UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
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(Address of principal executive offices) (Zip Code)
(610) 878-7800
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(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 48,158,630 shares
- -------------------------------------- --------------------------
Class Outstanding at May 9, 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 March 31, 1997 (unaudited)
Consolidated Statement of Operations - 4
Three Months Ended March 31, 1996 and 1997 (unaudited)
Consolidated Statements of Cash Flows - 5
Three Months Ended March 31, 1996 and 1997 (unaudited)
Notes to Consolidated Financial Statements 6
Item 1I. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
ASSETS 1996 1997
------------ ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted
cash of $204 and $290 respectively $ 11,954 $ 15,316
Short term investments 43,063 22,421
License fees receivable 990 1,083
Accounts receivable, net of allowance for
uncollectable accounts of $558 12,931 15,197
Inventories 13,863 12,465
Other current assets 3,913 12,065
--------- ---------
Total current assets 86,714 78,547
--------- ---------
Property, plant and equipment, net of accumulated
depreciation of $8,383 and $9,107, respectively 10,517 10,615
Patents, net of accumulated amortization of
$4,152 and $4,513 respectively 9,753 9,665
Long term deposits 3,822 4,035
Other 1,830 1,698
--------- ---------
25,922 26,013
--------- ---------
$ 112,636 $ 104,560
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 790 $ 803
Accounts payable 15,127 11,151
Accrued compensation and related expenses 3,551 3,664
Deferred revenue 4,790 6,512
Other accrued expenses 5,380 6,562
--------- ---------
Total current liabilities 29,638 28,692
--------- ---------
LONG TERM DEBT 4,221 4,147
--------- ---------
OTHER LONG TERM LIABILITIES 6,270 5,450
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY:
Preferred Stock, $.10 par value, 14,399 shares authorized - $2.50 Convertible
Preferred, 103 shares and 103 shares
issued and outstanding 10 10
Common Stock, $.01 par value, 75,000 shares authorized,
48,109 shares and 48,158 shares issued and
outstanding 481 481
Additional paid-in capital 234,245 234,450
Accumulated deficit (162,229) (168,670)
--------- ---------
Total shareholders' equity 72,507 66,271
--------- ---------
$ 112,636 $ 104,560
========= =========
</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
ENDED MARCH 31,
----------------------
1996 1997
-------- --------
<S> <C> <C>
REVENUES:
UltraPhone Product Revenues $ 1,827 $ 23,776
Licensing and Alliance 15,600 2,187
-------- --------
17,427 25,963
-------- --------
OPERATING EXPENSES:
Cost of UltraPhone revenues 2,877 20,965
Sales and marketing 773 2,074
General and administrative 3,170 3,271
Product development 4,331 6,251
-------- --------
11,151 32,561
-------- --------
Income (loss) from operations 6,276 (6,598)
OTHER INCOME (EXPENSE):
Interest income 1,115 358
Interest and financing expenses (33) (119)
-------- --------
Income (loss) before income taxes and
minority interest 7,358 (6,359)
INCOME TAX PROVISION (2,507) (17)
-------- --------
Income (loss) before minority interest 4,851 (6,376)
MINORITY INTEREST (887) --
-------- --------
Net income (loss) 3,964 (6,376)
PREFERRED STOCK DIVIDENDS (66) (65)
-------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS $ 3,898 $ (6,441)
======== ========
NET INCOME (LOSS) PER COMMON SHARE $ 0.08 $ (0.13)
======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 48,982 48,114
======== ========
</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 three months ended March 31,
------------------------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,898 $ (6,441)
Adjustments to reconcile net income (loss) to net
cash used for operating activities -
Minority interest in subsidiary 887 --
Depreciation and amortization 461 1,157
Other (35) (820)
Decrease (increase) in assets-
Receivables (14,247) (2,359)
Inventories 94 1,398
Other current assets (687) (8,152)
Increase (decrease) in liabilities-
Accounts payable 865 (3,976)
Accrued compensation 392 113
Deferred revenue 1,060 1,722
Other accrued expenses 1,921 1,181
-------- --------
Net cash used for operating activities $ (5,391) $(16,177)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments $ (338) $ 20,642
Additions to property and equipment, net of non-cash additions
of $0 and $141, respectively (767) (681)
Additions to patents (70) (273)
Other non-current assets (248) (152)
-------- --------
Net cash provided by (used for) investing activities $ (1,423) $ 19,536
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of Common Stock
and exercises of stock options and warrants $ 7,054 205
Payments on long-term debt , including capital lease obligations (124) $ (202)
-------- --------
Net cash provided by financing activities $ 6,930 $ 3
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 116 $ 3,362
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,427 11,954
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,543 $ 15,316
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 27 $ 81
======== ========
Income taxes paid, excluding foreign witholding taxes $ 270 $ 15
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1997, the Company has sold over 315 UltraPhone
systems worldwide, with aggregate UltraPhone product revenue totaling over $185
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. ITC implemented a strategy during 1993 of
negotiation and, where necessary, litigation with certain entities which it
believed were representative of the broader number of entities infringing ITC's
patents. These efforts have resulted in patent license agreements with a total
of thirteen entities, the recognition of $28.7 million, $67.7 million and $28.7
million of licensing revenue in 1994, 1995 and 1996, respectively, and the
initiation of litigation against major telecommunications companies.
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 March 31, 1997 and the results of their operations for the three
month periods ended March 31, 1996 and 1997 and cash flows for the three month
periods ended March 31, 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
6
<PAGE>
schedules, information and notes necessary for a fair presentation of financial
condition, results of operations and cash flows in conformity with generally
accepted accounting principles. Therefore, these financial statements should be
read in conjunction with the financial statements and notes thereto contained in
the Company's latest annual report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire year.
The 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., ITC has received an adverse jury verdict and is in the post-trial
appeal process. In another action, the Court has stayed the proceeding, at the
request of the parties, pending a decision by the appeals court on the Motorola
case. 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, March 31,
1996 1997
------------ ---------
Money market funds and demand deposits $ 2,871 $10,407
Certificates of deposit 204 --
Repurchase agreements 1,457 1,991
Commercial paper 7,422 2,918
------- -------
$11,954 $15,316
======= =======
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 March 31, 1997 consisted of $11.8 million
in government-issued discount notes , $2.9 million in municipal securities and
$7.7 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 March 31, 1996, the Company's Puerto Rican and Philippine
customers accounted for 45% and 21% of UltraPhone product revenues,
respectively. For the three months ended March 31, 1997, the Company's
Indonesian and Philippine customers accounted for 78% and 11% of UltraPhone
product revenues, respectively.
UltraPhone product revenues by geographic area are as follows
(in thousands):
Three Months
Ended
March 31,
1996 1997
---- ----
Domestic $ 449 $ 256
Foreign 1,378 23,250
------ -------
$1,827 $23,776
====== =======
Licensing and Alliance Revenue:
The Licensing and Alliance revenues for the three months ended March 31,
1997 include $704,000 from Samsung, $683,000 of recurring royalty revenue from
one licensee and $800,000 from Siemens. During the three months ended March 31,
1996, ITC recognized $14 million related to the Samsung agreements and $1.6
million related to the Siemens agreements.
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 month period
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; the effect of this
accounting change on previously reported EPS for the three months ended March
31, 1996 was as follows:
Primary EPS as reported $.08
Effect of SFAS 128 .01
----
Basic EPS as restated $.09
====
8
<PAGE>
7. INVENTORIES:
December 31, March 31,
1996 1997
------------ ---------
(In thousands)
Component parts and work-in-progress $11,640 $11,687
Finished goods 2,223 778
------- -------
$13,863 $12,465
======= =======
Inventories are stated net of valuation reserves of $5.9 million and $6.0
million as of December 31, 1996 and March 31, 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 $93,000
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 tax provision for the three months ended March 31, 1996 includes
a current foreign withholding tax of $2.3 million and current state tax
provision of $111,000. The income tax provision for the three months ended March
31, 1997 consisted of a current state tax expense of $17,000. 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 March 31, 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 March 31, 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>
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 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, 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 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.
An order comprising a significant portion of the Company's current backlog
(see, "Backlog") is subject to completion of adequate financing and final
provision of radio frequencies. Accordingly, the Company cannot predict with
certainty when it will begin shipping that order, and the volume of production
and shipments prior to that time may not fully absorb fixed manufacturing costs,
which would negatively affect gross margins.
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, 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.
10
<PAGE>
Liquidity
The Company had working capital of $49.9 million at March 31, 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
enforcement activities. In addition, when the Company builds to specification to
complete an order, it traditionally experiences negative cash flows from
inception of its production ordering through customer payment at the time of, or
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, the Company may, 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 enforcement 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 March 31, 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 March 31, 1997 balance
sheets.
Backlog
At April 30, 1997, the Company's backlog of orders for UltraPhone telephone
equipment and services was $44.8 million, which includes the Company's first
order from its Pakistani customer of $42.9 million. The Pakistan order is
subject to completion of adequate financing and the final provision of radio
frequencies. All of the backlog except the Pakistani order is scheduled to be
delivered during the remainder of fiscal year 1997. The Company's Pakistani
customer has extended the validity of the contract until June 16, 1997 to allow
for the completion of the financing arrangements. Due to the continuing
inability to complete such arrangements, the Company cannot predict with any
certainty when shipments are expected to commence or if the customer will honor
the contract after June 16, 1997 or any subsequent further extension. In any
event, however, shipments against this order during the remainder of 1997 will
not be significant due to lengthy materials procurement lead times. At April 30,
1996, the Company's backlog of orders for UltraPhone telephone equipment and
services was $55.8 million.
11
<PAGE>
Cash Flows and Financial Condition
The Company has experienced negative cash flows from operations during the
quarter ended March 31, 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 quarter
ended March 31, 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 quarter ended March 31, 1997, the Company generated $3,000 from
financing activities. The funds were primarily from the exercise of stock
options and warrants, net of payments on long-term debt (including capital lease
obligations).
Cash, cash equivalents and short-term investments of $15.3 million as of
March 31, 1997 includes $290,000 of restricted cash. The UltraPhone product
accounts receivable of $15.2 million at March 31, 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 March 31, 1997, $1.4 million has been collected through May 7, 1997.
Inventory levels at March 31, 1997 of $12.5 million have decreased slightly
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 March
31, 1997 are stated net of valuation reserves of $5.9 million and $6.0 million,
respectively.
Included in other accrued expenses at March 31, 1997 are professional fees,
consulting and other accruals as well as sales taxes payable.
Results of Operations - First Quarter of 1997 Compared to the First Quarter
of 1996
Total Revenues. Total revenues in the first quarter ended March 31, 1997
increased to $26.0 million from $17.4 million in the first quarter ended March
31, 1996 due to an increase in UltraPhone product sales. UltraPhone product
sales increased in the first quarter of 1997 to $23.8 million from $1.8 million
in the comparable quarter of 1996, partially offset by a decline in licensing
and alliance revenues to $2.2 million in the first quarter of 1997 as compared
to $15.6 million in the comparable quarter of the prior year.
During the first 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 $683,000 of recurring
royalty revenue during the first quarter of 1997 from one of its licensees.
Additionally, the Company recognized revenue of $800,000 as part of the Siemens
series of agreements. During the first quarter of 1996, the Company recognized
$14 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 first
quarter of 1997 increased to $21.0 million from $2.9 million for the first
quarter of 1996, primarily due to the increase in UltraPhone product revenues.
The Company had approximately 11.8% positive gross margin on UltraPhone system
sales for the quarter ended March 31, 1997 as compared to a negative gross
margin of 57.5% for the quarter ended March 31, 1996. Due to the increased
volume of UltraPhone product revenues, manufacturing overhead expenses were
almost 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
12
<PAGE>
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 168% to $2.1 million during the
first quarter of 1997 as compared to $773,000 during the first quarter of 1996.
The increase is primarily due to increased staff and activity levels, including
costs associated with increasing activity related to the Company's B-CDMA based
product, and included an increase in commission expense due to the increase in
UltraPhone product revenues in the three month period of 1997.
General and administrative expenses for the first quarter of 1997 increased
3% to $3.3 million from $3.2 million for the first quarter of 1996. The increase
is primarily due to an increase in expenses related to corporate communications
activities.
Product development expenses for the first quarter of 1997 increased 44% to
$6.3 million as compared to $4.3 million during the first 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 first quarter of 1997 was
$359,000 as compared to $1.1 million for the first 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 March 31, 1997 was $119,000
as compared to $33,000 for the quarter ended March 31, 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 first quarter of 1996 of $887,000. 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.
13
<PAGE>
PART II - OTHER INFORMATION
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 3.1 Restated Articles of Incorporation
Exhibit 10.32 Employment Agreement dated May 7, 1997 by and between
InterDigital Communications Corporation and Mark Lemmo
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
first quarter of 1997:
The Company filed a Current Report on Form 8-K dated January 2, 1997 under
Item 5 - Other Events relating to a Rights Agreement between the Company
and its transfer agent. No financial statements were filed with this
report.
The Company filed a Current Report on Form 8-K dated January 21, 1997 under
Item 5 - Other Events relating to the date set for the appeal in the
Company's litigation with Motorola. No financial statements were filed with
this report.
The Company filed a Current Report on Form 8-K dated January 22, 1997 under
Item 5 - Other Events with a copy of its quarterly letter to shareholders.
No financial statements were filed with this report.
The Company filed a Current Report on Form 8-K dated January 22, 1997 under
Item 5 - Other Events with a statement of factors which could cause the
Company's actual results to vary or ability to achieve goals to differ from
those expressed in any forward looking statement. No financial statements
were filed with this report.
14
<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: May 14, 1997 /s/ William A. Doyle
---------------------------------------
William A. Doyle, President
Date: May 14, 1997 /s/ James W. Garrison
---------------------------------------
James W. Garrison, Vice President -
Finance, Chief Financial
Officer and Treasurer
15
<PAGE>
InterDigital Communications Corporation
Amended & Restated
Articles of Incorporation
In compliance with the requirements of the Pennsylvania Business
Corporation Law of 1988, as amended, the Articles of Incorporation of
INTERDIGITAL COMMUNICATIONS CORPORATION are hereby amended and restated in their
entirety to read as follows:
First. The name of the Corporation is InterDigital Communications Corporation.
Second. The location and post office address of its registered office is 781
Third Avenue, King of Prussia, Pennsylvania 19406-1409.
Third. The Corporation is incorporated under the Business Corporation Law of the
Commonwealth of Pennsylvania for the purpose or purposes of engaging in or doing
any lawful act concerning any or all lawful business for which corporations may
be incorporated under the Pennsylvania Business Corporation Law, including but
not limited to manufacturing, owning, using, leasing and dealing in personal
property of every class and description, and acquiring, owning, using and
disposing of real property of any nature whatsoever.
Fourth. The term for which the Corporation is to exist is perpetual.
Fifth. The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is
(i) 75,000,000 shares of Common Stock, $0.01 par value per share ("Common
Stock"), and
(ii) 14,398,600 shares of Preferred Stock, $0.10 par value per share
("Preferred Stock").
The voting rights, designations, preferences, qualifications,
privileges, limitations, options, conversion rights and other special rights
(the "Rights and Preferences") of the shares of the respective classes of stock
of the Corporation are and will be determined as follows:
A. Preferred Stock
The Board of Directors of the Corporation shall have full and
complete authority, by resolution from time to time, to establish one
or more series and to issue shares of Preferred Stock and to fix,
determine and vary the Rights and Preferences of each series of
Preferred Stock, including, but not limited to, dividend rates and
manner of payment, preferential amounts payable upon voluntary or
involuntary liquidation, voting rights, conversion rights, redemption
prices, terms and conditions and sinking fund and stock purchase
prices, terms and conditions.
B. $2.50 Cumulative Convertible Preferred Stock
The series of Preferred Stock, $.10 par value per share, of
the Corporation known as the $2.50 Cumulative Convertible Preferred
Stock shall have the following Rights and Preferences:
Section 1. Designation and Amount. The shares of such series
shall be designated as $2.50 Cumulative Convertible Preferred Stock
(the "Convertible Preferred Stock"), and the number of shares
constituting such series shall be 105,212. Such number of shares may
not be increased, but may be decreased, at any time and from time to
time, by resolution of the Board of Directors; provided, that
no decrease shall reduce the number of shares of Convertible Preferred
Stock to a number less than that of the shares then outstanding.
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of
any shares of any series of preferred stock ranking senior to the
shares of Convertible Preferred Stock with respect to dividends, the
holders of shares of Convertible Preferred Stock, in preference (to the
extent provided in Section 4) to the holders of any and all other
classes of stock, whether common or preferred, including the Common
Stock, par value $.01 per share, of the Corporation (the "Common
Stock"), shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available therefor, semiannual
dividends payable in cash, Common Stock or a combination of cash and
Common Stock, at the Corporation's election in its sole discretion
(subject to the terms of Section 12), as hereinafter provided.
Dividends on each share of Convertible Preferred Stock shall begin to
accrue and be cumulative from the first date of issuance of any such
share and shall accumulate and be payable on the first calendar day of
June and December in each year, commencing December 1, 1987, or, if
such day is not a business day of the Corporation, the next succeeding
business day of the Corporation (each such date being referred to
herein as a "Dividend Payment Date"), at an annual rate of $2.50 per
share of Convertible Preferred Stock, calculated on the basis of a year
of 360 days consisting of twelve 30-day months. The amount of dividends
payable per share for each full dividend period shall be computed by
dividing by two the $2.50 annual rate (rounding such amount to the
nearest cent). If less than six months shall have elapsed from the
first date of issuance of Convertible Preferred Stock to the first
Dividend Payment Date after such issuance, the dividends payable on
such Dividend Payment Date shall be the amount payable on each
subsequent Dividend Payment Date multiplied by a fraction, the
numerator of which is the number of days from the first date of
issuance of the Convertible Preferred Stock to such first Dividend
Payment Date and the denominator of which is 180. If the Corporation
elects to pay all or any portion of a dividend in Common Stock, the
number of shares of Common Stock to be issued by the Company in payment
of such dividend or portion thereof shall be the dollar amount of the
dividend or portion thereof not paid in cash divided by the per share
Computed Price (as defined below) of the Common Stock. Accumulated but
unpaid dividends shall not bear interest. Dividends paid on shares of
Convertible Preferred Stock in an amount less than the total amount of
such dividends at the time accumulated and payable on such shares shall
be allocated pro rata on a share-by-share basis among all such shares
at the time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Convertible Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 50 days prior
to the date fixed for the payment thereof.
(B) Notwithstanding the provisions of Section 2(A) above, a
dividend on Convertible Preferred Stock will be payable only in cash in
the following circumstances: (i) to the extent the number of shares of
Common Stock at the time authorized, unissued and unreserved for all
purposes, or held in the Corporation's treasury, is insufficient to pay
the portion of such dividend to be paid in Common Stock; (ii) to the
extent the issuance or delivery of shares of Common Stock in payment of
a dividend on Convertible Preferred Stock would require registration
with or approval of any governmental authority under any law or
regulation, and such registration or approval has not been effected or
obtained; (iii) the Computed Price (as defined below) is less than the
then par value of the Common Stock; (iv) to the extent the shares of
Common Stock to be issued in payment of a dividend on the Convertible
Preferred Stock have not been authorized for listing, upon official
notice of issuance, on any United States national or regional
securities exchange on which such Common Stock is then listed; or (v)
the Common Stock is no longer traded in the over-the-counter market and
is not listed on a United States national or regional securities
exchange.
(C) As used herein, the "Computed Price" of a share of Common
Stock shall mean the price equal to the following applicable percentage
of the arithmetic average of the Closing Sale Price (as defined below)
of the Common Stock for the 10 consecutive trading days ending on the
fifth trading day prior to the applicable Dividend Payment Date: 100%,
if the Amount of the Shares (as defined below) is less than or equal to
one-half the Average Dollar Volume Amount (as defined below); 95%, if
the Amount of the Shares is greater than one-half but less than or
equal to one times
<PAGE>
the Average Dollar Volume Amount; 90%, if the Amount of the Shares is
greater than one times but less than or equal to two times the Average
Dollar Volume Amount; 85%, if the Amount of the Shares is greater than
two times but less than or equal to four times the Average Dollar
Volume Amount; 80%, if the Amount of the Shares is greater than four
times but less than or equal to six times the Average Dollar Volume
Amount; or 75%, if the Amount of the Shares is greater than six times
the Average Dollar Volume Amount.
For purposes of this Section 2(C), the "Closing Sale Price" of
the Common Stock on a given day means the closing sale price of (or, if
such price is not reported, the closing bid price for) the Common Stock
on such day, as reported in the composite transactions for this
principal United States securities exchange on which the Common Stock
is traded, or, if the Common Stock is not listed on a United States
national or regional stock exchange, as reported by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ")
or the National Quotation Bureau Incorporated (or if the Common Stock
is not so listed and such closing sale and closing bid price are not
reported by NASDAQ or the National Quotation Bureau Incorporated, then
such price shall be determined by the Board of Directors in good faith,
such determination to be conclusive); the "Amount of the Shares" means
the sum of (a) the dollar amount of dividends to be paid in shares of
Common Stock on the Convertible Preferred Stock on the applicable
Dividend Payment Date plus (b) the dollar amount of dividends and
interest paid in shares of Common Stock during the 60 consecutive
calendar days preceding such Dividend Payment Date (the "Period") on
any other securities issued or guaranteed by the Corporation or any of
its subsidiaries plus (c) the dollar amount of redemptions in respect
of any securities issued or guaranteed by the Corporation or any of its
subsidiaries paid or satisfied in Common Stock during the Period plus
(d) the dollar amount of Common Stock issued during the Period upon any
Forced Conversion (as defined below) or any convertible debt or equity
securities (excluding employee stock options) of the Corporation or any
of its subsidiaries; the "Average Dollar Volume Amount" means one-half
of the sum of the products obtained by multiplying (i) the daily volume
of Common Stock traded for each of the twenty consecutive trading days
ending on the fifth trading day prior to the Dividend Payment Date by
(ii) the Closing Sale Price of the Common Stock on the corresponding
particular trading day; and "Forced Conversion" means conversions (a)
within the period following a notice of redemption and prior to the
redemption date to which such notice relates, excepting redemptions of
the Corporation's Preferred Stock, First Series, (b) within a 90-day
period following a voluntary reduction in the conversion price below
the market price of the Common Stock or (c) pursuant to a provision
which sets the conversion price for a specified period (the "conversion
period") as a percentage (of less than 100%) of the market price of the
Common Stock during the conversion period or during a period beginning
not more than 90 days prior to the first day of such conversion period.
(D) No interest or sum of money in lieu of interest shall be
payable in respect of any dividend payment or payments which may be
arrears. In the event that two consecutive semi-annual dividends
payable on the Convertible Preferred Stock are in arrears and the full
amount of accumulated dividends due under Section 2(A) above is not (i)
paid or (ii) declared and funds or shares of Common Stock (to the
extent permissible hereunder) sufficient to pay the full amount of
accumulated dividends due under Section 2(A) above set aside for
payment of dividends, within 15 business days after the Dividend
Payment Date of the second consecutive dividend in arrears (any such
occurrence being referred to herein as a "Dividend Default"), the
holder of each share of Convertible Preferred Stock may, on the two
business days following the applicable Penalty Conversion Date (defined
as the thirtieth calendar day after such second consecutive Dividend
Payment Date), at the option of such holder, in lieu of all dividends
which have accrued but remain unpaid (whether or not declared), and
notwithstanding that such Dividend Default may have been cured
subsequent to such period of 15 business days, convert such share of
Convertible Preferred Stock into the number of shares of Common Stock
determined as set forth below (a "Penalty Conversion Right"). The
number of shares of Common Stock into which each share of Convertible
Preferred Stock shall be so convertible upon a Dividend Default and the
exercise of the resulting Penalty Conversion Right shall be a fraction,
rounded to the nearest one hundredth, the numerator of which is $25.00
plus an amount per share equal to all accrued and unpaid dividends
thereon to the applicable Penalty Conversion Date, whether or not
declared, and the denominator of which
<PAGE>
is seventy-five percent (75%) of the lowest Closing Sale Price (as
previously defined) of the Common Stock during the period beginning on
the second consecutive Dividend Payment Date immediately preceding the
Penalty Conversion Date and ending five trading days prior to the
Penalty Conversion Date (such denominator being referred to herein as
the "Penalty Conversion Price"). Upon the occurrence of a Dividend
Default, the Corporation shall promptly mail to each holder of shares
of Convertible Preferred Stock at such holder's last address as the
same appears on the books of the Corporation a notice (a) stating that
a Dividend Default has occurred, (b) setting forth the terms of the
Penalty Conversion Right and (c) setting forth the time, place and
manner of exercise of such Penalty Conversion Right.
(E) If (i) a Dividend Default shall have occurred, (ii) a
Penalty Conversion Right with respect to any of the outstanding shares
of Convertible Preferred Stock shall be exercisable in accordance with
the terms of Sections 2(D) and (iii) any of the following circumstances
shall then exist (any such concurrent occurrence of each of (i), (ii)
and (iii) being referred to herein as a "Penalty Conversion Right
Extension"):
(a) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all other purposes or
held in the Corporation's treasury is insufficient to satisfy
the Corporation's obligations with respect to the conversion
of Convertible Preferred Stock pursuant to any such Penalty
Conversion Right; (b) the issuance or delivery of shares of
Common Stock in satisfaction of any such Penalty Conversion
Right would require registration with or approval of any
governmental authority under any law or regulation, and such
registration or approval has not been effected or obtained;
(c) the Penalty Conversion Price is less than the then par
value of the Common Stock; (d) the shares of Common Stock to
be issued in payment of a dividend on the Convertible
Preferred Stock have not been authorized for listing upon
official notice of issuance, on any United States national or
regional securities exchange on which such Common Stock is
then listed; or (e) the Common Stock is no longer traded in
the over-the-counter market and is not listed on a United
States national or regional securities exchange (any of such
circumstances (a) through (e) being referred to herein as a
"Penalty Conversion Right Extending Event"),
then the Penalty Conversion Right with respect to the Convertible
Preferred Stock shall not terminate at the end of the two business days
following the Penalty Conversion Date, but shall remain exercisable at
any time until and including the Extended Penalty Conversion Date
(defined as the thirtieth calendar day after the day on which no
Penalty Conversion Right Extending Event shall continue to exist) in
the manner set forth in Section 2(F) (an "Extended Penalty Conversion
Right"). The number of shares of Common Stock into which each share of
Convertible Preferred Stock shall be convertible upon the exercise of
an Extended Penalty Conversion Right shall be a fraction, rounded to
the nearest one-hundredth, the numerator of which is $25.00 plus an
amount per share equal to all accrued and unpaid dividends thereon,
whether or not declared, to the date of the exercise of such Extended
Penalty Conversion Right, and the denominator of which is seventy-five
percent (75%) of the lowest Closing Sales Price (as defined above) of
the Common Stock during the period beginning on the second consecutive
Dividend Payment Date with respect to which the Dividend Default giving
rise to such Extended Penalty Conversion Right originally occurred and
ending five trading days prior to the Extended Penalty Conversion Date
(such denominator being referred to herein as the "Extended Penalty
Conversion Price").
In the event that a Dividend Default shall have occurred and
any Penalty Conversion Price Extending Event shall be in existence, the
Corporation shall promptly mail to each holder of shares of Convertible
Preferred Stock, at such holder's last address as the same appears on
the books of the Corporation, a notice of the existence of such
Dividend Default and Penalty Conversion Right Extending Event, which
notice shall describe the terms upon which an Extended Penalty
Conversion Right may arise and be exercised. Upon the cessation of all
Penalty Conversion Right Extending Events, the Corporation shall notify
each holder in a similar manner of the date upon which the Penalty
Conversion Right or the Extended Penalty Conversion Right, as the case
may be, shall terminate. Such notice shall set forth the terms and
manner of exercise of such Right.
<PAGE>
(F) A holder of shares of Convertible Preferred Stock may
surrender for conversion pursuant to a then exercisable Penalty
Conversion Right or Extended Penalty Conversion Right (either of which
is referred to hereinafter in this Section 2 as a "Conversion Right")
all or any portion of such shares. Holders of Convertible Preferred
Stock desiring to exercise a Conversion Right shall so elect by
presenting to the Corporation at its principal place of business,
within the period permitted to exercise such Conversion Right, their
stock certificates representing the shares of Convertible Preferred
Stock to be so converted pursuant to such conversion right, with the
Notice of Election to Convert printed on the reverse side of such
certificates appropriately completed, together with appropriate
endorsements and transfer documents sufficient to transfer the
Convertible Preferred Stock being converted to the Corporation free of
any adverse interest, and by paying, at that time, any transfer or
similar tax if required pursuant to Section 2(G). A Conversion Right in
respect of shares of Convertible Preferred Stock for which certificates
are not presented in accordance with the terms of this Section 2(F)
within such applicable period of time or in respect of which the
election to exercise the Conversion Right is not made in accordance
with the terms of this Section 2(F) shall cease to be exercisable,
provided, that such a termination of a Conversion Right shall not
prejudice any new Conversion Right that may subsequently arise in
accordance with the terms of Section 2(D) or 2(E). A conversion
pursuant to a Conversion Right shall be deemed to have been made at the
close of business on the day on which the converting holder presents to
the Corporation the certificates for shares of Convertible Preferred
Stock to be converted (assuming that such holder has satisfied all of
the requirements set forth in this Section 2(F)), and the rights of
such holder with respect to any such converted share shall cease at
such time. The person in whose name the Common Stock certificate is
registered shall be treated as a shareholder of record on and after the
day of conversion. On such day, or as soon thereafter as is
practicable, the Corporation shall deliver to the converting holder a
stock certificate for the number of shares of Common Stock issuable
upon the conversion and a stock certificate representing the number of
shares of Convertible Preferred Stock equal to any unconverted portion
of the stock certificate surrendered by the holder to the Corporation
pursuant to this Section 2(F). Except as set forth in Section 2(D) or
2(E) with respect to the computation of the number of shares of Common
Stock issuable upon exercise of a Conversion Right, no payment or
adjustment will be made for accrued dividends on any share of
Convertible Preferred Stock converted pursuant to a Conversion Right or
for dividends on any Common Stock issued pursuant to the exercise of a
Conversion Right. All accrued and unpaid dividends on such share shall
cease to be payable following conversion of a share of Convertible
Preferred Stock.
Any Conversion Right then exercisable in respect of any shares
of Convertible Preferred Stock called for redemption shall terminate at
the close of business on the business day prior to the date fixed for
redemption, provided that no default by the Corporation in the payment
of the application redemption price (including any accrued and unpaid
dividends) shall have occurred and be continuing.
(G) If a holder of a share of Convertible Preferred Stock
converts such share pursuant to a Conversion Right, the Corporation
shall pay any documentary, stamp or similar issue or transfer tax due
on the issue of shares of Common Stock upon the conversion. However,
such holder shall pay any such tax that is due because the shares are
issued in a name other than that such converting holder's name, and the
Corporation shall not be required to issue or deliver certificates
representing such shares of Common Stock unless or until the party or
parties requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(H) The Corporation covenants that it will, after a Dividend
Default and prior to any Penalty Conversion Date, use its best efforts
to reserve and keep available, free from preemptive rights, out of its
authorized Common Stock, solely for the purpose of issuance upon
conversion of shares of Convertible Preferred Stock pursuant to
Conversion Rights, such number of shares of Common Stock as it then
reasonably estimates shall be issuable upon the conversion of all
outstanding shares of Convertible Preferred Stock that may be converted
pursuant to Conversion Rights that may be excisable following the next
Penalty Conversion Date. The Corporation convenants that all shares of
Common Stock that shall be issuable upon the exercise of Conversion
Rights shall be, when issued, duly and validly issued and fully paid
and nonassessable, free of all
<PAGE>
liens and charges and not subject to any preemptive rights. For
purposes of this Section 2(H), the number of shares of Common Stock
that shall be issuable upon the conversion of all outstanding shares of
Convertible Preferred Stock shall be computed as if at the time of
computation all outstanding shares of Convertible Preferred Stock were
held by a single holder. The issuance of shares of Common Stock upon
conversion of Convertible Preferred Stock pursuant to exercise of any
Conversion Rights is authorized in all respects.
(I) In any case if any (i) consolidation or merger of the
Corporation with or into another entity (other than a consolidation or
merger in which the Corporation is the surviving entity), (ii) sale or
conveyance of all or substantially all of the assets of the
Corporation, (iii) reclassification or change of the Corporation's
Common Stock issuable upon conversion of shares of Convertible
Preferred Stock pursuant to a Conversion Right (other than a change in
par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any division of the
Corporation's Common Stock into two or more classes or series), (iv)
consolidation or merger of another entity into the Corporation in which
the Corporation is the surviving entity and in which there is a
reclassification or change of the Corporation's Common Stock (other
than a change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any division of
the Corporation's Common Stock into two or more classes or series), or
(v) Statutory exchange of securities with another entity (including any
exchange effected in connection with a merger of a third enitity into
the Corporation), in each case while any shares of Convertible
Preferred Stock remain outstanding, there shall be no adjustment of the
Penalty Conversion Price or the Extended Penalty Conversion Price but
the holders of outstanding shares of Convertible Preferred Stock shall
have the right thereafter to convert such shares of Convertible
Preferred Stock pursuant to an exercise of any Conversion Right
pursuant to the terms of Section 2(D) or 2(E), as the case may be,
solely into the kind and amount of shares of stock or other securities,
cash or other property, or any combination thereof, receivable upon
such reclassification, change, statutory exchange, consolidation,
merger, sale or conveyance, as if such shares of Convertible Preferred
Stock had been converted into shares of Common Stock immediately prior
to the effective date of such reclassification, change, statutory
exchange, consolidation, merger, sale or conveyance (assuming that the
holders of such shares of Convertible Preferred Stock, as holders of
Common Stock prior to the transaction, would not have exercised any
rights of election as holders of Common Stock as to the kind or amount
of stock or other securities, cash or other property receivable upon
such reclassification, statutory exchange, consolidation, merger, sale
or conveyance; provided, that if the kind or amount of stock or other
securities, cash or other property receivable upon such
reclassification, change, statutory exchange, consolidation, merger,
sale, or conveyance is not the same for each non-electing share of
Common Stock, then the kind and amount of stock or other securities,
cash or other property receivable shall be deemed to be the kind and
amount so receivable by a plurality of the non-electing shares).
(J) An adjustment made pursuant to Section 2(I) shall become
effective immediately after the effective date in respect of the
transaction giving rise to such adjustment. If, as a result of an
adjustment made pursuant to Section 2 (I), the holder of any share of
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of capital
stock or shares of Common Stock and other capital stock of the
Corporation, the Board of Directors (whose determination shall be
conclusive) shall determine for accounting purposes the
allocation of the Penalty Conversion Price or Extended Penalty
Conversion Price, as the case may be, between or among shares of such
classes of capital stock or shares of Common Stock and other capital
stock.
(K) If (i) any transaction described in Section 2(I) shall
have occurred such that shares of Convertible Preferred Stock shall
then be convertible, in whole or in part, into a security or securities
other than the Common Stock of the Corporation (any such security being
referred to in this Section 2(K) as an "Other Security"), (ii) a
Dividend Default shall have occurred, (iii) a Penalty Conversion Right
with respect to any of the outstanding shares of Convertible Preferred
Stock shall be exercisable in accordance with the terms of Section
2(D), and (iv) any of the following circumstances shall then exist:
<PAGE>
(a) the number of units of an Other Security at the
time authorized, unissued and unreserved for all purposes or
held in the treasury of the Corporation or its successors, as
the case may be, is in sufficient to satisfy the Corporation's
or such successor' s obligations with respect to the
conversion of Convertible Preferred Stock pursuant to any such
Penalty Conversion Right; (b) the issuance or delivery of an
Other Security in satisfaction of any such Penalty Conversion
Right would require registration with or approval of any
governmental authority under law or regulation, and such
registration or approval has not been effected or obtained;
(c) the Other Security to be issued in payment of a dividend
on the Convertible Preferred Stock has not been authorized for
listing, upon official notice of issuance, on any United
States national or regional securities exchange on which such
Common Stock is then listed; or (d) the Other Security is not
traded in the over-the-counter market and is not listed on a
United States national or regional securities exchange,
then the Penalty Conversion Right with respect to the Convertible
Preferred Stock shall not terminate at the end of two business days
following the Penalty Conversion Date but shall remain exercisable, in
the manner set forth in Section 2(F), at any time until and including
the thirtieth calendar day after the day on which none of the
circumstances set forth in (a) or (b) above shall continue to exist.
In the event that a Dividend Default shall have occured and
any of the circumstances set forth in (a) or (b) above shall be in
existence, the Corporation shall promptly mail to each holder of shares
of Convertible Preferred Stock, at such holder's last address as the
same appears on the books of the Corporation, a notice of the existence
of such Dividend Default and such circumstance set forth in (a) or (b)
above, which notice shall describe the terms upon which an extended
Penalty Conversion Right may arise and be exercised pursuant to this
Section 2(K). Upon the cessation of all circumstances giving rise to
such extended Penalty Conversion Right, the Corporation shall notify
each holder in similar manner of the date upon which the Penalty
Conversion Right or the Extended Penalty Conversion Right, as the case
may be, shall terminate. Such notice shall set forth the terms and
manner of exercise of such Right.
(L) The Corporation may, in its sole discretion, make any
appropriate upward adjustment in the number of shares of Common Stock
issuable upon conversion of shares of Convertible Preferred Stock
pursuant to the exercise of a Conversion Right as the Corporation
considers to be advisable in order that any event treated for Federal
income tax purposes as a distribution of stock or stock rights with
respect to the Common Stock will not be taxable to the holders of
Common Stock.
(M) Whenever the Penalty Conversion Right of the Convertible
Preferred Stock is adjusted as provided in Section 2(I) or 2(L), a
notice stating that the Penalty Conversion Right has been adjusted,
setting forth the terms of the Penalty Conversion Right as adjusted,
and containing a brief statement of the facts giving rise to such
adjustment and the manner of computing the same (which certificate
shall be conclusive evidence of the correctness of such adjustment),
shall forthwith be mailed by the Corporation or its successor, as the
case may be, to each holder of shares of Convertible Preferred Stock at
such holder's last address as the same appears on the books of the
Corporation.
In the event that any time as a result of an adjustment made
pursuant to Section 2(I), the holder of any share of Convertible
Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any shares of the Corporation other than shares of
Common Stock, thereafter the Penalty of Conversion Right with respect
to such other shares so receivable upon conversion of any share of
Convertible Preferred Stock shall be subject to readjustment from time
to time in a manner and on terms as nearly equivalent as practicable to
the provisions contained herein.
In any case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth herein with respect to the
rights and interests thereafter of the holders of shares of Convertible
Preferred Stock, to the end that the provisions set forth herein shall
thereafter
<PAGE>
correspondingly be made applicable, as nearly as may reasonably be, in
relation to any shares of stock or other securities or property
thereafter deliverable on the conversion of shares of Convertible
Preferred Stock pursuant to exercise of a Conversion Right.
The above provisions shall similarly apply to successive
consolidations, mergers, reclassifications, changes, statutory
exchanges, sales or conveyances.
(N) In the event that: (i) the Corporation shall take any
action which would require an adjustment in the Penalty Conversion
Right of the Convertible Preferred Stock pursuant to the terms of this
Section 2; (ii) there shall be any capital reorganization, or
reclassification or change of the Common Stock (other than a change in
the par value of the Common Stock, or from par value to no par value or
as a result of a subdivision or combination of the outstanding Common
Stock, but including any division of the Corporation's Common Stock
into two or more classes or series), or any consolidation or merger to
which the Corporation is a party or any statutory exchange of
securities with another corporation and for which approval of any
stockholders of the Corporation is required, or any sale or conveyance
of all or substantially all of the assets of the Corporation; or (iii)
there shall be a voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; then the Corporation shall cause to be
mailed to each holder of shares of Convertible Preferred Stock at such
holder's last address as the same appears on the books of the
Corporation, at least 15 days prior to the applicable date hereinafter
specified, a notice stating the data on which such reorganization,
reclassification, change, statutory exchange, consolidation, merger,
sale, conveyance, liquidation, dissolution or winding up is expected to
become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares of
Common Stock for stock or other securities, cash or other property
deliverable upon such reorganization, reclassification, change
statutory exchange, consolidation, merger, sale, conveyance,
liquidation, dissolution or winding up. Failure to give such notice, or
any defect therein, shall not, however, affect the legality or validity
of any action described in clauses (i), (ii) or (iii) of this Section
2(N).
Section 3. Voting Rights. Expect as otherwise expressly
provided herein or as specifically required by law, the holders of
shares of Convertible Preferred Stock shall have no voting rights.
(A) So long as the Convertible Preferred Stock is outstanding,
the Corporation shall not, without the affirmative vote of the holders
of at least a majority of all outstanding shares of Convertible
Preferred Stock, voting as a class, (i) amend, alter or repeal any
provisions of the Corporation's Articles of Incorporation, as amended,
or By-laws which would materially adversely affect the Rights and
Preferences of the Convertible Preferred Stock, provided that an
amendment that would authorize or create or increase the amount of any
stock ranking junior to the Convertible Preferred Stock as to dividend
and liquidation rights will be deemed not to adversely affect such
Rights and Preferences, or (ii) authorize or create, or increase the
authorized amount of, any capital stock of the Corporation of any
class, or any security convertible into such capital stock, ranking
prior to or on a parity with the Convertible Preferred Stock as to
either dividend or liquidation rights. Notwithstanding the foregoing,
if the voting rights set forth in this Section 3(A) are exercisable as
to a particular matter by more than one series of the Corporation's
preferred stock, the affirmative vote on such matter will be of the
holders of at least a majority of the shares of all such series voting
as a single class without regard to series, and the separate voting
rights of the holders of Convertible Preferred Stock as set forth in
this Section 3(A) shall not apply.
(B) (i) Whenever and as often as two or more consecutive
semi-annual dividends payable on the Convertible Preferred Stock shall
be past due (a "Default"), the holders of the Convertible Preferred
Stock, voting as a class, shall have the exclusive right, as set forth
below, to vote for and to elect one director of the Corporation. The
right of the holders of the Convertible Preferred Stock to elect such
director, however, shall cease when all arrearage in the payment of
dividends on the Convertible Preferred Stock shall have been cured
(either through payment or through being declared and set aside for
payment) or no such Convertible Preferred Stock is outstanding,
whichever first occurs.
<PAGE>
(ii) If, at any time, a Default shall occur, then (i) the
number of directors of the Corporation shall be increased by one,
effective as of the time of election of such directors as hereinafter
provided, and (ii) the holders of Convertible Preferred Stock, voting
as a single class, shall be entitled to elect one director to fill the
vacancy caused by so increasing the number of directors (the class or
classes of directors to which such director is to be assigned to be
determined by the board of Directors). The right of the holders of the
Convertible Preferred Stock so to elect such director may be exercised
at any time before all arrearage in the payment of dividends on the
Convertible Preferred Stock are cured, as set forth in (i) above.
Effective as of such cure, (i) the holders of the Convertible Preferred
Stock shall no longer have the right so to elect any directors, subject
to revesting in the event of each and every subsequent Default,
(ii) the term of office of the director then in office elected by such
holders voting as a class shall forthwith terminate and (iii) the
number of directors of the Corporation shall be reduced by one,
effective as of the date of such termination.
The foregoing right of the holders of the Convertible
Preferred Stock with respect to the election of a director may be
exercised at any annual meeting of shareholders or, within the
limitations hereinafter provided, at a special meeting of shareholders
held for such purpose. If a Default shall occur more than ninety (90)
days preceding the date established for the next annual meeting of
shareholders, the Corporation shall, within twenty (20) days after
delivery to the Corporation at its principal office of a written
request for a special meeting signed by the holders of at least an
aggregate of twenty-five percent (25%) of the outstanding shares of
Convertible Preferred Stock, call a special meeting of the holders of
the Convertible Preferred Stock to be held within sixty (60) days after
the delivery of such request, for the purpose of electing an additional
director to serve until the next annual meeting of shareholders of the
Corporation and until such director's successor shall have been elected
and qualified or until such director's earlier death or resignation, or
until such earlier date as provided herein, whichever occurs first.
Notice of such meeting shall be mailed to each holder of Convertible
Preferred Stock as provided by Pennsylvania law and the Corporation's
By-laws.
The Board of Directors may fix a record date for the
determination of holders of Convertible Preferred Stock entitled to
vote for the election of a director pursuant to the terms of this
Section 3 at an annual or special meeting of shareholders, as the case
may be, which record date shall not be more than fifty (50) days prior
to the date of the meeting.
The holders of at least a majority of the outstanding shares
of Convertible Preferred Stock voting as a class shall have the right
to remove without cause at any time and replace any director such
holders have elected pursuant to this Section 3. If the office of any
director elected by the holders of the Convertible Preferred Stock
becomes vacant by reason of death, resignation, retirement,
disqualification, removal from office, or otherwise, the vacancy may be
filled by vote of the holders of the Convertible Preferred Stock in the
manner provided above.
(C) On any matter as to which the holders of Convertible
Preferred Stock shall be entitled to vote as provided above, they shall
be entitled to one vote per share. The holders of Convertible Preferred
Stock shall not have the right of cumulative voting in any election of
directors.
(D) The holders of Convertible Preferred Stock shall not be
entitled to vote as provided above on any matter if, at or prior to the
time when the act with respect to which such vote would otherwise be
required will be effected, all outstanding shares of Convertible
Preferred Stock have been redeemed, or have been called for redemption
if sufficient funds have been deposited with a bank or trust company to
effect such redemption as provided in Section 8.
(E) Nothing herein contained shall require a vote of the
holders of shares of Convertible Preferred Stock in connection with (i)
the authorization, designation, increase or issuance of any shares of
any class or series of capital stock which ranks junior to the
Convertible Preferred Stock as to dividend and liquidation rights, (ii)
the authorization, issuance or increase in the amount of any bonds,
mortgages, debentures or other obligations of the Corporation, or (iii)
any merger or
<PAGE>
consolidation involving the Corporation or any reclassification of any
stock ranking junior to the Convertible Preferred Stock as to dividend
and liquidation rights.
Section 4. Certain Restrictions.
(A) Whenever any semi-annual dividend payable on the
Convertible Preferred Stock as provided in Section 2 is in arrears,
thereafter and until (i) all accumulated and unpaid dividends, whether
or not declared, on shares of Convertible Preferred Stock outstanding
shall have been paid in full or (ii) all shares of Convertible
Preferred Stock shall have been converted into Common Stock as provided
in Section 2 or Section 9, the Corporation shall not
(i) declare or pay dividends or make any other distributions
on any shares of stock ranking junior to the Convertible
Preferred Stock as to dividends;
(ii) declare or pay dividends or make any other distributions
on any shares of stock ranking on a party with the Convertible
Preferred Stock as to dividends, except (a) dividends or other
distributions paid ratably on the Convertible Preferred Stock
and all such parity stock so that the amount of dividends or
other distributions declared per share on each such series or
class of stock bear to each other the same ratio that the
accumulated but unpaid dividends per share on the shares of
each such series or class of stock bear to each other, or (b)
dividends or other distributions paid in Common Stock (or
other stock of the Corporation ranking junior to the
Convertible Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) on the Convertible
Preferred Stock and such other stock of the Corporation as
shall be entitled to receive dividends or distributions in
Common Stock (or such other junior stock), such that all
accumulated and unpaid dividends on all such stock shall be
paid in full;
(iii) redeem or purchase or otherwise acquire for
consideration (including pursuant to sinking fund
requirements) shares of any stock ranking junior to the
Convertible Preferred Stock as to dividends, except that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock by the conversion of
such shares into, or the exchange of such shares for, shares
of any stock of the Corporation ranking junior to the
Convertible Preferred Stock as to dividends and upon
dissolution, liquidation or winding up;
(iv) redeem pursuant to a sinking fund or otherwise any stock
for the Corporation ranking on a parity with the Convertible
Preferred Stock as to dividends, except (a) by means of a
redemption pursuant to which all outstanding shares of
Convertible Preferred Stock and all stock of the Corporation
ranking on a parity with the Convertible Preferred Stock as to
dividends are redeemed or pursuant to which a pro rata
redemption is made from all holders of the Convertible
Preferred Stock and all stock of the Corporation ranking on a
parity with the Convertible Preferred Stock as to dividends,
the amount allocable to each series of such stock being
determined on the basis of the aggregate liquidation
preference of the outstanding shares of each series and the
shares of each series being redeemed only a pro-rata basis, or
(b) by conversion of such parity stock into, or exchange of
such parity stock for, stock of the Corporation ranking junior
to the Convertible Preferred Stock as to dividends and upon
liquidation, dissolution or winding up; or
(v) purchase or otherwise acquire for any consideration any
stock of the Corporation ranking on a parity with the
Convertible Preferred Stock as to dividends, except (a)
pursuant to an acquisition made in accordance with the terms
of one or more offers to purchase all of the outstanding
shares of Convertible Preferred Stock and all stock of the
Corporation ranking on a parity with the Convertible Preferred
Stock as to dividends (which offers shall describe such
proposed acquisition of all such parity stock), which offers
shall each have been accepted by the holders of at least 50%
of the shares of each series or class of stock receiving such
offer outstanding at the commencement of the first of such
purchase offers, or (b) by conversion of such parity stock
into, or exchange of such parity stock for, stock of
<PAGE>
the Corporation ranking junior to the Convertible Preferred
Stock as to dividends and upon liquidation, dissolution or
winding up.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
Section 4(A), purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. Reacquired Shares. Any shares of Convertible
Preferred Stock redeemed or acquired by conversion or otherwise by the
Corporation in any manner whatsoever shall have the status of
authorized but unissued shares of preferred stock and may be reissued
as part of a new series of preferred stock created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding up. Upon any
voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, no distribution shall be made
(A) to the holders of shares of stock ranking junior to the
Convertible Preferred Stock upon liquidation, dissolution or winding up
unless, prior thereto, the holders of shares of Convertible Preferred
Stock shall have received $25.00 per share plus an amount equal to
accrued and unpaid dividends and distributions thereon to the date of
such payment, whether or not declared, or
(B) to the holders of stock ranking on a parity with the
Convertible Preferred Stock upon liquidation, dissolution or winding
up, except distributions made ratably on the Convertible Preferred
Stock and all other such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
After payment in full of the liquidation preference of the
Convertible Preferred Stock as aforesaid, the Convertible Preferred
Stock shall not be entitled to receive any additional cash, property or
other assets of the Corporation upon the liquidation, dissolution or
winding up of the Corporation. In the event of a liquidation preference
payment amounting in the aggregate to less than $25.00 per share plus
accrued dividends, the Corporation in its discretion may require the
surrender of certificates of the Convertible Preferred Stock and issue
a replacement certificate or certificates, or it may require the
certificates evidencing the shares in respect of which such payments
are to be made to be presented to the Corporation, or its agent, for
notation thereon of amounts of the liquidation preference payments made
in respect of such shares. In the event a certificate for Convertible
Preferred Stock on which payment of one or more partial liquidation
preference payments has been made is presented for exchange or
transfer, the certificate issued upon such exchange or transfer shall
bear an appropriate notation as to the aggregate amount of liquidation
preference payments theretofore made in respect thereof.
Section 7. Consolidation, Merger and Sale of Assets.
(A) A consolidation or merger of the Corporation with or into
another corporation, the merger of any other corporation into the
Corporation, a voluntary sale, conveyance, lease, exchange or transfer
of all or substantially all of the assets of the Corporation in
consideration of the issuance of equity securities of another
corporation or otherwise, or any purchase or redemption of some or all
of the shares of any class or series of stock of the Corporation, shall
not be deemed to be a liquidation, dissolution or winding up of the
Corporation for any purpose in connection with or related to the
Convertible Preferred Stock (unless in connection therewith the
liquidation, dissolution or winding up of the Corporation is
specifically approved).
(B) The Corporation shall not consolidate or merge with, or
sell, transfer or lease all or substantially all of its assets to
another corporation, person or entity unless the successor entity
assumes in writing all of the obligations of the Corporation with
respect to the Convertible Preferred Stock.
<PAGE>
Section 8. Optional Redemption.
(A) The Convertible Preferred Stock may not be redeemed by the
Corporation prior to June 1, 1990 unless the Closing Sale Price (as
defined in Section 2(C), hereof) of the Common Stock shall have equaled
or exceeded 150% of the then effective Conversion Price (as defined in
Section 9 hereof) for at least 20 trading days within a period of 30
consecutive trading days ending no more than five days prior to giving
of notice of redemption. In such event prior to June 1, 1990, and in
any event on and after June 1, 1990, the Corporation may, at its sole
option and election, redeem the Convertible Preferred Stock, in whole
or in part, out of funds legally available therefor, at any time and
from time to time, during the following periods and at the following
prices per share:
Period Redemption Price
------ ----------------
June 1, 1987-May 31, 1988 $27.50
June 1, 1988-May 31, 1989 27.25
June 1, 1989-May 31, 1990 27.00
June 1, 1990-May 31, 1991 26.75
June 1, 1991-May 31, 1992 26.50
June 1, 1992-May 31, 1993 26.25
June 1, 1993-May 31, 1994 26.00
June 1, 1994-May 31, 1995 25.75
June 1, 1995-May 31, 1996 25.50
June 1, 1996-May 31, 1997 25.25
June 1, 1997 and thereafter 25.00
in each case plus all dividends (whether or not declared) accrued and unpaid to
the date of redemption.
No sinking funding shall be established for the Convertible Preferred
Stock.
(B) If less than all of the Convertible Preferred
Stock at the time outstanding is to be redeemed, the shares so to be
redeemed shall be selected by lot, pro rata or by substantially
equivalent method.
(C) Notice of any redemption of the Convertible Preferred
Stock shall be mailed, by means of first class mail, postage pre-paid,
at least thirty (30), but not more than sixty (60), calendar days prior
to the date fixed for redemption to each holder of Convertible
Preferred Stock to be redeemed, at such holder's address as it appears
on the books of the Corporation. In order to facilitate the redemption
of the Convertible Preferred Stock, the Board of Directors may fix a
record date for the determination of holders of Convertible Preferred
Stock to be redeemed, which shall not be more than fifty (50) days
prior to the date fixed for such redemption.
Each such notice shall specify (i) the redemption date, (ii)
the redemption price, (iii) the place for payment and for delivering
the stock certificate(s) and transfer instrument(s) in order to collect
the redemption price, (iv) the shares of Convertible Preferred Stock to
be redeemed and (v) the then effective Conversion Price (as defined
below) and that the right of holders of shares of Convertible Preferred
Stock being redeemed to convert such shares of Common Stock shall
terminate at the close of business on the business day prior to the
redemption date (provided that no default by the Corporation in the
payment of the applicable redemption price shall have occurred and be
continuing).
Any notice mailed as provided herein shall be conclusively
deemed to have been duly given whether or not such notice is in fact
received.
The holder of any shares of Convertible Preferred Stock
redeemed upon any exercise of the Corporation's redemption right shall
not be entitled to receive payment of the redemption price for such
shares until such holder shall cause to be delivered to the place
specified in the notice given with respect to such redemption (i) the
certificates representing such shares of Convertible Preferred
<PAGE>
Stock and (ii) appropriate endorsements and transfer documents
sufficient to transfer such shares of Convertible Preferred Stock to
the Corporation free of any adverse interest. No interest shall accrue
on the redemption price of any share of Convertible Preferred Stock
after its redemption date.
(D) On the redemption date specified in the notice given
pursuant to Section 8(C), the Corporation shall, and at any time after
such notice shall have been mailed and before such redemption date the
Corporation may, deposit for the pro rata benefit of the holders of the
shares of Convertible Preferred Stock so called for redemption the
funds necessary for such redemption with a bank or trust company having
a capital and surplus of at least $50,000,000. Any monies so deposited
by the Corporation and unclaimed at the end of two years from the date
designated for such redemption shall revert to the general funds of the
Corporation. After such reversion, such bank or trust company shall,
upon demand, pay over to the Corporation such unclaimed amounts and
thereupon such bank or trust company shall be relieved of all
responsibility in respect thereof to such holder and such holder shall
look only to the Corporation for the payment of the redemption price.
In the event that monies are deposited pursuant to this Section 8(D) in
respect of shares of Convertible Preferred Stock that are converted in
accordance with the provisions of Section 2 or 9, such monies shall,
upon such conversion, revert to the general funds of the Corporation
and, upon demand, such bank or trust company shall pay over to the
Corporation such monies and shall thereupon be relieved of all
responsibility to the holders of such shares in respect thereof. Any
interest accrued on funds so deposited pursuant to this Section 8(D)
shall be paid from time to time to the Corporation for its own account.
(E) Upon deposit of funds pursuant to Section 8(D) in respect
of shares of Convertible Preferred Stock called for redemption,
notwithstanding that any certificates for such shares shall not have
been surrendered for cancellation, the shares represented thereby shall
no longer be deemed outstanding, the rights to receive dividends
thereon shall cease to accrue from and after the date of redemption
designated in the notice of redemption and all rights of the holders of
the shares of Convertible Preferred Stock called for redemption shall
cease and terminate, excepting only the right to receive the redemption
price therefor (including any accrued and unpaid dividends to the date
fixed for redemption), without interest.
(F) Subject to Section 4 hereof, the Corporation shall have
the right to purchase shares of Convertible Preferred Stock in the
public market at such prices as may from time to time be available in
the public market for such shares and shall have the right at any time
to acquire any shares of Convertible Preferred Stock from the owner of
such shares on such terms as may be agreeable to such owner. Shares of
Convertible Preferred Stock may be acquired for the Corporation from
any shareholder pursuant to this paragraph without offering any other
shareholder an equal opportunity to sell his stock to the Corporation,
and no purchase by the Corporation from any shareholder pursuant to
this paragraph shall be deemed to create any right on the part of any
shareholder to sell any shares of Convertible Preferred Stock (or any
other stock) to the Corporation.
(G) Notwithstanding the foregoing provisions of this Section
8, and subject to the provisions of Section 4 hereof, whenever any
dividend payable on the Convertible Preferred Stock as provided in
Section 2 is in arrears, thereafter and until (i) all accumulated and
unpaid dividends and distributions, whether or not declared, on shares
of Convertible Preferred Stock outstanding shall have been paid in full
or (ii) all shares of Convertible Preferred Stock shall have been
converted into Common Stock as provided in Section 2 or Section 9, the
Corporation shall not (a) redeem any shares of Convertible Preferred
Stock, except (1) by means of a redemption pursuant to which all
outstanding shares of Convertible Preferred Stock are simultaneously
redeemed or the outstanding shares of Convertible Preferred Stock are
redeemed on a pro rata basis, or (2) by conversion of shares of
Convertible Preferred Stock into, or exchange of such shares for,
Common Stock or any other stock of the Corporation ranking junior to
the Convertible Preferred Stock as to dividends and upon liquidation,
dissolution and winding up; or (b) purchase or otherwise acquire any
shares of Convertible Preferred Stock, except (1) pursuant to a
purchase or exchange offer made on the same terms to all holders of
Convertible Preferred Stock, or (2) by conversion of shares of
Convertible Preferred Stock into, or by an exchange of such shares for,
Common Stock or any other stock of the
<PAGE>
Corporation ranking junior to the Convertible Preferred Stock as to
dividends and upon liquidation, dissolution and winding up.
Section 9. Conversion Option.
(A) The holder of any share of Convertible Preferred Stock
shall have the right, at such holder's option (but if such share is
called for redemption, then in respect of such share only to and
including but not after the close of business on the business day
immediately prior to the date fixed for such redemption, provided that
no default by the Corporation in the payment of the applicable
redemption price (including any accrued and unpaid dividends) shall
have occurred and be continuing) to convert such share into that number
of fully paid and non-assessable shares of Common Stock (calculated as
to each conversion to the nearest 1/100th of a share) obtained by
dividing $25 by the Conversion Price then in effect. The Conversion
Price shall initially be $12.00 per share and shall be subject to
adjustment as set forth below.
(B) In order to exercise the conversion privilege, the holder
of shares of Convertible Preferred Stock shall surrender the
certificate(s) evidencing such share(s), accompanied by instruments of
transfer satisfactory to the Corporation and sufficient to transfer the
Convertible Preferred Stock being converted to the Corporation free of
any adverse interest, at any of the offices or agencies maintained for
such purpose by the Corporation ("Conversion Agent") and shall be
complete and sign the Notice of Election to Convert on the reverse side
of the certificate(s). The holder shall also contemporaneously provide
to the Corporation a written notice stating the name or names, together
with address or addresses, in which the certificate or certificates for
shares of Common Stock which shall be issuable on such conversion shall
be issued. As promptly as practicable after the surrender of such
share(s) of Convertible Preferred Stock as aforesaid, the Corporation
shall issue and shall deliver, at the offices of such Conversion Agent,
to such holder, or on his written order, a certificate or certificates
for the number of full shares of Common Stock issuable upon the
conversion of such share(s) in accordance with the provisions hereof
and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in Section 10
below. A new certificate or certificates will be issued representing
the remaining shares of Convertible Preferred Stock in any case in
which fewer than all of the shares of Convertible Preferred Stock
represented by a certificate are converted. Each conversion shall be
deemed to have been effected immediately prior to the close of business
on the date on which shares of Convertible Preferred Stock shall have
been so surrendered and such notice received by the Corporation as
aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder
or holders of record of the Common Stock represented thereby at such
time, unless the stock transfer books of the Corporation shall be
closed on the date on which shares of Convertible Preferred Stock are
so surrendered fro conversion, in which event such conversion shall be
deemed to have been effected immediately prior to the close of business
on the next succeeding day on which such stock transfer books are open,
and such person or persons shall be deemed to have become such holder
or holders of record of the Common Stock at the close of business on
such later day. In either circumstance, such conversion shall be at the
Conversion Price in effect on the date upon which such share shall have
been surrendered and such notice received by the Corporation. No
payment or adjustment shall be made on conversion for any dividends
accrued on shares of Convertible Preferred Stock surrendered for
conversion of for any dividends on the Common Stock delivered on
conversion. Effective as of any such conversion, the Corporation shall
be excused from paying any dividends on the shares of Convertible
Preferred Stock converted, including any dividends past due at the time
of conversion; provided that if a share of Convertible Preferred Stock
is surrendered for conversion after the record date for a declared
dividend payment, such dividend shall nevertheless be paid on such
share in the normal course.
(C) If, in lieu of any fractional interest in a share
of Common Stock which would otherwise be deliverable upon the
conversion of any share or shares of Convertible Preferred Stock, the
Corporation, pursuant to the terms of Section 10 hereof, shall deliver
cash, the fair market value
<PAGE>
of a share of Common Stock shall be deemed to be equal to the Closing
Sale Price (as defined above) of the Common Stock on the day of
conversion or, if such day is not a trading day, on the trading day
immediately prior to the day of conversion. If more than one
certificate representing shares of Convertible Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number
of full shares issuable upon conversion thereof shall be computed on
the basis of the aggregate number of shares of Convertible Preferred
Stock represented by such certificates, or the specified portions
thereof to be converted, so surrendered.
(D) Notwithstanding the other provisions of this Section 9,
the Conversion Price shall be adjusted on December 15, 1988 to an
amount equal to the lesser of (i) the Conversion Price otherwise then
in effect and (ii) 120% of the average of the daily Closing Sales
Prices (as defined above) of the Common Stock for the 60 consecutive
trading days ending December 8, 1988 and provided further, that any
such adjustment of the Conversion Price shall be made only with respect
to shares of Convertible Preferred Stock which shall not have been
surrendered for conversion prior to December 15, 1988. When the
Conversion Price is adjusted as provided in this Section 9, the
Corporation shall promptly file with any Conversion Agent, a
certificate signed by the President, and by the Treasurer, or an
Assistant Treasurer, and the Secretary or an Assistant Secretary, of
the Corporation setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment and the manner of computing the same. Any determination
as to whether an adjustment is required, or as to the amount or nature
thereof, shall be binding upon the holders of the Convertible Preferred
Stock and the Corporation if made in good faith by the Board of
Directors to the Corporation. Upon the filing of the certificate
required by this Section 9(D), the Corporation shall promptly make a
summary of the adjustment generally available to the holders of the
Convertible Preferred Stock, by such means as is reasonable determined
by the Board of Directors in its sole discretion. In the event that at
any time prior to or on December 15, 1988 as a result of an adjustment
made pursuant to subsection (a) below, the holder of any share of
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than
shares of Common Stock, thereafter the Conversion Price of such other
shares so receivable upon conversion of any share of Convertible
Preferred Stock shall be subject to readjustment on December 15, 1988
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained herein.
The Conversion Price shall be adjusted from time to time as
follows:
(a) In case the Corporation shall hereafter (i) pay a dividend or make
a distribution on its Common Stock in shares of Common Stock or in
shares of capital stock other than Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares,
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock
any shares of capital stock of the Corporation, the Conversion Price in
effect immediately prior to such action shall be adjusted so that the
holder of any share thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other
capital stock of the Corporation which he would have owned immediately
following such action had such shares been converted immediately prior
thereto. An adjustment made pursuant to this subsection (a) shall
become retroactively effective as of immediately after the record date
in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification. If, as a result of an adjustment made
pursuant to this subsection (a), the holder of any share of Convertible
Preferred Stock thereafter surrendered for conversion shall become
entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Corporation, the
Board of Directors (whose determination shall be conclusive and shall
be described in a statement filed with any Conversion Agent) shall
determine for accounting purposes the allocation of the adjusted
Conversion Price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock.
(b) In case the Corporation shall hereafter issue rights or warrants to
holders of its outstanding shares of Common Stock generally entitling
them (for a period expiring within 45 days after the record
<PAGE>
date mentioned below) to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share
(determined as provided below) of the Common Stock on the record date
mentioned below, the Conversion Price shall be adjusted so that the
same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of issuance of such
rights or warrants by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock offered
pursuant to such rights or warrants would purchase at such current
market price, and of which the denominator shall be the number of
shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase pursuant to such rights or
warrants. Such adjustment shall become retroactively effective as of
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants.
(c) In case the Corporation shall hereafter distribute to holders of
its outstanding Common Stock generally evidences of indebtedness or
assets (excluding any cash dividend or cash distributions, dividends or
distributions payable in stock for which adjustment is made pursuant to
subsection (a) above) or rights or warrants to subscribe for or
purchase securities of the Corporation (excluding those referred to in
subsection (b) above), then in each such case the Conversion Price of
the shares of Common Stock shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the current market price per share
(determined as provided below) of the Common Stock on the record date
mentioned below less the then fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
evidenced by a resolution of the Board of Directors) of the portion of
the evidences of indebtedness or assets so distributed to the holder of
one share of Common Stock or of such subscription rights or warrants
applicable to one share of Common Stock, and of which the denominator
shall be such current market price per share of Common Stock. Such
adjustment shall become retroactively effective as of immediately after
the record date for the determination of stockholders entitled to
receive such distribution.
(d) For the purpose of any computation under subsections (b) and (c)
above, the current market price per share of Common Stock on any date
shall be deemed to be the average of the daily Closing Sales Price (as
defined above) of the Common Stock for the 30 consecutive trading days
commencing 45 trading days before the day in question.
(e) In any case which shall require that an adjustment be made
immediately following a particular date, the Corporation may elect to
defer (but only five business days following the filing by the
Corporation with any Conversion Agent of its certificate referred to
above) issuing to the holder of any share of Convertible Preferred
Stock converted after such date the shares of Common Stock issuable
upon such conversion over and above the shares of Common Stock issuable
upon such conversion on the basis of the Conversion Price prior to
adjustment.
(f) No adjustment in the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% of such
price; provided, however, that any adjustments which by reason of this
subsection (f) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations shall
be made to the nearest cent or the nearest 1/100th of a share, as the
case may be.
(g) In the event that at any time as a result of an adjustment made
pursuant to subsection (a) above, the holder of any share of
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than
shares of Common Stock, thereafter the Conversion Price of such other
shares so receivable upon conversion of any share of Convertible
Preferred Stock shall be subject to readjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained herein.
<PAGE>
In the event that: (i) the Corporation shall take any action
which would require an adjustment in the Conversion Price pursuant
hereto; (ii) there shall be any capital reorganization, or
reclassification or change of the Common Stock (other than a change in
the par value of the Common Stock, or from par value to no par value,
or as a result of a subdivision or combination of the outstanding
Common Stock, but including any division of the Corporation's Common
Stock into two or more classes or series), or any consolidation or
merger to which the Corporation is a party or any statutory exchange of
securities with another corporation and for which approval of any
shareholders of the Corporation is required, or any sale or conveyance
of all or substantially all of the assets of the Corporation; or (iii)
there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; then the Corporation shall cause to be
mailed to all holders of shares of the Convertible Preferred Stock at
each such holder's last address as the same appears on the books of the
Corporation, at least 15 days prior to the applicable date hereinafter
specified, a notice stating the date on which such reorganization,
reclassification, change, statutory exchange, consolidation, merger,
sale, conveyance, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other securities, cash or other property
deliverable upon such reorganization, reclassification, change,
statutory exchange, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up. Failure to give such notice, or
any defect therein, shall not, however, affect the legality or validity
of any action described in clauses (i), (ii), (iii) of this paragraph.
The Corporation may, at any time and from time to time, by
resolution of the Board of Directors, reduce the Conversion Price,
provided that such reduction is for a minimum period of 20 days and is
irrevocable during such period, and that the Company notifies (in the
manner herein set forth) holders of Convertible Preferred Stock of such
reduction at least 15 days prior to the date on which the reduced
conversion price takes effect. The Corporation shall give notice of any
such reduction to any Conversion Agent and, by mail, to each holder of
shares of Convertible Preferred Stock at their last address as the same
appears on the books of the Corporation.
(E) If a holder of a share of Convertible Preferred Stock
converts such share, the Corporation shall pay any documentary, stamp
or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion. However, such holder shall pay any such tax
that is due because the shares are issued in a name other than such
converting holder's name, and neither the Corporation nor any
Conversion Agent shall be required to issue or deliver certificates
representing such shares of Common Stock unless or until the party or
parties requesting the issuance thereof shall have paid to the
Corporation or the Conversion Agent the amount of such tax or shall
have established to the satisfaction of the Corporation that such tax
has been paid.
(F) The Corporation covenants that it will reserve and keep
available, free from preemptive rights, out of its authorized Common
Stock, solely for the purpose of issuance upon conversion of shares of
Convertible Preferred Stock as provided in this Section 9, the full
number of shares of Common Stock issuable upon the conversion of all
outstanding shares of Convertible Preferred Stock not theretofore
converted. The Corporation covenants that all shares of Common Stock
that shall be so issuable shall be, when issued, duly and validly
issued and fully paid and nonassessable, free of all liens and charges
and not subject to any preemptive rights. For purposes of this Section
9 (F), the number of shares of Common Stock that shall be issuable upon
conversion shall be computed as if at the time of computation all
outstanding shares of Convertible Preferred Stock were held by a single
holder. The issuance of shares of Common Stock upon conversion of
Convertible Preferred Stock as herein provided is authorized in all
respects.
(G) In case of any (i) consolidation or merger of the
Corporation with or into another entity (other than a consolidation or
merger in which the Corporation is the surviving entity), (ii) sale or
conveyance of all or substantially all of the assets of the
Corporation, (iii) reclassification or change of the Corporation's
Common Stock issuable upon conversion of shares of Convertible
Preferred Stock (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination, but
including any division of the Corporation's Common Stock into two or
<PAGE>
more classes or series), (iv) consolidation or merger of another entity
into the Corporation in which the Corporation is the surviving entity
and in which there is a reclassification or change of the Corporation's
Common Stock (other than a change in par value, or from par value to no
par value, or as a result of a subdivision or combination, but
including any division of the Corporation's Common Stock into two or
more classes or series), or (v) statutory exchange of securities with
another entity (including any exchange effected in connection with a
merger of a third entity into the Corporation), in each case while any
shares of Convertible Preferred Stock remain outstanding, there shall
be no adjustments of the Conversion Price but holders of outstanding
shares of Convertible Preferred Stock shall have the right thereafter
to convert such shares of Convertible Preferred Stock pursuant to
Section 9(A) solely into the kind and amount of shares of stock or
other securities, cash or other property, or any combination thereof
receivable upon such reclassification, change, statutory exchange,
consolidation, merger, sale or conveyance, as if such shares of
Convertible Preferred Stock had been converted into shares of Common
Stock immediately prior to the effective date of such reclassification,
change, statutory exchange, consolidation, merger, sale or conveyance
(assuming that the holders of such shares of Convertible Preferred
Stock, as holders of Common Stock prior to such transaction, would not
have exercised any rights of election as holders of Common Stock as to
the kind or amount of stock or other securities, cash or other property
receivable upon such reclassification, change, statutory exchange,
consolidation, merger, sale or conveyance; provided, that if the kind
or amount of stock or other securities, cash or other property
receivable upon such reclassification, change, statutory exchange,
consolidation, merger, sale or conveyance is not the same for each
non-electing share of Common Stock, then the kind and amount of stock
or other securities, cash or other property receivable shall be deemed
to be the kind and amount so receivable by a plurality of the
non-electing shares).
(H) An adjustment made pursuant to Section 9(G) shall become
effective immediately after the effective date in respect of the
transaction giving rise to such adjustment. If, as a result of an
adjustment made pursuant to Section 9(G), the holder of any share of
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive shares of two or more classes of capital
stock or shares of Common Stock and other Capital Stock of the
Corporation, the Board of Directors (whose determination shall be
conclusive) shall determine for accounting purposes the allocation of
the Conversion Price between or among shares of such classes of capital
stock or shares of Common Stock and other capital stock.
(I) The Corporation may, in its sole discretion, make any
appropriate upward adjustment in the number of shares of Common Stock
issuable upon conversion of shares of Convertible Preferred Stock
pursuant to this Section 9 as the Corporation considers to be advisable
in order that any event treated for Federal income tax purposes as a
distribution of stock or stock rights with respect to the Common Stock
will not be taxable to the holders of Common Stock.
(J) In the event that at any time as a result of an adjustment
made pursuant to Section 9(G), the holder of any share of Convertible
Preferred Stock thereafter surrendered for conversion shall become
entitled to receive any securities of the Corporation other than shares
of Common Stock, thereafter the conversion rights with respect to such
other securities shall be subject to readjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the
provisions contained herein.
In any case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth herein with respect
to the rights and the interests thereafter of the holders of shares of
Convertible Preferred Stock, to the end that the provisions set forth
herein shall thereafter correspondingly be made applicable, as nearly
as may reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion of
shares of Convertible Preferred Stock pursuant to this Section 9.
The above provisions shall similarly apply to successive
consolidations, mergers, reclassifications, changes, statutory
exchanges, sales or conveyances.
<PAGE>
(K) No Conversion Agent shall at any time be under any duty or
responsibility to any holder of Convertible Preferred Stock to verify
the Conversion Price or the method employed in determining the same. No
Conversion Agent shall be accountable with respect to the validity or
value (or the kind or amount) of any Common Stock or of any stock or
other securities, cash or other property which may at any time be
issued and delivered upon the conversion of any share of Convertible
Preferred Stock, or make any representation with respect thereto. No
Conversion Agent shall be responsible for any failure of the
Corporation to make any cash payment or to issue, transfer or deliver
any Common Stock or stock certificates or other securities or property
upon the surrender of any share of Convertible Preferred Stock for the
purpose of conversion or to comply with any of the covenants of the
Corporation contained in this Section 9.
Section 10. Fractional Shares. In the event the holder of
Convertible Preferred Stock shall be entitled to receive a fractional
interest in a share of Convertible Preferred Stock or a fractional
interest in a share of Common Stock, except as otherwise provided
herein, the Corporation shall either, in the sole discretion of the
Board of Directors, (i) round such fractional interest up to the next
whole share of Convertible Preferred Stock or Common Stock, as the case
may be, (ii) issue a fractional share of such stock, (iii) deliver cash
in the amount of the fair market value of such fractional interest as
herein provided, or (iv) issue scrip representing a fractional share of
such stock entitling the holder to receive a full share of such stock
upon the surrender of such scrip aggregating a full share of such
stock.
Section 11. Elimination of Preemptive Rights. No holder of
shares of Convertible Preferred Stock shall be entitled as such, as a
matter of right, to subscribe for or purchase any part of any new or
additional issues of securities of any class of the Corporation,
whether now or hereafter authorized.
Section 12. Cash Dividend Election.
(A) Notwithstanding an election by the Corporation to pay a
dividend in whole or in part in Common Stock, holders of Convertible
Preferred Stock may elect to receive the dividend in cash in the
following manner. If the Corporation declares a dividend payable in
whole or in part in Common Stock, it shall provide written notice
thereof to the holders of record entitled to the dividend. Such notice
shall be accompanied by a form which must be completed, executed and
returned to the Corporation by any holder of record electing to receive
the dividend in cash. If and to the extent that it has funds legally
available therefor, the Corporation shall pay the dividend in cash to
any holder of record whose election form is received by the Corporation
by the close of business on the 15th business day after the date of the
Corporation's notice. If and to the extent that the Corporation does
not have funds legally available for the payment of the cash dividends,
the dividend shall be payable in Common Stock even to those holders of
record who elect to receive cash.
(B) In addition to the foregoing provisions hereof, if any
semi-annual dividend payable on the Convertible Preferred Stock is in
arrears, thereafter and until (i) all accumulated and unpaid dividends,
whether or not declared, on shares of Convertible Preferred Stock
outstanding shall have been paid in full or (ii) all shares of
Convertible Preferred Stock with respect to which dividends are in
arrears shall have been converted into Common Stock pursuant to Penalty
Conversion Rights or otherwise, the Corporation shall not declare or
pay dividends on shares of Convertible Preferred Stock with respect to
which no dividends are in arrears until no dividends are in arrears on
any shares of Convertible Preferred Stock.
Sixth. Shareholder's cumulative voting rights for the election of directors are
eliminated and denied.
Seventh. (a) The Directors, other than those who may be elected by the holders
of any class or series of stock entitled to elect directors separately, shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, as shall be provided in
the manner specified in the By-laws of the Corporation, one class to be
originally elected
<PAGE>
for a term expiring at the annual meeting of shareholders to be held in 1985,
another class to be originally elected for a term expiring at the annual meeting
of shareholders to be held in 1986, and another class to be originally elected
for a term expiring at the annual meeting of shareholders to be held in 1987,
with each class to hold office until its successor is elected and qualified. At
each annual meeting of the shareholders of the Corporation, the successors of
the class of Directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the annual meeting of shareholders held in
the third year following the year of their election.
(b) Except as otherwise provided for or fixed by or pursuant to the
provisions of Article Fifth hereof relating to the rights of the holders of any
class or series of stock entitled to elect Directors separately, newly created
directorships resulting from any increase in the number of Directors and
separately, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the Directors in the manner provided in the By-laws of the Corporation, to hold
office for the remainder of the full term of the class of Directors in which the
new directorship was created or the vacancy occurred and until such Director's
successor shall have been elected and qualified. No decrease in the number of
Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
(c) Except for the rights of any class or series of stock entitled to elect
Directors separately, any Director may be removed from office, without assigning
any cause, but only by the affirmative vote of the holders of 80 percent of the
combined voting power of the then outstanding shares of stock entitled to vote
generally in the election of Directors, voting together as a single class.
(d) Notwithstanding anything contained in the Articles of Incorporation or
By-laws to the contrary, and subject to the rights of any class or series of
stock entitled to elect Directors separately, the affirmative vote of the
holders of at least 80 percent or more of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend
or repeal this Article Seventh or to adopt any provision inconsistent herewith."
Eighth. (a) The holders of all the shares outstanding and entitled to vote may,
by a majority vote, in the manner set forth in the By-laws, alter, amend or
repeal the By-laws of the Corporation, provided, however, that the affirmative
vote of the holders of 80 percent or more of the combined voting power of the
then outstanding shares of stock entitled to vote generally in the election of
directors, voting together as a single class, shall be required to alter, amend
or repeal Sections 3.1, 3.4, 3.11 or 8.1 of the By-laws of the Corporation, or
to adopt any provision inconsistent therewith.
(b) The Board of Directors, by a majority vote of the members thereof, may
make, alter, amend or repeal any provisions of the By-laws, in the manner set
forth in the By-laws. The shareholders shall have the right to change such
action by a majority vote of the shareholders entitled to vote thereon at any
Annual Meeting duly convened after notice to the shareholders of such purpose,
provided, however, that the vote of the holders of at least 80 percent of the
combined voting power of all of the then outstanding shares of stock entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to change such action with respect to Sections 3.1, 3.4, 3.11
or 8.1.
(c) Notwithstanding anything contained in the Articles of Incorporation to
the contrary, and subject to the rights of any class or series of stock entitled
to elect Directors separately, the affirmative vote of the holders of at least
80 percent of the combined voting power of the then outstanding shares of stock
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend or repeal this Article Eighth or
to adopt any provision inconsistent herewith.
Ninth. The vote of shareholders of the Corporation required to approve any
Business Combination shall be as set forth in this Article Ninth. The term
"Business Combination" shall have the meaning ascribed to it in (a)(B) of this
Article; each other capitalized term used in this Article shall have the meaning
ascribed to it in (c) of this Article.
(a)(A) In addition to any affirmative vote required by law or the Articles
of Incorporation or any resolution adopted pursuant to Article Fifth of the
Articles of Incorporation, and except as otherwise expressly provided in (b) of
this Article Ninth, a Business Combination shall not be consummated without the
affirmative vote of the holders of at least 80 percent of the combined voting
power of the then outstanding shares of stock of all
<PAGE>
classes and series of the Corporation entitled to vote generally in the election
of Directors ("Voting Stock"), in each case voting together as a single class
(it being understood that for purposes of this Article Ninth, each share of the
Voting Stock shall have the number of votes granted to it pursuant to Article
Fifth of the Article of Incorporation). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or by the Articles of Incorporation or any
resolution or resolutions adopted pursuant to Article Fifth of the Articles of
Incorporation or in any agreement with any national securities exchange or
otherwise.
(B) The term "Business Combination" as used in this Article Ninth shall
mean:
(1) any merger of consolidation of the Corporation or any
Subsidiary with (i) any Interested Shareholder or (ii) any other
corporation or entity (whether or not itself an Interested Shareholder)
which is, or after each merger or consolidation would be, an Affiliate
of an Interested Shareholder; or
(2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Shareholder or any Affiliate of any Interested
Shareholder of all or a Substantial Part of the assets of the
Corporation or any Subsidiary; or
(3) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange
for cash, securities or other property (or a combination thereof),
other than the issuance of securities upon the conversion of
convertible securities of the Corporation or any Subsidiary which were
not acquired by such interested Shareholder (or such Affiliate) from
the Corporation or a Subsidiary; or
(4) the adoption of any plan or proposal for the liquidation
or dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested Shareholder;
or
(5) any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an interested Shareholder) which in any such case has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class or series of stock or securities
convertible into stock of the Corporation or any Subsidiary which is
directly or indirectly beneficially owned by any Interested Shareholder
or any Affiliate of any Interested Shareholder;
(b) The provisions of (a) of this Article Ninth shall not be applicable to
any Business Combination in respect of which all of the conditions specified in
either of the following paragraphs A and B are met, and such Business
Combination shall require only such affirmative vote as is required by law and
any other provision of the Articles of Incorporation and any resolution or
resolutions of the Board of Directors adopted pursuant to Article Fifth of the
Articles of Incorporation.
(A) Such Business Combination shall have been approved by a majority of
the Disinterested Directors, or
(B) Each of the six conditions specified in the following clauses (1)
through (6) shall have been met:
(1) the aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination (the "Consummation Date") of any consideration
other than cash to be received by holders of Common Stock in
such Business Combination shall be at least equal to the
higher of the following:
<PAGE>
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid in order to
acquire any shares of Common Stock beneficially owned
by the Interested Shareholder which were acquired
beneficially by such Interested Shareholder (x)
within the two-year period immediately prior to the
Announcement Date or (y) in the transaction in which
it became an Interested Shareholder, whichever is
higher; or
(ii) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on
which the Interested Shareholder became an Interested
Shareholder (the Determination Date), whichever is
higher; and
(2) the aggregate amount of the cash and the Fair Market
Value as of the Consummation Date of any consideration other
than cash to be received per share by holders of shares of any
other class or series of Voting Stock shall be at least equal
to the highest of the following (it being intended that the
requirements of this clause (B)(2) shall be required to be met
with respect to every class and series of such outstanding
Voting Stock, whether or not the Interested Shareholder
beneficially owns any shares of a particular class or series
of Voting Stock):
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid in order to
acquire any shares of such class or series of Voting
Stock beneficially owned by the Interested
Shareholder which were acquired beneficially by such
Interested Shareholder (x) within the two-year period
immediately prior to the Announcement Date or (y) in
the transaction in which it became an interested
Shareholder, whichever is higher;
(ii) (if applicable) the highest preferential
amount per share to which the holders of shares of
such class or series of Voting Stock are entitled in
the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; and
(iii) the Fair Market Value per share of such
class or series of Voting Stock on the Announcement
Date or the Determination Date, whichever is higher;
and
(3) the consideration to be received by holders of a
particular class or series of outstanding Voting Stock
(including Common Stock) shall be in cash or in the same form
as was previously paid in order to acquire beneficially shares
of such class or series of Voting Stock that are beneficially
owned by the Interested Shareholder and if the Interested
Shareholder beneficially owns shares of any class or series of
Voting Stock that were acquired with varying forms of
consideration, the form of consideration to be received by
holders of such class or series of Voting Stock shall be
either cash or the form used to acquire beneficially the
largest number of shares of such class or series of Voting
Stock beneficially acquired by it prior to the Announcement
Date; and
(4) after such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such
Business Combination:
(i) except as approved by a majority of the
Disinterested Directors, there shall have been no
failure to declare and pay at the regular dates
therefor the full amount of any dividends (whether or
not cumulative) payable on any class or series of
stock having preference over the Common Stock as to
dividends or upon liquidation;
(ii) there shall have been (x) no reduction in
the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of
the Common Stock), except as approved by a majority
of the Disinterested Directors,
<PAGE>
and (y) an increase in such annual rate of dividends
(as necessary to prevent any such reduction) in the
event of any reclassification (including any reverse
stock split) recapitalization, reorganization or any
similar transaction which has the effect of reducing
the number of outstanding shares of the Common Stock,
unless the failure so to increase such annual rate
was approved by a majority of the Disinterested
Directors; and
(iii) such Interested Shareholder shall not have
become the beneficial owner of any additional shares
of Voting Stock except as part of the transaction in
which it became an Interested Shareholder; and
(5) after such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not
have received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise; and
(6) a proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to
public shareholders of the Corporation at least 30 days prior
to the consummation of such Business Combination (whether or
not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
(c) For the purposes of this Article Ninth:
(A) A "person" shall mean any individual, firm, corporation or
other entity.
(B) "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly,
of more than 20 percent of the combined voting power of the
then outstanding shares of Voting Stock; or
(2) is an Affiliate of the Corporation and at any
time within the two-year period immediately prior to the date
in question was the beneficial owner, directly or indirectly,
of 20 percent or more of the combined voting power of the then
outstanding shares of Voting Stock; or
(3) is an assignee or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock that were
at any time within the two-year period immediately prior to
the date in question beneficially owned by any Interested
Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(C) A person shall be a "beneficial owner" of any Voting
Stock:
(1) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
(2) which such person or any of its Affiliates or
Associates has (a) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote or
direct the vote pursuant to any agreement, arrangement or
understanding; or
<PAGE>
(3) which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Voting Stock.
(D) For the purposes of determining whether a person is an
Interested Shareholder pursuant to (c)(B) of this Article Ninth, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of (c)(C) of this Article but
shall not include any other shares of Voting Stock that may be issuable
pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(E) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
May 25, 1984.
(F) "Subsidiary" means any corporation of which more than 50
percent of the combined voting power of the then outstanding shares of
stock entitled to vote generally in the election of directors is owned,
directly or indirectly, by the Corporation or by a Subsidiary or by the
Corporation and one or more Subsidiaries; provided, however, that for
the purposes of the definition of Interested Shareholder set forth in
(c)(B) of this Article Ninth, the term "Subsidiary" shall mean only a
corporation of which a majority of the combined voting power of the
then outstanding shares of stock entitled to vote generally in the
election of directors is owned, directly or indirectly, by the
Corporation.
(G) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with, and not a
nominee of, the Interested Shareholder and was a member of the Board
prior to the time that the Interested Shareholder became an Interested
Shareholder, and any successor of a Disinterested Director who is
unaffiliated with, and not a nominee of, the Interested Shareholder and
who is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board of Directors.
(H) "Fair Market Value" means: (1) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing
sales price or bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question as quoted by
the National Association of Securities Dealers, Inc. Automated
Quotations Systems or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share
of such stock as determined by a majority of the Disinterested
Directors in good faith; and (2) in the case of stock of any class or
series which is not traded on any United States registered securities
exchange nor in the over-the-counter market or in the case of property
other than cash or stock, the fair market value of such property on the
date in question as determined by a majority of the Disinterested
Directors in good faith.
(I) In the event of any Business Combination in which the
Corporation survives, the phase "other consideration to be received" as
used in (b)(B)(1) and (2) of this Article Ninth shall include the
shares of the Common Stock and/or the shares of any other class of
outstanding Voting Stock retained by the holders of such shares.
(J) "Announcement Date" means the date of first public
announcement of the proposed Business Combination.
(K) "Determination Date" means the date on which the
Interested Shareholder became an Interested Shareholder.
<PAGE>
(L) "Substantial Part" means more than 50 percent of the book
value of the total assets of the entity in question, as of the end of
its most recent fiscal year ending period to the Consummation Date.
(d) A majority of the Disinterested Directors of the Corporation shall have
the right and power to determine, on the basis of information known to them
after reasonable inquiry, all facts necessary to determine compliance with this
Article Ninth, including, without limitation (A) whether a person is an
Interested Shareholder, (B) the number of shares of Voting Stock beneficially
owned by any person, (C) whether a person is an Affiliate or Associate of
another person and (D) whether the requirements of (b) of this Article Ninth
have been met with respect to any Business Combination. The good faith
determination of a majority of the Disinterested Directors on such matters shall
be conclusive and binding for all purposes of this Article Ninth.
(e) Nothing contained in this Article Ninth shall be construed to relieve
any Interested Shareholder from any fiduciary obligation imposed by law.
(f) Notwithstanding anything contained in the Articles of Incorporation to
the contrary, the affirmative vote of the holders of at least 80 percent of the
voting power of the Voting Stock, voting together as a single class, shall be
required to alter, amend, or repeal this Article Ninth or to adopt any provision
inconsistent herewith.
<PAGE>
===============================================================================
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 Section 9 hereto (the "Term"),
Employee shall serve the Company faithfully and to the best of his ability and
shall devote his
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<PAGE>
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.
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").
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<PAGE>
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 suppliers, personnel information, customer and vendor credit
information,
3
<PAGE>
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 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.
4
<PAGE>
(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.
(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
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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"), 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
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<PAGE>
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 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,
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<PAGE>
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.
(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
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<PAGE>
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.
(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.
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<PAGE>
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.
(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
12
<PAGE>
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 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.
13
<PAGE>
(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 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:
14
<PAGE>
If to Employee:
Mark Lemmo
c/o InterDigital Communications Corporation
781 Third Avenue
King of Prussia, Pennsylvania 19406
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.
15
<PAGE>
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 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
16
<PAGE>
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 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 Schultz By: /s/ William A. Doyle
------------------------- -------------------------------
Title: Asst. Secretary Title: President
[CORPORATE SEAL]
/s/ Mark Lemmo
-----------------------------------
Mark Lemmo
17
<PAGE>
EXHIBIT 11
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS
ENDED
MARCH 31,
1996
-------------
COMPUTATION OF PRIMARY
EARNINGS (LOSS) PER SHARE:
Net Income (Loss) Applicable to Common Shareholders $ 3,898
=======
Weighted Average of Primary Shares:
Common Stock 44,905
Assumed Conversion of Options and Warrants 4,077
-------
48,982
=======
$ .08
=======
A calculation for the three month period ended March 31, 1997 has not been
presented since the effect of the options and warrants would be anti-dilutive.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 15,316
<SECURITIES> 22,421
<RECEIVABLES> 16,838
<ALLOWANCES> 558
<INVENTORY> 15,197
<CURRENT-ASSETS> 78,547
<PP&E> 19,722
<DEPRECIATION> 9,107
<TOTAL-ASSETS> 104,560
<CURRENT-LIABILITIES> 28,692
<BONDS> 4,147
0
10
<COMMON> 481
<OTHER-SE> 65,780
<TOTAL-LIABILITY-AND-EQUITY> 104,560
<SALES> 23,776
<TOTAL-REVENUES> 25,963
<CGS> 20,965
<TOTAL-COSTS> 20,965
<OTHER-EXPENSES> 6,251
<LOSS-PROVISION> 27
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> (6,359)
<INCOME-TAX> 17
<INCOME-CONTINUING> (6,376)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,376)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
