date hereof.
For these purposes,"Person" means an individual, partnership, corporation, joint
venture, association, trust, unincorporated association, other entity or
association.
9.7. Termination for Absenteeism
(a) Regular attendance at work or in conducting work is an
essential element of Employee's job. Without limiting the Company's right to
terminate Employee pursuant to Section 9.1 or 9.3 herein, in the event that
Employee is absent for more than one hundred and fifty (150) days within any
twelve (12) month period, Employee's employment hereunder may be terminated by
Company.
(b) In the event of a termination of Employee's employment
hereunder pursuant to Section 9.8(a), Employee will be entitled to receive all
accrued and unpaid (as of the date of such termination) Base Salary and Benefits
and other forms of compensation and bonus payable or provided in accordance with
the terms of any then existing compensation, bonus or benefit plan or
arrangement ("Other Compensation"), including payments prescribed under any
disability or life insurance plan or arrangement in which Employee is a
participant or to which Employee is a party as an employee of the Company. In
addition, for a period of one year following such termination, Employee shall be
entitled to receive (i) regular installments of Base Salary at the rate in
effect at the time of such termination, such amount being reduced by the amount
of payments received by the Employee with respect to this period pursuant to any
Social Security entitlement or any long term disability or any other employee
benefit plan, policy or program maintained to provide benefits in the event of
disability in which the Employee was entitled to participate at the time of
termination under Section 9.8(a), and (ii) medical and dental coverage on terms
and conditions comparable to those most recently provided to the Employee
pursuant to this Agreement, to the extent such coverage is not provided under
other Company policies, plans or programs
13
<PAGE>
relating to Disability. Except as specifically set forth in this Section 9.8(b),
the Company shall have no liability or obligation to Employee for compensation
or benefits hereunder by reason of such termination.
10. Other Agreements. Employee represents and warrants
to the Company that:
(a) There are no restrictions, agreements or understandings
whatsoever to which Employee is a party which would prevent or make unlawful
Employee's execution of this Agreement or Employee's employment hereunder, or
which are or would be inconsistent or in conflict with this Agreement or
Employee's employment hereunder, or would prevent, limit or impair in any way
the performance by Employee of his obligations hereunder,
(b) Employee's execution of this Agreement and Employee's
employment hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Employee is a party or by which
Employee is bound, and
(c) Employee is free to execute this Agreement and to enter into
the employ of the Company pursuant to the provisions set forth herein.
(d) Employee shall disclose the existence and terms of the
restrictive covenants set forth in this Agreement to any employer that the
Employee may work for during the term of this Agreement (which employment is not
hereby authorized) or after the termination of the Employee's employment at the
Company.
11. Survival of Provisions. The provisions of this Agreement set forth
in Sections 6, 7, 8, 9 (solely with respect to the payment obligations of the
Company to Employee, if any, set forth therein), 10 and 21 hereof shall survive
the termination of Employee's employment hereunder. If for any reason Employee
shall continue to be employed by the Company following the termination of
Employee's employment hereunder, Employee shall have no right to receive any
severance or other
14
<PAGE>
payments hereunder until Employee ceases to be employed by the Company,
whereupon Employee's right to severance or other payments, if any, shall be
governed by the provisions of Section 9 hereof with respect to the particular
circumstances involved in the Employee's termination of employment.
12. Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the Company and Employee and their respective successors,
executors, administrators, heirs and/or permitted assigns; provided, however,
that neither Employee nor the Company may make any assignments of this Agreement
or any interest herein, by operation of law or otherwise, without the prior
written consent of the other parties hereto.
13. Employee Benefits. This Agreement shall not be construed to be in
lieu or to the exclusion of any other rights, benefits and privileges to which
Employee may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, insurance, hospital or other plans or benefits which
may now be in effect or which may hereafter be adopted.
14. Notice. Any notice or communication required or permitted under
this Agreement shall be made in writing and sent by certified or registered
mail, return receipt requested, by hand delivery, or by recognized overnight
courier, addressed as follows:
If to Employee:
Mark Lemmo
c/o InterDigital Communications Corporation
781 Third Avenue
King of Prussia, Pennsylvania 19406
15
<PAGE>
If to Company:
InterDigital Communications Corporation
781 Third Avenue
King of Prussia, Pennsylvania 19406
Attn: Harry Campagna, Chairman
with a copy to:
Pepper, Hamilton & Scheetz
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Barry M. Abelson, Esquire
or to such other address as either party may from time to time duly specify by
notice given to the other party in the manner specified above.
15. Entire Agreement; Amendments. This Agreement contain the entire
agreement and understanding of the parties hereto relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Company.
16. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Invalidity. In case any one or more of the provisions contained in
this Agreement shall, for any reason, be
16
<PAGE>
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect the validity of any other
provision of this Agreement, and such provision(s) shall be deemed modified to
the extent necessary to make it enforceable.
19. Section Headings. The section headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.
20. Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
legal holidays; provided, however, that if the final day of any time period
falls on a Saturday, Sunday or day which is a holiday in the Commonwealth of
Pennsylvania, then such final day shall be deemed to be the next day which is
not a Saturday, Sunday or legal holiday.
21. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained in
Sections 6, 7, and 8 hereof are reasonable and necessary to protect the
legitimate interests of the Company and its affiliates and that the Company
would not have entered into this Agreement in the absence of such restrictions.
Employee also acknowledges that any breach by him of Sections 6, 7, or 8 hereof
will cause continuing and irreparable injury to the Company for which monetary
damages would not be an adequate remedy. The Employee shall not, in any action
or proceeding to enforce any of the provisions of this Agreement, assert the
claim or defense that an adequate remedy at law exists. In the event of such
breach by Employee, the Company shall have the right to enforce the provisions
of Sections 6, 7, and 8 of this Agreement by seeking injunctive or other relief
in any court, and this Agreement shall not in any way limit remedies of law or
in equity otherwise available to the Company. If an action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief,
reasonable attorneys' fees, costs and disbursements. In the event that the
provisions of Sections 6, 7, or 8 hereof should ever be adjudicated to exceed
the time, geographic, or other limitations permitted by applicable law in any
applicable jurisdiction, then such provisions shall be deemed
17
<PAGE>
reformed in such jurisdiction to the maximum time, geographic, or other
limitations permitted by applicable law.
(b) In the event that Employee shall be in breach of any of the
restrictions contained in Section 8 hereof, then the Restricted Period shall be
extended for a period of time equal to the period of time that Employee is in
breach of such restriction.
22. Consent to Suit. Any legal proceeding arising out of or relating
to this Agreement shall be instituted in the District Court of the Eastern
District of Pennsylvania, or if such court does not have jurisdiction or will
not accept jurisdiction, in any court of general jurisdiction in the
Commonwealth of Pennsylvania, and the Employee hereby consents to the personal
and exclusive jurisdiction of such court and hereby waives any objection that
the Employee may have to the laying of venue of any such proceeding and any
claim or defense of inconvenient forum.
23. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed the day and year first written above.
ATTEST: INTERDIGITAL COMMUNICATIONS
CORPORATION
By: /s/ Jane S. Schultz By: /s/ William A. Doyle
---------------------------- -------------------------------
Title: Assistant Secretary Title: President
[CORPORATE SEAL]
/s/ Mark Lemmo
-------------------------------
Mark Lemmo
18
<PAGE>
EXHIBIT 11
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
SIX
THREE MONTHS MONTHS
ENDED ENDED
COMPUTATION OF PRIMARY JUNE 30, JUNE 30,
EARNINGS (LOSS) PER SHARE: 1996 1996
Net Income (Loss) Applicable to Common
Shareholders $ 677 $ 4,575
========== =========
Weighted Average of Primary Shares:
Common Stock 46,138 45,522
Assumed Conversion of Options and Warrants 2,434 2,409
---------- ---------
48,572 47,931
========== =========
Net Income (Loss) Per Share $ .01 $ .10
========== =========
A calculation for the three and six month periods ended June 30, 1997 have not
been presented since the effect of the options and warrants would be
anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,320
<SECURITIES> 17,317
<RECEIVABLES> 8,730
<ALLOWANCES> 546
<INVENTORY> 7,999
<CURRENT-ASSETS> 61,129
<PP&E> 20,527
<DEPRECIATION> 9,865
<TOTAL-ASSETS> 87,180
<CURRENT-LIABILITIES> 20,292
<BONDS> 3,929
0
10
<COMMON> 481
<OTHER-SE> 57,811
<TOTAL-LIABILITY-AND-EQUITY> 87,180
<SALES> 40,218
<TOTAL-REVENUES> 44,173
<CGS> 35,731
<TOTAL-COSTS> 35,731
<OTHER-EXPENSES> 12,702
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 228
<INCOME-PRETAX> (14,294)
<INCOME-TAX> 34
<INCOME-CONTINUING> (14,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,328)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
