UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------------------------------------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 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 Number)
781 Third Avenue, King of Prussia, Pennsylvania 19406
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 610-878-7800
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $.01 Per Share
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
$2.50 Cumulative Convertible Preferred Stock,
Par Value $.10 Per Share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On March 14, 1997, the aggregate market value of the Registrant's Common
Stock, $.01 par value, held by non-affiliates of the Registrant was
approximately $303,731,695.
On March 14, 1997, there were 48,115,912 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
Documents Incorporated by Reference
Portions of the Registrant's definitive proxy statement to be filed in
connection with the annual meeting of shareholders to be held in 1997 are
incorporated by reference into Items 10 through 13 hereof.
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PART I
Item 1. BUSINESS
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 December 31, 1996, the Company has sold over 285
UltraPhone systems worldwide, with aggregate UltraPhone product revenue totaling
over $162 million.
The Company has also started to market its new TrueLink(TM) wireless local
loop product based on the Company's proprietary B-CDMA technology. The Company
expects field trials of the TrueLink product during 1997 with commercial
deployment available in 1998.
The Company's objectives are to become a significant global supplier of
digital wireless communications technology and systems based on its proprietary
TDMA and B-CDMA technologies and to generate sustainable earnings growth. To
achieve these objectives, the Company has developed an alliance program under
which it intends to align itself with key entities in the telecommunications
industry. Two of the three key objectives of the Company's alliance program are
to generate licensing revenues as well as to improve the Company's UltraPhone
product business by (i) making the Company and its UltraPhone products more
credible competitors in large scale telecommunications infrastructure programs,
(ii) expanding the depth and coverage of UltraPhone product marketing efforts
around the world, (iii) facilitating greater focus in the Company's direct sale
activities, and (iv) funding and facilitating engineering changes and
alternative supply and production sources to attempt to significantly reduce
costs, improve operating margins and expand product capabilities.
The third objective of the alliance program is to bolster the Company's
on-going efforts to develop its B-CDMA air interface technology and to spread
the commercialization of B-CDMA-based wireless local loop applications
(including its TrueLink product) and start the development of later generation
B-CDMA-based wireless systems capable of data-oriented portable and/or Personal
Communications Service ("PCS") applications. The successful commercial
development and deployment of such products is dependent upon many factors such
as technological achievement, including but not limited to, the continued
validation of the theories upon which the new technology is being designed, the
continued availability of debt, equity or alliance partner funding sufficient to
support an increasing level of efforts over several years and, ultimately,
market acceptance of the resultant products.
In December 1994, the Company initiated the alliance program by entering
into an integrated series of agreements with Siemens Aktiengesellschaft
("Siemens") covering UltraPhone marketing and product development, B-CDMA
development, patent licensing and other areas of cooperation. (See "Siemens
Agreements".) The Company broadened its alliance relationships when it effected
a series of agreements
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with Samsung Electronics Co., Ltd ("Samsung") in February 1996. The
agreements cover B-CDMA technology development, patent licensing, product
development, technology transfer and other areas of cooperation. (See "Samsung
Agreements".)
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. The Company believes that, through ITC's patent
portfolio, and the Company's TDMA and B-CDMA research and development
capabilities and resultant know-how, both it and ITC are positioned to take
advantage of the present evolution in wireless telecommunications to digital
technology from analog technology, which encompasses a substantial but
diminishing portion of the worldwide installed base. 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 as of March 14, 1997, 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. (See "Technology and Patent
Licensing" and Item 3. "Legal Proceedings".)
Since its inception, the Company has expended substantial sums to develop
its proprietary and patented technologies and establish and upgrade the patent
portfolio owned by ITC, to develop and commercialize products delivering the
advantages afforded by its technologies and to establish a market for those
products. The Company had an accumulated deficit of $162.2 million as of
December 31, 1996.
B-CDMA Technology and Product Development
General. 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. An important Company objective is
ultimately to establish B-CDMA technology as a worldwide standard. The initial
phases of the development effort are oriented towards commercial deployment of
wireless local loop products with performance and cost characteristics
applicable to a market segment distinct from the Company's UltraPhone system.
These applications include urban deployment in both developed and developing
countries of systems providing high quality voice, high-speed data transfer and
multi-media capabilities. The initial wireless local loop product would evolve
to include limited mobility, handset functionality, portability and eventually
PCS applications. InterDigital defines "True PCS(TM)" services as the ability to
provide a broad range of communications services to individual users through
bandwidth on demand, including Integrated Services Digital Network ("ISDN") and
multi-media capabilities in a mobile format.
The Company believes that its B-CDMA technology has several advantages as
compared to other currently available or developing digital wireless
technologies in these applications:
o Robust Radio Signal. The B-CDMA radio signal is expected to have
extremely high immunity to interference and multipath fading because the
radio signal is spread over a larger bandwidth (typically 7-15 Mhz at 3.5
and 5 Mhz intervals) than that utilized by other technologies (typically
1-5 Mhz). In addition, the advanced digital signal processing techniques
employed in the Company's B-CDMA technology implementation are expected
to allow a greater portion of a degraded signal to be recovered.
o Simplified Network Planning. The Company's B-CDMA technology allows
nearly all available radio frequencies to be utilized in each cell site.
This simplifies frequency planning and the process of cell site planning
and network expansion as compared to other digital wireless technologies.
o Bandwidth on Demand. The Company expects that its B-CDMA technology will
allow operators to offer services supported by bandwidth on demand to
their customers. This means that customers
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can, through a single air interface, readily access a full range of
services from basic telephony through ISDN.
o System Design Flexibility. The B-CDMA air interface technology is being
designed to allow product implementations capable of utilizing virtually
any currently available voice coding technology (these technologies
utilize varying rates of data transfer, which affects service quality and
system capacity). This is expected to allow product developers and
operators the ability to balance the competing demands of system capacity
and service quality. The Company expects that systems utilizing its
B-CDMA technology will have higher capacity capabilities at comparable
service quality levels as compared to systems utilizing other
technologies.
o Privacy. The Company believes that CDMA technologies (both broadband and
narrowband) allow more secure transmission than other wireless
technologies currently available, making intentional or accidental
eavesdropping virtually impossible with commercially available
technology.
The Company has started to market its TrueLink new wireless local loop
product based on the Company's proprietary B-CDMA technology. The TrueLink
product was recently demonstrated in Hannover, Germany at the CEBIT
telecommunications show. The Company expects field trials of the product during
1997 with commercial deployment in 1998.
Competition. Commercial deployment of the TrueLink product is anticipated in
1998. The Company expects that the TrueLink product will compete with many of
the products with which the UltraPhone product currently competes (see Item 1.
Business - The UltraPhone System - Competition) and against other current and
future products, some of which purport to offer many of the advantages of the
Company's B-CDMA technology.
The UltraPhone System
General. The UltraPhone telephone system is an advanced digital
telecommunications system which is designed to provide wireless local loop
telephone service as an alternative to conventional wireline systems. The
UltraPhone telephone system can provide high quality voice and data
communications to large numbers of users over a broad region. Utilizing the
patented TDMA technology and the Company's other proprietary technologies, the
UltraPhone telephone system enables its users, which have historically consisted
primarily of local Telephone Operating Companies ("TELCOs"), to offer
communication services in places where the cost of, or time required for,
installing, maintaining or upgrading conventional wireline telephone service
supports selection of the UltraPhone system. The UltraPhone telephone system is
particularly well-suited for rural and near-urban areas of developing countries.
The UltraPhone system consists of an advanced digital radio central network
station (the "Base Station") serving individual or clustered subscriber units
(the "Subscriber Stations") omni-directionally covering a radius of up to
approximately 40 miles from the Base Station (depending upon the terrain). The
Base Station consists of a radio carrier station and a central office terminal
that connects to the public switched telephone network through the local
telephone company's central office. The Base Station is configured in a standard
cabinet with rack-mounted digital cards and is designed for automatic,
unattended operation with low maintenance requirements. Each Base Station is
modularly expandable through the addition of new radio channel elements to serve
up to 896 separate Subscriber Stations. Current development efforts are
focused on reducing power consumption, weight and size of the Base Station,
and developing a dual-line Subscriber Station.
The UltraPhone Subscriber Station, which includes a radio with an integral
power amplifier, digital circuit card assembly and other components, is
installed at or near the subscriber's location. Standard telephone instruments
(including multiple extension phones and ancillary instruments such as answering
machines, facsimile transmission machines and data modems) are attached to the
Subscriber Station by means of standard telephone wiring or telephone jacks. A
small antenna located at the Subscriber Station establishes the radio link with
the Base Station. The Subscriber Station is powered by standard AC or DC
electrical current and has optional battery back-up for power outages. The
Subscriber Station is available in several
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standard configurations, including a single line, fixed unit and a
multiple-line fixed unit offered currently in a 64-line version. In addition,
the Company expects to introduce the dual-line Subscriber Station during the
second half of 1997. The Company has also developed a rapidly deployable and
transportable version of the fixed UltraPhone Base Station which is designed to
provide high quality and private telephone communications in cases of natural
disaster, tactical military situations, emergencies and other temporary
circumstances.
Competition. A number of companies, many of which are substantially larger
and have substantially greater financial, technical, marketing and other
resources than the Company, sell or may introduce products which compete with
the UltraPhone system. In addition, there are other foreign and domestic
companies which are involved in telecommunications equipment research and
development, many of which are substantially larger and have substantially
greater financial and other resources than the Company. In situations where
a potential customer's needs for local loop services favors deployment of
wireless technologies, there are many existing and announced terrestrial and
satellite-based delivery systems that may be considered. Other manufacturers
offer competitive analog and digital wireless local loop systems. Fixed analog
and digital cellular systems are also offered to provide service in the local
loop. Competitive CDMA technologies are currently being deployed as wireless
local loop and cellular applications. At least one company is offering add-on
modules which are promoted as having the capability of converting cellular
systems into wireless local loop systems. Various consortiums have been
announced with the intention of providing satellite based services, in some
cases in conjunction with the deployment of new terrestrial infrastructure. When
fully deployed, some systems may be directly competitive with the Company's
products.
The wireless local loop market can be segmented in two fundamental ways:
system service area and sophistication of service features. The UltraPhone
system has been deployed in applications ranging from remote rural to dense
urban areas, but is generally utilized and is generally most cost effective in
rural to near-urban applications where its service features are required. Other
technologies, including wireline based systems and wireless systems with smaller
service areas than the UltraPhone system, are generally more cost effective and
may provide more advanced features in dense urban applications where the
UltraPhone system is not typically marketed. Microwave-based wireless systems
with larger service areas than the UltraPhone system and which have data
transfer capability up to 64 Kilobits per second, are generally more cost
effective than the UltraPhone system in more remote rural applications where the
UltraPhone system is also not typically marketed.
The Company believes the following specific factors, as well as cost
effectiveness, are representative of the issues currently considered by
potential customers in selecting a wireless local loop technology:
o Spectrum Efficiency. The UltraPhone telephone system utilizes advanced
modulation and voice compression techniques to permit the broadcast of
four simultaneous high quality voice conversations in each 25 KHz radio
channel, thereby offering four times the capacity of systems using analog
radio channels of the same bandwidth and, in most cases, greater capacity
than other commercially deployed digital wireless systems. Such efficient
use of radio frequencies is becoming increasingly important as congestion
and over-crowding of the radio spectrum intensify worldwide. Other
manufacturers have announced products purporting to match the spectrum
efficiency of the UltraPhone system.
o Voice and Transmission Quality. The UltraPhone telephone system
incorporates digital radio modulation and voice coder techniques enabling
reliable digital transmission necessary for high quality voice
communication similar to that of wireline networks and at least equal to
most other wireless systems.
o Network Compatibility. Network interfaces enable the UltraPhone telephone
system to be connected transparently to most standard switching systems
and telephone instruments. Some other wireless systems require
proprietary interfaces to achieve such a connection.
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o Access to Network Features. The UltraPhone system is specifically
designed to provide access to most network features, such as call waiting
and conferencing, in the same manner as wireline based systems. The
UltraPhone system supports facsimile and data communications (up to 9.6
Kilobits per second) providing enhanced utility for business customers.
The UltraPhone's cluster configurations enable service to be provided to
large groups of co-located users. Interfaces are also provided for
payphone operation, an important feature for public telephone programs.
In contrast, most commercially available digital and analog cellular
systems require additional interface equipment, at an additional cost,
for these applications. Other non-cellular digital wireless technologies
competing with the UltraPhone system are capable of providing direct
access to network features, including 64 Kilobit per second data
communications and ISDN services.
o Conversation Privacy. The UltraPhone system's modulation, signal
compression and time division synchronization signal processing
techniques provide inherent voice privacy during transmission of voice
conversations. By contrast, analog radio systems can be easily monitored
with low-cost receivers so that additional voice encryption equipment is
required at an added cost to achieve conversational privacy. Other
digital wireless systems competing with the UltraPhone system, especially
CDMA-based systems, can also provide extremely high privacy.
o Ease of Installation and Maintenance. Wireless local loop systems are
generally easier and faster to install than wireline systems. In contrast
to the time-consuming task of installing wire from the telephone central
office to each subscriber's location, the deployment of the UltraPhone
system involves simply installing the Base Station and deploying a
Subscriber Station at the subscriber's site. Compared to a wireline
system, an UltraPhone Subscriber Station may be more easily relocated in
order to accommodate changing circumstances. Additional Subscriber
Stations may be added through the installation of additional modular
equipment at the Base Station to expand system capacity and the
deployment of Subscriber Stations to new customer locations, as compared
with the need to install new telephone poles or construct new underground
telephone trenches in the case of wireline systems. A wireline network
also requires significant ongoing maintenance and replacement of
distribution, feeder, and drop cables, as well as associated repeater
coils, pedestals, conduits, telephone poles, and other network
facilities, which maintenance and replacement costs are exacerbated by
conditions in developing countries. Extensive route planning and
engineering or map drawings must be developed, categorized, indexed, and
maintained or updated on a regular basis to record cable locations and
maintenance histories as well as identify special requirements necessary
to locate and repair cables. Extensive inventories of equipment are
required for pole and trench digging, concrete cutting, telephone pole
access, manhole access, line splicing and repair, line testing, and other
maintenance or repair activities. Training and operational management for
these activities consume significant TELCO resources. Maintenance of most
wireless networks, on the other hand, requires repairs only at central
Base Station or remote subscriber locations resulting in simplified
operational management and reduced maintenance costs.
UltraPhone Business Strategy. The Company's UltraPhone Business Strategy
consists of three components:
o Increase sales and marketing effectiveness through multi-tier sales
and marketing strategies utilizing alliance partners. The Company's
UltraPhone Business Strategy encompasses focusing of technical and
customer support in existing markets and expanding into new markets
through alliance partners and distributors and agents. Various
combinations of Company-employed direct salesmen, independent sales
representatives and distributors have been engaged to provide broad
geographic coverage. While higher commission rates are paid to third
parties than to Company-employed direct salesmen, the Company may
nonetheless choose such alternative methods of distribution because
the Company is not required to incur the continuing overhead necessary
to support direct salesmen, or because such third party sources have
significant local industry contacts in particular geographic regions.
Direct salesmen are being supported in regions in which the Company
believes that the long-term business potential is most significant and
where the additional control provided by having a direct sales force
is determined to be essential to achievement of its business
objectives. The Company is also pursuing an approach of establishing
strategic relationships with multi-national
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telecommunications companies where the UltraPhone product can
complement or supplement their product lines. This is expected to
create a worldwide presence in markets which the Company could not
directly support or pursue.
o Support the Company's price competitiveness by reducing production and
installation costs of the UltraPhone system. The effect of increased
efficiencies resulting from higher production volumes and backlog,
combined with ongoing design engineering and ongoing attempts to sell
UltraPhone systems configured to maximize utilization of multiple
subscriber units are expected to result in a continuing trend of lower
cost of product sales. In anticipation of such trends, the Company has
adopted a policy of adjusting its selling prices to the extent necessary
to be competitive based upon comparative product features and quality
and, in certain instances, competitive with products offered by others,
even if lesser featured. The comparative extent of selling price and
product cost reductions will determine the extent, if any, of improvement
in gross profit margins.
o Solidify the Company's customer base and penetrate additional market
segments by increasing the UltraPhone system's capabilities and enhancing
its features. The Company introduced higher speed facsimile and data
communications capabilities during 1996 and has designed product options
for new frequencies of operation and will continue to increase the design
flexibility to adapt to varying radio frequency allocations among
different countries. The Company continues to expand features, functions
and performance specifications to meet evolving customer requirements for
a broader variety of voice and data transmission capabilities.
The Company believes that international demand will be related to the
significant worldwide need for additional telephone services, particularly in
developing countries which are planning significant infrastructure development
and where there are significant numbers of persons not presently served, or
served by antiquated systems. Additionally, trends in the privatization of
traditional government owned and operated telecommunications organizations are
expected to increase demand for wireless systems such as the UltraPhone system.
The Company intends to continue to service, but not emphasize, the United States
market to the extent that the UltraPhone system, which will increasingly be
designed to support foreign markets, meets specified requirements. From time to
time, the Company may pursue global partnerships with other telecommunications
companies in order to promote large, multi-year infrastructure program orders of
the UltraPhone system. The Company's objectives in forming such partnerships
would be to provide local businesses and governments with economic incentives
and to solidify the Company's competitive position in a particular market by
promoting long-term commonalities of interest between the Company and its most
significant customers and to respond to any local requirements for in-country
sourcing or labor utilization.
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Sales by Geographic Area.
UltraPhone product revenues by geographic area are as follows
(in thousands):
1994 1995 1996
---- ---- ----
Domestic $ 4,187 $ 2,685 $ 1,958
Foreign 15,899 13,896 23,016
------- ------- -------
$20,086 $16,581 $24,974
======= ======= =======
Major Customers. During 1994, the Company's Indonesian customer (P.T.
Telekomunikasi Indonesia) and its Myanmar customer (Myanma Posts and
Communications) accounted for 54% and 12% of UltraPhone product revenues,
respectively. During 1995, the Company's Indonesian customer and its Russian
customer (Lukoil-Langepasneftegas) accounted for 37% and 20%, respectively of
UltraPhone product revenues. During 1996, the Company's Philippine customer
(Philippine Long Distance Telephone Company) and its Indonesian customer
accounted for 56% and 16% of UltraPhone product revenues, respectively.
Backlog. At March 14, 1997, the Company's backlog of orders for UltraPhone
telephone systems and services was $65.0 million, which includes the balance of
one order from the Company's Indonesian customer of $20.3 million and another
order, which is subject to completion of adequate financing and final provision
of radio frequencies, from its Pakistani customer for $42.9 million. All of the
backlog except the Pakistan order is expected to be delivered during fiscal year
1997. The Pakistan order, if and when finalized, is expected to begin shipment
in late 1997. As of March 22, 1996, backlog was approximately $56.4 million,
which included $36.8 million from the Company's Indonesian customer and another
$17.9 million from its Philippine customer.
Production. The Company assembles, integrates and tests the UltraPhone
Subscriber and Base Station using component parts manufactured by various
suppliers to the Company's specifications. In most but not all instances,
component parts could be purchased from several different sources. The Company
believes that by contracting component part manufacturing to third parties, it
gains significant flexibility to change product designs and avoids capital
intensive manufacturing investments. Should the Company's relationship with any
of its suppliers cease in the future, the Company believes that alternative
sources of the various component parts are available, although such an event
would likely have an adverse impact on shipments to its customers and support
activities. In certain instances, critical component parts for the UltraPhone
system are purchased from single sources thereby making the Company dependent
upon those sources. The Company is engaged in a continuing program of
identifying and developing alternative sources of critical components to reduce
its dependence upon sole source suppliers and has entered into a technology
transfer agreement under which Samsung is licensed to produce UltraPhone systems
and may thereby become a potential supplier to the Company. While still in the
planning stages, the Company plans to rely primarily on its alliance partners
for the initial production of its TrueLink wireless local loop product. The
existing agreements with the alliance partners provide a broad framework for
such activities but specific production agreements have not been negotiated.
Technical Standards and Market Acceptance. The UltraPhone system is
required to meet conditions promulgated by international, domestic or regional
organizations or financing agencies, and to comply with country-specific type
acceptance or certification standards. An organization jointly owned by the Bell
regional holding companies develops and publishes compliance standards which
have been adopted as either compulsory or elective benchmarks by the Bell
regional holding companies and other United States TELCOs. In addition to these
and additional organization recommendations and technical or acceptance
standards which may be applicable, an international set of quality standards has
been promulgated, generally for future implementation, by the International
Standardization Organization.
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The Company has, in the past, been able to comply with all technical and
acceptance standards necessary to consummate sales and intends, in the future,
to take such steps as are prudent and necessary, depending upon the
circumstances, to meet technical and other standards prescribed by UltraPhone
system customers or applicable to orders received.
Product Development; Engineering Services
The Company currently employs 107 people as part of its B-CDMA technology
development, which was acquired as part of the Company's acquisition of SCS
Mobilecom, Inc. and SCS Telecom, Inc. (hereinafter collectively referred to as
"SCS") during 1992, and additionally utilizes the efforts of outside engineering
resources and engineering contributions from its partners. The Company's second
and third phases of B-CDMA technology development and product commercialization
will require substantially more technical and administrative support and
marketing resources and higher levels of sustained efforts for the next several
years.
The Company's TDMA engineering and UltraPhone system development projects
currently engage approximately 47 employees as well as additional outside
resources. The Company expects that it may have to further increase the level of
resources devoted to these projects in order to maintain and improve the
competitive position of the UltraPhone system.
The Company has expensed $7.6 million, $9.7 million and $21.6 million
during 1994, 1995 and 1996, respectively, related to all of its development
efforts for both TDMA and B-CDMA based product development. The Company has
taken some measures to increase the efficiency of its B-CDMA and TDMA
engineering efforts through common management and greater integration of the
engineering teams, and is exploring the feasibility of increasing commonality in
its B-CDMA and TDMA-based products. The Company intends to attempt to satisfy
its increasing need for engineering resources through, among other things,
further alliance relationships.
Siemens Agreements
On December 16, 1994, the Company entered into a Master Agreement and a
series of four related agreements as elements of an integrated transaction
establishing a broad based marketing and technology alliance with Siemens. These
agreements were amended in February 1996 in connection with the Samsung
alliance. (See "Samsung Agreements").
As partial consideration for the rights and licenses granted by the
Company, Siemens agreed to pay $20 million, of which $15.1 million was paid in
cash, with the remaining payment offset against payments due to Siemens from
InterDigital in conjunction with the Samsung alliance. In accordance with
accounting requirements, the Company will recognize the $20 million of revenue
over the contract performance period due to the combined nature of the
contracts. In 1995 and 1996, the Company recognized $13.6 million and $4.8
million, respectively of the revenue under this agreement based on the progress
of the completed work. The remaining $1.6 million of revenue is expected to be
recognized through June 1997, the expected date of completion of functional
testing at the system component level.
Under the UltraPhone OEM Purchase Agreement, Siemens is obligated to
purchase its requirement of wireless local loop products for certain specified
applications from the Company on an OEM basis through December 1999. Certain
affiliates of Siemens have also been granted the right, but are not obligated,
to purchase products from the Company on an OEM basis under the agreement.
Under the TDMA/CDMA Development and Technical Assistance Agreement: (i)
Siemens is providing technical assistance to accelerate the commercialization
and deployment of the Company's B-CDMA technology, and (ii) the parties may
develop UltraPhone product improvements and enhancements. The agreement, as
amended, provides that, subject to pre-existing commitments (if any), Siemens
will (i) share together with InterDigital and Samsung, an exclusive
royalty-bearing license for the Company's know-how associated with the B-CDMA
Application Specific Integrated Circuit ("ASIC") chip (other than ASIC
applications know-how), and a similar exclusive license to certain other B-CDMA
product design
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technology which will become non-exclusive one year after certain
development goals are accomplished, and (ii) have a non-exclusive
royalty-bearing license with respect to other B-CDMA know-how. Pursuant to the
know-how licenses, Siemens is obligated to pay to the Company a running royalty
of 5% of all sales of B-CDMA equipment worldwide which incorporates B-CDMA ASICs
or otherwise incorporates B-CDMA know-how. Siemens also has the option to
purchase B-CDMA ASICs and products from the Company. InterDigital, among other
things, maintains the right to sell ASIC chips to other telecommunications
manufacturers and/or license certain specified non-ASIC specific technology and
know-how embodied in the B-CDMA systems, together with ASIC applications know-
how. Under the Patent License Agreement, the Company has granted Siemens a
non-exclusive, world-wide, paid-up, perpetual license for the life of
InterDigital's TDMA and B-CDMA patents, and Siemens has granted InterDigital a
reciprocal, non-exclusive, world-wide, paid-up, perpetual license for the life
of Siemens TDMA and CDMA patents.
Samsung Agreements
On February 9, 1996, the Company effected a series of agreements with
Samsung and amended its agreements with Siemens as a second major step in
implementing its alliance strategy. Under the various agreements, Samsung made
upfront payments to the Company in excess of $35 million (of which approximately
one-half constituted royalty prepayments), less applicable withholding taxes.
All payments from Samsung were received by June 30, 1996. In July 1996, the
Company made, via offset (see Note 4 of the Notes to Consolidated Financial
Statements) certain payments to Siemens, which in turn, committed to provide
additional technical assistance to the Company. The net upfront amount received
by the Company, after giving effect to the receipt of certain exemptions from
Korean Service Withholding Tax granted by the Korean Ministry of Information and
Communications, was approximately $29 million. Samsung is also obligated to
provide engineering manpower for the development of the Company's B-CDMA
technology.
Samsung has received from InterDigital royalty-bearing licenses covering
InterDigital's TDMA and B-CDMA patent portfolio, its UltraPhone and B-CDMA
technologies and is licensed to use certain InterDigital trademarks.
InterDigital and Samsung anticipate that Samsung may manufacture and sell
privately labeled UltraPhone systems and may become a significant UltraPhone
equipment supplier to InterDigital, which would allow InterDigital to take
advantage of Samsung's expertise in low cost, high quality manufacturing.
The Company recognized $23 million as revenue during 1996. The balance of
the revenue of $8 million is expected to be recognized through fiscal 1999, the
expected date of completion of the applicable development effort.
Technology and Patent Licensing
General. The Company's patents, patent applications and rights to file
patent applications on certain future inventions are owned by ITC, a
wholly-owned subsidiary of InterDigital Patents Corporation ("Patents Corp."), a
wholly-owned subsidiary of the Company. ITC currently holds 78 United States
patents relating specifically to digital wireless radio telephony technology
(both TDMA and CDMA) which expire at various times beginning in 2004. ITC has
also obtained patents, mostly related to TDMA technologies, in 36 foreign
countries. Fifty-six other patent applications have been filed by ITC in the
United States Patent and Trademark Office and 169 other patent applications have
been filed in numerous foreign countries throughout the world, relating
variously to the CDMA and TDMA technologies. ITC's patents have effective terms
that range from 14 to 20 years.
In 1992, Patents Corp. sold approximately 6% of its common stock in a
private offering in order to fund patent procurement, maintenance, licensing and
enforcement activities, resulting in net proceeds of approximately $5.2 million.
In September 1996, Patents Corp. merged with a wholly-owned subsidiary of
InterDigital. In connection with this merger, approximately 1.5 million shares
of InterDigital Common Stock were issued to the minority shareholders of Patents
Corp. (other than InterDigital) in exchange for
9
<PAGE>
their Patents Corp. Common Stock. Upon completion of the merger, Patents
Corp. became a wholly-owned subsidiary of InterDigital.
In high technology fields characterized by rapid change and engineering
distinctions, the validity and value of patents are often subject to complex
legal and factual challenges and other uncertainties. Accordingly, ITC's patent
claims are subject to uncertainties which are typical of patent enforcement
generally. In addition, in the normal course of business, third parties have
asserted, and may assert in the future, that the Company is engaged in the
infringing use of a third party's patents or proprietary technology. If any such
third party successfully asserts that the Company is engaged in any such
infringing use, the Company may be required to contest the validity of such
patents or proprietary technology, to acquire licenses to use the patented or
proprietary technology and/or to redesign the Company's products to avoid
further infringement. The cost of enforcing and protecting the patent portfolio
or defending the Company against infringement claims can be significant.
Patent Licensing Activities. As part of its licensing strategy, ITC has
identified non-licensed entities which it believes are infringing its TDMA
patents, and ITC has undertaken a program, the ultimate objective of which is
the realization of licensing revenues from its patent portfolio. ITC intends to
pursue such revenues through a process of negotiation and, when necessary,
litigation. ITC generally seeks to license its patents on reasonable terms and
conditions, including reasonable royalty rates. ITC believes that making its
patented digital wireless technologies available to third parties will provide a
potentially significant source of revenue. In 1990, the initial digital cellular
telephone standard known as IS-54 employing TDMA technology was jointly adopted
by the Telecommunications Industry Association ("TIA") and Electronics Industry
Association ("EIA") as an interim standard. ITC believes that, in many
instances, licenses for certain of its patents are required in order for third
parties to manufacture and sell digital cellular products in compliance with the
TIA/EIA/IS-54-B Cellular System Dual-Mode Mobile Station-Base Station
Compatibility Standard (the "IS-54-B Standard") and the 800 MHz Cellular System,
TDMA Radio Interface, Dual-Mode Mobile Station - Base Station Compatibility
Standard (the "IS-136 Standard"). In addition, the Company believes that in many
instances licenses under its patents are required in order for third parties to
manufacture and sell equipment in compliance with certain other TDMA-based
standards currently in use worldwide. Those standards include but are not
limited to the Global System for Mobile Communication ("GSM"), the Japanese
Digital Cellular Standard ("JDC") and Personal Handphone System ("PHS").
Currently, numerous manufacturers supply digital cellular equipment conforming
to standards employing TDMA technology, such as the North American IS-54-B,
Japanese JDC and European GSM standards.
ITC has granted non-exclusive, non-transferable, perpetual, worldwide,
royalty-bearing licenses to use certain TDMA patents (and in certain instances,
technology) to Hughes Network Systems ("HNS"), American Telephone & Telegraph
Company, Siemens AG, Matsushita Electric Industrial Co. Ltd., Sanyo Electric
Co., Ltd., Pacific Communications Systems Inc., Mitsubishi Electric Corporation,
Hitachi Ltd., Kokusai Electric Co., NEC Corporation, OKI Electric Industry Ltd.,
and Samsung. The OKI agreement was the result of a settlement of litigation
filed by ITC in 1993. The licenses typically contain "most favored nations"
provisions, applied on a going forward basis only, and provisions which could,
in certain events, cause the licensee's obligation to pay royalties to the
Company to be suspended for an indefinite period, with or without the accrual of
the royalty obligation. Certain of the Company's licensees have also stated,
among other things, that the Motorola jury verdict, described below, materially
impacts the royalties due under their license agreements. The Company believes
that these positions are meritless.
In 1994, ITC also entered into a CDMA cross-license agreement with Qualcomm
Incorporated to settle litigation filed in 1993. In return for a one-time
payment of $5.5 million, ITC granted to Qualcomm a fully-paid, royalty free,
worldwide license to use and sublicense certain specified and then existing ITC
CDMA patents (including related divisional and continuation patents) to make and
sell products for IS-95-type wireless applications, including, but not limited
to, cellular, PCS, wireless local loop and satellite applications. Qualcomm has
the right to sublicense certain of ITC's licensed CDMA patents so that
Qualcomm's licensees will be free to manufacture and sell IS-95-type CDMA
products without requiring any payment to ITC. Neither ITC's patents concerning
cellular overlay and interference cancellation nor its current inventions are
licensed to Qualcomm. Under the settlement, Qualcomm granted to InterDigital a
10
<PAGE>
royalty-free license to use and to sublicense the patent that Qualcomm had
asserted against InterDigital and a royalty-bearing license to use certain
Qualcomm CDMA patents in InterDigital's B-CDMA products, if needed. InterDigital
does not believe that it will be necessary to use any of Qualcomm's
royalty-bearing or non-licensed patents in its B-CDMA system. In addition,
Qualcomm agreed, subject to certain restrictions, to license certain CDMA
patents on a royalty-bearing basis to those InterDigital customers that desire
to use Qualcomm's patents. The license to InterDigital does not apply to
IS-95-type systems, or to satellite systems. Certain of Qualcomm's patents,
relating to key IS-95 features such as soft and softer hand-off, variable rate
vocoding, and orthogonal (Walsh) coding, are not licensed to InterDigital.
Patent Litigation
Ericsson. In September 1993, ITC filed a patent infringement action against
Ericsson GE Mobile Communications, Inc. ("Ericsson GE"), its Swedish parent,
Telefonaktieboleget LM Ericsson ("LM Ericsson") and Ericsson Radio Systems, Inc.
("Ericsson Radio"), in the United States District Court for the Eastern District
of Virginia (Civil Action No. 93-1158-A (E.D.Va.)) (the "Ericsson action") which
was subsequently transferred to the United States District Court for the
Northern District of Texas. The Ericsson action seeks a jury's determination
that in making, selling, or using, and/or in participating in the making,
selling or using of digital wireless telephone systems and/or related mobile
stations, Ericsson has infringed, contributed to the infringement of and/or
induced the infringement of eight patents from ITC's patent portfolio. The
Ericsson action also seeks preliminary and permanent injunctions against
Ericsson from further infringement and seeks damages, royalties, costs and
attorneys' fees. Ericsson GE filed an answer to the Virginia action in which it
denied the allegations of the complaint and asserted a counterclaim seeking a
declaratory judgment that the asserted patents are either invalid or not
infringed. On the same day that ITC filed the Ericsson action in Virginia, two
of the Ericsson Defendants, Ericsson Radio and Ericsson GE, filed a lawsuit
against the Company and ITC in the United States District Court for the Northern
District of Texas (Civil Action No. 3-93CV1809-H (N.D.Tx.)) (the "Texas
action"). The Texas action, which involves the same patents that are the subject
of the Ericsson action, seeks the court's declaration that Ericsson's products
do not infringe ITC's patents, that ITC's patents are invalid and that ITC's
patents are unenforceable. The Texas action also seeks judgment against the
Company and ITC for tortious interference with contractual and business
relations, defamation and commercial disparagement, and Lanham Act violations.
The Company and ITC intend to vigorously defend the Texas action. The Ericsson
action and the Texas action have been consolidated. ITC agreed to the dismissal
without prejudice of LM Ericsson. At the request and with the consent of the
parties, the District Judge has executed an order extending a stay of the
proceedings until the Federal Circuit renders its opinion on appeals filed by
ITC and Motorola in connection with the lawsuit filed by Motorola against ITC as
described below.
Motorola. In October 1993, Motorola, Inc. filed an action against ITC in
the United States District Court for the District of Delaware seeking the
court's declaration that Motorola's products do not infringe certain ITC patents
and that these patents are invalid and unenforceable. ITC filed an answer and
counterclaims seeking a jury's determination that in making, selling or
using and/or participating in the making, selling or using of digital wireless
telephone systems and/or related mobile stations, Motorola has infringed,
contributed to the infringement of and/or induced the infringement of certain
ITC patents. ITC also sought preliminary and permanent injunctions against
Motorola from further infringement and sought damages. A trial was held in
United States District Court for the District of Delaware (Civil Action No.
94-73 (D. Del.)) on the issue of validity and infringement of 24 patent claims
involving four ITC patents, U.S. Patent Nos. 4,675,863; 4,817,089; 5,119,375 and
4,912,705. By stipulation of the parties, the case was limited to certain TDMA
products made, used and/or sold by Motorola.
On March 29, 1995, the trial ended with the jury's verdict, which is
subject to varying interpretations, but which is interpreted by the Company to
mean that ITC's patent claims at issue in the case are not infringed by Motorola
and, if construed to be infringed, are invalid. After trial, Motorola filed a
motion requesting attorney's fees and expenses aggregating between $6 and $7
million. The Company filed a motion with the U.S. District Court for the
District of Delaware requesting that the court overturn and/or clarify all or
part of the jury verdict or grant a new trial. The district court denied
Motorola's motion for
11
<PAGE>
attorney's fees and ITC's motion for a new trial. The
court further overturned the jury's finding of invalidity with respect to three
claims, but affirmed the jury's verdict in all other respects. Both ITC and
Motorola have appealed to the United States Court of Appeals for the Federal
Circuit. An oral argument was presented to the Federal Circuit on January 30,
1997, but the Federal Circuit has not yet rendered a decision. The Company
believes that there are substantial grounds for reversal of the jury's verdict
or the granting of a new trial.
Patent Opposition. ITC has filed patent applications in numerous foreign
countries. ITC is and expects from time to time to be subject to additional
challenges with respect to its patents and patent applications in foreign
countries. Typical of the processes involved in the issuance of foreign patents,
Philips Patentverwaltung GmbH ("Philips"), Alcatel SEL AG ("Alcatel") and
Siemens each filed petitions in the German Patent Office seeking to revoke the
issuance of ITC's basic German TDMA system patent granted on June 28, 1990. On
October 19, 1993, after formal opposition proceedings, the German Patent Office
confirmed the validity of the ITC basic German system patent. An appeal was
filed by Philips, Alcatel and Siemens and additional arguments have been made
based upon prior art not previously considered by the patent office. Siemens has
since withdrawn from the proceeding. Formal hearings were held by the German
Federal Patent Court on June 26 and 27 and November 18, 1996. At the
close of the hearings, the Court maintained the patent with certain
modifications. Alcatel and Phillips have appealed the German Federal Patent
Court's decision to the German Superior Court. Although no assurance can be
given as to the eventual outcome of these or other patent challenges, ITC
intends to vigorously defend its patents. If any of these patents are revoked,
ITC's patent licensing opportunities in such relevant foreign countries, and
possibly in other countries, could be materially and adversely affected.
Government Regulation and Industry Standards
The telecommunications industry in general is subject to continued
regulation on the federal, state and international levels. The sale of
telecommunications equipment, such as the UltraPhone telephone system, is
regulated in the United States and in many countries, primarily to ensure
compliance with federal technical standards for interconnection, radio emissions
and non-interference (i.e. type acceptance of a particular product). The Company
generally designs and builds UltraPhone equipment in accordance with such
industry regulations and standards as may be appropriate.
12
<PAGE>
Employees
As of March 14, 1997 the Company had 278 full-time employees. In addition,
the services of consultants and part-time employees are utilized. None of the
Company's employees are represented by a collective bargaining unit. The Company
considers its employee relations to be good. A breakdown of the Company's
full-time employees by functional area is as follows:
NUMBER OF
FUNCTIONAL AREA EMPLOYEES
--------------- ---------
Sales and Marketing 18
Customer Support 21
Manufacturing 53
Research and Development 143
Patent Licensing 3
Corporate and Administration 40
----
Total 278
====
Executive Officers of the Company
The Executive Officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gregory E. Webb 51 Chief Executive Officer
William A. Doyle 47 President and Director
Howard E. Goldberg 51 Executive Vice President, General Counsel and Secretary
Mark Lemmo 39 Executive Vice President - Engineering & Product Operations
James W. Garrison 40 Vice President - Finance, Chief Financial Officer and Treasurer
Charles R. "Rip" Tilden 43 Vice President, Communications and Investor Relations
D. Ridgely Bolgiano 64 Vice President, Chief Scientific Officer, President of InterDigital
Patents Corp and Director
</TABLE>
Gregory E. Webb was elected Chief Executive Officer in October 1996. Prior
to joining InterDigital, Mr. Webb was a Corporate Vice President-Marketing and
Strategy of Qualcomm, Inc., a telecommunications company, since 1995 where he
was responsible for marketing, sales and strategic business relationships.
Before that, he worked as General Manager of the development of cellular and PCS
infrastructure businesses for Sanders Telecommunications Systems, a Lockheed
Martin Company, since 1994. Mr. Webb served as President of Cornerstone
Strategies, Ltd., where he managed a telecommunications consulting practice,
from 1992 to 1994 and as Assistant Vice President/General Manager of Ameritech,
Inc., a telecommunications company, from 1988 to 1992. In addition, Mr. Webb was
employed by AT&T for twenty years.
William A. Doyle, a director of the Company since May 1996, has served as
President of the Company since November 1994. Previously, Mr. Doyle had been
Executive Vice President, General Counsel and Chief Administrative Officer since
February 1994. Prior to February 1994, Mr. Doyle had served as Vice President,
General Counsel and Secretary of the Company from March 1991. From October 1987
to March 1991, Mr. Doyle served as Vice President, General Counsel and Secretary
of Environmental Control Group, Inc., a publicly traded company involved in the
environmental remediation business.
Howard E. Goldberg was promoted to Executive Vice President, General
Counsel and Secretary in May 1995 from his prior position of Vice President,
General Counsel and Secretary which he held since December 1994. Prior thereto
Mr. Goldberg served the Company as a lawyer in various consulting and
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<PAGE>
full time employment capacities from April 1993, including the position of
Vice President - Legal Affairs and Associate General Counsel. Prior to joining
the Company, Mr. Goldberg served as Vice President, General Counsel and
Secretary of Environmental Control Group, Inc. from March 1991. From August 1986
to March 1991, Mr. Goldberg was an associate, primarily engaged in the practice
of securities and corporate law with Fox, Rothschild, O'Brien & Frankel in
Philadelphia, Pennsylvania. Immediately prior to joining the Company thereto, he
served as Special Counsel, Office of International Corporate Finance, in the
Division of Corporate Finance, Securities and Exchange Commission, Washington,
D.C.
Mark Lemmo was promoted to Executive Vice President of Engineering and
Product Operations in October 1996. Previously, Mr. Lemmo had been Vice
President-Sales and Marketing since June 1994 and Vice President of Engineering
from August 1991 to June 1994. From October 1987 to August 1991, Mr. Lemmo held
staff and manager level positions in the engineering department of InterDigital.
Prior to that, Mr. Lemmo held staff positions at GE Government Communications
Systems, a company specializing in digital wireless frequency-hopping
technology.
James W. Garrison was elected Vice President of Finance, Chief Financial
Officer and Treasurer effective December 1994. During the period from July 1994
through December 1994, Mr. Garrison served as Acting Chief Financial Officer of
the Company. Mr. Garrison joined the Company as Corporate Controller in August
1992. Immediately prior thereto, Mr. Garrison was Controller of Horizon Cellular
Telephone Company from October 1990 to August 1992. From August 1987 to October
1990, Mr. Garrison served as Vice President of Finance for Avant-Garde Computing
Inc., having succeeded to such position after serving as Controller from 1982 to
1987. Mr. Garrison's experience prior to joining the Company included serving as
a Certified Public Accountant who served with Arthur Andersen & Co.
Charles R. "Rip" Tilden was elected Vice President, Communications and
Investor Relations in November 1996. Prior to joining InterDigital, Mr. Tilden
served as Vice President, Corporate Affairs at Alco Standard Corporation in
Wayne, PA, an office products and paper distribution company, since December
1994. Before moving to Alco, Mr. Tilden was Vice President, Communications for
GenCorp in Akron, OH, an aerospace defense, automotive and polymer products
company from 1988 to 1994. Also, he was the Director of Communications for one
of GenCorp's division from 1985 to 1988. Mr. Tilden served for two years as the
Director of the Center for Management and Entrepreneurship and as a lecturer in
communications at DePauw University in Greencastle, IN, from 1983 to 1985. He
was Director of Communications for A.T. Kearney, an international management
consulting firm headquartered in Chicago, from 1978 to 1983, and was News
Service Manager for Montgomery Ward from 1975 to 1978.
D. Ridgely Bolgiano has been a director of the Company since 1981. He
became the Company's Vice President and Chief Scientist Officer in April 1984,
and has been affiliated with the Company in various capacities since 1974. Mr.
Bolgiano has served as Acting President of Patents Corp. since May 1996.
The Company's Executive Officers are elected to the offices set forth above
to hold office until their successors are duly elected and have qualified.
14
<PAGE>
Item 2. PROPERTIES
The Company owns one facility, subject to a mortgage, with an aggregate of
approximately 50,000 square feet of office, development, warehousing and
assembly facilities in King of Prussia, Pennsylvania. See Note 10 of the Notes
to Consolidated Financial Statements. In December 1996, the Company entered into
a five year lease for approximately 67,000 square feet of office and development
facilities in Melville, New York. This facility is the primary location for the
Company's B-CDMA development activities. For additional information, see Note 10
of the Notes to Consolidated Financial Statements. In the event of a substantial
increase in sales, additional production and/or warehousing facilities may be
required.
Item 3. LEGAL PROCEEDINGS
On November 7, 1994, a complaint was filed in the United States District
Court for the Eastern District of Pennsylvania (Civil Action No. 94-CV-6751)
against the Company and a former chief executive officer of the Company
alleging certain violations of the disclosure requirements of the federal
securities laws and seeking damages on behalf of shareholders who purchased the
Company's stock during the class period stated to be March 31, 1994 to August 5,
1994. The alleged violations related to the disclosure of three proposed
financing transactions: (1) a revised financing offered through Prudential
Securities Incorporated; (2) a Purchase Agreement entered into on March 11, 1994
between the Company and a proposed purchaser to sell $30 million of the
Company's discounted common stock and warrants, and a related $3 million loan to
the Company; and (3) a $25 million loan to the Company from Oregon Financial
Group, Inc. ("OFG"). This action sought damages on behalf of shareholders who
purchased the Company's stock during a class period purportedly extending from
March 31, 1994 to August 5, 1994. The case was settled in July 1996 subject to
final court approval. Such settlement had no material effects to the Company's
results of operations or financial position.
The Company is additionally both plaintiff and defendant in certain
litigation relating to its patents. See Item 1. "Business-Technology and Patent
Licensing" of this Form 10-K.
In addition to litigation associated with patent enforcement and licensing
activities and the litigation described above, the Company is a party to certain
other legal actions arising in the ordinary course of its business. Based upon
information presently available to the Company, the Company believes that the
ultimate outcome of these other actions will not materially affect the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
Item 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table sets forth the range of the high and low sales prices
of the Company's Common Stock as reported by the American Stock Exchange.
High Low
---- ---
1996
First Quarter 10 3/8 7 5/16
Second Quarter 11 1/4 7 9/16
Third Quarter 8 7/8 6 3/16
Fourth Quarter 7 13/16 5 7/16
High Low
---- ---
1995
First Quarter 12 7/8 5
Second Quarter 7 7/8 5 5/8
Third Quarter 9 3/16 6 3/8
Fourth Quarter 9 1/2 6 7/16
As of March 14, 1997, there were approximately 2,650 holders of record of
the Company's Common Stock.
The Company has not paid cash dividends on its Common Stock since
inception. It is anticipated that, in the foreseeable future, no cash dividends
will be paid on the Common Stock and any cash otherwise available for such
dividends will be reinvested in the Company's business. The payment of cash
dividends will depend on the earnings of the Company, the prior dividend
requirements on its remaining series of Preferred Stock and other Preferred
Stock which may be issued in the future, the Company's capital requirements and
other factors considered relevant by the Board of Directors of the Company.
PRIVATE ISSUANCE OF COMMON STOCK
On September 30, 1996, the Company issued ten year warrants to purchase
80,000 shares of its common stock exercisable at $7.625 to a former employee in
connection with the settlement of his employment arrangement with the Company.
Such transaction was consummated under Section 4(2) of the Securities Act of
1933, as amended, and Regulation D promulgated thereunder as a transaction by
the issuer to one individual with knowledge and experience in financial business
matters and the capability of evaluating the merits and risks of the investment
and who represented and warranted that such person was acquiring the securities
for such person's own account and without a view to any public resale or
distribution.
16
<PAGE>
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The information set forth below should be read in conjunction with the
Consolidated Financial Statements and notes thereto, and the other financial
information included elsewhere in this Form 10-K, as well as "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
1992(1) 1993 1994 1995 1996
------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data
(in thousands, expect per share data)
Revenues:
UltraPhone Equipment and Services $ 34,348 $ 11,748 $ 20,086 $ 16,581 $ 24,974
Licensing and Alliance 3,015 -- 28,709 67,693 28,719
Contract services 2,347 1,551 1,171 681 --
--------- --------- --------- --------- ---------
Total revenues 39,710 13,299 49,966 84,955 53,693
Nonrecurring items (2) (15,088) -- -- -- --
Income (loss) from continuing operations (20,342) (32,929) (13,753) 34,605 (11,644)
Discontinued operations (2,283) (1,728) (295) -- --
Net income (loss) before preferred dividends (22,625) (34,657) (14,048) 34,605 (11,644)
Net income (loss) applicable to
common shareholders $ (22,917) $ (34,939) $ (14,330) $ 34,340 $ (11,904)
========= ========= ========= ========= =========
Net income (loss) per share
Net income (loss) from continuing operations $ (0.86) $ (1.05) $ (0.37) $ 0.74 $ (0.26)
Net income (loss) - discontinued operations (0.09) (0.06) (0.01) -- --
--------- --------- --------- --------- ---------
Net income (loss) per common share $ (0.95) $ (1.11) $ (0.38) $ 0.74 $ (0.26)
========= ========= ========= ========= =========
Weighted average number of shares
outstanding 24,113 31,515 37,463 46,503 46,462
========= ========= ========= ========= =========
Operations and Other Data:
Number of UltraPhone systems sold 45 10 34 25 49
Number of UltraPhone subscriber stations sold 7,160 2,304 8,570 5,474 10,764
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Consolidated Balance Sheet Data (in thousands):
Cash and cash equivalents (3) $ 9,146 $ 8,211 $ 6,264 $ 9,427 $ 11,954
Short Term Investments -- -- -- 55,060 43,063
Working capital (deficit) 10,340 8,064 10,118 59,008 57,076
Total assets 35,550 32,326 43,830 83,167 112,636
Short-term debt (4) 154 256 233 430 790
Long-term debt 150 650 520 631 4,221
Accumulated deficit (135,396) (170,335) (184,665) (150,325) (162,229)
Total shareholders' equity (5) 15,056 14,004 14,872 62,440 72,507
</TABLE>
- ---------------------------------------
(1) Includes the results of operations of SCS from October 15, 1992, the
respective date of acquisition by the Company.
(2) Nonrecurring items for 1992 include the expensing of $13,120,000 of
research and development costs acquired as part of the acquisition of SCS
and a loss of $1,968,000 on a revaluation of equipment acquired as part of
a cancellation of a purchase commitment.
17
<PAGE>
(3) Including $6,710,000, $2,424,000, $471,000, $1,200,000 and $204,000 of
restricted cash as at December 31, 1992, 1993, 1994, 1995 and 1996,
respectively. See Note 2 to "Notes to Consolidated Financial Statements".
(4) Includes the current portion of long-term debt.
(5) The Company has not declared or paid any dividends on the Common Stock
since its inception.
18
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Selected
Consolidated Financial Data, and the Consolidated Financial Statements and notes
thereto, contained elsewhere in this document.
InterDigital commenced operations in 1972 and until 1987 was primarily
engaged in research and development activities related to its TDMA wireless
digital communications technology. In 1986, the Company introduced the
UltraPhone system, a fixed digital wireless local loop telephone system
employing its patented and proprietary TDMA technology, which it began
installing in 1987. The Company's operations from 1987 through 1992 were
characterized by increasing revenues accompanied by significant operating
losses. During this period, significant costs were incurred related to the
commercialization and continued development of the UltraPhone system,
development of production sources and capacity, and the implementation of a
broad-based sales and marketing effort designed to promote regulatory and market
acceptance of the UltraPhone system. During 1993, 1994 and 1995, UltraPhone
system revenues were significantly lower than in 1992; losses increased
significantly in 1993 and 1994 as a result of the decline in UltraPhone revenues
and gross margins and other increases in costs, such as the increased investment
in B-CDMA research and development, engineering of product redesigns and
enhancements, the increase in litigation costs and the costs associated with
enforcement of ITC's intellectual property rights.
During 1994, the Company began to realize positive results from its efforts
to capitalize upon the revenue potential of its TDMA and CDMA patent portfolio
and entered into its first major allilance, with Siemens. The Company recognized
$28.7 million of licensing revenue, representing over 57% of total revenues for
1994. During 1995, the Company recognized $67.7 million of licensing and
alliance revenue enabling the Company to report its first profitable fiscal year
since its inception. The Company was profitable in the first and second quarters
of 1995 and unprofitable in the third and fourth quarters of 1995. During 1996,
the Company completed its second major alliance with Samsung, and recognized
$28.7 million of licensing and alliance revenue which represented 53% of the
total revenues for 1996. Again in 1996, the Company was profitable in the first
and second quarters and unprofitable in the third and fourth quarters. The
variability of 1995 and 1996 quarterly operating results was due to the revenue
related to up-front, non-refundable payments pursuant to license and alliance
agreements. The Company expects such variability to continue until significant
recurring royalties are received under such agreements. The Company expects to
continue to generate revenue related to licensing and alliance activities.
However, such revenues are dependent upon various factors or events, including
the Company's participation in the continued joint development effort with its
alliance partners, the ability to enter into additional alliances and/or new
licenses for the Company's patents and other intellectual property, the ability
to negotiate for royalties and fees from new licenses, the extent to which and
when current and new licensees ship product that utilizes the licensed
technology and the licensee's ability or willingness to pay the applicable
license or royalty fees. Revenues and other business prospects could also be
adversely impacted by the a jury verdict in the Motorola litigation (see Item 1.
Business, Technology and Patent Licensing, Patent Licensing) or adverse
decisions in the Company's outstanding and any or future intellectual property
rights litigation or other patent-licensing opportunities, proceedings,
including but not limited to, any declaration of invalidity or non-infringement
of ITC's patents. (See Notes 1, 3, 4 and 5 to "Notes to Consolidated Financial
Statements".)
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 year-end product backlog to $80.7 million from $20.0 at
December 31, 1995. (See Backlog.) These successes were achieved by lowering
UltraPhone system prices, offering the UltraPhone system in conjunction with
alliance partners, focusing on larger scale
19
<PAGE>
telecommunications infrastructure programs and successfully marketing to
the Company's existing customer base in Indonesia. On large scale opportunities
where 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
are expected to 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 product 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 commensurate with 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.
In addition to the effects of varying selling prices and product materials
costs, the Company's gross profit margin ratios are ordinarily affected by the
relative proportions of direct and distributor sales, by the average number of
subscribers per system sold, by its ability to absorb manufacturing overhead
costs through generation of sufficient production volume, and by the field
service costs for installation, warranty, training and post-sale support.
Consistent with industry practices, distributor commissions have been included
in both revenues and cost of sales. Historically, the Company's gross profit
margin from 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.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS
The Company had working capital of $57.1 million at December 31, 1996
compared to working capital of $59.0 million at December 31, 1995. The decrease
in working capital since December 1995 is due primarily to $9.9 million of cash
used in operations, $4.1 million of cash used to purchase property and
equipment, $3.7 million of cash used primarily to support bonding activities
related to UltraPhone product revenues all of which was partially offset by
$10.0 million received from stock option and warrant exercises. The Company had,
prior to 1995, experienced liquidity problems due to its lack of profits
sufficient to generate cash at a level necessary to fund its investment in
additional equipment, its UltraPhone technology development, its patent
activities, its B-CDMA technology research and development activities, and its
operating losses. From the fourth quarter of 1994 through the second quarter of
1996, the Company generated cumulative operating profits and substantially
strengthened its cash position through its alliance and licensing transactions.
During the third and fourth quarters of 1996, the Company again experienced
operating losses which more than offset the operating profits generated in the
first two quarters.
In recent years, foreign sales have represented a majority of the sales of
UltraPhone systems, and it is anticipated that foreign sales will represent a
majority of UltraPhone system sales for the foreseeable future. UltraPhone
system sales have, on a historical basis, varied significantly from quarter to
quarter due to the concentration of revenues from the Company's largest
customers over a few fiscal quarters. See Note 5 to "Notes to Consolidated
Financial Statements". Additionally, the Company expects that it may
continue to experience significant fluctuations in quarterly and annual
revenues and operating results due
20
<PAGE>
to variations in the amount and timing of license and alliance-related
revenue. Accordingly, the Company's cash flow may be expected to fluctuate
significantly for the foreseeable future.
Demands on working capital in 1997 and beyond are expected to be
significant. The Company expects to aggressively support its B-CDMA technology
development efforts to commercialize its technology as soon as possible. As the
development effort nears first stage completion, currently anticipated in 1997,
additional expenditures are expected to be 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 expected to be significant as the Company continues
its efforts to reduce the cost of the UltraPhone product and increase its market
share. Marketing and other costs are expected to increase as well as the Company
seeks to more effectively support its alliance program. In addition, the working
capital needed to support the fulfillment of the large UltraPhone system orders
currently in backlog and expected in the future is expected to be significant.
Further, the cost of prosecuting its patent applications worldwide, defending
the validity of its patents, and litigating patent infringement actions related
to ITC's patents can be substantial.
Certain emerging trends associated with product sales could also negatively
impact future working capital, should they occur. The Company has not offered
vendor financing to prospective customers, instead relying on its efforts to
assist prospective customers in obtaining financing from other sources; however,
customers have in the past and may continue in the future to have difficulty
securing financing. Should the Company engage in a vendor financing program (it
has no current plans to do so), such a program would have a material adverse
impact on working capital needs. Many prospective customers have required
increasingly significant delivery and performance guarantees of various types,
including delay damage clauses, performance bonds and performance guarantees.
The working capital required to provide such bonds and guarantees could be
significant for large orders, and the costs that might be incurred if any delay
damages clauses or performance bonds or guarantees were called upon, could have
a material adverse impact on working capital and operations of the Company. The
Company obtains some component parts from single sources, while other components
are available from multiple sources; changing sources of supply would likely
cause a disruption in supply. Any interruption in the supply of quality
components could have an adverse impact on working capital and operations of the
Company.
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 and the ability to generate license
fees and royalties. 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, which may or may not be available to the Company.
Accordingly, the Company may, at some future date subsequent to 1996,
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 assurances that the Company
will be able to sell any such securities, or, if it can, that it can 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 balance sheet at realizable values
based on expected selling price and order volumes. Property and equipment are
currently being utilized in the Company's on-going business activities, and the
Company believes that no additional write-downs are required at this time due to
lack of use or technological obsolescence. With respect to other assets, the
Company believes that the value of its patents is at least equal to the value
included in the December 31, 1996 balance sheet.
21
<PAGE>
Changes in Cash Flows and Financial Condition:
The Company has experienced negative cash flows of $13.3 million from
operations during 1996. The negative cash flows from operations are primarily
due expenses incurred for UltraPhone production and marketing, B-CDMA technology
development and the Company's general and administrative activities offset by
the receipt of $34.0 million related to the Company's alliance and patent
licensing activities.
Net cash flows from (used by) investing activities for 1996 include
investments in property and equipment and other long term assets of $5.3
million. Also included in net cash flows from (used by) investing activities is
the Company's withdrawal of $12.0 million of funds previously invested in
short-term, highly liquid securities. Notwithstanding the above, the amount of
cash used in investing activities has, historically, been low relative to cash
used in operations.
During 1996, the Company generated $9.1 million from financing activities.
The funds were primarily generated by the exercise of stock options and
warrants.
Cash and cash equivalents of $12.0 million as of December 31, 1996 includes
$204,000 of restricted cash. All of the short term investments as of December
31, 1996 were held by ITC. The UltraPhone accounts receivable of $12.9 million
at December 31, 1996 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 December 31, 1996,
$4.0 million has been collected through March 14, 1996. Additionally, the
Company received approximately $7.1 million in March 1997 which represents the
initial 20% draw on the current Indonesian order.
Inventory levels have increased at December 31, 1996 to $13.9 million from
$4.9 million as of December 31, 1995, reflecting the build up of inventory in
anticipation of shipment of the remaining portion of the Company's $37.0 million
order from its Indonesian customer. Inventories at December 31, 1995 and
December 31, 1996 are stated net of valuation reserves of $6.9 million and $5.9
million, respectively.
Included in other accrued expenses at December 31, 1996 are professional
fees, consulting and other accruals and deferred rent relating to the corporate
headquarters and manufacturing facilities, as well as sales taxes payable.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the revenues from
each revenue category as a percentage of total revenues and gross margins from
UltraPhone equipment sales as a percentage of revenues from UltraPhone sales:
As a % of Total Revenues
------------------------------------
Year Ended December 31,
------------------------------------
1994 1995 1996
---- ---- -----
Revenues:
UltraPhone Product Revenues 40.2 % 19.5 % 46.5 %
Licensing and Alliance 57.5 79.7 53.5
Contract Services 2.3 0.8 --
----- ----- -----
Total Revenues 100.0 % 100.0 % 100.0 %
===== ===== =====
UltraPhone Product Gross Margins (16.8)% (8.1)% (9.6)%
===== ===== =====
1996 COMPARED WITH 1995
Total Revenues. Total revenues in 1996 decreased 37% to $53.7 million from
$85.0 million in 1995 due to the decrease of $38.9 million in licensing and
alliance revenue in 1996 partially offset by an increase in UltraPhone product
revenues of 51% to $25.0 million from $16.6 million in 1995. License and
Alliance revenue of $28.7 million in 1996 included $23.0 million of alliance
revenue from Samsung, $4.8 million of alliance revenue recognized on the Siemens
agreements and $900,000 of recurring royalty fees from one licensee. Licensing
and Alliance revenues for 1995 resulted from license agreements with Mitsubishi,
NEC, Hitachi, Kokusai, PCSI and Sanyo. (See Item 1. "Business - Technology and
Patent Licensing".) The remaining License and Alliance revenue for 1995
represents the recognition of $13.6 million of revenue associated with the
Siemens alliance. (See Item 1. "Business - Siemens Agreements".)
During 1995, the Company realized contract services revenue related to its
U.S. Federal government and other services contract activity. The Company
completed the remaining contracts for which the Company was obligated. During
the fourth quarter of 1994, the Company began withdrawing from this market in
order to focus on its other core business activities. No such revenues were
realized in 1996.
Cost of UltraPhone Revenues. The cost of UltraPhone telephone system sales
in 1996 increased by 53% to $27.4 million from $17.9 million in the 1995 period.
This increase is primarily due to the increase in UltraPhone product revenues.
Additionally, the Company incurred costs in 1996 related to the Company's
introduction of its fourth generation subscriber unit.
Contract Services Costs. Contract services costs were $762,000 in 1995.
During 1995, the Company completed the remaining contracts for which the Company
was obligated.
Other Operating Expenses. Other operating expenses include sales and
marketing expenses, general and administrative expenses and research and
development expenses.
Sales and marketing expenses increased 31% to $4.7 million in 1996 from
$3.6 million in 1995. The increase is due primarily to increased sales
commission charges on the increased UltraPhone product revenues as well as an
increased level of sales and marketing activity as compared to the prior year.
General and administrative expenses decreased 25% to $11.1 million in 1996
from $14.8 million in 1995. Expenses related to the protection and exploitation
of the Company'ITC's patents, including legal costs,
23
<PAGE>
decreased by approximately $1.8 million in 1996 compared to 1995. The 1995
expenses included the costs of the Motorola trial. (See Item 1 "Business -
Technology and Patent Licensing".) Additionally, expenses for 1995 contained
$2.0 million for potential maximum charges related to a bonus compensation plan.
The plan was terminated in 1995 and all claims thereunder were paid and settled
in 1995 and 1996.
Product development expenses increased 123% to $21.6 million in 1996 from
$9.7 million in 1995. The increase in product development costs stems from
increased number of employees and activity levels as the Company further
develops the B-CDMA technology and UltraPhone product and technology.
Other Income and Expense. Interest expense for 1996 was $271,000 as
compared to $724,000 for 1995. The 1995 expenses include a provision of $497,000
representing additional interest calculated by the Company to be due to HNS and
$59,000 of interest incurred on capital leases. Interest expense for 1996
includes $124,000 of mortgage interest on the Company's King of Prussia and
$135,000 of interest on leases.
Interest income for 1996 was $4.1 million as compared to $3.1 million in
1995. The increase is due to interest earned on a higher average level of
investments during 1996 than 1995.
Minority Interest. The Company recorded $890,000 as an increase in minority
interest in 1996 representing the minority ownership interest in the net income
of Patents Corp. for 1996. During 1995, the Company recorded an increase of $2.5
million in minority interest representing the minority ownership interest in the
net loss of Patents Corp. In September 1996, the Company entered into an
Agreement and Plan of Merger to acquire the portion of Patents Corp. that the
Company did not then currently own. Upon completion of the transaction, Patents
Corp. became a wholly-owned subsidiary of InterDigital and therefore the Company
will no longer recognize a minority interest liability. (See Note 6 of the Notes
to Consolidated Financial Statements.)
1995 COMPARED WITH 1994
Total Revenues. Total revenues in 1995 increased 70% to $85.0 million from
$50.0 million in 1994 due to the recognition of $39.0 million of additional
licensing revenue in 1995 offset by a decrease in UltraPhone revenues of 17% to
$16.6 million from $20.1 million in 1994. License and alliance revenue of $67.7
million in 1995 resulted from license agreements with Mitsubishi, NEC, Hitachi,
Kokusai, PCSI and Sanyo. See Item 1. "Business-Technology and Patent Licensing".
The remaining license and alliance revenue represents the recognition of $13.6
million of revenue associated with the Siemens alliance. See Item 1.
"Business-Siemens Agreements". Licensing and Alliance Revenue for 1994 resulted
from licensing agreements with Qualcomm, AT&T, OKI Electric and Matsushita.
The Company realizes contract services revenue related to its U.S. Federal
government and other services contract activity. Such revenues declined 42% to
$681,000 in 1995 from $1.2 million in 1994. The Company has substantially
completed its withdrawal from this market in order to focus on its other core
business activities.
Cost of UltraPhone Revenues. The cost of UltraPhone sales in 1995 decreased
by 24% compared to the 17% decrease in UltraPhone revenues. This resulted in a
decrease from $23.4 million in 1994 to $17.9 million in 1995. The Company
recorded charges totaling $1.5 million in 1994, to increase its inventory
valuation and purchase commitment reserves. The decreased production volume in
1995 required the Company to less fully absorb its fixed production overhead
costs. Because of continued competitive pressures and the inability to attain
significant volumes of orders and shipments of highly populated systems,
materials costs as a percentage of revenues increased in 1995 compared to 1994.
Contract Services Costs. Contract services costs decreased 47% to $762,000
in 1995 from $1.4 million in 1994. The decrease in margins reflects the lower
activity levels and consequent unabsorbed overhead costs associated with the
Company's withdrawal from the contract services business.
24
<PAGE>
Other Operating Expenses. Sales and marketing expenses decreased 21% to
$3.6 million in 1995 from $4.5 million in 1994. The decrease is due primarily to
decreased sales commission charges on the decreased UltraPhone system revenues
as well as the decrease in Company sales personnel reflecting the Company's
increased use of in-country consultants.
General and administrative expenses decreased 35% to $14.8 million in 1995
from $22.9 million in 1994. Expenses related to the protection and exploitation
of the Company's patents, including legal costs, decreased by approximately $3.7
million in 1995 compared to 1994. Expenses for 1994 included the preparation for
the Motorola trial as well as litigation expenses incurred in the litigation and
settlement with Qualcomm. See Item 1 "Business - Technology and Patent
Licensing". Included in the Patents Corp. expenses for 1994 were accounting
charges and reserves totaling $2.7 million which represented the maximum amount
of charges relating to bonus compensation and compensatory options to purchase
Patents Corp. common stock claimed by some Patents Corp. officers and employees.
The charge relating to the compensatory options was based on the difference
between the deemed value for accounting purposes of the shares subject to the
options and the exercise price of the option. The compensatory options were
exercised in conjunction with the buyout of the Patents Corp. minority interest
shares in September 1996. (See Note 6 of the Notes to Consolidated Financial
Statements.) Expenses for 1995 contain $2.0 million for potential maximum
charges under the bonus compensation arrangement. All claims under the bonus
compensation plan were paid and settled in 1995 and 1996 and the plan was
terminated in 1995. Legal fees and expenses related to litigation and other
corporate matters decreased by $1.2 million in 1995 compared to 1994. Expenses
for 1994 included a charge of approximately $1.3 million to fully reserve the
note receivable related to the 1994 purchase by a third party of three
UltraPhone systems originally sold to the Company's Indonesian customer in 1993.
General and administrative expenses in 1994 also includes $1.6 million,
primarily severance charges, relating to the Company's withdrawal from the
contract services market and other reductions in force or terminations. No such
charges were incurred in 1995. Expenses for 1995 include a $1.3 million charge
for the remaining lease commitments of the space that the Company vacated as
part of the move of its King of Prussia facilities.
Product development expenses increased 28% to $9.7 million in 1995 from
$7.6 million in 1994. The increase in product development costs stems from
increased number of employees and activity levels as the Company further
develops the B-CDMA technology and UltraPhone product and technology.
Other Income and Expense. Interest income in 1995 was $3.1 million as
compared to $113,000 for 1994. The increase is due primarily to greater average
invested cash balances in 1995 compared to 1994 due to the receipt of cash and
investment of funds for licensing and alliance revenues. Interest expense for
1995 was $724,000 as compared to $1.5 million for 1994. 1994 expenses include a
provision of $975,000 representing additional interest calculated by the Company
to be due to HNS. Interest expense for 1994 also included $193,000 of interest
expense related to two short-term borrowings during the year of $3.0 and $2.4
million, respectively, and increased charges by vendors. Interest and financing
expense in 1995 included a charge for additional interest recorded as part of a
settlement of litigation with HNS.
Minority Interest. The Company recorded $2.5 million as an increase in
minority interest in 1995 representing the minority ownership interest in the
net income of Patents Corp. for 1995. During 1994, the Company recorded an
increase of $878,000 in minority interest representing the minority ownership
interest in the net income of Patents Corp. for 1994.
Discontinued Operations. During 1994, the Company had a loss from
discontinued operations of $416,000, primarily from the interest expense on the
Seller notes and the amortization of goodwill. The Company recognized a $121,000
gain on the sale of the Haviland Telephone Company operations.
BACKLOG
At March 14, 1997, the Company's backlog of orders for UltraPhone telephone
systems and services was $65.0 million, which includes the balance of one order
from the Company's Indonesian customer of $20.3 million and another order, which
is subject to completion of adequate financing and the final provision of
radio frequencies, from its Pakistani customer for $42.9 million. All of
the backlog except the Pakistan
25
<PAGE>
order is expected to be delivered during fiscal year 1997. The Pakistan
order, if and when finalized, is expected to begin shipment in late 1997. As of
March 22, 1996, backlog was approximately $56.4 million, which included $36.8
million from the Company's Indonesian customer and another $17.9 million from
its Philippine customer.
STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis and discussions of the
Company's Business, Item 1, contain forward looking statements reflecting, among
other things, the Company's current beliefs and expectations as to its
objectives, growth, financial earnings potential, operating margins, cash
position, markets, product and technology development, schedule and capability,
litigation, standardization, growth in industry markets and in telecommunication
infrastructure, strength and weaknesses of competitors, financing capability,
ability to form alliances and to license its intellectual property, patent
validity and enforceability and the actions of the Company's alliance partners
and licensees. Words such as "objectives", "intends", "expects", "believes",
"plans", "estimates", anticipates", variations of such words, and words with
similar meaning or connotations are intended to identify such forward looking
statements.
Such statements are subject to risks and uncertainties. The Company
cautions the readers that important factors in some case have affected and, in
the future, could materially affect actual results and cause actual results to
differ materially from the results expressed in any such forward looking
statement. These factors include but are not limited to: general economic
conditions of the Company's customers, potential customers and the wireless
industry; the reversal or slowdown in anticipated foreign and/or domestic TELCO
infrastructure spending; the effects of, and changes in, foreign trade, monetary
and fiscal policies, laws and regulations or other activities of foreign
governments, agencies and similar organizations; the inability of the Company to
obtain or hedge against foreign currency, foreign exchange rates and fluctuation
in those rates; adverse foreign tax consequences; delays in remittance and
difficulties of collection of foreign payments; efforts to nationalize
foreign-owned operations; unstable governments, legal systems and
intergovernmental disputes; foreign governmental action or inaction adversely
affecting radio frequency use, availability, type acceptance, spectrum
authorization and licensing; imposition of government or industry standards; the
inability to maintain or secure adequate capital (or access thereto) to fund
operations; the failure to achieve and/or maintain market acceptance of the
Company's products and technology or to introduce new competitive products on a
timely and cost effective basis; the inability to hire and/or retain
appropriately qualified technical, sales or management personnel; the
availability of competitive products superior on a perceived, relative or actual
basis, with the Company's products; the inability to manufacture and deliver
equipment in accordance with customer requirements, including schedule, quality
and quantity; difficulties or delays in the development, production, testing,
commercialization and marketing of the Company's products or technologies; the
failure to enter into additional strategic alliances necessary to achieve the
Company's business objectives; failure to fully and successfully implement the
alliance program including the failure, inadequacy or inability of the Company's
alliance partners to meet the Company's expectations or contractual commitments;
the failure of the Company to successfully negotiate licensing agreements for
the Company's patents and other intellectual property or to enforce the
Company's rights under such agreements; substantial increased costs and other
burdensome effects of legal and administrative cases and proceedings, and the
outcomes thereto, relating to the Company's assertion of its patents rights, and
other claims against the Company's patents or its products; the inability or
failure of the Company to protect its intellectual property rights, including
enforcing non-disclosure and non-competition agreements, prosecuting key patent
applications or defending key patents; the inability to successfully prove
infringement of its patents; and the failure to have the Motorola verdict
reversed and/or remanded. Other risk factors are included in Management's
Discussion and Analysis and elsewhere in this Annual Report on Form 10-K. The
Company undertakes no obligation to publicly update any forward looking
statements, whether as a result of new information, future events or otherwise.
26
<PAGE>
Item 8. INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
------
CONSOLIDATED FINANCIAL STATEMENTS:
- ----------------------------------
Report of Independent Public Accountants 28
Consolidated Balance Sheets 29
Consolidated Statements of Operations 31
Consolidated Statements of Shareholders' Equity 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 34
SCHEDULES
- ---------
Schedule II - Valuation and Qualifying Accounts 51
All other schedules are omitted because they
are not required, are not applicable or equivalent
information has been included in the financial
statements and notes thereto.
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterDigital Communications Corporation:
We have audited the accompanying consolidated balance sheets of
InterDigital Communications Corporation (a Pennsylvania corporation) and
subsidiaries as of December 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
and the schedule referred to below are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterDigital Communications
Corporation and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
Philadelphia, PA
March 7, 1997
Arthur Andersen LLP
28
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1995 1996
------- ------------ -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted
cash of $1,200 and $204 respectively $ 9,427 $ 11,954
Short term investments 55,060 43,063
License fees receivable 400 990
Accounts receivable, net of allowance for
uncollectable accounts of $340 and $558, respectively 2,757 12,931
Inventories 4,853 13,863
Other current assets 1,474 3,913
--------- ---------
Total current assets 73,971 86,714
--------- ---------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements -- 4,078
Machinery and equipment 4,033 6,290
Computer equipment 3,734 5,612
Furniture and fixtures 1,540 2,526
Leasehold improvements 1,114 394
--------- ---------
10,421 18,900
Less-accumulated depreciation and amortization (5,969) (8,383)
--------- ---------
Net property and equipment 4,452 10,517
--------- ---------
OTHER ASSETS:
Patents, net of accumulated amortization of
$3,456 and $4,152 respectively 2,405 9,753
Other 2,339 5,652
--------- ---------
Total other assets 4,744 15,405
--------- ---------
$ 83,167 $ 112,636
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1996
- ------------------------------------ ------------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long term debt $ 430 $ 790
Accounts payable 4,313 15,127
Accrued compensation and related expenses 4,335 3,551
Purchase commitment reserve 855 --
Deferred revenue 1,597 4,790
Other accrued expenses 3,433 5,380
--------- ---------
Total current liabilities 14,963 29,638
--------- ---------
LONG TERM DEBT 631 4,221
--------- ---------
OTHER LONG TERM LIABILITIES 1,323 6,270
--------- ---------
MINORITY INTEREST 3,810 --
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY:
Preferred Stock, $ .10 par value, 14,399 shares authorized-
$2.50 Convertible Preferred, 105 shares
and 103 shares issued and outstanding 11 10
Common Stock, $.01 par value, 75,000 shares authorized,
44,424 shares and 48,109 shares issued and
outstanding 444 481
Additional paid-in capital 212,310 234,245
Accumulated deficit (150,325) (162,229)
--------- ---------
Total shareholders' equity 62,440 72,507
--------- ---------
$ 83,167 $ 112,636
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
REVENUES:
UltraPhone Product Revenues $ 20,086 16,581 $ 24,974
Licensing and Alliance 28,709 67,693 28,719
Contract Services 1,171 681 --
-------- -------- --------
49,966 84,955 53,693
-------- -------- --------
OPERATING EXPENSES:
Cost of UltraPhone revenues 23,445 17,932 27,370
Contract service costs 1,429 762 --
Sales and marketing 4,540 3,597 4,679
General and administrative 22,884 14,838 11,115
Product development 7,603 9,738 21,609
-------- -------- --------
59,910 46,867 64,773
-------- -------- --------
Income (loss) from operations (9,944) 38,088 (11,080)
OTHER INCOME (EXPENSE):
Interest income 113 3,073 4,151
Interest and financing expenses (1,466) (724) (271)
-------- -------- --------
Income (loss) from continuing operations before
income taxes and minority interest (11,297) 40,437 (7,200)
INCOME TAX PROVISION (1,578) (3,318) (3,554)
-------- -------- --------
Income (loss) from continuing operations before (12,875) 37,119 (10,754)
minority interest
MINORITY INTEREST (878) (2,514) (890)
-------- -------- --------
Net income (loss) from continuing operations (13,753) 34,605 (11,644)
DISCONTINUED OPERATIONS:
Loss from operations (416) -- --
Gain from sale of discontinued operations 121 -- --
-------- -------- --------
Net income (loss) (14,048) 34,605 (11,644)
PREFERRED STOCK DIVIDENDS (282) (265) (260)
-------- -------- --------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $(14,330) $ 34,340 $(11,904)
======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE - CONTINUING $ (0.37) $ 0.74 $ (0.26)
NET INCOME (LOSS) PER SHARE -
DISCONTINUED OPERATIONS $ (0.01) -- --
-------- -------- --------
NET INCOME (LOSS) PER SHARE - TOTAL $ (0.38) $ 0.74 $ (0.26)
======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 37,463 46,503 46,462
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
$2.50 Additional
Convertible Common Paid-In Accumulated Deferred
Preferred Stock Stock Capital Deficit Compensation Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 $ 11 $ 350 $ 184,186 $(170,335) $ (208) $ 14,004
Sales of Restricted Common Stock -- 63 12,253 -- -- 12,316
Exercise of Common Stock options -- 3 582 -- -- 585
Conversion of notes payable into
Common Stock -- 1 188 -- -- 189
Amortization of deferred compensation -- -- -- -- 158 158
Dividend of Common Stock and cash to
$2.50 Preferred shareholders -- -- 86 (282) -- (196)
Issuance of stock options of subsidiary
below deemed accounting value net of
minority interest -- -- 1,598 -- -- 1,598
Sale of Common Stock under Employee
Stock Purchase Plan -- 1 265 -- -- 266
Net Loss -- -- -- (14,048) -- (14,048)
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 11 418 199,158 (184,665) (50) 14,872
Exercise of Common Stock options -- 19 9,935 -- -- 9,954
Exercise of Common Stock warrants -- 6 2,933 -- -- 2,939
Amortization of deferred compensation -- -- -- -- 50 50
Dividend of Common Stock and cash to
$2.50 Preferred shareholders -- -- 41 (265) -- (224)
Sale of Common Stock under Employee
Stock Purchase Plan -- 1 243 -- -- 244
Net Income -- -- -- 34,605 -- 34,605
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 11 444 212,310 (150,325) -- 62,440
Exercise of Common Stock options -- 4 2,311 -- -- 2,315
Exercise of Common Stock warrants -- 16 7,342 -- -- 7,358
Dividend of Common Stock and cash to
$2.50 Preferred shareholders -- -- 42 (260) -- (218)
Sale of Common Stock under Employee
Stock Purchase Plan -- 1 349 -- -- 350
Issuance of Common Stock associated
with the Patents Corp. merger -- 15 11,891 -- -- 11,906
Conversion of preferred stock to common (1) 1 -- -- -- --
Net Loss -- -- -- (11,644) -- (11,644)
------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ 10 $ 481 $ 234,245 $(162,229) $ -- $ 72,507
=========================================================================
</TABLE>
32
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(14,048) $ 34,605 $(11,644)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities-
Minority interest in subsidiary 878 2,514 890
Depreciation and amortization 1,965 1,740 3,747
Compensation on stock issued 2,108 50 --
and stock options granted
Discontinued operations 295 -- --
Other 2,680 1,036 (3,337)
Decrease (increase) in assets-
Receivables (21,524) 21,419 (10,764)
Inventories 3,437 507 (9,010)
Other current assets (641) (75) (2,439)
Increase (decrease) in liabilities-
Accounts payable 4,376 (5,223) 10,814
Due to Hughes Network Systems, Inc 1,132 (7,003) --
Accrued compensation 1,649 1,431 (784)
Deferred revenue 256 932 8,140
Other accrued expenses 2,362 (2,513) 1,092
-------- -------- --------
Net cash provided by (used for) operating activities $(15,075) $ 49,420 $(13,295)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in short-term investments $ -- $(55,060) $ 11,997
Proceeds from sale of discontinued operations 2,555 -- --
Additions to property and equipment, net of non-cash additions
of $0, $657 and $4,667, respectively (517) (2,412) (4,073)
Additions to patents (592) (335) (870)
Other non-current assets (1,144) (1,095) (319)
-------- -------- --------
Net cash provided by (used for) investing activities 302 (58,902) 6,735
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of Common Stock
and exercises of stock options and warrants 13,353 13,137 10,025
Payments on long-term debt , including capital lease obligations (153) (268) (717)
Cash dividends to minority interest in subsidiary (178) -- --
Cash dividends on Preferred Stock (196) (224) (221)
-------- -------- --------
Net cash provided by financing activities 12,826 12,645 9,087
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS (1,947) 3,163 2,527
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,211 6,264 9,427
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,264 $ 9,427 $ 11,954
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BACKGROUND:
InterDigital develops and markets advanced digital wireless
telecommunications systems using proprietary technologies for voice and data
communications and has developed an extensive patent portfolio related to those
technologies. The Company's principal product is the UltraPhone system, a
telephone system providing business and households access to basic telephone
service through a wireless local loop. UltraPhone system revenues accounted for
approximately 47% of the total revenues of the Company during 1996. Since 1987,
the Company has sold over 285 UltraPhone systems worldwide, with aggregate
UltraPhone telephone system revenues totaling over $162 million.
In addition to its UltraPhone telephone system business, the Company,
through ITC, is seeking to capitalize upon the revenue potential of the
extensive TDMA and CDMA patent portfolio. ITC implemented a strategy during 1993
of negotiation and litigation with certain entities which it believed were
infringing the Company's patents. These efforts have resulted in patent license
agreements with five entities in 1994, six more entities in 1995 and an
additional entity in 1996, the recognition of $28.7 million, $67.7 million and
$28.7 million of licensing and alliance revenue in 1994, 1995 and 1996,
respectively, and the initiation of litigation with major telecommunications
companies. The Company has also formed two business alliances based upon its
TDMA and B-CDMA technologies. (See Notes 2, 3, 4 and 5).
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 also started to market its new
True-Link(TM) wireless local loop product based on the Company's proprietary
B-CDMA technology.
As an adjunct to its primary business, the Company provided advanced
digital wireless research and development services to government and business
organizations. During the third quarter of 1994, the Company substantially
completed its withdrawal from the contract services market in order to focus on
its other core business activities. Beginning in 1991, the Company also provided
telecommunications services to businesses and households through the ownership
and operation of TELCOs, primarily Haviland, in rural areas of the United
States. During 1994, the Company exited this business through the sale of its
investments in the TELCOs and accordingly has accounted for the TELCO operations
as discontinued operations.
Operations of the Company are subject to several risks and uncertainties,
including, but not limited to, uncertainties related to intellectual property
rights, the acceptance by customers of the Company's technology, the ability to
generate a satisfactory gross profit on product revenues, the development and
commercialization of new products, uncertainty and volatility of future
profitability and access to capital and dependence on alliance arrangements and
key personnel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
34
<PAGE>
Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash, Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments purchased with
remaining maturities of three months or less to be cash equivalents. Investments
are held at amortized cost which approximates market value, and at December 31,
1996 are classified as short-term. At December 31, 1996, all of the Company's
short-term investments are classified as available for sale pursuant to
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," (SFAS 115). Therefore any unrealized
holding gains or losses should be presented in a separate component of
stockholders' equity. At December 31, 1995 and 1996, there were no significant
unrealized holding gains or losses.
Cash and cash equivalents consisted of the following:
December 31,
------------------------
1995 1996
------ -------
Money market funds and demand accounts $2,096 $ 2,871
Certificates of deposit 996 204
Repurchase agreements 3,955 1,457
Commercial paper 2,380 7,422
------ -------
$9,427 $11,954
====== =======
The repurchase agreements are fully collateralized by United States
Government securities and are stated at cost which approximates fair market
value.
Short-term investments available for sale as of December 31, 1995 consisted
of $40.5 million in government-issued discount notes, $2.5 million in municipal
securities and $12.1 million in corporate debt securities. Short-term
investments available for sale as of 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.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
on a first-in, first-out basis and market based on net realizable value.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization of
property, plant and equipment are provided using the straight-line method. The
estimated useful lives for computer equipment, machinery and equipment and
furniture and fixtures are generally three to five years. Leasehold improvements
are being amortized over their lease term, generally five to ten years. The
Buildings are being depreciated over a twenty-five year life.
35
<PAGE>
Patents
The costs to obtain certain patents for the Company's TDMA and CDMA
technologies have been capitalized and are being amortized on a straight-line
basis over their estimated useful lives, generally 10 years. Amortization was
$500,000, $510,000 and $696,000 in 1994, 1995 and 1996, respectively.
Product Development
All product development expenditures are charged to research and
development expense in the period incurred.
Revenue Recognition
UltraPhone product revenues are recognized upon shipment of systems .
Installation, training and other services are recognized upon completion of
services.
The Company through its wholly-owned subsidiary, InterDigital Telecom Inc.,
provided training and contract engineering services for the United States
Government until the discontinuation of these activities in the first half of
1995. Revenues on these contracts were recognized as the services were provided.
Patent licensing revenues included in License and Alliance Revenues consist
primarily of upfront royalty payments and one-time, non-refundable fees which
were recognized at the time of the applicable agreement. Alliance revenues
included in License and Alliance Revenues were generated by patent, technology
and know-how licensing agreements. Due to the combined nature of the agreements,
revenue is recognized over the performance period, based on the nature of the
agreement. Recurring royalty revenues under both licensing and alliance
agreements may be recognized in the future according to the terms of the
agreements. (See Notes 3 and 4).
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of cash equivalents, short-term
investments and accounts receivable. By policy, the Company places its cash
equivalents and short-term investments only in highly rated financial
instruments and in United States Government obligations. The Company's accounts
receivable are derived principally from sales of UltraPhone telephone systems
and patent license agreements which provide for deferred and/or installment
payments. Approximately 92% of the Company's 1996 UltraPhone telephone system
sales were export sales (See Note 5). The Company generally requires a United
States dollar irrevocable letter of credit for the full amount of significant
foreign sales to be in place at the time of shipment except in cases where
credit risk is considered to be acceptable.
Impairment of Long-Lived Assets
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ", the Company is required to evaluate the impairment of
long-lived assets and certain intangibles assets on a periodic basis. The
Company reviews the realizability of its long-lived assets by analyzing the
projected cash flows and profitability of the patents and adjusts the net book
value of the recorded assets when necessary. No such adjustments have been
recorded in 1994, 1995 and 1996.
36
<PAGE>
Net Income (Loss) Per Common Share
The net income (loss) per share is based upon the weighted average common
shares outstanding during the period adjusted for cumulative dividends on $2.50
Preferred Stock. Common stock equivalents (stock options and warrants) have been
included in the computation for 1995 since the effect is dilutive. See Exhibit
11, Computation of Net Income (Loss) Per Share Earnings.
Supplemental Cash Flow Information
The Company paid $2.7 million and $3.7 million of foreign withholding,
federal and state income taxes during 1995 and 1996, respectively. Additionally,
the Company paid $63,000 and $253,000 of interest during 1995 and 1996,
respectively (excluding interest related to the HNS obligation). Interest and
income taxes paid in 1994 were not material.
3. SIEMENS AGREEMENTS:
On December 16, 1994, the Company entered into a Master Agreement and a
series of four related agreements as elements of an integrated transaction
establishing a broad based marketing and technology alliance with Siemens. These
agreements were amended in February 1996 in connection with the Samsung
alliance. (See Note 4).
As partial consideration for the rights and licenses granted by the
Company, Siemens agreed to pay $20 million, of which $15.1 million was paid in
cash, with the remaining payment offset against payments due to Siemens from
InterDigital in conjunction with the Samsung alliance. In accordance with
accounting requirements, the Company will recognize the $20 million of revenue
over the contract performance period due to the combined nature of the
contracts. In 1995 and 1996, the Company recognized $13.6 million and $4.8
million, respectively of the revenue under this agreement based on the progress
of the completed work. The remaining $1.6 million of revenue is expected to be
recognized through June 1997, the expected date of completion of functional
testing at the system component level.
4. SAMSUNG AGREEMENTS
On February 9, 1996, the Company entered into a series of agreements with
Samsung and amended its agreements with Siemens as a second major step in
implementing its alliance strategy. Under the various agreements, Samsung made
upfront payments to the Company in excess of $35 million (of which approximately
one-half constituted royalty prepayments), less applicable withholding taxes.
All payments from Samsung were received by June 30, 1996. In July 1996, the
Company made, via offset (see Note 3) certain payments to Siemens, which in
turn, committed to provide additional technical assistance. The net upfront
amount received by the Company, after giving effect to the receipt of certain
exemptions from Korean Service Withholding Tax granted by the Korean Ministry of
Information and Communications, was approximately $29 million. Samsung is also
obligated to provide engineering manpower for the development of the Company's
B-CDMA technology.
Samsung has received from InterDigital royalty-bearing licenses covering
InterDigital's TDMA and B-CDMA patent portfolio, its UltraPhone and B-CDMA
technologies and is licensed to use certain InterDigital trademarks. The
agreements give Samsung the right to manufacture and sell privately labeled
UltraPhone systems.
The Company recognized $14 million as revenue during the first quarter of
1996 representing the non-refundable upfront patent licensing portion of the
agreements. The Company recognized $6 million in the second quarter of 1996
representing the consideration due for the UltraPhone equipment technology
transfer and manufacturing rights portions of the agreements. Also, during the
second, third and fourth quarters, the Company recognized approximately $3.0
million of the net amount retained by the Company relating to the B-CDMA
development portion of the agreement. The balance of the revenue is expected to
be recognized through fiscal 1999, the expected date of completion of the
applicable development effort.
37
<PAGE>
5. MAJOR CUSTOMERS AND GEOGRAPHIC DATA:
UltraPhone Product Revenue:
During 1994, the Company's Indonesian customer (P.T. Telekomunikasi
Indonesia) and its Myanmar customer (Myanma Posts and Communications) accounted
for 54% and 12% of UltraPhone product sales, respectively. During 1995, the
Company's Indonesian customer and its Russian customer (Lukoil-Langepasneftegas)
accounted for 37% and 20%, respectively of UltraPhone product revenues. During
1996, the Company's Philippine customer (Philippine Long Distance Telephone
Company) and its Indonesian customer accounted for 56% and 16% of UltraPhone
product revenues, respectively.
UltraPhone product revenues by geographic area are as follows (in
thousands):
1994 1995 1996
---- ---- ----
Domestic $ 4,187 $ 2,685 $ 1,958
Foreign 15,899 13,896 23,016
------- ------ -------
$20,086 $16,581 $24,974
======= ======= =======
Licensing and Alliance Revenue:
ITC has granted non-exclusive, non-transferable, perpetual, worldwide,
royalty-bearing licenses to use certain TDMA patents (and in certain instances,
technology) to Hughes Network Systems, AT&T, Siemens (see Note 3), Matsushita,
Sanyo, Pacific Communications Systems, Mitsubishi, Hitachi, Kokusai, NEC
Corporation, OKI Electric Industry Company, and Samsung (see Note 4). The
licenses typically contain "most favored nations" provisions, applied on a going
forward basis only, and provisions which could, in certain events, cause the
licensee's obligation to pay royalties to the Company to be suspended for an
indefinite period, with or without the accrual of the royalty obligation.
The 1996 Licensing and Alliance revenues contain $23.0 million from
Samsung, $4.8 million from Siemens and $900,000 of recurring royalty fees from
one licensee. The 1995 Licensing and Alliance revenues contain $20.1 million
from Mitsubishi, $26.9 million from NEC and $13.6 million related to the Siemens
alliance agreement. The 1994 Licensing and Alliance revenues contain $20.0
million from Matsushita. Additionally, in 1994, ITC also entered into a CDMA
license agreement with Qualcomm Incorporated to settle litigation filed in 1993.
In return for a one-time payment of $5.5 million, ITC granted to Qualcomm a
fully-paid, royalty free, worldwide license to use and sublicense ITC's existing
CDMA patents and certain future CDMA patents to make and sell products for
IS-95-type wireless applications, including, but not limited to, cellular, PCS,
wireless local loop and satellite applications. Qualcomm has the right to
sublicense ITC's CDMA patents so that Qualcomm's licensees will be free to
manufacture and sell IS-95-type CDMA products without requiring any payments to
ITC.
6. PATENTS CORP.:
During the fourth quarter of 1992, the Company formed InterDigital Patents
Corporation ("Patents Corp.") and contributed to Patents Corp. its entire
ownership interest in ITC in return for 100% of its common stock. The Company
had previously contributed all of its past, present and future (conceived on or
before February 2002) patent rights to ITC. Subsequently, Patents Corp. issued
22 Units in a private placement at $250,000 per Unit, receiving net proceeds of
$5.2 million in return for 5.76% of the ownership interest in Patents Corp.
During September 1996, InterDigital entered into an Agreement and Plan of
Merger (the "Plan of Merger") with Patents Corp. and IP Acquisition Corporation
("MergerCo"), a wholly-owned subsidiary of InterDigital, providing for the
merger of MergerCo with and into Patents Corp. (the "Merger") and the issuance
of approximately 1.5 million shares of InterDigital Common Stock to the
shareholders of Patents Corp. in exchange for their Patents Corp. Common Stock.
Upon completion of the Merger, Patents Corp.
38
<PAGE>
became a wholly-owned subsidiary of InterDigital and $7.1 million,
representing the excess of the fair value of InterDigital Common Stock exchanged
over the book value of the minority interest, was assigned as additional Patents
assets on the consolidated balance sheet.
7. INVENTORIES:
December 31,
----------------
1995 1996
---- ----
(In thousands)
Component parts and work-in-progress $4,341 $11,640
Finished goods 512 2,223
------ -------
$4,853 $13,863
====== =======
Inventories are stated net of valuation reserves of $6.9 million and $5.9
million as of December 31, 1995 and 1996, respectively.
8. SHORT-TERM BORROWINGS:
In March 1994, the Company entered into a $3.0 million secured borrowing
arrangement, evidenced by Promissory Notes, in connection with a proposed
long-term financing arrangement. The Promissory Notes, which bore interest at
11% per annum, were repaid in two installments in June and July, 1994 when the
parties to the long-term financing arrangement agreed not to proceed.
During the second quarter of 1994, the Company received $2.4 million in
proceeds from the issuance of a series of Promissory Notes. The Notes were
collateralized by the proceeds from the sale of Haviland Telephone Company,
accrued interest at a rate of 11% which was payable at maturity and had initial
terms of 90 days, with original maturities occurring during August and September
1994. At maturity, the holder could elect to have the repayment of principal, in
whole or in part, in the form of Common Stock at the conversion price of $3.75
per share. In the event of such election, the Company's obligation to pay
interest to noteholders was to be waived. Additionally, as an inducement to
enter into the note agreement, the noteholders were granted 280,000 warrants
with a term of 10 years and an exercise price of $3.75 per share. As of
September 30, 1994, $2.3 million of the Notes were extended in consideration for
a reduction in the conversion rate to $1.78 per share and a reduced exercise
price in the warrants. As of December 31, 1994, $2.2 million of the Notes had
been repaid and $189,000 had converted in exchange for 106,000 shares of Common
Stock. Interest expense related to the Notes was $97,000 during 1994.
9. LONG-TERM DEBT OBLIGATIONS:
1995 1996
---- ----
(In thousands)
Long-term debt obligations $1,061 $5,011
Less -- Current portion (430) (790)
------ ------
$ 631 $4,221
====== ======
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 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 $91,000 classified as current portion
of long-term debt.
39
<PAGE>
Capitalized lease obligations are payable in monthly installments at interest
rates that range between 8.52% and 16.97% through 1999. The net book value of
the equipment under capitalized lease obligations is $1.6 million.
Maturities of principal of the long-term debt obligations as of December
31, 1996 are as follows (in thousands):
1997 $ 790
1998 760
1999 560
2000 324
2001 2,577
------
$5,011
======
10. COMMITMENTS AND CONTINGENCIES:
The Company has entered into various operating lease agreements, primarily
for office, assembly and warehouse space. Total rent expense was $1.3 million,
$2.5 million and $1.0 million for the years ended December 31, 1994, 1995 and
1996, respectively. Minimum future rental payments for operating leases as of
December 31, 1996 are as follows (in thousands):
1997 $ 1,983
1998 2,086
1999 1,902
2000 1,755
2001 1,802
2002 and thereafter 2,230
-------
$11,758
=======
Included in the minimum future rental payments is $410,000 per year for the
lease of the Company's former Great Neck, New York facilities comprising 15,000
square feet and $206,000 per year for the lease of a proposed other New York
facility comprising approximately 38,000 square feet. The Company is currently
negotiating releases under both agreements and expects to finalize those
releases during fiscal 1997. The Company has accrued $461,000 in the 1996
Statement of Operations which the Company estimates will be the facility
expenses incurred through the estimated date of release under the agreements. If
the Company were not released from the agreements, approximately $3.4 million
would be payable under the leases through 2006.
Sole Source Suppliers
The Company currently buys several of its base station and subscriber
station components from sole source suppliers. A change in suppliers could cause
a delay in manufacturing and shipments, a possible loss of sales, and could
cause the Company to fail to fulfill certain performance obligations under
current customer contracts, which would affect operating results adversely.
Employment Agreements
The Company has entered into agreements with certain officers that provide
severance pay benefits, among other things, in certain events of termination of
employment. Certain of these agreements generally provide for the payment of
severance up to a maximum of one year's salary (approximately $1 million at
December 31, 1996) and up to a maximum of one year's continuation of medical and
dental benefits. In certain of these agreements, in the event of a termination
following a change in control, which is defined as
40
<PAGE>
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, the employee would
generally receive two years of salary (approximately $2.1 million at December
31, 1996) and the immediate vesting of all stock options.
11. LITIGATION:
In September 1993, ITC filed a patent infringement action against Ericsson GE
Mobile Communications, Inc. ("Ericsson GE"), its Swedish parent,
Telefonaktieboleget LM Ericsson ("LM Ericsson") and Ericsson Radio Systems, Inc.
("Ericsson Radio"), in the United States District Court for the Eastern District
of Virginia (Civil Action No. 93-1158-A (E.D.Va.)) (the "Ericsson action") which
was subsequently transferred to the United States District Court for the
Northern District of Texas. The Ericsson action seeks a jury's determination
that in making, selling, or using, and/or in participating in the making,
selling or using of digital wireless telephone systems and/or related mobile
stations, Ericsson has infringed, contributed to the infringement of and/or
induced the infringement of eight patents from ITC's patent portfolio. The
Ericsson action also seeks preliminary and permanent injunctions against
Ericsson from further infringement and seeks damages, royalties, costs and
attorneys' fees. Ericsson GE filed an answer to the Virginia action in which it
denied the allegations of the complaint and asserted a counterclaim seeking a
declaratory judgment that the asserted patents are either invalid or not
infringed. On the same day that ITC filed the Ericsson action in Virginia, two
of the Ericsson Defendants, Ericsson Radio and Ericsson GE, filed a lawsuit
against the Company and ITC in the United States District Court for the Northern
District of Texas (Civil Action No. 3-93CV1809-H (N.D.Tx.)) (the "Texas
action"). The Texas action, which involves the same patents that are the subject
of the Ericsson action, seeks the court's declaration that Ericsson's products
do not infringe ITC's patents, that ITC's patents are invalid and that ITC's
patents are unenforceable. The Texas action also seeks judgment against the
Company and ITC for tortious interference with contractual and business
relations, defamation and commercial disparagement, and Lanham Act violations.
The Company and ITC intend to vigorously defend the Texas action. The Ericsson
action and the Texas action have been consolidated. ITC agreed to the dismissal
without prejudice of LM Ericsson. At the request and with the consent of the
parties, the District Judge has executed an order extending a stay of the
proceedings until the Federal Circuit renders its opinion on appeals filed by
ITC and Motorola in connection with the lawsuit filed by Motorola against ITC as
described below.
In October 1993, Motorola, Inc. filed an action against ITC in the United
States District Court for the District of Delaware seeking the court's
declaration that Motorola's products do not infringe certain ITC patents and
that these patents are invalid and unenforceable. ITC filed an answer and
counterclaims seeking a jury's determination that in making, selling or using
and/or participating in the making, selling or using of digital wireless
telephone systems and/or related mobile stations, Motorola has infringed,
contributed to the infringement of and/or induced the infringement of certain
ITC patents. ITC also sought preliminary and permanent injunctions against
Motorola from further infringement and sought damages. A trial was held in
United States District Court for the District of Delaware (Civil Action No.
94-73 (D. Del.)) on the issue of validity and infringement of 24 patent claims
involving four ITC patents, U.S. Patent Nos. 4,675,863; 4,817,089; 5,119,375 and
4,912,705. By stipulation of the parties, the case was limited to certain TDMA
products made, used and/or sold by Motorola.
On March 29, 1995, the trial ended with the jury's verdict, which is
subject to varying interpretations, but which is interpreted by the Company to
mean that ITC's patent claims at issue in the case are not infringed by Motorola
and, if construed to be infringed, are invalid. After trial, Motorola filed a
motion requesting attorney's fees and expenses aggregating between $6 and $7
million. The Company filed a motion with the U.S. District Court for the
District of Delaware requesting that the court overturn and/or clarify all or
part of the jury verdict or grant a new trial. The district court denied
Motorola's motion for attorney's fees and ITC's motion for a new trial. The
court further overturned the jury's finding of invalidity with respect to three
claims, but affirmed the jury's verdict in all other respects. Both ITC and
Motorola have appealed to the United States Court of Appeals for the Federal
Circuit. An oral argument
41
<PAGE>
was presented to the Federal Circuit on January 30, 1997, but the Federal
Circuit has not yet rendered a decision.
On November 7, 1994, a complaint was filed in the United States District
Court for the Eastern District of Pennsylvania (Civil Action No. 94-CV-6751)
against the Company and a former chief executive officer of the Company alleging
certain violations of the disclosure requirements of the federal securities laws
and seeking damages on behalf of shareholders who purchased the Company's stock
during the class period stated to be March 31, 1994 to August 5, 1994. The
alleged violations related to the disclosure of three proposed financing
transactions: (1) a revised financing offered through Prudential Securities
Incorporated; (2) a Purchase Agreement entered into on March 11, 1994 between
the Company and a proposed purchaser to sell $30 million of the Company's
discounted common stock and warrants, and a related $3 million loan to the
Company; and (3) a $25 million loan to the Company from Oregon Financial Group,
Inc. ("OFG"). This action sought damages on behalf of shareholders who purchased
the Company's stock during a class period purportedly extending from March 31,
1994 to August 5, 1994. The case was settled in July 1996 subject to final court
approval. Such settlement had no material effect to the Company's results of
operations or financial position.
12. PREFERRED STOCK:
The holders of the $2.50 Convertible Preferred Stock are entitled to
receive, when and as declared by the Board, cumulative annual dividends of $2.50
per share payable in cash or Common Stock (as defined) at the election of the
Company (subject to a cash election right of the holder), if legally available.
Such dividends are payable semiannually on June 1 and December 1. In the event
the Company fails to pay two consecutive semiannual dividends within the
required time period, certain penalties may be imposed. The $2.50 Convertible
Preferred Stock is convertible into Common Stock at any time prior to redemption
at a conversion price of $12 per share (subject to adjustment under certain
conditions). In 1994, 1995 and 1996, the Company declared and paid dividends on
the $2.50 Convertible Preferred Stock of $282,000, $265,000 and $260,000,
respectively. These dividends, were paid with cash of $196,000, $224,000 and
$218,000, and 20,593, 5,765 and 5,862 shares of Common Stock, respectively.
Upon any liquidation, dissolution or winding up of the Company, the holders
of the $2.50 Convertible Preferred Stock will be entitled to receive, from the
Company's assets available for distributions to shareholders, $25 per share plus
all dividends accrued, before any distribution is made to the Common
shareholders. After such payment, the holders of the $2.50 Convertible Preferred
Stock would not be entitled to any other payments. The redemption price for each
share of $2.50 Convertible Preferred Stock is $25.25 per share through May 31,
1997, plus all accrued and unpaid dividends. The redemption will be fixed at $25
per share on June 1, 1997, and thereafter.
The holders of the $2.50 Convertible Preferred Stock do not have any voting
rights except on those amendments to the Articles of Incorporation which would
adversely affect their rights, create any class or series of stock ranking
senior to or on a parity with the $2.50 Preferred, as to either dividend or
liquidation rights, or increase the authorized number of shares of any senior
stock. In addition, if two or more consecutive semiannual dividends on the $2.50
Preferred are not paid by the Company, the holders of the Preferred, separately
voting as a class, will be entitled to elect one additional director of the
Company.
13. COMMON STOCK OPTION PLANS AND WARRANTS:
Common Stock Option Plans
The Company has granted options under two incentive stock option plans,
three non-qualified stock option plans and one plan which provides for grants of
both incentive and non-qualified stock options for officers and employees of the
Company and others. One incentive stock option plan, two non-qualified stock
option plans and the plan that allows for both incentive and non-qualified stock
options are authorized to grant options for up to 600,000, 2,035,600, 2,000,000
and 4,000,000 shares, respectively of the Company's Common Stock. No further
grants are allowed under the remaining stock option plans. The number of options
to be granted and the option prices are determined by the Board or a committee
of the
42
<PAGE>
Board of Directors in accordance with the terms of the plans. Under the
terms of the incentive stock option plan, the option price cannot be less than
100% of the fair market value of the Common Stock at date of grant and incentive
stock options granted become exercisable at 20% per year beginning one year
after date of grant and generally remain exercisable for 10 years. Under the
non-qualified option plans, options are generally exercisable for a period of 10
years from the date of grant and may vest on the grant date or over a period of
time. All options granted under the plan which provides for both incentive and
non-qualified stock options have a ten year-term and, with the exception of
automatic grants of non-qualified stock options to non-employee directors and
grants awarded to inventors, most commonly vest stock options in six bi-annual
installments. All incentive options granted under such plan have exercise prices
of not less than 100% of the fair market value of the Common Stock on the grant
date in accordance with Internal Revenue Code requirements.
Information with respect to stock options under the above plans is
summarized as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Available
For Outstanding Options
Grant Number Price Range
----- ------ -----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 499 5,836 $.01-$14.875
Additional authorized 2,250 -- --
Granted (689) 689 $2.625-$5.25
Canceled 349 (349) $4.375-$8.375
Exercised -- (265) $.01-$4.00
------ ------
BALANCE AT DECEMBER 31, 1994 2,409 5,911 $.01-$14.875
Additional authorized 4,000 -- --
Granted (166) 166 $6.56-$10.75
Canceled 135 (135) $.60-$11.625
Exercised -- (1,928) $.01-$10.50
------ ------
BALANCE AT DECEMBER 31, 1995 6,378 4,014 $.01-$14.875
Granted (862) 862 $5.625-$11.53
Canceled 88 88 $.60-$14.875
Exercised -- (399) $.60-$8.875
------ ------
BALANCE AT DECEMBER 31, 1996 5,604 4,389 $.01-$14.875
====== ======
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Weighted Average Exercise Price of
Options Granted During Year $3.50 $7.00 $7.79
===== ===== =====
Weighted Average Exercise Price of
Options Exercised During Year $1.10 $5.28 $5.75
===== ===== =====
Weighted Average Exercise Price of
Options Canceled During Year $6.96 $7.22 $9.93
===== ===== =====
Weighted Average Exercise Price of
Outstanding Options at December 31 $6.32 $6.91 $7.14
===== ===== =====
Exercisable Options at December 31 4,260 3,030 3,698
===== ===== =====
Weighted Average Exercise Price of
Exercisable Options at December 31 $6.38 $7.01 $7.05
===== ===== =====
</TABLE>
43
<PAGE>
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Accordingly, no compensation cost has been
recognized in the Statements of Operations for the Company's stock option plans.
Had compensation cost been calculated based on the fair value at the grant date
for awards in 1995 and 1996 consistent with the provision of SFAS No. 123, the
Company's net income (loss) and net income (loss) per share would have been
changed to the following pro forma amounts:
1995 1996
---- ----
Net income (loss) applicable to Common
Shareholders - as reported $34,340 $(11,904)
Net income (loss) applicable to Common
Shareholders - proforma $33,872 $(13,757)
Net income (loss) per share - as reported $ 0.74 $ (0.26)
Net income (loss) per share - proforma $ 0.73 $ (0.30)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in both 1995 and 1996; no dividend yield; expected
volatility of 80%, risk-free interest rates of approximately 6.46% and 6.25% for
1995 and 1996, respectively, and an expected life of 3.85 years. The proforma
effect on net income for both 1995 and 1996 is not representative of the
proforma effect on net income (loss) in future years because it does not take
into consideration proforma compensation expense related to grants made prior to
1995.
The following table summarizes information regarding the stock options
outstanding at December 31, 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Weighted
Number Average Weighted Number
Outstanding Remaining Average Exercisable Weighted
Range of As of Contractual Exercisable As of Average
Exercise Prices 12/31/96 Life Price 12/31/96 Exericse Price
- --------------- ----------- ----------- ------------ ------------ ---------------
<C> <C> <C> <C> <C> <C>
$0.01-$5.125 646 7.47 $3.11 613 $3.09
$5.25-$5.75 659 7.53 $5.59 568 $5.59
$5.875-$6.625 534 6.22 $6.16 492 $6.13
$6.75-$6.75 690 3.62 $6.75 690 $6.75
$6.875-$7.75 629 10.65 $7.64 258 $7.58
$7.8125-$10.50 659 13.62 $9.23 556 $9.23
$10.75-$14.50 572 23.12 $11.90 521 $11.94
----- ----- ------ ----- ------
$0.01-$14.50 4,389 10.14 $ 7.14 3,698 $ 7.05
===== ===== ====== ===== =+====
</TABLE>
Common Stock Warrants
As of December 31, 1996, in addition to the option plans discussed above,
the Company has various warrants outstanding to purchase 4,359,000 shares of
Common Stock at exercise prices ranging from $2.50 to $10.00 per share, with a
weighted average exercise price of $5.626 per share. As of December 31, 1996,
44
<PAGE>
all of these warrants are currently exercisable. These warrants expire in
various years through 2006. The exercise price and number of shares of Common
Stock to be obtained upon exercise of certain of these warrants are subject to
adjustment under certain conditions.
14. SHAREHOLDER RIGHTS PLAN:
In December 1996, the Company's Board of Directors declared a distribution
of one right for each outstanding common share of the Company to shareholders of
record as the close of business on January 3, 1997. In addition, any new common
shares issued after January 4, 1989 will receive one right for each common
share. Each right entitles shareholders to buy one one-thousandth of a share of
Series B Junior Participating Preferred Stock at a purchase price of $45 per
share. The rights will not be exercisable until 10 days after a person or group
owns or acquires more than 15% of the Company's common stock or a person or
group begins a tender offer for 15% or more of the Company's common stock. In
the event that the Company is acquired in a merger or other business combination
interaction, each holder of a right will have the right to receive, upon
exercise, Units of Preferred Stock (or, in certain circumstances, Company Common
Stock, cash, property, or other securities of the Company) having a current
market value equal to two times the exercise price of the Right.
15. RELATED-PARTY TRANSACTIONS:
All warrants and options granted to related parties, as described below,
are included in the number of warrants and options disclosed as outstanding in
Note 13.
From January 1993 through December 1994, Great Circle Communications Ltd.
Bda. ("Great Circle") provided consulting services to Patents Corp. for which
Great Circle has been remunerated, in the aggregate, $4,000 per month (including
reimbursement of certain out-of-pocket expenses). The President, and a director
of, Great Circle, served as a member of the Board of Directors of the Company
from November 1985 through June 1994 and as a member of the Board of Directors
of Patents Corp. from its inception to November 1994.
An individual who, until December 1994, was an officer and member of the
Board of Directors, and his wife, lease one converted residence located in Port
Washington, New York to the Company for office and laboratory use. The lease,
which became effective in January 1987 and is for an eleven year term, provide
for an aggregate base rental of $36,000 per annum and obligates the Company to
pay increases in real estate taxes over the 1986 base year.
During 1994, the Company engaged an individual who was, at the time, a
member of the Board of Directors, to perform certain consulting services. Total
fees paid for such services, which are not continuing, were $30,000.
During 1995, the Company hired, as a part time employee, the wife of an
executive officer and a member of the Board of Directors. For her 1995 services,
she was paid $18,496 during 1995 and 1996. She was also reimbursed for certain
traveling expenses.
During 1995 and 1996, the Company utilized as a consultant the son of an
executive officer and a member of the Board of Directors. He was paid $37,800
and $72,000, respectively, for these consulting services and was reimbursed
certain traveling expenses.
16. INCOME TAXES:
The 1996 income tax provision includes a current foreign withholding tax
provision of $3.3 million and a current state tax provision of $133,000. The
1995 income tax provision consists of a current foreign withholding tax
provision of $2.4 million, a current state tax provision of $219,000 and a
federal alternative minimum tax provision of $737,000. At December 31, 1996, the
Company had net operating loss carryforwards of approximately $100 million.
Since realization of the tax benefits associated with
45
<PAGE>
these carryforwards is not assured, a valuation allowance of 100% of the
potential tax benefit is recorded as of December 31, 1996.
The net operating loss carryforwards are scheduled to expire as follows:
2002 $ 7.9 million
2003 18.2 million
2004 20.0 million
2005 11.9 million
thereafter 41.8 million
-------------
$99.8 million
=============
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 December 31, 1996. 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Company
Information concerning executive officers appears under the caption "Item
1. Business- Executive Officers of the Company" in Part I of this Form 10-K.
Information concerning directors is incorporated by reference herein from the
information following the caption "ELECTION OF DIRECTORS -Nominees for Election
to the Board of Directors for a Three Year Term Expiring at 1999 Annual Meeting"
to but not including "-Committees and Meetings of the Board of Directors" in the
Company's proxy statement to be filed with the Commission within 120 days after
the close of the Company's fiscal year ended December 31, 1996 and forwarded to
shareholders prior to the 1996 annual meeting of shareholders (the "Proxy
Statement").
Information in the two paragraphs immediately following the caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Proxy Statement is incorporated by reference herein.
Item 11. Executive Compensation.
Information following the caption "Executive Compensation -Summary
Compensation Table" to but not including the caption "Shareholder Return
Performance Graph" and information following the caption "Compensation Committee
Interlocks and Insider Participation" to but not including the caption "Certain
Relationships and Related Transactions" in the Proxy Statement is incorporated
by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information following the caption "Security Ownership of Certain Beneficial
Owners and Management" to but not including the caption "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated by
reference herein.
Item 13. Certain Relationships and Related Transactions
Information following the caption "Certain Relationships and Related
Transactions" to but not including the caption "APPOINTMENT OF INDEPENDENT
ACCOUNTANTS" in the Proxy Statement is incorporated by reference herein.
46
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
(2) Financial Statement Schedules
The Index to Financial Statements and Schedules and the Financial Statements
begin on page 27.
(3) Exhibits
* 2.1 Plan of Merger by and among the Company, InterDigital
Patents Corporation and IP Acquisition Corporation dated
as of August 16, 1996 (Exhibit 2 to the Company's
Registration Statement No. 333-10521 filed on August 20,
1996).
* 3.1 Restated Articles of Incorporation of the Company (Exhibit
3.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1996, (the "September
1996 Form 10-Q")).
* 3.2 By-laws of the Company, as amended October 6, 1996 (Exhibit
3.2 to the September 1996 Form 10-Q).
*10.1 Incentive Stock Option Plan, as amended (Exhibit 10.1 to
the Company's Registration Statement No. 33-15931 filed on
May 13, 1988.
*10.2 Non-Qualified Stock Option Plan, as amended (Exhibit 10.4 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991).
*10.3 Intellectual Property License Agreement between the Company
and Hughes Network Systems, Inc. (Exhibit 10.39 to the
Company's Registration Statement No. 33-28253 filed on
April 19, 1989).
*10.4 1992 License Agreement dated February 29, 1992 between the
Company and Hughes Network Systems, Inc. [Exhibit 10.3 to
the Company's Current Report on Form 8-K dated February 29,
1992 (the "February 1992 Form 8-K")).
*10.5 E-TDMA License Agreement dated February 29, 1992 between the
Company and Hughes Network Systems, Inc. (Exhibit 10.4 to
the February 1992 Form 8-K).
*10.6 1992 Non-Qualified Stock Option Plan (Exhibit 10.1 to the
Company's Current Report on Form 8-K dated October 21,
1992).
*10.7 1992 Incentive Stock Option Plan (Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992 (the 1992 Form 10-K)).
*10.8 1992 Employee Stock Option Plan (Exhibit 10.71 to the 1992
Form 10-K).
*10.9 1995 Employee Stock Option Plan (Exhibit 10.25 to the
September 1996 Form 10-Q).
*10.10 Amendment #1 to the Employee Stock Option Plan (Appendix to
the Company's Proxy Statement filed May 23, 1996)).
*10.11 Employee Stock Purchase Plan (Exhibit 10.52 to the
Company's Registration Statement No. 33-65630 filed on
June 6, 1993).
*10.12 Master Agreement among the Registrant, InterDigital
Technology Corporation ("ITC"), and Siemens
Aktiengesellschaft ("Siemens") dated December 16, 1994
(Exhibit 99.1 to the Company's Current Report on Form 8-K
dated December 16, 1994 (the "December 1994 Form 8-K")). **
*10.13 Patent License Agreement among the Registrant, ITC and
Siemens dated December 16, 1994 (Exhibit 99.2 to the
December 1994 Form 8-K). **
47
<PAGE>
*10.14 TDMA/CDMA Development and Technical Assistance Agreement
between the Registrant and Siemens dated December 16, 1994
(Exhibit 99.3 to the December 1994 Form 8-K). **
*10.15 UltraPhone OEM Purchase Agreement between the Registrant
and Siemens dated December 16, 1994 (Exhibit 99.4 to the
December 1994 Form 8-K). **
*10.16 Cooperation Agreement between the Registrant and Siemens
dated December 16, 1994 (Exhibit 99.5 to the December
1994 Form 8-K). **
*10.17 Patent License Agreement among the Registrant,
InterDigital Technology Corporation and American Telephone
and Telegraph Company dated April 22, 1994 (Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31 1994). **
*10.18 Stock Purchase Agreement, dated as of August 26, 1994 by
and among Universal Service Telephone Corporation, Lynch
Telephone Corporation VII and Brighton Communications
Corporation (Exhibit 2.1 to the Company's Current Report
on Form 8-K dated October 11, 1994).
10.19 ASIC Design and Development Agreement dated February 12,
1996 by and between InterDigital Communications
Corporation and LSI Logic Corporation.
***10.20 Production Agreement for Prod IV (Model P-4R) Radio Units
dated March 1, 1996 by and between InterDigital
Communications Corporation and Kenwood Corporation.
***10.21 Development Agreement for Prod IV (Model P-42) Radio Units
dated March 1, 1996 by and between InterDigital
Communications Corporation and Kenwood Corporation.
10.22 Employment Agreement dated October 14, 1996 by and between
InterDigital Communications Corporation and Gregory E. Webb.
10.23 Employment Agreement dated November 20, 1996 by and between
InterDigital Communications Corporation and
James W. Garrison.
10.24 Employment Agreement dated February 25, 1997 by and
between InterDigital Communications Corporation and
Howard E. Goldberg.
10.25 Employment Agreement dated November 20, 1996 by and
between InterDigital Communications Corporation and
William A. Doyle.
10.26 Employment Agreement dated November 18, 1996 by and
between InterDigital Communications Corporation and
Charles Tilden.
10.27 Severance Benefit Agreement dated April 26, 1996 by and
between InterDigital Communications Corporation and
D. Ridgely Bolgiano.
10.28 Intentionally Omitted
10.29 Severance Benefit Agreement dated April 26, 1996 by and
between InterDigital Communications Corporation
and Mark Lemmo.
10.30 Consulting Agreement dated as of April 30, 1996 by and
between InterDigital Communications Corporation
and William J. Burns.
10.31 Separation and Confidentiality Agreement dated as of
April 30, 1996 by and between InterDigital Communications
Corporation and William J. Burns.
48
<PAGE>
11 Statement re: Computation of Net Income (Loss)
Per Share Earnings
*22 Subsidiaries of the Company.
(Exhibit 22 to the 1992 Form 10-K).
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
- ------------------------
* Incorporated by reference to the previous filing indicated.
** Confidential treatment has been granted for portions of these agreements.
*** Portions of these Agreements have been omitted pursuant to a request for
confidential treatment.
(b) Reports filed on Form 8-K during the last quarter of 1996:
None.
49
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Charged
Balance at to Costs Charged to Balance
Beginning of and Other at End
Description Period Expenses Accounts Deductions of Period
----------- ------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1994
- ----
Allowance for
uncollectible accounts $1,234 $1,110 $ -- $11 (1) $2,333
1995
- ----
Allowance for
uncollectible accounts $2,333 $108 $ (101) (2) $2,000 (1) $340
1996
- ----
Allowance for
uncollectible accounts $340 $339 $ -- $121 (1) $558
</TABLE>
Notes: (1) Write-off of amounts reserved in prior periods.
(2) Recovery of a previously reserved receivable.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 20th day of
March, 1997.
INTERDIGITAL COMMUNICATIONS CORPORATION
By: /s/ Gregory E. Webb
---------------------------------------
Gregory E. Webb
Chief Executive Officer, the principal
executive officer
By: /s/ James W. Garrison
---------------------------------------
James W. Garrison
Vice President - Finance, Chief
Financial Officer and Treasurer, the
principal financial officer and
principal accounting officer
51
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: March 20, 1997 /s/ D. Ridgely Bolgiano
----------------------------------
D. Ridgely Bolgiano, Director
Date: March 20, 1997 /s/ Barney Cacioppo
----------------------------------
Barney Cacioppo, Director
Date: March 20, 1997 /s/ Harry Campagna
----------------------------------
Harry Campagna, Director
Date: March 20, 1997 /s/ William A. Doyle
----------------------------------
William A. Doyle, Director
Date: March 20, 1997 /s/ Harley L. Sims
----------------------------------
Harley L. Sims, Director
52
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
10.19 ASIC Design and Development Agreement dated February 12,
1996 by and between InterDigital Communications
Corporation and LSI Logic Corporation
***10.20 Production Agreement for Prod IV (Model P-4R) Radio Units
dated March 1, 1996 by and between InterDigital
Communications Corporation and Kenwood Corporation
***10.21 Development Agreement for Prod IV (Model P-42) Radio
Units dated March 1, 1996 by and between InterDigital
Communications Corporation and Kenwood Corporation
10.22 Employment Agreement dated October 14, 1996 by and between
InterDigital Communications Corporation and Gregory E. Webb
10.23 Employment Agreement dated November 1996 by and between InterDigital
Communications Corporation and James W. Garrison
10.24 Employment Agreement dated February 25, 1996 by and between
InterDigital Communications Corporation and Howard E. Goldberg
10.25 Employment Agreement dated November 18, 1996 by and between
InterDigital Communications Corporation and William A. Doyle
10.26 Employment Agreement dated November 18, 1996 by and between
InterDigital Communications Corporation and Charles Tilden
10.27 Severance Benefit Agreement dated April 26, 1996 by and between
InterDigital Communications Corporation and D. Ridgely Bolgiano
10.28 Severance Benefit Agreement dated April 26, 1996 by and between
InterDigital Communications Corporation and Gary Lomp
10.29 Severance Benefit Agreement dated April 26, 1996 by and between
InterDigital Communications Corporation and Mark Lemmo
10.30 Consulting Agreement dated as of April 30, 1996 by and between
InterDigital Communications Corporation and William J. Burns
10.31 Separation and Confidentiality Agreement dated as of April 30, 1996
by and between InterDigital Communications Corporation and William J.
Burns
11 Statement re: Computation of Net Income (Loss) Per Share Earnings
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
*** Portions of these Agreements have been omitted pursuant to a request
for confidential treatment.
53
LSI LOGIC CORPORATION
ASIC DESIGN AND DEVELOPMENT AGREEMENT
This ASIC DESIGN AND DEVELOPMENT AGREEMENT (referred to herein, together
with all exhibits and addenda hereto and together with any and all orders placed
hereunder, as the "Agreement") is entered into by and between LSI LOGIC
CORPORATION ("LSI") of 1551 McCarthy Blvd., Milpitas, CA 95035 (attn: General
Counsel) (Fax: (408) 433-6896) and InterDigital Communications Corporation
("Customer"), of 833 Northern Blvd., Great Neck, NY 11021 (attn: ____________)
(Fax: (___) ______-_______) and effective as of________________, 1996
("Effective Date").
1 SCOPE
Customer and LSI intend to develop an application specific integrated
circuit ("ASIC") products. In so doing LSI will provide Customer with
engineering support and assistance and Customer will cooperate with LSI in the
use of LSI's materials and information. This Agreement sets forth the common
terms and conditions pursuant to which such ASIC products will be designed,
developed and prototyped by LSI for Customer. This Agreement does not, however,
govern the terms and conditions by which LSI may license to Customer LSI Design
Tools, defined below, nor the terms and conditions by which LSI may grant
Customer access to LSI CoreWare(TM). The ASIC subject to this Agreement is the
Product, defined below at Section 2.7. New Products may be added from time to
time by written amendment to this Agreement signed by authorized representatives
of both parties.
2 DEFINITIONS
The following terms shall have the meanings as defined below:
2.1 "Customer Specifications": Any information supplied by Customer,
including, but not limited to, software, schematics, netlists, microcode,
designs or techniques, that is accepted by LSI and is utilized in the design of
or otherwise incorporated into a Product.
2.2 "ECR": An engineering completion report in form and content as used by
LSI to document completion of the pre-layout simulation milestone of the SOW and
to record Customer's acknowledgment of satisfactory completion of all work
through that milestone. ECR is also used to designate the milestone occurring at
signoff of such report.
2.3 "LSI Design Tools": Any LSI computer aided design software (including
libraries) utilized
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by LSI for the purpose of the design or test of ASIC designs, as updated and
enhanced from time to time. LSI Design Tools include, among others, C-MDE(TM)
design tools, Silicon 1076(TM) design tools, and the Compacted Array(TM),
Embedded Array(R), cell-based, and rad-hard families of libraries.
2.4 "CDR": A performance approval report in a form regularly used by LSI to
document the critical design review milestone of the SOW (at completion of the
post-layout simulation) and to record Customer's acknowledgment of satisfactory
completion of all work through that milestone. CDR is also used to designate the
milestone occurring at signoff of such report.
2.5 "NRE": Non-recurring engineering services to be rendered by LSI for
Customer in connection with development of a Product pursuant to the SOW
relating to that Product.
2.6 "PDR": Preliminary design review, the initial milestone following
acceptance of the purchase order for NRE services.
2.7 "Product(s)": Any ASIC device described in Exhibit A hereto (as may be
amended by written agreement of the Parties) that is designed or to be designed
for verification on LSI Design Tools and manufactured and tested by LSI.
Products include prototypes and pre-production units.
2.8 "SOW": A statement of work, attached hereto as Exhibit B (as may be
amended by written agreement of the Parties), including milestones, that
identifies the design activities in which the parties intend to engage for the
purpose of developing a particular Product.
3 PRODUCT DESIGN AND APPROVAL
3.1 NRE Services. Subject to the terms and conditions of this Agreement,
LSI will exercise reasonable diligence in performing the design activities as
set forth in that SOW which is applicable to each Product. Customer will assist
and cooperate with LSI in accordance with this SOW.
3.2 Design and Development Operating Rules. Any data relating to a Product
design that Customer is to furnish to LSI must be compatible with LSI Design
Tools, by which LSI will verify all design and engineering work. All design
milestone and prototype delivery schedules are estimates only. The sign-off of
LSI's ECR and of its CDR by Customer's responsible managing engineer or by any
other authorized employee of Customer shall serve as conclusive expressions of
Customer's acceptance of successful completion of those respective development
milestones.
3.3 Design Changes. Customer may request changes to any Product design
during the course of the SOW. Upon receipt by LSI of any such request made by
Customer in writing, LSI shall promptly inform Customer of the affect on the
SOW, the estimated completion of the design work to incorporate any requested
changes and the increase, if any, in the price for such Product. LSI may,
however,
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continue work without regard to the requested change until LSI and Customer have
agreed in writing to adjustment in price and estimated completion date terms,
unless Customer specifically notifies LSI in writing to halt work.
3.4 Prototypes. Upon completion of the SOW activities, LSI shall deliver to
Customer ten (10) prototype devices of each Product ("Prototypes"). Customer may
for a fee order additional Prototypes at any time until five (5) working days
prior to CDR signoff. LSI shall use reasonable efforts to deliver these devices
within two (2) weeks of initial estimated Prototype shipment date.
3.5 Price and Payment. With respect to each Product, in consideration for
the NRE services and ten (10) prototype units as above-described, Customer shall
pay LSI the "Total NRE Price" in the amount set forth in Exhibit C hereto
applicable to such Product as well as such other sums for special services as
are separately listed or referenced in Exhibit C. Milestone amounts per the
schedule set forth in Exhibit C shall accrue and be invoiced at the applicable
milestones. Payment shall be due thirty (30) days after invoice date, subject to
approval of Customer by LSI's Credit Department; provided, however, that LSI's
Credit Department may require different terms at any time that Customer is
fifteen (15) days late in making a payment on an invoice or has filed against it
a petition in bankruptcy or receivership.
4 PRODUCTION
4.1 Purchase and Sale of Production Units. LSI shall have no obligation to
manufacture or deliver any production units (except for Prototypes and units
sold under a separate written Risk/Pre-Production Agreement between the parties)
unless and until: (i) Customer has delivered to LSI completed standard LSI
Prototype Approval and Production Release Authorization forms for the Product
signed by an authorized representative of Customer, and (ii) Customer and LSI
have agreed upon terms regarding quantity, price, and delivery (either in this
Agreement, by addendum to it or otherwise), Customer has issued a written
purchase order consistent with such agreed terms, and (iii) LSI has acknowledged
and accepted the purchase order in a signed writing. LSI agrees that it will not
reject any such purchase orders, except for reasonable business considerations.
4.2 Price Subject to Article 4.3, LSI agrees to sell production units to
Customer for volume purchases to be delivered during 1996 as set forth in
Exhibit C. The prices for deliveries during 1997 and beyond are conditional on
the following: In the event of significant increases or decreases in the market
price of metals, fuels, raw materials, equipment and other production costs, LSI
shall have the right and Customer will have the obligation to renegotiate in
good faith the price of the goods hereunder not yet shipped, and if agreement is
not reached, either party shall have the right to cancel the Purchase Order
without liability.
4.3 Commercial Production LSI agrees that for a period of five (5) years
from the delivery of the first production unit, it will sell production
quantities of the Products to Customer as set forth herein.
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5 PRODUCT ACCEPTANCE
5.1 Acceptance. Customer shall accept any Prototype ordered by it that
conforms to the specifications and the test parameters contained or incorporated
in the applicable ECR and CDR. Failure by Customer to give written notice of
rejection within sixty (60) days of shipment shall be conclusively deemed to be
acceptance following inspection, but shall not constitute a waiver of latent
defects. Customer recognizes that its acceptance of Prototypes greater than 30
days into the acceptance period, may adversely impact the delivery schedule for
additional Prototypes, preproduction units, and production units. Consequently,
Customer agrees that LSI will not be considered in breach of this Agreement if
its failure to deliver preproduction units, production units and additional
Prototypes, is directly attributable to the length of time it has taken to
accept Prototypes. If Customer has not previously accepted the corresponding
Prototypes, LSI does not warrant that any additional Prototypes, preproduction
units, or production units will conform under normal use to the specifications
and test parameters in the ECR and CDR, although LSI does warrant that such
units will be free from defects in material and workmanship as set forth in
Article 10.
5.2 Non-conforming Product. Should Customer notify LSI within said sixty
(60) day period that the Product is non-conforming, then Customer, upon receipt
of authorization from LSI, shall promptly return the nonconforming Product to
LSI in accordance with the LSI material return procedure, accompanied by a
written explanation of the reasons for the return. Freight and handling costs
associated with returned Product that are later determined to be conforming,
shall be borne by the Customer.
6 TERMINATION FOR CONVENIENCE; RESCHEDULING RIGHTS.
6.1 Prior to Prototype Approval. Prior to the delivery of Prototypes,
Customer, for its own convenience, may notify LSI in writing of its intent to
terminate the design and engineering work under the applicable SOW for any
Product, whereupon LSI shall cease further work in connection with the Product
and invoice the Customer for the percentage of the total NRE price specified
below. Customer shall pay the invoiced amount within thirty (30) days of invoice
date. Customer may terminate work on any single Product without effect on the
work being performed with respect to any other Product.
Then the applicable
If notice of termi- percentage of total
nation is given: NRE owing is:
---------------- -------------
a) After APO but before
commencement of work 5%
b) After commencement of
work but before PDR 20%
c) After PDR but before ECR 50%
d) After ECR but before CDR 80%
e) After CDR 100%
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7 TERM AND TERMINATION
7.1 Termination for Default. The non-defaulting Party may give the
defaulting party notice of its intention to exercise its rights under this
Article 7.1 if the defaulting Party violates any material provision of this
Agreement. Unless the defaulting Party commences efforts to cure the default
within ten days of receiving the non-defaulting Party's notice, diligently and
continuously pursues such cure to completion and completes the cure within sixty
(60) days (excluding a default that is non-monetary), the non-defaulting Party
shall have the right at its option to: (a) suspend performance or payment, in
whole or in part, until such default is cured; (b) terminate the Agreement or
purchase orders placed under the Agreement, in whole or in part, or (c) employ a
combination of (a) and (b).
7.2 Insolvency. Should either Party: (a) become insolvent; (b) make an
assignment for the benefit of creditors; (c) file a petition in bankruptcy; (d)
institute any proceedings for liquidation or winding up; or (e) have filed
against it a petition in bankruptcy or receivership and fail within sixty (60)
days to obtain the dismissal of the same, then the other Party may, in addition
to other rights and remedies it may have, terminate the Agreement or any
purchase orders placed under the Agreement immediately by written notice.
7.3 Discontinued Designs. Subject to Article 4, LSI may at any time cease
production of a Product in a particular manufacturing process technology. After
the five year volume commitment in Article 4.3 expires, LSI may at any time
cease production of a Product, provided that it will notify Customer in advance
of discontinuing such Product to give the Customer an opportunity to make a
lifetime buy.
8 PROPERTY RIGHTS
8.1 Any information supplied by Customer, including, but not limited to,
software, schematics, netlists, microcode, designs or techniques ("Customer
Design") that is provided to LSI and concerns the design of or is otherwise
incorporated into a Product shall remain the property of Customer.
8.2 Subject to section 8.3, below, LSI will not use the Customer Design or
any customized ASIC netlist, database, test vectors, or tooling, generated
exclusively for the Product in the course of development, other than for the
manufacture of Products for Customer or its licensees with Customer's consent.
Customer acknowledges and agrees that place and route data, database tapes, mask
sets and other customized data relating to the Product contain proprietary
information of LSI as well as of Customer, and such materials shall, therefore,
be held at all times in LSI's custody. If so requested by the Customer, however,
LSI shall destroy any such materials produced for Customer and shall provide it
with certification of destruction.
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8.3 LSI disclaims, and upon Customer request for LSI's then-standard fee
shall register with the United States Copyright Office in Customer's name, any
mask work rights in the customized interconnects between LSI-furnished library
elements embodied in the Product; PROVIDED, HOWEVER, that LSI or its licensors
shall retain and have all intellectual property rights (including, without
limitation, mask work rights) associated with any and all circuitry design
components and process technology furnished by LSI in connection with the
design, development or manufacture of the Product(s), including, but, not
limited to, (I) all base array layers, (ii) all LSI-licensed library elements
(including, without limitation, any megafunctions or macrocells), and (iii) all
LSI-furnished modifications of any such library elements.
8.4 If in the course of performance under this Agreement LSI discovers any
process, pattern, device or other invention, LSI shall be deemed the owner of
such invention. If in the course of designing or developing a Product Customer
discovers any process, pattern, device or other invention, LSI shall
automatically be granted a fully paid, perpetual worldwide license to use such
invention in connection with the manufacture of the Product by LSI for Customer.
In the event any such invention is jointly discovered by the parties, the
parties shall be deemed joint owners of such invention and shall have the right
to use and sublicense the same without accounting to each other.
9 INFRINGEMENT
9.1 Except as set forth in Section 9.3, below, and subject to the
conditions and limitations stated in this Agreement, LSI agrees at its expense
to defend and indemnify Customer from and against any liability, damages, cost,
and expense (including attorney's fees) arising out of any and all claims,
demands and actions ("Claims") arising out of or relating to any alleged
infringement of patents, copyrights, or mask work rights, owned by third parties
by any Product purchased by Customer from LSI, or for any alleged disclosure or
misuse by LSI of trade secrets of a third party in connection with the design or
production of any Product. In addition, LSI agrees to pay any money damages
awarded against Customer attributable solely to any such infringement,
disclosure or misuse. As a condition of such defense and indemnification
Customer shall give LSI prompt written notice of any such Claims, full authority
to defend and settle such Claims and all reasonable assistance to LSI (at LSI's
expense) as may be requested by LSI. If, as a result of a Claim, Customer
becomes enjoined from selling or using the Product, LSI shall, at its election,
(i ) procure for Customer the right to sell and use the Product, (ii) provide
Customer with replacement Product that is non- infringing and meets the same
functional specifications as the Product, or (iii) if LSI cannot procure such
rights or furnish such replacement Product on commercially reasonable terms,
then refund to Customer the full purchase price actually paid for the infringing
Product purchased from LSI that Customer is enjoined from disposing of. THIS
SECTION STATES THE ENTIRE LIABILITY OF LSI AND THE EXCLUSIVE REMEDY OF CUSTOMER
WITH RESPECT TO INFRINGEMENT. EXCEPT AS EXPRESSLY STATED IN THIS SECTION 9.1,
ALL WARRANTIES AGAINST INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS,
STATUTORY, EXPRESS OR IMPLIED ARE HEREBY DISCLAIMED.
9.2 LSI shall only be required to indemnify Customer for Claims in the
following countries: 1) the
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European Economic Community (EEC); 2) Japan; 3) the United States; 4) any
country to which LSI has shipped to or for Customer the particular integrated
circuit that is the subject of the Claim; and 5) any country to which LSI has
shipped commercial volumes of any ASIC during the twenty four (24) months
immediately prior to the date Customer gives written notice of a Claim to LSI.
In addition, the Parties agree to negotiate whether they will add additional
countries to this list as Customer's business expands.
9.3 LSI shall have no obligation to indemnify or hold Customer harmless
with respect to any Claim of infringement, disclosure or misuse of any
intellectual property rights arising out of or relating to either (i) the
combination of one or more LSI library elements with any other circuitry in the
design of any Product, (ii) the combination or incorporation of any Product or
of elements of any Product supplied by LSI with any other product, end item, or
subassembly, or (iii) use or incorporation in any Product of any design,
technique or specification furnished by Customer. Furthermore, Customer will
defend and indemnify LSI from and against any liability, damages, cost or
expense (including attorney's fees) arising out of any such Claim asserted
against LSI arising out of or relating to any act or condition described in
clauses ( I), (ii) or (iii) of the preceding sentence; provided, however, that
such duty of indemnity shall conditioned upon LSI giving Customer prompt written
notice of any such Claims, full authority to defend and settle such Claims and
all reasonable assistance to Customer (at Customer's expense) as may be
requested by Customer.
10 LIMITED WARRANTY
10.1 Limited Warranty. LSI warrants that the Prototypes manufactured by LSI
will conform under normal use to the specifications and test parameters as
contained in the mutually agreed upon ECR and CDR as signed by both parties in
the course of development of the Product and will be free from defects in
material and workmanship under normal use and service for a period of one (1)
year from the date of shipment to Customer. LSI's obligations under this Limited
Warranty are limited to replacing or repairing or giving credit for, at LSI's
election, at its factory, any of the Products which shall, within one (1) year
after shipment, be returned to LSI, transportation charges prepaid, and which
are, after examination, disclosed to the satisfaction of LSI to be defective.
Any Product which has either been repaired or replaced by LSI under the terms of
the warranty provision of this agreement shall have warranty coverage for the
remaining period of time of the originally shipped Product.
10.2 Exclusions. This Limited Warranty does not apply to die or any other
Products which are not finished and fully encapsulated, or to Products which
have been repaired or altered except by LSI or which shall have been subjected
to misuse, negligence, or accident. PRODUCTS WHICH ARE NOT FINISHED AND FULLY
ENCAPSULATED ARE SOLD STRICTLY "AS IS".
10.3 Disclaimer. EXCEPT FOR THE LIMITED WARRANTY STATED IN SECTION 10.1,
ABOVE, ALL WARRANTIES, EXPRESS, STATUTORY OR IMPLIED, WITH RESPECT TO
ANY PRODUCT OR OTHER ITEMS DELIVERED HEREUNDER, INCLUDING THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
ARE HEREBY DISCLAIMED. THE REMEDIES SET FORTH IN THIS SECTION 10 ARE
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EXCLUSIVE. NO COURSE OF DEALING AND NO PRODUCT DESCRIPTION OR
SPECIFICATION SHALL BE DEEMED A WARRANTY WITH RESPECT TO ANY GOODS OR
INFORMATION DELIVERABLE BY LSI. NO INDIVIDUAL IS AUTHORIZED TO GIVE ANY
OTHER WARRANTY ON BEHALF OF LSI.
11 CONFIDENTIAL INFORMATION
11.1 Each party acknowledges that materials received from the other party
may be considered confidential and proprietary ("Confidential Information").
Each party agrees to maintain in confidence such Confidential Information which,
if disclosed by the other party in writing, is identified and marked as
confidential (or with words of similar import) at the time of its disclosure (or
which, if disclosed verbally, is designated confidential at the time of
disclosure and is summarized and identified as confidential in a writing
delivered to the receiving party on or before thirty (30) days after the
disclosure). Neither party shall disclose the other party's Confidential
Information to any other person or organization without the prior written
consent of the other party nor use such information for purposes other than
performance under this Agreement. Without limiting the foregoing, each party
shall protect such information from disclosure to others with at least the same
degree of care as such party exercises to protect its own information of similar
type and importance. The obligations of confidentiality and protection required
by this section shall survive the expiration, termination or cancellation of
this Agreement for a period of five (5) years, except that LSI's obligations
with respect to Customer Confidential Information embodied in the Customer
Design and any customized ASIC netlist, database, test vectors, or tooling
generated exclusively for a customized Product in the course of development
shall survive the expiration, termination or cancellation of this Agreement for
a period of twenty (20) years. Under no circumstances will the 20 year
protection provision be construed to apply to any pre-existing LSI information.
The obligation of confidentiality shall not apply or shall cease to apply to any
information that;
(a) was known to the receiving party prior to its receipt hereunder;
(b) is or becomes publicly available without breach of this Agreement;
(c) becomes known to the receiving party from a source other than the
disclosing party without breach of an obligation of confidentiality;
(d) is disclosed by the disclosing party to another without an obligation
of confidentiality; or
(e) is developed independently by employees of the receiving party not
having access to such information.
11.2 Either Party may disclose Confidential Information of the other
pursuant to court order on the condition that the originally disclosing party is
given a reasonable opportunity to object to such disclosure requirement to the
extent practicable or to obtain a protective order and the receiving party
limits its disclosure to the greatest extent reasonably practicable under the
circumstances. In addition, a receiving party may disclose the existence and
content of this Agreement as it reasonably determines to be required by
applicable state and federal laws and regulations, including those pertaining to
securities, provided that such party notifies the other party and makes
reasonable efforts to obtain confidential treatment if available.
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11.3 LSI agrees that the contents of this Agreement (including any of the
schedules and exhibits hereto) and the contents of any purchase order issued by
Customer pursuant to this Agreement (including the Terms of Sale or any
successor agreement thereto) shall be deemed the Customer's Confidential
Information provided it is marked as set forth in Article 11.1. Customer agrees
that prior to disclosing the existence or contents of this Agreement or such
purchase orders to any third party to consult with LSI concerning the
nature and content of the disclosure.
12 FORCE MAJEURE
Neither Party shall have any liability for delays or failures in
performance of any obligation hereunder that are caused by any act or occurrence
that is beyond the reasonable control of such party, including but not limited
to fire, flood, earthquake or other natural disaster, shortages of materials,
labor disputes, war or civil disturbance, disruption of normal production, yield
failures, or interruption of transportation facilities. In any such event such
party's performance shall be excused for the time that any such event continues
to occur.
13 EXPORT CONTROL
Customer shall be responsible for ensuring that it complies with all laws
and regulations of the United States Government relating to the export from the
United States of technical information or technical data or products made using
technical information or technical data or Products received from LSI.
14 EXCLUSION OF CERTAIN DAMAGES
IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT,
PUNITIVE, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION,
LOSS OF PROFITS), CAUSED BY ANY BREACH BY LSI OF ITS OBLIGATIONS ARISING OUT OF
OR RELATING TO THIS AGREEMENT, REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT OR IN TORT (INCLUDING NEGLIGENCE), EVEN IF LSI HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. THIS LIMITATION IS A MATERIAL CONDITION TO LSI
ENTERING INTO THIS AGREEMENT, WITHOUT WHICH LSI WOULD BE UNWILLING TO SELL THE
GOODS OR SERVICES COVERED HEREUNDER WITHOUT INCREASING THEIR PRICE.
15 LIFE SUPPORT; COMMERCIAL AVIATION
Products sold by LSI that are to be used in any equipment or application
that may reasonably be expected to perform a life support function or that are
to be used in commercial aviation equipment may require special treatment by
LSI. Accordingly, prior to commencement by Customer of any design
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activity with respect to a Product intended for use in any medical life
support or commercial aviation application, Customer shall give written notice
of such intent to LSI. Failure by Customer to provide such prior written notice
is a material breach of this Agreement.
16 GENERAL
16.1 Assignment. Except for LSI's right to payment accruing hereunder,
neither party shall assign any of its rights or privileges hereunder without the
prior written consent of the other party other than to a successor in ownership
of all or substantially all of the assets of the assigning party, which
successor expressly assumes in writing the assignor's obligations hereunder.
16.2 Controlling Law. This Agreement shall be construed and interpreted in
accordance with the law of the State of California (except its choice of law
rules) as though made by two parties residing in California so as to be fully
performed within that State.
16.3 Waiver. No failure or delay on the part of either party in the
exercise of any right or privilege hereunder shall operate as a waiver thereof
or of the exercise of any right or privilege hereunder, nor shall any single or
partial exercise of any such right or privilege preclude other or further
exercise thereof or of any other right or privilege.
16.4 Notice. Any notice or claim provided for herein shall be in writing
and shall be given (I) by personal delivery, effective upon delivery, (ii) by
certified mail, return receipt requested, postage prepaid, addressed to the
address first stated above for the recipient, effective one (1) business day
after proper deposit in the mail, or (iii) by facsimile directed to the
facsimile number first indicated above for the recipient, but only if
accompanied by mailing of a copy in accordance with (ii) above, effective as of
the date of facsimile transmission.
16.5 Severability; Several Rights and Obligations. If any provision of this
Agreement is held to be ineffective, unenforceable or illegal for any reason,
such decision shall not effect the validity or enforcement of any or all of the
remaining portions thereof. If more than one Product is covered under this
Agreement, then the rights and obligations of the parties as to each such
Product shall be several and independent from those as to any other Product.
16.6 Other Rights. Nothing contained in this Agreement shall be construed
as conferring by implication, estoppel or otherwise upon either party or any
third party any license or other right except, solely as to the parties hereto,
the rights expressly granted hereunder.
16.7 Publicity. All publicity concerning the transactions contemplated by
this Agreement shall be jointly planned and coordinated by and between the
parties. Neither of the parties shall act unilaterally in this regard without
the prior written approval of the other party; however, this approval shall not
be unreasonably withheld.
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16.8 Titles. Any titles included herein are for convenience only and are
not to be used in the interpretation of this Agreement.
16.9 Exhibits. The following Exhibits are attached hereto and incorporated
herein by this reference:
Exhibit A - Description of Products
Exhibit B - Statement of Work
Exhibit C - Pricing and Payment Schedule
The following Addenda described and initialed below are attached hereto and
incorporated herein by this reference:
___/___ Addendum __ - ____________________________
___/___ Addendum __ - ____________________________
___/___ Addendum __ - ____________________________
16.10 Integration; Modification. This Agreement together with the Exhibits
and Addenda hereto, embodies the final, complete and exclusive statement of the
terms of their agreement with respect to the subject matter hereof and
supersedes any prior or contemporaneous representations, descriptions, courses
of dealing or agreements as to such subject matter; PROVIDED, however, that
nothing herein shall supersede or affect any design tool license agreement
between the parties. No amendment or modification of this Agreement or any
Exhibit hereto shall be valid or binding upon the parties unless in writing and
signed by an officer of each party, and NO LSI EMPLOYEE OR REPRESENTATIVE HAS
ANY AUTHORITY OTHERWISE TO BIND LSI TO ANY OBLIGATION OR LIABILITY NOT EXPRESSLY
STATED HEREIN.
16.11 Limitation on Damages. CUSTOMER MAY NOT RECOVER DAMAGES FROM LSI
LOGIC IN CONNECTION WITH ANY "CLAIM" WITH RESPECT TO A PRODUCT IN AN AMOUNT IN
EXCESS OF THE GREATER OF ( I) $150,000.00 or (ii) TEN PERCENT (10%) OF THE
AGGREGATE CONSIDERATION PAID BY CUSTOMER TO LSI WITH RESPECT TO THE PRODUCT OVER
THE TWELVE (12) MONTH PERIOD PRECEDING ACCRUAL OF THE CLAIM. As used herein,
"CLAIM" shall mean one or more claims or causes of action (in contract or in
tort) arising out of any breach, or related breaches, of this Agreement (or
arising out of any act or omission, or related series of acts or omissions, by
LSI or its suppliers or contractors occurring in connection with this Agreement.
However, the foregoing liability limitation shall not apply to any claims for
intellectual property infringement for Prototypes and preproduction units under
Article 9. Moreover, the parties agree that this provision shall not be
construed to limit liability: a) for intellectual property infringement by
production units; or b) arising out of the sale of Products under a production
sales contract. The parties agree to negotiate whether and to what extent
intellectual property and general liability will be limited for production units
and/or under a production sales contract.
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16.12 Arbitration. Any dispute relating to the enforceability,
interpretation of performance of this Agreement (other than claims for which
injunctive relief is sought), or relating to the parties' relationship or any
transactions between them arising out of this Agreement, shall be resolved at
the request of either party through binding arbitration; provided, however, that
it shall not be deemed a waiver of the right to arbitrate for a party to seek,
nor shall this Agreement be interpreted to preclude a party from seeking, in a
court of competent jurisdiction, temporary or preliminary injunctive relief
pending entry of judgment on any arbitration award, or other appropriate
prejudgment relief. Any discovery shall be conducted in accordance with the
Federal Rules of Civil Procedure. Except as otherwise expressly provided herein,
arbitration shall be conducted in accordance with the Commercial Rules of the
American Arbitration Association. The arbitrator(s) shall be (an) individual(s)
with substantial experience in legal issues relating to high technology
electronics. Judgment upon award by the arbitrator may be entered by any state
or federal court having jurisdiction.
16.13 Relationship of the Parties. The relationship of the parties hereto
is that of independent contractors. Neither party, nor its agents or employees
shall be deemed to be the agent, employee, joint venturer, partner or fiduciary
of the other party. Neither party shall have the right to bind the other party,
transact any business in the other party's name or on its behalf or incur any
liability for or on behalf of the other party.
17 GOVERNMENT PROCUREMENTS
If this Agreement is entered into as a first tier or lower tier subcontract
under a U.S. Government prime contract, Customer warrants, represents and agrees
that no "technical data" (as defined at DoD FAR Supp. 252.227-7013) deliverable
to Customer under this Agreement is deliverable (or will be delivered) by the
Customer to the U.S. Government or any other third party.
IN WITNESS HEREOF the parties have caused this Agreement to be signed by their
duly authorized representatives.
LSI LOGIC CORPORATION INTERDIGITAL COMMUNICATIONS
CORPORATION
BY: /s/ Ronald Kahli BY: /s/ Dr. Gary Lomp
---------------------------- ----------------------------
Ronald Kahli Dr. Gary Lomp
TITLE: TITLE: General Manager
------------------------- -------------------------
299
12
Production Agreement for
Prod IV (Model P-4R) Radio Units
<PAGE>
TABLE OF CONTENTS
Section Title
1. DEFINITIONS............................................... 1
2. PRODUCTION SCOPE.......................................... 2
2.1 Production....................................... 2
2.2 Minimum Purchase Amount.......................... 3
2.3 Frequency Variation.............................. 3
2.4 Supplier Relationship............................ 3
2.5 InterDigital Supply.............................. 3
3. ORDER AND ROLLING FORECAST................................ 3
3.1 Rolling Forecast................................. 3
3.2 Purchase Order Requirements ..................... 4
3.2 Additional Requirements.......................... 4
3.3 Forecast Accuracy................................ 4
4. PRICE AND PAYMENT......................................... 4
4.1 Price............................................ 4
4.2 Schedule......................................... 4
4.3 Price Adjustments................................ 4
5. DELIVERY AND TITLE........................................ 5
5.1 Shipping Requirements............................ 5
5.2 Packaging and Other Requirements................. 5
5.3 Product Title.................................... 5
5.4 Delivery Date.................................... 5
6. INSPECTIONS............................................... 5
6.1 ISO Standards.................................... 5
6.2 Inspection Procedure Approval.................... 5
6.2 Outgoing Product Inspection...................... 5
6.3 Incoming Product Inspection...................... 5
6.4 Nonconforming Products........................... 5
6.5 On-Site Inspections.............................. 6
7. CHANGES................................................... 6
7.1 Purchase Orders.................................. 6
7.2 Design Changes................................... 6
8. CONFIDENTIAL INFORMATION.................................. 7
8.1 Designation of Confidential Information.......... 7
8.2 Nondisclosure.................................... 7
8.3 Exceptions....................................... 7
8.4 Limitations...................................... 7
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8.5 Survival......................................... 7
9. TERM, TERMINATION AND EXPIRATION.......................... 8
9.1 Term............................................. 8
9.2 Termination Without Cause........................ 8
9.3 Termination For Cause............................ 8
9.5 Cancellation..................................... 9
9.6 Return of Confidential Information............... 9
9.7 Survival/Final Delivery.......................... 9
10. WARRANTY.................................................. 9
10.1 Warranty......................................... 9
10.2 Notification/Remedy.............................. 10
10.3 Marking.......................................... 10
10.4 Non-Waiver....................................... 10
10.5 Warranty Limitation.............................. 10
10.6 Title Warranty................................... 10
10.7 LIMITATION....................................... 10
11. OUT-OF-WARRANTY SERVICE................................... 10
12. INSURANCE AND INDEMNIFICATION............................. 10
12.1 Indemnification.................................. 10
12.2 Insurance........................................ 11
12.3 LIMITATION OF LIABILITY.......................... 11
13. INTELLECTUAL PROPERTY..................................... 11
13.1 Pre-Existing Intellectual Property............... 11
13.2 Developed Proprietary Information................ 11
13.3 Third Party Intellectual Property Rights......... 11
14. ARBITRATION............................................... 12
15. FORCE MAJEURE............................................. 12
16. NOTICES................................................... 12
16.1 Notice Requirements.............................. 12
16.2 Receipt.......................................... 13
17. SEVERABILITY.............................................. 13
18. SUBCONTRACTING............................................ 13
19. LIENS..................................................... 13
20. WAIVER.................................................... 13
21. ASSIGNMENT................................................ 13
22. AMENDMENT................................................. 14
23. ENTIRE AGREEMENT.......................................... 14
24. HEADINGS.................................................. 14
ii
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25. GOVERNING LAW............................................. 14
26. TAXES..................................................... 14
27. INDEPENDENT CONTRACTOR.................................... 14
28. LABELING ................................................ 14
29. PUBLIC ANNOUNCEMENTS. ................................... 15
iii
<PAGE>
PRODUCTION AGREEMENT
THIS PRODUCTION AGREEMENT (the "Agreement"), made and entered into this 1st day
March of 1996 ("Effective Date") by and between INTERDIGITAL COMMUNICATIONS
CORPORATION, a Pennsylvania corporation having its principal place of business
at 781 Third Avenue, King of Prussia, PA 19406-1409, USA (hereinafter referred
to as "InterDigital") and KENWOOD CORPORATION, a Japanese corporation having its
principal place of business at 1-14-6, Dogenzaka, Shibuya-ku, Tokyo 150, Japan
(hereinafter referred to as "Kenwood").
W I T N E S S E T H
WHEREAS, InterDigital has entered into and believes in the future it will enter
into agreements with customers to supply and/or install communications equipment
in certain locations and within specified period of time, which communications
equipment will include the RF radio units ("Customer Agreements"); and
WHEREAS, time, pricing and performance are the essence of such Customer
Agreements; and
WHEREAS, InterDigital has developed a specification for an RF radio unit to be
incorporated in Prod IV, a subscriber unit, to be supplied under Customer
Agreements; and
WHEREAS, InterDigital and Kenwood have entered into an agreement for the
development of a prototype of the RF radio unit (the "Development Agreement" as
further defined below); and
WHEREAS, Kenwood has expertise in the manufacture of products similar to the RF
radio unit and is desirous of manufacturing RF radio unit for InterDigital; and
WHEREAS, InterDigital desires to engage Kenwood on a non-exclusive basis, but
subject to minimum purchase quantities, to manufacture specified units of the
Product (as hereinafter defined), under and subject to the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and intending to be legally bound, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Delivery Date" shall mean the date when a quantity of Product (as
hereinafter defined)agreed to and established by InterDigital and
Kenwood as set forth in Section 3.1 is to be loaded on a vessel at the
Shipping Location (as hereinafter defined). Standard Delivery Date
shall be the end of the fifth month after Purchase Order issue.
1.2 "Defect" shall mean any non-conformity of the Product to Engineering
Specifications (as hereinafter defined) or the Pre-Production Model (as
hereinafter defined).
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1.3 "Development Agreement" shall mean the Development Agreement for the
PROD IV (Model P-4R) Radio Units dated March 1, 1996, as may be amended
from time to time, between InterDigital and Kenwood.
1.4 "Engineering Specifications" shall mean the drawings and specification
documents containing the physical, mechanical, electrical, interface
and protocol specifications of the Product (as hereinafter defined) as
accepted by InterDigital pursuant to the Development Agreement and as
may be amended from time to time as provided herein.
1.5 "Intellectual Property" shall mean any and all patents, patent
applications, trademarks, copyrights, proprietary know-how, trade
secrets, processes, designs, discoveries, innovations, inventions or
other tangible or intangible intellectual property rights.
1.6 "Pre-Production Model" shall mean the final sample of the printed
circuit board for the RF analogue circuitry, which is a part of the
subscriber unit developed by InterDigital, and which is accepted by
InterDigital pursuant to the Development Agreement.
1.7 "Product" shall mean the full assembled circuit card assembly for the
RF analogue circuitry, including all InterDigital Components (as
defined in Section 2.5), which is a part of the subscriber unit
developed by InterDigital, to be manufactured by Kenwood pursuant to
the requirements of this Agreement.
1.8 "Purchase Order" shall mean any firm order for Products issued by
InterDigital to Kenwood during the term of this Agreement.
1.9 "Shipping Destination" shall mean the InterDigital's receiving
warehouse in King of Prussia, Pennsylvania or such other destination in
the continental United States as InterDigital may designate in writing
to Kenwood from time to time.
1.10 "Shipping Location" shall mean the loading port of the Products in
Japan.
1.11 "Outgoing and Incoming Inspection Regulations and Standards" shall mean
the regulations, rules and standards agreed upon by InterDigital and
Kenwood and as may be amended from time to time by agreement of the
parties, to be used by Kenwood to conduct outgoing Product inspection
and by InterDigital to conduct incoming Product inspections. The
initial inspection regulations and standards are attached hereto as
Exhibit "A".
1.12 "Technical Material" shall mean designs, patterns, drawings, plans,
specifications, development processes, worksheets, and any other
information, manuals, documents, notes, letters, records, computer
programs, molds, dies, tooling, equipment and similar property.
1.13 "Work" shall mean the efforts undertaken by Kenwood to manufacture,
ship, and, as necessary, rework, repair or replace Products.
2
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2. PRODUCTION SCOPE
2.1 Production. Upon (i)successful development and acceptance of the Pre-
Production Model, Engineering Specifications and production test data
under the Development Agreement, and (ii) the finalization of the
Outgoing and Incoming Inspection Regulations and Standards pursuant to
Section 1.11 hereto, InterDigital shall order and purchase from Kenwood
and Kenwood shall manufacture for and sell to InterDigital Products in
accordance with (i) the Engineering Specification and Pre-Production
Model,(ii) this Agreement and (iii) the schedule established as set
forth in Section 3.1.
2.2 Minimum Purchase Amount. Kenwood agrees to manufacture and deliver and
InterDigital agrees to purchase Fifty Thousand (50,000) units of the
Product prior to December 29, 1997, subject to the parties' termination
rights as set forth in Section 9.
2.3 Frequency Variation. Kenwood shall produce under this Agreement
Products having frequency variation from the Pre-Production Model,
provided, however, that (i) such modified Product shall have been
developed and approved under the Development Agreement, and (ii) the
minimum production quantity per frequency variation shall be no less
than One Thousand (1,000) units of Products. With the exception of
those two conditions, all other provisions of this Agreement shall be
equally applicable to Products with frequency variation.
2.4 Supplier Relationship. As of the Effective Date, Kenwood is
InterDigital's only provider of Products. In the event InterDigital
decides, in its sole discretion, to manufacture Products itself or have
any third party manufacture Products for it, InterDigital shall
promptly advise Kenwood in writing to that effect.
2.5 InterDigital Supply. InterDigital shall ship to Kenwood at
InterDigital's cost and risk the duplexers and, if agreed to by the
parties, the High Power Amplifier ("InterDigital Components") which
shall be received by Kenwood at its plant at least sixty (60) days
prior to Delivery Date. Kenwood shall not be liable for (i) failing to
meet Delivery Date to the extent such failure is attributable to
InterDigital's failure to ship InterDigital Components on a timely
basis, or (ii) non-conformity to the Engineering Specifications or
Outgoing and Incoming Inspection Regulations and Standards resulting
from the failure or defect of InterDigital Component. In the event such
failure or defect of InterDigital Component shall be found, Kenwood
will notify InterDigital in writing the detail of failure or defect and
if the failure or defect rate is estimated more than three percent
(3%), Kenwood may stop mass-production and InterDigital and Kenwood
shall find a solution or countermeasure in good faith and re-establish
Delivery Date of Products of stopped production and future production
of products. Kenwood shall be responsible to the failure or damage of
InterDigital Component which result from Kenwood's improper handling,
storage, mounting to the PCB or alignment.
3
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3. ORDER AND ROLLING FORECAST
3.1 Rolling Forecast. InterDigital shall at the beginning of each month,
provide Kenwood with (i) a Purchase Order for Products it requires
Kenwood to deliver within 6 months from the date of such Purchase Order
("Delivery Date"), and (ii) a forecast of InterDigital's Product
requirements for the 5 month period following the month in which such
Purchase Order was issued. Kenwood shall provide InterDigital with
written confirmation of receipt of the Purchase Order, including
whether Kenwood can meet the Delivery Date. It is mutually agreed that
the standard production lead-time shall be five (5) months from the
Purchase Order issue date and the standard Delivery Date shall be at
the end of the fifth month.
3.2 Purchase Order Requirements. The Purchase Order shall include the
following information:
(A) Date of issue and purchase order number
(B) Quantity of Product to be delivered
(C) Total price
(D) Required Delivery Date
(E) Shipping instructions and Shipping Destination
(F) Reference to this Agreement
(G) Authorized signature
In the event of a conflict between the Purchase Order and the terms of
this Agreement, this Agreement shall control.
3.3 Additional Requirements. InterDigital may, from time to time, notify
Kenwood in writing if (i) InterDigital's Product requirements exceed
the amount specified in a Purchase Order and (ii) InterDigital desires
Kenwood to supply additional Products. Kenwood will use all reasonable
efforts to meet InterDigital's additional Product requirements.
3.4 Forecast Accuracy. InterDigital shall use reasonable efforts to provide
accurate forecasts of Product requirements. With the exception of the
firm Purchase Orders, and subject to InterDigital's minimum purchase
requirements set forth in Section 2.2 hereto, however, InterDigital
shall have no liability to Kenwood for changes to the Product
forecasts.
4. PRICE AND PAYMENT
4.1 Price. The base price for each unit of Product, excluding HPA mounting,
testing and related adjustment costs, shall be US$ *, FCA (except that
Kenwood shall also pay marine insurance)(Shipping Location)(according
to Incoterms 1990), payable in J(Y) at the exchange rate determined in
Section 4.3 hereto. The additional cost for HPA mounting, testing and
related adjustment shall be subject to agreement between the parties.
4.2 Schedule. InterDigital shall pay Kenwood for Products forty-five (45)
days prior to the Delivery Date.
- ----------
* Confidential treatment has been requested for the deleted text, which has been
filed separately with the Securities and Exchange Commission.
4
<PAGE>
4.3 Price Adjustments. The base price set forth in Section 4.1 shall be
valid during the term of this Agreement; provided, however, that, the
price for units included in each Purchase Order shall be adjusted in
the event that the closing middle exchange rate at New York market as
of the date of such Purchase Order (the "Current Rate"), fluctuates
plus or minus five (5) percent from the base exchange rate
((Y)100/US$)(the "Base Rate"). Both parties shall share equally any
exchange loss or profit by using a new exchange rate for the Purchase
Order quantity by using a calculated exchange rate, which shall be
derived as follows:
Base Rate + Current Rate
------------------------
2
5. DELIVERY AND TITLE
5.1 Shipping Requirements. Kenwood shall ship the Products FCA (except that
Kenwood shall also pay marine insurance)(Shipping Location)(Incoterms
1990). Kenwood shall also arrange for shipping to the Port of
Philadelphia, Pennsylvania, or such other destination as InterDigital
may prescribe in the Purchase Order, such costs (including freight and
importation fees but excluding insurance) to be paid by InterDigital.
Notwithstanding the foregoing, Kenwood shall bear the Risk of Loss to
all Products, work in progress, materials, tools and other things
independent of title until placed on the loading dock at the Shipping
Destination.
5.2 Packaging and Other Requirements. Unless otherwise specified by
InterDigital in writing, Kenwood shall properly pack, box, crate or
prepare all Products for shipment so as to prevent damage in transit
and to ship in accordance with the requirements of common carriers in a
manner to secure lowest transportation cost.
5.3 Product Title. Title to the Product shall pass to InterDigital when the
Product has been placed on the loading dock at the Shipping Location.
5.4 Delivery Date. ALL TIME LIMITS STATED IN THIS AGREEMENT AND IN ANY
PURCHASE ORDER ARE OF THE ESSENCE OF THIS AGREEMENT. Kenwood shall
ensure that Product shipments are made on or before the Delivery Date
as set forth in Section 3.1. Kenwood shall make up delays at its
expense by, among other things, providing additional people and shifts,
as required.
6. QUALITY ASSURANCE/INSPECTIONS
6.1 ISO Standards. Kenwood warrants that it and, to the extent commercially
practicable, its key contractors and suppliers, are certified according
to ISO 9001 and shall remain so at all times pertinent to Kenwood's
performance hereunder.
6.2 Inspection Procedure Approval. Prior to the Kenwood's commencement of
5
<PAGE>
Product mass-production, Kenwood and InterDigital shall finalize and
agree upon the Outgoing and Incoming Inspection Regulations and
Standards.
6.3 Outgoing Product Inspection. Kenwood shall inspect the Products in
accordance with the Outgoing and Incoming Inspection Regulations and
Standards. Kenwood, at its sole cost and expense, shall perform any
repairs, rework or modifications to, or provide replacement Products
for, any Products not meeting the Outgoing and Incoming Inspection
Regulations and Standards.
6.4 Incoming Product Inspection. Within thirty (30) days after the Products
are received by InterDigital at the Shipping Destination, InterDigital
shall inspect Products in accordance with the Outgoing and Incoming
Inspection Regulations and Standards. InterDigital has the right to
reject any Products found to have a Defect, except if such Defect is
the result of the failure or defect of an InterDigital Component. Upon
completion of such inspection, InterDigital shall promptly notify
Kenwood of the results of the inspection, including whether or not the
Products are acceptable. InterDigital's acceptance of Products or its
payment therefor shall not relieve Kenwood of any of its obligations
hereunder or impose any duty on InterDigital with regard to the
Products.
6.5 Nonconforming Products. If InterDigital identifies any Defects in
Products ("Nonconforming Products"), Kenwood and InterDigital shall
discuss in good faith the appropriate method for curing the
Nonconforming Products, including whether the Nonconforming Products
should be returned to Kenwood or repaired in the U.S.A., either by
Kenwood or InterDigital; provided, however, that InterDigital, after
such good faith discussions, may elect, in its sole discretion, the
appropriate and reasonable means for curing the Nonconforming Product,
and Kenwood shall promptly undertake such efforts. In all cases, all
the expenses incurred to cure the Defect(s) shall be borne by Kenwood.
6.6 On-Site Inspections. Upon reasonable advance written notice, Kenwood
shall allow InterDigital, its authorized representatives and customers
for the Product to observe and inspect the Work, including materials
and supplies being used, subject to Kenwood's then-existing
confidentiality restrictions and security and safety requirements.
7. CHANGES
7.1 Purchase Orders. InterDigital may cancel, or make reductions, in the
amount of Products included in a Purchase Order, subject to the
cancellation charges set out in Section 9.4. InterDigital may also
defer delivery of Products under a Purchase Order for up to two (2)
months, subject to the following charges and limitations set forth
below:
a) InterDigital may request deferral of Product Delivery by
written request of more than thirty (30) days prior to
mutually agreed Delivery Date ("Original Delivery Date").
B) Kenwood will accept such deferral of Product delivery request
6
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if the deferral is up to thirty (30) days from Original
Delivery Date without any charge to InterDigital.
C) In the event the deferral request is for more than thirty (30)
days from Original Delivery Date, Kenwood shall stop
production and a new Delivery date shall be re-negotiated and
established between Interdigital and Kenwood. InterDigital
shall pay Kenwood the delayed interest which shall be
calculated by using annual rate of four (4)percent, number of
deferral days and deferral Product amount.
7.2 Design Changes. Kenwood shall not make any changes to the design of
Product unless authorized in writing by InterDigital; provided,
however, that Kenwood shall promptly advise InterDigital of all
reasonably available technological advances which are known or become
known to Kenwood over the course of performance of its obligations
under this Agreement which may result in the Product having added value
(i.e., better performance, design, material or longer useful life) to
InterDigital. Should InterDigital elect to incorporate such advances,
InterDigital shall do so by written notice to Kenwood, including
whether InterDigital desires Kenwood to first develop a prototype
incorporating such advances. Within thirty (30) days of receipt of such
notice, Kenwood shall notify InterDigital in writing of the cost and
schedule for implementing the advances, including producing a
prototype, such costs to be determined on a comparable basis with those
incurred under the Development Agreement and hereunder. InterDigital
shall promptly notify Kenwood in writing as to whether Kenwood should
proceed with such development.
8. CONFIDENTIAL INFORMATION
8.1 Designation of Confidential Information. All information relating to
the Product provided by either party to the other, whether before or
after the date hereof and whether oral or written and transactions
contemplated in this Agreement, shall be and is hereby deemed to be
confidential and proprietary information (hereinafter called
"Confidential Information"). Neither party shall be obligated to
specifically identify any information as to whether the protection of
this Section is desired by any notice, legend, or other action.
8.2 Nondisclosure. A party receiving Confidential Information shall not,
without the prior written consent of the party disclosing such
information, (i) use any portion of the Confidential Information for
any purpose other than in connection with the performance of this
Agreement, or (ii) disclose any portion of the Confidential Information
to any persons or entities other than the employees and consultants of
receiving party, its subcontractor or its affiliated companies, who
reasonably need to have access to the Confidential Information in
connection with the performance of this Agreement; provided, however,
that such employees and consultants shall be informed of the
confidentiality requirements herein and shall be required to execute an
agreement having terms consistent with those provided in this Section
8; and provided further that the receiving party shall be responsible
7
<PAGE>
for any breach of the confidentiality requirements by such employee or
consultants.
8.3 Exceptions. Notwithstanding the foregoing, a receiving party shall not
be liable for disclosure of Confidential Information, or part thereof,
if the receiving party can demonstrate that such Confidential
Information:
(A) was in the public domain at the time it was disclosed;
(B) has been known to or in the possession of the party receiving
it at the time of receipt;
(C) is known to the receiving party from a source other than the
disclosing party without breach of this Section by the
receiving party; or
(D) has been disclosed to the government of the receiving party or
its agent in accordance with its order.
8.4 Limitations. Notwithstanding the foregoing, nothing in this Section
shall be deemed to limit or alter InterDigital's rights under Section
13 ("Intellectual Property").
8.5 Survival. The provisions of this Article shall survive termination,
cancellation or expiration of this Agreement for five (5) years from
the date of such termination, cancellation or expiration.
9. TERM, TERMINATION AND EXPIRATION
9.1 Term. This Agreement shall be effective upon the Effective Date and,
unless earlier terminated as provided herein, shall be valid and in
force for a period of two (2) years thereafter. The parties may extend
this Agreement my mutual written agreement.
9.2 Termination Without Cause. Notwithstanding any provision of this
Agreement to the contrary, InterDigital may, after having purchased
50,000 Products from Kenwood and upon thirty days' prior written notice
to Kenwood, terminate this Agreement without cause and liability,
except that InterDigital shall pay Kenwood for all cancellation
charges, as set forth in Section 9.4.
9.3 Termination for Cause. Upon written notice to the other party, a party
may terminate this Agreement as provided below:
(A) for either party at any time, without liability, if the other
party becomes insolvent, or a petition of bankruptcy is filed,
or any similar relief is filed by or against such party, or a
receiver is appointed with respect to any of the assets of
such party, or a liquidation proceeding is commenced by or
against such party;
(B) for either party at any time, without liability, if the other
party fails to correct or cure any material breach of any
covenant
8
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or obligation under this Agreement within thirty (30) calendar
days after receipt by such party of a written notice from the
other party specifying such breach; or
(C) for InterDigital if InterDigital has not secured sufficient
Customer Agreements to require Kenwood to produce Products,
even on a sole source basis; provided, however, if
InterDigital has not purchased 50,000 Products from Kenwood,
InterDigital, upon termination, shall pay Kenwood(i) all
cancellation charges, as set forth in Section 9.4, on the
Purchase Orders submitted to Kenwood; and (ii) a "Buyout
Amount" equal to the present value (calculated as of the date
of termination and using a discount rate of 8%) of 10% of the
purchase price for each month's projected Product deliveries
after such termination (excluding any firm Purchase Orders),
with such deliveries being sufficient to make up the
difference between the 50,000 minimum purchase quantity and
the number of units purchased by InterDigital up to the date
of termination, including firm purchases.
9.4 Cancellation. InterDigital may cancel any Purchase Order, in whole or
in part, at any time. In such event, InterDigital shall pay the
following cancellation charges to Kenwood with respect to the canceled
order or part thereof:
Number of Days Between
Notice of Cancellation Cancellation Charge
and Delivery Date Per Unit of Product
---------------------- -------------------
0-90 days Non-cancelable
91-150 days 80%
Over 150 days 0%
(A) Cancellation charges are expressed as a percentage of the
purchase price of a Product that would have been applicable
had it not been canceled. Payment of the applicable
cancellation charges, if any, shall be invoiced by Kenwood and
paid by InterDigital within thirty (30) days of receipt of
such invoice.
(B) Other than the above-stated cancellation charge, and subject
to InterDigital's minimum purchase obligation, InterDigital
shall have no further liability to Kenwood for canceled
orders.
9.5 Return of Confidential Information. Upon the expiration or termination
of this Agreement, each party shall return to the other party all
Confidential Information of the other party together with all copies
made therefrom, except to the extent such information is required by
InterDigital to exercise its rights under Section 13.
9.6 Survival/Final Delivery. The following provisions shall survive the
termination or expiration of this Agreement: Article 9.6, Article 10,
Article 12, Article 13, Article 14, Article 17, Article 20, Article 21,
Article 23, Article 24, and Article 25. In addition, any provision of
this Agreement necessary for a party to exercise rights or obligations
arising prior to expiration or termination shall survive such
expiration
9
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or termination. Further, in the event of termination (except by
Kenwood for cause), InterDigital shall be entitled, at its option, to
receive delivery of Products for which a Purchase Order was issued
prior to the date of termination.
10. WARRANTY
10.1 Warranty. Kenwood warrants that the Products furnished under this
Agreement comply with the Engineering Specifications, and are free from
defects in material, design and workmanship.(the "Warranty") for a
period of eighteen (18) months commencing from InterDigital's
acceptance of a Product (the "Warranty Period").
10.2 Notification/Remedy. InterDigital shall promptly notify Kenwood of any
Products not meeting the Warranty ("Defective Products"). Kenwood
shall, at its expense, including all costs of transportation to the
Shipping Destination, provide replacements for such Products within 60
days of such notification. The period of Warranty for all replacement
Products shall be eighteen (18) months commencing from InterDigital's
acceptance of the replacement Product. In addition, Kenwood shall pay
InterDigital, as liquidated damages for InterDigital's labor costs
related to Product replacement, * (*) U.S. Dollars for each Defective
Product. Unless otherwise requested by Kenwood, InterDigital shall
return the Defective Product to Kenwood at Kenwood's cost and expense.
Upon receipt of the defective product, Kenwood shall conduct analysis
of cause and report to InterDigital. If Kenwood determines that the
Defective Product is defective on breach of warranty as set forth in
Section 10, all the expenses shall be born as set forth in Section
10.2. If Kenwood determines otherwise and Interdigital agrees (which
agreement shall not be uncommonly with held), InterDigital shall pay
the price of Product and all the relevant expenses incurred for such
replacement including, without limitation, ocean or air freight, import
duty and custom clearance expenses and replacement charge of U.S.
Dollars of each Defective Product.
10.3 Marking. Kenwood will include serial numbers and/or date stamps, as
agreed to by InterDigital, on each Product to facilitate the Warranty
tracking. For all replaced Products, Kenwood shall provide suitable
notice either on the Product or in the Product packaging to permit
warranty tracking of replaced Products.
10.4 Non-Waiver. This Warranty shall survive delivery and shall not be
deemed waived by inspection, acceptance or payment by InterDigital
pursuant to any provision of this Agreement or the Development
Agreement. No representations given to Kenwood by an employee or agent
of InterDigital shall be construed as a waiver of InterDigital's rights
hereunder.
10.5 Warranty Limitation. The Warranty does not extend to Products which
fail or are damaged after delivery to InterDigital due to (i)
InterDigital's improper handling, storage, operation, installation, use
or maintenance thereof,(ii) InterDigital's improper assembly of the
Product or subscriber unit or improper re-adjustment of the Product, or
- ----------
* Confidential treatment has been requested for the deleted text, which has been
filed separately with the Securities and Exchange Commission.
10
<PAGE>
(iii) Products which fail or are damaged due to a cause attribute to an
InterDigital Component or to other circuits or components (other than
the Product) manufactured by InterDigital.
10.6 Title Warranty. Kenwood warrants that all Products, at delivery, are
free and clear of all encumbrances and have fully marketable title.
10.7 LIMITATION. THE WARRANTIES AND ASSOCIATED REMEDIES SET FORTH IN THIS
SECTION ARE EXPRESSLY IN LIEU OF AND INTERDIGITAL WAIVES ALL OTHER
WARRANTIES AND ASSOCIATED REMEDIES, EXPRESSED OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ALL IMPLIED TERMS AND CONDITIONS AND WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
11. OUT-OF-WARRANTY SERVICE
After the Warranty Period, InterDigital may repair Products and
purchase from Kenwood service parts at the prices quoted by Kenwood.
Kenwood shall provide replacement parts and/or Products during the term
of this Agreement and for two years thereafter.
12. INSURANCE AND INDEMNIFICATION
12.1 Indemnification. Either party shall, to the maximum extent permitted by
law, indemnify and hold harmless the other party, its affiliates and
subsidiaries and all offices, directors, employees and agents of such
companies (collectively, "Indemnified Parties"), from against. For and
in respect of any and all claims, investigations, proceedings,
injuries, demands, liabilities, losses, expense, including without
limitation attorney's fees, damages, judgements or settlements arising
out of or resulting from the performance or non-performance under this
Agreement of Either party, anyone directly or indirectly employed by
either party or anyone whose acts either party may be liable. The
obligations under this paragraph shall not be (a) construed to negate,
abridge or otherwise reduce any other rights or obligations of
indemnity which would otherwise exist as to any provisions or limits of
insurance required by this Agreement.
12.2 Insurance. Each party shall secure and maintain insurance commensurate
with the obligations and potential liabilities arising under this
Agreement. Each party shall, upon the request of the other party,
provide a description of the coverage secured, including deductibles,
exclusions, term, and policy limits.
12.3 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR LOST PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
OTHER KIND INCURRED ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
13. INTELLECTUAL PROPERTY
13.1 Pre-Existing Intellectual Property. Except as provided in Section 13.2,
nothing contained in this Agreement will be deemed to grant to either
party, either directly or by implication, estoppel or otherwise, any
11
<PAGE>
title, ownership, license, or any interest whatsoever in, of or to
Intellectual Property or Technical Material of the other party, whether
existing prior to the Effective Date or developed thereafter.
13.2 Developed Proprietary Information. The Technical Material supplied or
made specifically by Kenwood (or its contractors) under this Agreement
and any Intellectual Property hereunder developed, produced or created
by Kenwood (or its contractors) (collectively "Developed Information")
shall be the joint property of InterDigital and Kenwood, subject to the
following terms and conditions:
(A) InterDigital may use, sell, license, or otherwise transfer the
Developed Information without any accounting to Kenwood;
provided, however, that InterDigital shall notify Kenwood of
any license, sale, or other transfer of the Developed
Information to a third party;
(B) Kenwood may use the Developed Information for only the
manufacture of Products for InterDigital;
(C) InterDigital shall have the right to apply for any patents
arising out of Developed Information, in Kenwood and
InterDigital's name. Kenwood shall execute all documents
reasonably required for such applications. InterDigital shall
provide Kenwood with advance copies of significant patent
application filings for review and comment and will consider
such comments in good faith. InterDigital and Kenwood shall
share equally the cost of such patent filings; provided,
however, that Kenwood may elect not to have joint ownership in
such patents in which event Kenwood shall assign all of such
patent rights to InterDigital and execute all documentation
required for InterDigital to obtain patent protection in its
name and at its sole expense.
(d) Developed Information shall not include knowledge,
manufacturing process or designs or products developed,
produced, or created by Kenwood (or its contractors) prior to
the commencement of the Work or other than in conjunction with
the Work.
13.3 Use of Third Party Intellectual Property Rights. In manufacturing the
Product, Kenwood shall not use or rely on any method, process, product
or other tangible or intangible element requiring the payment of
royalties without the express written consent of InterDigital. To the
extent that InterDigital consents to Kenwood's use of any license or
other right under any patents or patent application to perform the Work
or develop, manufacture or supply the Products under this Agreement,
Kenwood shall pay all royalties and license fees required pursuant
thereto.
14. ARBITRATION
Any controversy, dispute, or claim arising out of or relating to this
Agreement, any modification or extension hereof, or any breach hereof
(including the question whether any particular matter is arbitrable
12
<PAGE>
hereunder) which has not been settled after a meeting of the parties in
a good faith effort to resolve their differences shall be resolved
exclusively by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three
arbitrators chosen in accordance with said rules unless the parties
agree to use fewer arbitrators. The arbitration shall take place in
Paris, France and shall be conducted in English. The award of such
arbitration shall be final and binding on both parties.
15. FORCE MAJEURE
If either party's performance of this Agreement is interfered with by
reason of any circumstance beyond the reasonable control of the party
affected, including without limitation, war (whether an actual
declaration thereof is made or not), sabotage, insurrection, rebellion,
riot or other act of civil disobedience, act of a public enemy, failure
or delay in transportation, failure of or delay in performance of
InterDigital's or Kenwood's obligations under this Agreement due to act
of any government or any agency or subdivision thereof, judicial
action, labor dispute, fire, accident, explosion, epidemic, storm,
flood, earthquake, or other Act of God, or shortage of labor , fuel,
raw material, or machinery, then the party affected shall be excused
from such performance, but only for the period of time occasioned by
such event. A party claiming a force majeure shall notify the other
party within 10 working days of such force majeure event, providing the
type of event, the expected delay, and the efforts being taken to
minimize such delay. If any such interference extends for more than
Ninety (90) days, both parties shall discuss to seek for the best
course of action.
16. NOTICES
16.1 Notice Requirements. Any notices required to be given under this
Agreement shall be sent by registered air mail, facsimile or hand
delivery to the other party at the address listed below:
To InterDigital:
----------------
INTERDIGITAL COMMUNICATIONS CORPORATION
781 Third Avenue, King of Prussia
Pennsylvania 19406-1409, USA
Attn: WILLIAM J. MERRITT
Tel: 610-878-5700
Fax: 610-878-7844
To Kenwood:
-----------
KENWOOD CORPORATION
1-14-6, Dogenzaka
Shibuya-ku, Tokyo 150 Japan
13
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Attn: Katsuhito Ohashi
Tel: 03-5457-7158
Fax: 03-5457-7160
16.2 Receipt. Notices given pursuant to Section 16.1 shall be deemed to have
been received Five (5) business days after sending in the case of
registered air mail and at the time of receipt of the receiving party
in the case of hand delivery and facsimile, unless earlier confirmed by
the receiving party.
17. SEVERABILITY
In the even that, for any reason, any portion of this Agreement shall
be determined to be illegal, unlawful or unenforceable, the remaining
provisions of this Agreement shall, nevertheless remain in full force
and effect and this Agreement shall be construed as if the illegal,
unlawful or unenforceable provisions were not contained herein.
18. SUBCONTRACTING
Kenwood shall not subcontract any of the Work without the express
written consent of InterDigital. Kenwood's use of subcontractor's shall
not relieve Kenwood of its obligations hereunder and Kenwood shall be
liable to InterDigital for all the acts and omissions of any
subcontractor as if such act or omissions were made by Kenwood.
19. LIENS.
Kenwood shall not make nor permit to be made any attachments to the
Product, or components thereof, of liens, encumbrances or claims for
labor or material. Kenwood shall promptly remove and shall protect and
hold InterDigital harmless from all such claims, liens and encumbrances
arising from the manufacture, assembly and transit of the Product.
20. WAIVER
Any failure of either party to enforce at any time or for any period,
any provisions of thus Agreement shall not be construed as a waiver of
such provisions or of the right of the party thereafter to enforce each
and every provision.
21. ASSIGNMENT
This Agreement shall not be assignable by either party without the
prior written consent of the other party; provided, however, that
either party may assign this Agreement to a subsidiary or affiliate of
the assigning party by written notice to the other party.
22. AMENDMENT
This Agreement shall not be amended, altered, or modified except by an
instrument in writing duly executed by the parties hereto.
14
<PAGE>
23. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof, and it supersedes all prior
oral or written agreements, commitments, or understandings with respect
to the matters provided for herein.
24. HEADINGS
Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect
the meaning, construction, or scope of any of the provisions hereof.
25. GOVERNING LAW
This Agreement sets forth the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York.
Each party irrevocably submits to the jurisdiction of the courts of the
state or country of the other party solely for the purposes of
requiring the other party to submit to arbitration as required
hereunder and for enforcing any award granted thereunder. Process may
be served on either party by certified or registered U.S. mail or by
globally recognized express mail service.
26. TAXES.
It is understood than no taxes, assessments, excises, duties,
impositions or licenses will be levied, assessed or imposed on Kenwood
by the U.S. Government on account of the Work or the Products. If,
however, any such taxes, assessments, excises, duties, impositions, or
licenses are levied, assessed or imposed on Kenwood by the U.S.
Government on account of the Work or the Products, (excluding taxes on
income) they shall be borne by InterDigital and all payments owing to
Kenwood hereunder shall be net of any such taxes, levies or charges
required to be withheld with respect to such payments.
27. INDEPENDENT CONTRACTOR
In making and performing this Agreement, InterDigital and Kenwood act
and shall act at all times as independent contractors and nothing
contained in this Agreement shall be construed or implied to create an
agency, joint venture, partnership or employer and employee
relationship between InterDigital and Kenwood.
28. LABELING
At InterDigital's request, Kenwood shall place appropriate notices or
labels on all Products, and component parts thereto, being manufactured
for InterDigital pursuant to this Agreement to indicate ownership by
InterDigital. To the extent reasonably possible, the Product, and
component parts thereto, shall be stored separately from other
inventory
15
<PAGE>
and conspicuously marked with labels indicating ownership by
InterDigital.
29. PUBLIC ANNOUNCEMENTS.
Except as may be required by law, neither party shall issue any press
release or make or cause to be made any public disclosure of this
Agreement without the prior written consent of the other party.
[SIGNATURES ON NEXT PAGE]
17
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement in duplicate effective on the day first
written above.
INTERDIGITAL COMMUNICATIONS CORPORATION
Attest
/s/ Adrienne G. Juskalian By /s/ Mark Lemmo
- ------------------------------- -----------------------------------
Title General Manager
KENWOOD CORPORATION
Attest
/s/ D. Ahasui By /s/ Y. Morimoto
- -------------------------------- -----------------------------------
Title General Manager
Strategic Business Development
Department, R & D Division
17
<PAGE>
Development Agreement for
Prod IV (Model P-4R) Radio Units
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section Title
1. DEFINITIONS......................................................... 1
2. DEVELOPMENT AND ACCEPTANCE.......................................... 2
2.1 Working Sample Development................................. 2
2.2 Working Sample Delivery and Testing........................ 3
2.3 Pre-Production Model Development........................... 3
2.4 Revised Pre-Production Models.............................. 4
3 CONSIDERATION AND PAYMENT........................................... 4
3.1 Price...................................................... 4
4. DELIVERY AND TITLE.................................................. 4
4.1 Shipping Requirements...................................... 4
4.2 Packaging and Other Requirements........................... 4
4.3 Working Sample Title....................................... 4
5. INSPECTIONS......................................................... 4
6. SUPPLY OF DOCUMENTS ................................................ 5
7. CONFIDENTIAL INFORMATION............................................ 5
7.1 Designation of Confidential Information.................... 5
7.2 Nondisclosure.............................................. 5
7.3 Exceptions................................................. 5
7.4 Limitations................................................ 6
7.5 Survival................................................... 6
8. TERM, TERMINATION AND EXPIRATION.................................... 6
8.1 Term....................................................... 6
8.2 Termination For Cause...................................... 6
8.3 Termination After Acceptance of Pre-Production Model....... 6
8.4 Return of Confidential Information......................... 6
8.5 Survival................................................... 6
9. INSURANCE AND INDEMNIFICATION....................................... 7
9.1 Indemnification............................................ 7
9.2 Insurance.................................................. 7
9.3 LIMITATION OF LIABILITY.................................... 7
10. INTELLECTUAL PROPERTY............................................... 7
10.1 Pre-Existing Intellectual Property......................... 7
10.2 Developed Proprietary Information.......................... 7
10.3 Use of Third Party Intellectual Property Rights............ 8
11. ARBITRATION......................................................... 8
i
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12. FORCE MAJEURE....................................................... 8
13. NOTICES............................................................. 9
13.1 Notice Requirements........................................ 9
13.2 Receipt.................................................... 9
14. SEVERABILITY........................................................ 9
15. SUBCONTRACTING...................................................... 9
16. LIENS. ............................................................ 10
17. WAIVER.............................................................. 10
18. ASSIGNMENT.......................................................... 10
19. AMENDMENT........................................................... 10
20. ENTIRE AGREEMENT.................................................... 10
21. HEADINGS............................................................ 10
22. GOVERNING LAW....................................................... 10
23. TAXES. ............................................................ 11
24. INDEPENDENT CONTRACTOR.............................................. 11
25. LABELING .......................................................... 11
26. PUBLIC ANNOUNCEMENTS. ............................................. 11
</TABLE>
ii
<PAGE>
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT (the "Agreement"), made and entered into this 1st day
of March 1996 ("Effective Date") by and between INTERDIGITAL COMMUNICATIONS
CORPORATION, a Pennsylvania corporation having its principal place of business
at 781 Third Avenue, King of Prussia, PA 19406-1409, USA (hereinafter referred
to as "InterDigital") and KENWOOD CORPORATION, a Japanese corporation having its
principal place of business at 1-14-6, Dogenzaka, Shibuya-ku, Tokyo 150, Japan
(hereinafter referred to as "Kenwood").
W I T N E S E T H:
WHEREAS, InterDigital has developed a specification for an RF radio unit to be
incorporated in Prod IV, a subscriber unit; and
WHEREAS, Kenwood has expertise in the development of units similar to the RF
radio unit and is desirous of, and has already expended considerable time and
materials developing a Working Sample (as hereinafter defined) of the RF radio
unit for InterDigital and is desirous of further refining such Working Sample as
may be necessary to achieve volume production at desired cost (the
"Pre-Production Model" as further defined below) and making RF changes ("Revised
Pre-Production Models", as further defined below) as may be necessary by IDC
from time to time; and
WHEREAS, InterDigital and Kenwood have executed a Memorandum of Understanding
under which, among other things, Kenwood has agreed to undertake the
above-referenced development activities and for which InterDigital had paid
Kenwood US$*; and
WHEREAS, InterDigital desires to engage Kenwood to develop the Working Sample,
Pre-Production Model, and Revised Pre-Production Models under and subject to the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and intending to be legally bound, the parties hereto agree as follows:
1. DEFINITIONS
1.1 "Engineering Specifications" shall mean the drawings and
specification documents containing the physical, mechanical,
electrical, interface and protocol specifications of the Product
(as Confidential Treatment has been requested for the deleted text.
hereinafter defined) as accepted by InterDigital pursuant to this
Agreement.
1.2 "Intellectual Property" shall mean any and all patents, patent
applications, trademarks, copyrights, proprietary know-how, trade
secrets, processes, designs, discoveries, innovations, inventions or
other tangible or intangible intellectual property rights.
- ----------
* Confidential treatment has been requested for the deleted text, which has been
filed separately with the Securities and Exchange Commission.
1
<PAGE>
1.3 "Pre-Production Model" shall mean the prototype of the printed circuit
board for the analog circuitry, which prototype conforms to the
Engineering Specifications and represents, from a design, layout,
materials, and manufacturing standpoint, the exact circuit board that
will be mass-produced by Kenwood for InterDigital.
1.4 "Product" shall mean the printed circuit board for the RF analogue
circuitry, which is part of the subscriber unit developed by
InterDigital.
1.5 "Revised Pre-Production Model" shall mean the prototype of the printed
circuit board for the analog circuitry incorporating an
InterDigital-requested frequency change, which prototype otherwise
conforms to the Engineering Specifications and represents, from a
design, layout, materials, and manufacturing standpoint, the exact
circuit board that will be produced by Kenwood for InterDigital for the
revised frequency requirements.
1.6 "Shipping Destination" shall mean InterDigital's receiving warehouse in
King of Prussia, Pennsylvania, or such other U.S. destination as
InterDigital may designate.
1.7 "Target Specifications" shall mean the specifications prepared by
InterDigital and mutually agreed to by InterDigital and Kenwood for the
development and manufacture of the Working Sample.
1.8 "Technical Material" shall mean designs, patterns, drawings, plans,
specifications, development processes, worksheets, and any other
information, manuals, documents, notes, letters, records, computer
programs, molds, dies, tooling, equipment and similar property
1.9 "Work" shall mean the efforts undertaken by Kenwood to develop, ship,
and as necessary, rework, repair or replace Working Samples, Pre-
Production Models and Revised Pre-Production Models.
1.10 "Working Sample" shall mean the sample of the printed circuit board for
the analog circuitry developed and manufactured in accordance with the
Target Specifications.
2. DEVELOPMENT AND ACCEPTANCE
2.1 Working Sample Development. Kenwood shall perform any and all work
necessary to complete the development of the Working Sample in
conformance with the Target Specifications. Kenwood shall periodically
inform InterDigital as to Kenwood's progress in such development,
including significant problems being incurred and any potential
schedule impact. If Kenwood determines that the Target Specifications
contain errors or have omissions, or that the Target Specifications
could be modified to produce a more desirable product (i.e., more
reliable, less expensive, more tolerant to environmental conditions),
Kenwood shall promptly notify InterDigital in that regard. InterDigital
and Kenwood shall work cooperatively to address
2
<PAGE>
any errors, omissions or enhancements regarding the Target
Specifications.
2.2 Working Sample Delivery and Testing. Within sixty (60) days of the
Effective Date, Kenwood shall deliver, or cause to be delivered, to the
Shipping Destination twenty (20) Working Samples together with two sets
of draft Engineering Specifications and the engineering data.
InterDigital shall evaluate the Working Sample and draft Engineering
Specifications and perform, or cause to be performed, at InterDigital's
sole cost and expense, all tests of the Working Sample as deemed
necessary by InterDigital. To expedite completion of InterDigital's
evaluation, Kenwood shall, at its cost, attend InterDigital's facility
to observe and assist InterDigital's Product and PROD IV evaluation. If
any problems arise or are observed, InterDigital and Kenwood shall work
cooperatively to find an acceptable resolution. If the problem is
related solely to the failure of the Product, Kenwood shall promptly
provide corrective measures. Within thirty (30) days after receipt of
Working Samples, InterDigital shall promptly notify Kenwood in writing
of the test results and also, whether or not, in InterDigital's sole
discretion, the Working Sample is acceptable; provided, however, that
Kenwood shall not commence production until InterDigital has accepted
the Working Sample. If the Working Sample is found unacceptable by
InterDigital, InterDigital shall provide Kenwood with a written
description as to the deficiencies and/or nonconformances of the
Working Samples. Kenwood shall have thirty (30) days to provide
InterDigital with revised and acceptable (as determined by
InterDigital) Working Samples.
2.3 Pre-Production Model Development. If the Working Sample is found
acceptable by InterDigital, InterDigital shall prepare Engineering
Specifications, with comments and input from Kenwood, which comments
and input InterDigital shall consider in good faith, and deliver such
specifications to Kenwood. InterDigital shall retain the Working
Sample(s) for the term of this Agreement. Kenwood shall thereafter
promptly develop and manufacture Pre-Production Models in accordance
with the Engineering Specifications. Kenwood shall promptly notify
InterDigital if any changes to the Working Sample. InterDigital shall
attend a pre-production review meeting at Kenwood's facility and
evaluate the Pre-Production Model together with the pre-production test
data. InterDigital shall use reasonable efforts to approve the
Pre-Production Model at Kenwood's facilities; however, InterDigital
reserves the right to have the Pre-Production Model shipped to
InterDigital's facilities for further evaluation. In such event,
Kenwood shall deliver, or cause to be delivered to the Shipping
Destination, the Pre-Production Models as well as the applicable
pre-production test data. Upon the receipt of the Pre- Production Model
and the pre-production test data, InterDigital shall evaluate the
Pre-Production Model and the related documentation. Within thirty (30)
days of receipt of the Pre-Production Model and the pre-production test
data, InterDigital shall accept or reject the Pre-Production Model and
the pre-production test data. If the Pre-Production Model or
pre-production test data is not acceptable to
3
<PAGE>
InterDigital, InterDigital shall provide Kenwood with a written
description as to the deficiencies and/or nonconformances. Kenwood
shall have thirty (30) days from receipt of such notice from
InterDigital to provide InterDigital with an acceptable (as determined
by InterDigital) Pre-Production Model and/or pre-production test data,
as applicable.
2.4 Revised Pre-Production Models. InterDigital may, from time to time,
request Kenwood to develop Revised Pre-Production Models and related
pre-production test data. Such request shall be made at least six
months prior to InterDigital requiring mass production of such units.
Kenwood shall engineer and produce up to two (2) different Revised
Pre-Production Models and related documentation without additional cost
to InterDigital, provided such units fall within the parameters set out
in Exhibit B. For additional Revised Pre-Production Models, Kenwood may
charge InterDigital US$* for each different Revised Pre- Production
Model.
3. CONSIDERATION AND PAYMENT
As full and complete consideration for the Work, InterDigital shall pay
Kenwood the total amount of US$* and development fee for Revised
Pre-Production Models as specified in Exhibit A.
4. DELIVERY AND TITLE
4.1 Shipping Requirements. Kenwood shall ship, or cause other to ship, the
Working Samples and related documentation to the Shipping Destination.
Kenwood shall deliver all Pre-Production Models and Revised
Pre-Production Models FCA, Japan (except that Kenwood shall also pay
marine insurance)(Incoterms 1990). For the Pre-Production Models and
Revised Pre-Production Models, as well as the related documentation,
Kenwood shall arrange for shipping to the Port of Philadelphia,
Pennsylvania, or such other destination as InterDigital may designate,
such costs (including freight and import fees but excluding insurance)
to be paid by InterDigital. Kenwood shall bear the risk of loss to all
Working Samples and Pre-Production Models, Revised Pre-Production
Models, work in progress, materials, tools and other things independent
of title until receipt by InterDigital at the Shipping Destination.
4.2 Packaging and Other Requirements. Unless otherwise specified by
InterDigital in writing, Kenwood shall properly pack, box, crate or
prepare all Working Samples, Pre-Production Models and Revised Pre-
Production Models for shipment so as to prevent damage in transit.
4.3 Working Sample, Pre-Production Model and Revised Pre-Production Model
Title. Title to and Risk of Loss for each Working Sample, Pre-
Production Model and Revised Pre-Production Model shall pass to
InterDigital when each such unit has been placed on the loading dock at
the Shipping Destination.
- ----------
* Confidential treatment has been requested for the deleted text, which has been
filed separately with the Securities and Exchange Commission.
4
<PAGE>
5. INSPECTIONS
Upon reasonable advance written notice, Kenwood shall allow
InterDigital and its authorized representatives to observe and inspect
the Work, including materials and supplies being used, subject to
Kenwood's then-existing confidentiality restrictions and security and
safety requirements.
6. SUPPLY OF DOCUMENTS
Upon completion and acceptance of the Pre-Production Model, or upon
InterDigital's termination of this Agreement for cause, Kenwood shall
promptly provide to InterDigital any and all Technical Material
required for InterDigital, or its designee, to manufacture the Pre-
Production Model, such documentation to include:
Design Description
Schematic Diagrams and Block Diagrams
Parts List (B.O.M.)
Electronic Component Specification
PCB Drawings
Kenwood shall provide InterDigital with revised documentation
stipulated in this section twenty (20) days after acceptance of a
design change by InterDigital.
7. CONFIDENTIAL INFORMATION
7.1 Designation of Confidential Information. All information relating to
the Work provided by either party to the other, whether before or after
the date hereof and whether oral or written and transactions
contemplated in this Agreement, shall be and is hereby deemed to be
confidential and proprietary information (hereinafter called
"Confidential Information"). Neither party shall be obligated to
specifically identify any information as to whether the protection of
this Section is desired by any notice, legend, or other action.
7.2 Nondisclosure. A party receiving Confidential Information shall not,
without the prior written consent of the party disclosing such
information, (i) use any portion of the Confidential Information for
any purpose other than in connection with the performance of this
Agreement, or (ii) disclose any portion of the Confidential Information
to any persons or entities other than the employees and consultants of
receiving party, its subcontractor or its affiliated companies, who
reasonably need to have access to the Confidential Information in
connection with the performance of this Agreement; provided, however,
that such employees and consultants shall be informed of the
confidentiality requirements herein and shall be required to execute an
agreement having terms consistent with those provided in this Section
7; and provided further that the receiving
5
<PAGE>
party shall be responsible for any breach of the confidentiality
requirements by such employee or consultants.
7.3 Exceptions. Notwithstanding the foregoing, a receiving party shall not
be liable for disclosure of Confidential Information, or part thereof,
if the receiving party can demonstrate that such Confidential
Information:
(a) was in the public domain at the time it was
disclosed;
(b) has been known to or in the possession of the party
receiving it at the time of receipt;
(c) is known to the receiving party from a source other
than the disclosing party without breach of this
Section by the receiving party; or
(d) has been disclosed to the government of the receiving
party or its agent in accordance with its order.
7.4 Limitations. Notwithstanding the foregoing, nothing in this Section
shall be deemed to limit or alter InterDigital's rights under Section
10 hereto.
7.5 Survival. The provisions of this Article shall survive termination,
cancellation or expiration of this Agreement for five (5) years from
the date of such termination, cancellation or expiration.
8. TERM, TERMINATION AND EXPIRATION
8.1 Term. This Agreement shall be effective upon the Effective Date and,
unless earlier terminated as provided herein, shall be valid and in
force for a period of two (2) years thereafter. The parties may extend
this Agreement by mutual written agreement.
8.2 Termination for Cause. A party may terminate this Agreement at any
time, without liability, upon written notice to the other party, if:
(A) the other party becomes insolvent, or a petition of bankruptcy
is filed, or any similar relief is filed by or against such
party, or a receiver is appointed with respect to any of the
assets of such party, or a liquidation proceeding is commenced
by or against such party;
(B) the other party fails to correct or cure any material breach
of any covenant or obligation under this Agreement within
thirty (30) calendar days after receipt by such party of a
written notice from the other party specifying such breach.
8.3 Termination After Acceptance of Pre-Production Model. Notwithstanding
any provision of this Agreement to the contrary, InterDigital may,
without liability (except as provided in this section) and upon thirty
days' prior written notice to Kenwood, terminate this Agreement after
acceptance of the Pre-Production Model in the event that InterDigital
does not have sufficient customer orders for RF units. In the event of
such termination, InterDigital shall continue
6
<PAGE>
to pay Kenwood the scheduled payments set out in Exhibit A, but at a
20% discount.
8.4 Return of Confidential Information. Upon the expiration or termination
of this Agreement, each party shall return to the other party all
Confidential Information of the other party together with all copies
made therefrom, except to the extent such information is required by
InterDigital to exercise its rights under Section 10.
8.5 Survival. The following provisions shall survive the termination or
expiration of this Agreement; Article 8.5, Article 9.1, Article 10,
Article 11, Article 14, Article 17, Article 20, Article 21 and Article
22. In addition, any provision of this Agreement necessary for a party
to exercise rights or obligations arising prior to expiration or
termination shall survive such expiration or termination.
9. INSURANCE AND INDEMNIFICATION
9.1 Indemnification. Either party shall, to the maximum extent permitted by
law, indemnify and hold harmless the other party, its affiliates and
subsidiaries and all offices, directors, employees, and agents of such
companies (collectively, "Indemnified Parties"), from against, for and
in respect pf any and all claims, investigations, proceedings,
injuries, demands, liabilities, losses, expense, including without
limitation attorney's fees, damages, judgements, or settlements arising
out of or resulting from the performance or non- performance under this
Agreement of either party, anyone directly or indirectly employed by
either party or anyone else whose acts either party may be liable. The
obligations under this paragraph shall not be constructed to negate,
abridge or otherwise reduce any other obligations of indemnity which
would otherwise exist as to any provisions or limits of insurance
required by this Agreement.
9.3 Insurance. Each party shall secure and maintain insurance commensurate
with the obligations and potential liabilities arising under this
Agreement. Each party shall, upon the request of the other party,
provide a description of the coverage secured, including deductibles,
exclusions, term, and policy limits.
9.4 LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR LOST PROFITS, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY
OTHER KIND INCURRED ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT.
10. INTELLECTUAL PROPERTY
10.1 Pre-Existing Intellectual Property. Except as provided in Section 10.2,
nothing contained in this Agreement will be deemed to grant to either
party, either directly or by implication, estoppel or
7
<PAGE>
otherwise, any title, ownership, license, or any interest whatsoever
in, of or to Intellectual Property or Technical Material of the other
party, whether existing prior to the Effective Date or developed
thereafter.
10.2 Developed Proprietary Information. The Technical Material supplied or
made specifically by Kenwood (or its contractors) under this Agreement
and any Intellectual Property hereunder developed, produced or created
by Kenwood (or its contractors) (collectively "Developed Information")
shall be the joint property of InterDigital and Kenwood, subject to the
following terms and conditions:
(A) InterDigital may use, sell, license, or otherwise transfer the
Developed Information without any accounting to Kenwood;
provided, however, that InterDigital shall notify Kenwood of
any license, sale, or other transfer of the Developed
Information to a third party;
(B) Kenwood may use the Developed Information for only the
manufacture of units for InterDigital;
(C) InterDigital shall have the right to apply for any patents on
Intellectual Property, in Kenwood and InterDigital's name.
Kenwood shall execute all documents reasonably required for
such applications. InterDigital shall provide Kenwood with
advance copies of significant patent application filings for
review and comment and will consider such comments in good
faith. InterDigital and Kenwood shall share equally the cost
of such patent filings; provided, however, that Kenwood may
elect not to have joint ownership in such patents in which
event Kenwood shall assign all of such patent rights to
InterDigital and execute all documentation required for
InterDigital to obtain patent protection in its name and at
its sole expense.
(D) Developed Information shall not include knowledge,
manufacturing, processes, designs, developed, produced, or
created by Kenwood (or its contractors) prior to the
Commencement of the Work or other than conjunction with the
Work.
10.3 Use of Third Party Intellectual Property Rights. In manufacturing the
Working Copy or Pre-Production Model, Kenwood shall not use or rely on
any method, process, or other tangible or intangible element requiring
the payment of royalties without the express written consent of
InterDigital. To the extent that InterDigital consents to Kenwood's use
of any license or other right under any patents or patent application
to perform the Work or develop, manufacture or supply the Working
Copies or Pre-Production Models under this Agreement, Kenwood shall pay
all royalties and license fees required pursuant thereto.
11. ARBITRATION
8
<PAGE>
Any controversy, dispute, or claim arising out of or relating to this
Agreement, any modification or extension hereof, or any breach hereof
(including the question whether any particular matter is arbitrable
hereunder) which has not been settled after a meeting of the parties in
a good faith effort to resolve their differences shall be resolved
exclusively by arbitration under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by three
arbitrators chosen in accordance with said rules unless the parties
agree to use fewer arbitrators. The arbitration shall take place in
Paris, France and shall be conducted in English. The award of such
arbitration shall be final and binding on both parties.
12. FORCE MAJEURE
If either party's performance of this Agreement is interfered with by
reason of any circumstance beyond the reasonable control of the party
affected, including without limitation, war (whether an actual
declaration thereof is made or not), sabotage, insurrection, rebellion,
riot or other act of civil disobedience, act of a public enemy, failure
or delay in transportation, failure of or delay in performance of
InterDigital's or Kenwood's obligations under this Agreement due to act
of any government or any agency or subdivision thereof, judicial
action, labor dispute, fire, accident, explosion, epidemic, storm,
flood, earthquake, or other Act of God, or shortage of labor , fuel,
raw material, or machinery, then the party affected shall be excused
from such performance, but only for the period of time occasioned by
such event. A party claiming a force majeure shall notify the other
party within ten (10) working days of such force majeure event,
providing the type of event, the expected delay, and the efforts being
taken to minimize such delay. If any such interference extends for more
than Ninety (90) days, both parties shall discuss to seek for the best
course of action.
13. NOTICES
13.1 Notice Requirements. Any notices required to be given under this
Agreement shall be sent by registered air mail, facsimile or hand
delivery to the other party at the address listed below:
To InterDigital:
----------------
INTERDIGITAL COMMUNICATIONS CORPORATION
781 Third Avenue, King of Prussia
Pennsylvania 19406-1409, USA
Attn: William J. Merritt
Tel: 610-878-5700
Fax: 610-878-7844
To Kenwood:
-----------
KENWOOD CORPORATION
1-14-6, Dogenzaka
Shibuya-ku, Tokyo 150 Japan
Attn: Katsuhito Ohashi
9
<PAGE>
Tel: 03-5457-7158
Fax: 03-5457-7160
13.2 Receipt. Notices given pursuant to section 13.1 shall be deemed to have
been received Five (5) business days after sending in the case of
registered air mail and at the time of receipt of the receiving party
in the case of hand delivery and facsimile, unless earlier confirmed by
the receiving party.
14. SEVERABILITY
In the even that, for any reason, any portion of this Agreement shall
be determined to be illegal, unlawful or unenforceable, the remaining
provisions of this Agreement shall, nevertheless remain in full force
and effect and this Agreement shall be construed as if the illegal,
unlawful or unenforceable provisions were not contained herein.
15. SUBCONTRACTING
Kenwood shall not subcontract any of the Work without the express
written consent of InterDigital. Kenwood's use of subcontractor's shall
not relieve Kenwood of its obligations hereunder and Kenwood shall be
liable to InterDigital for all the acts and omissions of any
subcontractor as if such act or omissions were made by Kenwood.
16. LIENS.
Kenwood shall not make nor permit to be made any attachments to the
Working Sample, Pre-Production Models, or components thereof, of liens,
encumbrances or claims for labor or material. Kenwood shall promptly
remove and shall protect and hold InterDigital harmless from all such
claims, liens and encumbrances arising from the manufacture, assembly
and transit of the Working Sample or Pre-Production Model.
17. WAIVER
Any failure of either party to enforce at any time or for any period,
any provisions of thus Agreement shall not be construed as a waiver of
such provisions or of the right of the party thereafter to enforce each
and every provision.
18. ASSIGNMENT
This Agreement shall not be assignable by either party without the
prior written consent of the other party; provided, however, that
either party may assign this Agreement to a subsidiary or affiliate of
the assigning party by written notice to the other party.
10
<PAGE>
19. AMENDMENT
This Agreement shall not be amended, altered, or modified except by an
instrument in writing duly executed by the parties hereto.
20. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof, and it supersedes all prior
oral or written agreements, commitments, or understandings with respect
to the matters provided for herein.
21. HEADINGS
Section headings contained in this Agreement are inserted for
convenience of reference only, shall not be deemed to be a part of this
Agreement for any purpose, and shall not in any way define or affect
the meaning, construction, or scope of any of the provisions hereof.
22. GOVERNING LAW
This Agreement sets forth the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the State of New York.
Each party irrevocably submits to the jurisdiction of the courts of the
state or country of the party solely for the purposes of requiring the
other party to submit to arbitration as required hereunder and for
enforcing any award granted thereunder. Process may be served on either
party by certified or registered U.S. mail or by globally recognized
express mail service.
23. TAXES.
It is understand that no taxes, assessments, excises, duties,
impositions, or licenses will be levied. Assessed or imposed on Kenwood
by the U.S. Government on account of the Work or the Working Samples.
If, however, any such taxes, assessments, excises, duties, imposed on
Kenwood by the U.S. Government on account of the Work or the Working
Samples, they shall be borne by InterDigital and all payments owing to
Kenwood hereunder shall be net of any such taxes, levies, or charges
required to be withheld with respect to such payments
24. INDEPENDENT CONTRACTOR
In making and performing this Agreement, InterDigital and Kenwood act
and shall act at all times as independent contractors and nothing
contained in this Agreement shall be construed or implied to create an
agency, joint venture, partnership or employer and employee
relationship between InterDigital and Kenwood.
25. LABELING
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At InterDigital's request, Kenwood shall place appropriate notices or
labels on all Working Samples, and component parts thereto, being
manufactured for InterDigital pursuant to this Agreement to indicate
ownership by InterDigital. To the extent reasonably possible, the
Working Sample, and component parts thereto, shall be stored separately
from other inventory and conspicuously marked with labels indicating
ownership by InterDigital.
26. PUBLIC ANNOUNCEMENTS.
Except as may be required by law, neither party shall issue any press
release or make or cause to be made any public disclosure of this
Agreement without the prior written consent of the other party.
[SIGNATURES ON NEXT PAGE]
12
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound, the undersigned parties
have duly executed this Agreement in duplicate effective on the day first
written above.
INTERDIGITAL COMMUNICATIONS CORPORATION
Attest
/s/ Adrienne G. Juskalian By /s/ Mark Lemmo
- ------------------------------- -----------------------------------
Title General Manager
KENWOOD CORPORATION
Attest
/s/ SZ By /s/ Masakazu Kaneko
- -------------------------------- -----------------------------------
Title General Manager
Radio Communications Department
Communications Equipment Division
13
<PAGE>
EXHIBIT A
SCHEDULE OF PAYMENTS
================================================================================
Description Amount Payment Schedule
- --------------------------------------------------------------------------------
Initial Payment US$ * Paid under Memorandum of Understanding.
Development Fee 1 This payment was for work done prior to
the date of this Agreement. This amount
shall not be returned to InterDigital
for any reason.
- --------------------------------------------------------------------------------
Development Fee 2 US$ * Payable within 30 days of Working Sample
acceptance.
- --------------------------------------------------------------------------------
Development Fee 3 US$ * Payable within 30 days of Production
Model acceptance
- --------------------------------------------------------------------------------
Quarterly Payment US$ * Payable in four quarterly installments
of Engineering commencing at the end of the month of
Fee Pre-Production model acceptance unless
suspended in the event the Products
delivered by Kenwood to InterDigital
fail to meet mutually accepted Outgoing
and Incoming Inspection Regulations and
Standards stipulated in the Production
Agreement or any Kenwood-provided
Warranty.
- --------------------------------------------------------------------------------
Development Fee US$ * Applicable from third new frequency
for each Revised change. 50% payable upon acceptance of
Pre-Production Pre-Production Model and 50% payable
Model upon acceptance of first production
unit.
================================================================================
* Confidential treatment has been requested for the deleted text, which has been
filed separately with the Securities and Exchange Commission.
14
<PAGE>
===============================================================================
EMPLOYMENT AGREEMENT
BETWEEN
GREGORY WEBB
AND
INTERDIGITAL COMMUNICATIONS CORPORATION
OCTOBER 14, 1996
===============================================================================
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<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 16th day of October, 1996, by and
between Gregory Webb, a resident of San Diego, California (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
advanced digital wireless telecommunications systems using proprietary
technologies for voice and data communications and the licensing of wireless
digital telephone technology (the "Business").
WHEREAS, the Company and Employee have entered into a letter agreement,
dated October 3, 1996, pursuant to which, inter alia, the Company has offered
Employee and Employee has accepted the position of Chief Executive Officer of
the Company (the "Letter Agreement").
WHEREAS, the Letter Agreement contemplates that the Company and Employee
shall enter into this Agreement in order to set forth certain terms and
conditions relating to Employee's 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. Employment and Term. The Company hereby employs Employee and Employee
hereby accepts employment with the Company, as Chief Executive Officer of the
Company, (such position, Employee's "Position") for a period commencing on the
date hereof and continuing until employment hereunder is terminated pursuant to
the provisions of Section 9 hereto (the "Term").
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<PAGE>
2. Duties. During the term of his employment, Employee shall serve the
Company faithfully and to the best of his ability and shall devote his full
time, attention, skill and efforts to the performance of the duties required by
or appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the Board of Directors of
the Company. Employee shall report to the Board of Directors 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 Two Hundred Fifty 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. In the event such a plan is implemented during 1996, Employee
will be eligible to receive a bonus based upon the number of full weeks in which
Employee is employed by the Company during 1996. Notwithstanding the foregoing
two sentences, the Company shall be under no obligation to develop and/or
implement any bonus plan, including without
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<PAGE>
limitation, the aforesaid Executive Bonus Plan, or to continue any such plan, if
adopted. Employee shall also be entitled to receive stock options as more
particularly described in the Letter Agreement.
5. Benefits and Expenses. Employee shall be entitled to receive those
employee benefits (including expense reimbursement) as shall be provided to
similarly situated executive employees of the Company ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason either directly or indirectly divulge to any third-party
or use for his own benefit, or for any purpose other than the exclusive benefit
of the Company, any confidential, proprietary, business and technical
information or trade secrets of the Company or of any subsidiary or affiliate of
the Company ("Proprietary Information") revealed, obtained or developed in the
course of his employment with the Company. Such Proprietary Information shall
include, but shall not be limited to, the intangible personal property described
in Section 7(b) hereof, any information relating to methods of production and
manufacture, research, computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, concepts, layouts,
flowcharts, specifications, know-how, any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing the Employee's duties), all computer inputs and outputs (regardless
of the media on which stored or located), hardware and software configurations,
designs, architecture, interfaces, plans, sketches, blueprints, and any other
materials prepared by the Employee in the course of, relating to or arising out
of his employment by the Company, or prepared by any other Company employee,
representative, or contractor for the Company, or its customers (including
information and other material relating to the ASIC), costs,
-3-
<PAGE>
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, 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
-4-
<PAGE>
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.
(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
-5-
<PAGE>
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 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 business activity 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;
-6-
<PAGE>
(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
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
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<PAGE>
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.
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
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<PAGE>
Employee pursuant to this Agreement, to the extent such coverage is not provided
under other Company policies, plans or programs relating to Disability. Except
as specifically set forth in this Section 9.1(b), the Company shall have no
liability or obligation to Employee for compensation or benefits hereunder by
reason of such termination.
(c) For purposes of this Section 9.1, the determination as to whether
Employee has a long-term disability (as such term is defined in the Company's
Long-Term Disability Plan) shall be made by a licensed physician selected by the
Company (and reasonably acceptable to Employee) and shall be based upon a full
physical examination and good faith opinion by such physician.
9.2. Termination by Death. In the event that Employee dies during the Term,
Employee's employment hereunder shall be terminated thereby and the Company
shall pay to Employee's executors, legal representatives or administrators an
amount equal to the accrued and unpaid portion of his Base Salary, Benefits and
Other Compensation up through the date on which he dies. Except as specifically
set forth in this Section 9.2, the Company shall have no liability or obligation
hereunder to Employee's executors, legal representatives, administrators, heirs
or assigns or any other person claiming under or through him by reason of
Employee's death, except that Employee's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under any
death or disability benefits plan in which he is a participant as an employee of
the Company, and to exercise any rights afforded under any compensation or
benefit plan then in effect.
9.3. Termination for Cause.
(a) The Company may terminate Employee's employment hereunder at any
time for "cause" upon written notice to Employee. For purposes of this
Agreement, "cause" shall mean: (i) any material breach by Employee of any of his
obligations under this Agreement, which breach is not cured within thirty (30)
days after Employee's receipt of written notification from the Company of such
breach, (ii) other conduct of Employee involving any type of willful misconduct
with respect to the Company, including without limitation fraud, embezzlement,
theft
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<PAGE>
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.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.4(a) (including by the Company's delivery of written
notice not to renew the Term in accordance with the provisions of Section 1
hereof in the event such termination is not for cause), Employee shall be
entitled to receive all accrued but unpaid (as of the effective date of such
termination) Base Salary, Benefits and Other Compensation. In addition, Employee
shall be entitled to receive (i) severance in an amount equal to Employee's Base
Salary and (ii) medical and dental coverage on terms and conditions comparable
to those most recently provided to the Employee pursuant to this Agreement, both
for the period of one year commencing upon the date of such termination. Such
severance shall be inclusive of all applicable income, social security and other
taxes and charges which are required by law to be withheld by the Company and
shall be withheld and paid in accordance with the Company's normal payroll
practice for its executives from time to time in effect. All Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plan then in force and applicable to
Employee. Except as specifically set
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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.
9.6. Change of Control.
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(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
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<PAGE>
of the date of such termination) Base Salary and Benefits and other forms of
compensation and bonus payable or provided in accordance with the terms of any
then existing compensation, bonus or benefit plan or arrangement ("Other
Compensation"), including payments prescribed under any disability or life
insurance plan or arrangement in which Employee is a participant or to which
Employee is a party as an employee of the Company. In addition, for a period of
one year following such termination, Employee shall be entitled to receive (i)
regular installments of Base Salary at the rate in effect at the time of such
termination, such amount being reduced by the amount of payments received by the
Employee with respect to this period pursuant to any Social Security entitlement
or any long term disability or any other employee benefit plan, policy or
program maintained to provide benefits in the event of disability in which the
Employee was entitled to participate at the time of termination under Section
9.8(a), and (ii) medical and dental coverage on terms and conditions comparable
to those most recently provided to the Employee pursuant to this Agreement, to
the extent such coverage is not provided under other Company policies, plans or
programs 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
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<PAGE>
(c) Employee is free to execute this Agreement and to enter into the
employ of the Company pursuant to the provisions set forth herein.
(d) Employee shall disclose the existence and terms of the restrictive
covenants set forth in this Agreement to any employer that the Employee may work
for during the term of this Agreement (which employment is not hereby
authorized) or after the termination of the Employee's employment at the
Company.
11. Survival of Provisions. The provisions of this Agreement set forth in
Sections 6, 7, 8, 9 (solely with respect to the payment obligations of the
Company to Employee, if any, set forth therein), 10 and 21 hereof shall survive
the termination of Employee's employment hereunder. If for any reason Employee
shall continue to be employed by the Company following the termination of
Employee's employment hereunder, Employee shall have no right to receive any
severance or other 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.
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<PAGE>
14. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and sent by certified or registered mail,
return receipt requested, by hand delivery, or by recognized overnight courier,
addressed as follows:
If to Employee:
Gregory Webb
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 and the Letter 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. The provisions of this Agreement supersede those set forth in Sections
(i) and (iii) of the Letter Agreement. The balance of the Letter Agreement shall
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remain in full force and effect and unaffected hereby. This Agreement may not be
changed or modified, except by an Agreement in writing signed by each of the
parties hereto.
16. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Invalidity. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be 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 Section
6, 7, and 8 hereof are reasonable and necessary to protect the legitimate
interests of the Company and
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<PAGE>
its affiliates and that the Company would not have entered into this Agreement
in the absence of such restrictions. Employee also acknowledges that any breach
by him of Sections 6, 7, or 8 hereof will cause continuing and irreparable
injury to the Company for which monetary damages would not be an adequate
remedy. The Employee shall not, in any action or proceeding to enforce any of
the provisions of this Agreement, assert the claim or defense that an adequate
remedy at law exists. In the event of such breach by Employee, the Company shall
have the right to enforce the provisions of Sections 6, 7, and 8 of this
Agreement by seeking injunctive or other relief in any court, and this Agreement
shall not in any way limit remedies of law or in equity otherwise available to
the Company. If an action at law or in equity is necessary to enforce or
interpret the terms of this Agreement, the prevailing party shall be entitled to
recover, in addition to any other relief, reasonable attorneys' fees, costs and
disbursements. In the event that the provisions of Sections 6, 7, or 8 hereof
should ever be adjudicated to exceed the time, geographic, or other limitations
permitted by applicable law in any applicable jurisdiction, then such provisions
shall be deemed 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.
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<PAGE>
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: Assistant Secretary William A. Doyle
Title: President
[CORPORATE SEAL]
/s/ Gregory Webb
--------------------------------
Gregory Webb
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===============================================================================
EMPLOYMENT AGREEMENT
BETWEEN
JAMES W. GARRISON
AND
INTERDIGITAL COMMUNICATIONS CORPORATION
NOVEMBER 20, 1996
===============================================================================
=
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 20th day of November, 1996, by and
between James W. Garrison, 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
advanced digital wireless telecommunications systems using proprietary
technologies for voice and data communications and the licensing of wireless
digital telephone technology (the "Business").
WHEREAS, Employee serves in the position of Vice President - Finance 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 full time, attention, skill and efforts to the performance of the
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<PAGE>
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 Thirty 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
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<PAGE>
reimbursement) as shall be provided to similarly situated executive
employees of the Company ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason either directly or indirectly divulge to any third-party
or use for his own benefit, or for any purpose other than the exclusive benefit
of the Company, any confidential, proprietary, business and technical
information or trade secrets of the Company or of any subsidiary or affiliate of
the Company ("Proprietary Information") revealed, obtained or developed in the
course of his employment with the Company. Such Proprietary Information shall
include, but shall not be limited to, the intangible personal property described
in Section 7(b) hereof, any information relating to methods of production and
manufacture, research, computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, concepts, layouts,
flowcharts, specifications, know-how, any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing the Employee's duties), all computer inputs and outputs (regardless
of the media on which stored or located), hardware and software configurations,
designs, architecture, interfaces, plans, sketches, blueprints, and any other
materials prepared by the Employee in the course of, relating to or arising out
of his employment by the Company, or prepared by any other Company employee,
representative, or contractor for the Company, or its customers (including
information and other material relating to the ASIC), costs, business studies,
business procedures, finances, marketing data, methods, plans and efforts, the
identities of licensees, strategic partners, customers, contractors and
suppliers and prospective licensees, strategic partners, customers, contractors
and suppliers, the terms of contracts and agreements with licensees, strategic
partners, customers, contractors and suppliers, the Company's relationship with
actual and prospective licensees, strategic partners, customers, contractors and
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<PAGE>
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, 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
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<PAGE>
performance of his duties; and upon the termination of his employment with the
Company, he shall leave with or return to the Company all originals and copies
of the foregoing then in his possession, whether prepared by Employee or by
others.
(b) (i) Employee agrees that all right, title and interest in and to any
innovations, designs, systems, analyses, ideas for marketing programs, and all
copyrights, patents, trademarks and trade names, or similar intangible personal
property which have been or are developed or created in whole or in part by
Employee (1) at any time and at any place while the Employee is employed by
Company and which, in the case of any or all of the foregoing, are related to
and used in connection with the Business of the Company, (2) as a result of
tasks assigned to Employee by the Company, or (3) from the use of premises or
personal property (whether tangible or intangible) owned, leased or contracted
for by the Company (collectively, the "Intellectual Property"), shall be and
remain forever the sole and exclusive property of the Company. The Employee
shall promptly disclose to the Company all Intellectual Property, and the
Employee shall have no claim for additional compensation for the Intellectual
Property.
(ii) The Employee acknowledges that all the Intellectual Property
that is copyrightable shall be considered a work made for hire under United
States Copyright Law. To the extent that any copyrightable Intellectual Property
may not be considered a work made for hire under the applicable provisions of
the United States Copyright Law, or to the extent that, notwithstanding the
foregoing provisions, the Employee may retain an interest in any Intellectual
Property that is not copyrightable, the Employee hereby irrevocably assigns and
transfers to the Company any and all right, title, or interest that the Employee
may have in the Intellectual Property under copyright, patent, trade secret and
trademark law, in perpetuity or for the longest period otherwise permitted by
law, without the necessity of further consideration. The Company shall be
entitled to obtain and hold in its own name all copyrights, patents, trade
secrets, and trademarks with respect thereto.
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<PAGE>
(iii) Employee further agrees to reveal promptly all information
relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after reasonable effort to
secure Employee's signature on any of the documents referenced in Section
7(b)(iii) hereof, whether because of Employee's physical or mental incapacity or
for any other reason whatsoever, Employee hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Employee's
agent and attorney-in-fact, to act for and in his behalf and stead to execute
and file any such documents and to do all other lawfully permitted acts to
further the prosecution and issuance of any such copyright, patent or trademark
protection, or other analogous protection, with the same legal force and effect
as if executed by Employee.
8. Covenant Not to Compete. The Employee shall not, during the Term and
thereafter for the Restricted Period (as defined below), do any of the
following, directly or indirectly, without the prior written consent of the
Company:
(a) engage or participate in any business activity 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
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<PAGE>
or affiliate of the Company as conducted during the Term with respect to any
period during the Term, or upon the termination of Employee's employment
hereunder with respect to any period thereafter, or become interested in (as
owner, stockholder, lender, partner, co-venturer, director, officer, employee,
agent, consultant or otherwise) any portion of the business of any person, firm,
corporation, association or other entity where such portion of such business is
competitive with the business of the Company or of any subsidiary or affiliate
of the Company as conducted during the Term with respect to any period during
the Term, or upon termination of Employee's employment hereunder with respect to
any period thereafter. Notwithstanding the foregoing, Employee may hold not more
than one percent (1%) of the outstanding securities of any class of any
publicly-traded securities of a company that is engaged in activities referenced
in Section 8(a) hereof;
(c) influence or attempt to influence any licensee, strategic partner,
supplier, or customer of the Company or potential licensee, strategic partner,
supplier or customer of the Company to terminate or modify any written or oral
agreement or course of dealing with the Company; or
(d) influence or attempt to influence any person to either (i) terminate or
modify his employment, consulting, agency, distributorship or other arrangement
with the Company, or (ii) employ or retain, or arrange to have any other person
or entity employ or retain, any person who has been employed or retained by the
Company as an employee, consultant, agent or distributor of the Company at any
time during the twelve (12) month period immediately preceding the termination
of Employee's employment hereunder.
For purposes of this Section 8, the Restricted Period shall constitute (as
applicable) (i) the period, if any, that Employee shall receive severance as set
forth in Section 9 hereof, (ii) in the event Employee's employment hereunder is
terminated for cause pursuant to Section 9 hereof, a period of one (1) year
following such termination, or (iii) in the event that Employee terminates this
Agreement without Good Reason, so long as the Company voluntarily pays severance
to Employee (which the Company shall be under no obligation to do), for the
period that Employee shall
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receive such severance, but in no event for a period longer than one (1) year.
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 is not provided under other Company policies, plans or
programs
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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
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Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.3(a), Employee shall be entitled to receive all accrued
but unpaid (as of the effective date of such termination) Base Salary, Benefits
and Other Compensation. All Base Salary, Benefits and Other Compensation shall
cease at the time of such termination, subject to the terms of any benefit or
compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.3, the Company shall have no liability
or obligation hereunder, including without limitation for any severance
whatsoever, by reason of such termination.
9.4. Termination Without Cause.
(a) The Company may terminate Employee's employment hereunder at any
time, for any reason, without cause, effective upon the date designated by
the Company upon thirty (30) days prior written notice to Employee. Company may
elect to have Employee remain absent from the workplace and cease Company
business during all or part of such thirty (30) day period.
(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
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<PAGE>
executives from time to time in effect. All Base Salary, Benefits and Bonuses
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.4, the Company shall have no liability
or obligation hereunder by reason of such termination.
9.5. Termination by Employee.
(a) Employee may terminate Employee's employment hereunder at any time,
for Good Reason or without Good Reason, effective upon the date designated
by Employee in written notice of the termination of his employment hereunder
pursuant to this Section 9.5(a); provided that, such date shall be at least
thirty (30) days after the date of such notice. For purposes of this Agreement,
Good Reason shall mean: (i) the failure by the Company to pay in a timely manner
Base Salary or any other material form of compensation or material benefit to be
paid or provided to Employee hereunder, or (ii) any material breach, not
encompassed within clause (i) of this Section 9.5(a), of the obligations of the
Company under this Agreement which breach is not cured within thirty (30) days
after the Company's receipt of written notification from the Employee of such
breach.
(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
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<PAGE>
shall have no liability or obligation hereunder by reason of such termination.
9.6. Change of Control.
(a) If there is a Change of Control during the Term, and Employee's
employment with the Company hereunder is terminated within one (1) year
following such Change of Control by the Company (except for cause) or by
Employee (whether or not for Good Reason), Employee shall be entitled to receive
all accrued but unpaid (as of the effective date of such termination) Base
Salary, Benefits and Other Compensation. In addition, (i) Employee shall be
entitled to receive, on the date of such termination, an amount equal to two
years' worth of Employee's Base Salary, and (ii) all stock options granted to
Employee by Company which pursuant to the terms of the applicable stock option
plan vest upon a Change in Control (e.g., Section 17(b) of the 1995 Stock Option
Plan for Employees and Outside Directors) shall vest. Except as specifically set
forth in this Section 9.6, all Base Salary, Benefits and Other Compensation
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plans then in force and applicable to Employee, and the Company
shall have no liability or obligation hereunder by reason of such termination.
(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
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<PAGE>
any twelve (12) month period, Employee's employment hereunder may be
terminated by Company.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.8(a), Employee will be entitled to receive all accrued and
unpaid (as of the date of such termination) Base Salary and Benefits and other
forms of compensation and bonus payable or provided in accordance with the terms
of any then existing compensation, bonus or benefit plan or arrangement ("Other
Compensation"), including payments prescribed under any disability or life
insurance plan or arrangement in which Employee is a participant or to which
Employee is a party as an employee of the Company. In addition, for a period of
one year following such termination, Employee shall be entitled to receive (i)
regular installments of Base Salary at the rate in effect at the time of such
termination, such amount being reduced by the amount of payments received by the
Employee with respect to this period pursuant to any Social Security entitlement
or any long term disability or any other employee benefit plan, policy or
program maintained to provide benefits in the event of disability in which the
Employee was entitled to participate at the time of termination under Section
9.8(a), and (ii) medical and dental coverage on terms and conditions comparable
to those most recently provided to the Employee pursuant to this Agreement, to
the extent such coverage is not provided under other Company policies, plans or
programs 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,
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<PAGE>
(b) Employee's execution of this Agreement and Employee's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Employee is a party or by which
Employee is bound, and
(c) Employee is free to execute this Agreement and to enter into the
employ of the Company pursuant to the provisions set forth herein.
(d) Employee shall disclose the existence and terms of the restrictive
covenants set forth in this Agreement to any employer that the Employee may work
for during the term of this Agreement (which employment is not hereby
authorized) or after the termination of the Employee's employment at the
Company.
11. Survival of Provisions. The provisions of this Agreement set forth in
Sections 6, 7, 8, 9 (solely with respect to the payment obligations of the
Company to Employee, if any, set forth therein), 10 and 21 hereof shall survive
the termination of Employee's employment hereunder. If for any reason Employee
shall continue to be employed by the Company following the termination of
Employee's employment hereunder, Employee shall have no right to receive any
severance or other 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.
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<PAGE>
13. Employee Benefits. This Agreement shall not be construed to be in lieu
or to the exclusion of any other rights, benefits and privileges to which
Employee may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, insurance, hospital or other plans or benefits which
may now be in effect or which may hereafter be adopted.
14. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and sent by certified or registered mail,
return receipt requested, by hand delivery, or by recognized overnight courier,
addressed as follows:
If to Employee:
James W. Garrison
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.
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<PAGE>
15. Entire Agreement; Amendments. This Agreement contain the entire
agreement and understanding of the parties hereto relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Company.
16. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Invalidity. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be 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.
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<PAGE>
21. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained in Sections
6, 7, and 8 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates and that the Company would not have
entered into this Agreement in the absence of such restrictions. Employee also
acknowledges that any breach by him of Sections 6, 7, or 8 hereof will cause
continuing and irreparable injury to the Company for which monetary damages
would not be an adequate remedy. The Employee shall not, in any action or
proceeding to enforce any of the provisions of this Agreement, assert the claim
or defense that an adequate remedy at law exists. In the event of such breach by
Employee, the Company shall have the right to enforce the provisions of Sections
6, 7, and 8 of this Agreement by seeking injunctive or other relief in any
court, and this Agreement shall not in any way limit remedies of law or in
equity otherwise available to the Company. If an action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed 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
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<PAGE>
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
-------------------------- -----------------------------
Jane Schultz William A. Doyle
Title: Assistant Secretary Title: President
[CORPORATE SEAL]
/s/ James W. Garrison
--------------------------------
James W. Garrison
18
===============================================================================
EMPLOYMENT AGREEMENT
BETWEEN
HOWARD E. GOLDBERG
AND
INTERDIGITAL COMMUNICATIONS CORPORATION
February 25, 1997
==============================================================================
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 25th day of February, 1997, by
and between Howard E. Goldberg, 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 Executive Vice President of the
Company (Employee's "Position") .
WHEREAS, the Company has offered Employee a substantial increase in base
salary on the condition that Employee enter into this Agreement with Company in
order to set forth certain terms and conditions relating to Employee's continued
employment with the Company.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
contained herein, and intending to be legally bound, the parties, subject to the
terms and conditions set forth herein, agree as follows:
1. Salary Increase. The Company hereby grants Employee an increase to his
base salary as set forth in Section 4 below and Employee hereby accepts such
increase.
2. Term and Duties. Until such time as Employee's employment hereunder is
terminated pursuant to the provisions of
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<PAGE>
Section 9 hereto (the "Term"), Employee shall serve the Company faithfully and
to the best of his ability and shall devote his full time, attention, skill and
efforts to the performance of the duties required by or appropriate for his
Position. Employee agrees to assume such duties and responsibilities as may be
customarily incident to such position, and as may be reasonably assigned to
Employee from time to time by the President or the Chief Executive Officer of
the Company. Employee shall report to the President 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 Ninety 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.
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<PAGE>
5. Benefits and Expenses. Employee shall be entitled to receive those
employee benefits (including expense reimbursement) as shall be provided to
similarly situated executive employees of the Company ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason either directly or indirectly divulge to any third-party
or use for his own benefit, or for any purpose other than the exclusive benefit
of the Company, any confidential, proprietary, business and technical
information or trade secrets of the Company or of any subsidiary or affiliate of
the Company ("Proprietary Information") revealed, obtained or developed in the
course of his employment with the Company. Such Proprietary Information shall
include, but shall not be limited to, the intangible personal property described
in Section 7(b) hereof, any information relating to methods of production and
manufacture, research, computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, concepts, layouts,
flowcharts, specifications, know-how, any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing the Employee's duties), all computer inputs and outputs (regardless
of the media on which stored or located), hardware and software configurations,
designs, architecture, interfaces, plans, sketches, blueprints, and any other
materials prepared by the Employee in the course of, relating to or arising out
of his employment by the Company, or prepared by any other Company employee,
representative, or contractor for the Company, or its customers (including
information and other material relating to the ASIC), costs, business studies,
business procedures, finances, marketing data, methods, plans and efforts, the
identities of licensees, strategic partners, customers, contractors and
suppliers and prospective licensees, strategic partners, customers, contractors
and suppliers, the terms of contracts and agreements with licensees, strategic
partners, customers, contractors and
3
<PAGE>
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, and any other
materials that have not been made available to the general public, provided,
that nothing herein contained shall restrict Employee's ability to make such
disclosures during the course of his employment as may be necessary or
appropriate to the effective and efficient discharge of the duties required by
or appropriate for his Position or as such disclosures may be required by law;
and further provided, that nothing herein contained shall restrict Employee from
divulging or using for his own benefit or for any other purpose any Proprietary
Information that is readily available to the general public so long as such
information did not become available to the general public as a direct or
indirect result of Employee's breach of this Section 6. Failure by the Company
to mark any of the Proprietary Information as confidential or proprietary shall
not affect its status as Proprietary Information under the terms of this
Agreement.
7. Property.
(a) All right, title and interest in and to Proprietary Information
shall be and remain the sole and exclusive property of the Company. During
the Term, Employee shall not remove from the Company's offices or premises any
documents, records, notebooks, files, correspondence, reports, memoranda or
similar materials of or containing Proprietary Information, or other materials
or property of any kind belonging to the Company unless necessary or appropriate
in accordance with the duties and responsibilities required by or appropriate
for his Position and, in the event that such materials or property are removed,
all of the foregoing shall be returned to their proper files or places of
safekeeping as promptly as possible after the removal shall serve its specific
purpose. Employee shall not make, retain, remove and/or distribute any copies of
any of the foregoing for any reason whatsoever except as may be necessary in the
discharge of his assigned duties and shall not divulge to any third person the
nature of and/or contents of any of the foregoing or of any other oral or
written information to
4
<PAGE>
which he may have access or with which for any reason he may become familiar,
except as disclosure shall be necessary in the performance of his duties; and
upon the termination of his employment with the Company, he shall leave with or
return to the Company all originals and copies of the foregoing then in his
possession, whether prepared by Employee or by others.
(b) (i) Employee agrees that all right, title and interest in and to any
innovations, designs, systems, analyses, ideas for marketing programs, and all
copyrights, patents, trademarks and trade names, or similar intangible personal
property which have been or are developed or created in whole or in part by
Employee (1) at any time and at any place while the Employee is employed by
Company and which, in the case of any or all of the foregoing, are related to
and used in connection with the Business of the Company, (2) as a result of
tasks assigned to Employee by the Company, or (3) from the use of premises or
personal property (whether tangible or intangible) owned, leased or contracted
for by the Company (collectively, the "Intellectual Property"), shall be and
remain forever the sole and exclusive property of the Company. The Employee
shall promptly disclose to the Company all Intellectual Property, and the
Employee shall have no claim for additional compensation for the Intellectual
Property.
(ii) The Employee acknowledges that all the Intellectual Property
that is copyrightable shall be considered a work made for hire under United
States Copyright Law. To the extent that any copyrightable Intellectual Property
may not be considered a work made for hire under the applicable provisions of
the United States Copyright Law, or to the extent that, notwithstanding the
foregoing provisions, the Employee may retain an interest in any Intellectual
Property that is not copyrightable, the Employee hereby irrevocably assigns and
transfers to the Company any and all right, title, or interest that the Employee
may have in the Intellectual Property under copyright, patent, trade secret and
trademark law, in perpetuity or for the longest period otherwise permitted by
law, without the necessity of further consideration. The Company shall be
entitled to obtain and hold in its own name all copyrights, patents, trade
secrets, and trademarks with respect thereto.
5
<PAGE>
(iii) Employee further agrees to reveal promptly all information
relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after reasonable effort to
secure Employee's signature on any of the documents referenced in Section
7(b)(iii) hereof, whether because of Employee's physical or mental incapacity or
for any other reason whatsoever, Employee hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Employee's
agent and attorney-in-fact, to act for and in his behalf and stead to execute
and file any such documents and to do all other lawfully permitted acts to
further the prosecution and issuance of any such copyright, patent or trademark
protection, or other analogous protection, with the same legal force and effect
as if executed by Employee.
8. Covenant Not to Compete. The Employee shall not, during the Term and
thereafter for the Restricted Period (as defined below), do any of the
following, directly or indirectly, without the prior written consent of the
Company:
(a) engage or participate in any product business directly competitive
with the Company's Business, or the business of any of the Company's
subsidiaries or affiliates, as same are conducted during the Term with respect
to any period during the Term, or upon the termination of Employee's employment
hereunder with respect to any period thereafter;
(b) become interested in (as owner, stockholder, lender, partner,
co-venturer, director, officer, employee, agent, consultant or otherwise) any
person, firm, corporation, association or other entity engaged in any business
that is
6
<PAGE>
competitive with the Business of the Company or of any subsidiary or affiliate
of the Company as conducted during the Term with respect to any period during
the Term, or upon the termination of Employee's employment hereunder with
respect to any period thereafter, or become interested in (as owner,
stockholder, lender, partner, co-venturer, director, officer, employee, agent,
consultant or otherwise) any portion of the business of any person, firm,
corporation, association or other entity where such portion of such business is
competitive with the business of the Company or of any subsidiary or affiliate
of the Company as conducted during the Term with respect to any period during
the Term, or upon termination of Employee's employment hereunder with respect to
any period thereafter. Notwithstanding the foregoing, Employee may hold not more
than one percent (1%) of the outstanding securities of any class of any
publicly-traded securities of a company that is engaged in activities referenced
in Section 8(a) hereof;
(c) influence or attempt to influence any licensee, strategic partner,
supplier, or customer of the Company or potential licensee, strategic partner,
supplier or customer of the Company to terminate or modify any written or oral
agreement or course of dealing with the Company; or
(d) influence or attempt to influence any person to either (i) terminate
or modify his employment, consulting, agency, distributorship or other
arrangement with the Company, or (ii) employ or retain, or arrange to have any
other person or entity employ or retain, any person who has been employed or
retained by the Company as an employee, consultant, agent or distributor of the
Company at any time during the twelve (12) month period immediately preceding
the termination of Employee's employment hereunder.
For purposes of this Section 8, the Restricted Period shall constitute (as
applicable) (i) the period, if any, that Employee shall receive severance as set
forth in Section 9 hereof, (ii) in the event Employee's employment hereunder is
terminated for cause pursuant to Section 9 hereof, a period of one (1) year
following such termination, or (iii) in the event that Employee terminates this
Agreement without Good Reason, so long as the Company voluntarily pays severance
to Employee (which the Company shall be under no obligation to do), for the
period that Employee shall
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<PAGE>
receive such severance, but in no event for a period longer than one (1) year.
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 is not provided under other Company policies, plans or
programs
8
<PAGE>
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
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Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.3(a), Employee shall be entitled to receive all accrued
but unpaid (as of the effective date of such termination) Base Salary, Benefits
and Other Compensation. All Base Salary, Benefits and Other Compensation shall
cease at the time of such termination, subject to the terms of any benefit or
compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.3, the Company shall have no liability
or obligation hereunder, including without limitation for any severance
whatsoever, by reason of such termination.
9.4. Termination Without Cause.
(a) The Company may terminate Employee's employment hereunder at any
time, for any reason, without cause, effective upon the date designated by
the Company upon thirty (30) days prior written notice to Employee. Company may
elect to have Employee remain absent from the workplace and cease Company
business during all or part of such thirty (30) day period.
(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
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<PAGE>
executives from time to time in effect. All Base Salary, Benefits and Bonuses
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.4, the Company shall have no liability
or obligation hereunder by reason of such termination.
9.5. Termination by Employee.
(a) Employee may terminate Employee's employment hereunder at any time,
for Good Reason or without Good Reason, effective upon the date designated
by Employee in written notice of the termination of his employment hereunder
pursuant to this Section 9.5(a); provided that, such date shall be at least
thirty (30) days after the date of such notice. For purposes of this Agreement,
Good Reason shall mean: (i) the failure by the Company to pay in a timely manner
Base Salary or any other material form of compensation or material benefit to be
paid or provided to Employee hereunder, or (ii) any material breach, not
encompassed within clause (i) of this Section 9.5(a), of the obligations of the
Company under this Agreement which breach is not cured within thirty (30) days
after the Company's receipt of written notification from the Employee of such
breach.
(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
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<PAGE>
shall have no liability or obligation hereunder by reason of such termination.
9.6. Change of Control.
(a) If there is a Change of Control during the Term, and Employee's
employment with the Company hereunder is terminated within one (1) year
following such Change of Control by the Company (except for cause) or by
Employee (whether or not for Good Reason), Employee shall be entitled to receive
all accrued but unpaid (as of the effective date of such termination) Base
Salary, Benefits and Other Compensation. In addition, (i) Employee shall be
entitled to receive, on the date of such termination, an amount equal to two
years' worth of Employee's Base Salary, and (ii) all stock options granted to
Employee by Company which pursuant to the terms of the applicable stock option
plan vest upon a Change in Control (e.g., Section 17(b) of the 1995 Stock Option
Plan for Employees and Outside Directors) shall vest. Except as specifically set
forth in this Section 9.6, all Base Salary, Benefits and Other Compensation
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plans then in force and applicable to Employee, and the Company
shall have no liability or obligation hereunder by reason of such termination.
(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
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<PAGE>
any twelve (12) month period, Employee's employment hereunder may be
terminated by Company.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.8(a), Employee will be entitled to receive all accrued and
unpaid (as of the date of such termination) Base Salary and Benefits and other
forms of compensation and bonus payable or provided in accordance with the terms
of any then existing compensation, bonus or benefit plan or arrangement ("Other
Compensation"), including payments prescribed under any disability or life
insurance plan or arrangement in which Employee is a participant or to which
Employee is a party as an employee of the Company. In addition, for a period of
one year following such termination, Employee shall be entitled to receive (i)
regular installments of Base Salary at the rate in effect at the time of such
termination, such amount being reduced by the amount of payments received by the
Employee with respect to this period pursuant to any Social Security entitlement
or any long term disability or any other employee benefit plan, policy or
program maintained to provide benefits in the event of disability in which the
Employee was entitled to participate at the time of termination under Section
9.8(a), and (ii) medical and dental coverage on terms and conditions comparable
to those most recently provided to the Employee pursuant to this Agreement, to
the extent such coverage is not provided under other Company policies, plans or
programs 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,
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<PAGE>
(b) Employee's execution of this Agreement and Employee's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Employee is a party or by which
Employee is bound, and
(c) Employee is free to execute this Agreement and to enter into the
employ of the Company pursuant to the provisions set forth herein.
(d) Employee shall disclose the existence and terms of the restrictive
covenants set forth in this Agreement to any employer that the Employee may work
for during the term of this Agreement (which employment is not hereby
authorized) or after the termination of the Employee's employment at the
Company.
11. Survival of Provisions. The provisions of this Agreement set forth in
Sections 6, 7, 8, 9 (solely with respect to the payment obligations of the
Company to Employee, if any, set forth therein), 10 and 21 hereof shall survive
the termination of Employee's employment hereunder. If for any reason Employee
shall continue to be employed by the Company following the termination of
Employee's employment hereunder, Employee shall have no right to receive any
severance or other 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.
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<PAGE>
13. Employee Benefits. This Agreement shall not be construed to be in lieu
or to the exclusion of any other rights, benefits and privileges to which
Employee may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, insurance, hospital or other plans or benefits which
may now be in effect or which may hereafter be adopted.
14. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and sent by certified or registered mail,
return receipt requested, by hand delivery, or by recognized overnight courier,
addressed as follows:
If to Employee:
Howard E. Goldberg
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
Attn: 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.
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15. Entire Agreement; Amendments. This Agreement contain the entire
agreement and understanding of the parties hereto relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Company.
16. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Invalidity. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be 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.
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<PAGE>
21. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained in Sections
6, 7, and 8 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates and that the Company would not have
entered into this Agreement in the absence of such restrictions. Employee also
acknowledges that any breach by him of Sections 6, 7, or 8 hereof will cause
continuing and irreparable injury to the Company for which monetary damages
would not be an adequate remedy. The Employee shall not, in any action or
proceeding to enforce any of the provisions of this Agreement, assert the claim
or defense that an adequate remedy at law exists. In the event of such breach by
Employee, the Company shall have the right to enforce the provisions of Sections
6, 7, and 8 of this Agreement by seeking injunctive or other relief in any
court, and this Agreement shall not in any way limit remedies of law or in
equity otherwise available to the Company. If an action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed 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
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<PAGE>
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
---------------------------- -----------------------------
Jane Schultz William A. Doyle
Title: Assistant Secretary Title: President
[CORPORATE SEAL]
/s/ Howard E. Goldberg
--------------------------------
Howard E. Goldberg
18
===============================================================================
EMPLOYMENT AGREEMENT
BETWEEN
WILLIAM A. DOYLE
AND
INTERDIGITAL COMMUNICATIONS CORPORATION
NOVEMBER 20, 1996
===============================================================================
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 20th day of November, 1996, by and
between William A. Doyle, 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
advanced digital wireless telecommunications systems using proprietary
technologies for voice and data communications and the licensing of wireless
digital telephone technology (the "Business").
WHEREAS, Employee serves in the position of President 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 full time, attention, skill and efforts to the performance of the
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<PAGE>
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
Board of Directors of the Company. Employee shall report to the Board of
Directors 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 Two Hundred and Twenty 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
2
<PAGE>
reimbursement) as shall be provided to similarly situated executive
employees of the Company ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason either directly or indirectly divulge to any third-party
or use for his own benefit, or for any purpose other than the exclusive benefit
of the Company, any confidential, proprietary, business and technical
information or trade secrets of the Company or of any subsidiary or affiliate of
the Company ("Proprietary Information") revealed, obtained or developed in the
course of his employment with the Company. Such Proprietary Information shall
include, but shall not be limited to, the intangible personal property described
in Section 7(b) hereof, any information relating to methods of production and
manufacture, research, computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, concepts, layouts,
flowcharts, specifications, know-how, any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing the Employee's duties), all computer inputs and outputs (regardless
of the media on which stored or located), hardware and software configurations,
designs, architecture, interfaces, plans, sketches, blueprints, and any other
materials prepared by the Employee in the course of, relating to or arising out
of his employment by the Company, or prepared by any other Company employee,
representative, or contractor for the Company, or its customers (including
information and other material relating to the ASIC), costs, business studies,
business procedures, finances, marketing data, methods, plans and efforts, the
identities of licensees, strategic partners, customers, contractors and
suppliers and prospective licensees, strategic partners, customers, contractors
and suppliers, the terms of contracts and agreements with licensees, strategic
partners, customers, contractors and suppliers, the Company's relationship with
actual and prospective licensees, strategic partners, customers, contractors and
3
<PAGE>
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, 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
4
<PAGE>
performance of his duties; and upon the termination of his employment with the
Company, he shall leave with or return to the Company all originals and copies
of the foregoing then in his possession, whether prepared by Employee or by
others.
(b) (i) Employee agrees that all right, title and interest in and to any
innovations, designs, systems, analyses, ideas for marketing programs, and all
copyrights, patents, trademarks and trade names, or similar intangible personal
property which have been or are developed or created in whole or in part by
Employee (1) at any time and at any place while the Employee is employed by
Company and which, in the case of any or all of the foregoing, are related to
and used in connection with the Business of the Company, (2) as a result of
tasks assigned to Employee by the Company, or (3) from the use of premises or
personal property (whether tangible or intangible) owned, leased or contracted
for by the Company (collectively, the "Intellectual Property"), shall be and
remain forever the sole and exclusive property of the Company. The Employee
shall promptly disclose to the Company all Intellectual Property, and the
Employee shall have no claim for additional compensation for the Intellectual
Property.
(ii) The Employee acknowledges that all the Intellectual Property
that is copyrightable shall be considered a work made for hire under United
States Copyright Law. To the extent that any copyrightable Intellectual Property
may not be considered a work made for hire under the applicable provisions of
the United States Copyright Law, or to the extent that, notwithstanding the
foregoing provisions, the Employee may retain an interest in any Intellectual
Property that is not copyrightable, the Employee hereby irrevocably assigns and
transfers to the Company any and all right, title, or interest that the Employee
may have in the Intellectual Property under copyright, patent, trade secret and
trademark law, in perpetuity or for the longest period otherwise permitted by
law, without the necessity of further consideration. The Company shall be
entitled to obtain and hold in its own name all copyrights, patents, trade
secrets, and trademarks with respect thereto.
5
<PAGE>
(iii) Employee further agrees to reveal promptly all information
relating to the same to an appropriate officer of the Company and to
cooperate with the Company and execute such documents as may be necessary or
appropriate (1) in the event that the Company desires to seek copyright, patent
or trademark protection, or other analogous protection, thereafter relating to
the Intellectual Property, and when such protection is obtained, to renew and
restore the same, or (2) to defend any opposition proceedings in respect of
obtaining and maintaining such copyright, patent or trademark protection, or
other analogous protection.
(iv) In the event the Company is unable after reasonable effort to
secure Employee's signature on any of the documents referenced in Section
7(b)(iii) hereof, whether because of Employee's physical or mental incapacity or
for any other reason whatsoever, Employee hereby irrevocably designates and
appoints the Company and its duly authorized officers and agents as Employee's
agent and attorney-in-fact, to act for and in his behalf and stead to execute
and file any such documents and to do all other lawfully permitted acts to
further the prosecution and issuance of any such copyright, patent or trademark
protection, or other analogous protection, with the same legal force and effect
as if executed by Employee.
8. Covenant Not to Compete. The Employee shall not, during the Term and
thereafter for the Restricted Period (as defined below), do any of the
following, directly or indirectly, without the prior written consent of the
Company:
(a) engage or participate in any business activity 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
6
<PAGE>
or affiliate of the Company as conducted during the Term with respect to any
period during the Term, or upon the termination of Employee's employment
hereunder with respect to any period thereafter, or become interested in (as
owner, stockholder, lender, partner, co-venturer, director, officer, employee,
agent, consultant or otherwise) any portion of the business of any person, firm,
corporation, association or other entity where such portion of such business is
competitive with the business of the Company or of any subsidiary or affiliate
of the Company as conducted during the Term with respect to any period during
the Term, or upon termination of Employee's employment hereunder with respect to
any period thereafter. Notwithstanding the foregoing, Employee may hold not more
than one percent (1%) of the outstanding securities of any class of any
publicly-traded securities of a company that is engaged in activities referenced
in Section 8(a) hereof;
(c) influence or attempt to influence any licensee, strategic partner,
supplier, or customer of the Company or potential licensee, strategic partner,
supplier or customer of the Company to terminate or modify any written or oral
agreement or course of dealing with the Company; or
(d) influence or attempt to influence any person to either (i) terminate
or modify his employment, consulting, agency, distributorship or other
arrangement with the Company, or (ii) employ or retain, or arrange to have any
other person or entity employ or retain, any person who has been employed or
retained by the Company as an employee, consultant, agent or distributor of the
Company at any time during the twelve (12) month period immediately preceding
the termination of Employee's employment hereunder.
For purposes of this Section 8, the Restricted Period shall constitute (as
applicable) (i) the period, if any, that Employee shall receive severance as set
forth in Section 9 hereof, (ii) in the event Employee's employment hereunder is
terminated for cause pursuant to Section 9 hereof, a period of one (1) year
following such termination, or (iii) in the event that Employee terminates this
Agreement without Good Reason, so long as the Company voluntarily pays severance
to Employee (which the Company shall be under no obligation to do), for the
period that Employee shall receive such severance, but in no event for a period
longer than one (1) year.
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<PAGE>
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 is not provided under other Company policies, plans or
programs
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<PAGE>
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
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Company, including without limitation fraud, embezzlement, theft or proven
dishonesty in the course of his employment or conviction of a felony.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.3(a), Employee shall be entitled to receive all accrued
but unpaid (as of the effective date of such termination) Base Salary, Benefits
and Other Compensation. All Base Salary, Benefits and Other Compensation shall
cease at the time of such termination, subject to the terms of any benefit or
compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.3, the Company shall have no liability
or obligation hereunder, including without limitation for any severance
whatsoever, by reason of such termination.
9.4. Termination Without Cause.
(a) The Company may terminate Employee's employment hereunder at any time,
for any reason, without cause, effective upon the date designated by the Company
upon thirty (30) days prior written notice to Employee. Company may elect to
have Employee remain absent from the workplace and cease Company business during
all or part of such thirty (30) day period.
(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
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<PAGE>
executives from time to time in effect. All Base Salary, Benefits and Bonuses
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plan then in force and applicable to Employee. Except as
specifically set forth in this Section 9.4, the Company shall have no liability
or obligation hereunder by reason of such termination.
9.5. Termination by Employee.
(a) Employee may terminate Employee's employment hereunder at any time,
for Good Reason or without Good Reason, effective upon the date designated
by Employee in written notice of the termination of his employment hereunder
pursuant to this Section 9.5(a); provided that, such date shall be at least
thirty (30) days after the date of such notice. For purposes of this Agreement,
Good Reason shall mean: (i) the failure by the Company to pay in a timely manner
Base Salary or any other material form of compensation or material benefit to be
paid or provided to Employee hereunder, or (ii) any material breach, not
encompassed within clause (i) of this Section 9.5(a), of the obligations of the
Company under this Agreement which breach is not cured within thirty (30) days
after the Company's receipt of written notification from the Employee of such
breach.
(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
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<PAGE>
shall have no liability or obligation hereunder by reason of such termination.
9.6. Change of Control.
(a) If there is a Change of Control during the Term, and Employee's
employment with the Company hereunder is terminated within one (1) year
following such Change of Control by the Company (except for cause) or by
Employee (whether or not for Good Reason), Employee shall be entitled to receive
all accrued but unpaid (as of the effective date of such termination) Base
Salary, Benefits and Other Compensation. In addition, (i) Employee shall be
entitled to receive, on the date of such termination, an amount equal to two
years' worth of Employee's Base Salary, and (ii) all stock options granted to
Employee by Company which pursuant to the terms of the applicable stock option
plan vest upon a Change in Control (e.g., Section 17(b) of the 1995 Stock Option
Plan for Employees and Outside Directors) shall vest. Except as specifically set
forth in this Section 9.6, all Base Salary, Benefits and Other Compensation
shall cease at the time of such termination, subject to the terms of any benefit
or compensation plans then in force and applicable to Employee, and the Company
shall have no liability or obligation hereunder by reason of such termination.
(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
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<PAGE>
any twelve (12) month period, Employee's employment hereunder may be
terminated by Company.
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.8(a), Employee will be entitled to receive all accrued and
unpaid (as of the date of such termination) Base Salary and Benefits and other
forms of compensation and bonus payable or provided in accordance with the terms
of any then existing compensation, bonus or benefit plan or arrangement ("Other
Compensation"), including payments prescribed under any disability or life
insurance plan or arrangement in which Employee is a participant or to which
Employee is a party as an employee of the Company. In addition, for a period of
one year following such termination, Employee shall be entitled to receive (i)
regular installments of Base Salary at the rate in effect at the time of such
termination, such amount being reduced by the amount of payments received by the
Employee with respect to this period pursuant to any Social Security entitlement
or any long term disability or any other employee benefit plan, policy or
program maintained to provide benefits in the event of disability in which the
Employee was entitled to participate at the time of termination under Section
9.8(a), and (ii) medical and dental coverage on terms and conditions comparable
to those most recently provided to the Employee pursuant to this Agreement, to
the extent such coverage is not provided under other Company policies, plans or
programs 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,
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<PAGE>
(b) Employee's execution of this Agreement and Employee's employment
hereunder shall not constitute a breach of any contract, agreement or
understanding, oral or written, to which Employee is a party or by which
Employee is bound, and
(c) Employee is free to execute this Agreement and to enter into the
employ of the Company pursuant to the provisions set forth herein.
(d) Employee shall disclose the existence and terms of the restrictive
covenants set forth in this Agreement to any employer that the Employee may work
for during the term of this Agreement (which employment is not hereby
authorized) or after the termination of the Employee's employment at the
Company.
11. Survival of Provisions. The provisions of this Agreement set forth in
Sections 6, 7, 8, 9 (solely with respect to the payment obligations of the
Company to Employee, if any, set forth therein), 10 and 21 hereof shall survive
the termination of Employee's employment hereunder. If for any reason Employee
shall continue to be employed by the Company following the termination of
Employee's employment hereunder, Employee shall have no right to receive any
severance or other 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.
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<PAGE>
13. Employee Benefits. This Agreement shall not be construed to be in lieu
or to the exclusion of any other rights, benefits and privileges to which
Employee may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, insurance, hospital or other plans or benefits which
may now be in effect or which may hereafter be adopted.
14. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and sent by certified or registered mail,
return receipt requested, by hand delivery, or by recognized overnight courier,
addressed as follows:
If to Employee:
William A. Doyle
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.
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<PAGE>
15. Entire Agreement; Amendments. This Agreement contain the entire
agreement and understanding of the parties hereto relating to the subject matter
hereof, and merges and supersedes all prior and contemporaneous discussions,
agreements and understandings of every nature between the parties hereto
relating to the employment of Employee with the Company.
16. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Invalidity. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be 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.
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<PAGE>
21. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained in Sections
6, 7, and 8 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates and that the Company would not have
entered into this Agreement in the absence of such restrictions. Employee also
acknowledges that any breach by him of Sections 6, 7, or 8 hereof will cause
continuing and irreparable injury to the Company for which monetary damages
would not be an adequate remedy. The Employee shall not, in any action or
proceeding to enforce any of the provisions of this Agreement, assert the claim
or defense that an adequate remedy at law exists. In the event of such breach by
Employee, the Company shall have the right to enforce the provisions of Sections
6, 7, and 8 of this Agreement by seeking injunctive or other relief in any
court, and this Agreement shall not in any way limit remedies of law or in
equity otherwise available to the Company. If an action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed 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
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<PAGE>
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/ Howard E. Goldberg
--------------------------------- -------------------------------
Jane Schultz Howard E. Goldberg
Title: Assistant Secretary Title: Executive Vice President
[CORPORATE SEAL]
/s/ William A. Doyle
--------------------------------
William A. Doyle
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<PAGE>
===============================================================================
EMPLOYMENT AGREEMENT
BETWEEN
CHARLES R. TILDEN
AND
INTERDIGITAL COMMUNICATIONS CORPORATION
NOVEMBER 18, 1996
===============================================================================
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 18th day of November, 1996, by and
between Charles R. Tilden, a resident of Malvern, Pennsylvania (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
advanced digital wireless telecommunications systems using proprietary
technologies for voice and data communications and the licensing of wireless
digital telephone technology (the "Business").
WHEREAS, the Company and Employee have entered into a letter agreement,
dated November 11, 1996, pursuant to which, inter alia, the Company has offered
Employee and Employee has accepted the position of Vice President -
Communications and Investor Relations of the Company (the "Letter Agreement").
WHEREAS, the Letter Agreement contemplates that the Company and Employee
shall enter into this Agreement in order to set forth certain terms and
conditions relating to Employee's 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. Employment and Term. The Company hereby employs Employee and Employee
hereby accepts employment with the Company, as Vice President - Communications
and Investor Relations, (such position, Employee's "Position") for a period
commencing on November 18, 1996 and continuing until employment hereunder is
terminated pursuant to the provisions of Section 9 hereto (the "Term").
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<PAGE>
2. Duties. During the term of his employment, Employee shall serve the
Company faithfully and to the best of his ability and shall devote his full
time, attention, skill and efforts to the performance of the duties required by
or appropriate for his Position. Employee agrees to assume such duties and
responsibilities as may be customarily incident to such position, and as may be
reasonably assigned to Employee from time to time by the President or Chief
Executive Officer. Employee shall report to the President or 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 Fifty Five 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,
commencing in 1997, 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 two sentences, the Company shall be under no obligation to develop
and/or implement any bonus plan, including without limitation, the aforesaid
Executive
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<PAGE>
Bonus Plan, or to continue any such plan, if adopted. Employee shall also be
entitled to receive stock options as more particularly described in the Letter
Agreement.
5. Benefits and Expenses. Employee shall be entitled to receive those
employee benefits (including expense reimbursement) as shall be provided to
similarly situated executive employees of the Company ("Benefits").
6. Confidentiality. Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. As a result, both during the Term
and thereafter, Employee shall not, without the prior written consent of the
Company, for any reason either directly or indirectly divulge to any third-party
or use for his own benefit, or for any purpose other than the exclusive benefit
of the Company, any confidential, proprietary, business and technical
information or trade secrets of the Company or of any subsidiary or affiliate of
the Company ("Proprietary Information") revealed, obtained or developed in the
course of his employment with the Company. Such Proprietary Information shall
include, but shall not be limited to, the intangible personal property described
in Section 7(b) hereof, any information relating to methods of production and
manufacture, research, computer codes or instructions (including source and
object code listings, program logic algorithms, subroutines, modules or other
subparts of computer programs and related documentation, including program
notation), computer processing systems and techniques, concepts, layouts,
flowcharts, specifications, know-how, any associated user or service manuals or
other like textual materials (including any other data and materials used in
performing the Employee's duties), all computer inputs and outputs (regardless
of the media on which stored or located), hardware and software configurations,
designs, architecture, interfaces, plans, sketches, blueprints, and any other
materials prepared by the Employee in the course of, relating to or arising out
of his employment by the Company, or prepared by any other Company employee,
representative, or contractor for the Company, or its customers (including
information and other material relating to the ASIC), costs, business studies,
business procedures, finances, marketing data,
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<PAGE>
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, 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
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<PAGE>
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.
(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
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<PAGE>
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 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 business activity 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;
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<PAGE>
(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
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
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<PAGE>
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.
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
-8-
<PAGE>
most recently provided to the Employee pursuant to this Agreement, to the extent
such coverage is not provided under other Company policies, plans or programs
relating to Disability. Except as specifically set forth in this Section 9.1(b),
the Company shall have no liability or obligation to Employee for compensation
or benefits hereunder by reason of such termination.
(c) For purposes of this Section 9.1, the determination as to whether
Employee has a long-term disability (as such term is defined in the Company's
Long-Term Disability Plan) shall be made by a licensed physician selected by the
Company (and reasonably acceptable to Employee) and shall be based upon a full
physical examination and good faith opinion by such physician.
9.2. Termination by Death. In the event that Employee dies during the Term,
Employee's employment hereunder shall be terminated thereby and the Company
shall pay to Employee's executors, legal representatives or administrators an
amount equal to the accrued and unpaid portion of his Base Salary, Benefits and
Other Compensation up through the date on which he dies. Except as specifically
set forth in this Section 9.2, the Company shall have no liability or obligation
hereunder to Employee's executors, legal representatives, administrators, heirs
or assigns or any other person claiming under or through him by reason of
Employee's death, except that Employee's executors, legal representatives or
administrators will be entitled to receive the payment prescribed under any
death or disability benefits plan in which he is a participant as an employee of
the Company, and to exercise any rights afforded under any compensation or
benefit plan then in effect.
9.3. Termination for Cause.
(a) The Company may terminate Employee's employment hereunder at any
time for "cause" upon written notice to Employee. For purposes of this
Agreement, "cause" shall mean: (i) any material breach by Employee of any of his
obligations under this Agreement, which breach is not cured within thirty (30)
days after Employee's receipt of written notification from the Company of such
breach, (ii) other conduct of Employee involving any type of willful misconduct
with respect to the Company, including without limitation fraud, embezzlement,
theft
-9-
<PAGE>
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,
-10-
<PAGE>
subject to the terms of any benefit or compensation plan then in force and
applicable to Employee. Except as specifically set forth in this Section 9.4,
the Company shall have no liability or obligation hereunder by reason of such
termination.
9.5. Termination by Employee.
(a) Employee may terminate Employee's employment hereunder at any time,
for Good Reason or without Good Reason, effective upon the date designated
by Employee in written notice of the termination of his employment hereunder
pursuant to this Section 9.5(a); provided that, such date shall be at least
thirty (30) days after the date of such notice. For purposes of this Agreement,
Good Reason shall mean: (i) the failure by the Company to pay in a timely manner
Base Salary or any other material form of compensation or material benefit to be
paid or provided to Employee hereunder, or (ii) any material breach, not
encompassed within clause (i) of this Section 9.5(a), of the obligations of the
Company under this Agreement which breach is not cured within thirty (30) days
after the Company's receipt of written notification from the Employee of such
breach.
(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.
-11-
<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.
-12-
<PAGE>
(b) In the event of a termination of Employee's employment hereunder
pursuant to Section 9.7(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
9.7(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 9.7(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
-13-
<PAGE>
any contract, agreement or understanding, oral or written, to which
Employee is a party or by which Employee is bound, and
(c) Employee is free to execute this Agreement and to enter into the
employ of the Company pursuant to the provisions set forth herein.
(d) Employee shall disclose the existence and terms of the restrictive
covenants set forth in this Agreement to any employer that the Employee may work
for during the term of this Agreement (which employment is not hereby
authorized) or after the termination of the Employee's employment at the
Company.
11. Survival of Provisions. The provisions of this Agreement set forth in
Sections 6, 7, 8, 9 (solely with respect to the payment obligations of the
Company to Employee, if any, set forth therein), 10 and 21 hereof shall survive
the termination of Employee's employment hereunder. If for any reason Employee
shall continue to be employed by the Company following the termination of
Employee's employment hereunder, Employee shall have no right to receive any
severance or other 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.
-14-
<PAGE>
13. Employee Benefits. This Agreement shall not be construed to be in lieu
or to the exclusion of any other rights, benefits and privileges to which
Employee may be entitled as an employee of the Company under any retirement,
pension, profit-sharing, insurance, hospital or other plans or benefits which
may now be in effect or which may hereafter be adopted.
14. Notice. Any notice or communication required or permitted under this
Agreement shall be made in writing and sent by certified or registered mail,
return receipt requested, by hand delivery, or by recognized overnight courier,
addressed as follows:
If to Employee:
Charles R. Tilden
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-
<PAGE>
15. Entire Agreement; Amendments. This Agreement and the Letter 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. The provisions of this Agreement supersede any inconsistent provisions
contained in the Letter Agreement. The balance of the Letter Agreement shall
remain in full force and effect and unaffected hereby. This Agreement may not be
changed or modified, except by an Agreement in writing signed by each of the
parties hereto.
16. Waiver. The waiver of the breach of any term or provision of this
Agreement shall not operate as or be construed to be a waiver of any other or
subsequent breach of this Agreement.
17. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
18. Invalidity. In case any one or more of the provisions contained in this
Agreement shall, for any reason, be 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
-16-
<PAGE>
Saturday, Sunday or day which is a holiday in the Commonwealth of Pennsylvania,
then such final day shall be deemed to be the next day which is not a Saturday,
Sunday or legal holiday.
21. Specific Enforcement; Extension of Period.
(a) Employee acknowledges that the restrictions contained in Sections
6, 7, and 8 hereof are reasonable and necessary to protect the legitimate
interests of the Company and its affiliates and that the Company would not have
entered into this Agreement in the absence of such restrictions. Employee also
acknowledges that any breach by him of Sections 6, 7, or 8 hereof will cause
continuing and irreparable injury to the Company for which monetary damages
would not be an adequate remedy. The Employee shall not, in any action or
proceeding to enforce any of the provisions of this Agreement, assert the claim
or defense that an adequate remedy at law exists. In the event of such breach by
Employee, the Company shall have the right to enforce the provisions of Sections
6, 7, and 8 of this Agreement by seeking injunctive or other relief in any
court, and this Agreement shall not in any way limit remedies of law or in
equity otherwise available to the Company. If an action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to recover, in addition to any other relief, reasonable
attorneys' fees, costs and disbursements. In the event that the provisions of
Sections 6, 7, or 8 hereof should ever be adjudicated to exceed the time,
geographic, or other limitations permitted by applicable law in any applicable
jurisdiction, then such provisions shall be deemed 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
-17-
<PAGE>
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.
By: /s/ Gregory Webb By: /s/ William A. Doyle
--------------------------------- -------------------------------
Gregory Webb William A. Doyle
Title: Chief Executive Officer Title: President
[CORPORATE SEAL]
/s/ Charles R. Tilden
--------------------------------
Charles R. Tilden
-18-
SEVERANCE BENEFIT AGREEMENT
BETWEEN
INTERDIGITAL COMMUNICATIONS CORPORATION
AND
D. RIDGELY BOLGIANO
<PAGE>
Severance Benefit Agreement
D. Ridgely Bolgiano
Page 2
Severance Benefit Agreement
This Severance Benefit Agreement is made effective this 26th day of
April 1996 between InterDigital Communications Corporation, a Pennsylvania
corporation, located at 781 Third Avenue, King of Prussia, Pennsylvania 19406
("IDC") and D. Ridgely Bolgiano, an individual residing at 252 River Road,
Gladwyne, Pennsylvania 19035 ("BOLGIANO").
WHEREAS, IDC desires to obtain certain benefits from the employment of
BOLGIANO, which benefits would be enhanced through the assurance of financial
security provided by this Agreement; and
WHEREAS, BOLGIANO desires to accept the terms of this Agreement in
exchange for the disclosure of certain information and other valuable
consideration to be provided by BOLGIANO during the term hereof.
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the parties agree as follows:
1. Termination Other Than By Resignation, Death, Disability or Cause. If IDC
terminates BOLGIANO's employment for reasons other than his resignation or
death, disability or for cause, IDC shall continue to provide all salary and
related benefits as if BOLGIANO were still in it's employ for the remaining term
of this Agreement, subject to the terms of Paragraph 1b below; the timing of all
payments and benefits shall also be on an "as if employed" basis. All stock
options shall continue to be treated during said remaining term as if BOLGIANO
continued to be employed.
a. Employment shall be deemed constructively terminated upon (i) any
significant adverse change in the nature or scope of authority resulting in a
reduction of base salary, (ii) any required geographic relocation outside the
present area in which based as a condition of continued employment.
b. IDC's obligations under Paragraph 1 of this Agreement shall not be
triggered by any termination of BOLGIANO's employment hereunder, if: (i) such
termination occurs within ten (10) of the date hereof, and (ii) BOLGIANO is
rehired within thirty (30) days of the date hereof, with retroactive effect to
the date of termination, and the terms are at least as favorable as those
existing at the date hereof, and (iii) BOLGIANO's employment and benefits are,
for all purposes, treated as if there were no break in employment.
2. Term. The term of this Agreement shall commence on the date hereof and
this Agreement shall expires eighteen (18) months from the date commenced.
3. Miscellaneous.
a. This Agreement shall not be changed, modified, terminated, canceled
or amended except by a writing signed by each party to this Agreement.
<PAGE>
Severance Benefit Agreement
D. Ridgely Bolgiano
Page 2
b. Any attempted assignment of this Agreement by any party without the
prior written consent of the other party shall be void and of no effect.
c. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respect heirs, successors, executors and permitted
assigns.
d. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of every kind and nature
between them with respect to the subject matter hereof.
e. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute but one and the same instrument, and any
party hereto may execute this Agreement by signing any such counterpart.
f. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania, and the parties hereto irrevocably commit to the
jurisdiction of the Commonwealth of Pennsylvania and the venue of the courts of
Montgomery County in any action brought by the parties hereto concerning this
Agreement.
g. The invalidity of any provision or provisions of this Agreement
shall not affect the other provisions, and this Agreement shall be construed in
all respects as if any invalid provisions were omitted.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement on the day and year first set forth above.
INTERDIGITAL COMMUNICATIONS
CORPORATION
By: /s/ William A. Doyle
--------------------------------
William A. Doyle, President
D. RIDGELY BOLGIANO
/s/ D. Ridgely Bolgiano
- ------------------------------------
SEVERANCE BENEFIT AGREEMENT
BETWEEN
INTERDIGITAL COMMUNICATIONS CORPORATION
AND
MARK LEMMO
<PAGE>
Severance Benefit Agreement
This Severance Benefit Agreement is made effective this 26th day of April
1996 between InterDigital Communications Corporation, a Pennsylvania
corporation, located at 781 Third Avenue, King of Prussia, Pennsylvania 19406
("IDC") and Mark Lemmo, an individual residing at 3972 Longfellow Drive,
Huntingdon Valley, Pennsylvania 19006 ("LEMMO").
WHEREAS, IDC desires to obtain certain benefits from the employment of
LEMMO, which benefits would be enhanced through the assurance of financial
security provided by this Agreement; and
WHEREAS, LEMMO desires to accept the terms of this Agreement in exchange
for the disclosure of certain information and other valuable consideration to be
provided by LEMMO during the term hereof.
NOW, THEREFORE, in consideration of the promises and covenants contained
herein, the parties agree as follows:
1. Termination Other Than By Resignation, Death, Disability or Cause. If IDC
terminates LEMMO's employment for reasons other than his resignation or death,
disability or for cause, IDC shall continue to provide all salary and related
benefits as if LEMMO were still in it's employ for the remaining term of this
Agreement, subject to the terms of Paragraph 1b below; the timing of all
payments and benefits shall also be on an "as if employed" basis. All stock
options shall continue to be treated during said remaining term as if LEMMO
continued to be employed.
a. Employment shall be deemed constructively terminated upon (i) any
significant adverse change in the nature or scope of authority resulting in a
reduction of base salary, (ii) any required geographic relocation outside the
present area in which based as a condition of continued employment.
b. IDC's obligations under Paragraph 1 of this Agreement shall not be
triggered by any termination of LEMMO's employment hereunder, if: (i) such
termination occurs within ten (10) of the date hereof, and (ii) LEMMO is rehired
within thirty (30) days of the date hereof, with retroactive effect to the date
of termination, and the terms are at least as favorable as those existing at the
date hereof, and (iii) LEMMO's employment and benefits are, for all purposes,
treated as if there were no break in employment.
2. Term. The term of this Agreement shall commence on the date hereof and
this Agreement shall expire eighteen (18) months from the date commenced.
3. Miscellaneous.
a. This Agreement shall not be changed, modified, terminated, canceled or
amended except by a writing signed by each party to this Agreement.
<PAGE>
Severance Benefit Agreement
Mark Lemmo
Page 2
b. Any attempted assignment of this Agreement by any party without the
prior written consent of the other party shall be void and of no effect.
c. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors, executors and permitted
assigns.
d. This Agreement sets forth the entire agreement and understanding between
the parties as to the subject matter hereof and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between them
with respect to the subject matter hereof.
e. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute but one and the same instrument, and any
party hereto may execute this Agreement by signing any such counterpart.
f. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania, and the parties hereto irrevocably commit to the
jurisdiction of the Commonwealth of Pennsylvania and the venue of the courts of
Montgomery County in any action brought by the parties hereto concerning this
Agreement.
g. The invalidity of any provision or provisions of this Agreement shall
not affect the other provisions, and this Agreement shall be construed in all
respects as if any invalid provisions were omitted.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Agreement on the day and year first set forth above.
INTERDIGITAL COMMUNICATIONS
CORPORATION
By: /s/ William A. Doyle
------------------------------------
William A. Doyle, President
MARK LEMMO
/s/ Mark Lemmo
- ------------------------------------
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made as of the 30th day of April 1996 by and
between WILLIAM J. BURNS, an individual ("Consultant") and INTERDIGITAL
COMMUNICATIONS CORPORATION, a business corporation existing under the laws of
the Commonwealth of Pennsylvania (the "Company").
W I T N E S E T H:
WHEREAS, since November 1994, Consultant has been employed by the Company
in the capacity of Chief Executive Officer and has served as the Chairman of the
Board of Directors of the Company since 1994; and
WHEREAS, Consultant and the Company have agreed that it is in their best
mutual interests for Consultant to resign his positions as a member of the Board
of Directors of the Company and as an officer and employee of the Company;
WHEREAS, in connection with such resignation, Consultant and the Company
have entered into that certain Separation and Confidentiality Agreement dated as
of the date hereof ("Separation and Confidentiality Agreement"); and
WHEREAS, the Company desires to assure itself of the continuing benefit of
Consultant's services and experience for a period of time and has offered to
engage Consultant to render consultative and advisory services to it; and
WHEREAS, Consultant desires to accept such engagement, upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual agreements herein contained,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. Term of Agreement. Subject to the terms and conditions hereof, the term
of this Agreement shall be for a period of one year commencing on the effective
date hereof and terminating at the close of business on the first anniversary of
1
<PAGE>
the effective date hereof, unless extended by the written agreement of the
Company and Consultant (as so extended, the "Engagement Period"). Upon the
default of any material term of this Agreement, the nondefaulting party shall
have the right to terminate this Agreement if such default is not cured by the
defaulting party within thirty (30) days after delivery of a written notice by
the nondefaulting party that describes such default in reasonable detail.
2. Services to be Rendered. The Company hereby retains Consultant as a
general advisor and consultant to the Company for the purpose of advising and
consulting the Company on such matters as shall be mutually agreed from time to
time by the Company and Consultant ("Services"). In performing the Services,
Consultant agrees that he will make himself reasonably available and will
cooperate in any reasonable manner to provide such information or other
assistance as may be required from time to time by the Company to ensure the
proper transition of all responsibilities held by Consultant prior to the date
hereof to his successor. However, nothing herein shall impose any obligation on
the Company to make any requests of Consultant hereunder or to provide him with
an office or other facilities or services. Consultant shall not be required
under this Agreement (nor shall he be permitted unless mutually agreed by
Consultant and the Company) to participate personally in the negotiation of any
agreements with third parties on behalf of the Company, or to attend meetings or
engage in other conversations on behalf of the Company or with a view to
facilitate for the Company pertaining to the negotiation or performance of any
such agreements or any other Company business.
3. Compensation. As full and complete compensation for any and all Services
which Consultant may render to Company hereunder, the Company agrees to pay
Consultant a fee equal to $20,833.33 per month during the Engagement Period. The
monthly fee payments shall be paid on such dates and shall be reduced by any
premiums payable for the medical plan and by federal, state and local tax
withholdings comparable to the way that Consultant's salary as an employee of
the Company was previously handled. In the event of Consultant's death before
the end of the Engagement Period, the Company shall pay to Consultant's
designee, or in the absence of a designee such payment shall be made to his
estate, the unpaid balance of any compensation due under this Agreement to
Consultant through the remainder of the Engagement Period. Such payment shall
be made in a lump sum within thirty (30) days after the Company is advised of
Consultant's death.
4. Status as Independent Contractor. It is expressly understood and agreed
that Consultant is an independent contractor and is not an agent nor an employee
of the Company.
5. Expenses. During the Engagement Period, the Company shall reimburse
Consultant for all reasonable and necessary expenses incurred by Consultant in
the performance of Services authorized by the Company hereunder, including all
travel and lodging expenses if Consultant is requested, in writing, by the
Company to travel to the Company's offices or otherwise on the Company's behalf,
provided that the Consultant provides the Company with an itemized account of
and, where applicable, original receipts for such expenses. In the case of
airfare and hotel expenses, Company will either advance the cost thereof to
Consultant or pay the cost itself, at Company's option.
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6. Assignment. This Agreement may not be assigned by Consultant or Company
without the express written consent of the other; except, that this Agreement
may be assigned by the Company to the purchaser of substantially all of the
Company's assets or by operation of law (including, without limitation, pursuant
to a merger or consolidation of the Company) without consent.
7. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
13. Waiver. Any waiver by either party of any breach of any term or
condition of this Agreement shall not operate as a waiver of any other breach of
such term or condition or of any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof or constitute or be deemed a waiver or release of any
other rights, in law or in equity.
9. Governing Law. All issues concerning this Agreement will be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania.
The parties hereto agree that any action to enforce this Agreement may be
properly brought in any court within the Commonwealth of Pennsylvania or in the
United States District Court for the Eastern District of Pennsylvania, and the
parties hereto agree that the courts of the Commonwealth of Pennsylvania and the
United States District Court for the Eastern District of Pennsylvania shall have
exclusive jurisdiction with respect to the subject matter hereof and the person
of the parties hereto.
9. Entire Agreement. This Agreement and that certain Separation and
Confidentiality Agreement executed between the parties contemporaneously
herewith set forth the entire understanding of the parties in respect to the
subject matter contained therein and supersedes all prior agreements and
understandings relating to the subject mater and may only be amended by a
written agreement signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
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ATTEST: INTERDIGITAL COMMUNICATIONS
CORPORATION
/s/ Jane Schultz By: /s/ Harry Campagna
- --------------------------- ---------------------------
Jane Schultz Harry Campagna
Title: Chairman of the Board
WITNESS: CONSULTANT
/s/ David Burns /s/ William J. Burns
- --------------------------- -----------------------------
David Burns William J. Burns
4
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SEPARATION AND CONFIDENTIALITY AGREEMENT
- ------------------------------------------------------------------------------
THIS SEPARATION AND CONFIDENTIALITY AGREEMENT is made effective as of the
30th day of April 1996 by and between WILLIAM J. BURNS, an individual
("Executive"), and INTERDIGITAL COMMUNICATIONS CORPORATION, a business
corporation existing under the laws of the Commonwealth of Pennsylvania,
together with each and every one of its predecessors, successors (by merger or
otherwise), parents, subsidiaries, successors, assigns, directors, officers and
employees (hereinafter collectively referred to as the "Company").
W I T N E S S E T H:
WHEREAS, since November 1994, Executive has been employed by the Company in
the capacity of Chief Executive Officer and has served as the Chairman of the
Board of Directors of the Company since 1994; and
WHEREAS, Executive and the Company have agreed that it is in
their mutual best interests for Executive to resign his positions as a director,
officer and employee of the Company; and
WHEREAS, in connection with such resignation, Executive and the Company
have entered into that certain Consulting Agreement dated as of the date hereof
("Consulting Agreement"); and
WHEREAS, Executive and the Company also desire to settle fully and finally
all differences between them, including, but in no way limited to, any
differences arising out of any aspect of Executive's employment with the Company
and/or out of his separation from that employment.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, Executive and the Company acting of their own free will and intending to
be legally and irrevocably bound hereby, agree as follows:
1. Prior Agreements. All agreements and understandings between Executive
and the Company, whether oral or written, which were in effect at any time prior
to the execution and delivery of this Agreement excluding (i) any agreement or
obligation of the Company to indemnify Executive as an officer or director of
the Company, (ii) the obligation of Company to
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reimburse Executive for reasonable Company business expenses incurred prior to
April 30, 1996, and (iii) any agreement under which Executive holds options or
warrants (all such agreements and understandings other than those described in
clause (i) or (ii) of this Section 1 being herein referred to as "Prior
Agreements") are hereby terminated and of no further force and effect. Neither
Executive nor the Company shall have any further rights or obligations under any
such Prior Agreements.
2. Employment Termination. Executive acknowledges and agrees that,
effective as of April 30, 1996, he shall not render any further services to the
Company in the capacity of employee, officer or director of the Company, and
that, as of this date, has effectively resigned from any and all positions that
he heretofore held with the Company, its subsidiaries and affiliates.
Contemporaneously with the execution and delivery of this Agreement, Executive
shall execute and deliver to the Company a formal resignation from his positions
as Chairman, Chief Executive Officer and member of the Company's Board of
Directors and similar resignations with respect to each and every subsidiary of
the Corporation for which he served as an officer and/or director. Executive
further acknowledges and agrees that, effective as of the date hereof, he shall
no longer be authorized to represent, to incur any expenses or liabilities or to
take any other action on behalf of the Company. In addition, Executive
acknowledges and agrees that the Company shall not have any obligation,
contractual or otherwise, to rehire, reemploy or recall him in the future and/or
to pay or to make available to him any additional compensation or benefits after
that date except as required by law or as specifically provided herein.
3. Future Employment. Notwithstanding the rights and obligations of the
parties set forth in the Consulting Agreement, Executive shall remain free to
obtain employment with a third party at any time, provided that: (a) Executive
will use his best efforts to accommodate the requests of the Company for such
information or other assistance as may be required from time to time under the
Consulting Agreement, and (b) Executive will promptly advise the Company in
advance of commencing any such employment or other engagement and will not
thereafter accept or undertake any duties on behalf of the Company in areas that
relate to his duties or areas of responsibility with his new employer without
first informing the Company in writing.
4. Consideration. In consideration for the general release described in
Section 8 hereunder and for all other agreements by Executive contained in this
Agreement, the Company shall provide Executive with the following benefits and
compensation:
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(a) Executive Bonuses. Company shall pay Executive: (i) immediately upon
the execution of this Agreement, the sum of One Hundred Thousand Dollars
($100,000) (which is equal to forty percent (40%) of the gross salary paid to
Executive in 1995 for services rendered in 1995), which the Company may treat as
paid pursuant to the Company's executive bonus plan as set forth in the
Company's Board of Director minutes dated May 19, 1994 ("Executive Bonus Plan")
and (ii) on the earlier of June 1, 1997 or the date the Company pays bonuses to
executives and employees for 1996 under the Executive Bonus Plan, the sum of
Thirty Three Thousand Three Hundred and Thirty Three and 33/100 dollars
($33,333.33) (which is equal to forty percent (40%) of the gross salary paid to
Executive in 1996 for services rendered from January 1, 1996 through April 30,
1996).
(b) Medical Benefit Continuation.
(i) It is the intention of the parties hereto that Executive's status
as an active participant under the Company's basic group medical, life
insurance and long term disability programs will continue insofar as permitted
by the contracts with the Company's group insurance providers and by applicable
law through the first anniversary of the date hereof. Any required employee
contribution to the medical plan premium will be deducted from Executive's
monthly salary continuation payments.
(ii) In the event that the Company determines that the continued
inclusion of Executive as an active participant in its basic group insurance
plans is not permitted by its providers, the Company shall so advise
Executive by written notice. Furthermore, in such event, as part of the
severance package made available to Executive hereunder, the Company agrees to
reimburse Executive for the cost that Executive would incur to obtain similar
individual life and disability coverage (whether or not Executive elects to
obtain such coverage) and to bear the cost of continuing Executive's group
medical benefits under COBRA (except for amounts which would be contributory by
Executive if he were still employed by the Company) through the first
anniversary of the date hereof provided that Executive elects COBRA coverage and
that he satisfies the statutory eligibility criteria.
(iii) the Company's obligation to continue medical coverage will
cease if Executive elects to participate in a comparable medical plan with
a new employer. In this case, Executive agrees immediately to notify the Company
by written notice to Deborah N. Hayes, Director of Human Resources of the
Company.
(c) Stock Options. As of the date hereof, Executive holds fully vested,
non-qualified options to purchase
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250,000 shares of common stock of the Company at $3.00 per share expiring on
December 10, 2004 and 12,500 shares of common stock of the Company at $4.375 per
share expiring on March 22, 2004. Notwithstanding termination of Executive's
employment with the Company, the Company represents and agrees that these stock
options are fully vested and that these stock options and all other stock
options currently owned by Executive shall remain exercisable until the date ten
(10) years from the respective grant dates of such stock options, subject to the
change of control provisions in the applicable stock option plan under which the
stock options were granted.
(d) Warrants. As of the date hereof, Executive holds warrants which may in
aggregate be exercised to purchase 36,500 shares of common stock of the Company
(the "Warrants"). The parties agree that the Warrants are hereby modified so
that the exercisability of fifty percent (50%) of the Warrants shall be deferred
until the earlier of April 30, 1997 or the time when jury verdicts have been
rendered in the lawsuits currently pending against the Company involving Suzanne
Long and the federal securities class action titled Robert Orovitz v. Donald L.
Schilling and InterDigital Communications Corporation (the "Federal Securities
Class Action") or such lawsuits have been settled by the parties thereto. The
deferral period set forth in the preceding sentence shall be continued or
extended during any period of time in which Executive shall be in breach of any
of his obligations hereunder.
(e) Leased Vehicle. As of the date hereof, the Company has leased for
the use of Executive a 1996 Oldsmobile Regency Sedan ("Leased Vehicle").
Immediately upon execution of this Agreement, the Company shall either pay
Executive in one lump sum an amount equal to $10,410.24 (which represents the
aggregate total of the remaining base monthly payments required to be paid under
lease less a $500 security deposit), which Executive agrees to apply to such
lease payments on or before their due date, or shall continue to make such lease
payments itself either when due or prior to such time. If Company elects to pay
Executive in a lump sum, the Company shall assign its rights and interest in and
to the lease to Executive, provided that the lessor consents to such assignment
as required by the lease, and further provided that in connection with such
assignment, the Company is released from any continuing liability under the
lease, whether known, unknown or contingent. In the event of the Company elects
to make the lease payments itself or in the event that the lessor does not
consent to the assignment of the lease or the Company would not receive such a
release, Executive shall continue to use the Leased Vehicle and, in such event,
Executive hereby agrees to indemnify, defend and hold the Company harmless from
any and against any and all claims, losses and liabilities arising in connection
with the Leased Vehicle after the effective date of this Agreement other than
the
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payments to lessor to be made by Company as set forth in this paragraph.
Finally, Company shall, at its option, either at the end of the lease or prior
to such time, at Company's option, pay to Executive the residual value required
to buy out the lease, or purchase the Leased Vehicle for Executive (thereupon
transferring title to Executive).
(f) Leased Apartment. As of the date hereof, the Company has leased an
apartment located at 282-Apt. 2B, Radnor Crossing Apts., Iven Ave., St. Davids,
PA on behalf of Executive ("Apartment"). The Company agrees to continue to pay
all rent as such payments become due under the Apartment lease for the remainder
of its current term (but not including any extension or renewal of such term).
Lessee represents that he has provided vacant occupancy to the Company in
physical condition under which all security deposits would be required to be
refunded to the Company.
(g) Moving Expenses. The Company agrees to reimburse Executive, upon
receipt of invoice(s) in form and substance reasonably satisfactory to the
Company, for all reasonable expenses incurred by Executive in connection with
moving his personal belongings from the Apartment to Executive's residence in
Carbondale and/or Chicago, Illinois. Executive agrees that at the time he moves
from the Apartment, he will leave in the Apartment all furniture, appliances and
other property owned by the lessor of the Apartment or leased by the Company
from third parties but shall keep all audio/video equipment, business equipment
(including, without limitation, the fax machine in the Apartment), furniture,
appliances and other property in the Apartment which had been owned by the
Company.
(h) Payment of Legal Fees. The Company agrees to pay, upon receipt of
invoice(s) in the form and substance reasonably satisfactory to the Company, the
reasonable attorney's fees and costs incurred by Executive not to exceed $10,000
in connection with the negotiation, execution and delivery of this Agreement. In
the event of a default under this Agreement resulting in litigation, the
prevailing party shall be entitled to collect reasonable attorneys' fees and
court costs.
(i) Consulting Agreement. Immediately upon execution of this Agreement,
the Company and Executive shall enter into a Consulting Agreement in the
form attached hereto as Exhibit A.
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5. Confidentiality.
(a) Executive agrees that he will not disclose or use for his direct or
indirect benefit or the direct or indirect benefit of any third party, any
Confidential Information (as hereinafter defined) of the Company. In general,
"Confidential Information" means any and all confidential or confidential and
proprietary information of the Company, whether any information relating to
computer codes or instructions (including source and object code listings, logic
algorithms, subroutines, modules or other subparts of computer programs and
related documentation, including program notation); computer processing systems
and techniques; layouts; flowcharts; specifications; know-how; any associated
user or other manuals or other like textual materials (including any other data
and materials used in performing Executive's duties); all computer inputs and
outputs (regardless of the media on which stored or located); hardware and
software configurations; designs; interfaces; research; processes; inventions;
products; methods; marketing sales and distribution data, methods, plans and
efforts; the Company's relationship with actual and prospective customers,
contractors and suppliers; sales, business, alliance and strategic plans;
alliance agreements; license agreements; budgets; any other materials prepared
by Executive or other employees in the course of, relating to or arising out of
their employment, or prepared by any other contractor for the Company or its
customers. For purposes hereof, the term "Confidential Information" shall not
include materials or information that (i) were possessed by Executive before his
employment by the Company, (ii) have been disclosed or made available to the
general public by the Company or by a third party who is not bound by a
confidentiality agreement with the Company and who is not otherwise prohibited
from disclosing the materials or information to the general public, or (iii) are
generally available or known within the Company's industry.
(b) Executive agrees that he will, effective the date of his employment
termination: (i) discontinue all use of Confidential Information; (ii) return to
the Company all material furnished by the Company that contains Confidential
Information; (iii) erase or destroy any Confidential Information contained in
computer memory or data storage apparatus under the ownership or control of
Executive; and (iv) remove Confidential Information from any software under the
ownership or control of Executive that incorporates or uses Confidential
Information in whole or in part.
(c) Executive agrees to return to the Company on the effective date of
his employment termination, any documents, (including restricted distribution
copies of the Samsung Agreements provided to Executive and Michael Burns)
records, notebooks, files, correspondence, reports, memorandum, personal
property owned by the Company, or any other documents and material containing
Confidential Information; provided that he shall return copies of his January
1994 notes within seven (7) days of the execution and delivery of this Agreement
and copies of notes from August 1, 1995 to present within thirty (30) days
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of such time. Notwithstanding anything to the contrary in this Section 5,
Executive may retain personal notebooks and other documents and materials
maintained as part of his personal records relating to his tenure as an officer
or director of the Company, or that he has prepared or intends to use to assist
him in acting as a witness for the Company in pending litigation matters,
provided that (i) Executive shall not disclose to third parties any Confidential
Information that may be contained in any such documents and materials, and (such
records, notes, etc. are not deemed to include Executive's notes similar in
nature to those previously delivered to the Company in connection with the
Suzanne Long and class action litigations (referred to in Section 11 herein),
ii) Executive shall be entitled to retain copies of any portion of such
notebooks, documents and materials relevant to the defense of any pending
Company litigation matters referred to in Section 11 of this Agreement provided
that Executive delivers the originals of such items to the Company promptly
following the date hereof (or copies of such items, where Executive is not in
possession of the originals). Executive represents that he has returned all door
and file keys, card key passes, computer access cards, software, credit cards
and other physical property of any kind owned by the Company that Executive
received in connection with his employment, except as otherwise provided by 4(g)
hereof. Executive further agrees that he will not make, retain, remove or
distribute any copies of any of the foregoing. Notwithstanding the foregoing,
Executive acknowledges that his records, notes, etc. similar in nature to those
previously delivered to the Company in connection with the Suzanne Long
litigation and Federal Securities Class Action, as referred to herein, are
deemed to be of a business nature; Executive may keep the originals but agrees
that he will deliver good quality copies to Company, as provided above.
6. Confidentiality of Terms. Executive agrees that the terms of this
Agreement shall remain completely confidential, and he will not hereafter
disclose any information concerning this Agreement to anyone except: (a) his
spouse and family; (b) his personal attorneys, if any; (c) his personal
financial and/or tax advisors; (d) taxing authorities; (e) as may be appropriate
to prosecute or defend legal proceedings to enforce this Agreement; and (f) as
otherwise may be required by law or court order. Executive further understands
that such information may be disclosed to the aforementioned individuals only on
the condition that such individuals in turn agree to keep such information
completely confidential, and not disclose it to others, except as may otherwise
be required by law or court order. After his resignation and in response to any
inquiries by employees of the Company or third parties concerning any of the
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terms of this Agreement, Executive agrees (i) to state only that he resigned his
employment or to state information publicly disclosed by the Company, whether in
press releases, public filings or otherwise, or (ii) if information publicly
disclosed by the Company, whether in press releases, public filings or
otherwise, concerning this Agreement is inaccurate in any material respect,
Executive may respond to the inquiry with accurate corrective information so
long as Executive has previously notified the Company of the material inaccuracy
and requested the Company to issue a corrective disclosure and the Company has
failed to issue such a corrective disclosure within five days of Executive's
notification and request. Nothing herein shall prohibit Executive from
disclosing to third parties the provisions of Sections 5 and 6 of this
Agreement, and the existence of the Consulting Agreement being entered into
between the Company and Executive.
7. Nondisparagement. Neither Executive nor the Company will make to any
person outside the employment of that party any tortiously defamatory or
disparaging statement with regard to the other party or the other party's
business.
8. Waiver and Release of Claims. (a) In consideration of the foregoing,
except as set forth in Section 8(c) hereof, Executive completely releases,
relinquishes, waives and discharges the Company, its officers, directors,
employees, agents, successors and assigns from all claims, liabilities, demands
and causes of action, known or unknown, filed or contingent, which he may have
or claim to have against the Company as of the date of the signing of this
Agreement arising out of or in any way related to his employment with the
Company or the termination of that employment. Executive agrees that he has
executed this Agreement and this release on his own behalf, and also on behalf
of his heirs, agents, representatives, successors and assigns. This release
includes, but is not limited to, a release of any rights or claims he may have
under:
(i) the Age Discrimination in Employment
Act, which prohibits age discrimination
in employment;
(ii) Title VII of the Civil Rights Act of
1964, as amended by the Civil Rights
Act of 1991, which prohibits
discrimination in employment based
on race, color, national origin,
religion or sex;
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(iii) the Americans with Disabilities Act
which prohibits discrimination on the
basis of a covered disability;
(iv) the Employer Retirement and Income
Security Act, which prohibits
discrimination on the basis of
entitlement to certain benefits;
(v) any other federal, state or local laws
or regulations prohibiting employment
discrimination;
(vi) breach of any express or implied
contract claims;
(vii) wrongful termination or any other
tort claims, including claims for
attorney's fees, whether based on
common law, or otherwise.
(viii) all claims to acquire any other rights
or entitlements of stock, warrants,
options, or other securities of the
Company or any related entity, other
than pursuant to the exercise of stock
options and warrants currently held by
Executive or acquired or to be acquired
by Executive otherwise than from the
Company, subject to the limitations set
out in Paragraph 4(c) and (d) of this
Agreement.
Executive understands, however, that by signing this release, he does not waive
rights to: (i) claims arising under any applicable worker's compensation laws;
(ii) any claims which the law states may not be waived; and (iii) his vested
rights under the regular employment benefit plans of the Company, in effect as
of the date this Agreement; (iv) his vested rights under the Company's stock
option plans and agreements; and (v) his rights to obtain indemnification under
the Company's Articles of Incorporation, By-laws, and applicable Pennsylvania
law.
(b) In consideration of the foregoing, except as set forth in Section
8(c) hereof, the Company in turn completely releases, relinquishes, waives
and discharges Executive and Executive's agents, representatives and heirs from
all claims, liabilities, demands and causes of action, known or unknown, filed
or contingent, which it may have or claim to have against Executive as of the
date of the signing of this Agreement arising out of or in any way related to
Executive's employment with the Company or the termination of that employment.
The Company agrees that it has executed this Agreement and this release on its
own behalf, and on behalf of its subsidiaries, successors and assigns.
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(c) Executive and the Company specifically acknowledge and hereby agree
that the provisions of this general release extend to all of the aforementioned
actions, whether presently matured or not matured, known or unknown, suspected
or unsuspected by Executive and by the Company, and further agree that this
constitutes an essential, material term of this Agreement. Notwithstanding the
foregoing, Executive and the Company expressly agree that the releases set forth
in this Section 8 shall not apply to any and all suits, causes of action,
claims, demands, charges, complaints, obligations or any actions of any sort
whatsoever, whether in law or equity, directly or indirectly, relating to or in
any way arising out of any aspect of this Agreement and any other agreements and
instruments related to the transactions contemplated herein.
9. No Admission. This Agreement shall not in any way be construed as an
admission by either Executive or the Company that either has acted wrongfully
with respect to the other party or that any action taken by Executive or the
Company with respect to the other at any time prior to the execution of this
Agreement has been unwarranted, unjustified, discriminatory, or otherwise
unlawful. Rather, it is understood and agreed that this Agreement constitutes a
good faith settlement of any and all claims between the parties, and, except as
set forth in Section 8(c) hereof, Executive and the Company hereby specifically
disclaim any liability to or wrongful acts against the other party on the part
of itself, its directors, officers, employees, agents and/or other
representatives including legal counsel of any kind.
10. Indemnification. To the extent permitted by law, the Company agrees to
defend, indemnify and hold Executive harmless against any threatened or pending
actions or proceedings, whether brought by a third party or as a derivative
action, by reason of the fact that Executive was an officer or representative of
the Company acting within the scope of his employment.
11. Cooperation in Defending Legal Actions. Executive understands that he
will not in the future voluntarily assist any individual or entity in preparing,
commencing or prosecuting any action or proceeding against the Company, its
directors, officers, employees, or affiliates, including but not limited to, any
administrative agency claims, charges or complaints and/or lawsuits against the
Company, its directors, officers,
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employees or affiliates, or to voluntarily participate or cooperate in any such
action or proceeding, except as such waiver is specifically prohibited by
statute. Executive also agrees that he will cooperate with and assist (including
by testifying if requested by the Company) the Company in its defense of any
such action or proceeding, including, without limitation, the Suzanne Long
litigation, the David Cade litigation, the Robert Pressman litigation, the
Federal Securities Class Action as well as any other actions or proceedings
currently pending or threatened against the Company or hereafter initiated
against the Company. This Agreement shall not preclude Executive from testifying
in such an action or proceeding if he is compelled to do so pursuant to a
subpoena or other court order. However, Executive expressly agrees that he will
provide written notice addressed to the attention of Howard E. Goldberg,
Executive Vice President, General Counsel & Secretary, InterDigital
Communications Corporation, 781 Third Avenue, King of Prussia, Pennsylvania
19406-1409 (Fax No. 610-992-9432) if he should receive, by service or otherwise,
a notice, subpoena or other court order or any other written request seeking or
requiring him to testify or otherwise participate in or assist in any action or
proceeding against the Company, such notice to be so provided within twenty-four
(24) hours of Executive becoming personally aware of the delivery to Executive
or anyone acting on his behalf of such notice, subpoena, order or request.
Company shall pay or reimburse Executive for all travel and lodging expenses if
Consultant is requested, in writing, by the Company to travel to the Company's
offices or otherwise on the Company's behalf pursuant to this paragraph,
provided that the Consultant provides the Company with an itemized account of
and, where applicable, original receipts for such expenses. In the case of
airfare and hotel expenses, Company will either advance the cost thereof to
Consultant or pay the cost itself, at Company's option.
12. Entire Agreement. This Agreement and that certain Consulting Agreement
executed between the parties contemporaneously herewith constitute the entire
understanding between Executive and the Company and supersede all other
agreements, whether written or oral, with respect to the transactions
contemplated herein. This Agreement may not be amended or modified by either
party unless such amendment or modification is memorialized in a writing signed
by each of the parties hereto.
13. Waiver. Any waiver by either party of any breach of any term or
condition of this Agreement shall not operate as a waiver of any other breach of
such term or condition or of any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof or constitute or be deemed a waiver or release of any
other rights, in law or in equity.
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14. Governing Law. All issues concerning this Agreement will be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
without giving effect to any choice of law or conflict of law provision or rule
(whether of the Commonwealth of Pennsylvania or any other jurisdiction) that
would cause the application of the law of any jurisdiction other than the
Commonwealth of Pennsylvania. The parties hereto agree that any action to
enforce this Agreement may be properly brought in any court within the
Commonwealth of Pennsylvania or in the United States District Court for the
Eastern District of Pennsylvania, and the parties hereto agree that the courts
of the Commonwealth of Pennsylvania and the United States District Court for the
Eastern District of Pennsylvania shall have jurisdiction with respect to the
subject matter hereof and the person of the parties hereto.
15. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or the effectiveness or validity of any provision in any
other jurisdiction, and this Agreement will be reformed, construed and enforced
in such jurisdiction as if such invalid, illegal or unenforceable provision had
never been contained herein.
16. Further Assurances. From time to time after the execution of this
Agreement, each of the parties hereto hereby agrees to use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper and advisable under applicable laws, rules
and regulations to consummate and make effective the transactions contemplated
by this Agreement, including using its best efforts to obtain all necessary
waivers, consents and approvals. In case at any time after the execution of this
Agreement further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each of the parties shall
take all such necessary action.
17. Assignment. This Agreement may not be assigned by Consultant or the
Company without the express written consent of the other; except, that this
Agreement may be assigned by the Company to the purchaser of substantially all
of the Company's assets or by operation of law (including, without limitation,
pursuant to a merger or consolidation of the Company) without consent.
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18. Enforcement. All remedies at law and equity shall be available for the
enforcement of this Agreement incorporated by reference herein. This Agreement
may be pleaded as a full bar to the enforcement of any claim in any way related
to or arising out of Executive's employment with the Company and/or the
termination of his employment.
19. Opportunity to Review and Right to Revoke. Executive hereby
acknowledges that he is acting of his own free will, that he has been afforded a
reasonable time to read and review the terms of this Agreement, that he has had
an opportunity to seek the advice of counsel and that he is voluntarily entering
into this Agreement with full knowledge of its respective provisions and
effects.
20. Contractual Effect. The parties understand and acknowledge that the
terms of this Agreement are contractual and not a mere recital. Consequently,
they expressly consent that this Agreement shall be given full force and effect
according to each and all of its express terms and provisions, and that it shall
be binding upon the respective parties as well as their heirs, executors,
successors, administrators and assigns.
21. Tax Withholding. Executive and the Company acknowledge and agree that
the Company will withhold all applicable withholding taxes as required in
accordance with applicable law in respect of amounts being paid or otherwise
provided by the Company to Executive hereunder.
IN WITNESS WHEREOF, Executive and the Company each acknowledge that they
are acting of their own free will, that they have had a sufficient opportunity
to read and review the terms of this Agreement, they have each received the
advice of their respective counsel with respect hereto, and that they have
voluntarily caused the execution of this Agreement and by reference herein as of
the day and year set forth below.
/s/ William J. Burns Witness: /s/ David Burns
- -------------------------------- -----------------------------
William J. Burns David Burns
Date: May 17, 1996
-13-
<PAGE>
INTERDIGITAL COMMUNICATIONS CORPORATION:
By: /s/ Harry Campagna Attest: /s/ Jane Schultz
--------------------------- -------------------------
Harry Campagna
Title: Chairman of the Board
Date: May 17, 1996
-14-
EXHIBIT 11
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEAR
COMPUTATION OF PRIMARY ENDED
EARNINGS (LOSS) PER SHARE: DECEMBER 31, 1995
- -------------------------- -----------------
Net Income (Loss) Applicable to Common Shareholders $34,340
=======
Weighted Average of Primary Shares:
Common Stock 43,925
Assumed Conversion of Options and Warrants 2,578
-------
46,503
=======
Primary Earnings Per Share $ 0.74
=======
A calculation for the years ended December 31, 1994 and 1996 have not been
presented since the effect of the options and warrants would have been
anti-dilutive.
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To InterDigital Communications Corporation:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements File No. 33-32888, File No. 33-43253, File No. 33-44689,
File No. 33-47388, File No. 33-53388, File No. 33-53660, File No. 33-88248, File
No. 33-89920, File No. 33-89922, File No. 33-60711 and File No. 33-61021.
Philadelphia, PA Arthur Anderson LLP
March 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
INTERDIGITAL COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Financial Data Schedule
(Unaudited)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,954
<SECURITIES> 43,063
<RECEIVABLES> 14,479
<ALLOWANCES> 558
<INVENTORY> 13,863
<CURRENT-ASSETS> 86,714
<PP&E> 18,900
<DEPRECIATION> 8,383
<TOTAL-ASSETS> 112,636
<CURRENT-LIABILITIES> 29,638
<BONDS> 4,221
0
10
<COMMON> 481
<OTHER-SE> 72,016
<TOTAL-LIABILITY-AND-EQUITY> 112,636
<SALES> 24,974
<TOTAL-REVENUES> 53,693
<CGS> 27,370
<TOTAL-COSTS> 27,370
<OTHER-EXPENSES> 21,609
<LOSS-PROVISION> (339)
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> (7,200)
<INCOME-TAX> 3,554
<INCOME-CONTINUING> (11,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,644)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
